Star Medical Device Engineer – Attitude

Engineering Department employees, 1962 (Photo credit: Seattle Municipal Archives)

One of the best parts of starting a medical device company is the opportunity to build a great team. At Fractyl, I’m happy and proud to say that our team is truly awesome – talented, hardworking, committed, and fun. Putting together a great team is not easy – for every position, we’re always looking for a superstar. Somehow we’ve found them.

One of my best friends runs an engineering group at a major contract research lab, and we occasionally commiserate about the difficulty of hiring great engineers. Of course, number one on our list is technical expertise. Don’t knock on my door if you don’t have the technical chops. While technical competence is hard enough to find, my friend and I are both looking for more than mere technical brilliance. The number two attribute on my list of star medical device engineers is attitude.

In an effort to improve performance, my friend gives each of his engineering hires an article from 1999’s IEEE Spectrum: “How to be a Star Engineer” (or here). It’s a great article that would benefit almost every engineer. The author, Robert Kelley, presents nine strategies that lead to better engineering performance. Attitude is critical.

Here’s the attitude I’m looking for:

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The State of Manufacturing 2012

Manufacturing Jobs (Photo credit: Leader Nancy Pelosi)

Medical device companies manufacture their products, so you’ll find plenty of talk about manufacturing on my blog. A year ago I posted “Manufacturing Matters” about the unfortunate disconnect between product development and manufacturing. Six months before that I posted “The Dwindling Allure of Building Factories Offshore” where I tried to give some guidance about factory location decisions.

Other than news of factory closures and layoffs, or management misbehavior in Chinese factories, relatively little is written about manufacturing in the US media. A handful of publications, though, have not forgotten the importance of manufacturing to the US economy. Medical device executives would do well to pay attention to the overall manufacturing environment. So today I offer up a great collection of manufacturing articles for your year-end reading pleasure.

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Bits and Atoms

More than two million drug-eluting stents were sold worldwide in 2011, of which 87% were manufactured from just five product designs [source]. The success or failure of product development is ultimately measured by financial outcomes. Each of us hopes our large investments in product development will be returned many times over by the sale of millions of profitable manufactured units.

A great product design is thus the set of instructions that enables scalable, salable, profitable production.

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The US Medical Device Sales Model is Changing

US healthcare system consolidation, and the increasing percentage of US employment of physicians directly by healthcare systems, are dramatically changing the US medical device market, as I’ve previously discussed here, here, and here.

This week, Evan Anderson presents a first-hand view of these changes in a great article on the Stanford Biodesign Alumni blog. Highly recommended.

Typical Life Science Merger and Acquisition Terms

Payday Loan Place Window Graphics — Payday (Photo credit: taberandrew)

I’ve written about unusual deal terms before (here and here), but Bruce Booth’s awesome blog Life Sci VC just introduced me to a great new report on typical life science deal terms. While the big headline is that 83% of life science deals include earn-outs, I was surprised to learn that the average amount of equity invested in medical device companies prior to exit was $60M (median $44M). Senior medical device startup execs should definitely read Booth’s article and download the full report.

Read Booth’s post here.

Download the study here.

Read the press release here.

Press coverage on PE Hub here.

Study Sheds Light on Real Life Science Returns (pehub.com)

Healthcare Venture Capital Fundraising List 2012 Q2

It’s been several months since I’ve updated my list of “Healthcare VC’s with money to invest,” so I have plenty to report.

I’ve added about 35 new announcements of firms that successfully raised new funds or are actively raising new funds. Most VC firms that are actively raising new funds are simultaneously looking for investment opportunities, so they will be positioned to put their new money to work right away. Definitely consider pitching them.

While there are a few really small funds (under $100M), the majority of healthcare-focused firms seem to target a$150M to $300M fund sizes. A handful of diversified firms have also raised new funds. While diversified firms are typically larger, it’s important to remember that the healthcare portion is just one piece, and may not be bigger than the healthcare-focused funds.

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Healthcare Corporate and Debt Funding Sources

If you don’t follow Bruce Booth’s blog Life Sci VC you should.

Booth, a biotech partner at Atlas Ventures, posted recently on both corporate funding and venture debt. While medical device startups typically think of corporate investors coming in to Series C or later stage deals, Booth wrote that “Corporate VCs are now truly ‘preferred partners’ for [Atlas’s] early stage deals.” Booth also pointed out that “Corporate VC funds have very large implied ‘assets under management’.” He estimated that the fifteen top biotech corporate investors “represent about $2.5B+ worth of ‘traditional’ venture funds by conventional measures of fund ‘size’.

Booth’s post Venture Debt: Under-Appreciated Tool for Building Biotechs teaches similarly valuable lessons. He suggest that the “the debt market in the life sciences is about 10% of the equity market,” and that:

Companies use this debt financing for a variety of things: extend visibility to reach key value inflection (e.g., completion of a clinical study); purchase expense capital equipment; strengthen their balance sheet prior to deal negotiations or IPO; or, expand the pipeline by purchasing new assets or advancing secondary programs, among other things.

If you’ve been following my blog, you know that I try to make it easy for medical device startups to identify potential sources of funding. My list of ‘healthcare venture capitalists with money‘ has been really popular. So today I put together a list of healthcare corporate and debt funding sources.

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Reference Checking Your Prospective New Boss

Medical device employment and compensation have been frequent topics of mine over the past couple of years (see list below). It’s an important theme.

Today I’d like to talk about reference checking your prospective new boss. As a senior executive in the industry, I’ve hired many people for my companies – some more than once. As part of the hiring process, I always try to find colleagues in my network to provide references on the prospective hire. My goal is to build an outstanding team, and mistakes are costly. While I always ask candidates to provide references, I also like to check with colleagues not on that list.

Turnabout is fair play. Yet I’ve never had a prospective employee ask me for references. Why not? I’m happy to provide them.

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Getting the deal done

Cameron Health’s March acquisition by Boston Scientific for $1.3B was the subject of some Monday morning quarterbacking by stock analysts.

Leerink Swan Analyst Rick Wise was quoted in Mass High Tech saying “the purchase of Cameron is a major positive for Boston Scientific, ‘with the potential to transform the longer-term outlook for BSX’s lagging CRM business.'”

The Wall Street Journal quoted Citigroup as saying “the dated deal structure … looks too rich and risky” for Boston Scientific.

Whatever the analyst opinions, the striking aspect of the Boston Sci/Cameron deal is the imbalance between the $150M upfront price and the $1.2B in milestone-based payments.

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New England Medical Device Series A Syndication

It’s been about a year since I published a list of newly venture-funded New England medical device companies, so it’s time for an update (see below). The Series A rate continues to trend at two-per-quarter, despite the purported decrease in the number of active VC’s.

Last year I noted the surprising proportion of diagnostic technologies in the startup list. Over the last four quarters, only one of eight newly-funded startups is developing a diagnostic. That’s more in line with expectations.

This year I’m taking the opportunity to respond to a question from a colleague: Should I syndicate my Series A round or raise funds from a single venture investor?

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