Ohio Venture - OVA Review Newsletter
News from the Ohio Venture Association meeting on March 11, 2011

Keynote Address:

Bill Sanford

Successful, well-known serial entrepreneurs are used to telling war stories with happy endings. What Bill Sanford instead shared with OVA members at their March luncheon was a window on a venture still in progress, and a case study on how many things can go wrong with even the most promising start-up.

Imalux was formed ten years ago this month, with technology originally pioneered in Russia, supplemented by Clevelander Dr. Paul Amazeen, one of the fathers of ultrasound imaging, and now Imalux's chief technology officer. The Edison Biotechnology Center put up $100,000 of initial seed capital, and the law firm of Hahn Loeser donated significant time to untangle the intellectual property and set up the business. Sanford, the highly respected executive founder of Steris and a co-founder of BioEnterprise, significantly enhanced the company's prospects by joining the leadership team.

The technology—with better resolution than ultrasound, CT, MRI and PET—identifies cancer in its earliest stages. It is used in surgery and biopsy guidance, and post-treatment surveillance. The table-top system provides two-dimensional, real-time images in cross section, leveraging optical clearance tomography, or OCT. "You don't have to send it off for a radiologist to read it. This is being done live while the surgeon is doing his or her thing," Sanford said.

The company went through four rounds of funding, raising a total of $16.4 million. It got FDA clearance, "ahead of time and under budget," Sanford noted. "We had a great sales force. We produced 50 units, and today, 45 of them are in use...in the history of this device, we have had two service calls, two repairs."

Everything seemed set for yet another major entrepreneurial success. "We've got this great gadget, identified market, FDA clearance. (We were) fat, dumb and happy," Sanford recalled.

The management team believed that if they just got the system into the marketplace, people would buy it. "And a few people bought it. But people were asking dumb questions, like 'who's using it?' 'What do they use it for?' " The company began looking for additional investors, primarily strategic, who delivered some disappointing news: They needed additional clinical validation.

"So we regrouped, and we did a series C financing. And the singular reason to do that was to do clinical validation," Sanford recalled. "We've now had 4,000 patients safely and effectively studied, we've had more than 100 peer-reviewed papers published, over 40 international presentations, testimonials—unsolicited and solicited—and recommendations from thought leaders around the world."

Sanford noted one recent bright lining about the industry niche: Imalux is no longer the lone wolf touting the benefits of OCT technology. Other companies have received FDA clearance for OCT technology in different applications, and one of those startups has even been sold, to St. Jude Medical, for $95 million. Sanford noted that happened despite the fact that the company had "zero peer-reviewed publications."

What could they have done better or differently? Sanford noted that even though Imalux had a good product and FDA clearance, "it was much more difficult to sell a new concept from a little tiny company in Cleveland, Ohio. Same thing as Steris. I mean, Steris was hard. People didn't throw money at us for a long time. Not only are you introducing a new technology, but you're displacing something else. Whether (doctors) are doing it manually or however they're doing it, they have to decide they're going to do something differently."

He went on: "Here's a mistake that was made: targeting doctor's offices. Doctor's offices are late adopters of anything. You've got to establish adoption in the major clinical sites with the thought leaders, and then it will migrate out to the doctors and other sorts of things. That was stupid, and I was part of it." Now, he said, the target market is solely major cancer centers in the academic and other thought-leadership environments. "Our objective is to sell 80 systems this year, and 210 systems next year. And if we do that, we know it will provide the market validation for the big guys to line up to write checks."

Meanwhile, the company, now a full decade into its life, has another, subtler, challenge. "Imalux suffers from something that many companies suffer in the early stages of their business—and that is, investor fatigue. To many people, Imalux is an old story. We were formed and conceived in the late '90s, and became a company in 2001. So we're a ten-year-old story. There have been many investors who have been in the deal for 10 years. And there's a mystique about new deals."

More information:

Webcast from the Meeting:

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