One thing medical device investors love to see in their portfolio companies is “capital efficiency”, or getting from point A to value-creating milestone B with the least dilutive dollars possible. To achieve capital efficiency, entrepreneurs need to be a little bit "scrappy" in how they develop their innovative technologies. Certainly increased regulatory and evidence requirements have upped the scrappiness benchmarks in the last few years, but globalization and technological advances are providing new avenues for getting things done cheaper and faster. In any case, we’ve observed a wide range of performance on the “scrappy scale” among emerging med tech companies, so we decided to seek out some best practices from one of the most capital efficient entrepreneurs we know: Amar Sawhney, President & CEO of Ocular Therapeutix.
First let’s establish Amar’s scrappiness street cred. In 2006, Amar sold Confluent Surgical to Covidien (then Tyco Healthcare) for $245M, having raised only $60M to gain PMA approval on its lead DuraSeal product (CE mark was achieved earlier with about $10M). Amar’s current company, Ocular Therapeutix, a biopharmaceutical company focused on opthalmics, turned $66M of venture money into compelling clinical data on four exciting sustained drug delivery programs and PMA approval on its ocular sealant, enabling a $75M IPO in Q3 2014. His other company, Augmenix, launched two CE marked products and a US 510(k) cleared one with less than $30M in strategic and venture funds. Contrast these numbers with the average of ~$94M to get to PMA approval - very scrappy, indeed.
Amar offered many words of advice for emerging med tech companies looking to minimize venture financing and dilution on their way to success, but three struck me as particularly wise and possibly counter-intuitive:
1. Pursue mastery first: Focus is an importance concept for would-be scrappy med tech entrepreneurs (S2N is practically a missionary of it), however Amar has a very specific sense of what it means to focus. “You have to go deep and master one thing,” advises Amar. “If your solution doesn’t get it right 99% of the time, you won’t be successful commercially.” Once you hone your capabilities in that first product, then consider where else the technology might have relevance, but don’t spread yourself too thin too early. Amar would also prioritize mastery over market size. “Don’t worry that the first market you go after isn’t the biggest” counsels Amar, “Just be the best solution for that particular problem.”
2. Hire carefully: Amar’s hiring philosophy is to do it only when nearing the point of pain. “There should be a very clear mandate for every new hire, and no idle hands around,” says Amar. Augmenix launched its first CE marked product with a full-time staff of 11 people, and that included some in-house manufacturing - way leaner than many emerging companies we’ve seen. Amar’s hiring advice runs counter to conventional wisdom that you should hire good people when you can get them; Amar is not so concerned with finding the right people when he needs them (but then again his companies are in Boston). I’ve also noticed that Amar has worked with many of his senior people for many years and across multiple companies, which must help communication and efficiency.
3. File IP intelligently: Really a subset of point #1, unfocused pursuit of IP is a rabbit hole that Amar sees companies falling down all the time. According to Amar's philosophy, IP should only be filed when something truly novel has been identified and needs to be protected. As we all know, IP-related expenses grow exponentially with number of filings, adding up to a significant line item for small med tech companies. In Amar’s view, “The real protection comes from having the best product on the market.” Focus not only saves IP costs, but can also breed more discovery. “One of the benefits of going deep in one area is that you uncover more novel, patentable inventions the deeper you go,” concludes Amar.
Staying lean and mean in emerging med tech is really about survival in the current investment and healthcare climate. Even the smallest bit of bloat can mean not hitting promised milestones with dollars raised, or not having the financial flexibility to iterate and pivot along the predictably unpredictable development pathway. Worst of all, over-spending can force financing under terms that create a "preference stack" penalizing common stockholders (employees and founders), even in some winning exits. A little scrappiness today can buy entrepreneurs a little happiness tomorrow.