The health-and-wellness media space is one of the hottest around when it comes to M&A and venture capital investments. What are buyers and investors looking for? How long can that continue?

Panelists
Esther Dyson, EDventure
John Lambros, Managing Director, Savvian
Morris R. Levitt, Managing Director-Life Sciences, DeSilva+Phillips
Benjamin Wolin, CEO, Waterfront Media/EverydayHealth.

Moderator
Rafat Ali, publisher and co-editor, ContentNext Media/paidContent.org

speakers:
William Paiva, PhD, Sevin Rosen Funds
Jenny Morgan, Sterling Venture Partners
James MacDonald, First Analysis

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In episode one of Outside the Lab, show host Michael Choi interviews Dr. Gregory Stock, CEO of Signum Biosciences. Dr. Stock provides insight into Signum’s business strategy, which is to first focus on the cosmoceutical market and reinvest short term cash flow towards the more lucrative, yet more costly pharmaceutical applications of its discoveries.

Outside the Lab explores the business side of the life sciences industry. We interview CEOs, Venture Capitalists, Consultants and other industry professionals on the dynamic and ever changing lifesciences landscape.

If you know someone who would make an interesting guest on an upcoming show, feel free to contact us.

About Signum Biosciences

Signum Biosciences is a private biotechnology company dedicated to acquiring and developing effective, innovative, economical medicines to prevent and treat diseases of aging. Through research on protein networks that control biological systems, we are developing therapeutic candidates for Alzheimer’s , Parkinson’s, arthritis, cancer, cardiovascular disease and a variety of skin conditions.

All cellular activity is coordinated by cellular communication networks, so when these networks go awry, disease results. In cancer, cells mutate and their growth becomes unregulated. In Alzheimer’s, imbalanced expression of a secreted protein in the brain brings inflammatory responses that lead to memory loss and neuronal cell death. In vascular disease, damage to the vascular endothelium generates inflammation that causes atherosclerotic plaques. In skin, neutrophils aggregate in localized areas and cause damage. Each disease develops from progressively more serious imbalances in regulatory and signal transduction processes.

We have developed a strategy to modulate signal transduction networks globally instead of through specifically targeted receptors and other components. This approach is feasible because cellular networks have their own built-in global regulatory mechanisms that can be tuned to modulate the activities of all components at once with minimal deleterious effects.

More global approaches to regulating human biochemical networks are gaining traction for the treatment of disease, and the cutting-edge biochemistry embodied in our proprietary assays offers an efficient new platform for drug discovery in multi-billion dollar disease markets. Our approach will speed the development and commercialization of innovative new drugs and allow us to spin off validated, well-characterized skin care products during the process.

Please read the following case study in advance of watching the above video, which is the case being discussed by a panel of life sciences and venture capital experts at the BioStrategy Partners Conference - First Sightings 2007: Resources for Emerging Life Science Companies.

Joseph Smith is a talented scientist with a Ph.D. in biomedical engineering, currently 57 years old. After a post-doc and a number of years as a professor, he spent 13 years at a Fortune 1000 company where he invented several new technologies that were the basis of a number of new products that have generated hundreds of millions of dollars of sales. In 1998-2000 he was involved in a venture capital funded start up that did not work out, and from 2000 to late 2003 he worked for a small public company, Xerstat.

He accumulated some stock at the Fortune 1000 company, but while he was there, that company did not award significant stock options to its employees. He did start a IRA. He did not accumulate any wealth from his time at the venture backed company. As a senior scientist at Xerstat, his benefits include a 401(k) and stock option grants. Happily, Xerstat’s stock did well, and the options grew in value.

Early in 2005, Dr. Smith decides he wanted to start his own company—which he names Neurxx—to pursue applications for a novel neurosurgical device he has conceived of. Happily, Xerstat has no interest in the technology, and he works out terms where they release all rights to him.

At the time that he stops working for Xerstat, his Xerstat options are worth $150,000, his Fortune 1000 company stock is worth $100,000, and he has a 401k and IRAs worth about $275,000.

His first year is spent developing and refining the technology and working on patent applications. He works with a colleague from the medical school who functions as an informal regulatory affairs officer, helping on the 510(k) clearance for the initial product, which is obtained in early 2007.

Dr. Smith has been funding this on his own although he has known from the beginning that it would be necessary to raise outside capital to get his company off the ground. When Dr. Smith left Xerstat, he had anticipated starting the fund raising process in early 2006, but with unanticipated delays in developing the technology he is way behind schedule.

Dr. Smith has never raised capital before and he has few contacts in the venture capital community. The approach he always had in mind was to find a partner who would be the front man/woman in this process, someone who had raised money before and who had connections. Dr. Smith believed that until his technology was close to be able to be launched it would make little sense to seek out this partner.

In the fall of 2006 he resolved that he must start searching for a partner, but after working on this for a few weeks, he realized this is going to be a slow process. In late October, his lawyers introduced him to a good prospect and they had several meetings, but at Thanksgiving, the prospect told him that he has found an opportunity to which he could not say no. Dr. Smith met a number of people through the fall and early winter, but none seemed right. In late December 2006, he attended a BioStrategy Partners conference and met David Armstrong, who was the CEO of a company that was in the process of being sold.

Dr. Smith felt very good about Mr. Armstrong after their initial in depth meeting, but Mr. Armstrong said he would not be able to focus on this for several months. Right after St. Patrick’s day, almost three months after their first meeting, Mr. Armstrong called Dr. Smith, saying that during the intervening time he had done some due diligence and had concluded that the market opportunities for Neurxx really were as good as Dr. Smith had said they were.

Dr. Smith was eager to get Mr. Armstrong involved, and they soon struck a deal where Mr. Armstrong would be CEO, with his first job being to raise the money needed to launch Neurxx’s initial product and where they would have a 50-50 “partnership” (with both owning the same amount of stock).

The first thing Mr. Armstrong did was to rewrite Neurxx’s business plan. He and Dr. Smith concluded that they need to raise $1.5 million to launch into the initial product, to be quickly followed by a $3.5 million raise, which they believed will allow Neurxx to become cash flow positive by 2008 Q4. Neurxx’s projections are attached.

Although Dr. Smith is very satisfied with the business plan that Mr. Armstrong rewrote, the money raising process seems to be going slowly and Dr. Smith is feeling a lot of anxiety. As of March 26, 2007, Dr. Smith has invested more than $140,000 of his own cash into this project and has not taken a salary for more than 2 years, living off of and using proceeds from the Fortune 1000 stock, the Xerstat options, and drawing on his retirement accounts, which are down to $230,000. He has not set aside any money to pay taxes due on April 15 from selling stock. Also, he started financing the project with credit cards, and he has put more than $35,000 of Neurxx expenses on high interest rate credit cards. His wife is starting to lose patience, and Dr. Smith is beginning to think that if the money isn’t raised soon, he going to have to take a job.

To date, Dr. Smith has not asked Mr. Armstrong to invest any money into Neurxx although he has been very transparent with Mr. Armstrong about the money problems. He is now thinking that he should ask Mr. Armstrong to make funds available to address the credit card debt.

Mr. Armstrong has set up a number of meetings with angel investors and others and says that he believes it will take 4 months to raise the initial $1.5 million.

At this point, what should Dr. Smith do to better position Neurxx to raise funding?

Sermo (http://www.sermo.com), the fastest growing online community created by physicians for physicians, has already seen the impact of its mission to improve patient care positively influencing the practice of medicine in the U.S. Thousands of Physicians across all specialties are now relying on Sermo regularly to ask questions of each other and post observations – sharing hard-hitting medical insights and treatment advice – 24/7. Since launching just 10 weeks ago, Sermo has experienced exponential growth with thousands of physicians, in over 30 specialties and from all 50 states, joining the forum. Members are now logging more than 600 hours per week in total usage, which continues to grow 20 percent week over week. In addition, registered users are increasing at an average weekly rate of 17 percent.

On Sermo, important observations, termed “signals,” are separated from “noise” by physicians nationwide, who corroborate or dispute, and rank the importance of each observation. The Sermo system reports the consensus in real-time and physician interest pushes the most important issues to the top. This means the time it takes for an initial observation to move from the individual physician to valuable, actionable information (broadly vetted by and disseminated throughout the medical community) can be as short as a few hours. Previously, this could take months, and for large numbers, even years. The result is better patient care and improved outcomes through earlier insight.

“Sermo is an extremely valuable resource that is now a part of my daily routine - I believe it will make a dramatic improvement in the medical community,” said Dr. Jason Jaronik, an emergency medicine physician at St Joe Regional Medical Center in South Bend, Indiana. “The ability to quickly log on and receive multiple insights to a question is an informal - yet extremely effective - way to continue my medical education by learning from other physicians who share insights based on their experiences. I recently posted a question about a patient who had corneal abrasions and received an answer within minutes from an ophthalmologist who recommended something that I had not been offering – it helped the patient and taught me a new technique, instantly.”

Recent questions from physicians show the variety of topics discussed on Sermo:

• Should we do CT angiography instead of an LP in acute headaches?
• How do you screen for asymptomatic ischemic heart disease?
• For cirrhotics would you use fresh frozen plasma or albumin as a colloid?
• Shouldn’t a patient be on an 80mg dose of Lipitor after a myocardial infarction?
• Should lithium be the initial treatment for Bipolar Disorder?
• Does vitamin D supplementation reduce the risk of type 1 diabetes?
• Has anyone seen large pulmonary emboli develop after treatment with Factor activated VII?
• Should we be screening for lung cancer with CT scans in high-risk populations?

“Sermo is great not only for posting my own observations and thoughts, but for quickly receiving quality insight and information to questions that arise or situations that are new to us and in which someone from the Sermo community might have experience,” said Dr. Erik A. Maus, an Assistant Professor in the Hermann Center for Wound Healing and Hyperbaric Medicine at the University of Texas in Houston. “I have received a good amount of quality insights on some very perplexing situations – Sermo allows me to communicate and ask questions of other colleagues all over the nation who are involved in patient care – the freedom to exchange insights in a protected community has been invaluable. The more minds involved in medicine, the better.”

By Physicians, For Physicians
Collaborative wisdom has long been a fixture in medicine, but grand rounds, the doctor’s lounge, and even cafeterias are no longer venues in which physicians consult with their colleagues as they have in the past. Significantly, with the trend towards outpatient care in America’s healthcare system, physicians have lost everyday opportunities to share ideas and compare experiences with their colleagues.

At Sermo, physicians offer medical insights, learn from each other’s experiences, and most importantly, discuss how they can improve patient care. With the ability to easily ask questions of thousands of colleagues nationwide, physicians find that Sermo instantly expands their treatment arsenal. Even professionals in the most remote of areas – where resources and colleagues are often limited - can leverage the collective brainpower of colleagues across specialties and practice settings, from office-based to hospital and academic teaching institutions.

“Our fast growth and high adoption rate demonstrate a clear information void among physicians,” said Daniel Palestrant, Founder and CEO, Sermo. “Building consensus around any healthcare or medical issue today is a slow and arduous process. Sermo is changing this by giving physicians their own collective voice and allowing them to work together, in real-time, to deliver the best ‘front line’ medicine possible.”

About Sermo
Launched September 2006, Sermo is already the fastest growing online community, created by physicians for physicians. Its Web-based platform provides a medium for physicians to aggregate observations from daily practice then — rapidly and in large numbers — challenge or corroborate each other’s opinions, accelerating the discovery of emerging trends and new insights on medications, devices, and treatments. Through Sermo, physicians exchange knowledge with each other the minute it is learned, and gain insights from colleagues as they happen instead of waiting to read about them in conventional media sources. Sermo harnesses the power of collective wisdom and enables physicians to discuss new clinical findings, report unusual events, and work together to dramatically impact patient care. For more information visit www.sermo.com.

Robin wants to eliminate health insurance companies and create a single payor system combined with Health Savings Accounts. The government would act as a safety net for catastrophic situations.

Technology will only be useful if it applies to the proper financial infrastrure. Why not create Health Savings Plans and incentivize people to judiciously manage their health care dollars. Consumers would be empowered.

The critical factor in assessing any health care deal, from a venture perspective at least, is management. However, from an acquisition perspective, if the acquiring company has strong management, management may not be the most important factor.

The Make versus Buy decision. Do you possess the capabilites to do it yourself? What is the size of the investment (to build or buy)?. What is the amount of time to get return on investment? Strategic decision as well. What if a well financed competitor acquires the target company. What does this do you your position in the market. A company has to ask itself where is the market going? Where do we fit in to the new market?

Investors / Acquirors are looking for technology that will overtake the existing technology on the market. How do you validate the technology? Is it leapfrogging the existing technology, or is it just slightly better than what is on the market.

Customers
Hospitals, as customers, want to know how much something is going to cost. What is the value proposition and cost of a product to the final customer? What will this product do to enhance clinical outcomes or decrease the length of hospital stay or take costs out of the system? Hospitals want quality and value.

When you sell into life sciences and academic research communities, the questions are different. What are the trasnforming trends and what impact can the vendor have on those trends? E.g. PCR impact on the health care system or RNAi technology (human health care impact technology). Monoclonal Antibodies are becoming hugely important because products are moving from discovery to development. Macroeconomic drivers are trends in discovery and development technologies.

From a CEO perspective, what separates good health care investors from the rest?
Hands-off (because management still has to run the day-to-day operations), but management has to be transparent, factual and straight-talkers in relation to investors. Investors should know that you have an action plan.

A venture investor should understand their role, but not try to play outside their role. The ones that are honest and tell you what they do AND don’t understand. Are honest, understand what you’re trying to do.

Moderator
Jon D. Lemelman
Riverside Partners LLC

Jon D. Lemelman has more than 12 years of experience in private equity, financial services, and technology companies. He joined Riverside in early 2004.

Previously, Mr. Lemelman worked at Fidelity Strategic Investments, the private equity division of Fidelity Investments. Prior to this, he was director of business development at Reciprocal Inc., a software company that was acquired by Microsoft in 2001.

From 1995 to 1999, Mr. Lemelman was a vice president in Fidelity’s Institutional Sales group. He currently serves on the board of MicroDental Laboratories.

Mr. Lemelman holds a bachelor of business administration, with distinction, from Emory University and a MBA from the Wharton School of Business at the University of Pennsylvania.

Richard K. Brown
MicroCal LLC
Richard K. Brown is president and chief executive officer of MicroCal. Prior to MicroCal, Dr. Brown was at Isis Pharmaceuticals where he served as vice president of business development and president of the GeneTrove division. Dr. Brown and his business development team were responsible for initiating, negotiating and managing collaborations with pharmaceutical industry partners such as Abbott, Amgen, Eli Lily, Merck, Pfizer, GSK, and multiple others.

Prior to joining Isis, Dr. Brown was president of Irori, a company that develops, manufactures and markets combinatorial chemistry and medicinal chemistry products to the pharmaceutical industry. He joined the then start-up Irori in 1996 as vice president of marketing and business development and successfully led their product commercialization programs. In 1998, he became president of Irori. As president, Dr. Brown developed strategic alliances with multiple leading pharmaceutical organizations for drug discovery technology development, expanded the company’s product and service offerings, and developed the company’s operations in the US, Europe and Japan. To facilitate an initial public offering of the company, he merged Irori into the Discovery Partners International (DPI) group and participated in the successful July 2000 IPO of DPI.

Dr. Brown received his PhD in chemistry at the University of Massachusetts at Amherst. After completing his doctoral work, Dr. Brown completed a two-year postdoctoral position in x-ray and neutron diffraction crystallography at Argonne National Laboratory.

Roderick G. Johnson
Former Senior Industry Executive
Roderick G. Johnson was a director of Bio-logic Systems Corp. since he joined the company in 1999 as its president and chief operating officer. Mr. Johnson led the sale of Bio-logic to Natus Medical in 2006.

In 1994 he founded the NeuroCare Group, which acquired and integrated several neurosurgical equipment and disposable supply companies, and served as its chairman, president and chief executive officer until 1999, when it was sold to Integra LifeSciences.

From 1992 through 1994, Mr. Johnson served as chief executive officer in residence at Weiss Peck & Greer and the Continental Illinois Venture Corporation.

From 1988 through 1991, Mr. Johnson was president and chief executive officer of Domino Amjet Inc.

Earlier in his career Mr. Johnson progressed through 10 positions in 12 years in planning, international finance, and division management at Baxter Inc. headquarters and in the UK. During two of his four years in London, he was vice president finance for Ecolab Europe.

Mr. Johnson is currently on the Board of General Kinematics, Inc. and a member of Vistage (TEC) CEO organization.

He holds an MBA from Tulane University, a BSEE from the University of Houston, and a CPA.

Timothy D.C. McInerney
Kol Bio-Medical Instruments Inc.
Timothy D. C. McInerney is CEO, chairman of the board of directors and major stockholder in KOL Bio-Medical Instruments Inc. He has been in the healthcare device business since 1970.

In 1975, he joined Kol Bio-Medical Instruments Inc., a then $400,000 per year medical distributor, as a minority partner. Today, the company yearly does $20M in sales. Mr. McInerney is responsible for all aspects of corporate direction, growth, finance, operations, strategic planning and product Branding. Kol Bio-Medical Instruments is a veteran-owned company, as Mr. McInerney is a combat-decorated United States Marine who served in the Republic of Vietnam.

His career started with Medtronic Inc., in their cardiac pacemaker group as an East Coast Sales Representative. Over a five-year span, he was promoted into various sales and marketing positions, then moved to corporate headquarters in Minneapolis, Minnesota as a divisional national sales manager.

He is a member, and past board director of, the Independent Medical Distributor Association. This organization is a coalition made up of other specialty medical distributors throughout the United States.

William J. McLaughlin
J-Pac LLC
William J. McLaughlin has been president and CEO of J-Pac LLC, a leading outsourced manufacturer for medical device OEMs, located in Somersworth, NH, and Medipharm Manufacturing Group for the past six years.

Previously Mr. McLaughlin held the positions of chief operating officer in various business endeavors. He began his professional career at Arthur Young & Co.

Mr. McLaughlin graduated with a bachelor’s degree in accounting and economics magna cum laude from Boston College, is a CPA and received his master’s degree in finance cum laude from Bentley College.

This panel discussion was a part of a day long health care Masterclass by the Capital Roundtable, the leading Venture and Private Equity Seminar organizer.

BUYING OUT & EXPANDING
MEDICAL DEVICE & PRODUCT COMPANIES –
Where is the Smart P.E. Money Hunting?

• Why the surge of interest in buyouts of medical device & product companies??
• What sectors are hot, & which are alluring but probably too risky??
• How is new technology impacting existing companies ??
• What’s been the impact of the changing IPO & venture capital markets ??

  Featuring 20 Expert Speakers.

  To purchase the entire DVD series, or access to the Capital Roundtable Masterclass multimedia web site, please contact us.

More and more buyout firms are getting excited about acquiring and consolidating companies in the medical device/product/technology industry.

And no wonder –

• It’s big, and it’s fragmented. It’s a $182 billion segment of the whopping $2 trillion overall healthcare industry. Its manufacturers operate in dozens of submarkets, from cardiology to orthopedics to neurology.
• Innovation combined with the need for more cost-effective healthcare is creating significant end-market growth in many sectors.
• Off-the-shelf technologies are increasingly finding their way into exciting new applications.

Take all these trends together, and you can see why big questions are being raised by savvy middle-market healthcare P.E. professionals –

• What sectors of medical devices are going to be most successful?
• How do you navigate the reimbursement and regulatory and intellectual property issues?
• What are the key industry-specific debt-financing issues?
• Who do you turn to for state-of-the-art due diligence?
• What are the valuation trends?
• How much longer will these good times roll?

At this special MasterClass, you’ll learn from a faculty of 20 experts who work in the trenches how they’re responding to the enormous activity in the medical device/product/technology arena, what they’re doing right when they’re successful, what they did wrong when they screwed up, and how they see the market evolving over the next year or two.

The program is being led by investor Jon Lemelman, a general partner in Boston-based middle-market private equity firm, Riverside Partners LLC.

The program was produced by The Capital Roundtable, the country’s only educational information organization focused exclusively on the information needs of middle-market and smaller-market private-equity communities.

If you are a private equity or hedge fund manager, or if you are a senior or junior lender serving private equity sponsors, or if you provide professional services to the private equity community, this essential program is designed to give you information you need to make successful investment decisions, as well as numerous opportunities to build new valuable relationships with a host of expert speakers and inquisitive attendees.

When you finish this MasterClass, you’ll have the answers to these questions –

• How are medical device/product/technology companies different from those in other industries?
• How do the sales and marketing channels differ from other businesses?
• What are the legal and due-diligence issues you most often encounter?
• How does the political landscape change the outlook for medical device/product/technology buyouts?
• How do rising healthcare costs impact these investments?
• How does the introduction of new technology impact these companies?
• How should you manage technological innovation?
• How has the medical malpractice market impacted the industry?
• What are the five most promising sectors for medical device/product/technology buyouts in 2007?
• Where are the mine-fields, and how do you avoid them?
• What are the valuation trends for medical device/product/technology buyouts?
• What impact if any will the industry see from hedge funds? From venture capitalists?
• Which kinds of sectors and business models have acquirers targeted so far and why?
• What criteria are used in identifying investment candidates?
• How often are strategic buyers competing on deals? What is the impact on price?
• Is sector specialization necessary in order to do successful investing ?
• What are the key valuation metrics?
• Where do you look for management for medical device/product/technology companies?
• What kinds of deal structures are most common?
• And much much more …