Pathway Medical Raises $40M for Device to Clear Out Blocked Leg Arteries

3/26/09Follow @xconomy

Pathway Medical Technologies, the Kirkland, WA-based maker of a device that clears out blockages in clogged leg arteries, has raised $40 million in new venture capital, Xconomy has learned.

The investing group was led by Amsterdam-based Forbion Capital Partners, and joined by HLM Venture Partners, Oxford Bioscience Partners, Latterell Capital Management, Cooperative AAC, and Giza Venture Fund, according to a regulatory filing. Pathway hasn’t issued a press release, although CEO Paul Buckman confirmed today that the company has completed the $40 million financing, as the first part of an ongoing $55 million round.

Pathway has been on a roll since July, when it won FDA approval to begin marketing its first commercial product, which it calls Jetstream. This is a tiny stainless-steel drill mounted on a catheter that slides inside clogged leg arteries, where it cuts through and vacuums out blockages. It’s approved for patients with peripheral artery disease, a condition related to cardiovascular disease that has caused 2 million Americans to seek treatment, complaining of pain when they walk. Most people go undiagnosed now, partly because there aren’t many good options for treatment. Pathway plans to use the new cash to beef up its marketing effort to make doctors aware of this new tool.

This is also a big deal locally, the biggest financing for a biotechnology company that we’ve covered since Xconomy launched its Seattle site last June (and the second-biggest overall behind the $83 million for Big Fish Games in September). Pathway has now raised $120 million since its founding in 1998.

“The Jetstream technology really has the capability to transform how we treat peripheral artery disease,” Buckman says. “It’s always hard to predict revenues, but we think we’re going to be profitable in 2011, and the intent with this financing is to get us from here to there.”

Pathway has lots of competitors fighting for a piece of this market, although each uses a significantly different technology. Plymouth, MN-based ev3 (NASDAQ: EVVV) markets the SilverHawk and RockHawk that slice through and scrape out blockages in the legs. Colorado Springs, CO-based Spectranetics uses a laser-based system. St. Paul, MN-based Cardiovascular Systems has a high-speed diamond-tipped cutting tool.

The Pathway device is different in that it’s the only one with the ability to cut through all different kinds of blockages in the legs at once—from rock-hard calcium deposits, to squishier type of blood clot called a thrombus—without raising the risk of having the drill perforate the leg artery and cause dangerous bleeding. The company’s device is also the only one with a vacuum feature, which sucks up tiny particles that can get dislodged in the bloodstream, and potentially cause trouble, like a stroke.

The investors were drawn to invest so much in Pathway because a lot of the risk has been removed now that Jetstream is on the market, and seeing strong early demand. Founder and chairman Tom Clement told me in early February that the Pathway machine, at a cost of $4,000 per patient, had already been purchased by 100 physicians, and used on 500 patients. Sales have been growing every month, he said in that Xconomy exclusive.

“The investors see that we’re now a commercial business,” Buckman says. “We’re generating revenue, we’re seeing uptake in the marketplace, they like our pipeline, and they like the opportunity of a large market. When you look at how venture firms think, a lot of them have been in bunker mode lately, and they are looking for opportunities like ours where it’s late-stage, generating revenue, and has a reasonable opportunity to be acquired. They’re looking for less risk, and this is not a bad place to park some of their money.”

In connection with the financing, Avi Molcho of Forbion Fund will join Pathway’s board, Buckman says. The company currently has a staff of about 200, with a sales and marketing group of about 40, which it expects will grow modestly, Buckman says.

Buckman, a veteran medical device marketer with experience at Natick, MA-based Boston Scientific, took over the top job at Pathway from Clement in October as the company made the transition from the engineering to commercial phase. He clearly knows how to tell a compelling story, as we related from the JP Morgan Healthcare Conference in San Francisco. At that meeting, he told an anecdote about how doctors are using the Jetstream technology in the field. He said one doctor used it to clear out blocked leg arteries in a 91-year-old woman in less than an hour. Before this device came along, the physician was reluctant to operate at all on such a patient, given how fragile she was, and how it would have taken seven different tools, 14 onerous insertions of catheters, and about $20,000 of equipment to do the same thing with another method.

Buckman has the luxury of running a private company, so he didn’t have to share his company’s actual sales, or its sales forecasts with me. But director David Auth told me back in July that the Pathway device “could easily top $150 million in annual sales” or even $200 million if the company plays its cards right. If Pathway approaches those numbers anytime soon, it’s pretty safe to say some of the big medical device companies will want to come knocking to buy this technology, and give this new group of VCs the kind of payday they are increasingly anxious to see.

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