Apollo Endosurgery Highlights Austin’s Growing MedTech Cluster

12/6/13Follow @angelashah

The startup spotlight in Austin has long focused on the city’s techie scene of software startups, app developers, and the like, but a medtech community has been developing, too. And Dennis McWilliams, who currently runs Apollo Endosurgery, has been along for much of that growth.

From his days working at the University of Texas’ IC² Institute, which connects university research and companies to support commercialization to a stint as entrepreneur-in-residence at PTV Sciences, a venture capital fund that specializes in the life sciences and in medical devices, McWilliams says being a part of a strong entrepreneurial ecosystem has been an important focus of his career.

“I wanted to go build a really strong career but, fundamentally, be doing things that help people and help society,” he says. “Most people in the life sciences space really like that harmonization between their life and societal goals, and their career goals.”

He became involved with the Apollo Group, a think tank formed in 1998 by a group of gastroenterologists and surgeons from academic centers around the world to focus on the development and use of minimally invasive instruments to diagnose and potentially treat gastrointestinal disorders.

In 2006, Apollo Endosurgery was created to commercialize the group’s innovations in translumenal surgery and therapeutic endoscopy and to produce minimally invasive devices for GI procedures. Recently, the company announced it was buying the Lap-band business from Allergan, a pharmaceutical company based in California that is best known for its Botox product line. Lap-band is a weight-loss procedure where a band is put around the stomach to reduce its capacity. The Austin company spent $110 million to buy the business, which included an upfront cash payment of $75 million.

Today, McWilliams and others in Austin’s biotech community are looking to the expected opening of the new University of Texas Dell Medical School in 2016 as the next milestone to boost the city’s biotech community.

“I spent some time on the board of the Texas Exes [the University of Texas’ alumni association], doing our part to help get that through,” he says.

McWilliams and I spoke recently about the medtech community in Austin, Apollo Endosurgery’s acquisition of the Lap-Band, why he works to get academic research out into the marketplace. Here is an edited transcript of our conversation:

Xconomy: How did you get involved in medtech startups?

Dennis McWilliams: I initially got involved in life sciences startups, when I worked for George Kozmetsky, the grandfather of the tech community here in Austin. He was dean of the business school way back when, and I worked for his think tank, IC². I did a project with [the University of Texas Medical Branch in Galveston], started a biotech company in ’96, ran that for eight years and sold that company. [Chrysalis BioTechnology, an early stage drug development company, was bought by what is now Capstone (NASDAQ: CAPS) in 2004.] I was looking for a variety of different deals in ’04 and ’05, when I found a group of gastroenterologists who had set up a think tank to innovate in flexible surgery. I come from a general engineering and business background. My specialty was as an aerospace engineer where I went to Stanford.

I had always been interested in innovation technologies, especially about life sciences. It’s a rewarding experience to develop a new product, whether it’s a drug or product, and help patients.

X: What is the Apollo Group? How did Apollo Endosurgery come about?

DM: They began back in ’98 before I knew them. They wanted to innovate and to do really, really exciting groundbreaking things, similar to the space program, by shooting for the moon in developing all sorts of technologies that would beneficial to society. I met them in ’05. They financially supported a company named Olympus, realizing that if they truly want to see new technologies reach patients, you need to form a startup company. It’s the best way to do that.

When the Apollo Group was terminating out of their agreement with Olympus, they left a portfolio of about 50 patents. There was this intellectual property sitting at these universities. I went and licensed all those patents from five different academic institutions and brought them into Apollo. That was our foundation. From there, we started to build a strategy to build specialized surgical tools, tools that enable less invasive surgery. Overstitch, our suturing device, is the foundation of our platform today.

And that’s how we, Apollo Endosurgery, came about. The Apollo Group still serves as key scientific and medical advisers to the company. They are all now chairmen of departments at universities and are very busy, but we still work with the group.

X: Why buy the Allergan business, one that seemed to prove less profitable for Allergan? How does this fit into Apollo’s portfolio?

DM: Allergan acquired the lap band and bariatric business as part of another acquisition years ago to get the Botox and collagen lines. It never really was a fit with them. They had some strong years in the mid-2000s. They didn’t have any innovation synergistic with the brands; it made it hard for them. For us, we have an extensive pipeline of surgical device tools on bariatric and other clinical procedures. It’s a natural fit from a distribution and product portfolio standpoint. It calls on a lot of the same physicians that we call on.

We had had some conversations with Allergan about business collaborations when they announced the divestiture in the fourth quarter last year. We thought it would be synergistic. I think they thought a larger surgical player would acquire it. But over time, it dropped into the range where it could be affordable to us to do it. So in the summer, we started the process. We would be a good steward for the technology and help a lot of obese patients.

X: How is the Austin ecosystem for medtech devices?

DM: I’m from Austin; I believe a lot in the innovation potential in the Austin community. It’s exploded on the tech side. We felt the talent and spirit would make it an excellent place for a medical device and life sciences hub down the road. There hasn’t been a medical school, which is a challenge, but we’ve had strong venture capital funds.

We’ve been able to grow our company and bring funding into the state, investors who have been very happy to have us in Austin. Then the question is, Can you attract the talent to build these companies? We’ve been fortunate that we’ve been able to attract talent. And from a medical device perspective, you don’t necessarily have to manufacture locally. It’s different than biotech, where you need wetlab spaces and access to armies of PhD researchers, which are critical to their growth. We need a lot of engineering and UT produces a pretty good talent pool of engineers. We need sales and marketing talent; Austin has those things.

X: How would you like to see the Austin ecosystem grow?

DM: The biggest barrier is funding. It’s not like in tech, where for a few million dollars you can be profitable with some code and a good idea. It takes tens of millions to even get approved by FDA, and then another set of tens of millions of dollars to get to the market. It’s not just a problem in Austin. The Bay Area complains about the access to capital. We’re trying to find more cost-effective ways to move the companies forward.

In Austin, a really big win was the announcement of the new medical school. We saw that as a big catalyst for the industry, if a little more on the biotech and life sciences side. But even for medical devices, it’s good to do clinical research locally in the community. Academic physicians are really important as we grow the community over the next 10 years.

X: You received money from the Cancer Prevention Research Institute of Texas. What are your thoughts about the revamped agency? Do you feel it’s doing enough to promote commercialization as opposed to basic science research?

DM: It was a transformative investment for us. We probably wouldn’t be here today if it wasn’t for CPRIT’s investment. I believe in what they were trying to do as an organization. Their investment in commercialization would have the greatest patient impact. It’s a balance; you need to fund basic research. But if you are trying to impact patient care, you’ve got to invest in commercializing organizations that are going to get those products to market.

If you look at the life cycle of innovation, there’s no end to the number of new drug candidates that have been identified that are sitting in universities, that don’t have the funding to move into clinical research. If you really want to try to make a difference for patients and the economy, you’ve got to find a way to get those technologies to the market. The way we do that in today’s global economy is through companies. We turned our $5 million CPRIT grant into closing a $46 million venture financing that year. If technology just sits in labs, it’s not doing any patients any good.

Angela Shah is the editor of Xconomy Texas. She can be reached at ashah@xconomy.com or (214) 793-5763. Follow @angelashah

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