HISTOSONICS: UNIVERSITY OF MICHIGAN SPINOFF EXPECTED TO GET $11M FOR TUMOR-FIGHTING TECHNOLOGY
Crain’s Detroit Business
By Tom Henderson
Four state venture-capital firms are expected to announce today an investment of $11 million to launch HistoSonics Inc., a University of Michigan spinoff that plans to make ultrasonic medical devices to non-invasively shrink swollen prostates and destroy cancer tumors.
The company was formed in November and expects to move into 2,500 square feet of office and lab space in Ann Arbor at Liberty and Wagner roads by the end of January. The company has three employees and is looking to hire a director of engineering and a quality-control manager now, and another engineer in the coming months.
The company is headed up by a pair of veteran entrepreneurs, Chris Gibbons, who was CFO at Ann Arbor-based Sensicore Inc., a UM spinoff that made sensors to test air and water quality, before it was sold to a division of General Electric Co. in 2008, and Tom Davison, who previously co-founded four medical companies.
In 1988, Davison co-founded UltraCision Inc., which produced an ultrasonic device for laparoscopic surgery, called the harmonic scalpel. The company was bought by Ethicon Endosurgery, a division of Johnson & Johnson, in 1995. Today, the harmonic scalpel has sales of more than $500 million a year.
Two of Davison’s other companies, Sontra Medical Corp. and MedChem Products Inc., both based in Massachusetts, later went public.
Gibbons will be president and chief operating officer, Davison will be chairman and CEO.
Leading this Series A investment round is Venture Investors, a Wisconsin-based firm with an office in downtown Ann Arbor. Joining it are Cleveland-based Early Stage Partners, Boston-based Fletcher Spaght Ventures and Kalamazoo-based TGap Ventures. Both ESP and Fletcher Spaght share a suite in Ann Arbor with Venture Investors.
Joining them is North Carolina-based Hatteras Venture Partners
About two years ago, UM’s office of technology transfer asked Davison’s consulting company, Naples, Fla.-based MedTech Innovations L.L.C., to evaluate the technology behind HistoSonics — based on research by Charles Cain of UM’s Biomedical Engineering Department and Dr. William Roberts of the Department of Urology — and to offer advice on product development and commercialization.
Davison, who holds more than 25 patents for medical devices, said he expects the success of his previous ventures to be dwarfed by the coming success of HistoSonics. He said the first medical target will be a condition called benign prostatic hyperplasia, and once the technology is proven in that market, the company will go after the much bigger cancer-treatment markets.
“I’ve seen a lot of technologies in the last 38 years as a medical-device entrepreneur, and this is, in my opinion, the most outstanding technology I have ever seen,” said Davison. “It was very obvious to me that this was going to be a game-changer. Joining the company was a no-brainer.
“This is going to change the way tumors and other conditions are treated. This has the potential to support not just a product line, but a very large company. I can see this being in the next decade what laparoscopic surgery was in the 1990s and what arthroscopic surgery was in the 1980s. It will change the way surgery is done.”
BPH is a common condition among older men that results in urinary tract blockage, the need for frequent urination and some 5 million doctor visits a year. The so-called gold standard for treatment is an invasive medical procedure called transurethral resection of the prostate, which carries significant risk of side effects, including incontinence and impotence.
Drugs such as Flomax have mixed results, said Davison.
Gibbons said this round of funding will be used to produce a working prototype and to fund human trials.
Animal trials have produced good results — the ultrasonic waves carefully target tissue and shrink it — but the ultrasonic equipment used in the on-campus research lab is bulky and expensive.
She said a Series B round will ramp up manufacturing of the prototype and take the device to market. She said that the estimated time to market, depending on approvals by the U.S. Food and Drug Administration, could be 36-45 months.
Jim Adox, managing director in the Ann Arbor office of Venture Investors, said current investors will be able to fund a Series B round themselves.
“BPH is a $5 billion market, and if HistoSonics can cut into 10 percent of that, that’s huge,” he said.
Ken Nisbet, executive director of UM’s tech transfer office, said the HistoSonics deal is a textbook example of how universities, the private sector and government can work together for tech transfer and economic development:
• Venture Investors, Early Stage Partners and Fletcher Spaght established a Michigan presence and agreed to look for portfolio companies in the state after receiving funding from one or both of the two state funds, the $95 million Venture Michigan Fund and the $109 million 21st Century Investment Fund, which are administered by Credit Suisse. TGap also received state funding.
• The Miami-based Wallace H. Coulter Foundation provided $125,000 this year to help fund the ultrasonic research and has provided a total of $475,000 in the past four years.
• The tech transfer office provided gap funding to the company while trying to determine the commercialization potential, funding that was matched by the Michigan Universities Commercialization Initiative.
• After Gibbons left Sensicore, she was hired by Venture Investors as part of an executive-in-residence loan program administered by the Ann Arbor-based Michigan Venture Capital Association. The Michigan Economic Development Corp.’s 21st Century Jobs Fund provided loans for VC firms to hire executives to look into promising new companies and then join them once they got funding. Gibbons met the company’s founders at a conference at UM in 2008 and began due diligence on the technology.
• UM’s tech transfer office has a mentors-in-residence program that matches university researchers with seasoned entrepreneurs. One of them, Jim Bertolina, worked with the HistoSonics founders and has joined the company as chief technology officer and vice president of research and development.
“The core technology was the basis of the company’s value, but what turned that value into a terrific seed company was introducing talent to it from different sectors,” said Nisbet.
“This is terrific news,” said Greg Main, president and CEO of the MEDC. He has been critical in the past with the slow pace of investment by VC firms who received funding from the Credit Suisse-administered programs. “I’ve been hopeful we’d see some uptick of venture activity in the state, and this is evidence it’s going to happen.”
Tom Henderson: (313) 446-0337, thenderson@crain.com