Article preview reprinted from IN VIVO - August/September, 2009
Estech, a small cardiac surgery and surgical ablation company, figured it had its strategy all set: after taking an investment from Boston Scientific, it would ramp up commercialization and, once it hit a certain sales target, would be acquired by BSC. But when Boston itself changed its strategy around the small companies in which it had made investments, Estech found itself in trouble. Read more...
Estech: Back From the Brink
Article preview reprinted from IN VIVO - August/September, 2009
Just three years ago, Estech was a small cardiac surgery company with a growing following and, company executives believed, an assured exit. Then everything went wrong. Now the company is back, with a contrarian strategy: befriend the cardiac surgeon.
**Estech, a manufacturer of devices used in cardiac surgery, was one of 54 companies Saints Capital acquired from Boston Scientific when the latter chose to divest its portfolio of minority investments. But Estech was nothing like the typical device start-up in the portfolio: rather it was a small but mature company with commercialized products and a revenue ramp.
**After accepting an investment in the early 2000s from Boston Scientific, Estech officials always believed they'd eventually be acquired by their partner, only to find those plans upset when Boston Scientific itself changed direction following its acquisition of Guidant.
**Suddenly, Estech found itself having to bring on a new management team and build an infrastructure sufficient to run as an independent company, a challenge compounded by difficulties in raising capital due to Boston Scientific's change in plans.
**Estech's strengths have always been an innovative product offering that has garnered support from cardiac surgeons. And the company is trying to push its advantage by positioning itself as the surgeon's best friend.
For most of the past decade and more, public offerings haven't really been much of an option for small medical device companies, generally speaking. After the crash and burn of a number of companies that went public in the mid-1990s, investors largely turned away from small-cap device companies as investment opportunities. The number of device IPOs continued to dwindle through the late 1990s and early 2000s, reaching a low point in 2003 when there were, in fact, no device IPOs at all. The IPO window did fly open, briefly, from 2004 to 2007. But that brief opportunity ended with the broader closing of the IPO market in the last year and a half and has only underscored how limited this option has been for device companies.
Not to worry, though, because while public markets offered no real exit opportunity over that span, big-company M&A did, as large device firms scoured the start-up world for new products to fill ever-hungry pipelines and distribution channels. In fact, even when the IPO window was open, most companies assumed that they would eventually be acquired—sometimes even after their IPO—and built accordingly. Why invest in sales forces and marketing teams and other expensive infrastructure when all real commercialization would be done by the acquiring company? And when that IPO window is closed, small companies focus even more on a strategy whose endgame is a sale to a larger competitor.
- by David Cassak
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Companies mentioned in this article:
Boston Scientific Corp.
Broncus Technologies Inc.
CardioMEMS Inc.
Edwards Lifesciences Corp.
Estech
Evalve Inc.
Hologic Inc.
Johnson & Johnson
Biosense Webster Inc.
Medtronic Inc.
Medtronic Ablation Frontiers LLC
Medtronic CardioVascular
Medtronic CryoCath LP
Siemens AG
Spiration Inc.
St. Jude Medical Inc.
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