Medical Device Daily

SAN FRANCISCO – The annual OneMedPlace Finance Forum kicked off Tuesday morning at the Sir Francis Drake Hotel, with many attendees switching name badges as they walked back and forth between it and the JP Morgan Healthcare Conference at the Westin St. Francis in the next block of Powell Street.

An afternoon panel on cardiology started off with a discussion about stents, what moderator Casey McGlynn, chairman of the Life Sciences Group at Wilson Sonsini Goodrich & Rosati (Palo Alto, California), called "the biggest elephant in the room when we talk about cardiology." Though most panelists agreed there are still opportunities in drug-eluting stents, they suggested solid players in the future will be in emerging and unmet markets rather than workhorses.

"If I were to get involved in one of these workhorse stents, it certainly wouldn't be a drug-eluting stent right now," said Peter Fitzgerald, MD, PhD, a partner at Latterell Venture Partners (San Francisco), citing the long length of time to market, the difficult regulatory process and the atrocious public perception. "I just am too old to try to work on another drug-eluting stent," he said, unless it addresses an unmet area like the neuro space, small vessels, bifurcations or periphery.

Fitzgerald, a well-known interventional cardiologist and an associate professor of medicine at Stanford University (Stanford, California), said that despite the wishes of the investment community and cardiologists, he does not see fully biodegradable stents as the next platform for drug-eluting stents.

Teo Forcht Dagi, MD, a partner at HML Venture Partners, added a few items to the list of potential areas of interest: biliary stents and renal artery stents. "We're looking for adoption, ease of use, outcomes and differentiation," he said.

Fitzgerald spoke positively about balloon-eluting technology, calling drug-eluting balloons exactly what some of the pharma companies are looking for. Pharmas have hated interventional cardiology because they don't want to embrace implants, he said, but balloons bring "site-specific therapy without off-target toxicity."

The market has changed tremendously, noted Charles Maroney, president/CEO of CardioMind (Sunnyvale, California). Two years ago, he said, drug-eluting stents were all anyone could talk about. Analysts were looking at 10% annual growth, with some annual market forecasts as high as $8 billion. "But where the heck are all these stents going to be placed?" he asked.

Then safety issues pulled back penetration rates in the U.S. and worldwide, changing perceptions and making it harder to get FDA approval and CE mark. To be successful today, Maroney said, a company must get to the point where it can say it has a product that is differentiated both mechanically and clinically.

Members of the panel also offered advice to companies about exits.

Fred Middleton, a managing director with Sanderling Ventures (San Mateo, California), said that to sell to a large device manufacturer, it's important to have a good set of clinical data. "If you can develop a viable clinical program and technology that's patent protected for $50 million, you can make those metrics work on an investment," he said.

Dagi highlighted several characteristics of technologies that will be bought rapidly: first-in-class, first treatments for previously untreatable areas, and products that a large company's sales force can address.

As far as pricing, "the general rule has always been that the size of the market caps the amount that will be paid for a technology," Dagi said. For stent technology, the market is segmented amongst different stents and different technologies, "so you have to ask what portion of that constitutes the actual addressable market for the particular technology that you're looking to sell or looking to buy, and that will always be a fraction of the total market."

According to McGlynn, many investors "lost heart" in the cardiovascular market after stents, thinking all the unmet clinical needs had been addressed. He asked panel members what non-stent investments they would be interested in.

Fitzgerald cited heart failure, stroke and peripheral arterial disease as potential interest areas. Topping the list of interests is percutaneous valve technologies, a treatment that "is here to stay" and that will "make a huge impact on how we treat people with heart disease."

Dagi also said stroke was interesting, though hard to treat, especially from an FDA standpoint. The next large stroke area probably will be arteriovenous malformations, he said. HML is looking hard at congestive heart failure, the largest entries for Medicare & Medicaid Services expenditure, Dagi added.

Middleton mentioned tissue regeneration as an important area, as well as related areas such as gene therapy and the use of stem cells to regenerate heart tissue.

Another top-of-mind issue at the panel was the investment landscape, and panel members were optimistic about med-tech receiving money.

Dagi said HML sees this "as an incredibly interesting and potentially profitable time to invest. The only thing we wish is that we had more money to put to work right now." He said HML is reserving more money for its existing companies, but that it expects to put the same amount of money or more to work in 2009.

Middleton said Sanderling likely will be providing more reserves for existing companies and less money to new companies. One area of interest for 2009 will be new companies that don't require a lot of capital.

In a similar vein, Fitzgerald said Latterell is "hunkering down a little bit, taking care of the home."

Due to similar plans by other investment firms, companies looking for money may not have many funding choices this year. For companies with no data that are short on cash, "you've either got to take the valuation hit, get the money and move on, or you're going to have to find an alternative financing strategy," said Maroney.

Despite the cash crunch, the panel concluded on a positive note. Maroney said that it is now a fantastic time to start a company. "In bad times you get better people ... for reasonable prices," he said.

Fitzgerald said he was impressed with the current innovation, especially since innovators even have started thinking about costs and regulatory issues up front. "I think the quality today is better than it was last year. People get lazy when there's a lot of money... . From an innovative standpoint, I am incredibly encouraged. It's like being in a sandbox."