Medical Device Link.

Originally Published MX March/April 2004

COVER STORY

For executives in early-stage medtech companies, gaining the confidence of prospective investors can be a major challenge. According to fund managers who have put their support behind OmniSonics Medical Technologies, however, placing an early bet on the company's success was made easier by its sound scientific preparation.

In 2000, A-round funding for OmniSonics was led by Prism Venture Partners (Westwood, MA), a venture capital firm that prides itself on having strong entrepreneurial expertise and taking a hands-on approach with its portfolio companies. According to John L. Brooks III, Prism's cofounder and general partner, the firm's close relationship with OmniSonics president and CEO Robert A. Rabiner was established almost from the very beginning.

Prism's John Brooks.

Since its earliest commitment, Prism has continued its close involvement in the development of OmniSonics. "Our first consideration on the A round of funding was to get Bob out of his basement workshop," says Brooks. "The key was for the company to work on its technology—to reduce the size and power of the acoustic-energy generator and to ensure that the probes would work. So we encouraged Bob to focus on achieving those technological milestones, to spend on recruiting the right people for the task, and to develop the company toward the value inflection points that would prepare it for the next round of funding."

According to Brooks, new investors have appreciated the value of that early work. "They recognize the value of the scientific and preclinical work that's been done, as well as the intellectual property and regulatory work. Some companies take shortcuts. But Bob has pursued a balanced progression, starting with the early clinical work."

One such group of new investors is led by Daniel R. Omstead, president and CEO of Hambrecht & Quist Capital Management Inc. (Boston) and president of H&Q Healthcare Investors and H&Q Lifesciences Investors, two NYSE-listed close-ended mutual funds with principal interests in emerging healthcare-related companies. H&Q threw its support behind OmniSonics in 2001, as part the company's B round, and Omstead now also sits on the company's board of directors.

"Our assessment of the company was that it was unique, with a product that involved both capital equipment and an easy-to-use disposable," says Omstead. "This makes it possible to keep the cost for a doctor to use the equipment for the first time very low, by amortizing the cost of the equipment over the long-term purchase of the disposables."

OmniSonics already has an approved use in the European Union and is conducting clinical trials in the United States. The next step, says Brooks, will be for the company to transition from being driven by the requirements of scientific research and regulatory agencies to becoming a customer-facing organization. That transition will require it to build out its commercialization structure and customer service operations.

"The transition from product development to sales execution challenges every company," says Omstead. "But OmniSonics already has a first-class CFO and HR director, and now it's beefing up its staff to meet that challenge."

"Moreover, with its oversubscribed C round, OmniSonics has substantial cash in hand to do all of this effectively, and to do it right," says Brooks. "It can readily expand from its current position, and it can afford to hire more top-notch management personnel."

Copyright ©2004 MX