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HistoSonics' tech attracts health care heavyweights

Tuesday, April 30, 2019   (0 Comments)
Posted by: Alisha Brown
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Ann Arbor-based HistoSonics Inc. plans to announce Monday that it has closed on a venture-capital funding round of $54 million for its ultrasound therapy that destroys cancer tumors.

The investment led by two health care heavyweights is believed to be the second-largest funding round for a medical-device company in state history.

The two new investors who led the Series C funding may be as important as the size of the round — Varian Medical Systems of Palo Alto, Calif., the global leader in radiation therapy for treating cancer, and New Brunswick, N.J.-based Johnson & Johnson Innovation LLC, the investment arm of the health care giant.

Their involvement will give HistoSonics instant credibility to potential end users as it begins sales, possibly late this year or early next.

Joining the round were Madison-Wis.-based Venture Investors LLC, which first invested in the company when it was spun off from the University of Michigan in 2010, Boston-based Lumira Ventures and the State of Wisconsin Investment Board.

Mike Blue, HistoSonics' president and CEO, said the company will use the funding to complete regulatory requirements, hire a sales and marketing team, open a second office in Minneapolis, find bigger space in Ann Arbor by the end of the year and begin making and selling devices. 

"As the company plans to grow from 20 people today to eventually hundreds, we feel it's important to have a presence in Minneapolis, one of the largest U.S. markets for medical device companies and a very deep talent pool to recruit from," said Blue. Minneapolis is home to Medtronic Inc., the world's largest medical device maker.

When asked about the possible timing of an initial public offering, Blue said: "We see an IPO as a very realistic and appealing path forward and will be discussing potential timing with the new board."

HistoSonics, which has been granted 44 patents worldwide with about 20 more applied for, will market its system as Robotically Assisted Sonic Therapy, which combines advanced robotics, sensing and imaging to use sound energy to liquefy and destroy tumors without harming surrounding tissue, with far fewer side effects than radiation or surgery.

Blue said the technology can be used to attack tumors of any organ or tissue type, with a likely focus by health care providers on cancers of the liver, pancreas and kidney. Liver cancer and pancreatic cancer are the two deadliest forms of cancer, with liver cancer's five-year survival rate at just 17 percent and pancreatic cancer's at 7 percent.

Blue said the pressure created by the RAST system affects microscopic bubbles of air that naturally exist in tissue. "We use focused sound energy to create pressures great enough to rapidly expand and collapse these microbubbles, which liquefy tissue and create sub-cellular destruction at a very focused point," he said. "Only the microbubbles at the focal point of our targeted sound energy are activated or excited and destroy tissue. The others in surrounding tissue are unaffected and unchanged."

"We believe that the HistoSonics' platform offers a unique solution and significant promise to treat patients with a number of different diseases across global markets and care settings," Greg Sorensen, Varian's vice president of strategy and business development, said in a press release. He will join HistoSonics' board of directors.

HistoSonics' technology has performed well in ongoing small and large animal tests both at UM and at the University of Wisconsin. "We demonstrated safety and effectiveness. We have compelling data," said Blue, who said the results show RAST works better than other forms of treatment of tumors, including radiation, cryoablation (using extreme cold) and heat ablation.

"Of great interest to researchers and the company is the apparent immunotherapeutic response observed when applying RAST in small animal cancer models, which could be incredibly significant and meaningful if it translates to a human response," Blue said.

The technology also did well in a small human trial involving 10 cancer patients in Spain last year.

Blue said he submitted an application for approval for a Class 2 medical device to the U.S. Food and Drug Administration earlier this year and anticipates approval by the end of the year. "We have submitted a tremendous amount of data demonstrating safety and efficacy," he said.

He said the company would begin commercialization here and in Europe when approval is granted and has been in discussions with cancer centers in the U.S. and Europe about becoming customers.

Blue said that while HistoSonics has been working with contract research organizations about incorporating imaging and robotics technologies into a commercial medical device, the plan is for the company to eventually build the devices in-house. He said he expects them to retail for about $1 million each.

Because ultrasound is well-understood and considered safe, the path to FDA approval is easier and shorter than for other experimental therapies. While Blue expects FDA approval based on data already submitted, he said it is possible the FDA could require further testing.

A string of big VC rounds

HistoSonics' funding follows on the heels of what is believed to be the largest funding round ever for a state company, a $77 million round announced by Kalamazoo-based Ablative Solutions Inc. in January for its medical device, which reduces hypertension by injecting alcohol into nerves in the renal system of certain patients with hypertension.

Though they have high blood pressure, the renal nerves of those patients send signals from the kidney to the brain with the false message that their blood pressure is low, which causes the brain to release chemicals to constrict blood vessels, raising blood pressures to dangerous levels.

The funding for HistoSonics and Ablative continues a trend of large funding rounds for state companies. In October 2017, Ann Arbor-based Duo Security Inc., a provider of a two-factor system to provide internet security for companies, announced what had up to then been the largest round in state history, $70 million, which last August led to the company's $2.35 billion acquisition by Cisco Systems Inc.

In 2016, Ann Arbor-based Millendo Therapeutics Inc. raised what was then the VC record of $62 million to commercialize a drug it had developed to fight polycystic ovary syndrome, the most common endocrine disease in women. That topped the previous funding record set in 2014 by Plymouth Township-based ProNAi Therapeutics Inc. when it raised a round of $59.5 million.

The Millendo deal led to it going public last December on Nasdaq through a reverse takeover of publicly traded OvaScience Inc., and the ProNAi deal led to its initial public offering of $158 million in 2015.

Just as the Millendo and ProNAi fundraisings led directly to going public, HistoSonics investors and management hope this funding round will also lead to its IPO in the not-too-distant future.

In 2010, HistoSonics got a funding round of $12.5 million and it raised $9 million in 2017.

Jim Adox, managing director of Venture Investors.

"We led the Series A round way back when. It took us 10 years to become an overnight success," joked Jim Adox, who runs the Ann Arbor office of Venture Investors. He said investor enthusiasm was so high for this round, "We've literally been turning people away."

"It's simply incredible, this round of funding," said Chris Rizik, CEO of Ann Arbor-based Renaissance Venture Capital Fund, a fund of funds that invests both in Michigan VC firms and out-of-state firms willing to look at deals here. "HistoSonics has been around a decade and it took them awhile to find the right direction to go in. Investors believe in them. When you are trying to attract capital to Michigan, every story like Duo or Ablative or Millendo or HistoSonics makes it easier to attract people to the state to look at investments."


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