Transforming Concepts into Companies
Hanson S. Gifford III First Moscow Medical State University April 3, 2012
My Background • BS Mechanical Engineering, Cornell University 1982 • Experience at a Series of Medical Device Startups: • Oximetrix (SVO2 monitoring, hemostatic scalpel) R&D • DVI (atherectomy catheters) R&D, Clinical, Marketing • CTT (drug delivery catheters) President • Bavaria Medizin Technologie, GmbH (various catheters) Managing Director • Heartport (less invasive heart surgery) VP of R&D • Named inventor on 160+ issued US patents, 240 applications • Formed The Foundry, LLC with Allan Will in 1998
The Foundry’s Mission: Create Successful Medical Device Companies 2
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The Foundry’s Founding Premise in 1998 • The bar is high – Need huge market…solid IP…regulatory and reimbursement clarity…earlier proof of concept – A “Complete Package” is needed • Proven leaders are scarce – Recruiting a top CEO to a raw startup is hard • Time to exit has lengthened • Ever-increasing challenges for individual entrepreneurs Over 14 Years, These Pressures Have Only Intensified
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Where We Started • Raised ~$4M in Angel funding
• Set up a facility – Offices, cubes, R&D lab, machine shop • Hired leaders with experience in device development, and a small technical team • Started looking for great ideas
This sounds a lot like most “Incubators”
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A Few Key Differences We Look for Really Big Ideas • This means a $1B+ market opportunity (no kidding) – Acquisitions are based on the opportunity, not the cost of development • If the opportunity is smaller, the total development cost should be much smaller – Look closely at cost and timeline to profitability
– Small projects don’t align with venture capital interests, even if the percentage return is good • We don’t just wait for ideas, we invent them- and improve on ideas which do come from outside “Small Projects Don’t Have Small Problems” 5
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A Few Key Differences We Work to Create Genuine Teamwork • We become the company for the first few years • There are near-death experiences at every company – Trust and respect amongst the team is essential to address these real challenges • This includes the board of directors – They need to hear the problems and risks
– Strife in the boardroom is toxic
We Are the Team
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A Few Key Differences We Structure the Companies for True Alignment • Get everyone on the same side of the table • Investors, VCs, Founders • Avoid differential/contingent financial arrangements • Medical device projects take 7-10 years, not 3-5 • Let everybody get paid together when the company is sold or goes public
Financial Incentives Drive Behavior
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A Few Key Differences We Look for Passion • Company leaders need a Vision, and self-confidence – Confident enough to be humble, and to listen to advice – Look at “Effectual Entrepreneurship” • Causation: If I can predict the future, I can control it. • Effectuation: If I can control the future, I do not need to predict it.
• You can’t do this just for the money – The desire to help patients really matters – Don’t neglect the esprit de corps – Embrace the specific project challenges
• “Do or Die” makes people achieve breakthroughs
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A Few Key Differences We Try to Be Very Efficient • Most medical device projects won’t return 100X
• Spending $100M on a company which returns $80M doesn’t work for anyone • Try to pay and incent the smallest team which can get the job done • Years of clinical trials + big teams = value destruction
Keep the Company Lean
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Why Does The Foundry Model Work? • Outstanding leadership at each company is essential – Focused, consistent execution over 5-10 years is needed to achieve success – There are a hundred ways to fail during that time • We give ourselves the time to recruit great teams – Great CEOs won’t typically join a raw start-up – Broad network provides superior talent pool – Mentoring available for maturing executives – Long-term board relationships provide lasting guidance The Teams Truly Deserve The Credit 10
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Where We Are Today • • • • •
Hanson Gifford– DVI, CTT, BMT, Heartport Mark Deem– USCI, Cordis, DVI Jeff Grainger, JD– Townsend, Heartport, First to File, Xtent Kara Liebig– Specialized, AneuRx John Morriss– Coapt Systems, Acclarent
An extensive clinical and industry network, including: • Venture Capital- Domain, Morgenthaler, Versant, others • Broad Network- Key business leaders • Strategic Partners- Relationships at potential acquirers Over 200 issued patents among the team… Over 500 employees at our companies… Over $1.5B of current portfolio value 11
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The Foundry Model
NEWCO X “Black Box” New Series B Lead Investor
(Many Potential Technologies)
1-2 years of Focused development under Foundry Leadership
Series B Financing
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New Portfolio Company (Field of Requested Technology)
ü ü ü ü ü ü ü ü
Technology Generation/IP Strategic Alliances/Licensing Regulatory/Clinical Strategy Preclinical Testing Prototyping Market Plan Identify Team Choose “Requested Technology”
REQUESTED TECHNOLOGY
CONTINUED SUPPORT
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How Does The Foundry Choose Projects? • Identify the best opportunities through intensive research – look at the surgical history- it’s all there • Iterative invention, prototyping, pre-clinical testing – Create the atmosphere for truly effective group brainstorming
• A dramatically better solution is needed – Better for patients and better for physicians – Without a big advantage, customers won’t change
• Set the bar high, and then wait until we clear it There are bad ideas 13
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Critical Phases of Development • Initial prototyping and animal testing – Get to initial human studies ASAP – Wherever you find the right team and an efficient Ethics Committee process • First-in-man, feasibility, and refining studies • Randomized clinical trial • Approval • Reimbursement • Commercialization Companies must overcome technical, clinical, regulatory, reimbursement, commercial, and economic challenges 14
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The Foundry Portfolio: Broad Themes Unmet Clinical Needs
• Eliminating surgery: surgery > MI surgery > percutaneous > completely non-invasive • Devices which dramatically improve existing procedures • Targeting >$1B Drug markets with device solutions More recently, a foray into “lower-risk” projects
• Self-pay cosmetic/lifestyle procedures for baby boomers
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The Foundry Track Record: Consistent Development of Quality Companies
‌Over Fourteen Companies in Fourteen Years 16
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Congestive Heart Failure Founded October, 1999
Enabling cardiologists to repair cardiac valves • Mitral regurgitation leads to heart failure • Evalve’s system restores valve function • Effective for all forms of MR
• Investors: St. Paul, NEA, Delphi, Guidant • Acquired by Abbott for $350M + $100M Earnout in October 2009
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Ischemic Stroke Founded November, 1999
Restoring flow…saving lives • Blocked cerebral arteries cause ischemic stroke • ‘Corkscrew’ guidewire/catheter system removes clot • Blood flow to brain re-established immediately • Investors: NEA, H&Q, ProQuest, Oxford Bioscience, Montagu Newhall • Sold to Stryker in 2011 for $135M 18
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Hypertension & Heart Failure Founded October, 2003
Neuromodulation where drug therapy has failed • Renal (kidney) nerves help regulate hypertension and govern fluid overload
• $9B+ market opportunity • Dramatic and sustained pressure drops in initial patient trials • Investors: St. Paul, Morgenthaler, ATV, MDT • Acquired by Medtronic in January 2011 for $800M + estimated $550M earnout 19
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Ophthalmology Incubator Founded October, 2005
The new FORCE in ophthalmic innovation • Co-Founded with Eugene de Juan, MD (Retinal Surgeon) • Replicating The Foundry’s model in a specific field • Vision I: Transcend Medical (Glaucoma) • Vision 2: Punctal plug drug delivery – Acquired by QLT Inc. for $100+M in October, 2007 • Vision 3: Nexis Vision (Refractive Correction) • Visions 4 & 5 underway • Investors: Morgenthaler, Versant
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They Didn’t All Succeed • Our success rate is ~50% so far • Some GREAT projects with GREAT teams didn’t make it – There are inherent risks in developing totally new technologies • What’s the difference? – Getting human experience quickly is essential – Beware of projects where you “open the envelope” years later – Communicate early and often with strategics
You Still Need a Little Luck 21
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Why Does The Foundry Model Work? • We’re really serial entrepreneurs, not an “Incubator” • The Foundry team works well together – Trust and Respect – Creativity and Criticism
A Partnership Can Be Stronger Than Individuals
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The Foundry: Consistent Production of Quality Companies
“The Quintessential Incubator” -David Cassak, Windhover 23
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