A recent $65 million investment in Irvine-based startup medical device maker AcuFocus Inc. brought some validation for its long-term outlook as well as clues on the strategy of a much larger company in the industry.
Minneapolis-based Medtronic Inc., which has more than $16 billion in annual revenue and some 700 workers at operations in Orange County, was part of the latest funding round.
Rochester, N.Y.-based Bausch & Lomb Inc.; Cowen Royalty Healthcare Partners in Stamford, Conn.; and Versant Venture Management LLC of Menlo Park joined Medtronic in the funding, which took the total raised by 10-year-old AcuFocus to more than $125 million.
Medtronic gets most of its business from a range of medical devices, including replacement heart valves, pacemakers, defibrillators and catheters. It competes with Irvine-based Edwards Lifesciences Corp. on heart valves, and a number of other established device makers in other areas.
Slow Growth
The company has been knocked for slow growth and limited prospects, though, and has been seeking ways into more growth markets.
Enter AcuFocus, which makes the Kamra inlay lens for treating presbyopia—the eye’s inability to focus up close that comes with aging. The device is on the market in 19 countries, and the company is in the process of seeking Food and Drug Administration approval for sales here.
AcuFocus offers more than an obvious growth market. Ophthalmological products also hold the potential to help Medtronic cut its dependence on products that are covered by government insurance programs such as Medicare and Medicaid, which face potential cuts and long lead times on reimbursements.
“So much of (ophthalmology) is cash products,” said Ed Peterson, chief executive of AcuFocus. “Whether it’s Lasik, whether it’s a premium (intraocular lens) or whether it’s our product, it’s all cash. They’re looking for things that aren’t totally tied to reimbursement.”
• Headquarters: Minneapolis
• Founded: 1949
• Business: medical devices
• Ticker symbol: MDT (NYSE)
• Market value about $41 million
• Notable: seeking growth markets, joined in recent $65 million funding round for Irvine-based startup AcuFocus
Personal ties also played into Medtronic’s investment in AcuFocus.
William Hawkins, as former Medtronic chief executive, was on AcuFocus’ board in its early stages of existence.
“Over time, we just kept in contact, and then we met at JP Morgan a year ago, and we had a meeting with a number of other people,” Peterson said. “They liked what they saw; in fact, they told us it was the most exciting thing they’d seen in a long time.”
He left open the possibility of a sale to Medtronic.
“We’re definitely an acquisition candidate, but our focus is to build a great company and a great product, and if we do that, someone will be interested,” he said.
The recent $65 million investment AcuFocus came primarily because “we’re commercial now in 19 countries,” Peterson said. “We needed cash to commercialize worldwide.”
AcuFocus now employs 58 workers, with plans to hire more in 2012.
“We have another 15 people in the queue for this year,” Peterson said.
The recent round of funding is expected to get the company eventually “cash-flow break even.” AcuFocus expects revenue of $15 million this year.
Kamra isn’t yet approved for U.S. use, but Peterson said AcuFocus has submitted regulatory information to the FDA.
“But given the situation with the FDA, we’re probably two years away from U.S. approval,” he said.
Kamra weighs less than a gram and contains 8,400 holes that allow nutrients to flow to the cornea; AcuFocus is pushing Kamra as an alternative to traditional treatments for presbyopia, such as reading glasses. It’s one of several companies looking to come up with a surgical fix—the Kamra is implanted in the eye through a flap cut into the cornea with a femtosecond laser device, similar to Lasik vision-correction surgery.
“Overall, we’re very, very blessed to be where we are today,” Peterson said. “It’s difficult to take something from conception on a piece of paper all the way to commercial success and FDA.”
AcuFocus was founded in Georgia in 2001 and moved to Orange County in 2004.
It grew out of a suburban Atlanta business incubator, Innovation Factory LLC, which has ties to Versant Venture Management LLC, a high-profile venture capital company that has a Newport Beach office. William Link, a locally based Versant managing director, is AcuFocus’ chairman.
AcuFocus isn’t the only ophthalmic company that has caught Medtronic’s eye. Last July, it participated in a $24 million third round of financing for PowerVision Inc., a startup located in the Bay Area community of Belmont.
PowerVision makes an accommodating intraocular lens. Its lens has a fluid inside of it and helps create a shape change in a patient’s cornea in combination with what PowerVision calls “natural muscle forces inside the eye.”
“Ophthalmology is an important medical area, and Medtronic is interested in using our investment portfolio to invest in therapies and markets with growth potential, and where Medtronic believes we can add value,”according to spokesperson Amy von Walter.
She declined to comment on whether Medtronic is interested in buying AcuFocus.
