Ardian – A Case Study in Value Creation

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I’m surprised that there hasn’t been more written about Ardian since their sale to Medtronic last month. It may be the largest venture-backed medical device exit to-date. Ardian’s $800M-plus-milestone-payments may end up being larger than Medtronic’s purchase of CoreValve for $700M-plus-milestone-payments in 2009. Even more unusual was Ardian’s relatively early-stage. At the time of sale, CoreValve had implanted devices in 2,600 patients at 125 centers in 25 countries. Ardian exited much earlier, with about 150 patients treated.

Overnight sensations don’t happen overnight. While Ardian seemed to come out of nowhere in 2009 and exited large in 2010, the truth is that the company had been hard at work for almost 10 years. Ardian achieved more than 10X return on $66M invested – at least $732M of value created, before milestones. While the end of the story is still unwritten, Ardian’s first few chapters form a great case study for medical device entrepreneurs and investors.

Overview:

Ardian was founded by serial entrepreneurs Howard Levin MD and Mark Gelfand.  Levin and Gelfand had previously started CHF Solutions to make an ultrafiltration system to alleviate fluid overload caused by Congestive Heart Failure (CHF). Levin and Gelfand also provided the technology for PLC Systems‘ RenalGuard product, designed to protect the kidneys from contrast nephropathy during interventional cardiology procedures. Levin, a cardiologist, and Gelfand, an engineer, used their deep knowledge of cardio-renal physiology to found the company that became Ardian.

I do not have any inside knowledge of the company, so I pieced together Ardian’s timeline from their web site, patent applications, journal articles, publicly available news articles (especially this one from In Vivo), clinical trial filings, SEC filings, and other publicly available information. The timeline that follows may not be perfect, but I think it’s close enough to draw some useful conclusions.

What they did:

2002
Levin and Gelfand file provisional patent applications for renal neuromodulation to alleviate fluid overload from Congestive Heart Failure (CHF), using an implantable drug pump or implantable nerve stimulator. Presumably, animal and bench experiments were done prior to the provisionals, possibly in 2001 and early 2002.

2003
Levin and Gelfand pitch to ATV and are referred to a highly experienced incubator, The Foundry. The Foundry’s due diligence turns up Reginald Smithwick’s 1953 JAMA article with results of 1,266 surgical renal denervations improving hypertension and causing heart remodeling. The Foundry licenses the IP from Levin and Gelfand, and forms the as-yet-unnamed company.

Morgenthaler and Split Rock put in the initial funding, as they have for all Foundry companies. The Series A financing was $1.3M and was not publicly announced.

In November, the first utility patent application (20030216792) was filed, based on the earlier provisionals.

2004
The stealth-mode company hunkers down in R&D. The first provisional patent application for killing cells by irreversible electroporation is filed.

2005
The company is officially named Ardian, from RDN (Renal DeNervation).
In January, Ardian holds first close on Series B, led by ATV, at $6.8M. Again there is no public announcement.

Seven more utility patent applications are filed.

Company remains in stealth.

2006
In January, Ardian holds second close on Series B, led by ATV, at $10.1M, bringing the total B round to $16.9M. Again there is no public announcement.

Andrew Cleeland is hired as the first CEO, with a strong clinical/regulatory background appropriate for the clinically challenging medical application.

According to an article in In Vivo, in mid-2006 Ardian revised their primary target market. Originally intending to treat CHF fluid overload, Ardian refocused on treatment of hypertension. Hypertension was identified as a big opportunity with an easier clinical endpoint (blood pressure), an easier regulatory path and easier market adoption path. Other CHF market opportunities and chronic kidney disease markets are backlogged in the pipeline.

Eleven more utility patent applications are filed, including application 20060142801 for the necrosis of cells.

Company remains in stealth.

2006-2007
Sometime in this period, Ardian changed their technical approach from neuromodulation (e.g. neurostimulation) to nerve ablation. Their R&D had shown that nerve ablation could have profound effects on hypertension, and would not require an implant, dramatically shortening the projected time-to market and reducing associated costs.

2007
In June, Ardian initiated a 73-patient safety/feasibility study for refractory hypertension, with 1 year safety follow up, and 3 year physiolgic response and device perf assessment. The study was led by Henry Krum, MBBS,PhD, The Alfred Hospital and Monash University, Melbourne, VIC, Australia.

In October, 45 patient safety/feasibility study in patients with End-Stage-Renal-Disease (ESRD), 1 year safety follow up, 3 year physiolgic response and device perf assessment.

Ultimately these studies included 17 sites: 3 in Australia, 3 in eastern Europe, 8 in Germany, and 3 in the US.

Company remains in stealth.

2008
Trials and product development continue.

In September, Principal Investigator Krum gives the first public presentation at the European Society of Cardiology. He presents rat data, swine safety data, swine efficacy (norepinephrine levels) and just 1 patient from the human feasibility trial.

In October, at the TCT, Co-investigator Whitbourne presented a few additional cases.

The company is no longer in stealth and the clinician’s appetites are whetted.

2009
In March, Ardian completes a $47M Series C, publicly announced financing led by Medtronic.

At the end of March, the Wall Street Journal publishes an article on new blood pressure treatments, featuring Ardian and CVRx.

In April, Ardian makes a big splash, as The Lancet publishes an article by Krum with one-year results on the first 45 patients. Krum later presented this data at TCT, the most important US conference for interventional cardiologists.

In mid-2009, Ardian initiated Symplicity HTN-2, with an efficacy endpoint, at 30 sites in Europe and Australia.

During 2009, twelve peer-reviewed journal articles are published, creating a strong foundation of publicly available clinical data.

In November, a lengthy and very positive profile of the company is published in In Vivo, a leading device industry news magazine.

Ardian continues to work on a 2nd generation device – presumably based on feedback from the use of the clinical trial devices.

2010
Through the end of November, 18 more journal articles are published.
Clinical trial enrollment and product development continue.

As of November, a total of eight US patents have issued, and 41 published applications are pending. The number of as-yet-unpublished applications is not known.

In November the sale to Medtronic is announced.

How they did it:

  1. Build a great team. Founded by experienced entrepreneurs, Ardian worked with an experienced and successful incubator, attracted great investors and built a talented management team. They surrounded the company with top clinical expertise. While I am sure Ardian experienced its share of ups and downs along the way, looking back at the history, they’ve done an impressive job of execution.
  2. Pick a big market opportunity. I’ve written about market opportunity before. In economic terms, you can create more value where there is more opportunity. Ardian identified huge unmet needs with a paucity of competing device approaches.
  3. Build a strong IP portfolio. Create a monopoly position. Lock up the preferred device and alternate approaches. Stake claims to future applications, to build a product and application pipeline. Acquirers want a protectable market position. Strong IP creates real value.
  4. Pivot to improve product-market-fit. Even though Ardian started with a good plan, management and investor were open to change. Ardian started with implantable devices for treating fluid overload, switched market to hypertension and product-technology to nerve ablation. They went from a good product-market-fit to a great product-market fit. Those changes created significant value, dramatically reducing cost and time to market, simplifying the procedure, and reducing device complexity. It takes experienced management and investors to know when to adjust course mid-stream.
  5. Build global presence early. Start with global clinical trials. It’s easy to find investigators close to home. Despite being a US company, Ardian’s early clinicals were led by a physician in Australia, with several investigators from across Europe and only a couple in the US.
  6. When your business strategy is based on improving clinical outcomes, put serious effort and funding into the clinical trial strategy and execution. Ardian raised $47M to fund trials, compared to <$20M for earlier product development. While most companies run safety trials of a handful of patients at a handful of centers, Ardian enrolled more than 100 patients at 17 sites. Ardian’s pivotal trial will have 30 sites. Ardian found motivated investigators, and achieved rapid enrollment. Impressive.
  7. When your business strategy is based on improving clinical outcomes, put serious effort and funding into the presentation and publication strategy and execution. Hold off publishing while in stealth, but create a backlog of manuscripts to submit when the time is right. Getting your physicians to write articles is difficult – it’s usually not their day job. Ardian clearly spent the time to manage the process. Ardian’s investigators were motivated to publish.
  8. Keep your burn rate low until you achieve product-market fit. Ardian kept their burn rate low until they convinced themselves the technology would work clinically. Ardian ramped spending for their clinicals, but hadn’t overspent on their product development (they even started their clinicals with an early version of the product).
  9. Stay in stealth while developing IP. Don’t attract attention from potential competitors or the big-company-research-departments who have more resources than you to put into your application. Ardian continues to develop IP after launching the company, from a more secure base.
  10. Come out of stealth when you have real news that is important to your customers, and your IP is “secure.” Why not stay in stealth until you really have something to say? Ardian really came out of stealth in 2009 with the release of The Lancet article on their early clinical results. Ardian executed a brilliant company launch strategy – a teaser in 2008, and a flood of publications in 2009 and 2010.
  11. Build a standalone business. Ardian did not have to sell. Medtronic had to buy. Ardian’s ability to become a standalone business created a strong negotiating position.

Summary:

Ardian’s story to-date is exemplary. But, not every lesson applies to every medical device start-up. Ardian had a great business strategy and executed well. Many startups will have different strategies. For example, some startups focus on building better tools for existing markets. Of course, the end of the Ardian story is still unwritten. Will we find in a few years that Medtronic made a great purchase?  I’m optimistic (and hopeful) that we will.

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8 thoughts on “Ardian – A Case Study in Value Creation

  1. Jay, Thanks for another brilliant analysis. The “pivot” to hypertension for Ardian is like the pivot of InfraReDx from vulnerable plaque as a cause of spontaneous coronary events (still a goal) to lipid core plaque as a cause of stenting complications.

    Regards,
    Jim

    1. Great question Jae. While great startups like Ardian endeavor to create great IP, inevitably many patents will not have issued or have been examined by the time of acquisition. So there is always uncertainty about the strength of the IP. New startups may believe that they have ways around existing IP, or that the incumbent’s patents won’t be very broad after the applications are examined and issued. Some companies (e.g. Volcano and LightLab) might be willing to fight about IP in court and in the market. Some companies may think they have an improved product, and that their IP will be valuable too, maybe as a next generation for an incumbent. For renal denervation in particular, the market opportunity is large and the Ardian IP position has uncertainty, so many companies are willing to take some risk in hope of a great reward.

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