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April 2008 Presentations

HeartSounds

A Platform Medical Device Company

April 15, 2008

HeartSounds addresses a problem that is faced with nearly every of the 4 million U.S. births annually: inadequate standard of care in fetal monitoring. The company solves this problem through the FetalPATCH, a more accurate, objective measure of fetal heart rate (FHR). They are seeking $1.5 million to complete a market-ready device, complete the FDA process, and recruit a CEO. Their exit strategy is acquisition in year 4 when revenues are projected at $10-15 million.

Current fetal monitoring is subjective and often inaccurate. It can be especially difficult to monitor twins and obese patients. The problems inherent in today’s process result in high hospital staffing costs, high liability premiums, and a high rate of unnecessary C-sections.

The FetalPatch, a wireless data acquisition “patch,” uses a patented, proven signal processing algorithm that isolates fetal/maternal heart sounds. It integrates into existing systems and allows hospitals to reduce staffing requirements by 20% or $240/delivery ($1 billion/year); reduce Ob/Gyn medical liability premiums (estimated savings in Cincinnati alone are $10k/year); and reduce an estimated 300k unnecessary c-sections each year, saving hospitals $2-5,000 per prevention. It also allows hospitals/doctors to offer appealing, differentiated services to patients.

In addition to fetal monitoring, the technology has multi-application potential in the cardiac market, which is larger than $1 billion total, and with NASA, who has provided a $20k innovation grant for the company to explore other uses.

The fetal monitoring market in the U.S. is approximately $300 million for 4.2 million births a year. It segments into labor & delivery (hospital); prenatal care (hospital & private OB offices); consumer market; and point –of-care clinics. The risk factors in the market are increasing, with more high-risk patients, obese and older mothers, as well as an increase in twin/triplet pregnancies.

HeartSounds will enter the market by focusing on hospitals and private OB offices. They expect revenue of $5-7 million in each market by year 4 with gross margins in the 70-90% range.

Their next step is to complete the beta prototype, which will be outsourced to an engineering firm. They will partner with Motorola to develop the wireless portion and use a contract manufacturer to produce clinical-ready devices. This process is expected to take 6-9 months and cost $150-250k. They will also pursue FDA approval and 501(k) clearance. Clinical trials will be held with 25-50 patients and will take 9-12 months to complete, costing $750k-$1.25 million.

They will pursue prominent Ob/Gyns to influence early adopters and demonstrate superiority through clinical trials, academic studies, and side-by-side demonstrations. They will work with a local/regional medical device-specific distributor and also look into contracting with a national distributor such as Cardinal or McKesson.

Financially, the company expects revenue in 18 months with break-even in year three. They have so far received grants from NASA ($20k) and have $30k in founder investments. They are seeking $1.5 million in capital to complete their market-ready device, complete the FDA process, and recruit a CEO. They expect a buyout in year 4 at somewhere around 5x multiple, based on other recent sales.

Contact:
Michael D. McCoy
Co-founder/COO
847-815-1464
Mmccoy@HeartSoundsDevices.com
www.HeartSoundsDevices.com