CEO stresses importance of lean budget and strong management for funding
Venture capital is highly competitive in the medical devices industry. Some VCs are even moving out of the device and healthcare space. But, in many cases, venture capital really still is the best kind of equity investment to be had in the medical device industry. If you have a high-risk, PMA-route device, a true innovation, it can be hard to round up the money to fund the device from its beginnings through FDA approval.
Kevin Larkin is the CEO of TherOx, a 15-year-old medical device company that's created super saturated oxygen therapy to reduce infarct size in heart surgery patients. The company recently announced top notch IDE pilot study results at the TCT Conference in San Francisco–a 9.6 percent infarct size after 30 days in high-risk patients. He's been with the company for 10 years and it's still venture-backed. Investors include Kleiner Perkins Caufield and Byers; New Science Ventures; Integral Capital Partners; Aperture Venture Partners; DAG Ventures; and Cross Creek Capital. All this support, and now the company seeks $25 million for the next 2.5 years, to push through the PMA process. Here's his no-nonsense advice on how to seek and win funding. And it's not just to have a device that works, a strong management team and a lean budget.
"There's a lot to think about for a young CEO or management team that is excited about what it's trying to do, that believes it has a good solution," Larkin said. Here's his advice on what to think about when trying to attract investors. "It's important to remember that significant medical breakthroughs that really affect the lives of people. . . very often have a slow, tortuous course."
He said it's important to have the medical community's support, a persistent team and money that holds out to succeed.
Investors, including TherOx's, tire, Larkin said. When venture capitalists are the most risk-averse this 30-plus year cardiovascular vet has seen them, it's important to find "non-destructive" funding.
Here are his top tidbits of advice for innovative medtech startups attempting to earn and keep funding and support while trying to change medicine as we know it:
1. "Don't fall in love with your initial animal research data and benchtop testing."
Once your data points definitively toward failure or a bleak outlook for the device's efficacy, leave venture capitalists and other investors alone.
The question to ask yourself: "Do we really have something here or am I just stubbornly pursuing something that doesn't work?" Be brutally honest every step of the way. Larkin said management needs to be realistic about whether the therapy is clearly demonstrating an improvement over existing technology in offsetting some disease state. "As soon as you decide you're kidding yourself, you're breathing your own exhaust, you need to stop," Larkin said.
Besides the obvious reasoning, pursuing funding past this point is a waste of investors' time and money, and also draws from a finite pool of dollars that could go to other startups with lifesaving technology.
2. Expect that you need to iterate.
With any device that's truly innovative, there are going to be lots of prototypes, a significant learning curve and changes that need to be made along the way. Budget for iteration and device improvements. "In parallel, be thinking about what you're going to do, be thinking about what you're going to do to improve."
3. Collect data on a very targeted patient population.
"It's very hard to create a therapy that works every time to a very similar degree in everybody," he said. "The tendency is to talk about a huge market opportunity. But at the end of the day, if you have a $500 or 700 million market that's genuine. . . you're far better off doing that."
I.e., make promises you can deliver and that are reasonable.
"So try to structure your trial, clinical data collection, so you're really dealing with a targeted group of patients, and that the targeted group is the group most likely to demonstrate a benefit to whatever your agent is," he said.
This will also help with the FDA process.
4. Work hand-in-hand with regulatory experts. Know your regulatory path inside and out.
"If you're on a PMA path, you know you're gonna need more money. You really want investors who have deep pockets so they can support you through several rounds, and you don't run out of gas . . . midway through a pivotal trial because your investors don't have the resources," Larkin said.
"The obvious thing above and beyond all else, get very good advice about how to conduct a clinical trial and work with your FDA review team to the best ability you can. (Come to) agreement with what measures they want to see. If you deliver on those measures, do they anticipate they will approve?" Increasingly, Larkin said, be sure you not only understand the safety expectations, but also the effectiveness bar as well.
5. Make devices that accommodate a large array of skill sets.
While focusing on a large patient population is often the emphasis in the initial stages, Larkin said.
"You have to design products and devices that work across a wide variety of not just patients but also of physicians," he said. "There's always somebody who graduated last in a medical program, or was viewed as a klutz." Physicians must be smart, he said, but "they don't have to be good mechanics." But all joking aside, hand-eye coordination and ability to "use the tools in the best way imaginable" can vary. Make your device as practitioner-friendly as possible.
[Photo by - BartaIV]