Executives and Financial Professionals Discuss Issues at SoCalBio Conference

by James Cavuoto, editor

Close to 400 biomedical industry professionals from Southern California attended the 7th SoCalBio Investor Conference in Los Angeles, March 23-24. The event, produced by the nonprofit Southern California Biomedical Council, seeks to promote and grow the life sciences industry in the greater Los Angeles area.

During the conference, several neurotechnology professionals took part in a panel discussion entitled “Opportunities in Electro-Stimulation.” The panel was moderated by John Onopchenko, a vice-president of Johnson & Johnson Development Corp. and Michael Partsch, Managing Director of Accuitive Medical Ventures. Participating on the panel were Alfred Mann, founder of Advanced Bionics, Second Sight, and other neurotechnology firms, Paul Stypulkowski, senior director for therapy research & development at Medtronic Neurological, Peter Staudhammer, director of the Mann Institute for Biomedical Engineering at University of Southern California, Ellen Koskinas, principal at InterWest Partners, Jagjit Gill, responsible for new business development at Boston Scientific, Robert Shannon, head of the auditory implants program at House Ear Institute, and Yitzhak Zilberman, CEO of Bioness, Inc.

The panel discussed some of the problems and opportunities confronting the industry, including reimbursement, liability, and obtaining funding. Onopchenko said that his firm’s recent purchase of Guidant Inc. “opened their eyes to neurostimulation opportunities,” including the market for chronic pain and migraine.

Mann downplayed the risk of device liability, claiming that his companies paid out only $300,000 from 1973 to 1992. He also called for the neurotechnology industry to have a greater awareness of political forces that can influence issues such as Medicare reimbursement. Citing cochlear implants as an example, Mann said that the added costs of educating and coping with a deaf student could be as much as $300,000 to $900,000, including reduced earning potential. By contrast, the $45,000 to $60,000 cost of a cochlear prosthesis seems well justified. Zilberman pointed out that device firms need to have quantitative measures available. “No measure, no payment,” he said. Zilberman also noted that stimulation devices offer the advantage of fewer side effects than drug therapies.

In an opening session, Richard Mejia and Donald Williams from Ernst & Young reviewed the overall funding picture for health sciences firms. In the medical devices arena, venture capital funding remained relatively flat from 2002 to 2004. There were 179 deals worth $1.6 billion in 2004, with the median deal worth about $7.0 million. One figure that has changed: average pre-money valuation increased to $13.6 million in 2004 from $10.0 million in 2003. Medical device funding represented about 28 percent of the total VC investment in health science startups, with bio/pharma firms getting 60 percent, and the remainder to other types of firms. E&Y reports that health-science related IPO activity is on the rise. There were 39 IPOs that raised $2.1 billion in 2004, an increase from 8 IPOs and $500 million in proceeds in 2003.

A luncheon session on March 23 featured a panel discussion of venture capital professionals active in the health sciences. The panelists offered a review of the previous year’s investment trends and their outlook for the coming year. Andrew Firlik from Sprout Group said he looks for a “value inflection point” when evaluating potential investments. David Lowe from Skyline Ventures described his firm’s strategy as a “sweat stage” VC. Robert Overell from Frazier Healthcare Ventures advised entrepreneurs to look for non-equity funding opportunities such as grants and other start-up money that does not dilute the owners’ equity. Eliott Parks from Ventana Capital warned startups not to scrimp on preclinical work.

Following this panel discussion, Jerry Loeb from the University of Southern California, one of the inventors of the BION microstimulator, presented a potential investment opportunity to a panel of VCs, who critiqued the plan. Loeb’s team at the Mann Institute at USC has developed a percutaneous optical fiber with chemical sensing capabilities. The device, dubbed a “Sencil,” as in sensory cilia, is a hair-like sensor with potential applications in glucose monitoring and other diagnostic tests.