Steve Arless learned the hard way that it’s never too early to start talking to potential commercial partners that could help develop your early stage medical technology company.
Arless told an Ohio Venture Association group on Friday that his decision to pass on an early commercial development offer ended up costing his company a lot more money.
As president and chief executive, Arless took CryoCath Technologies Inc., the Montreal, Quebec, Canada, maker of cryotherapy technologies to treat heart arrhythmias, from a startup in 1996 to a profitable public company in 2006, when he resigned.
Early on, “even though Johnson & Johnson had put a $50 million deal on the table, I convinced myself and the board that we should go off and do it alone because we could make a lot more money,” Arless said. “So we did.”
After a couple of private equity financings, an initial public offering, and several secondary offerings of warrants and common stock, CryoCath was sold to Minnesota medical device company Medtronic Inc. in 2008 for about $380 million.
“I had to raise almost a couple of hundred million dollars because we made the decision that we could do it on our own,” said Arless, who took the chairman and CEO job at Cleveland up-and-comer CardioInsight Technologies Inc. last year. “And that cost a lot more.”
In early February, CardioInsight finished a $6 million financing round — its second. The company was created in 2006 by two Case Western Reserve University doctoral students — Charu Ramanathan and Ping Jia — to commercialize technology developed by former university researcher Yoram Rudy.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
The company’s electrocardiographic mapping technology gathers electrical information about the heart from an electrode “vest” placed on a patient’s body, combining that information with images from CT scans to produce maps of the electrical activity of the heart. Unlike conventional methods, CardioInsight’s technology is noninvasive and provides beat-by-beat, whole-heart mapping.
The technology is “beyond the clinical concept phase now,” said Arless, who was hired to create a new vision for the company. “We’ve done 125 human studies with the technology in the field of ventricular tachycardia, atrial fibrillation, which is a big buzz word in the med-tech sector right now, and cardiac resynchronization therapy.”
Next week, the Cleveland Clinic and University Hospitals, both in Cleveland, will begin doing studies, he said, adding to ongoing studies in Europe, he said.
Arless calls the CardoInsight system — a disposable array of 256 electrodes, computer console and software — “truly breakthrough technology” because it provides information to electrophysiologists that now can only be gained through invasive catheter technologies. He believes his company’s technology could be used not only to map the electrical activity on heart surfaces, but to guide physicians during cardiac ablation procedures and for cardiac resynchronization.
Part of the “recipe” for growing CardioInsight into a global med-tech company is to “secure global commercial partners earlier rather than later,” Arless said. Start looking for partners before your company hits the first big commercialization blip, he said. “Relationships with big players like Medtronic and J&J will take years to develop,” Arless said. “It can never be too early to start the discussion.”
Other steps in the recipe:
- Assemble the ingredients. Get early investors to put enough money into your business to get it through the proof-of-concept phase and into humans, he said.
- Achieve proof-of-concept. “Then you’d do well to cherry-pick the best clinicians in the world to do research publication.”
- Build a global clinical network. “Then you will be able to cherry-pick the international and global VCs … for some of the more transformational technologies,” Arless said.
- Build a global venture capital network. Regional venture capitalists should have good relationships with global VCs “so that we can get serious consideration,” he said.
As for the ingredients, “I think that you have all of them in Ohio right now,” Arless said. They include:
- Strong regional angel investor support.
- Strong government vision and backing. Arless sited the Ohio Capital Fund and Ohio Third Frontier program as examples of this support.
- Strong clinical leadership. “It doesn’t get any better than the Cleveland Clinic and University Hospitals,” he said. Add Case Western Reserve, and you have a clinical triad.
- Regional venture capitalists. “A good, strong regional network is a springboard for startups. You have that.”
However, Ohio may not have enough serial entrepreneurs yet. “I like to think of myself as a serial entrepreneur,” Arless said. “But why did you have to come and get me in Montreal? It’s a critical ingredient to have somebody who really knows what they’re doing leading the ship. If you’re not a serial entrepreneur, surround yourself with them.”
Arless said Ohio also needs to think more about industry clusters. “I think you’re starting it here,” he said. “But you’re not highlighting it and fostering it.”
