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Led by Ex-Suros Execs, Nico is Out To Change Brain Surgery

Xconomy Indiana — 

Imagine that, heaven forbid, a blood vessel bursts inside your brain, spilling blood and causing pressure to build inside delicate tissues. You’ve just suffered the deadliest kind of stroke, what’s known as an intracerebral hemorrhage. You might think that surgeons would want to try to repair the damage as soon as you get to the hospital, but cutting into an already bleeding brain could cause even more damage. Instead, you’ll probably get sent to intensive care, where clinicians manage your blood pressure, keep you sedated, and hope for the best.

A group of med tech entrepreneurs and their Indiana startup, Nico, are trying to change that. They’re trying to prove that people who suffer these sorts of strokes have a better shot at survival—and a shorter stay in the hospital—if they get emergency surgery performed with the help of a device Nico calls “Brain Path.” The device is designed to help surgeons to reach deep into the tissue of the brain, so they can clear out the spilled blood and repair the torn vessel following a stroke, without causing more damage along the way. The device can also be used to, for example, help get at tumors in the brain that may have been deemed inoperable by other methods.

Convincing neurosurgeons to change what they do and try a new, more expensive technology, and effectively create a new standard of care for hemorrhagic strokes in the process, however, is a tall order. No surprise, then, that it’s been a long slog for Indianapolis-based Nico. The company was formed eight years ago, introduced its device in 2012, but isn’t profitable yet. Increasing adoption of its technology has been a hard-fought battle, according to CEO Jim Pearson (pictured above).

“You know how many times I’ve been laughed at?” He says. “Neurosurgeons don’t want to move fast, and they all want—and should want—more proof.”

That’s why Nico has recently raised money to conduct a crucial study. It amassed a $15 million round in February—which SEC filings show is the largest haul for any private life sciences company in Indiana since Warsaw-based Orthopediatrics raised $39 million in 2014—to fund a trial that, it hopes, will show that surgical intervention is better for hemorrhagic stroke patients than watching and waiting.

The exact details of this study, from the enrollment criteria to what would be considered success, are still being put together. At this point, Pearson will only say that Nico hopes to show “functional recovery” for these patients. But tangibly speaking, that means the company hopes to produce many examples like this one recently featured on TV segment on Fox 7 in Austin, TX, when a nurse at the Seton Brain and Spine Institute who had just suffered a stroke her doctor described as “probably…non-survivable,” had her clot successfully removed with the help of Nico’s device. She was out of intensive care in days, rather than what would typically be weeks or months. (Pearson says Nico had nothing to do with the Fox 7 report.)

That’s an anecdote, of course. As Pearson says, doctors want to see a randomized clinical trial, which he expects to take as much as three years, depending on how long it takes to enroll patients and how the results play out. But Nico’s executives hope that, if all goes well, they’ll have the type of data that changes doctors’ opinions.

There’s a reason Nico is getting the time to do all this, and the backing of investors, which include unnamed angels, venture firms like River Cities Capital Funds, and the Rose-Hulman Institute of Technology. The Indianapolis startup is the second go-around for a group of med tech entrepreneurs—Pearson, Nico chairman Jim Baumgardt, chief technology officer Joseph Mark, and chief financial officer Jeffrey Hanthorn—who have done this before, and rewarded their investors handsomely.

They were all part of a group that ran a company called Suros Surgical Systems, which developed minimally invasive tools for breast biopsies. Baumgardt says the company raised $20 million in equity before it was sold to Bedford, MA-based Hologic (NASDAQ: HOLX) in 2006. The initial price tag was $240 million, but Baumgardt says downstream payments took it to about $300 million when all was said and done.

Baumgardt has an even longer track record. He was one of the founders of Guidant, the one-time medical device business of Eli Lilly that went public in 1994 and was eventually sold to Boston Scientific and Abbott Laboratories in two separate deals in 2006 totaling more than $30 billion. That experience, combined with Baumgardt and his colleagues’ success at Suros, has given Nico the benefit of the doubt with investors.

“Some of those seed stage investors have hit it big a bunch of times, and they trust us to deliver for them,” Baumgardt says, though he adds: “I’m sure if we stub our toe it’ll be just as hard for us to raise money as it is for anybody else in Indiana.”

Nico is based on some of Suros’s technology. Hanthorn says before Hologic bought Suros, the Indianapolis company was developing prototypes of a neurosurgical device. Hologic, which is strictly a women’s health company, had no use for that technology and shelved it. So in 2007 some of the ex-Suros team negotiated a deal to buy back the IP for $300,000 and royalties down the road, according to Baumgardt. Nico was formed out of that deal.

Hanthorn says some 85 percent of the investors who backed Suros put money into Nico when offered the chance to do so. The product Nico came up with, Brain Path, looks like a tiny railroad spike that’s hollow in the middle. As its name suggests, the device is meant to create a path deep inside the brain that enables surgeons to reach a clot, say, or a tumor without cutting through the brain’s white matter, the bundles of nerve fibers that help the body perform a variety of critical functions.

The procedure is done through a small surgical opening, about the size of a dime, made in the lining of the brain (what’s known as the dura). The device uses computerized imaging techniques to help surgeons see the pathway. Surgeons use other tools to clear up the clot, like a tissue removal device Nico sells called the Myriad.

Healthcare providers have to buy about $160,000, on average, worth of equipment to start using Brain Path, and then spend generally between $3,500 and $4,000 per case, according to Pearson. That’s expensive, but Pearson points out two other parts of the equation: A patient’s ICU stay could be significantly shortened, lowering expenses, and a hospital could generate revenue from a surgery it wouldn’t have otherwise done. Not to mention, of course, that the patient could wind up in better shape than he or she would have been in otherwise.

“We feel positive about the results [so far], and in a non-scientific setting it looks very promising, but we’ve gotta prove that further,” Pearson says.

Nico has said that about 3,000 brain surgeries have been performed with Brain Path since it was introduced in 2012, and about 35 hospitals and healthcare institutions are trained to use it. Part of the challenge has been Nico won’t sell the device to any surgeons who aren’t trained on it, something Hanthorn says with a laugh some neurosurgeons called “the worst business model they’ve ever seen.”

“We made it difficult for ourselves, but at the same time, we were absolutely committed to ensure that we had the right outcomes for the patient,” he says.

Will it all pay off? The answer will begin to play out over the next few years as Nico runs its trial. Perhaps if all goes well, Suros’s investors will have a chance to hit it big with the same group again, this time through a sale of Nico. Pearson acknowledges it’s been tougher this time around.

“What we did at Suros was mountain climbing, it was [Mount] Kilimanjaro,” Pearson says. “This is Everest.”