University of California’s QB3 Takes On Medical Device Startups At New Incubator

6/3/14Follow @Tansey_Xconomy

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Rosenman’s industry colleagues would be willing donate their time to a new QB3 incubator? A week later, he raised the possibility with Winoto. She floated it by her husband’s friends. The response was overwhelmingly enthusiastic.

“Medical device entrepreneurs loved Dan,” Winoto says.

The volunteers formed a group called Friends of Dan Rosenman, and members of the group signed on as official Rosenman Fellows. Bill Malecki, chief operating officer at San Francisco, CA-based device developer Channel Medsystems, for instance, is part of a three-member steering committee of the Rosenman Fellows. Malecki, a longtime colleague, vacation buddy, and neighbor of Rosenman’s, says his friend was a widely respected engineer and a popular leader of project teams. “His passion about it and his excitement were just contagious,” Malecki says. “His teams were always more dynamic and fun.”

When Rosenman was in charge, meetings were festive even when the most tedious technical details had to be discussed, Malecki says. “Inevitably, laughter would come out.”

Like many new ventures, the Rosenman Institute is reuniting a happy family of former co-workers. Malecki says Winoto and most of the Rosenman Fellows first met Rosenman at Heartport, a Redwood City, CA developer of minimally invasive cardiovascular surgery techniques that was acquired in 2001 by Johnson & Johnson. For instance, Jeffry Grainger, a managing partner at the Menlo Park, CA-based medical device incubator The Foundry, was the former chief patent counsel at Heartport. He will help advise Rosenman Institute startups on legal and intellectual property issues, Malecki says.

Another Heartport alum, Brian Donlon, will provide marketing expertise. Donlon, a marketing strategist for medical device giant Medtronic, says the Rosenman Institute will help startup projects catch the eye of big device companies. “Already, there’s an idea I’ve seen that Medtronic should have on its radar screen,” Donlon says.

Other Rosenman Fellows bring expertise in finance, regulatory affairs, clinical trials, quality control, and other areas. The industry volunteers will connect startups with a larger set of engineers and experts who can help move their projects along, Malecki says.

A number of UCSF physicians have being laying the groundwork for new devices. For example, Michael Harrison, an emeritus professor of surgery, has proposed a way to help children with severely sunken chests to avoid painful corrective surgeries. He designed a device that would use the force of magnets to slowly reshape the bones of the chest. Rosenman had been working with a group of inventive pediatricians, including Harrison, before he died.

The Rosenman Fellows have already been informally teaching about a half dozen academic scientists at UCSF about the realities of commercializing new medical devices—a task that can take more than 10 years, Malecki says. Patching together financing over that period is a challenge, he says. Novice innovators might dream up devices their patients sorely need, but investors may never finance further work on remedies for conditions that afflict a mere 10,000 people or so, Malecki says.

“A lot of the inventors will do the work they’re passionate about, without a full understanding of what the opportunities are in the market,” Malecki says.

It’s also harder in general for medical device companies to raise venture capital, compared to biotech startups. In 2013, medical device companies received about $2.1 billion from venture firms, while biotechnology companies took in more than $4.5 billion, according to the 2014 National Venture Capital Association Yearbook. While biotech shows signs of recovering from a slump that began with the financial crisis in 2008, VC investment in medical device companies is still trending downward.

But QB3 director Kelly is optimistic about funding prospects for ideas that emerge from the Rosenman Institute. “I’m not worried about that, to be honest,” he says. After the crowd of VC firms investing in biotech thinned out in recent years, large pharmaceutical companies stepped in to invest in early stage biotechnology companies, he says. “These trends tend to be self-correcting,” Kelly says.

Corporate investment in early stage biopharma companies is evident around UCSF’s Mission Bay campus. For example, drug giants Pfizer, Novartis, Roche and Bayer are co-investors in startups funded by Mission Bay Capital, an independent venture firm co-managed by Kelly and QB3 Associate Director Douglas Crawford. Drug giant Johnson & Johnson’s division Janssen Labs is a partner in QB3@953, the new QB3 biotech incubator at 953 Indiana St. in San Francisco.

In hopes of spurring similar interest in the Rosenman Institute’s protegees among Big Device companies, Kelly says he has been talking up the new medical device incubator to executives from Boston Scientific and Medtronic.

For now, three of the first startups accepted at the Rosenman Institute will each receive an Innovation Award that comes with $2,000 of seed money, Winoto says. The money was donated by AngelMD, an investment firm that connects healthcare startups with doctors and dentists who invest as individuals. Winoto hopes that the awards can be continued every year, possibly at higher amounts donated by large corporate partners. Winners of the inaugural Innovation Awards will be announced at UCSF’s June 4 symposium.

The new entrepreneurs admitted by the Rosenman Institute will have access to established programs at QB3. This includes QB3 Startup In A Box, a quick-launch program that helps innovative teams incorporate their new companies, create a pitch deck for potential investors, and apply for federal government Small Business Innovation Research (SBIR) grants. In addition, the medical device startups can seek financing from Mission Bay Capital.

At this point, the Rosenman Institute is being supported through QB3’s existing budget. But Kelly aims to expand. He’s hoping to raise funding for a gradual conversion of QB3’s first campus incubator with laboratory bench space, the Garage, into a shared lab facility of about 2,000 square feet for medical device startups. If there’s a big demand for bench space there among device developers, QB3 could then consider opening a larger building for them, similar to QB3@953, Kelly says. The new QB3 incubator will also enhance a nascent collaboration between UCSF’s departments of surgery and bioengineering—both of which are founding partners in the Rosenman Institute. UC bioengineering majors will gain training opportunities in medical device development by being paired up with clinicians trying to improve surgical care.

Winoto is also eager to see the program grow, and grateful for the swift creation of a new research enterprise to honor her husband.

“I think that’s something he would be very pleased to see,” Winoto says.

Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at btansey@xconomy.com. Follow @Tansey_Xconomy

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