Monitoring NE Medical Device Startups

Developing new products to improve patient care is the best part of being in the medical device industry. Who can argue with that?

You’ll find the most exciting devices being developed in venture-funded start-ups – a structure that provides the single-minded, do-or-die focus needed for success, along with the risk capital needed to fuel the work. Here in New England, we have a great medical device start-up ecosystem, with dozens of companies working to solve significant medical problems with great new devices.

Each quarter, the MoneyTree Survey lists virtually all venture financings in the US. The 2011 Q1 numbers just came out. Reviewing the data, I thought it would be a good time to look back at the New England medical device companies started in the past several years.

I was surprised by what I found.

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Kickstart Your Social Media Strategy With a Blog

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My post on social media strategies for medical device companies remains near the top of my most-read list.  If you still haven’t gotten going, Mark Suster of GRP partners explains both why startups need to blog and how to get started.  Advice worth following.

Medical Device VC Funding: Slide Deck – Part 2 – Platforms

VisiCalc, the earliest generally agreed exampl...
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Platform technologies have a certain allure. Look at MicroCHIPS, poised to revolutionize glucose monitoring and drug delivery (starting with osteoporosis, diabetes and cardiology drugs). Look at Seventh Sense Biosystems, hard at work developing rapid, simple-to-use diagnostics that measure “several classes of analytes including small molecules, peptides, proteins, and nucleic acids.” Medical device geeks like me can’t help being impressed.

Broadly defined, platform technologies are families of IP that enable multiple distinct clinical applications for distinct patient populations. MicroCHIPS and Seventh Sense are great examples.

Because platforms address multiple market opportunities, the revenue potential of a company with a platform technology can be several times that of a single application company. Does that mean platform technologies are easier to fund?

Pitching platform technologies to VC’s can be challenging. First, cool new technologies need lots of explanation. Second, presenting multiple market opportunities takes lots of time. One of my most popular posts has been “Medical Device VC Funding: Slide Deck – Part 1,” which covers a company developing a single medical device product to address a single unmet need. How should companies with platform technologies present to VC’s?

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The Patient Graph

Social Graph
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We all know social networking as a major time-suck, real-time news source, and practical job-hunting tool. We also know that patients can often get better health information from the web than they can from their health care provider (e.g. When ‘social networking’ meets ‘the search for health information’ we get online patient communities. Facebook, Twitter and GetSatisfaction are just the tip of the social iceberg. PatientsLikeMe and CureTogether are just two of the best known of dozens of web-based social networks for patients. The NY Times calls patient-centered social networks a “Lifeline for the Chronically Ill.” For medical device companies, patient-centered social networks bring new challenges and new opportunities.

As online communities have evolved from BBS’s and usenet groups, to forums and yahoo groups, to social networks and blogs, the quantity and quality of direct patient-to-patient interaction has dramatically increased. In March 2009, an article in Forbes called these new patient-centric social networks a disruptive innovation in patient care (Disruptor of the Month: Creating A New Kind Of Health Care Community by Renee Hopkins Callahan). If you’re developing a novel device or a novel procedure, there’s a chance you are already the subject of an online patient conversation. The more patient-facing your product (either used-by or implanted-in a patient), the more likely patients will share their experiences with each other online.

Any day now, the FDA is expected to issue some of its long-awaited guidance on its approach to the regulation of social media and the internet. Social media, though, does not move on the FDA timeline. While this blog post may need an update when that guidance comes out, medical device companies are already way behind the social media curve.

What does online patient interaction mean for medical device companies? How can medical device companies interact successfully with patients online?

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A Changing Landscape in Medical Devices

Asia Population Density Map
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The usual suspects (Medtronic, St. Jude, J&J, Boston Scientific, Olympus, Stryker, Zimmer, Covidien, GE Healthcare, Hologic and others) continued their usual growth-via-acquisition strategies in 2010. Last year I wrote about two of the more notable medical device exits: St. Jude’s option to purchase CardioMEMS, and Medtronic’s deal to acquire Ardian.

However, a less-noticed acquisition in December 2010 may turn out to be the most notable medical device deal of all. This relatively small acquisition heralds the entry of a significant new player into the medical device industry, and marks the beginning of a shift in the geographic landscape of the medical device industry.

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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.

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Hospital-Employed Physicians and Medical Device Opportunities – Update

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A few weeks ago I wrote about the growing trend of physicians being employed directly by hospitals rather than in private practices, and how this trend impacts medical device opportunities.  Last week the Wall Street Journal published an article “Medical-Device Firms Lose Clout As Hospitals Buy Practices” which is well worth reading.  This week, PWC released a report “Health Reform is Driving Hospitals and Physicians Together.”  Have you analyzed the impact of this trend on your medical device market over the next few years?

Begin With The End In Mind

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Wow – two big medical device exits were announced in the past week: Boston Scientific bought Sadra, and Medtronic bought Ardian.  Most successful medical device startups are ultimately acquired, enabling their investors to achieve a financial return and reputational enhancement. (With sufficient return and reputation, the investors will be able to raise another fund and keep their jobs.) Relatively few medical device startups remain standalone businesses, earning a return for their investors by going public or throwing off profits. Still, it’s usually better to build your company to be successful standalone, as it puts you in the best negotiating position vis-à-vis acquirers if and when they come.

There are likely to be four to six potential acquirers for your company, although there are occasionally less and sometimes a few more. Who are they?  Continue reading “Begin With The End In Mind”