Five Questions for Seattle Biotech, Medical Device Leaders About the Year Ahead

1/21/09Follow @xconomy

Last week at the JP Morgan Healthcare Conference in San Francisco, I did some informal polling of biotech industry leaders in our three Xconomy network hubs of Boston, San Diego, and Seattle. I asked them all the same five questions to get a feel for how they plan to cope with the economic downturn, and what will help them get through the current challenges.

In Seattle, we heard responses from a cancer drug developer (CEO Clay Siegall of Seattle Genetics) and a developer of a medical device for congestive heart failure (CEO Rick Stewart of Kirkland, WA-based Cardiac Dimensions). Here’s what they had to say:

Xconomy: What was the single most valuable lesson you learned from the last big biotech bust (the genomics-driven crash of 2001 and 2002), and how will having those battle wounds help you carry on today?

Clay Siegall (via email): Companies with tangible products survived the 2001-2002 downturn. Thus, it is essential in the current downturn to focus on key products and moving them through the pipeline towards approval.

X: Every year, bankers like to say acquisitions and partnerships between biotech and pharma companies are going to pick up because pharma needs innovative new drugs, and biotechs need cash to develop them. Do you really see this trend truly accelerating this year, and if so, why?

CS: I envision that there will be slightly more acquisitions and partnerships in 2009 than in 2008. The cash needs of many small biotechs is more real in 2009 than in years past and will necessitate many companies to agree to deals. Most deals will focus on key clinical stage products while some deals will be on the merger and acquisitions side.

X: What kind of companies, technologies, and people will be resilient enough to survive this downturn?

CS: Companies with good cash positions, modest headcount, validated technology, and focused teamwork will survive best during the current biotech downturn. Those with commercial and/or late-stage clinical products with strong data will emerge in the best shape.

X: Who would make a good FDA commissioner, and why?

CS: An FDA commissioner needs to be clear, accurate, and forward looking. There are many people that are highly skilled for this position and could be excellent FDA commissioners. One such example is Janet Woodcock, who has been doing a superb job while being dramatically understaffed and under the microscope much of her tenure.

X: What’s the most surprising impact of the past year’s economic turmoil on your plans for this year?

CS: Future financing plans have been curtailed or delayed, new hiring has been limited to priorities and necessities, and there has been an enhanced focus on near-term clinical results. Most surprising however, and most heartening, has been the fantastic response from employees across the board who are figuring out ways to get more done with less resources. They have been superb and have demonstrated a can-do attitude.

Rick Stewart, CEO of Kirkland, WA-based Cardiac Dimensions

Xconomy: What was the single most valuable lesson you learned from the last big bust (the genomics-driven crash of 2001 and 2002), and how will having those battle wounds help you carry on today?

RS: I wasn’t in medical devices in 2001. I had gotten out of medical devices for a short period of time, and had done a startup in IT. So I had it even worse. The lesson I learned is very simple. Raise money whenever you can. Raise money opportunistically. Don’t raise too little. Because you never know what’s going to happen. In that particular situation, we had raised a couple of rounds, we were very close to profitability, and all I needed was another $15 million, max, to get comfortably into the black. We also had a term sheet on the table for a financing, and for a sale of the company, and it all evaporated. So when the environment is good, you take advantage, and you don’t wait until the last minute for anything.

X: Every year, bankers like to say acquisitions and partnerships between biotech and pharma companies are going to pick up because pharma needs innovative new drugs, and biotechs need cash to develop them. Do you really see this trend truly accelerating this year, and if so, why? (For this question, substitute big medical device companies and small medical devices in the roles of pharma and biotech.)

RS: I look at it from the device perspective, and the cardiovascular perspective. In cardiovascular, the space we are in, with percutaneous valve technologies, it’s one of the last big markets of interventional cardiology that can move the needle. You have stents, which are a multi-billion market opportunity, peripheral artery disease, which is a multi-billion dollar opportunity, you have CRM (cardiac rhythm management, pacemakers, et al), and the fourth pillar is structural heart, which is where we are.

We’re interested in the Big Five (medical device companies) and they all have strong franchises in interventional cardiology. When they look at an opportunity that can provide revenue on the scale of stents, peripheral artery disease, and cardiac rhythm management, percutaneous valves within the structural heart segment is it. When you look out five to 10 years, you can’t see what’s next. There’s nothing emerging that clearly has that kind of market opportunity. That’s a long way of saying, yes, I think there will be a lot of activity this year, in spite of the economic climate.

X: What kind of companies, technologies, and people will be resilient enough to survive this downturn?

RS: The technologies have got to be ones that make a big difference in whatever market you’re in. So me-too products, or a replacement for some other product will not do well. If you’re number three in your ability to get to market, you’re not in good shape. You need to be positioned as No. 1 or No. 2. You need good, solid financial backers. In the venture environment now, even the good, strong venture backers are having trouble. So they’re deciding which are their best companies, and which ones they’ll back or not. You have to be best of breed to survive.

To me, this economic downturn is no different than every day in a startup. Because startups are a series of enormous highs and very deep lows. You have great advances, and things are going well, and inevitably you’ll have a problem thrown at you. If you don’t have the resiliency to deal with that, you shouldn’t be in a startup anyway. So you got to be able to just maintain a positive attitude and keep your objective in focus, and get there.

X: Who would make a good FDA commissioner, and why?

RS: I really don’t know. I’ll just honestly tell you I don’t have any candidates in mind.

X: What’s the most surprising impact of the past year’s economic turmoil on your plans for this year?

RS: Last year, we hit all our milestones. Every single one of them. We’re very close to achieving a couple more that are extremely important. I would say that in spite of the economic downturn, the most surprising thing is the level of interest in the company, from the industry itself. You’d suspect that nobody would be interested in anything, and that’s not the case.

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  • http://mediligence.com/blog Patrick Driscoll

    Great insights here. From tracking activity at medtech startups, I anticipate a big impact of the financing squeeze being that the young medtech companies with promising innovation (and there are many) will become prime acquisition targets in 2009.