MEDICAL INNOVATION NEWS

From the CEO's Desk

"As we look ahead into the next century, leaders will be those who empower others." – Bill Gates

At the Fogarty Institute, we appreciate our very talented team and partners with whom we work towards a common goal to profoundly change and accelerate how medical devices are brought to market with the ultimate goal of improving patient care.

I am very pleased with the progress we have made in just a few short months, as we continue to bring together key players from within the innovation ecosystem — whether they are a government entity, entrepreneurs or more mature international companies that are looking to participate in our incubation program — to determine how we can best collaborate and help them accomplish their goals.

On that note, we are pleased to share the extremely positive feedback we recently received during a meeting with the FDA on the effectiveness of our first-of-its kind educational program we launched in late 2015. This month we hosted two new fellows and 17 FDA reviewers from the Office of Device Evaluation, who stopped by the Institute to learn what we do as part of their experiential learning program. We appreciate the feedback we received from them as we all work towards a common goal: bringing innovative technology to the patients who need it.

In this edition, we share some other recent accomplishments in furthering this mission to bring groups together and promote collaborative learning.

We highlight our first lecture series on funding, a topic that is of critical importance to our companies and graduates; we profile Raydiant Oximetry, one of our newest startups; and Kate Garrett, CEO of Ciel Medical and first-year Ferolyn Fellow. A week ago today, Kate sold her startup to Vyaire Medical, the healthcare industry's largest pure-play "breathing" company – a very impressive achievement.

We also share a Q&A with Dr. Fogarty, who continues to remain very involved in helping shape the future of the Institute and play a key role in developing the next generation of medtech leaders.

Lastly, save the date for our signature event, Wine with Heart, with this year's theme of "Building Upon a Legacy of Innovation" as we celebrate our 10-year anniversary on September 8 at the Thomas Fogarty Winery.

As always, we appreciate your support and welcome your feedback and thoughts.

Andrew Cleeland, CEO of the Fogarty Institute

"We are bullish on devices: I predict some of the funds that are in biotech will move over to medical devices." – Mike Carusi, general partner and team leader of Lightstone Ventures

Fogarty Institute Updates

The Fogarty Institute's first lecture series featured, from left to right: Jon Norris, managing director of sales origination for Silicon Valley Bank; Philip Oettinger, partner in the life sciences practice at Wilson Sonsini Goodrich & Rosati; Mike Carusi, general partner and team leader of Lightstone Ventures; Andrew Cleeland; and Marc Galletti, managing director and founder of Longitude Capital. Missing in the photo is Renee Ryan, vice president of investments at J&J Development Corporation.

Fogarty Institute's first lecture series focuses on funding; speakers optimistic on the future of the medtech sector

The Fogarty Institute held its first monthly lecture series on a topic that is critical for all of our startups, fellows and graduates: funding. Whether early- or late- stage, all startups need to raise money to move their company to the next phase, and, as is well-known in the medtech industry, funding in our sector has suffered from a steady decline for more than two decades.

Jon Norris, managing director of sales origination for Silicon Valley Bank, kicked off the program by providing an overview of the state of the healthcare and medtech industry and trends in these sectors.

He was followed by a panel discussion with Renee Ryan, vice president of investments at J&J Development Corporation; Mike Carusi, general partner and team leader of Lightstone Ventures; and Marc Galletti, managing director and founder of Longitude Capital. The team provided a view into early-stage investment and tips on pitching.

Philip Oettinger, partner in the life sciences practice at Wilson Sonsini Goodrich & Rosati, wrapped up the seminar with best practices for term sheets and investor negotiations and pitfalls.

Below are a few highlights from the seminar.

State of the medtech industry

In its annual report on healthcare investments and exits, Silicon Valley Bank provides insight into fundraising, investment, M&A and IPO activity for private, venture-backed biopharma, medical device and diagnostic/tools companies. During his discussion, Jon Norris shared a high-level view of market conditions the bank has observed.

Key healthcare trends:

  • U.S. healthcare fundraising: Overall fundraising has been strong, but most of the dollars are being allocated towards biopharma and away from medical devices. This presents challenges for the industry, but also opportunities as investors have access to great companies with good valuations because there is less competition. In 2016, $11.7 billion was invested in healthcare companies, and U.S. venture fundraising remained active at $7.2 billion. Seeing similar VC dollars raised two years in a row shows that the healthcare pipeline is fully funded and there is a lot of capital to support companies for the next couple of years.
  • Series A investments: Series A escalated in 2016 for medical devices, nearly doubling from 2015. These deals were not necessarily VC-backed but came from other sources, such as angel investors and family offices. The top deals and investments were made in neuro, respiratory, cardio and orthopedic.
  • Investor pool: The active device investor list grew much more diverse than we saw 10 years ago, filling the void in venture capital funding. Companies that traditionally have only completed late-stage deals are beginning to express interested in early-stage companies. Examples include LSP, Deerfield, KKR and Co., Boston Scientific, J&J, Medtronic, and more active angel investors such as Green Park & Golf Ventures. The growing field of non-invasive monitoring, cardiovascular and neuro spaces were among the most active investments, while aesthetic and derm decreased. Overall deal sizes for the medtech sector stayed steady between $15 and $18 million, and Northern California led the U.S. in volume of deals.
  • M&A and IPOs: M&A declined in 2016 following a strong 2015. Orthopedic and ophthalmology had a few deals, surprisingly, as these are not areas where there has been significant investment in the last two years. Device acquisitions continue to focus on later-stage companies. M&A time to exit increased in 2016 with cardiovascular, ophthalmology and neuro achieving exits at earlier stages. The IPO landscape was rather bleak, but there were several in the fourth quarter.
  • 2017 Outlook: Silicon Valley Bank is foreseeing investments will stay close to 2016, perhaps slightly lower for devices. Norris stressed that this doesn't mean there are fewer investors, and the numbers remain fairly healthy for this industry. Series A should also stay similar; IPOs will at least double; and M&A activity will remain stable with a potential increase.

Qualifying investors and getting introduced to the right backers

One of an entrepreneur's main challenges is knowing how to identify and connect with the right investor. Some best practices the panel shared included:

  • Realize that each VC group has professionals with different specialties. Get to know the person, their history of funding and how they help companies through challenging situations. Also, if there are two VCs focused in the same sector, see if you can find out who just conducted several deals and who hasn't, to identify the one who may be more open to making an investment.
  • Look beyond the obvious value of money. Consider how they can help with introductions and networking opportunities.
  • Review their websites to see what kind of investments they have made and in which fields.
  • Do reference checks: Find out what the VCs are like in the good and bad times.
  • Find a connection or common link to the VC you are looking to reach – many of the investors work with entrepreneurs they know, trust and have already had positive outcomes with. Don't cold call; use LinkedIn and/or network to find an introduction.

Making a strong pitch

Entrepreneurs only have a brief window to make a strong impression on VCs for a small pool of funding so a pitch can make or break a company.

Here are a few best practices the panel shared for Series A funding:

  • Between one to three people at the most should be at the first pitch.
  • Have someone who can clearly articulate the unmet need the technology is trying to address, and can answer questions about the size of the market, the clinical plan and why the technology is going to evolve into a product that is materially better than the current standard of care in the market.
  • Factors that best the pitches have in common:
    • Quickly introduce the team and their specialties.
    • Reveals the value proposition within the first three slides.
    • Crisp, answers the questions and is well thought out - and does all this within an hour.
    • Shows the team's passion.
    • Thoughtful and demonstrates a linear progression of thinking.
    • People who are self-aware and are transparent about what they can and cannot do.
    • Helps VCs understand the business: Remember, you are pitching a business and not a product. It's very useful when the entrepreneur knows the likely acquirer and which division within a company would likely make the acquisition.
  • Bad pitches:
    • Waste the team's time by not listening to and responding with what they are interested in hearing.
    • Don't take VC's feedback into consideration if there is some initial interest.
    • Don't demonstrate strong interpersonal skills. Part of the importance of the pitch is to understand who you would be working with, so VCs test your interactions and receptiveness to feedback as a way to get to know you and see if they feel you can work together.

Medtech industry outlook

We asked our panel to summarize the receptiveness that early-stage entrepreneurs with very innovative ideas might expect in the industry:

  • Mike Carusi: "We have a window of opportunity in medtech right now. The best time to start a company is when the base is contracting. What has been consistent over the past 15 years is the number of acquisitions. Since there are fewer companies being created, I think there is a strong opportunity. We are predicting that some of the biotech money will start flowing into medical devices. With that said, not all companies will succeed or should be started – you need to make sure you are thoughtful and going after a real clinical need and that it is something that is ultimately appealing to the strategic investors, as you can't count on an IPO."
  • Renee Ryan: "I am very optimistic. We saw an opportunity in the marketplace five years ago when there wasn't a lot of investment in medical devices. There is a lot of money out there for early-stage funding through different sources, for example through competitions like QuickFire Challenges or others put on by Google. Don't be afraid to look at grant monies early on as there are a lot of companies like us at J&J who are interested in the later stages of funding.

    "I am also very excited about the consumer-medtech space. We are seeing great progress in this sector. The customer is changing and the market is changing, but don't be afraid of some of those business models."
  • Marc Galletti: "I have confidence in our industry and where it is going. I think we are at a dawn of the next generation in medtech with some traditional technology but also with emerging connected devices. In the new world, healthcare efficiency will be the mantra and the economic value will be very important. You need to think of the four ps: patient, physician, providers and payers and ensure you are providing value to all of these stakeholders in the long-term. A negative in any one of them will challenge a company."

Our Companies

The Raydiant Oximetry team at their new headquarters at the Fogarty Institute. From left to right: Neil Ray, MD, chief medical officer; Nicole Hlava, MD, chief executive officer; and Terry Han, chief scientific officer

Raydiant Oximetry shows promise to vastly improve fetal health monitoring

When Neil Ray, MD, a pediatric anesthesiologist by training, was working in private practice in South Florida, he was surprised to learn that nearly half of women gave birth via a caesarean section, and often, these surgeries weren't necessary as both the baby and mother were very healthy.

His observations are backed by a recent Consumer Reports study, which ranked Florida among the top three states with the highest C-section rates in the country. And while Florida's rates exceed most, research shows that surgical birth rates are too high nationwide, particularly for first-time mothers-to-be who were at low risk of needing a cesarean. The study found that nearly half of the C-sections performed in the U.S. were unnecessary.

Many expecting mothers don't realize that C-sections can have serious short- and long-term implications, including post-partum depression, major complications from blood clots and injury to the bladder. Babies born via C-section are also at higher risk of suffering from long-term asthma and obesity and have a harder time breastfeeding.

Determined to find a better solution, Dr. Ray noticed that the current fetal monitoring system used during childbirth doesn't provide a good indication of a baby's health as only the heartbeat is tracked in conjunction with a mother's contractions.

"I knew that if I could find a way to use technology to non-invasively determine fetal oxygen levels during labor, there was an opportunity to vastly reduce the number of unnecessary C-sections," he said.

He went to UC Davis, where he received high-level support and clinical time to refine his theory. He later formed a team with the expertise to build the device and created Raydiant Oximetry with the objective of allowing physicians to better monitor babies during the third trimester of pregnancy and labor to promote more informed decisions. The co-founders include Nicole Hlava, MD, chief executive officer; and Terry Han, Ph.D., chief scientific officer.

In just two years, the team has already built its first prototype, which uses just one device to monitor a baby and mother's heart rate and oxygenation.

The startup is a quarter of the way through its first feasibility study at UC Davis where initial results have successfully shown the fetus and mother's heart rate and oxygen saturation readings.

However, because this is the only such device on the market, there is nothing to compare to their values, although their readings are within the normal, expected range. As a check, they will soon undertake animal studies so they can compare how their device is tracking in comparison to arterial oxygen saturation.

To accelerate its growth, the startup applied and was accepted into the Fogarty Institute's incubation program.

"We see immense value in being in a location where there is such expertise within the industry, and its history of creating successful startups was very appealing to us," said Nicole Hlava, MD. "The team also appreciates being co-located with other startups, which allows for a free exchange of ideas and shared knowledge."

The first three weeks at the Institute have already been very productive as they have received individual mentoring from Andrew Cleeland, Kerry Pope and Denise Zarins on different aspects of their business. Next, they look forward to helping host the FDA fellows who are joining the Institute this month.

Q&A with Thomas J. Fogarty, MD, Founder of the Fogarty Institute

"The Father of Invention."
"Genius."
"da Vinci-like."
"Preeminent inventor of medical technologies."

These are just a few of the phrases used to describe Dr. Fogarty's innovation-driven mindset and determination to find a better way to solve critical healthcare needs.

Throughout his career, Dr. Fogarty has arguably accomplished more than any medical entrepreneur to date. His revolutionary "industry standard" Fogarty balloon catheter is still used in more than 300,000 procedures worldwide per year and is estimated to have saved the lives or limbs of 20 million patients. The list goes on: He has founded more than 45 medical device companies; is credited as inventor on 165 surgical instrument patents; and has received numerous prestigious awards, including the Presidential National Medal of Technology and Innovation, among many others.

But perhaps most importantly, his inventions have transformed how surgery is performed today and have led to the development of multiple minimally invasive medical technologies that touch the lives of countless patients and their families. In addition, his knack for mentoring and starting new companies has paved the way for entire new generations of innovators, who are now launching their own companies and defining the future era of life science.

And at 83 years of age, Dr. Fogarty's passion for advancing medical innovation and improving patient care continues. He tours the Fog Shop and shares his knowledge with our innovators almost daily and is playing a pivotal role in helping shape the future of the Fogarty Institute.

We recently had the privilege of catching up with Dr. Fogarty to discuss his thoughts on the progress of the Fogarty Institute as we near our 10-year anniversary, as well as the advancements and future of the medical technology industry.

Q. How has the Fogarty Institute evolved since you first launched the organization in 2007?
The Institute was truly a startup when we first came up with the concept – but a different kind of startup, as it is a not-for-profit. And as with any startup, you learn a lot in the early stages, including the need to continually raise money. That can be very difficult because investing is always a lot easier when there is a clear financial return, compared to investing in funding a goal, which in our case is to ultimately improve patient care.

However, what donors and investors must understand is that in the field of medicine, our primary objective is to benefit the patient, and the only way we can change and improve is by innovating and developing new technologies.

This is very difficult to do because hospitals and physicians are often reticent to adopt new technology due to the potential risk for being sued or losing one's reputation if the technology should fail or is used inappropriately.

It's very challenging to raise money for something that is not understood – and this is something we have set out to accomplish at the Fogarty Institute in the past decade – to raise awareness and educate donors, investors and the innovation ecosystem on the various challenges we face.

You almost have to be part of the process to understand how medical technology startups get to market, so we have started to involve organizations and regulatory officials by inviting them to join the Institute as part of our educational program. That gives them an insider's view so they can better understand the hurdles involved in taking a product from initiation to application here in the U.S.

We feel the Institute has made bold, strong strides in the past 10 years, and we have recently gained momentum by hiring Andrew Cleeland. His experience as an accomplished businessman perfectly complements our perspective as physicians and innovators. We are very optimistic about our future.

Q. Which accomplishments are you most proud of?
We are most proud of the more mature startups and companies that have left the Institute and whose devices are commercially available, including Heartflow, our very first startup, nVision and EchoPixel. If you don't go to commercialization, you don't benefit patients.

It is very gratifying to see these young entrepreneurs come to the Institute with innovative devices that show great promise to help people with illnesses. It feels like a "passing of the baton," allowing us to share the key foundational elements of our careers as physicians, inventors and entrepreneurs with the unwavering goal of improving patient care.

In addition, we are also very pleased with the first-of-its-kind program we established with the FDA to help accelerate medical device innovation by improving communication, collaboration and understanding between the FDA and early-stage medical device innovators, thereby improving the overall efficiency of the medical device approval process.

And we are very happy with the progress we are making with our corporate program and our Japanese partners who come here to immerse themselves in the innovation process.

Q. What are your thoughts about the advancements in medical technology and the future of the industry?
It was more than 50 years ago, when I was in eighth grade, that I started working in a hospital cleaning medical equipment and later as a scrub technician. The progress that has been made since then is truly amazing. We can barely keep up with the evolving technologies in all fields: oncology, cardiology, internal medicine, gene therapy and more. It's been very gratifying to be part of this evolution.

If I think back to when I was in high school and observing surgeries, there was a different standard – when a physician saw bad tissue, he would cut it out. The bigger the incision, the better the surgeon, it was believed. The concept of less-invasive surgery came to me as I regarded two physicians perform the same surgery with different size incisions – one would make a six-inch cut and the other a one-inch cut. The latter used his index finger to feel how big the cut should be. This showed me that there was a better option for surgery, which led to the invention of the balloon catheter.

Today, the physicians and industry are adapting rapidly to the concept of less-invasive procedures. For example, transcutaneous X-ray therapy has made great strides. The Institute is working on a technology that allows us to ablate or remove tumors. We are now adopting that same concept to ablate atrial fibrillation and ventricular tachycardia.

On the other hand, healthcare costs have greatly escalated, so there is also a decisive trend toward developing new technologies that reduce costs. And we are also seeing a much stronger sense of collaboration. The players in the medical technology industry are recognizing that unless we work together, progress is difficult to obtain because of all the hurdles that startups face to get to market.

The FDA, for example, has recognized that in the past they had increased costs for development, and they are now working toward reducing previously required clinical data that is not directly related to safety and efficacy. That is a fantastic step forward.

There is also increased collaboration within the industry as larger companies are beginning to make more investments in early–stage companies, recognizing that startups can come up with technology that could replace current devices and offer advantages in both performance and cost.

We have to work together to accomplish better medicine and reduce costs. The accelerated pace of innovation has been very gratifying, and we are confident in both the industry and the Fogarty Institute's ability to help push forward transformative technology that will provide better patient care.

Monthly Spotlight: Kate Garrett, Ferolyn Fellow

Bay Area native Kate Garret has always enjoyed a fast-paced, challenging and innovative environment – the very definition of a healthcare setting. And that's one of the reasons she has focused her energies on solving unmet clinical needs as co-founder and CEO of the startup Ciel Medical, a company dedicated to treating ventilator-associated pneumonia.

When pursuing a degree in mechanical engineering, she left California for Olin College, a progressive undergraduate institution based in Boston, where she was one of the first graduates of a program that is now renowned for creating engineering-innovators.

Thanks to the program's unique approach to teaching engineering, Kate was exposed to a program focused on developing a "whole engineer," emphasizing the importance of strong communication and collaboration, working well with teams across cultures, and gaining an understanding of fields outside of engineering, such as finance.

Gaining a passion for medtech and startups

Kate discovered her passion for medical technology the summer after her sophomore year, when she joined Living MicroSystems, a genetic amniocentesis startup focused on developing a non-invasive method to obtain fetal cells for genetic diagnosis. She felt a personal pull to the issue because at the time, two of her aunts were over 40 and pregnant, and their experiences made it clear the impact that new technology can have on people's lives. That's when she decided she wanted to focus the rest of her career in this field, appreciating that it would not only present interesting challenges but provide an opportunity to make a real difference for patients and their families.

Following graduation from college, she moved to Kirkland, Wash., and joined Pathway Medical Technologies, a startup later acquired by Bayer Healthcare that developed, manufactured and marketed medical devices to treat arterial disease. She started as an R&D engineer and transitioned to project management as the company quickly grew from 30 employees to a team of 180 people.

While she enjoyed the challenges of being an engineer, she wanted to learn more about various aspects of the business, such as how critical decisions are made and how to set the direction of a company. This quest led her to apply and earn acceptance into the Stanford Biodesign program as an Innovation Fellow. There she learned about the very early stages of creating a company, including how to identify an unmet clinical need and determine the best path for solving the problem.

Launching her own startup

That program was the launch pad for Ciel Medical, her team's project during the fellowship, which revolved around identifying ventilator-associated pneumonia as a major unmet clinical need and subsequently forming the startup to develop a solution to create an aspiration barrier for ventilated patients.

Today, the startup has developed three products, which are commercially available in the U.S. They are currently in the very early stages of selling these products -- developing first accounts and establishing a commercial presence.

The company recently achieved a significant milestone on their first two products, with almost 50 devices in use at Northwestern University Hospital in Chicago.

With their third product, the NEMO Gauge, the team aims to develop a faster way to position the breathing tube in the airway as a supplement or alternative to portable chest X-rays, the current standard for confirming tube location. Because this is a novel technology, the startup quickly moved to gather clinical evidence to support the use of this device and is currently engaged in a multi-center trial in Southern California.

Thanks to the knowledge and insight Kate gained over the years, Ciel Medical was acquired on April 20 by Vyaire Medical, the healthcare industry's largest pure-play "breathing" company. The acquisition will help strengthen Vyaire's strategy to offer products that can help reduce the incidence of Ventilator Acquired Pneumonia for ventilated patients and reduce overall costs of care while improving patient's outcomes.

Joining the Institute's Ferolyn Fellowship

Becoming a Ferolyn Fellow was a natural progression for Kate in her journey to learn ever more about device development. She was introduced to the Fellowship by Paul Yock, the founder and director of Stanford Biodesign.

Kate had learned of Ferolyn's dedication and her work while at Stanford. "It is such an honor to be affiliated with a program in her name as she made such a difference and impact on people's lives," Kate said.

So far, she has found the program beneficial in helping her better think through the commercial strategy for their products as the startup moves to its next phase.

In addition, she appreciates the unparalleled access she has to experts in the industry, "These are really busy individuals, and it is incredibly valuable to be able to personally learn from them."

Kate's personal mentor is Angela Macfarlane, president and CEO of ForSight Labs, and she has also been working closely with Claudia Carasso on communications and branding, which has provided a definite boost in shaping their message to targeted audiences.

Another aspect that Kate has thoroughly enjoyed is the close relationship she has developed with the two other Fellows, Matt McLean and Julia Fox.

Save the Date!

Building Upon a Legacy of Innovation
The Fogarty Institute for Innovation is hosting its annual Wine with Heart fundraising event on Friday, September 8, celebrating the Institute's 10-year anniversary.