The Rise of CV Ingenuity: Breaking All the “Rules”

Trade-offs drive success, conviction drives success, and team drives success.

Duke Rohlen closed our Biodesign Alumni Annual Event with this quip and it provides a great summary of the CV Ingenuity (CVI) story.  As CEO and president, Duke was joined by CFO Doug Koo and NEA investor Justin Klein for a panel discussion that highlighted the company’s path.

There’s no doubt that CVI had success, having been recently acquired by Covidien for a rumored $300M, and as the group walked through their story it was clear that they ascribed their success to these three principles.

For a background on CVI and how it all came together, see NEA’s blog post written just after their acquisition in January 2013.

Tradeoffs

Making key trade-offs early on was perhaps the most interesting part of the CVI story and potentially one of the most important for their fast path to acquisition.  After raising their Series A, it only took CVI three years to reach an acquisition with their PMA product.  At the time they were sold they had spent less than $20M.  To run that fast and lean, the team quickly pointed out that you simply can’t do everything.  You have to make trade-offs and below are a few that Duke highlighted.

• First, CVI decided to focus on the peripheral market and specifically the superficial femoral artery (SFA) market.  While there are good reasons to choose the SFA market, it isn’t always easy to put on blinders and focus 100% on one clinical need, especially when your technology could address several.  However, the team saw how heavy a burden it is to carry multiple products through R&D, clinical trials, and regulatory clearance.  Additionally, the R&D group had identified over 60 unique chemistries for their balloon but down selected to 4 to take to animal evaluation and then picked one after the results from the animal testing.  Picking one product may be risky, but if you choose wisely it allows you to move much faster than your competitors.
• Second, CVI only pursued a US strategy.  In a time when many companies are considering an EU-only strategy, it is noteworthy that CVI took the opposite approach.  Duke described the US market as the real opportunity and EU market as too divided even though they were able to get regulatory clearance much faster there. As Doug described, by not commercializing in Europe, they a) didn’t delay their US efforts, b) didn’t have to worry about anemic sales and the perception that might create for investors, and c) kept their burn low by not hiring a European sales force.  Even though the regulatory path was longer for a US approval, the light at the end of the tunnel was brighter and by not launching in Europe they were able to move faster.
• Third, the balloon used by CVI was an off-the-shelf Evercross balloon by Covidien.  While it was risky to tie themselves to another company’s balloon, developing their own balloon internally would have cost them significantly more capital.  Justin Klein said, “CVI worked to keep Covidien honest when they were also an investor and a key component supplier for a product that was headed towards PMA.” They traded the time and money of developing their own balloon for slightly more business risk, and evidently it was the right decision.

Conviction

The trade-offs outlined above were not without risks.  Knowing which corners to cut took conviction, and as Duke readily pointed out, conviction is driven by experience.  Having previously led Fox Hollow as president to an acquisition by EV3, Duke had plenty of experience especially within the field of vascular disease.  However, even that experience wasn’t enough to raise money in late 2008. In fact, NEA initially passed on investing in CVI after their first pitch.

According to Justin, there were several good reasons why NEA didn’t invest initially, but what brought them back to the table was the conviction that Duke, Doug and the other CVI team members showed.  Duke describes that when a VC says “No” he interprets it as “No, for now”.  You have to keep driving and wow them with progress on the second and third dates.  Justin commented how Duke and team would tell them what they were going to accomplish in 6 months and then when they came back they would have always done more.  He said, “CVI is noteworthy for how hard and efficiently the team worked to execute on preclinical and first-in-man.” This built trust for the investors and demonstrated an experienced team.

Team

CVI clearly subscribed to the ‘choose the right team’ attitude which has become a maxim among successful startups. Seeing Duke, Doug, and Justin interact together demonstrated how they followed their own advice. They hired the right team early on to save themselves hugely later on in the development phase. For example, they invested heavily in a strong clinical and regulatory team knowing this would pay dividends.  Later on, instead of using an outside CRO to run their clinical trial they ran it themselves and enrolled all 50 patients in 8 weeks.  Not only did this save them time and money but allowed them to build relationships with all the doctors they visited.  Additionally, through their past companies such as Xtent and Guidant they were able to hire a strong R&D group that moved them efficiently forward.

In addition to choosing the right internal team, CVI exceled at finding the right external team.  They spent countless time building relationships with investors and strategics.  As described above, CVI kept up with many investors over several year periods to keep educating them about the company. Additionally, CVI was smart enough to explore other financing options such as venture debt which the company used multiple times and provided a good alternative source of capital when it was needed.  As Doug pointed out, “venture debt can be a very powerful tool for start-ups, if you use it correctly.”

With regard to strategics, aside from luck, getting acquired requires intimate knowledge of what a company is looking to acquire.  This knowledge comes through relationships that are built over long periods of time. Covidien became an early investor in CVI which was a great opportunity to keep them educated and demonstrate value through their board seat. The group did note that they had to be conscious of how they interacted with a strategic investor who could also potentially become an acquirer, and that required some maneuvering but on the whole it became a valuable asset.

One additional benefit that CVI took advantage of was being a fast follower of Lutonix, another drug eluting balloon company that was acquired by Bard.  By leveraging what Lutonix was learning through its clinical trials and FDA interactions, CVI was able to always move quicker than it would have otherwise.

The Biodesign Alumni Association was very grateful to have the chance to hear about CVI’s success first-hand and wish Duke, Doug, and Justin the best in their future endeavors.

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Michael Schaller was the 2010-2011 Fogarty Innovation Fellow and is currently R&D Manager for Transcend Medical.