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Wednesday, February 17, 2010
Medtronic reaches into New England to fund strategic partners
By Rodney H. Brown
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On one day in early January, three New England life sciences companies reported or filed documents detailing multimillion-dollar investments from a medical devices giant, but it wasn’t one based in Cambridge, Waltham or anywhere in the Northeast. It was Minneapolis-based Medtronic Inc.
Lexington’s GI Dynamics Inc., MicroChips Inc. of Bedford and Salient Surgical Technologies Inc. of Portsmouth, N.H., each reported on Jan. 7, 2010, investments that were primarily or partly backed by Medtronic. According to officials at the Midwest life sciences firm, while it has for years made investments in companies around the world, New England is one of its most active regions.
“Clearly the bulk of life sciences activity is in the Bay Area and second is New England and third are the Twin Cities,” said Chad Cornell, vice president of business development for Medtronic. “Just by virtue of that, we’ve had a number of investments in the New England area.”
Medtronic can afford to pump millions of dollars into medical device startups around the globe — it is positioned as the largest medical technology company in the world, with about 38,000 employees and a market cap of $46 billion. It is also occasionally the bane of Boston Scientific Corp. of Natick, which has about 25,000 workers and a market cap of $11 billion. The two companies compete in the area of cardiac stents and balloon catheters, among other technologies.
But Medtronic made its name in cardiac pacemakers and has a strong business in products designed for dealing with diabetes. The idea of investing in new technology that is not currently in its product mix is essential to Medtronic, Cornell said.
That is why Medtronic invested in the January round for GI Dynamics, which federal documents pegged at $15 million, although neither GI Dynamics nor Medtronic would confirm the amount. The company is developing a sheath to line the intestines that would help combat Type 2 diabetes and obesity. This latest funding will help GI Dynamics bring the EndoBarrier Gastrointestinal Liner to market, according to president and CEO Stuart Randle, who said his company has been in Medtronic’s sights for some time.
“Medtronic has been following us for many years and we have had many periodic conversations with them over the past many years,” Randle said.
Having a big strategic corporate investor is almost all positive for a couple of reasons, Randle said.
“One is just validation of everything we are doing,” he said. “Secondly, we have the opportunity to access some of their resources if we would like to.”
Medtronic, however, is not the only strategic investor in GI Dynamics. Randle said the company has also taken funds from Medtronic competitor Johnson & Johnson, and he likes it that way.
“This a way to get one strategic (investor) to recognize the value in our company,” he said.
Cornell has no problem going in with a competitor on a startup, he said. Either way, the goal is to get a return on the investment.
“We’ve invested with competitors,” he said. “One typical exit is a sale to us and one is a sale to a competitor. If it sells to a competitor, hopefully we made some money on an investment, worst case.”
Cornell said that all of Medtronic’s current products fit into one overall category — they all treat a disease state, such as heart disease or diabetes. And the companies it invests in from its $300 million fund would also fit that description.
“Obesity is one example of that,” Cornell said. “Obesity is a disease state and there are a lot of companies trying to compete in that market.”
The other companies Medtronic put funds into in January also come under that description. Salient Surgical makes devices to control bleeding during surgeries. MicroChips, a Medtronic partner for several years, is developing an implantable sensor system used to control the delivery of drugs in treating diabetes in one program and osteoporosis in another.
According to Jeff Warren, head of investor relations for Medtronic, the company has invested in approximately 40 startups since the fund was established. Unlike other large companies, which establish a separate investment arm — Intel Corp.’s Intel Capital, for example — Medtronic keeps such operations in-house, Cornell said.
Not all of Medtronic’s New England investments have been winners, Cornell said.
In 2004 Medtronic acquired Taunton’s Angiolink Corp. for an undisclosed amount after having invested in the company. It made a staple-based system, for closing vascular wounds, that Cornell said ultimately did not reach market.
“The product, I don’t believe, is on the market because of some manufacturing challenges,” he said “That’s a complex thing to do. Closing it is hard.”
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