Pathway Medical Technologies, the Kirkland, WA-based medical device maker, has cut about one-fifth of its staff because its latest round of venture financing fell short of expectations, Xconomy has learned.
Today, Pathway eliminated 39 jobs, or about 19 percent of its workforce, leaving it with a staff of about 170, according to CEO Paul Buckman. The company made the cutbacks because it had to settle for $42.3 million in its latest round of venture capital—not the $55 million it was shooting for. That meant it was on pace to run out of cash by the end of 2010, before it expects to turn profitable in the first half of 2011.
But that’s not the whole story. Pathway, which is currently marketing a new device in the U.S. for clearing out blockages in leg arteries, is also falling short of the aggressive sales projections it forecasted earlier this year, Buckman says.
“It’s taking a little longer than we thought,” Buckman says. “We’re still seeing demand, we’re ramping up every month, it’s just not as aggressive as we anticipated.”
The company has been one of the bright spots in Seattle’s life sciences scene of the past year, since it won FDA approval last July to begin marketing its first product, called 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, partly because there aren’t many good options for treatment.
Pathway is using its latest round of investment cash to beef up its marketing effort to make doctors aware of this new tool. But Buckman says the company is running into unexpected obstacles, like tightening of hospital budgets, and extra cost-effectiveness tests that administrators are requiring before doctors can order new technologies. “It used to be that when doctors said they wanted a new technology, they got it,” Buckman says.
This has put a damper on sales growth. As I reported back in February, more than 100 physicians had purchased the device, and three months later that number has now grown to about 150, said Stephanie Amoss, Pathway’s vice president of marketing. More than 1,000 patients have been treated with the device now, she says.
Still, Pathway is learning from its customers that it has more work to do. It is working on larger devices to cut through wider parts of clogged leg arteries in the thigh, and narrower versions that can slide through and carve out blockages below the knees, Buckman says. The company is also working to add another product that’s compatible with more than one type of sheath that doctors use to insert into arteries, particularly a smaller one that doctors prefer to use in more elderly, fragile patients, Buckman says.
“Right now, we’re playing in about one-third of the market,” Buckman says. “In September, and even in February, we didn’t know what we didn’t know,” about the market.
The cutbacks will run across all departments, and will affect 13 sales reps spread around the country, as well as 26 employees at headquarters in Kirkland, Buckman says. The savings are intended to make the company’s cash last long enough so that it can cross the break-even point in the first half of 2011, without having to raise more investment capital, Buckman says. He vowed to the company’s investors and board that this would be Pathway’s last financing, and he says he intends to keep his promise. The company has already raised more than $120 million since it’s founding in 1998, so it will require a hefty acquisition to get big returns on that investment.
“We’re not being forced to do this, but we don’t want to raise any more money,” Buckman says. “We want to make the money last.”
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