Kevin Hykes is an Operating Partner at Versant Ventures and Chairman and CEO of Metavention, Inc., a clinical-stage medical device company focused on the development of interventional therapies for the treatment of type 2 diabetes.
Tom Salemi: Hi, there, everybody, everybody, this is Tom Salemi, and you are listening to the first Medtech Talk Podcast of 2017. Welcome back. Happy new year, and I hope you survived and slash enjoyed JP Morgan. I understand it was the usual crush, and the rain put a damper on some of the on-the-street meetings that we all enjoy there in San Francisco. But I’m sure it was productive for all of you and I hope you’re finding your way home if you haven’t already. This is, again, our first Podcast of 2017. We’re going to be ramping our Medtech Talk Podcast, bringing you new stories each week about our medtech industry. This is a fantastic industry, one that I’ve been covering for close to 20 years, and I really, really enjoy the opportunity to put together this Podcast and content to continue to tell the successful stories, and to help understand some of the less successful stories in medtech. And the culmination of all these efforts of the Podcast and of this content is the Medtech Conference. The Medtech Conference will be taking place this year on June first, as it did last year. It’s in Minneapolis at the Loews Minneapolis Hotel, where we’ve held it for many years. And it is going to be a fantastic event. We reported last month that we had our strategic meeting in Minneapolis. I flew out there, a few colleagues and myself, to meet with the leaders in medtech to find out really what was troubling them the most, what problems they wanted to have sort of vetted on the public stage, or discussed on the public stage, and how the Medtech Conference can help medtech overcome the challenges it’s facing and to, honestly, to also hear about some of the successes that we’re seeing. Medtech is seeing some difficult time; we’re not going to deny that at all. But it’s also has had some terrific outcomes that really need to be celebrated. And that’s something we do at the Medtech Conference. We did last year. We had our great Innovator of the Year Award, and it went to Andrew Cleland, who we’ll have on the Podcast in a couple of weeks. And we want to continue to do that again, focus on the successes and help understand and solve the problems. So what we do, and let me just explain sort of the process for the Medtech Conference, we had our strategy meeting in December because we really feel it’s important to hear directly from the CEOs and investors in medtech. And now I’m working with our great co-chairs, Kevin Hykes – he of course the CEO of Metavention – and Stacy Enxing Seng. She is a venture partner at Lightstone Ventures, and of course has had great success in medtech, ending her career in operations at Covidien, where she led the vascular group, but of course getting involved with Scymed and ev3 before that, two enormously successful ventures. And Kevin and Stacy sort of are now taking – and myself – are taking all the information we collected from the strategy meeting, working with our advisory board members to put together a really dynamic day of medtech discussion. So we’re in that process. We’re honing the agenda because, again, we really feel like these issues and these topics need to come from the grass roots; they need to come from the medtech community. So we’re in that process. We’ll have the agenda up on our website, medtechconference.com, very soon. It’s going to be sort of a boiler plate agenda, but we’re going to give you a sense of the direction we’re going, and we’ll be updating that with speakers as we secure them. So I’m really excited about this year’s event. Stacy and Kevin are amped up, and they’ve both been huge parts of the success of the Medtech Conference. Kevin of course was co-chair last year, and Stacy has been an excellent member of our advisory board. So as part of the sort of storytelling process behind the Conference, we’re going to have podcasts and video interviews with those who are in medtech, maybe not affiliated with the Conference, but we’re going to be talking with people who are helping us put the agenda together because we want this to be an inclusive podcast. We’re not just trying to promote the Medtech Conference. We’re trying to promote medtech. That’s our mission. So this week though, this week and next week we’ll lead off with our co-chairs. This week, I’m going to speak with Kevin Hykes. He and I sat down at Fox Rothschild’s office in Minneapolis and really talked about what – Kevin’s had a great exit with Visiogen and with Cameron Health, and now he’s leading a startup. And my question is sort of centered around how do you take what you learned from those successful M&A’s that you’ve had in the past, and use those experiences to shape how you’re running a startup. So I think it’s a really vital question for anyone running a startup today. You want to build the best possible company you can, but in all fairness, the most likely outcome for any startup is an acquisition. So how do you keep one eye on running the best – shaping the best company possible, and the other eye sort of further down the road looking at the horizon of what an exit might be. So Kevin is a great person to talk to about that. I’m going to let him do the talking. We’ll get into the interview right away. But again, I want to let you know the Medtech Conference is happening on June first in Minneapolis at the Loews Minneapolis Hotel. Registrations are open. We’ve already got people signed up, which is fantastic. Thank you so much. Go to medtechconferece.com to register. If you have questions for me directly, feel free to email me at firstname.lastname@example.org. Tom@healthegy.com. Healthegy is spelled the word health followed by the letters EGY.com. I’m the Content Director at Healthegy. We’ve got a great story going on here that we’ll share in future podcasts, and I want to hear from you. What issues do you want to hear at the Medtech Conference or on a podcast? We can help you both ways with meetings in person or through this type of content. So let’s get into this conversation with Kevin Hykes, co-chair of the Medtech Conference, and CEO of Metavention and operating partner at Versant Ventures.
TS: Hi, this is Tom Salemi. We’re on location in Minneapolis, and we’re happy to be here with Kevin Hykes, who is once again, for some strange reason, agreed to be co-chair of our wonderful Medtech Conference. Kevin, how are you?
Kevin Hykes: I’m good, thank you, Tom. Glad to be here.
TS: Kevin is the CEO of Metavention, which we’ll learn about in a second, and also an operating partner at Versant Ventures.
KH: That’s right.
TS: That’s quite a resume you’re building there.
KH: Well, it’s an exciting way to kind of live in both worlds at the same time. It’s fun.
TS: I bet. Tell us about Metavention before we get into some other topics.
KH: Yeah. Metavention is, up until a few months ago, a stealth mode, early stage medical device company focused on type 2 diabetes, and one of a handful of a small group of companies focused on interventions for type 2 diabetic patients –
TS: Sure, yeah.
KH: – in what’s other wise an exclusively pharmaceutical world. And so we’re one of – we’re actually the only one, really, that’s focused on neuromodulation for type 2 diabetes. The others are largely focused on replicating the effects of bariatric surgery in a much less invasive fashion. So companies like Fractyl, valenTx, GI Dynamics, etc. So in our case, we believe we’ve discovered a neurological trigger that, in a pathological state, makes insulin resistance worse, and decreases insulin production.
KH: And by modulating that trigger, we can improve insulin resistance, and potentially even increase beta cell function and insulin production. So it’s an interesting sort of novel approach to managing a disease right now that’s very difficult to manage with the existing pharmaceutical options.
TS: How does one get out of stealth mode? What happened to free you to lift the covers off of Metavention?
KH: Well, we successfully, after three and a half years, filed enough intellectual property to be comfortable with being more open about the space we’re working in. So we published our first animal work last summer, and have been increasingly more open about what we’re up to. We’re about to raise capital next spring, so we’ll be much more visible then, we hope. But it’s kind of the right time for us after three years of heads down work in the animal work and preclinical science and a 40-patient first in human trial, which is almost complete, to now sort of take the covers off and understand what value we may have created, and how we can raise capital to move the project forward.
TS: And I mentioned you’re with Versant, affiliated with Versant as an operating partner. Are they an investor in the company? Do you have other investors?
KH: They are. They are an investor. We also have a strategic investor, who is technically confidential, but a great, big cardiovascular and diabetes company in the Midwest.
TS: Interesting, OK. So is the – this is really your first startup. You’ve had a lot of success in medtech. You were CEO of Visiogen and saw that to its sale, and we’re going to get into that in a second, and also of course Cameron Health, which was an enormous exit. What is life like for a startup CEO? How do you enjoy that process?
KH: Well, you know, in my case, I spent 17 years at Medtronic, much of that here in the Twin Cities. That was sort of chapter one. But in my three startup experiences since then, I’ve found it to be, for me at least, a much more exicting way, sometimes terrifying, more often invigorating, but a much more exciting way to build value, to help patients, to be really with your sleeves rolled up in the thick of the fight in medtech. And so I’ve had a – I’ve worked for Abbott for 6 months after they acquired Visiogen. I worked for Boston Scientific for six months after they acquired Cameron. But I continue to sort of gravitate back towards the startup environment because it’s, to me, it’s compelling, it’s dynamic, you’re agile, you can move so much more quickly. And for me that’s gratifying. So I’m not sure I’d have it any other way at this point.
TS: We talk so much about M&A at the Medtech Conference for obvious reasons. It’s the primary exit, if not the sole exit, for device investors and entrepreneurs. With those two major acquisitions on your resume, could you give us, shed a little light on what those processes were like? Were there similarities between the two? Are there commonalities between companies? And maybe let’s address Visiogen first. Give us the terms of the sale and then maybe get into the commonalities between that and Cameron Health, and give the details of that as well.
KH: So Visiogen, and I was the Chief Commercial Officer, just to correct you –
TS: Oh, thank you very much.
KH: – not the CEO. But joined a fantastic team as they were initiating European commercialization and completing their FDA trial. So sort of mid to late stage venture. But I think the reason I joined it was it was a highly differentiated technology, intraocular lens that in theory delivered objective accommodation. It was a massive market, so still considered one of the holy grails of ophthalmology is solving presbyopia. And the third point, there were a number of potential owners of that asset if it was indeed successful. So to me, those were sort of, as I’ve seen over and over, the three sort of recipes for success with a startup or a new venture, a new technology. You gotta have people that want to buy it, and it’s gotta be a big enough market to matter, and it’s gotta be a different enough approach that you can truly differentiate yourself. So Visiogen checked all three of those boxes. What happened, fortunately, as Abbott got involved in ophthalmology, as we were raising our series D, they bought AMO, American Medical Optics, and suddenly became more acquisitive. So we had sort of an injection of capital and interest and motivation in the space, and we were completing our FDA trial, so we had a 300 patient data set that demonstrated the value of the technology, we thought. And so it created somewhat unexpectedly a process, shortly after we raised our series D, that had multiple buyers and a competitive situation as you hope, often, is the case, that led to a very attractive exit. An unexpected one. We had not planned to sell the company. I don’t believe you can every plan to sell a company. You build it and you build value, you build it for the long term. And if you do it well, good things will happen.
TS: Hey, everybody, Tom here. Excuse the interruption of this great interview with Kevin Hykes. I just wanted to invite you to go to medtechconference.com to find out more information about the Conference. Not only will you have information about registering this year, but we’ll have lists of attendees from last year. If you want to see the delegate list or the firms that have represented at our conferences, please do go. You’ll know all the names on there. And we hope that you will be on the list for this upcoming conference on June first in Minneapolis. Now back to this interview.
TS: And it’s interesting to note, now that Abbott is divesting AMO and selling it to J&J kind of demonstrates the – sometimes it’s a timing thing. Sometimes a company has to have interest in that area at that time and be willing to pay what you need them to pay.
KH: Indeed. And in the case of Visiogen, the disappointment in all of that was the FDA to this day, six or seven years later, still does not have – has not approved a single accommodating lens since the first and only Crystalens. And they’ve not yet figured out how to measure objective accommodation. That was the problem with Visiogen. We were the second one through the process, and they said, Well, we’re not quite sure how to measure this objective change in the eye. And so even up until now, they’ve not approved that product. And I think that was a disappointment for everybody, investors, our team, Abbott of course. So it’s unfortunate that that happened.
TS: Absolutely. Cameron Health was another great space, and sort of a different story is the acquisition. Give us the terms of that deal and a little bit of background.
KH: Yeah. And that was, again, similar stage. You know, had been commercial in Europe for several years, was completing the FDA trial, sort of late stage, about to get FDA approval. It was a bit more of a troubled asset. It was a tremendous technical challenge. It took more capital and more time than anyone had thought. My predecessor, Jay Warren, did a fantastic job solving one of the toughest problems in CRM in electrophysiology. So inherited a great team, a tremendous product. And it took some adjustments to refinance the company and sort of get it ready for legitimate commercial operation. And so we did that. And again, we had a deal in place with Boston Scientific, but it was dormant, and the relationship was a bit strained, so no one was betting on a rescue at Boston Scientific. So we said how do you build value with this company, with this opportunity, irregardless of what the outcome might be. And so we weren’t betting on that particular outcome. We said, Let’s create an asset that will be of interest to a number of different players and see what happens. And in fact, in the end, Boston, due to the strength of our data, sort of re-engaged and decided to pull the trigger on what had been a dormant, eight-year-old deal.
TS: What are the challenges for an early stage company like Metavention? Again, looking forward, it’s way too early to guess how this story will end. But are you checking off boxes now as the CEO to create a company that will be something that could be acquired in the future? Are you looking that far ahead?
KH: Well, I’d say we’re being extremely deliberate with how we deploy capital and what we focus on to create value. Not to sell the company, necessarily, or not to make it more attractive to a particular buyer or type of buyer. In our case, it’s a crowded space. Or there are crowded adjacent spaces, so we spent three years securing a remarkable amount of intellectual property so that if someday down the road, someone did want to talk to us about partnership or acquisition, we could clearly demonstrate that we own our space. And that was really important. So again, not building the company to sell it, but building an asset that we could maintain and grow and protect and demonstrate a commanding position in the market someday, if we were still independent at that time.
TS: What role does the strategic investor you have in the company now, how does it affect your ability to sell it in the future? Is it just an investment deal? There’s no commitment to it? Or is it one of those deals where they’re kind of giving you the money to prove that it works and there’s an idea of what might happen later on?
KH: Yeah. I would say in our case there are no restrictions on who we may bring into the deal going forward and other capital we may raise from strategics. We have a very supportive partner. There are very limited rights involved with their investment. So it’s really a net positive. They’re close to what we’re doing, and part of the process and the project and understand where we’re headed. But we’re not restricted in any way from what we can do or who we might partner with down the road. So I think it’s the best of both worlds. Obviously, in this environment, eventually there may be conversations about a structured exit. Those are more common now. And so that would be of interest to us. But at this point, the deck is wide open, and so it’s really a positive for both groups.
TS: If we were sitting on the stage of the Medtech Conference, which is happening on June first, and we were talking about the state of M&A in medtech, how would you define the state of M&A from the point of view of a startup CEO? Do you still feel there’s a lot of opportunities for that? Is it feeling a little barren because of some of the changes going on with the larger companies in medtech? What’s your general sense from your point of view, and from the points of view of the people you work with?
KH: Yeah. You know, I think it’s been a little quiet these last six months since the Transcatheter, the most recent sort of frothy Transcatheter mitral fun last year.
TS: That was good.
KH: I think, not surprisingly, the late stage deals seem to be going even later. And so they’re – Cameron and Visiogen were acquired about the time they got FDA approval. I think some of those late stage deals are being pushed even later by the strategics to be derisked even further. And strategics are looking for EBIDTA in a lot of cases, so they’re looking for companies that are close to cash flow positive or cash flow positive. So those are sort of drifting later and later. The little companies like Metavention, the early stage environment is still extremely tough. And I think what few early stage companies may be acquired are those that have really differentiated assets in really important markets, and environment where you can create competition for that asset early. And so those are the – again, with Metavention, those are the three boxes that are clearly checked. It’s why I’m involved with such an early venture because I think it’s extremely compelling. And so in our case, again, you know, we’re trying to build value. We’ll see what happens, but we’re not betting on an early exit, and there are very few, I think, that can exit early with a compelling clinical trial data set, and not yet have FDA approval, not yet have derisked the European environment, the commercial environment. Those are a lot of boxes that the strategics are now requiring to be checked before they’re actually moving to acquire an asset. From what I can tell.
TS: Sure. And that’s the point of view we’re looking for. What are the opportunities that come with events like the Medtech Conference, where you’ve got strategics and investors and startup CEOs all coming together? Does that help foster future M&A? Does it help sort of, I guess, fertilize the fields a bit, that something may improve down the road?
KH: Yeah. And it’s not a surprise to anyone. I think our industry is small enough that relationships are critical. And events like this one that connect the investors and the strategics and the innovators, and allows them to sit down and say, you know, what’s interesting to you, what sorts of assets could we build and finance that would ultimately be an interesting part of your portfolio, you know, to the strategics. And understand where the holes are in their portfolios. And we have limited enough capital that we should be focused on the areas that are really going to move the needle, and on creating opportunities and technologies that are going to be important to the strategics and the payers and the patients, and all of the stakeholders. Because those are the ones that are going to move the industry forward. And so these sorts of events, you know, in my mind, are a great way to reconnect. In our case, this is probably the benchmark event here in this market in Minneapolis. A lot of folks come to this meeting each year because it’s their chance to get reconnected with the ecosystem and the partners that they don’t often see that help fuel this innovation engine. And it’s also a chance for us here in the Midwest to demonstrate to the folks on the coast, perhaps, you know, what we’ve got and why this is such a special place to be developing technology. So it probably sounds trite, but it’s a great chance once a year for me to reconnect and understand what’s going on, and understand where the industry is headed.
TS: We really enjoy coming to Minneapolis each year to put this event on, and I really appreciate your friendship and leadership in making this happen.
KH: Thank you. Happy to be involved.
TS: Well, that is a wrap. Kevin Hykes, once again thank you for all the work you’ve done for the Medtech Conference in the past and all the work you will do in the months coming as we get the Medtech Conference together. Go to medtechconference.com to find out more information. If you enjoyed this Podcast, please do tell your friend. We’ve got many more interviews already done. We will be sending them out to you via the Medtech Talk Newsletter. If you’d like to receive that in your inbox, if you haven’t seen that yet, just go to Healthegy.com. Just give us your email and we will send you the Medtech Talk Newsletter. You’ll not only get this Podcast and some great information about the guests on this Podcast, but also a link to some of our excellent video interviews and some of our highlights from past Medtech Conferences, usually the one most recent, in 2016. So this is a great free package for medtech entrepreneurs and investors. Just go to Healthegy.com. Again, that’s the word health followed by the letters EGY.com. Sign up for the Medtech Talk Newsletter. So tune in next week. We’ll speak with Stacy Enxing Seng from Lightstone Ventures about her success in starting and selling companies, and then, of course, kind of taking the role as a buyer with her work, working with various strategics, including Covidien most recently. So Stacy is a fantastic person to work with and I know you’ll feel her energy coming through the Podcast in the interview, which we’ll send to you next week. So thanks again for joining us. Tune in next week for the interview with Stacy, and don’t forget, join us in Minneapolis on June first.