White Pine Medical - VC Deal of the Month

Mar 17 2010

PARK CITY, Utah—After medical-device company CoreValve Inc. sold to Medtronic Inc. for $700 million in cash last April, CoreValve Chief Executive Dan Lemaitre was suddenly a hot commodity.  “The first six or so offers for being CEO I got were, “‘Can you come here and sell our company?’” he said. “But I certainly wasn’t interested in going into another company to dress it up and sell it.”  Instead, Lemaitre was more interested in building something. So when Essex Woodlands Health Ventures came knocking, he was ready to listen. Managing Director Guido Neels had worked with Lemaitre more than a decade ago when he was chief operating officer of Guidant Inc. and Lemaitre was a Merrill Lynch analyst covering Guidant. Essex Woodlands also had considered participating in a round CoreValve was seeking before it decided to be acquired instead.

Neels persuaded Lemaitre to form a new company called White Pine Medical Inc. to hunt for undervalued assets in the medical device space. “Part of the thought process here is, let’s see if we can grow something from underappreciated, undervalued assets,” Lemaitre said.  Lemaitre is optimistic about finding late-stage medical device companies to acquire over the next two years. “The medical device space is on sale,” he said. “Valuations are the lowest since the 1993 health-care debate.”  He said White Pine might invest in a company that’s undervalued with a solid product pipeline, but that needs capital to get to profitability quickly. Or it might acquire a spin-off from a larger device company, or roll up several smaller, related companies at once. That last “might require another couple hundred million [dollars],” Neels acknowledges. “We could do that with a private equity investor.”

Neels said White Pine does not have a particular sector in mind, although the cardiovascular, orthopedics and neurostimulation fields – large and active device areas for the venture industry – are possibilities. He said Essex Woodlands, which is looking to build out a company that will turn a profit 18 months after making its initial acquisition, would not likely look at an early-stage technology like mitral valve maker CardiAQ Valve Technologies Inc., which has yet to enter clinical trials. “We are looking for companies that are already selling and have a clear view on positive EBITDA,” Neels said.

Essex Woodlands, which is committing $50 million to the new venture, is hoping to replicate a strategy the firm employed with specialty pharmaceutical company EUSA Pharma Inc. – with certain differences.  That company, which acquires specialized hospital medicines, received $175 million from Essex Woodlands and other investors in 2007, and several acquisitions and funding rounds later is generating $70 million in annual revenue and profitable. But unlike with EUSA, Essex Woodlands believes it has the financial resources and medical device know-how to go it alone, at least at first. And, with Lemaitre on board, it has the right mix of experience at the helm.  “We didn’t see the need at this point to partner,” Neels said. “Having said that, we will use other partners depending on the capital needs and the level of expertise they bring.”
Essex Woodlands is not the only investor hoping the magic of CoreValve will rub off on it. Almost a decade after funding the launch of the aortic-valve replacement company, a group of angels led a $6.5 million Series A investment in CardiAQ in January. The company’s board includes former CoreValve Chief Operating Officer Rob Michiels, who was instrumental in helping the start-up secure its funding.

By Jonathan Matsey
Dow Jones Private Equity Analyst
March 2010
Dealmaking