Posts Tagged St. Jude

Crowdfunding – New Source of Capital for Medical Industry

Wilson, Sonsini, Goodrich, and Rosati 2013 Medical Device Conference (www.wsgr/news/ focused on understanding the challenges that Medtech startups encounter in the current environment, and the emerging strategies to respond to these challenges.  It was heavily attended by industry CEOs, venture capitalists, industry strategists, investment bankers, market analysts, and life science industry professionals.

Wilson Sonsini Goodrich & Rosati

Wilson Sonsini Goodrich & Rosati (Photo credit: Wikipedia)

Below are some highlights from panel on crowdfunding.  Crowdfunindg is emerging as a source of potential new source of capital for early stage and emerging growth companies.  The panel was moderated by Phil Oettinger, partner at WSGR and the panelists included Andrew Farquharson, Managing Director at InCube Ventures, Scott Jordan, Partner at S. Jordan Associates, Greg Shearer, Managing Director at Healthios, and Ben Lee, Director of Business Development at CircleUp.

Oettinger gave a background on Crowdfunding.  He also discussed impact of JOBS act that is expected to enable advertising for private investment offerings and allow unaccredited investors to participate in online equity crowdfunding.  Thus far, crowdfunding has not lived up to the hype of being a startup panacea.  It caps an amount an issuer can raise to $1M, in any 12-month period and caps the amount a person can invest in all crowdfundings over a one year period at 10% of annual income or net worth of the investor.  Shares issued in crowdfunding transactions are subject to a one-year restriction, and there are other restrictions that render non-US companies ineligible to participating in crowdfunding.  Crowdfunding also must be done through a registered broker-dealer or registered “funding portal”, who cannot solicit investments and law requires extensive due diligence, including background checks on management and large stockholders.  None of the challenges however, have dampened the enthusiasm.  SEC has already stated that equity crowdfunding portals are exempt from certain restrictions and more changes are on the way.

Scott Jordan is an accomplished life sciences business development and investment banking professional with over 20 years of corporate experience in negotiating strategic corporate alliances, securing international licensing agreements, building national sales teams, and contributing to successful product development, approval, and launch.  In partnership with Greg Shearer, Managing Director at Healthios Capital Markets, and CrowdConnect, Jordan and Associates, launched Healthios Xchange fund, with an aim to assist emerging growth healthcare companies raise capital from accredited investors, and non-dilutive financing from foundations.  It offers three large value propositions, said Shearer.  Open access eliminates selection bias and does not curate the deals going on the site.  “Crowd” anchors the continuum.  H/X scoring based on sophisticated algorithms, makes it heavily data centric, similar to LinkedIn.  Healthios charges fees to companies that raise money on its portal, except in certain cases where it offers carry-free, fee-free feature allowing investors an opportunity to directly invest in companies, eliminating transaction expenses.  The fees will likely fall in the 5-10% range.  The fee structure will be different for non-profits.  Each company gets a company pitch page.  Several features including e platform button, e signature of docs, e regulatory assessment etc., enhance ease of use.

Ben Lee, a developer of innovative teeth whitening products at GoSmile, and founder of TaskRabbit, an online services marketplace, joined CircleUp, which offers consumer companies an access to funding through passionate, sector focused investors.  “Very simply, crowdfunding is a numbers game and it offers an opportunity to reach out to large number of people, who are looking to invest”, said Lee.  CircleUp has launched a highly active, fast growing portal and has gained considerable credibility.  Lee said, “We are 100% focused on branded consumer products” where there is little institutional investment.

Prior to his current role at Incube Ventures, Andrew Farqharson, a serial entrepreneur had co-founded Operon with no venture capital and sold it for $150M.  He also had launched a company in microfludics, Innovadyne, and had held several roles in research operations at Genentech.  At InCube, with Mir Imran and Talat Imran, Farqharson co-founded VentureHealth, a crowdfunding portal, to enable physicians and other accredited investors to invest in “compelling biomedical inventions”.  Farqharson said, this emergence of crowdfunding is very exciting and enables entrepreneurs to be less dependent on VCs, while it unlocks a lot of latent capital, and also gives investors more degrees of freedom.  Unlike other equity crowdfunding portals on the panel, VentureHealth has adopted a carried-interest business model.  They do not charge fees to the companies that raise capital but charge the investors; just like a venture fund.  In this model being driven by carried interest, they make money only if their investors do.  Clearly, they have an incentive to only support the most promising companies, unlike many broker/dealer sites that may have lesser interest in screening for quality, as their primary incentive may be to raise capital for as many companies as they can.  It will be interesting to see which approach holds more long-term promise.  My initial thoughts are, if I, as a rather naive investor, were to risk my money, specifically in the complex class 2 and class 3 devices, with many regulatory, reimbursement, and marketing challenges, I would prefer to risk it where some prior due diligence is done by seasoned and serial entrepreneurs like Imrans and Farqharson.  Explaining the success of InCube Ventures, Farqharson said, despite the challenging environment, they have had 3 exits this year.  BodyMedia was acquired by Jawbone, NFocus Neuromedical was acquired by Covidien and most recently Spinal Modulation was acquired by St. Jude.  Exists led to $700M+ in 2013, said Farqharson. They are actively screening investors.

Image representing Spinal Modulation as depict...

Image via CrunchBase



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2013 JPMorgan Healthcare Conference – Medical Device Company Presentations

Disclaimer – Below is my best attempt to capture highlights from company presentations.  Please check details against more authentic sources, before making any financial decisions.

The overview of the conference can be found at this link – .  In the next few links, I will share some highlights from presentations of big pharmaceutical companies.  The recent global recession with challenges pertaining to price/volume issues, healthcare reforms, more restrictive regulatory environment, medical device taxes, medical reimbursement cuts, and extreme pressure to contain costs have put a lot of pressure on the device industry.  Big Pharma is slightly different.  Historically the industry has enjoyed growth rates in double digits and 20% operating margins with growing demand and big profits.  But times are also changing for big pharma.  Many firms responded to initial challenges by investing heavily in next-generation drugs, often based on biotechnology.  Though promise of biotech has not panned out as expected, there is more fat in big pharma than in device industry.  Below are highlights from some medical device companies.



Medtronic – Looking at returning 50% of capital back to shareholders over next several years


President & CEO, Omar Ishrak talked about the efforts undertaken during the last 18 months to operate more effectively in the changing healthcare environment.  There is tight alignment and the company has made changes in business teams, making them accountable for growth.  Three major US markets, ICDs, Core Spine, and Pacing, have started to stabilize.  Additionally, Medtronic is focusing on multiple high growth platforms, including advanced energy, afib, glucose monitoring, deep brain stimulation and so on.  As opposed to 10% return in 2012, for several coming years, Medtronic is looking at 20% revenue growth, for several years to come, said Ishrak.  Medtronic is expecting to recoup $25B, in next 5 years, mostly from outside the US and is expecting to continue 50% rate of return to the shareholders, that is, $12.5B return to shareholders, over next 5 years.


Medtronic will also focus on generating more cash in the US, through increasing demand, visibility of supply chain, minimizing idle inventory, optimizing supply chain, reducing operating expenses, and finally repatriating cash from outside the US, if the tax policy becomes fair, said Ishrak.   With increasing globalization, there will be continued focus on premium segments in emerging markets, particularly India and China.  Additionally, Medtronic will also focus on value segment and underserved segments through creating infrastructure capability and then aim to bring the innovation back and disrupt developed markets.  Medtronic is quickly adapting to the changing healthcare landscape, and moving from old fee for service model to new pay for value model, said Ishrak.



Stryker – Continued focus on M&A, share buy backs, and cash flow generation


Stryker CEO, Kevin Lobo said the company is focused on innovation, has a robust balance sheet and will continue strong cash flow generation.  In 2012, the total revenue was $8.7B, up 4% from previous year and adjusted earnings per share increased 9%.  Stryker has a very diversified market focus, with no single market representing more than 16%, said Lobo.  US represents 2/3rd of total Stryker sales or 65% of the business.  29% is in Europe and the rest 6% is in emerging markets and Stryker aims to grow in these markets.  Although 2012 was a quieter year from acquisition standpoint, Stryker will continue to focus on M&A and will continue to buy back shares and is looking at strong steady cash flow generation, said Lobo.



Hansen Medical – Maintains Leadership in Intravascular Robotics with Launch of New Products


CEO, Bruce Barclay asserted that Hansen continues to be a global leader in intravascular robotics and sees it as a platform technology in EP (electrophysiology) and vascular space.  Hansen also has a strong pipeline and is developing a full suite of catheters to go with its technology.  Hansen catheters and other flexible robotics have largely known to be used in catheter based interventional medical procedures, particularly for treatment of irregular heart arrhythmias.


In 2012, Hansen launched Magellan (TM) Robotic System in the US that allows Hansen to enter much larger vascular market, on account of greater precision and predictability of the distal tip control.  Hansen has also launched some new products in the EP space.  Artisan Extend catheter was approved in the US, last year and just got approval in the Europe.  Improved procedure predictability of Hansen products offers an opportunity to hospitals for lowering cost and incremental patient turnaround.  Additionally, it is vastly helpful to the physician, who can sit comfortably at a console, does not have to wear lead coat, is away from the radiation field, and has lower risk of orthopedic injuries.  Therefore, this is a good ROI model.


Hansen has had five consecutive quarters of procedure growth on the robotic side and is now approaching 10,000 cases.  Hansen had 14 new patents issued in 2012 and new transaction with Intuitive Surgical added $30M to the balance sheet.  Hansen focuses on early adopters of new technology and on training them well, in this $2B+ medical robotics market, said Barclay.



St. Jude – Poised to deal with challenges and deliver long term growth


Daniel Starks, President, Chairman and CEO of St. Jude reported that preliminary sales for Q4, 2012 were as expected, at approximately $ 1.372 billion.  The company initiated $1B share repurchase program, at the end of 2012, and expects a favorable impact from this in 2013.


Globally ICD market declined 3%, in 2012.  St. Jude’s ICD market share has been stable, with some decline offset by CRT-D and replacement segments.   Most recent data also allays previous market concern about reliability and safety of Durata line of (HV) high voltage leads.  Durata lead survival at 5 years is shown to be 98.7% and compares favorably with MDT line of HV leads.  FDA inspection of SymarCA facility generated form 483.  None of the observations were pertaining to performance of Durata HV leads and all will be remedied with urgency, assured Starks.  HV lead revenue comprises of less than 4% of STJ global sales.


Various cost saving initiatives have generated more than $100 million in cost reductions in 2012 and are expected to generate more than $100 million in additional cost savings in 2013.  These cost savings plus $1B share repurchase will enable STJ to fund incremental R&D investments, expand market share development activities, and absorb the US medical device excise tax.  While sales growth is expected to remain challenging due to macro-economic factors, STJ is well position to deal with the headwinds and deliver long term growth.  Some of the growth drivers in 2013 will be, MediGuide non-fluoroscopic catheter tracking technology with STJ AF platform, LAA and PFO closure to reduce risk of stroke, STJ’s FFR and OCT product lines, STJ next generation EnligHTN renal denervation technology, TAVR and Trifecta tissue valve product lines, and the recovery of STJ neuromodulation franchise, said Starks.



Glaukos –  Private Opthalmic Medical Device Company for management of Glaucoma


Glaukos is a private opthalmic medical device company.  Thomas Burns, CEO and President of the company shared about Glaukos for management of glaucoma.  Glaucoma is a long lasting, permanent condition that does not cause immediate blindness but causes dark patches or areas of blindness.  High pressure caused by excessive fluid produced by the eye, can damage the optic nerve and lead to glaucoma.  Glaukos technology is primarily an infinitesimal titanium stent, iStent, that can be implanted in the eye to drain fluid and thus reduce the pressure that leads to glaucoma.   The iStent is the smallest medical device ever approved the FDA and is placed in the eye during cataract surgery.  It is small enough that the patient will not see or feel it after surgery and post surgery, it continues to work to help reduce eye pressure.  The 2nd generation G2 device is smaller than the first generation device, and can be loaded into a needle and injected at a predictable rate.  Glaukos suprachoroidal stent model G3 device is currently in phase 3 trials.


All products are CE marked and there is great progress in reimbursement, said Burns.  The current number of about 70 million patients in the US is expected to reach 80 M by 2020.  CPT codes are established and currently 4100 stents are implanted to date.

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