When you think of the biggest centers in the world for medtech, places like Massachusetts and Minneapolis naturally come to mind. After all, that’s where many of the largest medical device companies—Boston Scientific, Medtronic, and St. Jude Medical, among them—are based.
John Power hails from a completely different cluster. A native of London, Power built his startup company, a medical device maker, Aerogen, in Galway, a city on the West Coast of Ireland with a population of about 80,000. After a variety of twists and turns, Power gained control in a management buyout in 2007. It’s now profitable, and generates $40 million or so per year in revenue selling a vibrating mesh that turns liquid drugs into particles absorbed into the lungs—a drug delivery system used in critically ill patients on ventilators. It’s a modest sum, to be sure, but Power has taken Aerogen from startup to a company with a technology that is used in intensive care units in more than 60 countries around the world.
He also isn’t the only one in Galway with a story like this. That’s because over the past 30-plus years, Galway, historically a farming city, has become home to one of the largest medical device clusters in Europe. That’s owed, in large part, to the Irish government wooing large, multinational companies to the country with grants and tax incentives to set up manufacturing plants and distribution hubs. C.R. Bard got the ball rolling when it set up a plant in Galway in 1982 to manufacture products for coronary and vascular disease. It was later joined by the likes of Boston Scientific, and Medtronic—when it acquired Arterial Vascular Engineering, the company that bought C.R. Bard’s plant. Though others like Covidien (formerly Puritan Bennett), Merit Medical, and Beckman Coulter have joined and established plants of their own, Boston Scientific and Medtronic are now the cluster’s anchors. They employ more than 5,000 people combined. Now, 80 percent of the world’s global stent production now comes out of Ireland, and Galway is a big reason why.
Other elements have come together because of those anchor tenants. Indigenous Irish startup companies began to spring up around the multinational corporations, often led by ex-employees: MedNova, for instance, was founded by a former member of C.R. Bard in 1998; it was acquired by Abbott Laboratories seven years later. A concerted effort began to try to move the industry from just a manufacturing hub to one known for research too. Government initiatives spurred the development of research centers like the Regenerative Medicine Institute and the Galway Medical Devices Centre of Excellence. The National University of Ireland, Galway (NUI Galway) started spinning out startups. Apica Cardiovascular, for instance, one of the startups incubated at NUI Galway, was just bought by Thoratec for $75 million over the summer.
Power is a product of this ecosystem. An engineer by trade, Power came to Galway, where his parents were originally from, in the early 90s to work for Puritan Bennett to develop a new life support ventilator system. That work gave Power both entrée in to the medical devices industry, and a problem to fix. Working on such systems, he saw there’d been little innovation in the delivery of drugs to patients on ventilators for decades.
“I’d always had an interest in looking around the fringes in technology, where you see little mismatches and gaps in technology spaces,” he says. “It’s like going to buy a top-of-the-range BMW and finding that when you’ve got this thing, all it has is a transistor radio.”
Rather than move to California at Puritan Bennett’s request, Power stayed in Galway. He set up a consultancy called Cerus Medical and did some work for companies like Abbott. But in the back of his mind wanted to build a business that could replace that ‘transistor radio’ in ventilators.
Power found a technology he could work with in a company out of Sunnyvale, CA, called Aerogen, which was trying to develop a way to deliver inhalable insulin. He cut a deal to license that technology and optimize it for hospital use, and merged his company with Aerogen a few years later (Power’s entity was then called Aerogen Ireland).
The combined company struggled. It went public in 2000, and the market crashed, taking a number of biotech and medtech companies down with it. The company was sold to Nektar Therapeutics in 2005 for just $32 million. Two years later, Power cut a deal with Nektar to buy out the part of the business he’d been trying to create from Galway—what’s now known as Aerogen—for $10 million. It’s got the product Power envisioned, the OnQ: a dome-shaped aperture plate that effectively filters liquid drugs into tiny, consistently sized droplets that are sprayed into the lungs. It now employs 40 or so people. And Power is eyeing more indigenous growth and thinking of a return to the Nasdaq on the back of his own technology someday.
I spoke with Power about his story, what it’s like to build a company from the western shore of Ireland, and the unique challenges facing medtech entrepreneurs these days. Here are some edited excerpts from our conversation.
Xconomy: What led you to start up a company in Galway?
John Power: I moved back here because I used to be here every year and all my family connections were here. It was really for personal reasons; it wasn’t for any other reason.
X: What was the entrepreneurial scene like when you came here?
JP: The access to funding and all those things—we didn’t have any of that really. Ireland did not have much of a history of product design of any sort. It was manufacturing. Some auto manufacturing had been in the country for a while, but really the tech side started when the likes of (computer maker) Digital moved here. They set up manufacturing plants here in Ireland because the government encouraged them with good tax breaks and what have you. And really that was the start of the Irish industrial revolution 25 to 30 years ago. And it’s grown from there to be a major exporter of tech products globally. Although a lot of it isn’t indigenous, in truth; a lot of it is the multinationals.
X: How has medtech become a major focus in Galway?
JP: The first medical companies that came to Ireland from America set up in Galway, so it grew into a kind of cluster around medtech. So the Irish government, responding to that, put a lot of money into the ecosystem and the universities and education system, developed courses to churn out grads in sciences and engineering that you need in medtech and life science. Over the years, that’s grown and grown. Boston Scientific employs about over 3,000 people here. Medtronic has 2,000. Abbott is up the road. Ireland is now the fourth biggest exporter of medical products in the world. [Galway is] very much a power base in medtech manufacturing. If you went into those plants and saw the manufacturing going on there, it is as good as you’ll get anywhere in the world.
X: How did the focus shift from manufacturing to research?
JP: Only in more recent years, truthfully, is the R&D side of [things] being pushed. The Irish government realized to have longevity for these facilities, we need to get the R&D done here. So they actually pretty much forced the multinationals by way of what they get in grant aid and everything else to put R&D in Ireland. I would say begrudgingly at first these companies did. They started it in a small way and it grew and grew. Pretty much most of the medtech multinationals are doing R&D of some level to quite large level here in Galway.
X: How has that translated to a medtech startup culture?
JP: There are more and more startups in medtech. There are very successful subcontracting companies now around here; most of them are Irish-owned. They’ve built some really serious businesses, like Creganna—they started supplying the Boston Scientifics and the Medtronics. They’re a huge company now, a global business. On the R&D front there are lots of small R&D startups now, either spinouts from the universities which they’re encouraging at incubator centers, or just guys who have stepped out of the multinationals with ideas and have businesses up and going. There was none of that [when I first came here]. I can’t think of a company that was really set up as an original developer of equipment of products of any type in Galway.
JP: So what’s missing from the scene here?
X: Funding is very good [now], I believe, at the early stage. The government gives good grants to people who start up companies. There’s quite an active angel investing scene in Ireland—high net worth individuals who’ve made money out in industry or other industries and medtech’s been seen as a pretty good one to invest in. And there are now a growing number of American VC and PE companies that have set up in Ireland. So there is money, but I think what has happened, in general, though is that the medtech industry right now might not be attractive as it was to that second-tier investor—the one that comes in with the $5 million to $7 million to bring you to commercialization.
JP: Why are those investors dropping out?
X: FDA approvals have gotten a lot longer. It’s a lot stickier to get a product out the door. So development timelines have increased, costs of development therefore have increased, and return on investment suffers. Things like the reform in the [U.S.] of healthcare—which I think is a good thing, but investors see that as negative because there’s a tighter squeeze on prices people are selling equipment and devices at. The tide has turned against medtech in terms of investing as I see it. And also at the same time you’ve had the sort of upswing on these app/information and communications technology [ICT] types. A guy said to me in Silicon Valley, look, I can put a bet on a medtech company where $5 million isn’t even going to see it out the door—it’s going to need more money—or I could put 10 bets of $500,000 each on some kids in a dorm making apps to find the nearest Pizza Hut. What would you invest in?
X: How can a Galway medtech startup navigate through that environment?
JP: It’s very important to have a good board, and have well connected people—both on the financial side and on the industrial side. A lot of times people don’t think they need that; they think they’re clever enough themselves. That’s a mistake. So getting good people interested in your company and having good advisors is probably one of the best things in the world. And unfortunately [while] I think huge advances can be made in medtech in incremental product [advances], those don’t get funded. You’ve got to really aim for pretty big market opportunities. [Even though] there’s bigger risk, obviously—those go hand in hand.
Photo used under Creative Commons license from Flickr user Gian Michele