We're Going to Vegas

We have many reasons to be excited by this report in this morning's VentureWire Lifescience about Nerites Corp. hiring its first CFO, former NimbleGen Systems Inc. exec David Schneider.

First, it's always nice to see someone hiring in this economy.

Second, the company confirmed the addition of Schneider is part of a broader plan to raise a Series B round later this year. Nerites was among the handful of companies we considered for our Series A Deals of the Year featured in last month's Start-Up. The company earned a mention in the article (find it here) but didn't make the final list, but we still care.

Third, we're going to get to hear the company's entire story at our upcoming IN3 West conference in Las Vegas.

Nerites will be among 50+ of the industry's choice start-ups presenting to a collection of biz dev and VC folks hoping to place the best bets (or best buys) in this tricky environment.

And those folks will give as well as take. The conference agenda includes discussions with senior level VCs from blue chip venture firms Frazier Healthcare Ventures, New Leaf Venture Partners, Versant Ventures and MedVenture Associates as well as seasoned medical device executives who have weathered some tough times in this industry.

And the fourth, final and probably least important (to you) reason we're excited: writing this blog post reminds us that IN VIVO Blog will be escaping the frigid East Coast for Vegas in just a few short weeks.

Hope to see you in Vegas!

Dollens: Reimbursement Uncertainty May Slow Innovation

Ron Dollens knows a little bit about innovation, and he’s worried.

In a keynote address that opened our In3 East Conference, the former president and CEO of Guidant Corp. warned that the instability of the current reimbursement system is threatening innovation in the life sciences sector.

“Health care policy is the strategic issue,” warns Dollens before a packed room at the Westin hotel in Boston. “If health care policy is not right, this sector will not be able to attract the financing capital required for early-stage companies, and those are the companies where breakthrough things happen. And if the financial capital is not available then the intellectual and human capital won’t follow, and it’s the human capital that is the source of all the creativity.”

Dollens says the Centers for Medicare and Medicaid Services (CMS) needs to work more closely and cooperatively with industry as well as with the Food and Drug Administration. A green light from the FDA means considerably less without a reimbursement code with which a company—and ultimately its investors—get paid.

In his address, Dollens says “risk capital” aka venture capitalists pay for 20% of all innovation in life sciences and medical devices. The figure goes up if you factor in private equity firms, he says. If private equity and venture capital investors don’t see the potential for “above average return” on their investment, they’ll walk.

“Do VCs have to invest in life sciences? Are there any barriers to where the money flows? The answer is obvious. They are not,” says Dollens. “They’re not tied to health care. They are not tied to life sciences.”

Dollen holds Guidant up as a prime example of the power of innovation. The company was built around its ability to discover and develop new products. At any point in time, two-thirds of Guidant’s sales came from products that were less than 12 months old, and Dollens says that ability to innovate was an asset its suitors sought to acquire (along with its existing businesses, of course).

The Eli Lilly spin-off grew from a $1 billion company in 1994 to a $27 billion company in 2006 when Boston Scientific outbid Johnson & Johnson to buy the company. (For BSC CEO James Tobin's take on the integration of Guidant, go here.)

In a question and answer session with colleague David Cassak and the audience following the address, Dollens questioned whether Guidant’s rapid rise could be recreated today. “I think you could,” he says. “But I don’t think you’ll have the market capitalization because of the health care policy concerns.”

Patients and physicians have an appetite for new technologies, but Dollens wonders where there's an equal desire to pay for them. He suggests the primary purpose of Health Care Technology Assessments—the extensive study of a device's technology and impacts on health care—is to keep a lid on costs.

More ominously, Dollens recalled a meeting Guidant officials had with CMS “a couple of secretaries ago” seeking reimbursement for a new device that already had received FDA approval. The Guidant officials presented the data showing that the company's device improved mortality rates in a certain patient profile.

He said the secretary’s first question was, “`Well how many patients are we talking about?’”

“He can ask that question for one of two reasons: one because he could be concerned about how many lives we were potentially going to save…”

“Or,” Cassak offered, implying CMS was concerned more about how much the new device would cost.

“And I think it’s the 'or’,” Dollens concluded.

Don't Miss Dollens

Regular readers of IN VIVO the magazine may recall a particularly insightful question-and-answer piece with Ron Dollens, the retired president and CEO of Guidant Corp., in our January issue.

Colleague David Cassak led Dollens a bit down memory lane and drew very telling details of the start—and the end—of Guidant. Well, don’t take our word for it. You can get a free copy of the article here.

Now you’ve got an opportunity to hear Dollens in person this week at our upcoming In3 East conference in Boston. He’ll be the keynote speaker on Thursday morning leading off two days of genuine information and insights on the medical device industry. Check out the second day panel.

Just prior to the publishing of the article, Dollens was the recipient of the Lifetime Achievement Award at last year’s Phoenix Medical Device CEO meeting, which is sponsored by PriceWaterhouseCoopers, Wilson Sonsini Goodrich & Rosati, Versant Ventures and IN VIVO. For more information on the upcoming Phoenix meeting click here.

And if you do make it to the In3 conference this week please say hello. Baseball fans seeking spirited discussion in between presentations will find healthy representation of the four American League playoff teams. We shipped the Phillies fan to London.

Hi, I’m from Medtronic. My name is …

In a wide-ranging keynote interview with colleague David Cassak at our ongoing In3 Medical Device Summit, Robert S. White, Medtronic’s chief development officer and vice president of corporate development, admitted his company’s reputation among those is the start-up world hasn’t been the best.

"That has been an area where we really have tried to improve,” White says. “Medtronic’s reputation has been mixed in terms of how friendly we’ve been to small companies. One of the things I’m trying to change is to make ourselves much more efficient and much less demanding.”

Over the past six to eight months, White says Medtronic’s corporate development group has closed several pure equity investments in companies without any rights tied to the investment. Medtronic is trying to decide on investments more quickly. In some cases, the company can do a deal in two to three months, he says. But often the time between initial contact and closing of a deal may take much longer.

But that’s not necessarily a bad thing. David asked White about the best way a start-up can pitch Medtronic. White says the best way might be to not pitch at all. First, he advises people to gain an audience the old fashioned way—through connections. “If you know people, reach out to them.” But if you don’t, try the direct route. Got to the corporate and business development offices and set up a meeting.

But leave the term sheet at home. “We really try to spend our time evolving our knowledge base around different types of companies and businesses out there,” he says. “So approach this as an education session, not as a pitch or a sales job. We find the best relationships develop over time.”

Interestingly, Medtronic sounds willing to invest more far a field than other companies in its strata--and it has some interesting pursuits. White says Medtronic has invested in roughly 70 companies, but only one half of them fit snugly into Medtronic’s current business; the other half falls in the so-called “White Space” areas where Medtronic sees potential but doesn’t yet have a focus.

Corporate investors like Boston Scientific, which still is digesting Guidant, and Johnson & Johnson Development Corp. seem less likely to invest in companies with technologies that don't have a clear cut fit into the parent corporation as we outlined in an IN VIVO article a few month back (Boston Scientific here, JJDC, here.) To be fair, however, classifying something as "white space" is purely subjective. If you try hard enough you can almost always find a business connection if you need to.

Anyway, will blog more from the Grand Hyatt in SF. If you're already here please say hello. If you're not stop on by.

Coincidence? Hmmaybe.

Our earlier post on the Cytyc/Hologic merger failed to mention this potentially salient point. IN VIVO Blog eyed Ed Hutchinson and Thomas Umbel, the business development heads for the Cytyc and Hologic, respectively, sitting next to one another on a panel at our recent In3 West Conference.



Birthplace of a Merger??



Now, we're not suggesting this is where the merger was hatched. Certainly not. (Okay, maybe we are a little bit with tongue nearly poking through cheek.) But we just wanted to point out that if you're hoping to network with some major deal makers, you might want to check out an upcoming In3 meeting.

And, as a matter of fact, the In3 Medical Device Summit is in a few weeks in San Francisco. We hope to see you there. Please take a moment to say hello, particularly if you've got some merger talks to reveal.

IN VIVO Blog knows how to keep a secret.