Diagnostics & Imaging Week National Editor

MINNEAPOLIS — While "there's plenty of good science and innovation going on," as Shelly Wall Lanning put it in introducing a panel discussion she was moderating during the 7th annual IBF Med-Tech Investing Conference here this week, getting the funding to bring that science and/or innovation to market is the key challenge.

Lanning, managing director of HealthCor Partners (New York), moderated the panel on "Creating Innovative Device Companies," which included a mix of small-company CEOs and venture capitalists who shared a wide range of thoughts with a near-overflow audience at the Radisson Plaza Minneapolis Hotel on how to make such companies happen.

John Deedrick, co-founder and managing director of Accuitive Medical Ventures (Duluth, Georgia), is in on the start-up of companies via his firm's symbiotic relationship with The Innovation Factory (also Duluth), a growing medical-device incubator.

"We look for unmet clinical needs and unmet markets," he said. "That doesn't always work out, but, as one of my partners says, 'That's when the magic happens.'"

Making great sense himself, Deedrick said, "We just look for things that make common sense."

For John Sullivan, an associate with Foundation Medical Partners (Rowayton, Connecticut), unmet clinical needs are a "must have" for anyone hoping to take an idea from a few scribbles on a pad of paper to a flesh-and-blood company to commercial reality.

"You need a large enough market to give yourself some wiggle room" in trying to get a new company and new technology established, he said.

Sullivan said the current difficult economy isn't a deterrent to VCs looking for ideas to get behind. "The needs are still there," he said. "In turbulent times, there are opportunities."

Mike Berman, who describes himself as a "medical device venture catalyst," said his Berman Medical (Minnetonka, Minnesota) firm looks 1) to invest in "a space that has potential," and 2) works with people "who will be solid and capable when you hit the inevitable bumps."

As for investing in later-stage companies, he said "you're much more focused on the technology at that point."

Deedrick noted that in working with start-up and early-stage firms, the regulatory and reimbursement challenges need to be thought through. "You don't need to have all the answers, but do need to be thinking about it."

For Sullivan, "IP [intellectual property] is very important; you need to have the idea that you're going to be able to get there" in terms of appropriate patent protection for the technology being developed.

Jerome Edwards, founder and CEO of Veran Medical Technologies (St. Louis), brought the perspectives of what he referred to as "a first-time entrepreneur and first-time CEO" to the discussion. "At my core," he said, "I'm an engineer and an inventor."

Veran is developing a platform technology for 4-D image-guided delivery that can be applied in different markets. Its initial application is for lung biopsy, to help diagnose and treat patients earlier.

Formerly in product development for Medtronic's (Minneapolis) Surgical Navigation Technologies and Sofamor Danek business units, Edwards said, "People are what make ideas and companies successful."

He noted that raising "angel" financing to get his company started was "a difficult process, but I was able to raise more than most companies do." He added, "If you're a first-time entrepreneur, don't waste your time with VCs until after you have angel money and proof of principle to show those VCs."

John Seaberg, CEO of NeoChord (Minnetonka, Minnesota), a company focused on developing less-invasive solutions for mitral valve regurgitation, said the path to building the company started with licensing technology developed by two Mayo Clinic (Rochester, Minnesota) physicians.

Perhaps the most important step, he said, was in making a key hire John Zentgraf, a former colleague at Guidant (Indianapolis). "John's strengths are in areas where mine are not as strong, and vice-versa," he said. And "our timing was great," Seaberg said, "because a lot of our former colleagues were available to us" in the wake of Guidant's acquisition by Boston Scientific."

Seaberg said, "We have found it surprisingly easy to raise money from some very savvy med-tech people."

Berman, who co-founded Velocimed (Maple Grove, Minnesota), which was sold to St. Jude Medical (St. Paul, Minnesota) in 2005 for $82 million plus $180 million in earn-out payments, said the most significant mistakes made by start-ups "generally have to do with underestimating the time and difficulty of doing clinical trials."

Edwards talked about building momentum to drive adoption of new technologies. "You have to get to know your key opinion leaders. You have to survey the markets and pick the docs you want to work with you have to see how their peers respect them."

He said he and others involved with his company have devoted considerable time to attending medical meetings in the appropriate specialty areas to identify physicians that met those criteria. "And then you need to build a relationship with them. You can't just show up, give them your product and say, 'We'd like you to use this.'"

From Seaberg's perspective, a "must" for a developing company, particularly if it faces the PMA path to approval, "is to have experienced staff to do PMA-type trials. You have to come out of [those trials] with results that support what you're trying to do."

On the question of angel financing, Sullivan said, "Angels understand risk. How you develop [with the money received from angels] makes it possible to then get VC money."

As for corporate financing, Berman cautioned that taking such money "is dancing with the devil it places a cap, not a floor, on valuing your company."

Deedrick's view is, "I would prefer not to have them [corporate partners], especially in the early stages." He added: "You have to have a great market, a product that addresses it and be able to get paid for it. If you have that, you can attract a VC."

The annual conference was co-presented by International Business Forum (IBF; Massapequa, New York) and LifeScience Alley (St. Louis Park, Minnesota).