Medical Device Daily Associate
CLEVELAND — As the Cleveland Clinic Innovation Summit began to wind down last week, the promise of the neuroscience field was tempered with the realization that someone has to pay to develop all of these future and very enticing technologies.
A vital avenue for the required early-stage funding is the venture capitalist (VC), and a panel comprised of neuroscience companies and the VCs that fund them discussed the long and often difficult road the two groups must traverse together in order to get a product through the FDA and reimbursement processes and then an agreeable exit strategy.
Moderator Harry Rein, general partner of Foundation Medical Partners (FMP; Rowayton, Connecticut), asked panelists what they perceived as the possible pitfalls of early investment. “Do you run the risk of being one of those early Christians that gets eaten, or is it the right time to be in the [neauroscience] space?
Roger Quy, PhD, a general partner at VC firm Technology Partners (Palo Alto, California), said the neuroscience space does present unique challenges; in particular, “The trials are often difficult and that’s coupled with the fact that there’s also a very high placebo effect.”
Ryan Drant, a general partner at New Enterprise Associates (Baltimore), said that a VC assumes that risk comes with the territory. “That’s why we have a portfolio approach,” he said.
One of the keys to success, Drant said, is to hire talented managers and support them to help mitigate the risks, though he noted that “there will certainly be some risks that will be difficult to overcome.”
The obvious question that most entrepreneurs would ask is, how do you go about obtaining funding for a neuroscience product from a good VC firm? Rein queried the panel on that topic.
Since his firm is smaller, Joseph Lacob, a partner at Kleiner Perkins Caulfield & Byers (Menlo Park, California), stressed the need for highly targeted selectivity in making investments. “We pick things that have very, very large market opportunities,” he said. Coupled with that was his sentiment, shared with Drant, that “you need to get the best CEO you can possibly get.”
Drant concurred that a big market opportunity is the best magnet for VC funding. “There’s nothing worse than an A team in a C market,” he said.
From the company point of view, John Harris, president/CEO of BioNeuronics (Seattle) — currently developing a seizure prediction system for epilepsy — said that the No. 1 key to success is a talented and experienced team in place from the get-go. “You’re only as good as your team,” he said.
He also said that a company must find a VC firm with the “tenacity” to go the distance with those technologies requiring a longer development time — or, “more time than is typical for a medical device investment.”
Gary Curtis, president/CEO of Concentric Medical (Mountain View, California), a company developing the Merci Retriever to remove blood clots from the brains of ischemic stroke patients, said there is not a lot of experience from the VC side in neuroscience investment. Hence, his company had to educate investors for the first couple of rounds and then educate another group of investors in order to get further funding.
Frank Fischer, president of NeuroPace (Mountain View, California), a company developing technology to detect, treat and monitor epilepsy and other neurological disorders via responsive brain stimulation, contrasted his experience in running a neuroscience company with his prior experience at the helm of Heartport (Redwood City, California), a company that was developing less invasive heart surgery techniques.
“From an FDA perspective, devices in the neurology space are much rarer than in the cardiac space,” said Fischer. “So you run into a situation where people are much experienced at the agency relative to development of device trials and so on.’”
In order to be successful in the neuro space, Fischer said that a company must have a good story but also matched with intellectual property that is airtight. All those things — and a lot of cash, as well, Fischer said.
He estimated that by the time his company gets through its pivotal trials and is ready to go public, it will have spent more than $160 million.
Fischer also noted that clinical trials in the neurology space are much more difficult than in cardiology. “The reason,” he said, “is that most [clinical] sites are not familiar with neurological devices, so we basically have to retrain them to become familiar with the technology.”
By way of comparison, Fischer noted that at another cardio company that he was involved with, Ventritex , and in a comparable product development cycle, it had spent about $120 million — a great deal less than required for the typical neurology investment.
Drant said his firm sets around $100 million as the average of what product development will cost for a good medical device. “For these capital intensive projects, having a very good fund-raising CEO is critical because raising a $100 million plus is a daunting task.”
Andy Firlik, a general partner at FMP, blames the rigidity of randomized, controlled clinical trials for a larger part of the expense in device trials, particularly for neuro devices.
“What I think is needed are better designed clinical trials that don’t require this massive randomized, controlled trial in order to still conclusively demonstrate that our therapy makes a difference.”
On the issue of physician data, Fischer said he thinks that, as with most medical devices, solid comprehensive clinical outcomes data is critical. And a key then to widespread adoption is a convincing understanding and characterization of the therapy’s mechanism of action.
“I think you get a certain level of adoption in the clinical community solely on clinical outcomes,” said Fischer, “but it really helps to grow substantially beyond that by having a good explanation of the mechanism of action.” He said he believes that a lack of such an explanation has served to hold down the potential value of vagus nerve stimulation therapy, a concept pioneered by the struggling Cyberonics (Houston) for epilepsy and treatment-resistant depression.
“The message to the entrepreneur is pretty straightforward here,” said Rein. “There isn’t one answer out there as you go out and raise money. There are lots of folks that have their views on what’s the one important thing.”