Dan Burnett

Solution for ‘Spin-Out’ Success

by Dr. Daniel Burnett, CEO, TheraNova

If I were to ask you to give me one word to define healthcare in the U.S, what would you say? I’m guessing “expensive” would be a leading response for many Americans, and they wouldn’t be wrong. Modern healthcare is costly due in part to the expensive development process for novel therapies, which historically were focused on superior care; paying little attention to cost. At TheraNova, we moved away from the traditional model by leveraging a rapid, highly capital efficient process and focusing on the development of advanced medical devices that will reduce overall healthcare costs. This resulted in a majority of our seven established spin-outs generating clinical data within a year of funding and with less than $1 million in financing. Wondering how we do it?

One of the driving forces behind the company’s success is our recognition early on, that with the traditional development model it was becoming increasingly difficult to generate return based on the amount of money companies were raising and spending. At TheraNova, we recognized it was better for everybody – founders, shareholders, investors, potential acquirers, etc. – to keep costs low and generate value as capitally efficient as possible. Sounds simple, but with the industry average for bringing a concept to market hovering around $31 million, it is definitely easier said than done.

To keep costs lean, spin-out companies typically share a facility with Theranova until they outgrow it. The companies share a wet lab, a clean room, cages, manufacturing benches, and isolation hoods allowing us to maintain complete control of the process and dramatically cut down on early development costs. By streamlining operations, needs identification, strategic staffing, intellectual property filing and diversified funding this model is tracking towards taking concepts to market for around $5 million; a fraction of the $31 million industry average. Simply put, we only take what we need rather than bloating the company with the capital required for excessive staffing and facilities. This frugality, in turn, creates outstanding value for shareholders and investors and results in a venture that can be acquired at a reasonable price while still generating excellent returns for investors.

Funding remains paramount, but as with most medical device incubators, the current financial climate has made an impact on our business model. We’re currently funded only by partners within the LLC, but we could drive greater medical device advancements and support existing companies further if we were to have a like-minded investment partner; allowing us to focus on generating more value in each of the technologies prior to spinning them out and taking in an equity investment. Based in San Francisco, we recognize that institutional investors in the Bay Area are still hard-hit and focused on the social networking boom, so we shifted focus and are finding success with SBIR grants and private equity outside of the Bay Area; particularly in San Antonio where there is a concerted effort to become one of the life science hubs of America.

Our most recent spin-out, Consano Medical, is developing a urinary catheter for use in critically ill patients and is on track to hit the market with less than $5MM invested. Pilot clinical data has demonstrated the technology’s ability to detect subtle changes in several physiological parameters: core body temperature, respiratory rate, heart rate, intra-abdominal pressure (IAP) and relative cardiac output. Taken together we expect that these changes will give an earlier signal of the onset of sepsis in the intensive care unit which should result in superior care AND dramatic cost-savings to the healthcare system. Additionally, we are working on several other potentially cost-saving technologies, including a novel chest tube, a non-invasive hypothermia therapy, an artificial pancreas, a device to increase bone density in patients with osteoporosis and two medical apps.

Healthcare as a whole is expensive and it will remain that way unless more companies focus not only on innovations that provide superior care, but do so in a cost-effective manner with an eye towards reducing the overall cost of healthcare. With this model, everybody wins – patients get superior care, the healthcare system sees reduced costs and shareholders see excellent returns.