MINNEAPOLIS – Providing a different perspective from the majority of the presenters, as well as what was perhaps the most consistently interesting panel of the IBF Med-Tech Investing Conference here last week, was a group comprised of five serial entrepreneurs with experience in the healthcare field.
The panel consisted of people who provide the leadership in the trenches of any company, and several of them have worn many hats including entrepreneurs, founders and operating officers to name but a few.
In today's challenging financial climate, panel moderator William Kaufman, a partner in the corporate finance and transactions group of law firm Oppenheimer Wolff & Donnelley (Minneapolis), asked the panel what it takes today to create a successful new company.
The "perfect company," according to Mike Berman, medical device venture catalyst at Berman Medical (Minnetonka, Minnesota) who currently serves on the board of 11 emerging medical companies, would have a potential multi-million-dollar market; with airtight patents; would not require a PMA; quick to market; not need to raise too much money; have little competition.
"If you can get all those things," he deadpanned, "you're going to have winner."
"Good people and good advice always go a long way," said Rich Lunsford, president/CEO of Acorn Vascular (St. Paul, Minnesota), a company that has developed the CorCap, a mesh wrap implanted around the heart to provide ventricular support. He also noted that success in one field of healthcare can transfer to a company in a different field. "People who do well in one specialty will do well in another specialty."
A lot of the focus in early stage companies, according to AMS (Minnetonka, Minnesota) COO Ross Longhini, is on the technologies and not on the market for the technology.
"I think we need be more cognizant of the markets we're entering into and how the customers are different than just physicians." By that he said he meant looking at the hospitals, insurers and regulatory bodies around the world that are actually going to pay for the new products and not just the doctors who are looking for some cool new toys for their practice.
"I believe that the entire market that you're trying to serve has to take a tremendous amount of precedence over neat technology."
Dan Sullivan, president/CEO of superDimension (Minneapolis), whose minimally-invasive inReach system is designed to enable doctors to diagnose lung cancer at earlier stages and potentially provide treatment sooner, said that an entrepreneur must have a very clear vision of what they are going to do with a company from day one in order for it to succeed "or you're already behind the 8 ball."
He said that 30 years ago when the med-tech industry was still in its infancy you could concoct something in your garage and then go out and sell it. "You can't do that anymore," he said.
Lunsford agreed with the general assessment that it's a 510(k) world now and that PMAs are unpredictable and potentially very costly. "You can do exactly what the FDA wants you to do and get to the panel and get a whole new scenario."
Lunsford is no stranger to the potential pitfalls of the PMA pathway. His company's CorCap cardiac support device was not recommended for approval by an FDA panel in June 2005 (Medical Device Daily, June 24, 2005). Another setback came in December 2006 when an FDA dispute resolution panel rejected the company's appeal for CorCap (MDD, Dec. 20, 2006), saying that more study was needed to prove the device is safe and effective when used on patients. The company reached an agreement with the FDA for a new clinical trial in May of last year (MDD, May 10, 2007).
Berman said not to expect any help from large-cap med-tech companies to lower some of the barriers for pursuing PMAs in the public policy realm. "It is absolutely in the keen self-interest of the large caps who already have PMAs approved to keep those PMA barriers up and growing," he said.
Regardless of what clinical regulatory pathway one pursues, Lunsford stressed the need for as much good clinical data as a company can muster coupled with a substantive reimbursement plan. "You can't wait down the road . . . that's something that has to be done at the very beginning and incorporate the clinical data that you have so that you can use that to help you with your reimbursement plan."
If a product is only useful to a very highly skilled subset of doctors, Longhini said that could be a problem for a company. By catering to only the most highly skilled surgeons, a company shrinks its potential market size, even if they are really cool devices and provide good results. "If you say only the best of the best physicians can use this product, I for one would walk away from those products."
Berman said that that mantra about volume depends on the average selling price of a product. He cited the emerging percutaneous heart valve market and the neuro aneurysm market as two businesses that may not see a lot of volume, but have expensive capital equipment that makes them a "nice little business."
One key ingredient to a successful company is hiring and keeping talented people. And at a smaller company the CEO is especially important because he or she sets the tone for the culture there. "From a board perspective, who your CEO is frankly is the most important decision you can make," said Berman. "There are lots of curveballs that come towards the company and what you originally plan generally changes."
Given the difficulty of utilizing the IPO as an exit strategy in the current economic climate, Kaufman queried the panel on their vision for an alternative model especially given their leadership role at a company.
"I think the No. 1 thing you need to do if you're running a company is assume that you're going to stand alone forever," said Sullivan. "That implies that you're going to have your act together in every department, even the boring ones that you're not interested in."
He noted that if a company wants Johnson & Johnson (New Brunswick, New Jersey), Medtronic (Minneapolis) or Boston Scientific (Natick, Massachusetts) to acquire them "things have to be perfect." If a company wants to pursue the IPO route, "you're going to have all that stuff up to speed anyway."
Lunsford said not to let the current economic situation discourage exploration in the medical field if you have a good idea. "[There are] plenty of people out there that want to improve medicine and this is group of people that want to get this done, let's rock 'n' roll."