“Everyone and their grandmother pissed on us,” Gelfand told Fast Company Magazine.
Not everyone. Hanson S. Gifford III, CEO of Menlo Park, Calif.-based The Foundry LLC (a medical device incubator), was intrigued by the pair’s invention, particularly with research that showed a relationship between the removal of renal nerves and improvements in cardiovascular health. After weeks of dead ends, Gelfand and Levin finally had found an investor who recognized the revolutionary nature of their invention.
In Gifford, the pair also found a partner who appreciated their unconventional approach to medical innovation. Most of Gelfand and Levin’s ideas are based on the theory of evolutionary lag—a belief that the Western world’s most prevalent maladies (hypertension, heart disease, diabetes, sleep apnea) are caused by a nervous system stuck in prehistoric mode. Our sensory apparatus was programmed during the Paleolithic Era, when “fight-or-flight” responses were crucial to survival. While the world has grown considerably safer over the last 2.6 million years (environmentalists might argue otherwise), the primitive part of our nervous system—otherwise known as the “sympathetic” branch—still evokes a “fight-or-flight” response to perceived dangers (hence, a quickening pulse, blood pressure spike or adrenaline surge).
Millions of years ago, such responses were critical to survival. But danger no longer lurks in the minutiae of daily existence, where basic tasks like gathering food or finding shelter often were lethal undertakings. Modern hazards are burrowed inside computer screens, cell phones and television sets, but the blurred senses and clouded judgment they evoke is hardly a match for the tribal warfare and wild animal attacks that imperiled the lives of primeval humans.
A safer world is a better world, obviously, but the lack of acute peril can cause the nervous system’s “sympathetic” branch to prime the body for non-existent threats. Gelfand and Levin blame the improper response on malfunctioning sensors such as renal nerves, which send faulty signals to the brain. They contend that blocking those faulty sensory signals can restore order to our out-of-whack “sympathetic” system and even help prevent chronic disease.
“We decided the most interesting way to hack into the [sympathetic] system is to mess with information that the beast receives,” Gelfand, an engineer, explained to Fast Company.
Gelfand and Levin’s idea builds upon mid-20th century research that show the removal of certain nerve chains near the kidney dramatically can affect the way the body expels fluids or the brain regulates blood pressure. Serious cases of hypertension, in fact, often were treated surgically until the 1970s by removing certain nerves to reduce symptoms. The procedure worked but was risky, exposing patients to serious and potentially lethal side effects (mainly respiratory difficulties and the inability to perspire).
Gelfand and Levin conduct an enormous amount of historical research during their innovative process. The pair regularly visits medical libraries throughout the nation to find clues that may lead them to their next Big Idea.
Though their historical research on renal nerve removal and its impact on cardiovascular health failed to impress the Silicon Valley investment community of 2003, it piqued the interest of Gifford and his partners enough to assume development of the project. By 2007, human clinical trials showed the new treatment—otherwise known as renal denervation—could lower blood pressure far more efficiently than any single drug therapy, with relatively few significant side effects. Such promising results eventually prompted Medtronic Inc. to purchase the technology in 2010 for $800 million.
“We view renal denervation for the treatment of uncontrolled hypertension as one of the most exciting growth markets in medical devices,” Sean Salmon, vice president and general manager of Medtronic’s Coronary and Peripheral Business, said when the deal was announced.
The market also is one of the most potentially lucrative for medtech firms: Industry analysts estimate the renal denervation sector will be worth up to $10 billion over the next decade as the disease claims more victims. High blood pressure (readings above 140/90) currently afflicts one-third of U.S. adults and adds $51 billion in costs to the nation’s bloated healthcare system, according to American Heart Association (AHA) statistics. The AHA projects the condition to grow 7.2 percent by 2030, infecting roughly 105 million people.
About half of those with hypertension control the disease with drugs. But 10 percent have a form of the disorder that is resistant to medication and ideally suited to the nerve-zapping procedure pioneered by Gelfand and Levin.
The duo’s technology, dubbed Symplicity by Gifford and his cohorts, consists of an ablation catheter that resembles a motorcycle throttle and a radio frequency generator. Doctors insert the catheter into a patient’s femoral artery and then thread it into the renal vein; once in place, Symplicity’s radio frequency energy electrode tip performs a series of two-minute ablations to deactivate surrounding arterial nerves (thereby ending those flawed brain messages). The minimally invasive procedure reportedly is easier to perform than a coronary angioplasty and currently is amassing a promising cache of clinical trial evidence (results from Medtronic’s Symplicity HTN-2 trial showed the treatment lowered blood pressure by -31/-11 mm Hg).
Approved for use only in Europe and Australia, Symplicity received an Investigational Device Exemption designation from the U.S. Food and Drug Administration (FDA) in July 2011 and is set for a U.S. launch in 2015.
Golden Age of Innovation
As a cardiologist, Levin understands the conservative nature of the medical community perhaps better than Gelfand. There was even a time he considered himself among the moderates. Thus, whenever he pitches the pair’s ideas to doctors, Levin chooses his words carefully.
“Doctors are conservative and easy to scare. So you try to build a story for them. You say, ‘No, this is not new. This has actually been known for a while ... you don’t want to say, ‘It’s a quantum leap, a revolution,’ ” Gelfand noted in the Fast Company article.
“You want it to look incremental,” Levin added. “But it really is disruptive.”
Only time will tell whether renal denervation is the kind of disruptive technology that rattles conservatives and delights inventors. Nevertheless, it arguably is one of the top medtech innovations of the last decade.
The medical device industry of 2013 is a radically different beast than its 2003 incarnation. Technology has surged forward with unprecedented speed and accuracy since Gelfand and Levin’s whistle-stop tour of Valley venture capital, outdating machinery, equipment and procedures that were commonplace only a few years ago.
Knee implants, for instance, now are customized to fit specific genders, anatomies or ethnicities, and incorporate various materials to help them better adhere to bone. Surgeries are much less invasive and performed with the help of robots; free-floating, pill-sized cameras are exploring the vestiges of the digestive tract; and amniotic membranes are mending eye tissue, Achilles tendons, dermal wounds and bone spurs. Even the manufacturing process has come of age: Steady streams of computer software updates have turned product development and assembly into a digitized dream, with machines that adapt to specific styles, remember material or process data, and detect broken tools.
“There was a significant flow of innovation back in 2003. Across the board, from cardiovascular to orthopedic to spine, 2003 to 2005 was a period of great innovation,” noted Glenn J. Novarro, managing director, Medical Supplies & Devices at RBC Capital Markets Corp., a global investment bank with 70 offices worldwide. “The minimally invasive spinal procedure was introduced and Zimmer was talking up minimally invasive hip repair. The hips were all the same but the company introduced tools to make it easier to implant [artificial hips] with smaller incisions. On top of that, companies invested heavily in clinical trials that showed certain devices were better than medical management. There were a number of clinical trials that opened up various markets to new indications. It really was an incredible period of innovation from a technological and procedural point of view. It led to end markets growing very rapidly.”
Some of the most impressive growth occurred in the cardiovascular sector, where inventions like drug-eluting stents, transcatheter aortic valve replacements, left ventricular assist devices and leadless pacemakers have revolutionized treatment. The first drug-eluting stent (Johnson & Johnson’s Cypher) captured about half of the $1.69 billion global stent market within a year of its 2003 release and generated $2.62 billion in sales at the height of its reign in 2006. Global revenue peaked at $4.5 billion in 2009, while the U.S. market nearly doubled in seven years, going from $1.1 billion in 2003 to $2 billion in 2010 before shrinking from oversaturation, pricing pressures, clinician-corporate relationship scrutiny, a sour economy and conflicting studies about the clinical efficacy of stents.
Such a convergence of forces helped induce the development of bioabsorbable stents, tiny mesh-like devices with coatings that eventually are absorbed by the body. Though the technology is still developing, industry analysts expect the devices to be as disruptive as their predecessors due to their ability to reduce complications (namely, delayed arterial healing and blood clots). The sector is projected to grow exponentially over the next five years to $702 million (from a mere $4.2 million), likely sparking a battle for market supremacy between DES leaders Abbott Laboratories and Boston Scientific Corp. as well as Japanese medical equipment manufacturer Kyoto Medical Planning Co. Ltd. and eventually, German cardiovascular device maker Biotronik SE & Co. KG.
Abbott has the edge in this embryonic market, having launched its drug-eluting bioresorbable vascular scaffold overseas last fall. Nicknamed the disappearing stent, the company’s Absorb device works almost the same way as a metallic stent but dissolves into the body over time, leaving behind no permanent implant and enabling the treated blood vessel to resume a more natural function and movement. The Absorb is made of polylactide, a naturally soluble material commonly used in dissolving sutures.
Abbott plans to submit the stent for FDA approval by 2015 but its early release in Europe and parts of Asia and Latin America most likely will hurt Boston Scientific’s chances of making much headway with its Synergy stent, particularly since the CE mark-approved device is not completely absorbed by the body (its PLGA polymer dissolves after a three-month period of drug elution, leaving a bare platinum chromium stent). The Natick, Mass.-based company is planning a full commercial release of its Synergy system next year, and though competition will still be scarce at that time (rival Medtronic has yet to develop a bioabsorbable product), analysts suspect Abbott’s size and resources ultimately will prove victorious.
“There is some great innovation occurring with stents,” Novarro noted. “Bioabsorbable stents where the stent itself fully disappears will be a great advancement. That will be something to keep an eye on. And the percutaneous valve from Edwards Lifesciences has been a major advancement. But I think in some respects, we’ve maxed out on our innovation…we’ve run through this normal course of technological advancement. In 2003, we were at an above-average level of innovation. Right now, we are probably at a below-average level. Things will eventually even out, but to say that we’ll get back to ’03 where you had spine, orthopedics, cardiovascular, all with major advancements, is going to be unlikely.”
The Capital Crunch
Venture capitalists (VCs) can be a narrow-minded folk. They tend to follow formulaic financing options, backing familiar industries or tracking major trends in order to satisfy investors. They don’t always understand the mechanics of early-stage companies, and they often are unable to route out opportunities that may clearly be visible to professional angels. As Bob Glorioso, former president and CEO of Marathon Technologies Corporation conceded: “VCs generally don’t see the hidden markets, the diamonds in the rough.”
Glorioso’s observation perhaps partly explains the rationale behind all those rejections Gelfand and Levin encountered during their crusade for capital in 2003. The pair might certainly have appeared “rough” to the haughty bankers of Sand Hill Road—both men were in their forties (well past the prime age of most techie entrepreneurs of the time) and both were from the fast-moving, high-strung, stereotypically pushy East Coast. More importantly though, the duo’s renal denervation device represented a paradigm shift in medical treatment, one that based its ideology on medical devices rather than pharmaceuticals.
Indeed, the capitalists’ doubts were well-founded. And their reluctance more than likely contributed to Gelfand and Levin’s demoralizing fundraising junket 10 years ago. Yet it was not the only source of the entrepreneurs’ troubles that spring.
Unfortunately, the pair was the victim of bad timing: They were soliciting funding at the tail end of the dot-com bubble.
“Medtech financing coming out of the 2003 timeframe was actually tough because a lot of the venture firms were really caught up in the dot-com bubble,” John Babitt, Ernst & Young’s medtech leader for the Americas, told Medical Product Outsourcing. “The genome sequence had been discovered back in 2000 and venture funding was dramatically up, but medtech’s portion of that from a relative perspective declined because the sectors primarily focused around the dot-com bubble were being allocated higher portions of capital.”
Statistics from the PricewaterhouseCoopers LLC MoneyTree Report, based on Thomson Reuters data show that capital investments in medical devices and equipment fell 51 percent between the fourth quarter of 2000 and the second quarter of 2003, when Gelfand and Levin sought backing for their idea. Deal volume was down as well, plunging 23 percent.
The slide continued in Q3 2003 as investments reached $310 million, a 21.7 percent decrease compared with the $396 million medtech firms received in the previous three months. But investments slowly recovered in 2004 (the year in which Gelfand and Levin partnered with The Foundry’s Gifford to develop the Symplicity) and eventually peaked in the first quarter of 2007, when a staggering $1.16 billion flowed into medical device/equipment companies. Deal volume followed the same trajectory, jumping 70 percent between the first quarter of 2004 and Q1 2007, according to MoneyTree report data.
“After the dot-com bubble popped and we got into 2003-2007 time frame, there was a lot of money chasing a lot of medtech deals,” Babitt said. “Then we had the financial crisis and that impacted medtech. From 2007 to 2009 we saw a lack of funding going into medtech deals.”
Funding, in fact, fell 36 percent during the recession to $741 million but has vacillated erratically since then, falling 33 percent by the start of 2010 to $496 million, shooting back up 48 percent in Q2 2010 to $735 million and plummeting again at the end of 2011 to $521 million. During the quarter in which Medtronic purchased Gelfand and Levin’s invention, capital was back down to $497 million.
In retrospect, Gelfand and Levin’s ill-timed trip to Silicon Valley may actually have been a blessing in disguise. They sought backing in a simpler time, a period that was not influenced by increasing regulatory constraints, shrinking reimbursement rates, comparative effectiveness or a medical device excise tax. In 2003, winning venture capital investment was considerably more straightforward. All companies had to do was show that a device was safe and effective, and was generating a buzz in the medical community. But venture capitalists are more cautious now. They’re seeking growth through new geographies rather than new products and are investing in reputable, later-stage companies, particularly those with experience and clean track records. Many venture capital firms have struggled themselves to raise new funds in recent years; as a result, they have been more choosy with their dollars.
“The financing has been robust. Funds are still being invested in the medtech space but the more leading indicator is venture funds’ ability to get additional committed capital — we’ve seen that part of the equation really drying up,” Babitt noted. “It’s become much more challenging for early-stage companies to get financing and to really pursue new endeavors in the medtech space now. It’s become more challenging due to regulatory and reimbursement issues and the fact that the large medtech companies are not necessarily focused on new products for growth, they are more focused on new geographies. So the hurdle has become higher … there’s not a real robust IPO market right now. So, as we sit here in 2013, it’s a real challenge in the financing environment for innovative capital. And I expect that to continue.”
Such challenges are bound to affect financing for Gelfand and Levin’s next big idea—a device that destroys the carotid body. But this time around, the men will use the lessons they learned 10 years ago to more easily win over investors.
“We are not business guys, but we have learned enough about those different areas to assess whether to go forward with an idea or not,” Levin said in an interview with Entrepreneur Startups magazine. “We won’t go forward with anything that doesn’t have a base market of a half a billion dollars because VCs won’t fund it. That locks us into certain areas, heart, lung, and kidney, but we have expertise in those fields. They are all related.“