Medical Device Link.

Originally Published MX November/December 2004

COVER STORY

The conventional wisdom says that it's nearly impossible to develop a successful self-standing medical device company in today's medical technology marketplace. Obstacles such as lengthy product development timetables, investor impatience, slow clinical adoption, difficulty in obtaining reimbursement from third-party payers, and product distribution challenges can weigh heavily on the minds of company executives hoping to achieve the impossible.

But having the support of committed and patient investors can help—a lot.

Ryan Drant

For Proxima Therapeutics (Alpharetta, GA), one such group of supporters has been the investment team of New Enterprise Associates (NEA; Reston, VA), a leading venture capital firm with focused interests in the information technology and healthcare sectors. NEA was an early investor in Proxima and helped to shape the development of the company's products by urging company CEO Timothy J. Patrick to pursue applications of the technology for treatment of breast cancer.

In 1998, NEA led Proxima's third round of financing, which raised $11.8 million. Also participating in the round were the venture firms of Catalyst Ventures (Baltimore); Hillman Medical Ventures (Pittsburgh); Lovett Miller (Jacksonville, FL); and Wessels, Arnold & Henderson (Minneapolis); and device manufacturers Johnson & Johnson (New Brunswick, NJ); and Boston Scientific (Natick, MA).

Confidence in the company's leadership had a lot to do with NEA's decision to invest in Proxima. "We had the greatest confidence in Tim and his ability to build a strong team around himself," says Ryan Drant, a partner in NEA's Baltimore office.

NEA has been similarly supportive of Proxima's efforts to undertake direct sales of its products. "Factors that play into the decision of direct sales versus partnering include the novelty and clinical utility of a new technology, the strength of a company's intellectual property position, and whether the company is entering an existing market or creating a new one," says Drant. "Proxima's commercial challenges have really been those of procedure and therapy development (rather than introduction of a better device for a well-accepted procedure), and clinical adoption of a new treatment paradigm (partial-breast irradiation). Consequently, we supported the company's decision to build a direct sales force that would create the market for its technology, and educate and train the physicians.

"Building the direct channel is expensive," Drant admits, "but we believe that it will ultimately generate attractive returns on that investment."

Drant says that Proxima offers a strong investment rationale as a stand-alone company. "The company has the nation's second-largest sales force calling on breast surgeons and is promoting the most exciting medical device technology to hit this marketplace in more than 20 years," he says. "With sustained profitability beginning in 2005, the ability of the company to continue as a stand-alone will be further strengthened."

NEA's continued interest in Proxima has been well earned, says Drant. "More than anything, Proxima's profitability in 2005 will give us additional flexibility to decide when to exit—through either an acquisition or an initial public offering—on our own terms and in our own time line," he says. "With a profitable and self-sustaining business that does not require additional equity capital to build the business, we can decide when the time is right to consider a liquidity event based purely on the growth and future of the company.

"Proxima has continued to build significant shareholder value—and we continue to be patient stockholders," says Drant.

Copyright ©2004 MX