The Investment Strategy of Two Industry Icons

Investing your hard earned money can be stressful and risky. As a precaution, many people rely on other “experts” for financial advice and management, justifying the reasoning with one or both of the following criteria:

  1. Lack of time to research the abundance of investment opportunities.
  2. Lack of necessary knowledge of the industry or business model to make well informed and de-risked decisions.

Exploring the investment strategy of two investing icons, Peter Lynch and Warren Buffett, I conclude that it is possible for a novice to allocate sufficient time to invest intelligently using the knowledge they already have.

Resting Easy

Let me start with a quick story about one of my successful investments.

In 2010, while deployed in Iraq, I longed for a comfortable bed and a sound night’s sleep. Upon returning home, my first purchase was a solution to this longing; a Tempurpedic mattress. However, two years later, while deployed in Afghanistan and with my Tempurpedic in storage stateside, I again longed for a comfortable bed and sound night’s sleep. I missed my mattress so much, I resorted to reading about the company online, where I discovered their stock had just plummeted after releasing 2Q12 earnings report.

Knowing the quality of the Tempurpedic brand led me to believe that the drastic drop in valuation from $86 per share to $22 per share was only temporary. After some quick diligence, I confidently invested in the company, knowing that I would hold on to the stock as long as I was satisfied with my mattress, which has a lifetime warranty.

Tempurpedic stock now trades in the $60-80 range regularly, and I am still as satisfied with my mattress as I was when I first purchased it.

I share this story because there is power in simple knowledge of a product or service. Peter Lynch discusses this idea in his book One Up on Wall Street. His recommendation is incredibly simple:

  1. Invest in what you like or know.
  2. Conduct basic diligence on comparables in the market.
  3. Use your intuition and common sense to make investments.

Peter Lynch turned $20 million in 1977 into $14 billion by 1990, a 29.2% IRR, outperforming the S&P 500 by more than 13% per year annualized. His successful strategy and recommendation for investors is often summarized as “invest in what you know.”

Warren Buffett refers to this investment theory as the “Circle of Competency.” Berkshire Hathaway uses a very simple criteria for acquiring companies that fit within their core competencies. Knowing the limits of your competency is key according to Buffett, as he noted in his 1996 Investor Report when he wrote that, “The size of that circle is not very important; knowing its boundaries, however, is vital.”

Don’t Invest in a Hurry

Industry knowledge is a common theme that bonds successful investors such as Buffett and Lynch. Yet, another shared idea is investing for the long term. Both these men would emphasize that attempting to time the market is a poor strategy. Furthermore, your mindset at the purchase of equity should be focused on the expected value five or 10 years from now, rather than on a quick sell.

Applying these principles can ultimately result in higher returns. Additionally, leveraging your own expertise and unique knowledge to make informed decisions will give you an advantage over the market. Even in public markets, there is an asymmetry of knowledge between Wall Street and everyday consumers. Peter Lynch believes this gives individuals the ability to spot good investments in their day to day lives better than mutual fund managers.

Fortunately for physicians, there is a new marketplace to invest in what you know. angelMD’s crowdfunding platform bridges the strategies of Lynch and Buffett, by giving experts in the healthcare industry opportunities to invest in the solutions that solve their daily problems. Physicians know better than anyone what changes to the industry can be made to improve quality, access, and cost for patients.

Much like how the nights I spent sleeping on a awful mattress overseas gave me the insight to invest in Tempurpedic, the countless hours spent in hospitals with patients give doctors their unique insight into the medical industry. Through these doctors’ local knowledge or “circle of competency”, angelMD companies are carefully selected to ensure a successful investment.

Some may think this strategy is an oversimplification, but we at angelMD believe this idea is “The Science of Investing.”

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Accelerator Feature: GuideWell Innovation

We spoke to Guidewell Innovation consultant Danielle Davis. Guidewell Innovation is a startup accelerator headquartered in Orlando Florida’s Lake Nona Medical City at the GuideWell Innovation CoRE (Collaborative Resources Ecosystem).

Give an overview of GuideWell Innovation and its focus.

GuideWell Innovation, a subsidiary of GuideWell Mutual Holding Corporation, drives collaborative innovation for the family of forward-thinking companies that make up GuideWell. They include the leading health insurance company in Florida, a number of healthcare delivery businesses, a consumer engagement company, a provider of administrative services to state and federal healthcare programs, and a leader in risk adjustment and population care management.

 

The Health+Accel 2017 program is focused on solutions for Aging Well; the idea that healthy living and increased longevity can be achieved without sacrificing independence or autonomy. Aging Well solutions allow individuals to age with dignity on their own terms and remain in the homes and communities of their choice for as long as possible.

Why Florida?

Florida has one of the largest senior populations in the country and projections show the aging population dramatically increasing over the next several years, making the state a prime market for innovative Aging Well solutions. GuideWell is looking for innovative solutions to address the unique needs of this population to improve care and reduce costs. That said, GuideWell’s companies serve nearly 18 million people in 12 states, two U.S. territories and the District of Columbia.

 

Similarly, while our Health+Accel event is taking place in Florida at our GuideWell Innovation CoRE in Orlando. We are accepting applications from entrepreneurs across the country and even internationally. We hope to bring together the best, most innovative solutions with no limits on geography.

How does your program work and what do you hope to accomplish with companies going through it?

Health+Accel is a one-week intensive workshop taking place October 30 to November 3 at the GuideWell Innovation CoRE located in Orlando’s Lake Nona Medical City. During the first four days, entrepreneurs will obtain insight into the dynamic needs and relationships between insurers and providers, discover unique opportunities within the space and explore best practices from experienced industry leaders. Health+Accel will conclude on Friday, November 3, with a pitch competition where entrepreneurs will have an opportunity to pitch their aging well solutions to health executives, investors, and business leaders. A $20,000 cash prize will be awarded for the winning pitch.

Key Benefits of Participation:

  • Present to GuideWell decision makers, key executives at Florida Blue, angel investors, and leaders in health care.
  • One-on-one coaching with business experts in health care to fine-tune your business model.
  • Personal introductions to key influencers and investors from health care companies such as Florida Blue.
  • Introductions and coaching with entrepreneurs who have successfully entered the healthcare market.
  • Easy application process and personal assistance completing your application.
  • $20,000 cash prize and private session with GuideWell executive leadership for winner; travel stipend for everyone.

Since starting, what have you learned that works well and what doesn’t?

 

While simply getting on stage and pitching in front of investors does help provide visibility for healthcare startups, we have found that facilitating strong relationships with strategic executives within healthcare organizations leads to better outcomes. Relationships are critical for both entrepreneurs and the large healthcare organizations looking to solve complex business challenges. Our program hopes to provide both visibility and forge new relationships to create more business opportunity.

 

What is in store for you over the next 6 months?

 

We’re in the middle of our application process, which is phase one of the four phases of our program that ends in November.

 

Phase 1

  • June – August 2017
  • Application Process

Phase 2

  • August – September 2017
  • Participant Selection

Phase 3

  • October 30 – November 2, 2017
  • Health+Accel Workshop

Phase 4

  • November 3, 2017
  • Pitch Day

What is one piece of advice you can give to startups, given how many you meet and work with?

A strong value proposition is really important. Your value proposition should not be complicated, it should be simple and easy to understand.

 

Essentially, when you pitch your product to a potential customer or investor, you should be able to convey the value clearly in just a few sentences. Someone should be able to understand what the problem is you are trying to solve and how your product specifically solves the problem within the first few minutes of learning about your product.

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Startup Spotlight: Capture Vascular – angelMD

The mechanical thrombectomy market is ready for a new technology to replace outdated methods. Devices currently in the market have been used for over a decade and fall short as they are prone to distal embolization, inefficient aspiration, and clogging.

 

Capture Vascular has developed and commercialized the MegaVac Mechanical Thrombectomy System (MegaVac System), a technology uniquely designed to remove thrombus and emboli throughout the peripheral and coronary vasculature. This innovative technology offers occlusion, centering, anchoring, removal of clot, and delivery of fluids in one simple, efficient, and effective device.

 

angelMD had a chance to talk to Capture Vascular’s CEO, Eric Wells, and learn more about
their important work. If you’d like to know more about this exciting AngelMD company, please click on this link to be included in exclusive Communications.

How does the MegaVac​ Mechanical Thrombectomy System work?

​The MegaVac​ System utilizes two components: ​

 

1. A novel vessel occluding funnel catheter (MegaVac catheter) which provides a large funnel mouth to receive the clot.

2. A wire based expandable clot retractor (ThromboWire) to retract the clot to the large mouth funnel of the MegaVac and to pull the clot into and through the shaft of the catheter while aspiration is being provided to the MegaVac.

 

The funnel of the MegaVac occludes blood flow with the patient’s own blood pressure using SafeSeal​ Technology to create a static environment which inhibits distal migration of thrombus, embolus, and other debris, and at the same time centering and anchoring the catheter. This method of two components working synchronously and in concert can be easily understood by viewing the video at www.capturevascular.com​.

Why is it important to ensure complete clot removal?

In general, complete clot removal does a few things:

 

​1. Eliminates the acute obstruction.

2. Minimizes or prevents distal embolization of residual thrombus that may occur at a later date or with subsequent treatment to the area (angioplasty, stenting, etc.).

3. Minimizes the subsequent formation of new thrombus on residual thrombus,

4. Provides for optimal stent apposition to the wall of the vessel vs. sandwiching residual thrombus between the stent and arterial wall which can be problematic subsequently.

5. Essentially restores the vessel to the condition prior to the thrombotic event.

What effect does your system have on non-thrombus arterial obstruction, like arterial calcifications​?

​The MegaVac catheter anchors and centers the distal catheter just proximal to an occlusion which more easily allows antegrade passage of crossing wires and other devices through the occlusion. Moreover, once the occlusion is navigated, therapeutic devices (atherectomy, drug coated balloons, etc) to treat the non-thrombotic occlusion may be passed through the MegaVac and utilized in a static environment that inhibits the distal migration of the liberated debris preventing distal arterial occlusion in the runoff vessels. Essentially, the MegaVac System allows the non-thrombotic occlusion to be navigated more easily and treated more safely.

What advantages does the MegaVac​ ​Mechanical Thrombectomy System offer over its competitor​s​?

​In thrombus removal, the MegaVac System provides several advantages:

  • Vessel occlusion that minimizes or prevents distal embolization during the procedure.
  • Anchoring of the distal MegaVac catheter that allows the operator to cross tight stenoses or tortuous vessel segments more easily.
  • A large mouth funnel to receive the thrombus burden.
  • The ThromboWire clot retractor to pull the thrombus into the large mouth funnel, to remove wall adherent clot, and to prevent catheter clogging by retracting the clot through the entire length of the catheter and into the aspiration syringe.

 

In non-thrombotic arterial occlusion, the MegaVac System provides a static work environment by occluding the vessel and minimizing distal migration of debris. It centers the distal catheter for more efficient antegrade passage of wires and tools, and anchors the distal catheter for more push ability of wires and tools. This allows the passage and utilization of therapeutic devices to treat the lesion while maintaining the proximal occlusion, and provides for the aspiration of any debris from the treatment prior to restoring flow.

Are the tools for removal of coronary artery thrombus different than the ones for peripheral artery thrombus?

​Yes. Usually coronary artery thrombus is acute and rather soft. Most of this may be simply aspirated by the MegaVac. However, there may be a wall adherent clot that may not be removed by simple aspiration. Use of the ThromboWire removes this wall adherent clot that may prevent proper stent apposition to the arterial wall if not removed prospectively. Improper stent apposition has been implicated in in-stent restenosis, late stent thrombosis, and diminished outcomes amongst other untoward effects.

 

Moreover, minimizing distal embolization may be more important in the coronary arteries than in the peripheral vasculature. Distal embolization, when present, was associated with a 3X mortality in a subset analysis of the TOTAL Trial despite there being no difference in overall mortality with simple aspiration thrombectomy vs. no thrombectomy. With standard thrombectomy devices, distal embolization frequently occurs once flow has been restored. The MegaVac provides proximal occlusion during the entire thrombectomy procedure with aspiration of thrombus and debris to inhibit the distal embolization that may be very important to patient outcomes.

How have the TASTE and TOTAL Trials affected coronary thrombectomy and where does the MegaVac fit into that picture? ​

Both trials compared survival outcomes of performing ​routine ​thrombectomy with simple straw like aspiration catheters vs. no thrombectomy on all comers regardless if there was significant thrombus or not prior to angioplasty/stenting of patients presenting with STEMI. There was no survival difference between the two groups.

 

While the trials have been criticized on a number of fronts, the lack of any difference in mortality has caused a significant decrease in thrombectomy in STEMI cases. This expected reaction has bottomed and the use of thrombectomy in STEMI is now growing again, albeit the market is still smaller than prior to these studies.

 

Expanding on the answer in question 5, standard simple aspiration thrombectomy catheters, like those used in these two trials, frequently do not remove the majority of the clot. Once any flow is restored, most of the residual clot is simply washed off the wall and propelled downstream before it can be removed. Hence, the devices used in these two studies may be at least partially, if not mostly, responsible for the lack of differences between the two groups.

 

Because the MegaVac occludes flow prior to any aspiration, the aspiration efficiency is dramatically improved and thrombus and debris are not propelled downstream. Moreover, the ThromboWire may be used to remove wall adherent clots which, when present, prevent optimal stent apposition and may cause the resultant complications listed previously. Simply put, the MegaVac has the potential to remove more thrombus easier and more completely than current devices while preventing downstream embolization.

What interest in Capture Vascular have you had from physicians and industry?

Uniformly very positive. Physicians and KOL’s see the need for the device, understand the simple, intuitive concepts, perceive the potential benefits, and readily embrace the advances the MegaVac System offers. Many are eager to utilize it in their practice​. Industry representatives also recognize the above positive benefits. They, understandably, wish to see market adoption before further substantive conversations​.

How do you think syndicating an investment with angelMD will benefit Capture Vascular?

​In addition to providing capital to pursue commercialization and the necessary market adoption that will further spur industry interest, syndicating with angelMD may provide a network of valuable resources to supply clinical feedback, perspectives, and information for the current intended and other not yet contemplated uses of the MegaVac System.

Tell us about your team and their unique capability in this specific field?

​Capture Vascular has contracted with Telluride Medical Partners, (TMP) to provide management, development, marketing, accounting and other essential services necessary for an eventual successful exit. The TMP offer decades of experience in the development and commercialization of medical products. In addition to the TMP team, TMP has an advisory board with a vast knowledge of products, device commercialization, and M&A.

What is your current status on key company goals for the next 12 months?

Below is a sample of a few of Capture Vascular’s key initiatives for 2017:

  • PAD product to market and expand adoption with strategic industry partners
    and high volume offices.
  • Design Freeze CAD devise and introduce 100 devices to market by Q-4 2017.
  • Complete development of DVT device and conclude in vitro and in vivo testing.
  • Issuance of CE mark for PAD device.

 

We are moving along per our plan on all three of these key initiatives:

  • The PAD product is in the market.
  • CE audit was done last month and issuance will be Aug 2017
  • CAD prototypes were used in animal last week and the design functioned very well.
  • Early stage DVT device was tested last week in lab and the results were positive allowing us to advance to a complete prototype.
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The Case for Investing in Orphan Drugs

Investing in biotech companies developing therapeutics seems like a natural for physicians and other healthcare providers. One area that should particularly be considered are “orphan drugs” — products being developed for a rare disease. A disease is classified as a “rare disease” if the patient population in the US is less than 200,000 patients. It is estimated that there are over 7,000 rare diseases and that 10 percent of the US population has one of these rare diseases.

 

In total, not so rare at all.

 

Investing in companies developing a drug for a rare disease may align with the personal interest of health care practitioners. Individuals in the medical field have a deeper level of scientific knowledge than a typical investor, and they have a broader appreciation for the medical consequences of the disease and for therapeutic alternatives.  In addition to their medical background, there are some other compelling reasons to consider companies developing drugs for orphan diseases.

 

Orphan Diseases represent a very attractive sector of the pharmaceutical industry. Big pharma continues to rely on licensing or acquisition of smaller companies to supplement their portfolios.  This trend bodes particularly well for startup companies developing products for these rare diseases. Orphan drugs are expected to account for over $200 billion in worldwide revenue by 2022, this represents an 11 percent annual growth rate, over twice the industry average.

 

Here are some orphan drugs facts showing why orphan drug companies may be a valuable addition to an angel investment portfolio:

  • Orphans drugs account for 1/3 of all new FDA drugs approved.
  • The likelihood of approval for an orphan drug is much higher than for a traditional pharmaceutical drug.
  • 30 percent of orphan drugs generate over $1b in annual sales.
  • Orphan drugs cost less to develop (a bit less than ½ as much).
  • The FDA registration trials require fewer patients and the trials are frequently quicker.
  • Physician adoption following FDA approval is faster for drugs for rare diseases.
  • Typically, orphan drugs enjoy easier market access with lower price resistance from payers (the average orphan drug in the US is priced five times higher than a non-orphan drug).
  • Partnering deals for orphan drugs on average are 30 percent above non-orphan products.
  • Companies developing orphan drugs receive tax benefits and other financial incentives.

Drugs for orphan diseases, are a major trend in the pharmaceutical industry today. There are many companies developing highly specialized drugs for very specific diseases.  Many of these companies represent a novel investment thesis for angel investors, and potentially provide a great leap forward in medical care while providing attractive financial returns.

 

Sources:
Evaluate Pharma: Orphan Drug Report 2017, June 2017
Hughes DA, Poletti-Hughes J (2016), Profitability and Market Value of Orphan Drug Companies: A Retrospective, Propensity-Matched Case-Control Study. PLoS ONE 11(10): e0164681. doi:10.1371/journal.pone.0164681

 

 

Craig W. Philips, Entrepreneur-in-Residence University of Washington
Contact: philips2@uw.edu

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Startup Spotlight: AxoSim

This week’s #StartupSpotlight is AxoSim, a company dedicated to bringing their “Nerve-on-a-Chip” to market.

Inspiration

AxoSim was founded to address a problem in the pharmaceutical industry: 89 percent of new drugs fail in clinical trials, largely due to the limitations of animal testing to predict human results. As a result, a single successful drug costs an average of $80 million and takes up to 15 years to reach the market.

 

The Nerve-on-a-Chip is a more accurate, less expensive, and faster alternative to animal testing, delivering results in weeks versus months and at a fraction of the $100s of thousands spent on animal testing for each potential version of a drug. Looking longer term, the ability to increase clinical success rates represents the greatest value. Even moving the needle by single digits from the current 89% clinical failure rate would mean savings of $100s of millions due to wasted resources.

 

After several key discussions with pharma executives, the founding inventors recognized the market need for better alternatives to animal testing, particularly in the neurodegenerative disease space. AxoSim spun out of Tulane University in 2014 to solve this problem by improving clinical prediction and saving pharmaceutical companies hundreds of millions of dollars and years of wasted patent life.

 

The patent-pending Nerve-on-a-Chip platform uses living human neural cells engineered in a 3D environment to reproduce the environment of a nerve. This allows AxoSim to predict changes to the human functionality and structure based on drug exposure.

Founders

AxoSim’s CEO, Lowry Curley, originally worked on the proprietary Nerve-on-a-Chip during his PhD in biomedical engineering at Tulane University with his advisor and eventual co-founder Michael J. Moore, PhD. After working in several senior product development positions, including an international consortium involving Janssen Pharmaceuticals, Lowry returned to partner with Michael and found AxoSim.

 

Michael serves as Chief Science Officer (CS)  and originally studied with the world’s most renowned translational researcher, Dr. Robert Langer at MIT. There he cultivated a drive towards translational research and a deep understanding of spinning out university incubated technology. In addition, his tenured position at Tulane serves as a de-facto R&D arm for the company.

 

Ben Cappiello joined AxoSim as a seasoned biotech entrepreneur. His past experiences include raising over $4 million to successfully obtain FDA clearance for a women’s health medical device.

Milestones

Since its founding in 2014, AxoSim has received $750,000 in non-dilutive funding, which spurred growth from two employees to the current team of seven. AxoSim obtained the exclusive world-wide license for its core technology platform and has already filed an additional provisional patent through Tulane University. 2016 was spent developing two additional applications for the platform: ALS and MS.

 

AxoSim’s hard work is beginning to pay off with $250,000 in revenue already booked for 2017.

Goals

AxoSim is working to grow its internal resources, team, and facilities. Fundraising efforts are focused primarily on scaling infrastructure and increasing marketing efforts.

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