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OCTANe Pivots to Later-Stage Cos.

OCTANe was created in 2002 to bring together resources, expertise and capital to help grow biomedical and information technology startups. This year at its 12th annual Medical Technology Innovation Forum held at the Newport Beach Marriott Hotel, those “startups” look a little different. Eight LaunchPad companies presented, seeking from $1 million to $25 million.

“Our strategy is shifting,” said Chief Executive Bill Carpou. He said OCTANe won’t be raising “early early-stage” capital—“there are a lot of incubators that do [that] well”—but will move upmarket to help midsize companies raise later-stage rounds.

Carpou defines midsize as companies with 10 to 250 employees that are looking to raise larger amounts of money.

“You are generally looking at rounds that are greater than $10 million. That’s really where more sophisticated investors from outside the area will want to look at,” said Carpou, who’s eager to bring New York and Boston dollars into Orange County.

LaunchPad, a collaboration with the Small Business Administration’s Small Business Development Center, is the accelerator arm of OCTANe—the Orange County Technology Action Network. The Aliso Viejo-based nonprofit also has the Visionary Venture Fund, its debut fund, which focuses on investing in ophthalmology companies. It plans to raise another fund next year.

Startups

Companies represented at this year’s LaunchPad came from Los Angeles County, OC and San Diego. Carpou said it’s important to look at the Southern California region as a whole to better compete with Silicon Valley.

Recros Medica Inc. in San Diego was the winner of the LaunchPad award, taking home $135,000 in donated services. The company is developing rotational fractional resection, a medical aesthetic technology used to treat loose skin and surgical body contouring. The latter removes excessive sagging skin and fat that are typical after major weight loss.

Chief Executive Tom Albright said the technology eliminates 25% of excess skin and shows no visible scarring. Albright says traditional plastic surgery can leave significant scars and that other treatments have limited efficacy and require multiple treatments—such as Thermage, Ultherapy and Coolscuplting—or cause significant bruising and swelling, like Kybella.

The company has raised $5.7 million and is seeking an additional $5 million. Albright said it’s raised $2.5 million and plans to use the $5 million as bridge capital until it secures venture capital. Albright said he expects a $20 million venture round next year, supporting launch to cash-flow break even.

Fresca Medical Inc. in San Clemente, Perimeter Medical Imaging in Toronto, Canada and Eyes4Lives Inc. in La Habra represent the more than $10 million opportunity Carpou seeks. Fresca develops a treatment targeting sleep apnea, and Perimeter, which develops advanced surgical imaging tools, asked for $25 million and $17 million, respectively.

Eyes4Lives is seeking $10 million. It makes Dr. i-Coach, “the only hardware and software” product targeting eyestrain, according to company Chairman Roger Wu. The product is designed to correct poor usage habits of electronic devices, such as computers, smartphones and hand-held gaming devices. It provides real-time feedback on four metrics: blink rate, time on computer, distance monitor, and posture violation.

Wu said the company recently shifted strategy, changing its end customers from optometrists and ophthalmologists to large corporate companies. It brought Kenneth Kim on board as chief executive last month, Wu told the Business Journal.

Proceeds will grow sales and distribution, as well as product development. Product is commercialized.

BranchPoint Technologies Inc., which develops a device used to monitor intracranial pressure, asked for $1.35 million. Chief Operating Officer Nick Hu said the company has already raised $1 million.

The implantable wireless sensor manages patients at risk of brain swelling, intracranial hemorrhage and cerebrospinal fluid buildup. Products currently on the market require a wired sensor probe to be implanted into the brain and connected to a bedside monitor.

Other presenters include Fischer Imaging in West Hills, which makes mammography systems with enhanced resolution and “comfortable compression;” Cellgen Diagnostics in Irvine, which develops a liquid biopsy platform; and Spine Ovations Inc. in Carlsbad, which makes DiscSeal, a minimally invasive implant used to treat lower back pain.

Investment Opportunities

The medical device industry continues to be robust. Southern California employs nearly 34,000 in the segment, far and away tops in the nation, distancing New York, with about 18,100 and Boston, with 15,200, according to the U.S. Department of Commerce. OC is known as a device hub. The other hotspot for medical devices—the Twin Cities region—employs about 29,000, according to the Minnesota Department of Employment and Economic Development.

Venture capital investment in pharmaceutical and device companies will continue to increase, with greater emphasis in biopharma, according to research by Silicon Valley Bank. The report states that biopharma Series A investments are attractive because they promise early-stage exits. Diagnostic tools and neuro investments are also gathering momentum.

Albert Cha, a managing partner at Palo Alto-based healthcare investment firm Vivo Capital, which focuses primarily in later development-stage healthcare companies, said his investors are interested in technology that “can exit without having FDA approval, before U.S. commercial launch.”

Johnson & Johnson leads the year in device mergers and acquisitions. It bought Abbott Medical Optics Inc. in Santa Ana in February for $4.3 billion—and rebranded it Johnson & Johnson Vision. It added North Carolina-based TearScience to its surgical-device portfolio in September.

Cha said noninvasive monitoring is a new category that received substantial investments. Other hot categories include cardiovascular, ophthalmology and neuro.

Keynote speaker Omar Ishrak addressed the importance of monitoring and tracking patient performance. He noted the shift to a value-based care system—it “simply makes healthcare participants move from ‘promising to’ to ‘delivering’ outcome.” Ishrak is chief executive of Medtronic PLC, the world’s largest medical-equipment company with $30 billion annual sales. It employs about 1,800 at two subsidiaries here.

Growing Entrepreneurship

Jim Mazzo, global president of Carl Zeiss Meditec’s ophthalmic devices unit, said OCTANe was started to help young entrepreneurs succeed. He said the best part of the MTIF event was the “hallway conversations,” where young entrepreneurs can access those who have gone down the same path before for advice—“I think it’s great.”

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