Cingles Info

May 2002
Minneapolis biotech upstart gets drilldown at MEF
By Jeff Meredith
At an April meeting of the Midwest Entrepreneurs' Forum, First Circle
Medical, Inc. was literally put in the hot seat. The Minneapolis-based company,
which discovered that raising body temperature under certain conditions can kill
viruses, like its target HCV, Viral Hepatitis-C, presented its business plan for
constructive criticism from the group.
The healing power of heat has long been believed by physicians and
scientists, but hyperthermia treatment has had few clinical and commercial
successes. Companies tried this method to treat AIDS without success in the past
and commercial failures during the 1980s added to skepticism that hyperthermia
could be used as a viable treatment.
However, First Circle president and CEO Drew McCartney was well prepared
for what he would encounter from the public forum. The former corporate senior
vice president of marketing and business development at Battelle Memorial
Institute and former VP of corporate sales and marketing at Baxter International
mapped out the company's successes in Europe, where First Circle is in its first
six months of clinical trials; US trials are hoped for in May. The company has
already raised $6 million in first round funding, and hopes to raise $9-10
million in its Series B round.
First Circle has developed a proprietary process called Extracorporeal
Whole Body Hyperthermia where body temperature is raised to help kill Hepatitis
C. Hyperthermia aims to raise core body temperature to no more than 107.5
degrees Fahrenheit, which is safe as long as patients receive replacement body
fluids.
First Circle's extracorporeal device, which functions like a dialysis
machine, heats and reinfuses a patient's blood to raise body temperature. At a
company site in Europe, an efficacy study has shown a reduction in viral load-in
some patients, 30 weeks of treatment have lead to the virus being nearly
undetectable. On the heels of this success, the company could soon have centers
opening up across Italy administering its treatment.
While McCartney was at ease navigating charts of data, panelist Dr. Brian
Scullion of William Blair Capital Partners noted that venture capitalists are
more swayed by the communication of opportunity than the validity of one's
science.
"I'm not going to talk about the merits of your science and technology.
And in fact, I think you'll rarely have an opportunity to talk about the merits
of your science and technology unless you sell people first on the opportunity,
which tends to go to issues more around market size," said Scullion.
Scullion focused on the marketability of First Circle's business plan-and
at least in these terms, VCs should be interested. Over 200 million people
worldwide have Hepatitis C, and four million in the United States. But that
number is deceptively low because many do not show symptoms-fatigue, jaundice,
nausea, abdominal pain-until 10 to 15 years after being infected. To date, the
only effective treatment for Hepatitis C is alpha interferon, which leads to
viral clearance for just 15 percent of patients. The most prevalent strains of
Hepatitis C in the US -genotypes 1a and 1b- are also the ones most resistant to
interferon.
Cynthia Helphingstine, an MEF panelist and founder of the Biotron Group, a
Highland Park-based healthcare and biotech consulting firm, was encouraged by
First Medical's focus on Hepatitis C and how the company avoided entering the
'crowded' hyperthermia cancer treatment space. She told McCartney that she
would've liked to have heard more about reimbursement issues and approaching
Medicare. And to put risk in investors' eyes aside, she said McCartney should've
addressed the possibility of a vaccine.
Carol D. Winslow, a principal and co-founder at Channel Medical Partners,
a Skokie venture capital firm that invests in medical technology, reminded the
MEF audience that "hyperthermia is an area where there have been some failures,
there is a lot of controversy or skepticism. So when you walk in the room,
you're going to face that." She said venture capitalists would be curious as to
why First Medical aimed its hyperthermia treatment at a virus as difficult as
Hepatitis C, and speaking more broadly, emphasized the importance of financial
incentives for management.
"As venture investors, we want management very levered to the success of
the company. We often go into situations and they're not levered enough," said
Winslow. "They may not have enough stock options. Their base salary versus bonus
may not be appropriately structured."
Scullion discussed the need for authority figures-possibly even
celebrities (not a suggestion, but former BayWatch star Pamela Anderson recently
announced she has Hepatitis C)-who can endorse the need for First Medical's
treatment. McCartney would've already delivered that if not for a Powerpoint
blip, and he quickly brought up a slide highlighting comments made by C. Everett
Koop, MD, the former US Surgeon General. A major advocate of hyperthermia, Koop
joined the company's board of directors in 1996, but left to avoid a potential
conflict of interest after he started DrKoop.com.
"Now if I said this, you would have been eating out of my hand," quipped
McCartney after making his way through the Koop slide.
Scullion also highlighted one of the many problems biotech companies face
in raising money.
"A group of supposed experts who have spent far too little time reviewing
your business plan pass judgment on it. Not only do they pass judgment on it,
but they usually pass judgment on a subject that they have far less knowledge
about than you do," said Scullion. "That is the reality of raising money."
http://www.i-street.com/magazinearchive/yr2002/mn05/biotech.asp
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