Medical Device Daily Washington Editor

WASHINGTON – The fifth day of the 2006 edition of the Transcatheter Cardiovascular Therapeutics conference here featured a session that offered a glimpse into the opportunities afforded medical device start-ups by the still-growing U.S. economy and the fairly healthy amount of cash circulating on Wall Street and private investment houses. While speakers did not wax euphorically, the undertone was unmistakably optimistic. That being said, they all emphasized that patient care and good business practices are both essential to success.

John Simpson, the founder of Perclose (Redwood City, California), which Abbott Laboratories (Abbott Park, Illinois) purchased for almost $700 million in 1999 (Medical Device Daily, Nov. 24, 1999), led with a discussion titled “the inventor’s workshop,” and gave a few pieces of advice about how companies should be run if their owners want those firms to survive in the marketplace.

Simpson gave the get-rich-quick element in society a nudge early in his discussion, stating that when he gets up in the morning, “the first thing I do is look for a really quick hit. If I don’t see it, I go to work.”

“Over the past 30 years, I’ve always gone to work,” he quipped.

Simpson urged the audience to keep its eyes and ears open when looking at device innovation because the market moves rapidly. “I don’t care what you think you know” about the market “because none of it may apply” by the time you know it. The inventor of a number of devices for cardiac surgery said that the most important characteristic to bring to the job is perseverance, but he also recommended that entrepreneurs “surround yoursel[ves] with smart people.”

Simpson indicated that he sees an overemphasis in the business world on exit strategies, which can blind the entrepreneur to the needed focus on “a really good idea” that will “translate into something clinically relevant.”

However, a good idea need not be an innovation that wins raves in the mainstream press, Simpson commented, noting that many companies make a nice living from sales of inconspicuous items that are found all over hospitals and doctor’s offices. All those things were innovations at one time or another, but not all of them set the world on fire upon their debuts.

“The potential is in what it is going to do for the patient,” Simpson observed. Another consideration, however, is physician reaction. He noted that most doctors and nurses are fairly talented, but that they nonetheless seek out devices that are “fairly user friendly.” Simpson closed by stating that the “fail-fast” idea will always be part of the device development process because the iterative process is still a requirement for weeding out the problems in good devices and for weeding out devices that simply have no place.

Bob Hopkins, an analyst with investment banking firm Lehman Brothers (New York) briefly discussed the elements he said make for a good contender in the device market, but he recommended that small companies keep an open mind about pulling together an initial public offering. “You can go public earlier than you think,” Hopkins asserted, but he cautioned that caveats apply to this statement.

As dot-com firms have proved, black ink is not essential to get Wall Street to look at your IPO, but Hopkins said that even “a large revenue stream is not necessary,” let alone an operating profit. The credibility of a start-up’s management team is “one of the most critical things” needed to ensure success.

A company cannot simply present a black box to would-be investors, either. “You have to identify an unmet need that you can explain to investors clearly and briefly,” Hopkins said. Any device that might constitute a platform, a device that can be applied in several different diseases, has a better chance of attracting investor interest, and it also helps if the device seems to have “a clear regulatory pathway.” However, Hopkins commented that remarks heard at TCT suggest that drug-eluting stents will encounter a stiffer headwind at the FDA in times to come.

The agency might want to see a good body of serious data before letting a firm ship to market, but Hopkins pointed out that private financiers and Wall Street are slightly more inclined toward speculation. “You don’t have to have a pivotal trial,” he commented, but a firm has to have some meaningful data.

Among the firms Hopkins likes at present is Hansen Medical (Mountain View, California), a firm that manufactures robotic control systems for catheter guidance and at present, has no products on the market and no revenue stream. Hansen’s CEO, Frederic Moll, MD, founded the company four years ago and has more than 20 years of experience managing medical device manufacturers.

According to the Hansen web site, Moll founded Intuitive Surgical (Sunnyvale, California), maker of the Da Vinci surgical robotic system, in 1995 and served as that company’s first CEO. Hansen reported in August that it would put together an $86 million IPO, underwritten by Morgan Stanley and JP Morgan Securities.

Campbell Rogers, MD, who recently left his post as the chief of the cardiac catheterization lab at Brigham and Women’s Hospital (Boston) to take the job of chief technology officer at Cordis (Miami Lakes, Florida) argued that despite understandable skepticism in some quarters, “the priorities between these two places could not be more similar,” a fact that he described as “unappreciated.”

As for the reason that physicians often end up working for medical device companies – Donald Baim, MD, announced he would leave Brigham to take a job at Boston Scientific (Natick, Massachusetts) just before Rogers tipped his hand about his plans to work with Cordis, and Richard Kuntz, MD, left the hospital for Medtronic (Minneapolis) a year ago this past September – Campbell noted that “the new ideas [for cardiac devices] come almost exclusively from physicians.”

Rogers described the life cycle of product development as one that demonstrates an inverse correlation between risk and expense, and alluded to the notion that many device wash-outs are typically less than financially back-breaking. “It’s usually pretty cheap and quick” to find out if a device is going to bomb, he noted, but those later, more expensive stages are where larger firms can scoop up a doctor and his or her idea. In the future, though, Cordis will look to getting behind the doctor and device earlier in this cycle in order to establish market share.