ATLANTA — A PowerPoint presentation showing off an image of President Barack Obama in a pose similar to J Howard Miller's "We Can Do It" poster, often known as Rosie the Riveter, set the tone of this year's annual meeting of the South Eastern Medical Device Association (SEMDA; Norcross, Georgia) at the Georgia Aquarium.
Faced with a badly slumping economy, start-ups have no choice but to wade through the turbulent waters to secure funding, according to speakers during a panel on "Early Stage Financing. "
The speakers were Kathy Lee-Sepsick, CEO of Femasys (Atlanta); Joe DeLapp, CEO of Visioneering (Willoughby Hills, Ohio); and Peyton Anderson, CEO of Affinergy (Durham, North Carolina).
The association has an early financings panel nearly every year, but this year's tone was a little different and a bit bleaker than before.
"It's not easy to get money at all right now," DeLapp told the audience. "These are some very difficult times. Out of 1,000 business plans, about three are going to get funding."
DeLapp's company went through the venture capital route to secure money. Visioneering develops products to treat presbyopia.
"We targeted certain venture capitalists with experience in the ophthalmic industry," he said. "The space was hot, so we just took a shotgun approach. If we had any lead we followed it."
DeLapp said that in all, the company must have talked to more than 60 venture capitalists, which is a more than fair number when trying to secure funding.
"If you go to any VCs, get as much feedback as possible," he said.
The company tried other endeavors to raise money but just wasn't successful.
"We tried angel funding but could never stay ahead of past bills," he said. "We just weren't fortunate enough."
Lee-Sepsick was, however, and managed to bring in nearly $1 million in funding from friends and family. She also raised a little more than $7 million in preferred stock.
Her company develops a non-surgical female contraceptive system called FemBloc and caters to about 10 million women in the U.S. alone. There are 11 patents pending and Lee-Sepsick said the company, which was founded in 2004, was looking at a clear regulatory pathway.
She stressed that if companies wanted to follow the same route in garnering funding, then there could be no secrets and that they would have to be upfront and realistic with investors.
"I told my family and friends that this was a Class 3 PMA device and it's not something to turn over quickly. I sent out newsletters to keep them abreast of the financing and kept them updated as much as possible," she said. "That reduced the phone calls and the concern."
For the second round of financing, Lee-Sepsick said that the company looked for experienced investors and warned that not all money is the same money.
"Our most preferred investor is one who has been in our shoes before," she told the audience. "We looking for experienced people that had exited their company."
An audience member asked how the company developed a price model for each investor.
"We negeotiated a price and we did discounting models just to get to a reasonable number that worked for us and the investor," she said. "I feel it was a really good development for us."
Of the companies presented on the panel, Affinergy took perhaps the most risky route.
The company said that it relied on Small Business Innovation Research (SBIR) grants as well as partnering with companies.
"We just weren't going to get picked up by venture capitalists," Anderson said. "Our business was too early and we were on a 7- to 10-year model ... not an attractive thing for VCs."
Affinergy develops a biological glue, which is a peptide linker system with unique abilities to kick-start and control biology on medical device surfaces.
"We'd go to companies and ask them their needs and learn about their technology," Anderson said. "We never asked them for money. We told them that we have raw technology and asked what applications we could help them with. They would tell us and we would take copious notes. We then would apply for an SIBR grant regarding the application. We would then come back to the company and see if they wanted to partner with us. It's a process we've used often."
He said Affinergy applies for six to eight SBIR grants a year and has a person whose sole purpose is to apply for grants for the company.
"It's a lot of work and a lot of time goes into applying for these grants," Anderson said. "Companies can't expect to just apply for one a few weeks before the deadline. This is a year-long process."
Turnout was strong for this year's conference, which boasted a 40% increase in attendance, according to organizers. Some suggested the high turnout out was a result of companies eager to gain insight on how to deal with the slumping economy and the challenges it presents.
Whatever the case, during her keynote speech, Linda Alexander, founder/CEO of contract research organization Alquest (Minneapolis), summed up in just three words what she thought the industry's state of mind should be: "Yes We Can."
Cost of growth vs. growth of costs
Several med-tech CEOs were the center of attention during the SEMDA meeting. However the spotlight didn't include heavy grillings from senators regarding bonuses, pay or flying in private jets.
Instead the tone was a lot more down to earth and dealt with topics that many start-ups in the med-tech industry struggle with constantly. Rick Haury, VP of economic development at the Metro Atlanta Chamber of Commerce, served as the moderator.
Roundtable members included Rick Randall, CEO of Trans 1 (Wilmington, North Carolina); David Field CEO, Trimax Medical Management (Macon, Georgia); Omar Latouff, MD, founder of TransCardiac Therapeutics (Atlanta); Steve Johnson, CEO, CreatiVasc Medical (Greenville, South Carolina); and Chris Rowland, president of the Americas Region for Given Imaging (Yokneam, Israel).
The CEO roundtable is a new feature for the three-year-old conference and had one of the largest turnouts in the day-long event.
"The financial demands in this environment are great, but we've seen a 20% increase in registration for this conference," Haury told the audience before firing off a barrage of questions to the group.
One of the first topics that came up was how to build a positive relationship with the FDA.
"If you're a start-up company you're going to live by the FDA and die by the FDA," Latouff told the audience. "Get to know the FDA. Before you send your proposal meet with them in Washington and talk to them."
He added that such a visit would unveil the mystery of the organization and help companies get their product to markets much faster.
Latouff founded TransCardiac Therapeutics in 2003 and develops intellectual properties that he had patented in 2001.
Johnson, whose company creates solutions for the growing hemodialysys market, said that a key in maintaining strong relationships with the FDA is to be extremely proactive.
"Communication, trust and no surprises I have to say that those are key in fostering that strong relationship with the FDA," Johnson said. "Take advantage of the informal pre-IDE process and send the FDA sections at a time from your proposals. Let them comment on the proposal before you formally submit it."
Another topic that came up was how to grow as a med-tech firm in this troubled economy.
Johnson said the difficulty for his company was that it hit its stride in the regulatory path soon after the company was founded.
"Our fear was that when we got FDA Phase I approval that our investors weren't going to come back in so quickly with their funding," Johnson said. "But they wound end up coming back in with 100% participation."
Trans-1's CEO spoke of how the sagging economy changed the shape of the med-tech landscape.
Randall has been at the helm of Trans-1 since 2002 and helped usher it through what has been called med-tech's last big IPO. The company raised nearly $90 million in an IPO in 2007, making the CEO the first SEMDA alumnus to go public.
"The current environment has changed things," he said. "I wouldn't want the company to run out of money in this environment nor would I want to go back to the public to raise that money."
As a result, Randall said that today's CEO has to think conservatively about spending money and manage growth appropriately.
One of the toughest areas stems from keeping existing talent in the Southeast, especially when it comes to those with a specialty of navigating through the FDA's regulatory path.
"You really have to preserve your capital to retain your good people," Field said. "It costs a lot to replace someone who has been in the company with you for years."
The CEOs admitted that this is a much different environment than last year and that executives are in a more difficult position than ever before. In some cases they said the key question that it comes into play is the cost of growth or the growth of cost.