Medical Device Link.

Originally Published MX March/April 2006

EDITORIAL ADVISORY BOARD

Newly appointed members of the MX editorial advisory board offer guidance on achieving strategic and financial success in the medtech industry.

In the realm of medical technologies, growing a business often requires a lot more than just a good product idea and a ready marketplace. With resources stretched thin, company leaders are often pressed to develop detailed business plans that project their market potential as well as their regulatory and reimbursement strategies, management team growth, marketing plan, and more.

In turn, such detailed business planning makes it possible for emerging medtech companies to attract the attention of the financial community-including investors ranging from angels to large commercial banks. Such investors are increasingly specialized in the area of medical technology, and they can be a hard group to impress.

In both of these areas, getting expert advice is as important for MX as it is for the magazine's readers. In this issue, MX is pleased to present the newly appointed members of the advisory councils for two areas of critical importance to medtech executives: business planning and finance.

Business Planning

Hamade

Sami Hamade is vice president of the Compass Group, the corporate venture capital and business development arm of Guidant Corp. (Indianapolis). In addition, Hamade recently assumed leadership of a combined West Coast business development unit, comprised of business development groups from the company's vascular intervention, cardiac surgery, and endovascular solutions divisions.

The portfolio of the Compass Group exceeds 25 start-up companies in various clinical domains covering a wide range of maturity. Compass is also involved in Guidant-wide strategy definition, an area in which Hamade is leading strategic initiatives in the application of convergent technologies such as biologics and wireless remote patient management.

"Compass has seen more activity in the last five years than in the preceding years," Hamade says. He adds that large companies continue to fund the development of emerging medtech companies through funds such as Compass. "Large companies focus on time- and money-draining big hits that are crucial to their success, but they depend on start-ups to generate growth opportunities in adjacent and disruptive domains," he says.

Previous to this position, Hamade held founding roles in the launch and development of significant businesses for Guidant, including coronary stents, carotid, and peripheral systems. In these businesses, Hamade assumed leadership roles in marketing, sales management, and general management, and was instrumental in writing the early strategic and operational plans. His efforts as a serial entrepreneur helped create some of Guidant's most-lucrative businesses.

Prior to joining Guidant, Hamade held positions of increasing responsibility in engineering and technical sales management, fields in which he was a recognized inventor and business manager. He is the recipient of publication awards and the prestigious Kettering award for innovation.

Hamade has been active in the medical device sector for the past 13 years. He started with Advanced Cardiovascular Systems, where he assumed positions in international marketing and distributor management. He currently sits on several early-stage company boards and advises a Midwest venture fund. He has been quoted and interviewed in numerous publications, including Business Week and Financial Times, and has been invited on several occasions as a guest lecturer at Stanford University.

Over the years, Hamade has witnessed the planning processes of multiple companies. "Some of the bigger and less-obvious failings that I have seen over time include companies that undershoot their funding requirements, poorly plan their FDA strategies, and lack understanding of how to obtain reimbursement after FDA approval," he says.

Hamade says most medtech company leaders plan appropriately for their potential exit through an acquisition. "However, some of the less experienced CEOs don't spend enough time planning how their product or business proposition might fit the existing portfolio of bigger companies, both from a timing and funding perspective," he says. "Some businesses can be sold even if they impose dilution on the acquiring companies, at least in the short term, whereas others can not."

Hamade holds a bachelor's degree in engineering from the American University of Beirut, a master's degree in engineering from the University of Michigan, and an MBA from Stanford University.

Nicholson

James E. Nicholson is founder and managing partner of OrthoPlex LLC. He has an extensive track record in the medical device industry as the founder of several medical device start-up companies, including Mitek Surgical Products, Innovasive Devices, and Cortek Inc.

OrthoPlex is Nicholson's seventh venture. He led both Mitek and Innovasive through successful initial public offerings (IPOs), and both companies were subsequently acquired by Johnson & Johnson's Ethicon division.

When considering whether to set up a company as an acquisition target or remain an independent enterprise, Nicholson says there are clear scale and breadth advantages to larger medical companies. "In high-growth and less-mature segments of medtech, a company may branch out from a few good products to become a platform company, but their value creation first depends on the viability of a key product or system," he says. "Companies should keep their options open to maximize exit value, though it can be difficult to balance product versus business infrastructure spending."

In assessing which medtech sectors offer the greatest opportunities for building a company, Nicholson says he tends to focus on the big disease trends in the orthopedic, cardiovascular, neurological, and pain markets. "While these are very large sectors, the best new companies are focusing on less-crowded subsectors," he says. "I have had some success in each of these areas."

Nicholson is the inventor behind 38 patents involving numerous enabling medical and surgical products. These include the Mitek anchor and Venodyne intermittent compression. It is estimated that surgeons using his products have saved more than 250,000 lives.

While some emerging medtech companies struggle to get beyond the earliest phases of technology development, Nicholson says there are steps they can take to advance their products. "Companies have to be sure to review their finished designs with doctors in the potential customer set," he says. "They should be sure to talk to thought leaders, but also some less-experienced clinicians who might have even greater demands for ease of use. In my experience with surgeons, there is a large variance of opinion regarding preferred technique for each procedure."

Nicholson holds a BS and MS in aeronautics and astronautics from Massachusetts Institute of Technology.

Seeman

Jerrold S. Seeman is president and chief executive officer of Luxcore Ltd. (New York City), the U.S. Department of Justice-registered communication agency that is the official representative of the Luxembourg Board of Economic Development. An attorney and senior corporate public relations and public affairs counselor, he advises senior management and government officials, and executes positioning strategy for mergers and acquisitions, control contests, investor relations, financial transactions, litigation, crises, bankruptcy, community and labor relations, and national economic development.

Seeman says the nature of the medtech industry requires a dynamic model of business planning. "Because of the critical, often life-or-death implications of medtech products, and because the medtech industry exists in a stringently regulated, but shifting environment, medtech executives by necessity must factor in extreme product standards and absolute regulatory compliance at the earliest stages of business planning—and be prepared to accommodate changing costs and requirements," he says.

According to Seeman, whether a company is planning for a new facility, new product, or a modification to an existing product line, the true—including hidden—costs of the initiative must be recognized, analyzed, and addressed—and priced into the final decision. "Every opportunity in medtech has its attendant costs, and not recognizing these and conducting a valuation of them at the outset can result in costly mistakes," he says. "A flawed component of a value chain, from original concept to finished product, can disrupt the entire process. A house cannot stand if you must remove a cornerstone during construction."

Medtech companies can benefit by implementing a multidimensional business-evaluation model, Seeman says. Such a model creates a matrix of costs across design, manufacturing, and regulatory compliance and enables variables to be plugged in as they change, permitting real-time modeling of the costs and return of the product. "Medtech companies also have a need for powerful analytics," he says. "They should be able, within reason, to factor in the cost repercussions of a new piece of regulation aimed at the testing or certification of a present or contemplated product.

"Finally, let's not forget the sometimes-devalued worth of market research, competitive intelligence, anecdotal evidence, industry insight, and networking, as these contribute to smart product decisions," he adds. "I have seen companies launch products into a market vacuum, believing that ‘if they build it, the market will come.' Too often these moon shots end up in a corn field."

Seeman has provided communications and investor relations counseling to new technology IPOs and managed global marketing campaigns for e-commerce clients. He serves as a corporate spokesman and directs media relations, as well as interpreting legal disclosure requirements and overseeing their compliance. He is trained in corporate and securities law.

Seeman is a specialist in developing and implementing comprehensive communications programs for global companies undergoing transition and forming a new identity as a result of a merger, acquisition, or divestiture. In this capacity, he has counseled Roche Holding in its acquisition of American biotechnology company Genentech; Rhone Poulenc in its acquisition of Rorer Group; Accor in its acquisition of the Motel 6 hotel chain; and Unilever in its acquisition of the Calvin Klein and Elizabeth Arden brands.

In addition, Seeman has devised and conducted communications to shareholders; employees; the international, national, financial, and trade media; customers; suppliers; and regulators. In the course of this work, he has authored advertising campaigns, quarterly and annual reports and earnings releases, speeches, internal communications briefs, brochures, fact sheets, media backgrounders, and position papers. He also possesses extensive experience in media training, as well as training for governmental and shareholder meetings.

As an investor relations practitioner, he has conducted programming and execution for companies initiating an IPO as well as those seeking to access the American capital markets from overseas. Executing investor relations for foreign companies listing equities in the United States, he has provided senior counsel to Mexican companies Cemex and Empaques Ponderosa to assist their listing of American depositary receipts (ADRs). He also oversaw all aspects of the listing of ADRs on the New York Stock Exchange by Enterprise Oil, a major British oil company.

A graduate of Georgetown University Law Center, he pursued graduate and undergraduate studies in psychology at New York University. Past president and member of the board of the Georgetown Club of Metropolitan New York, he is also a member of The University Club.

Viscogliosi

Anthony G. Viscogliosi is the founder, chief executive officer, and chairman of the board of managers for Small Bone Innovations LLC (SBI; New York City). He is an accomplished founder, entrepreneur, CEO, author, and lecturer on the orthopedic, spine, and tissue-engineering healthcare industries.

Viscogliosi says the key to success in raising capital is establishing reasonable, prudent, conservative milestones that are achievable in a proper business model. "Adequately financing one's company is the most important job of the CEO, and every CEO wants the current round of financing to be the last, but the best-laid plans never work out exactly as you would like," he says. "When you raise each round of capital, it is also crucial that you raise buffer capital—breathing room—to ensure you are prepared for the next bump in the road. No CEO wants to be caught trying to raise capital under less-than-optimal circumstances, or worried about running out of capital should they miss a milestone. My personal rule of thumb has always been to raise up to 12 months additional, or at least 30% more capital than you plan to consume."

Viscogliosi has more than 20 years of experience as a founder, CEO, and leading research analyst. Prior to cofounding Viscogliosi Bros. LLC (New York City) in 1999, he was employed for 11 years with several regional brokerage and investment banking firms as an institutional sell-side equity analyst. Viscogliosi's most recent position was as senior vice president and director of medical technology at Stifel, Nicolaus & Co. Inc., a St. Louis-based regional investment bank. He was responsible for establishing the company's New York office and its medical technology sales and research presence.

Outside of finance issues, regulatory and clinical strategies are critical to any capital and operating plan, Viscogliosi says. "Without an experienced, seasoned, infinitely well-thought-out, step-by-step clinical and regulatory process, no amount of capital will be sufficient," he says.

"I also firmly believe in creating a clearly established message for every person at every level of your company to follow," he adds. "As production begins or as markets change, the ripples can be felt throughout your company-all parts are moving and all things ebb and flow. Your employees must stay on message, change tactics, and modify strategies in order to achieve their objectives, resulting in the achievement of company goals and ensuring success."

Prior to Stifel Nicolaus, Viscogliosi was director of medical technology, codirector of research, and assistant director of research with Rodman & Renshaw Inc., First Albany Corp., Commonwealth Associates, and Martin Simpson & Co. Inc., respectively.

In addition to founding SBI and Viscogliosi Bros. LLC, Viscogliosi was a seed-stage founder and entrepreneur of several worldwide leading medical technology companies and advisory firms, including Raymedica Inc. in 1993, Alliance Medical Corp. in 1996, Spine Solutions Inc. in 1999, and Musculoskeletal Clinical & Regulatory Advisors LLC in 2003. He currently serves as a board member for Small Bone Innovations LLC, Spine Motion LLC, and Spine Solutions Inc. Viscogliosi formerly held board positions with Spire Corp., Raymedica Inc., Hayes Medical Inc., and SpineNext SA.

According to Viscogliosi, opportunities for emerging medtech companies are greater than ever before. "To capitalize on these opportunities and achieve success, it is critically important to be narrowly focused and specific," he says. "From a business model point of view, be well defined, highly narrow in focus, and stay on point. Entrepreneurs must be visionary in their approach and find a problem that either no one has focused on solving or that is being treated in a disorganized and highly fragmented way."

Viscogliosi holds a BS in economics from the University of Michigan and is a lieutenant commander in the United States Navy Reserve.

Finance

Cohen

Richard S. Cohen is president of the Walden Group Inc. (Tarrytown, NY), a strategic investment-banking firm specializing in the healthcare industry. He has provided strategic, operating, financial, legal, and tax expertise in more than 70 mergers, acquisitions, and other healthcare transactions. Cohen is a specialist in helping to design synergistic growth programs for acquisitive companies. His clients have included Becton Dickinson and Co. (Franklin Lakes, NJ), Mölnlycke Health Care (Göteborg, Sweden), and a unit of the Pennsylvania Medical Society (Harrisburg, PA).

Over the coming 12 months, Cohen expects the medtech market will continue to experience a high level of acquisition activity. "Continued consolidation can be expected in the cardiovascular, orthopedics, and minimally invasive surgery markets as the baby boomer generation's hearts and joints start to deteriorate," he says. "Boston Scientific's aggressive bidding for Guidant and its purchase of multiple niche players—including TriVascular Inc., Rubicon Medical, Biophan Technologies, Advanced Stent Technologies Inc., and CryoVascular Systems—reflect the drive to offer more cardiovascular treatments through common call points and sales channels.

"Likewise, the large orthopedic manufacturers are extending their product offerings by buying lower-volume, specialized players," he adds. "Examples of this activity include DePuy's recent acquisition of Hand Innovations and Kyphon's purchase of InnoSpine."

Cohen began his career as a corporate and securities attorney at Wachtell, Lipton, Rosen & Katz (New York City), a law firm specializing in mergers and acquisitions. He later served as a senior officer at a private equity firm, where he made significant contributions to its portfolio companies. Subsequently, he was president and majority owner of a manufacturer of security products. Cohen has been associated with several medical-supply companies for more than 20 years.

Cohen is a firm believer in investment banker specialization within the medtech realm. "Deals are now more fitted, and synergies need to be proven, not just in one meeting, but throughout the marathon stretch of time that a large device company applies to an acquisition," Cohen says. "Deals need to pass muster from an integration as well as a perceived return-on-investment point of view. In order to properly represent a company as an investment banker, it is necessary to understand not just the bullet points, but to make a compelling case based on the nuances and particulars of the buyer, as well as the seller. Credibility is vital, and that requires industry and clinical knowledge and experience."

Cohen says that the medtech industry currently faces no lack of funding sources. "The problem," he says, "is identifying meritorious investments and applying a disciplined risk-reward formula that balances oversight with entrepreneurial latitude. Prerevenue milestones—such as clinical trials, regulatory approvals, clinician buy-in, reimbursement, and entry barriers—must be carefully monitored. The same is true with revenue-producing companies; product installations, top-line growth, and margins need to be carefully weighed."

Cohen has a BA from Cornell University, as well as a JD from the New York University School of Law, where he was an editor of the law review. He also attended the Leonard M. Stern Graduate School of Business at New York University. Cohen is also a member of the Licensing Executive Society, serves on the boards of several philanthropic institutions, and has been a guest lecturer at Columbia University's Graduate School of Business.

Dotzler

Frederick J. Dotzler is a managing director of venture capital partnership De Novo Ventures (Menlo Park, CA), which he cofounded in 2000 with three partners. The company currently has $350 million under management.

Dotzler has invested in companies including Bayhill Therapeutics, Favrille, HealthTalk (now IMC), iScience, Microvention, Point Biomedical, Renovis, Senorx, and Talima. According to him, funding for start-up medical device companies has never been as abundant as it is in the current marketplace. "There are more sources of funding than I've ever seen, and it's available for all stages," he says. "Many venture capital firms have raised significant amounts during the past three years. The banks that service early-stage companies are flush with capital. Venture debt has become a robust and popular source of capital for companies that want to avoid significant dilution."

Before founding De Novo, Dotzler was a general partner at Medicus Venture Partners, a venture capital firm he founded in 1989. In partnership with the Hillman Co., Medicus invested in a wide variety of early-stage medical technology and biotechnology companies in the western United States. While at Medicus, Dotzler built a reputation as a lead investor in early-stage medical companies throughout the region, which resulted in significant deal flow from a broad referral network. He also helped companies to build management teams and develop viable long-term strategies.

Dotzler, who penned the article "Starting Up Right" in the November/December 2005 issue of MX, gives the following advice to entrepreneurs who are facing the key financial considerations involved in starting a medtech firm. "Create a realistic budget, carefully select the venture capital firms you plan to pitch, and don't spend money on noncritical-path items," he says.

Prior to founding Medicus, Dotzler was a general partner at Crosspoint Venture Partners. In addition to serving on the boards of multiple medical and biopharmaceutical companies, Dotzler spent 14 months as president of biopharmaceutical company Anergen and 18 months as president of biomaterials company Vitaphore. He also previously held sales and marketing management positions with Millipore Corp., Searle Pharmaceuticals, and Merrimack Laboratories.

Dotzler received a BS in industrial engineering from Iowa State University, an MBA from the University of Chicago, and an advanced degree in economics from the University of Louvain, Belgium.

He is a member of the advisory board for the Journal of Private Equity, and also serves on the boards of Bayhill Therapeutics, MicroVention, Point Biomedical, SenoRx, and Talima.

Enstrom

Lars Enstrom is director of the healthcare investment banking group at Houlihan Lokey Howard & Zukin (New York City), where he manages the firm's life sciences business. With more than 12 years' experience in healthcare investment banking, Enstrom has completed more than $3 billion in merger and acquisition, public and private equity financing, senior debt financing, and restructuring transactions, in sectors including medical devices, biotechnology, pharmaceuticals, healthcare services, healthcare technology, and real estate investment trusts (REITs).

Prior to joining Houlihan Lokey, Enstrom was an executive director in the healthcare group at CIBC World Markets. Previously, he covered the long-term care and REIT sectors as part of the healthcare group at NatWest Markets.

Enstrom's professional experience also includes positions in real estate development and acquisitions. He began his investment-banking career with the First Boston Corp. as an analyst on the mortgage-trading desk. He received a BA from Brown University and an MBA from Harvard Business School.

Howard

Michael T. Howard is chief financial officer and senior vice president for corporate services at Medrad Inc. USA (Indianola, PA). Howard joined the company in 1991 as vice president for finance and chief financial officer. In 1994 he was promoted to senior vice president for corporate services, with responsibility for leading Medrad's global finance, information technology, human resources, marketing services, internal consulting, and legal services functions.

During Howard's tenure, Medrad's sales revenues have grown from $49 million to $344 million (2004) through a combination of new products and international expansion supported by effective financial planning, analysis, and control. Howard also led the company's business development efforts in the acquisition of three small companies and initiation of several technology development programs over five years.

Despite the relatively small number of medtech companies going public in today's business climate, Howard says growth in privately owned companies remains viable. "There is money available from angels and government and regional sources to get going," he says. "How far you get without 'big public financing' is probably more a matter of the company's business model, its new-product research challenge, and how extensive its required distribution network will be. Large needs in either development or distribution may require the cash best available through public markets or venture capital firms that will be interested in an IPO or sale within a relatively short time frame."

Although public companies face the added pressure of complying with the requirements of the Sarbanes-Oxley Act, Howard says that private companies must still demonstrate a level of financial control. "Trust and credibility with investors and creditors are assets for companies at any stage and size," he says. "However, private equity investors will expect that level of control processes and tasks that can show a minimum cost-benefit."

Prior to joining Medrad, Howard served as controller for Teradyne Connections Systems (Nashua, NH) and vice president for finance in the medical device group of Boston Scientific Corp. (Natick, MA).

Howard received his BA in economics from Yale University and holds an MBA with honors from the University of North Carolina at Chapel Hill.

May

Allan W. May is a cofounder of Life Science Angels (LSA; Menlo Park, CA), the largest angel organization on the West Coast focused solely on early-stage medical device and life sciences start-ups. LSA is comprised of high net worth individuals with extensive backgrounds in medical device or biotech operations, as well as a number of scientists, physicians, and engineers with extensive life science credentials. The group includes about 100 individuals, 15 major venture capital firms specializing in life sciences investments, and 18 sponsors that are all organizations focused on providing services to the life sciences industry. During 2005, LSA invested in seven early stage companies.

Most recently, May was chairman and CEO of Vascular Architects (San Jose), a venture-backed company focused on commercializing a less-invasive surgical procedure and bare-metal and drug-eluting stents for treating peripheral vascular disease. Between 2000 and 2003, he was a member of the board of directors and chairman of the investment screening committee of Tenex Medical Investors (Burlingame CA), the first angel group on the West Coast focused exclusively on the life sciences. May is an investor in more than 30 medical device and biotech companies.

May has been a founder, board member, or CEO of a number of early-stage companies in the life sciences arena. They include Mast Immunosystems, commercializing an in vitro panel for allergy detection and identification; Intella Interventional Systems, a developer and marketer of novel catheters and balloon technology for cardiovascular disease; Quanam Medical, focused on drug-eluting coronary stents; ImmuneTech, specializing in developing and marketing a testing concept for selected immunological disorders; NuGen Technologies, focused on nucleic acid amplification; AngstroVision, developing nanometer imaging technology that operates in a real-time format and ambient environment; IntegriGen, focused on the use of combinatorial proteomics for the de novo creation of protein therapeutics; Imetrx, focused on devices and novel biotherapies for the detection and treatment of vulnerable plaque; and Athenagen, focused on the development of novel therapeutics for pathological angiogenesis.

May was named Biotech Angel of the Year in 2001 by the International Association of Angels, and was one of the coprogram directors for the Cardiac BioInterventions course held in San Francisco in 2002. The course focused on emerging technologies and clinical development in cardiovascular diagnostics and therapy from the biotech-genomics point of view. He lectures frequently on trends and developments affecting biotech and life sciences investing. He has made presentations at events including the Paine Webber Health Conference, the American Health Consultants Conference for Medical Device Executives, the Health Internet Congress, the Wilson Sonsini Medical Device Update Conference, the BioMEMS Nanotechnology Conference, Emerging Technologies in Cardiovascular Disease, and the first annual Biotechnology Industry Organization BIO VentureForum.

Zickfeld

Roger Zickfeld is a healthcare investment banker at B. Riley & Co. (Los Angeles) and a former medical device executive at Karl Storz Endoscopy (Culver City, CA).

Zickfeld has more than 20 years of financing, operating, and corporate strategy experience. His focus is middle-market companies, which draw on his experience in life sciences, medical technology, services, and technology industries to raise capital and to formulate corporate strategy. Prior to joining B. Riley, Zickfeld was managing director from 2001 to 2004 at Coldwater Associates, a boutique consulting and financial advisory firm focused on the intersection of business strategy and corporate finance. From 2000 to 2001, he was a senior executive at several Internet ventures and CEO of a biotech start-up.

Zickfeld says that in the current financial market, many emerging medtech companies find it tough to gain broad-reach product distribution or to maximize their sales potential. "This is due to the market control enjoyed by the large incumbent players who are on contract with major group purchasing organizations," he says. "The financial markets will support emerging companies to a point, but investors recognize that many smaller medtech companies are better positioned for growth as parts of larger, more-effective sales and marketing organizations. IPO windows open and close, and mergers and acquisitions may be the only available exit at a particular point in time."

The mergers and acquisitions market for medtech companies has been particularly active in the past few years. "One should expect this trend in mergers and acquisitions to continue, particularly in cases where one player is significantly smaller than the major players in the sector or where there is a dominant player that perceives a missing element in its product offering," Zickfeld says. "This trend is driven by competitive pressures, which continue to encourage industry consolidation."

From 1987 to 2000, Zickfeld gained extensive life sciences experience as a top executive with Karl Storz Endoscopy, a global medical devices firm, where he had broad managerial and profit-and-loss responsibility. Zickfeld was CFO of the company's U.S. operations and president of its renal lithotripsy division. He was also president of the company's captive finance subsidiary, and a senior executive of the company's major distribution entities and fiber-optics manufacturing facility.

Prior to Karl Storz, Zickfeld spent five years as a consulting manager with KPMG in the firm's corporate strategy and corporate finance practices, as well as several years with Ernst & Young.

According to Zickfeld, venture capital investors, much like investment firms, are indeed specialized. "This is a function of the need to fully understand the technologies and market potential of portfolio companies from an expert perspective," he says. "There are many MDs and PhDs serving as general and venture partners at venture capital firms today. This specialization should serve to reduce risk for investors at the end of the day."

Zickfeld graduated magna cum laude from the University of Southern California and earned his MBA at the University of California, Los Angeles. He is a certified public accountant and a former board member of the Los Angeles Chamber Orchestra.

MX looks forward to the contributions of these editorial advisers and will continue to announce members of additional councils throughout 2006. In the May/June issue, MX will present its advisory board members in the areas of market intelligence and technology development. To nominate medtech industry experts in these or other fields, contact MX editor-in-chief Steve Halasey at 310/445-4274 or via e-mail at steve.halasey@cancom.com.

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