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January 10, 1997

NeuroMotion Case Study


The Problem 2
The Products 3
The Company 4
Beginnings 4
NeuroMotion is formed 5
Company structure 6
NeuroMotion ownership 6
Funding structure 7


NeuroMotion personnel 9
The Issues 10
Clinical trials 10
Evaluating the products 10
Consultants 12
Intellectual property 12
Marketing and sales 13
Distribution 15
Finances 16
The Next Step 17
APPENDIX A: NeuroMotion Products 18
APPENDIX B: Competing Products 20
Glove competitors 20
WalkAid competitors 21
APPENDIX C: Summary Financials 23
Operating Forecast 23
Unit Sales Projections 24
Questions for Discussion 25




This case was prepared by Beth Graham under the direction of Dr. Jim
Graham, director of Venture Development at the University of Calgary, with
the support of a grant from the Alberta Heritage Foundation for Medical
Research to encourage discussion and learning about technology
commercialization. The case is based on interviews with some but not all of
the mentioned participants and while it is believed to be reasonably
accurate, may not represent all the facts or views of the participants.

The Problem


Tom Rice, acting CEO of NeuroMotion Inc., was anticipating a problem. He
had heard that NeuroMotion, a new medical device company, might receive
only half of the $6 million financing it had planned for. He called
Business Manager Tricia Cisakowski and Chief Financial Officer Christine
Stacey into his office to help develop a new strategy to deal with this
potential setback.

Assuming full financing of $6 million, their strategy for penetrating the
market was an aggressive plan involving the commercialization of all of
NeuroMotion's products in rapid succession. The products were the Glove,
the WalkAid, and the Tremor Control Cuff. Decreasing risk was a key
strategy in the formation of NeuroMotion. Increasing the number of
product offerings increased the probability that the company would generate
significant sales, which made it a more attractive investment opportunity.
In addition, if one product did not do as well as anticipated, perhaps
another product would be more successful.

Their aggressive $6 million plan involved completing the reengineering and
redesign of these products, getting regulatory approvals, promoting the
products with high-quality collaterals (manuals and videos), gaining
exposure to the market through multi-centre clinical trials and close
relationships with thought leaders, obtaining recognition through
publications, and selling the products using an internal sales force and a
concentric selling model. NeuroMotion planned to further add value through
the patenting process, market research and the development of a strong and
knowledgeable team to manage the commercialization process.

If only $3 million was received from investors, NeuroMotion had to choose
between following the aggressive commercialization plan developed for $6
million in financing or devising a slower, more cautious plan.

Rice, Cisakowski and Stacey decided that a slower plan should involve the
promotion of only two products -- the Glove and the WalkAid. This slower
plan meant that the products developed would be supported by less extensive
clinical trials and there would be an overall reduction in spending on
their development and lower quality collaterals. Consequently, sales would
ramp up slower, and the company would be less attractive to follow-on
investors. In addition, the longer it took to get a foothold in the
marketplace, the greater the risk from potential competitors. NeuroMotion
was depending on the WalkAid and the Glove to generate significant revenue
to fund the development of follow-up products, such as the Tremor Control
Cuff and other products being developed by the Neuroscience Department of
the University of Alberta. Another drawback to the slower approach was that
it would probably be more expensive in the long run than the aggressive
plan.

A key plus of the go-slow plan was that the $3 million would last eighteen
months, giving management a full year before they had to seek additional
financing. If they chose to follow the aggressive plan with $3 million
investment rather than $6 million, they would likely have to begin fund
raising after only six months. None of them liked the idea of having to
raise new funds at the same time as they were developing their products.
They also considered whether NeuroMotion would be at an opportune stage to
receive additional funding after only six months of operation, with no
finished products, no sales and only partial management team in place, and
so close to when the previous round of financing was raised.

Rice, Cisakowski and Stacey agreed to weigh the pros and cons of each
approach and then make a decision as to the strategy to pursue. A decision
had to be made quickly. Both courses of action involved risk...


The Products


The two main start-up products for NeuroMotion are the Glove and the
WalkAid. These products complement one another as they are both based on
FES (Functional Electrical Stimulation) and are aimed at a similar target
market. (Detailed descriptions of NeuroMotion products are presented in
Appendix A.)

The Glove and the WalkAid were developed to assist people who are motion-
impaired in their daily living. The customer's motivation for purchasing
the products would be to regain lost motor function.

The Glove is an electric device that improves the tenodesis grip (pinch
grip between the thumb and forefinger) as well as hand opening and closing.

The WalkAid treats foot-drop, a condition in which individuals are unable
to engage the muscles needed to lift their foot off the ground.

The Tremor Control Cuff reduces tremor over 80 per cent in patients with
essential, Parkinsonian and cerebellar tremor. In this product, electrical
stimulation is delivered out-of-phase with each tremor cycle, selectively
counteracting and suppressing the tremor.




The Company


Beginnings


NeuroMotion has its roots in two University of Alberta spin-off companies --
Neurokinetics Inc. and Bio Motion Ltd. Both companies had been researching
similar technologies and decided to pool their resources to enter the
market with their products.

Bio Motion was owned and operated by Dr. Richard Stein, a professor in the
Neuroscience department at the University of Alberta, and Kelvin James, a
member of Stein's research team. Stein and his research team had developed
a medical device called the WalkAid. The WalkAid addressed the problem of
foot drop where a person is unable to clear the ground with their foot when
walking -- a common condition occurring after a stroke or spinal cord
injury. The technology was based on FES (functional electrical
stimulation). FES uses electrical currents to produce controlled
activation of the neuromuscular system, resulting in movement, sensory
response or therapeutic effects.

Neurokinetics was started by Dr. Arthur Prochazka, also a neuroscience
professor at the University of Alberta and a recognized expert in the
field. Like Bio Motion, Neurokinetics' research was also based on FES
technology. The company had developed an innovative medical device called
the Glove. It improves the tenodesis grip (pinch grip between the thumb and
forefinger) as well as hand opening and closing in some people with
quadriplegia.

In January, 1995, Neurokinetics and Bio Motion met separately with
NeuroResearch Inc. (NRI) , the business entity associated with the
Neuroscience Network of Centres of Excellence (NNCE). (One of the
objectives of the NNCE is to promote spin-off companies.) Each company had
developed a business plan, and wanted to discuss funding for the
commercialization of research projects.

The NNCE suggested that Neurokinetics and Bio Motion merge to form a single
company. The reasoning was that if the two companies pooled their
resources, they would have a viable company to attract investment. NNCE
commissioned Ernst & Young to draw up a business plan to illustrate the
effects of combining Neurokinetics and Bio Motion. This plan recommended
that the two companies combine their efforts.

The Alberta Heritage Foundation for Medical Research (AHFMR) also suggested
that Prochazka and Stein join forces. AHFMR had already provided each
company with Phase I and Phase II technology commercialization funding
(approximately $100,000 each). If the two companies merged, AHFMR
suggested that the resulting company might be eligible for Phase III
funding to start up the new company and improve its ability to attract
investors.


NeuroMotion is formed


In December 1995, NeuroMotion Inc. was founded through a merger of
Neurokinetics and Bio Motion. Shortly thereafter, the company had secured
$500,000 in technology commercialization funding from AHFMR. NeuroMotion
aimed initially to commercialize inventions and developments created within
the Rehabilitation Neuroscience group at the University of Alberta.

The mission of the Alberta-based medical device company was to enhance the
mobility of persons suffering from neurological diseases or injuries
through the development of therapeutic devices, diagnostic devices, and
devices for the restoration of function. Its objective was to become an
efficient, profitable vehicle for rapid development of high-value added,
cost-effective products based on early research discoveries. Through
strategic and commercial partnerships, NeuroMotion's proprietary products
would be developed and distributed worldwide.

While NeuroMotion had recognized expertise in research, engineering and the
clinical aspects of its products, the company had very little experience in
management, marketing and sales. The first step to solving this problem
was recruiting Tom Rice, an experienced business professional, as CEO. Rice
had previously been hired by NRI to assess the original companies in the
spring of 1995.

Rice's job was to launch NeuroMotion's two lead products: the Glove
(developed by Neurokinetics) and the WalkAid (developed by Bio Motion).
Once they were established in the market, products selected to follow
included the Tremor Control Cuff. NeuroMotion was also looking for two
additional products from within the University of Alberta as well from
outside sources.

The use of electrical stimulation in general was gaining momentum and there
were several companies poised to supply medical products to the market.
(See Appendix B for a discussion of competing technologies.) Aside from
FES (functional electrical stimulation), other companies had developed
devices using Transcutaneous Electrical Nerve Stimulation (TENS), and
Neuromuscular Electrical Stimulation (NES).

The risks involved in entering the FES market were high. If the FES market
really heated up, new entrants became direct competitors. It was estimated
that these competitors would be two years behind NeuroMotion if they
decided to enter the market.

Company structure


NeuroMotion established its own management team. Prochazka, Stein and James
continued as researchers at the University of Alberta. Their involvement
with the company might include research on potential products which could
then be developed by NeuroMotion, or contract research for NeuroMotion.

The NeuroMotion management team is made up of Rice as Chief Executive
Officer, Cisakowski as General Operations Manager, and Christine Stacey as
Chief Financial Officer. The Board of Directors consisted of Rice,
Prochazka, Stein, and two nominees of the Neuroscience Partners Limited
Partnership.

NeuroMotion has two bases of operation: one in Edmonton and the other in
the Twin Cities of Minneapolis-St. Paul. Research and development, initial
clinical research and manufacturing is based in Edmonton. Sales and
marketing will eventually be conducted from the Twin Cities.

The company operates as a semi-virtual corporation, with the majority of
staff hired on an as-needed rather than permanent basis. The core team is
augmented by a cadre of outside resources including advisors in the areas
of regulatory affairs, engineering design, industrial design, market
research, project management, and clinical research. Personnel communicate
through e-mail, fax and phone.

This operational structure has a number of advantages and disadvantages.

Advantages
lower overhead costs because of smaller facilities
ability to operate at a more controlled "burn rate of money" until the
products are approved for market
ability to retain qualified people that may not otherwise be available on a
full- time basis, either because of cost, availability or geography.

Disadvantages
potential barriers to effective and timely communication (although e-mail,
fax and phone seems to alleviate much of this problem)
possible lack of commitment by those retained only as consultants.


NeuroMotion ownership


NeuroMotion was incorporated such that it was owned 50 per cent each by
Neurokinetics Inc. (Prochazka) and Bio Motion Ltd. (Stein and James).

Neuroscience Partners Limited Partnership -- a joint venture between
NeuroResearch Inc. and MDS Health Ventures, which is managed by MDS --
invested $250,000 into NeuroMotion in exchange for 17 per cent equity. Five
per cent equity was given to the Neuroscience Network of Centres of
Excellence as an incentive to supply commercializable technologies in the
future.

The structure of the company was unencumbered by complicated share
structures and multiple minority shareholders.


Funding structure


The way in which the two lead products would be launched depended on the
type and source of financing that NeuroMotion could obtain.

The company sought financing from AHFMR (Phase III funding), and the MDS
Neuroscience Partners Limited Partnership. The company also planned to
approach the National Research Council's Industrial Research Assistance
Program for investment.

Rice estimated that NeuroMotion needed $8 million to bring the company to
positive cash flow and profitability. The business plan requested equity
investment totaling $6 million which would allow the company to pursue an
aggressive product development plan.

However, there was the possibility that the company may receive only $3
million. In this case, if the company decided to follow the initial plan,
it would mean that six months down the road more funding would have to be
found.

The other option that NeuroMotion was considering was a less aggressive
plan involving fewer people and less product development. This plan would
allow the company to operate for 18 months, giving it one year before
having to raise more funds. In the long run, it would probably cost more
to follow this plan, but it was possible that such an approach would be
essential for survival.

The following chart illustrates the funding structure of NeuroMotion.




























NNCE (Neuroscience Network of Centres of Excellence) consists of 18
universities and institutes that are recognized for their expertise in the
field of neuroscience. The network is responsible for targeting potential
business ventures.

NRI (NeuroResearch Inc.) is the business entity of the NNCE. NRI was
established to handle the outflow of intellectual property from the NNCE.
It has a mandate to offer the Neuroscience Partners Limited Partnership
fund first right-of-refusal for all research emanating from the NNCE. NRI
negotiates with the Neuroscience Partners Limited Partnership on behalf of
the NNCE's spin-off companies. NeuroMotion went through the NRI in order to
be considered for funding.

NPLP (Neuroscience Partners Limited Partnership) is a $52.5 million venture
capital fund, managed by MDS, that supports the development and
commercialization of drug products and devices for a wide range of
neurological disorders. It was one of North America's first funds to focus
on the early stage development and commercialization of treatments for
disorders affecting the brain and central nervous system.

MDS Health Ventures is Canada's largest, most successful, technology-based
health and life sciences company. MDS manages the Neuroscience Partners
Limited Partnership, as a joint venture with NRI. If NeuroMotion received
funding from Canada's most successful medical venture fund, it would be
easier to attract syndicate venture funding which would ensure a long-term
source of funds.

AHFMR (Alberta Heritage Foundation for Medical Research) runs a program for
the commercialization of technology. The program assists Alberta
innovators with the transfer of new ideas and scientific findings into
successful commercial health related products and processes. It is
structured to promote research/industry/business collaboration. Three
different phases, or levels of funding, are involved in the Technology
Commercialization program. Prochazka and Stein had received Phase I & II
funding for their separate businesses. NeuroMotion received $500,000 in
Phase III funding.

NeuroMotion personnel


Tom Rice, Ph.D. A business professional with over 24 years experience as an
executive, consultant, investor and researcher in the medical products
industry. He also has considerable experience as a consultant for start-up
companies. Rice brought substantial venture capital contacts to
NeuroMotion through his involvement in Vencap, a venture capital fund. He
was employed as a part-time CEO for approximately three, then became full
time. He was a de facto MDS appointee, who had verbally agreed to a three
month contract with NeuroMotion. He operates out of Edmonton and
Minneapolis-St. Paul.

Tricia Cisakowski had worked with Neurokinetics for a year and a half
before NeuroMotion was formed. She is a professional with extensive
experience in research and business management. Cisakowski was the General
Operations Manager for NeuroMotion, retained on a monthly basis.

Christine Stacey is a chartered accountant with substantial experience in
financial and business management, and venture funding for start-up
companies. Stacey is NeuroMotion's Chief Financial Officer.

Arthur Prochazka, Ph.D., was the founder of Neurokinetics Inc. He does
research and develops products for NeuroMotion, and continues his position
at the University of Alberta. He was one of the founding members of the
Board of Directors.

Richard Stein, Ph.D., and Kelvin James, research assistant, were founders
of Bio Motion Ltd. They do research and develop new products for
NeuroMotion, and continue to maintain their positions at the University of
Alberta. Stein was one of the founding members of the Board of Directors.




The Issues


Clinical trials


Both the WalkAid and the Glove had been in clinical trials in major
rehabilitation centres worldwide, and the researchers had received valuable
feedback from the users. However, further trials were necessary in order
to:

help the devices meet regulatory requirements
gain feedback for product development from those involved in the trials
help establish distribution channels through the therapists involved
reveal how the market would accept the products and alert the researchers
as to what changes still needed to be made
enable NeuroMotion to gather data on test outcomes and cost effectiveness
to support claims and third party payers
create a demand from customers
give the devices exposure to the potential market and create a demand for
the product.

The initial plan was to conduct additional clinical trials of the final
design of each of the devices. This would involve a short-term two-centre
trial followed by multi-centre trial.

With a reduction in available financing, NeuroMotion was considering
limiting the number and scope of these clinical trials. The alternative
plan brought only the Glove and the WalkAid into clinical trials. It also
meant that the two products would only be involved in one multi-centre
trial each. This process would be much slower and the follow-up products
(such as the Tremor Control Cuff) would wait to undergo clinical trials
until further financing was available.

Evaluating the products


A marketing consultant was hired to address the customer need for the two
main products. Relative value was assessed by discerning how much time and
effort was required on the part of the user to attain the benefits of the
product. The consultant concluded that the WalkAid provided more relative
value to the customer than the Glove for the following reasons:

The Glove was used for one or two tasks, whereas the WalkAid was being used
all day.
The WalkAid was more compact and more cosmetically appealing because it
could be hidden from view.
The WalkAid was easier to put on and take off.
There was still some difficulty in programming the Glove for new users.
Adjusting the Glove was time consuming for a motion-impaired individual.


The chart below illustrates the relative value of the Glove and the
WalkAid. The Y axis measures the time and energy needed from customers
before they obtain a benefit. The X axis measures the benefit received from
the device in everyday living. Anything above the intersecting line
indicates that costs outweigh benefits. Anything below the intersecting
line indicates that benefits outweigh costs. Each member of the
NeuroMotion management team drew this chart, and the results were virtually
identical. This is an approximation of what was drawn.



Glove

COST




WalkAid


BENEFIT

The WalkAid was considered to provide a great amount of benefit with
minimal time and effort (cost) invested. At this stage in its development,
the Glove offered less benefit for the amount of time and effort a patient
had to put into it.

To improve the relative value of the Glove, the research team worked on
making it much easier to use in order to motivate customers to use the
Glove for a variety of tasks rather than just one or two.


Consultants


As a start-up operation, NeuroMotion knew there was a great need to
carefully plan operational, manufacturing, reimbursement, clinical and
marketing activities. NeuroMotion required expert advice in a number of
areas.

Regulatory & GMP - A regulatory consultant was hired to provide expert
advice in order to obtain regulatory approval for the United States and
Europe. The devices would also be required to meet Canadian standards.
Regulations needed to be met before the products could be placed on the
market. The process of regulatory approval is long and involved. Hiring a
consultant can reduce the overall cost by ensuring that regulations are met
as quickly as possible so that products will be ready for market. The
costs involved for receiving regulatory approval include testing, labeling,
safety inspections, and ongoing filing and reporting.

Reimbursement - Reimbursement is a crucial issue for NeuroMotion. Medical
institutions exercise a great deal of influence on users of medical
devices. If the physicians and therapists accept the device as an
innovative tool for increasing an individual's independence, then the
buying decision is half complete. The patient must then to be able to get
the product paid for. A consultant was hired to determine how best to
convince reimbursement agencies of the device's necessity to patients.
Reimbursement agencies in North America include: insurance agencies,
Medicare, Managed Care/ Health Maintenance Organizations (HMOs), the
Veterans' Association, Workers Compensation Boards, other associations for
the motion impaired (e.g. Aids to Daily Living) and community associations
(e.g. the Shriners). Many programs restrict the allocation of funds to
certain equipment or services. The consultant, therefore, had to establish
a method of gaining recognition with these agencies to achieve inclusion in
allowable purchases.

Clinical Trials - A clinical consultant works closely with the clinical
research organization contracted to design ongoing clinical trials.
Clinical trials must be designed so that the results can be used to prove
cost effectiveness and gain regulatory approval.

Industrial Design - A human factors/industrial design consultant assists in
further developing NeuroMotion's products, especially in the area of user
interface.



Intellectual property


In the early stages of product development, the researchers had the choice
to obtain full ownership of their technology or grant it to the University
of Alberta. Prior to setting up NeuroMotion, Stein and James retained full
ownership of the WalkAid for their company, Bio Motion. On the other hand,
Prochazka had assigned rights for the Glove to the University of Alberta.
The University in turn licensed the glove back to his company,
Neurokinetics. It was imperative that NeuroMotion own the products that it
would market. Therefore one of the start-up goals of the company was to
obtain the rights to the WalkAid and the Glove.

Obtaining the intellectual property rights to the WalkAid was
straightforward.

An agreement was reached with the University on the Glove such that if
NeuroMotion raised $500,000 in operating capital and met specified
milestones within two years, then the Glove would be assigned to them. If
they failed to meet these conditions within that time then the assignment
of the Glove patent could be "clawed back" by the University of Alberta.
NeuroMotion has managed to raise the funds and meet the projected
milestones. Consequently, The University of Alberta has granted an
assignment of the patent for the Glove to the company.

It was determined that both the WalkAid and Glove would be best protected
by worldwide patents. The first step towards protecting the Glove was
filing a PCT Application in October of 1994. Patent applications for the
WalkAid were filed in the United States and Canada in September, 1995.
Plans were made to file a PCT patent application for the WalkAid in
September, 1996, which would give worldwide protection to the WalkAid.


Marketing and sales


The entire field of electrotherapy has been growing since 1992 and is
poised to enter a period of increasing growth. Forecasts call for it to
reach $193.8 million US (excluding FES) by 2002 and then grow at an annual
rate of 7.3 per cent, driven by favourable demographic trends and increases
in incidences of trauma. Growth will also be influenced by improvements in
technology, emergence of clinical studies showing improved effectiveness,
and increased awareness about the field and its ability to reduce overall
health care costs. An important development in the neuromuscular
stimulation market is the development of products for home use.

In defining the specific markets that NeuroMotion's products addressed, the
company looked at the number of people suffering from particular injuries
or diseases that led to motion impairments and the level of dysfunction
that resulted.

Spinal cord injury. There are about 200,000 individuals in the United
States with spinal cord injury. The annual incidence of spinal cord injury
is 10,000 new cases per year. In order to be able to use the Glove, people
with quadriplegia must have some residual voluntary wrist extension with
weak or absent thumb and finger movement. Typically, people with an injury
at cervical joints 6 or 7 fall into this category. When factors such as
physical suitability and acceptance are taken into account, the estimate of
potential users in the United States is approximately 17,000 persons. Of
the 10,000 new cases per year, there are approximately 900 potential new
users.


WalkAid was originally developed for stroke patients. Because NeuroMotion
had conducted limited studies on its applications to spinal cord injured
patients, it was difficult to estimate the number of people who would
benefit from the WalkAid. The market was conservatively estimated at 11,000
users.

Stroke. In the United States there are approximately 2.1 million stroke
survivors, many with residual hemiplegia (paralysis of one side of the
body). There are approximately 350,000 new stroke survivors added yearly.
The motor deficits range from mild weakness in the affected arm to complete
paralysis and spastic rigidity. In order to be a candidate for the Glove,
stroke patients must have good shoulder and elbow control. Clinical
opinion differs on the exact percentage who can use the glove, but it is
probably in the range of 5 to 10 per cent of stroke survivors, which
conservatively translates to approximately 22,000 individuals. The stroke
market for the WalkAid was estimated at 36,000 persons.

Tremor. NeuroMotion plans to implement the Tremor Control Cuff in order to
reach the tremor prone market. The system is still in development.
Prochazka and his team of researchers believe that individuals with
essential and cerebral tremor will benefit from this invention. Tremor is
the single largest neurological problem in the United States. There are
approximately 3 to 4 million patients with essential tremor. The potential
market for NeuroMotion's Tremor Control product is estimated at $10 million
worldwide at maturity.

NeuroMotion believes it can capture 5-20 per cent of the available US
market for its products at maturity. The company projected that worldwide
sales would eventually grow to twice that of the US market.

The following table summarizes NeuroMotion's analysis of the US and world-
wide market potential for its first three products. This table also shows
NeuroMotion's estimates of its worldwide sales of these products at
maturity on a yearly basis.

(U.S. dollars)
|Product |Total US |Price / |Total US |Total |NeuroMotion |
| |Units-pos|Unit |Market $'s |World-wide |Sales at |
| |sible | | |Market $'s |Maturity $'s|
| | | | | | |
|WalkAid |72,000 | $750 | $54 |$108 |$13 million|
| | | |million |million | |
|Glove |29,170 |$2,500 | $72 |$144 |$20 million|
| | | |million |million | |
|Tremor | | | | | |
|Control |40,000 |$2,500 |$100 |$200 |$10 million|
|Cuff | | |million |million | |
|Totals | | |$226 |$452 |$43 million|
| | | |million |million | |



Distribution


Because NeuroMotion's products are leading edge, the company is best served
by creating its own distribution channel. Therefore, NeuroMotion is
approaching the market directly, placing its products in the hands of
leaders in key rehabilitation centres throughout the world. As the
products are innovative, the strategy is one of concentric selling,
initially focusing on early adapters and thought leaders. A number of key
centres have already been introduced to the WalkAid and the Glove through
clinical trials. Both Stein and Prochazka have extensive connections to
major rehabilitation centres.

For broad distribution, NeuroMotion will evaluate various channels such as
manufacturers, representatives, distributors, or partnering with other
companies that have their own distribution channels in place. NeuroMotion
anticipates that the route to market would vary from country to country,
depending on local circumstances.

Through these efforts -- in conjunction with a series of publications,
presentations, trade show displays and a modest amount of advertising --
NeuroMotion will create an awareness of its products and a market pull.
The extent to which NeuroMotion pursues this marketing plan depends upon
funding.

Finances


A decrease in market risk was a key factor in the formation of NeuroMotion.
By increasing the number of technologies offered to the public, the
company gained security. If one product did not do as well as anticipated,
perhaps another product would be more successful.

NeuroMotion's aim was to add value to the Glove and the WalkAid through the
patenting process, clinical trials, regulatory approvals, market research
and the development of a strong and knowledgeable team to manage product
development and commercialization.

If the company received less than the $6 million it sought, a new strategy
would be employed. Any saving however, increased the risk of failure for
the company.

For example, if NeuroMotion cut the number of clinical trials, the amount
of information available for product refinement would be reduced, the
product would be introduced to fewer clinicians, and information needed in
developing sales packages would be diminished.

Another alternative would be to introduce all the products sequentially,
using the revenues from the first product to finance subsequent products.
Again, if the first product was not successful, the company would be in
danger of failing before the next products were introduced.

As well, expenses such as patent development, sales, marketing or outside
consultant costs could be reduced, but each reduction would leave the
company exposed to new risks.

The operating forecast and unit sales projections are presented in Appendix
C.


The Next Step


Rice, Cisakowski, and Stacey met again to discuss the future of
NeuroMotion. At the end of the meeting they concluded that if they
received only $3 million dollars in funding, the company would take the
slower approach. They began to develop a business plan that would
accommodate this reduction in funds yet continue to follow NeuroMotion's
initial objectives. What would the slow approach cost them? What were its
rewards?


APPENDIX A: NeuroMotion Products


The two main start-up products for NeuroMotion are the Glove and the
WalkAid. These products complement one another as they are both based on
FES (Functional Electrical Stimulation) and are aimed at a similar target
market.

The Glove and the WalkAid were developed to assist people who are motion-
impaired in their daily living. The customer's motivation for purchasing
the products would be to regain lost motor function.

The Glove was developed by Dr. Arthur Prochazka, a neuroscientist at the
University of Alberta and the founder of Neurokinetics Inc. It is an
electric device that improves the tenodesis grip (pinch grip between the
thumb and forefinger) as well as hand opening and closing. Because the
stimuli that provide this improved hand capability are triggered by wrist
movement, potential users must have some residual motion in their wrist to
activate the device.

The glove is fingerless and made from a stretchy neoprene material, similar
to a skin diver's wetsuit. During clinical trials, patients were able to
regain skills such as lifting heavy objects, using a hammer, opening doors
with round smooth knobs, and eating finger foods. Users also showed
increased efficiency in performing tasks that they could already do with
the aid of other devices (splints and orthoses). These tasks included
writing, using cutlery, toothbrushes, keys, and drinking from a cup or
glass.

The clinical trials to date on the Glove were sponsored by the University
of Alberta.

The WalkAid was developed by Dr. Richard Stein, a neuroscientist at the
University of Alberta, and Kelvin James, a member of Stein's research team.
Both were the founders of Bio Motion Ltd. The WalkAid treats foot-drop, a
condition in which individuals are unable to engage the muscles needed to
lift their foot off the ground. As a result, the foot is dragged when
walking. The WalkAid is a fully self-contained unit equipped with a number
of novel features:
a tilt sensor which allows adjustment of the threshold angles for turning
the stimulation on and off
electronics and stimulating electrodes
a stretchable, breathable garment.

The WalkAid has also been in clinical trials, sponsored by the University
of Alberta.

Both the WalkAid and the Glove are controlled by computer programs that
provide an easy-to-use interface between the clinician and the device. The
clinician can communicate directly with the device to set the logic and
stimulus parameters.

Another potential product is the Tremor Control Cuff which reduces tremor
over 80 per cent in patients with essential, Parkinsonian and cerebellar
tremor. In this product, electrical stimulation is delivered out-of-phase
with each tremor cycle, selectively counteracting and suppressing the
tremor.


APPENDIX B: Competing Products


Glove competitors


At the time of NeuroMotion's formation, the only closely competitive
technologies came from companies such as NESS and NeuroControl. Neither of
these companies were particularly strong financially and each of them had
products that were more complicated and more expensive than NeuroMotion's.


The Handmaster, developed by NESS, was based on research conducted by Dr.
Roger Nathan at Ben Gurion University in Israel. The device rigidly
splinted the wrist and activated muscles according to a pre-stored pattern
when a button was pushed on the control box. The control box was separate
from the device. While the device was commercially available in Canada,
none had been sold and in the United States as FDA approval had not been
received. Some Handmasters had been sold in Europe. The cost of the entire
system was $3000 US.

The main drawbacks of the Handmaster were: the electrode placement not
being customized, the separate control box and wires, and the fact that it
was not suitable for patients with active wrist movement.

Prehension orthoses (wrist driven and ratchet orthosis) were devices that
had successfully been used by some quadriplegic people. However, many were
discarded because of problems in getting them on and off, pain caused by
ill-fitting devices and poor cosmetic acceptability. It was also difficult
to find an orthotist who would custom fit these devices. The cost of these
orthoses was approximately $1500 US.

The Free Hand System was developed by NeuroControl. It used implanted FES
technology and was not yet commercially available. It was a relatively
complex, invasive device requiring surgical implantation of electrodes and
a stimulating unit similar to a cardiac pacemaker. Following implantation,
there was a fairly extensive and complicated procedure to program an
effective hand grasp. Training was required to become proficient with the
system. The cost was approximately $30,000 US.

Potential users had to wait at least two years after their injury before
being considered for the implant. NeuroMotion developed a strong rapport
with Neurocontrol and it was suggested that the Glove be used in the
interim, while the patient awaited surgery.

Tendon transfers had been performed by orthopedic or plastic surgeons in
some centres to improve upper extremity function following spinal cord
injury. Potential candidates had to wait at least one year after their
injury to be considered, and had to meet certain physical and psychological
criteria. This approach required a significant time and financial
commitment and the functional outcomes were unpredictable. As with the
Free Hand system, the Glove might have a role to play in the period
preceding tendon transfers.

The advantages of the Glove over the existing solutions were:

Easy to put on and take off
One self-contained unit, no wires or outside control boxes
Implantation and surgery not required
Easy to use
Comfortable, lightweight and breathable -- made of stretchy neoprene and
lycra mesh
Cosmetically acceptable
Reasonable cost: $3500 CDN
Users control the stimulation and the duration through wrist action, and
are not limited to preprogrammed stimulation
Users have the ability to perform tasks they could not otherwise perform:
manipulating heavy objects, picking up objects, and using tools
Washable


WalkAid competitors


A number of foot-drop stimulators have been designed and built over the
years (Mikrofes, VeriDFS and I-GO). In addition, large manufacturers such
as Medtronics and Empi had developed protocols for adapting their
neuromuscular stimulators to be used for foot-drop.

These devices had not received widespread acceptance for a number of
reasons. The systems had several pieces, all of which had to be connected
together accurately which could be difficult and time consuming,
particularly for a person who had cognitive impairments or loss of manual
dexterity. Wires connecting the various components could become
disconnected or break during use. These systems were often activated by a
foot switch which did not always work reliably on different surfaces. The
placement of the foot switch was also a problem. In some positions enough
pressure was not generated to activate the switch.

Ankle foot orthoses (AFOs) also addressed the problem of foot drop, but
they had a number of limitations compared to the WalkAid. The limitations
included:

With an AFO, the muscles were unused and would atrophy further. The
WalkAid provided effective joint positioning by eliciting activity from the
weakened or inactive muscle groups and facilitated neuromuscular re-
education through active muscle contraction and by providing sensory input
to the central nervous system.

A conventional orthosis provided the desired positioning during one phase
of the gait cycle, but interfered with motions essential to the normal
completion of other phases of gait.

When an AFO was used to correct foot-drop, it caused an increase in the
flexion movement at the knee, as the foot moved from heel strike to flat
foot. In a patient with insufficient quadricep strength to stabilize the
knee, this could result in knee buckling. The WalkAid allowed the ankle to
move freely into plantar flexion from heel strike to flat foot with no
increase in the flexion moment created at the knee.

An AFO was a plastic shell that could be uncomfortable, constraining,
unattractive and did not breathe in hot weather. It was unable to
accommodate changes in girth resulting from swelling. In contrast, the
WalkAid was fully self contained, in a breathable garment, which allowed
barefoot walking and would be essentially invisible when worn under pants
or a skirt.

The advantages of the WalkAid over existing systems were:

A fully self contained unit without the hassles of wires and outside
control boxes.
Control circuitry built into the unit.
Filtering and timing circuits built into the electronics so that a maximum
reliability in triggering could be obtained.
Easy to put on and take off.
Self positioning. Could be placed on the leg quickly and reproducibly.
Comfortable: made of stretchy, breathable neoprene.
The electrodes were attached to the device and were reproducibly positioned
each time the WalkAid was put on.
Washable.

APPENDIX C: Summary Financials



Operating Forecast

(Thousands of Canadian dollars)

|Year | | | | | |
| |1996 |1997 |1998 |1999 |2000 |
|Net Sales |7 |502 |3,333 |12,330 |36,673 |
|Cost of |1 |93 |655 |2,045 |5,898 |
|goods sold | | | | | |
| | | | | | |
|Gross Margin|6 |409 |2,678 |10,285 |30,775 |
| | | | | | |
|Expenses | | | | | |
|General and |765 |999 |1,158 |1,354 |3,786 |
|admin | | | | | |
|Product |957 |1,602 |1,451 |1,213 |1,213 |
|development | | | | | |
|Sales and |273 |1,174 |2,091 |2,466 |7,334 |
|marketing | | | | | |
| |1,995 |3,775 |4,700 |5,033 |12,333 |
| | | | | | |
|Net income | | | | | |
|(loss) |(1,989) |(3,366) |(2,022) |5,252 |18,442 |
|before | | | | | |
|income taxes| | | | | |
Unit Sales Projections


|Year | | | | 1999| |
| |1996 |1997 |1998 | |2000 |
|WalkAid | 8 |188 |1,185 |3,541 |8,341 |
|Glove | |38 |224 | | |
| | | | |672 |1,193 |
|Tremor | | | | | |
| |- |8 |285 |1,364 |3,890 |
|New Product 1 | | | | | |
| |- |52 |295 |360 |360 |
|New Product 2 | | | | | |
| |- |- |- |945 |4,385 |
|New Product 3 | | | | | |
| |- |- |- |- |985 |
|Accessories | | | | | |
| |- |938 |11,985 |16,748 |56,751 |


Questions for Discussion



1. What are the advantages and disadvantages of combining the two
companies into NeuroMotion?

2. What are the advantages and disadvantages of operating a virtual
corporation?

3. What is the role of the research team with the new firm? Who
influences the purchase of the NeuroMotion products?

4. What are the advantages and disadvantages of each of the following as a
method of reducing expenditures:

a) fewer clinical trials
b) lower marketing expenditures
c) more selective patent protection
d) sequential introduction of products
e) shortened product development


5. What would you recommend Tom Rice do if he receives $ 3,000,000
funding?

6. How do the tasks in managing a research group differ from the task of
running a commercial company?




-----------------------
NNCE

MDS

NRI

University
of
Alberta

AHFMR
Phase I & II

NPLP


Bio Motion


Neurokinetics

AHFMR
Phase III


NeuroMotion