Archive for Wednesday, December 14, 2011

Kansas Bioscience Authority board to consider investment in medical device company

The new Kansas State University building at the Kansas Bioscience Park in Olathe. Photo taken April 13, 2011.

The new Kansas State University building at the Kansas Bioscience Park in Olathe. Photo taken April 13, 2011.

December 14, 2011


Kansas Bioscience Authority considers investment

Keith Harrington, director of commercialization for the Kansas Bioscience Authority, talks about the KBA's most recent investment under consideration. Enlarge video

A Kansas Bioscience Authority committee recommended on Tuesday that a $600,000 investment in a Lenexa medical device company be considered by the authority’s full board.

The committee discussed investing $600,000 with Spinal Simplicity, LLC, of Lenexa. Founded by a physician and an entrepreneur, the company has developed a medical device for spinal fusion as an alternative to open spinal surgery, according to its website.

The committee passed the recommendation along to the full board without a recommendation of approval or denial.

Keith Harrington, director of commercialization for Heartland BioVentures, which is the commercialization arm of the KBA, worked most closely with the applicant.

He said that while the investment committee typically makes a recommendation of approval on matters submitted to the board, in this case committee members wanted to solicit more opinions from board members before making a decision. Dan Watkins, KBA board chairman, is on the investment committee and was not able to attend the committee meeting, Harrington said.

The committee decided to seek input from him, as well as other members of the board before making a recommendation.


Ron Holzwarth 6 years, 6 months ago

I would examine this investment very, very closely. I've been an employee of two medical device companies, or that's what they called themselves anyway, and so I'm looking at it from an inside view. Although, this company does appear to have a much more credible product than either of those two companies did.

For one of them, I think the investors got most or all of their money back. No profit, though.

And for the other, millions of dollars were lost by the investors, which included the Kansas Public Employees Retirement System, ordinary stockholders, and investment banks. That company went broke, never paid their bills, and every single investor lost everything. I thought it was pretty weird to be working for a company that was getting calls from collection agencies.

What I thought was amazing when I saw the small bits of financial information that I was privy to was that the losses all along had been just about equal to the company's payroll, which was very high.

One time there was a mistake made. I needed to make a xerox copy of something, and when I lifted the lid of the machine, there was a piece of paper there. I looked at it.

Wow! It was a listing of what every employee, including the owners, were being paid! So, I closed the lid, made one copy to examine at leisure, and then made my copy and put the salary list back just where it was before.

All those losses were just fine with the owners of the company, because they had been paying themselves incredibly high salaries all along, and I knew exactly what it was! That was a business expense, of course. And all of the mileage on their cars, I'm sure. Also, the trips to foreign countries, Canada, Taiwan, and Hong Kong.

(Oh, the stories I could tell! But I better keep my mouth shut.)

In conclusion, I should point out that one of the most important things to very carefully examine is how much of the owner's own money is invested in the company.

Ron Holzwarth 6 years, 6 months ago

One more thing that was interesting about those two medical device companies is that neither one of them had a physician as an employee, nor even as a consultant.

Ron Holzwarth 6 years, 6 months ago

1) This is only my personal opinion, based upon my involvement with two incorporated companies that were attempting to sell medical devices, another enterprise that was an attempt to sell medical device which I believe was being done by an individual investing his own money, and and two more companies that were start up enterprises. And, years ago I used to do custom printed circuit board design for various companies in the Kansas City area, and I had quite a few discussions with the individuals behind the companies that I did work for.

I learned a great deal about procuring funding from one company that had a product that I never took seriously, in fact, very few did. However, the individuals behind the company were experts in their field of convincing people of things that were, well, exaggerations. They would have made very good missionaries, I am sure. But they were more interested in their own financial well being than anything like that.

I heard all about how to get grants and funds from investors from an expert in the field. I was told that it's not at all necessary to have a profitable product in order to make money, it's only necessary to get grants, preferably federal, in order to do so. Of course you can get people to invest, which they did, but the problem with investors is that they hope to get their money back. But in case they don't, be sure to have the corporate shield to protect yourself. And of course, be sure to pay yourself a good salary all along.

One I was involved with from just about the very beginning, but it was not a medical product. However, there was another federal authority to be dealt with, that was somewhat of a problem. In that case, the product was already sold before the company was ever incorporated, and a contract was also signed in order to use their own product. It was a brilliant business model, and worked out very well for the people behind the company.

And there was one more that was entirely self financed, and that company is doing as well today as can be expected, considering the present business climate. But, quite a lot of profit has been made over the years.

So, based upon my own experience, the company is much more likely to be a business success if the owners have invested a significant amount of their own money in the venture.

Ron Holzwarth 6 years, 6 months ago

2) Clipped from Spinal Simplicity's website: "The Minuteman® interspinous inter-laminar fusion device has CE Mark approval, and is currently available in the European Union*."

If I were an investor in Spinal Simplicity, I would certainly want to know how profitable the Minuteman® Interspinous Inter-laminar Fusion Device is in Europe. If the product is profitable there, the business model should work.

In that case, it appears that most or all of the $600,000 investment will be used in an attempt to procure FDA approval. That was certainly an issue with one of the companies that I worked for, and I don't think they ever did get it.

Getting FDA approval for anything for any medical use is very expensive, and success is never guaranteed. That's a large part of the reason medical costs are so high in the United States, in that in order for a company to make a profit, it is necessary to earn enough in sales of the product to eventually pay off the cost of getting FDA approval.

What is the potential market for the product? How much of a profit can be made on each sale, after production and distribution costs are deducted? Those are the questions a private investor should ask, but they don't always do that.

(Again, the stories I could tell! But I better keep my mouth shut.)

Are the taxpayers of Kansas the ones that are really making this investment?

Ron Holzwarth 6 years, 6 months ago

There is one more thing: A company that has only one single product is very rarely successful long term. That would certainly be something for a private investor to consider.

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