Catalyst - Fall 2011 - Embrella Cardiovascular Began with the End Game in Mind… and Won
There is no situation where the old adage “money makes the world go ‘round” is more appropriate than the early stage entrepreneurial venture. Every inventor/scientist with a fire-in-the-belly to succeed believes he or she has the next best widget the world cannot live without.
And, to give credit where credit is due, in some cases involving game-changing biologics and medical devices, there may be people who literally won’t be able to live without the “widget” in question.
That being said, turning great ideas into marketable, commercialized drugs and devices takes money. A lot of money. Indeed, the greatest inventions, most groundbreaking research and state-of-the-art technologies will quickly fade into obscurity – or at the least, be temporarily shelved -- without the capital needed to get to market.
Enter the venture capitalist. Even in the current shaky economic environment, there’s capital for entrepreneurs who can prove they have what it takes to cut through the competitive noise in the marketplace and make a difference that promises very real return on investment – fast.
“Your product better be satisfying an unmet need. If you are just selling a better mousetrap, we aren’t interested,” maintained venture capitalist Jeffrey O’Donnell, partner, BioStar Ventures. O’Donnell knows the equation from both sides of the table. He is not only a venture capitalist but also a serial entrepreneur. In fact, he sold his latest company, Embrella Cardiovascular, to Edwards Life Sciences for $43 million cash in March.
O’Donnell and his partner, Dr. Jeffrey P. Carpenter, the inventor of Embrella’s medical device and chief scientific officer of the company, knew from the start they were going to sell, allowing a bigger company to fully commercialize the device. They launched in 2007 with that exit strategy in place.
The single-use, disposable Embrella Embolic Deflector System can be used during transcatheter heart valve procedures. The device is placed in the aorta through a sheath inserted in the right brachial or right radial artery. Its porous membrane allows blood flow to the brain while simultaneously deflecting embolic material.
“When Dr. Carpenter had his idea for the Embrella device, he needed to raise capital. He knew I had navigated several companies from napkin to marketplace and, together, we set out to build the company and sell it when we hit an auctionable milestone,” explained O’Donnell.
Engineers were hired to develop prototypes; a product design was chosen and built. The company went through successful animal studies and chose to perform a small human trial in Europe. That successful trial, coupled with obtaining European regulatory approval, was all it took to obtain an offer from Edwards LifeSciences.
“Our interests were totally aligned from the start,” O’Donnell said of his partnership with Dr. Carpenter. “And, we wanted to make money for our investors along the way.”
Embrella went through two rounds of capital infusion. Both the “A” Round of $2.3 million and a follow-up “B” round of $6.7 million were made by Biostar Ventures (O’Donnell’s company), Hatteras Venture Partners, the MedFocus Fund and, interestingly enough, Edwards LifeSciences.
O’Donnell’s advice to entrepreneurs looking to head down the VC road is to figure out the answer to one important question: Are you going to build the product and stay with it until it hits the market or are you an investment?
“You need to know the answer to this very important question before you set out looking for capital because an entrepreneur needs to know exactly what he wants from a potential investor. Do you want money? Are you looking for money and an advisor? Or, are you planning on building the company and staying with it to lead it in the long-term?”
In other words, do you – the entrepreneur – have what it takes (experienced management team and a clear understanding of the entire process through regulatory approval) to build to profitability? Or, are you aiming to build the company until you reach what O’Donnell calls “auctionable milestone” – a point in which another entity would be interested in acquiring it. Auctionable milestones include obtaining a patent (at the very early stage) to first-in-man clinical trial to regulatory approval outside of the U.S., all the way to FDA approvals.
“All of these items are forks in the road where a buyer could gain interest in your asset and seek to make a deal,” said O’Donnell, noting the most savvy entrepreneurs know which path they are going to take early on in the strategic discussions and work toward their goals. “Embrella chose one exit strategy and stayed on course until the end.”
Now, everyone involved has enjoyed a big win. Embrella returned a four-fold return to its investors in less than two years. Edwards LifeSciences stands to do quite well with the Embrella device. In fact, O’Donnell said he believed cerebral protection will be used as a standard of care in all transcatheter aortic-valve implantation (TAVI) procedures. The TAVI market, which generated sales of $200 million in 2009, is expected to grow to $1.7 billion by 2015.
“And, of course, patients are the ones who are going to really benefit in the long-run,” he added, noting that the Embrella Embolic Deflector System is truly a game-changing piece of equipment that Edwards LifeSciences will hopefully be able to make part of the standard of care in hospitals around the world.
EisnerAmper's Catalyst: Fall 2011