When large companies make innovations that don’t fit their business plan, the discovery often ends up gathering dust on a shelf. But entrepreneurs are eager to build new companies around these orphaned technologies.
Four years ago, Jeffrey Alholm spotted just such an opportunity. Warsaw-based Biomet Inc. had tabled a promising anesthetic-dispensing device. So Alholm formed Symbios Medical Products LLC and cut a deal to secure its rights.
Now, Symbios has a chance to commercialize the device widely, thanks to a seven-figure capital infusion it just landed from Chicago-based Hopewell Ventures.
“This is easily one of the fastest-growing niches in all of medicine,” Symbios CEO Jeffrey Alholm said.
Founded in 2004, Symbios has grown to 25 employees. After securing its intellectual property from Biomet, Symbios began contacting regulators. Last year, it finished clearing U.S. Food and Drug Administration hurdles and started manufacturing the Go Pump Rapid Recovery System, a disposable medical device patients wear on their belts following surgery. Under a doctor’s supervision, it delivers pain medication via a catheter directly to distressed parts of the body.
Business success is as much about timing as it is about quality products and capable management, said Robert McCormack, one of Symbios’ earliest investors and president of Bloomingtonbased Pinnacle Asset Management.
The pain management industry “has come front and center” in the last two or three years, McCormack said. “I think we picked up the business at the perfect time.”
Pharmaceutical pills still dominate the pain relief market, Alholm said. Sales of automatic medicine-dispensing devices are a tiny fragment. But Alholm said the niche is expanding quickly-he pegs that growth at about 35 percent annually, based largely on the pace of expansion at Symbios’ largest rival, California-based IFlow Corp.
Publicly traded I-Flow has annual sales of $94 million and a market value of $445 million. But its size doesn’t intimidate Alholm. He notes the heavy losses the company has booked to fund its expansion-a business model Alholm considers a throwback to the dot-com era.
Alholm said Symbios has the technical chops and patience to eventually overcome its rival. The Go Pump, he said, has a variety of potential applications. Heart patients could use it to ease their recovery after doctors open their chests. Baby boomers who go through knee, hip or shoulder replacements could find it similarly useful. Rather than ingest a pain drug that affects the entire body, Alholm said, patients can use the Go Pump to direct medicine to the place that hurts.
Hospitals will like the result, Alholm said, because the device reduces the amount of time patients must spend bedridden. Patients appreciate their increased mobility. And the device allows them to begin physical therapy more quickly, he said, because it can blunt the aches and soreness of post-surgical exercise. Because the Go Pump automatically controls the flow of medicine, the risk of complications, or patient addiction, is low.
Symbios sells eight versions of its Go Pump, each for a different medical problem, and more versions are on the drawing board. The company said each device costs $200 but would not disclose total revenue.
Alholm, 48, expects doctors will be eager to use the device, given its benefits and hospitals’ need to improve care while also being frugal.
“As I like to say, the dog will eat the dog food,” he said.
At its formation, Symbios raised $1.5 million in angel financing from a group of 20 local investors. In October, Symbios raised another round of money, with Hopewell becoming its first venture capital investor.
Hopewell partner Craig Overmyer said he and his colleagues liked Symbios’ potential for fast growth, as well as the fact that it already had FDA approval for a product and had brought it to market.
He wouldn’t discuss the terms of Hopewell’s investment, but said they were within his firm’s usual parameters. Hopewell, which has $150 million under management, typically invests $1 million to $2 million into startups, then pumps in more as they meet benchmarks. Over several years, he said, a startup typically receives $5 million to $9 million. Hopewell has investments in 11 companies; Symbios is its first in Indiana.
Steve Beck, the former head of the Indiana Venture Center, helped make the introductions to angel investors that led to Symbios’ initial funding. He was enthusiastic then. Now that the pump has won regulatory approval, he said, it’s ready to deliver on that promise.
“That’s a deal that even after we raised their initial money, we were constantly telling people about it,” said Beck, now Indiana managing director for Chicagobased Geneva Capital Group. “It’s going to be a real hit for Indiana.”