Intellectual Ventures’ Latest Big Push: Turning Med-Tech Inventions Into Cash
Nathan Myhrvold is a physicist who made his name as a software guy at Microsoft. So it’s natural to think that if his Bellevue, WA-based invention firm, Intellectual Ventures, creates anything of lasting value, it will probably come from physics or software. Maybe it will be something really offbeat (fighting infectious disease with mosquito-zapping lasers), or really big and audacious (cheap, clean nuclear power at TerraPower).
But a couple of new dealmakers that Intellectual Ventures has hired in the past six months say some of the company’s biggest inventions could come from a surprising sector—medical devices. These could be things as simple as efficient new bone screws, safer and more vivid medical imaging devices, new drug discovery technologies, diagnostics, or touchscreen interfaces embedded with technology to automatically kill viruses and bacteria circulating in the environment.
“We have thousands of inventions in the medical technology space that were conceived of by our team of inventors. Literally, thousands,” says Daniel Hawkins, the new vice president of business development at IV, responsible for medical technologies. “The medical device universe is just starting to hear from us.”
Intellectual Ventures has its share of critics, who see it as little more than a patent troll that goes around scooping up intellectual property and then forcing innovators to cough up cash or else get sued for infringement. The firm naturally bristles at this criticism, and counters by arguing that it actually creates a lot of inventions in-house (and that it hasn’t ever sued anyone). Part of this comes through brainstorming “invention sessions” where it brings in superstar scientists like MIT’s Robert Langer and Leroy Hood of the Insitute for Systems Biology to invent stuff. The value of all this inventing is hard to pin down on a spreadsheet, because no one knows what will pay off in the marketplace and what won’t in the future. But IV has grown to the point—with more than $5 billion under management and more than 700 employees worldwide—that it’s time to start showing its investors it can apply inventions to real-world problems and generate returns.
That’s where Hawkins and his colleague Paul Duesterhoft enter the picture. Hawkins, a seasoned medical device entrepreneur, previously worked in a couple of venture-backed startups incubators—one that’s now become Calibra Medical, the maker of a miniature insulin delivery pump, and another called Aspen Medtech, which closed down a year ago. Duesterhoft was formerly a vice president of marketing at Seattle-based ZymoGenetics (NASDAQ: ZGEN). They have both been hired in the past six months at IV, as the first businesspeople charged with sorting through the company’s medical tech portfolio of patent applications and potential patent applications, to see which ones may become real products. That means figuring out what’s valuable to the Johnson & Johnsons, Boston Scientifics, and Medtronics of the world, and striking some deals to license technology to them. Maybe, once in a while, this might even lead to the creation of a new company.
Intellectual Ventures hasn’t talked publicly about what it has in its medical device portfolio, and when I spoke with Hawkins and Duesterhoft a couple weeks ago, they emphasized that they are still digging through this mountain of patents themselves to try to figure out what can be spun out as license deals. But they did say they are starting to make the rounds at industry meetings this month, like IN3 and AdvaMed2010.
These guys didn’t want to show me all the cards they are prepared to play when they meet with device companies, but they did talk about a few examples of technologies that they think could make a big splash in the U.S. healthcare market.
One of the big ideas is a more efficient form of medical imaging. This comes from a concept in physics known as Compton backscattering. Essentially, the inventors at Intellectual Ventures know that different tissues with different compositions will give off different fluorescent signatures. The technique could be useful for telling the difference between cancerous and healthy tissue, Hawkins says.
This kind of technology, Hawkins says, is a big reason why he was attracted to join Intellectual Ventures. No venture capitalist would start a company based on this technology, partly because there are already a bunch of CT imaging players, and it probably doesn’t offer the kind of traditional return potential VCs want to see. Back before the downturn struck in 2008, companies would get started in medical devices, figuring they might take $40 million to $70 million of invested capital, and grow into $350 million to $400 million opportunities. Even when more startups were getting started with those kind of prospects, only one out of 100 medical tech ideas Hawkins saw had that kind of financial potential. That’s why he is eager to test the out-licensing model of IV, to see if he can generate returns another way, by licensing a technology like this to a big imaging company that would pay some upfront cash, milestone payments, and royalties.
“It was challenging for me to see so many things in medical technology that could be changed for the better, but they weren’t funded because they weren’t venture-funded-startup kind of opportunities,” Hawkins says. “So what do you do with them? We couldn’t do anything before. But at IV, we can.”
Naturally, I had to press these guys for more specifics. One of the inventions Duesterhoft said he’s pursuing relates to “self-sanitizing touch screens.” Basically, this involves embedding light-emitting diodes into glass surfaces, where they can automatically kill viruses and bacteria. This could be used in things that people and their bacteria-laden fingers touch every day, like a screen on a smartphone, an iPad, an automated teller machine, or a ticket kiosk at an airport.
That’s a technology that could go across industries. Inventors, of course, don’t often know where the best applications are for ideas like that. When Duesterhoft looked at it, he thought of one of the dirtiest things found in the average hospital—an infusion pump. If you could put a self-sanitizing technology into an infusion pump, suddenly there’s a new line of defense against all kinds of invading pathogens that can be really dangerous to patients, and cause hospitals a lot of potential legal liability. The IV execs didn’t get into a lot of detail about what evidence exists to support this idea, although Hawkins says the anti-microbial data he’s seen so far is “compelling, to say the least.”
Another idea, which Hawkins didn’t want to talk about in detail, has the potential “to shake up the wound care world.”
Sure, these guys are new to the job, and at times they sounded a little like kids in a candy store. They essentially have got a lot of technology that gives them some bargaining chips to work with when they sit across the table from big healthcare companies that need new innovations to replace old products with expiring patents.
So far, Intellectual Ventures hasn’t yet struck any commercial licensing deals for these medical technologies, and it will take time to see what kind of results Hawkins and Duesterhoft can get. But they are clearly having some fun thinking through what ideas can be turned into real-world applications.
“If you were to walk in our office, you’d see stacks and stacks of patent applications that we’re going through,” Hawkins says. “Our job is to say, out of this big grass field, what 10-square-yard piece of grass do we want to focus on, and reduce to practice, if necessary, in IV’s labs, because I think Siemens might be interested, or Boston Scientific might, or J&J is right in this space, and three years from now, they’ll really need this. That’s where we want to be.”