CEO's Blog

Good morning!

I thought I would share with you a couple of excerpts from the newly-released report by Ernst & Young entitled “Pulse of the Industry: US medical technology report 2008” on the all-important exit:

“Mergers and Acquisitions (M&As) have long been integral to the medical technology industry’s business model. This is an industry where smaller companies develop innovations with an eye to being purchased by larger entities with manufacturing and commercialization capabilities. That tradition has continued in recent years with the medtech deal space remaining very active. […] There seems to be an ample supply of willing buyers, particularly with increased activity coming from non-traditional players such as mid-tier medtechs, diversified conglomerates and private equity funds.”

This finding is consistent with other recently-published research on the medical device sector. Successful medical technology companies continue to generate lucrative exit opportunities for their investors through vibrant M&A activity. Moreover, the reports confirm the much lower development costs and shorter time-to-exit for medical device companies vs. biotechnology firms.

Private medical device companies offer attractive return-on-investment (ROI), lower development costs, and shorter time-to-exit. Something healthcare investors should think about, as the public markets continue to disappoint.

Yours truly,
John

Good morning!

Some of you may already know that we have been approached by an oral health company that specializes in the diagnosis and treatment of oral malodour problems. This company is unhappy with their current breath testing technology, and is interested in using LifeSens to perform their oral malodour breath tests.

Interestingly, I see from this story that some dentists are already at the forefront of a movement to do early screening for a wide variety of diseases, including diabetes, heart disease, colon cancer, Hodgkins lymphoma, and a host of other problems. Currently, these screening tests are performed by collecting blood samples that must be sent away to medical laboratories for analysis. But based on the scientific research we’ve compiled, breath tests could work equally well, and results would be available within minutes.

Does this mean dentists could actually be among the earliest adopters of LifeSens technology? An intriguing possibility that deserves a closer examination.

Yours truly,
John

Good morning!

We see that oil is below $66 a barrel this morning, tumbling 55% from its peak of $147 in mid-July, with no end to the slide in sight. Despite much talk of an OPEC supply cut to support prices at an emergency meeting on Friday, I wouldn’t hold out much hope as OPEC has demonstrated a marked lack of discipline in past attempts to rein in production. That’s why, as the global economic slowdown accelerates, I’m expecting oil prices may fall to levels not seen in more than a decade.

With the slide in oil we see a corresponding slide in the Canadian dollar. Of course, this is actually good news for exporters, like Alberta's life science companies, as it helps to make them more competitive relative to their American counterparts.

So will innovative technology companies like Picomole get a second look from the local investors that have been busy chasing bubbles in commodity prices and real estate? I for one certainly hope so.

Yours truly,
John

Update 1 - For further reading, check out Mish's Global Economic Trend Analysis blog. This is one of the best blogs out there, and highly recommended reading for anyone looking for insightful analysis on the financial crisis. Looks like Mish posted his entry on the US Dollar and the Yen not long after my post. His last paragraph bears repeating:

"That said, I will caution commodity bulls that this dollar rally can last a lot longer than anyone thinks. Furthermore, I am quite certain the recession will be much deeper and last longer than most expect. As a result, commodities will likely be under pressure for some time, regardless of what the dollar does."

Good morning!

Picomole has been invited to join the Alberta delegation for the upcoming Life Science trade mission to Minneapolis-St. Paul, MN, December 8-10.

The trade mission, jointly organized by the Alberta and federal governments, is a low-cost opportunity that includes a commitment to securing 4 meetings for Picomole with targeted strategic partners and/or healthcare institutions. The Minneapolis-St. Paul region is an important medical device cluster for several world-class companies and institutions including 3M, St. Jude Medical, Boston Scientific, Medtronic, the Mayo Clinic and much more.

Picomole intends to use the trade mission to explore financing and collaborative development opportunities with any one of the big industry players. In preparation, we've started working with a very talented art director from Chicago on some promotional materials.

Yours truly,
John

Good morning!

Some of you may know that I keep tabs on some 42 companies in the medical device sector. One of the companies that I follow is Intuitive Surgical Inc., which focuses on surgical systems for use in urologic, cardiothoracic, gynecologic, and general surgeries.

The information presented at Intuitive Surgical’s earnings conference call yesterday was consistent with our most recent findings, that the medical device sector is quite healthy and indeed thriving despite the current financial crisis. Intuitive’s total revenue grew to $236 million, up 50% from last year. Instrument and accessory revenue increased to $76 million, up 53%. Total recurring revenue, including service, grew to $110 million, up 54% from the prior year comprising 46% of total revenue.

Looking at the medical device sector as a whole, it’s interesting to see that merger and acquisition (M&A) activity remains very healthy: 4 of the 42 companies I track were acquired in 2008, creating lucrative exits for their investors. Average revenues for these companies were $570 million, while the average amount paid to acquire these companies was $4 billion – a very attractive price-to-revenues multiple of 7.0.

In another measure of how company valuations are holding up, the latest reported composite P/E ratio was 27.6 for the medical device sector. This is significantly higher than most other sectors including oil & gas drilling/exploration (19.8), financials (19.4), and much higher than oil & gas majors (9.5) and biotechnology (7.0), for example.

Medical device companies: a good bet for troubled times.

Yours truly,
John

Sunday Update: I see from a story in today's New York Times that venture capital (VC) investments in medical device companies are up 10% in 3Q 2008. Meanwhile, VC investments in internet-related companies are down 36% during the same period. The shift favouring medical devices is all the more significant because the overall number of VC-funded startups has dropped by 20%. Further evidence that smart money is banking on medical devices.

Good morning!

I was invited to deliver a seminar to the MBA students at the University of Alberta School of Business last Thursday. This is the second year that I’ve delivered this particular seminar, entitled “Ten Tips from the Trenches.” I preface the ten tips (actually, there were 11 tips) with some thoughts on the elements of a good pitch. As was the case last year, the students were keenly interested and appreciative of the lessons learned from someone who’s "been there, done that". My tips focused on a variety of aspects, including planning, team-building, financing, and time management.

If you’re interested in receiving a copy of my seminar, just let me know.

Yours truly,
John

Good morning!

I’m very pleased to announce that Picomole was selected to present at the upcoming Ivey Entrepreneur Forum, to be held Nov. 13 in Toronto. A number of private equity groups, venture capital firms, and individual angel investors are registered to attend, and so it will be an excellent chance for us to present the Picomole opportunity to a new audience.

A representative from event sponsor Fraser Milner Casgrain LLP called this morning to let us know the good news. Of the five companies selected to present, Picomole was the only company to get a unanimous vote from the deal screeners, and will be the only life sciences company presenting at the event.

Yours truly,
John

Good morning!

Picomole announces that Dr. Larry Ohlhauser, MD, has kindly agreed to act as a Senior Medical Advisor. Dr. Ohlhauser is known internationally for his seminar and book entitled The Healthy CEO, which uses his proven concepts of goal setting and outcome measurement to address the unique health challenges facing executives. After operating a successful medical practice in Alberta, he developed his expertise with the College of Physicians and Surgeons of Alberta for 20 years, the last 12 years of which he acted as Registrar and CEO of the College. Today, Dr. Ohlhauser is the President and CEO of Ohlhauser & Associates, a consulting firm specializing in healthcare strategy and management consulting for large multinationals, corporations, and government institutions.

His awards are noteworthy. He has recently received the Alberta Centennial Medal in recognition of outstanding service to the people and province of Alberta and the Dr. Louis Levasseur Distinguished Service Award from the Medical Council of Canada for outstanding contributions toward the Council's vision and mission. Dr. Ohlhauser has recently been named "one of the Top 100 Physicians of the Century" by the College of Physicians and Surgeons and the Alberta Medical Association.

The Picomole team welcomes Dr. Ohlhauser and looks forward to working with him.

Yours truly,
John

Good morning!

It’s my great pleasure to announce that Picomole has been invited by the Alberta Heritage Foundation for Medical Research (AHFMR) to attend this year’s ASTech Awards Gala. The Awards Gala, to be held October 24 at the Shaw Convention Centre in Edmonton, is a black tie event hosted by CBC personality Mary Walsh (This Hour Has 22 Minutes). Holly Riopel and I will be attending this event on behalf of Picomole.

ASTech, which stands for the Alberta Science and Technology Leadership Foundation, was created to celebrate the achievements of science and technology in Alberta. The ASTech awards are among the highest honors available to individuals and organizations in Alberta's science and technology community. As the premiere awards event of its kind in Alberta, this gala brings together leaders from government, industry, media and educational institutions to celebrate the outstanding individuals and organizations that have contributed significantly to the success of science and technology.

More info on ASTech is found at: www.astech.ab.ca/users/folder.asp

We are very grateful to the AHFMR for extending this invitation to Picomole.

Yours truly,
John

Good morning!

I thought I would center today’s discussion around another story concerning breast cancer that was reported recently in the media:
www.cnn.com/2008/HEALTH/conditions/10/01/computer.mammogram.help.ap/

In an attempt to improve the detector of tumours using mammography, it has been shown that double-reading improves the accuracy of diagnosis over single-reading. Simply put, two pairs of eyes are generally better than one. Or, as we learn at the link above, one pair of eyes and a computer assisted diagnosis (CAD).

This story is especially interesting because it:
1) Acknowledges the need for improved breast cancer screening,
2) Demonstrates the viability of combining a technological solution (in this case, CAD) with traditional mammography to improve diagnosis, and
3) Confirms the willingness of insurers like Medicare to pay an additional amount for technological add-ons to traditional mammography.

That said, I would argue that re-analyzing the same data (as is the case with CAD) would produce at best an incremental improvement in the accuracy of diagnosis. After all, both computer and radiologist can be equally fooled by unclear features on mammograms. A strategy that would almost certainly yield improved results would be to analyze a second, completely independent set of data. Like metabolite profiles in exhaled breath samples.

Food for thought.

Yours truly,
John

Good morning!

A short blog entry today as I’m rushing between meetings. Some promising developments with interested researchers that I’ll update you on as things develop.

Interested readers may want to check out the following story published recently in the Toronto Star:
www.thestar.com/article/490716

In a nutshell, cancer researchers seem to be coming to the conclusion that pouring billions into drug therapies is unlikely to yield the much sought-after breakthrough, and that much better outcomes at much less cost could be obtained by focusing on prevention and early detection.

Given the capabilities of LifeSens technology, a shift toward early detection is something that we would welcome.

Yours truly,
John

Good morning!

Over the weekend, we learned that an agreement has been reached in Washington on a proposed bailout plan. This flawed plan, dubbed the “Mother of All Bailouts”, may be politically necessary in an election year. The seize-up of the economy, the result of borrowers effectively going on strike the past few months, was a deflationary force that would have had profound consequences for the U.S. had it been allowed to continue. If assurances that the bailout plan will not cost taxpayers are to be believed, it will likely end up being inflationary, because the only solution is to increase the money supply. It may well be that the U.S., as the world’s largest debtor nation, is shifting its stance toward price control in an attempt to manage its soaring public debt. However, the bailout plan will do little to alleviate consumer debt, and it may work counter to a needed shift toward higher personal savings.

In the U.S., a shortage of homebuyers due to inadequate savings/credit and an oversupply of housing means that home prices will remain depressed for several years to come (the so-called “L” shaped recovery). A hard landing in the real estate market is inevitable as that asset class remains at least 20% overvalued in the U.S. by most estimates. In Canada, real estate prices will continue to erode, although not as dramatically as we have seen in the U.S. Interest rates may stabilize or even fall somewhat as the Bank of Canada seeks to offset strain in our manufacturing sector due to the rapid rise in the Canadian dollar. Revenue shortfalls due to the GST cuts and the decelerating economy risk leaving our federal government with its first budget deficit in more than 10 years.

Bottom line: Although the economic forecast appears grim, I believe it may actually create attractive global market opportunities for Picomole. Stay tuned for more details in the days and weeks ahead.

Yours truly,
John

With a federal election campaign underway, I thought I would draw attention to an overlooked issue that is near and dear to my heart: the National Research Council and specifically its Industrial Research Assistance Program (IRAP). IRAP is a federal program that disburses on the order of $100 million a year in salary support for technical personnel in small and medium enterprises. The program is essential for many reasons, not least of which is that it provides important third-party validation of a company’s technology. As many of you know, IRAP’s technical due diligence strengthens investor confidence in a technology start-up.

I was dismayed when my Member of Parliament asserted that “no more than seven people in Parliament could tell you what IRAP stands for.” Perhaps unsurprisingly, we believe there are ominous signs that the IRAP program is quietly being frozen by the current government, perhaps with the goal of dismantling it. We believe this would be disastrous for the growth of the Canadian economy, which remains too dependent on resource exploitation. Between 1996 and 2001, NRC-IRAP clients created slightly more than 12,000 high-quality jobs and generated approximately $4.2 billion so far in revenue that can be attributed to NRC-IRAP assistance. In other words, a program that more than pays for itself. We need more like this in Canada, not less.

This election season, contact your MPs and candidates and ask them about IRAP. Are they fully committed to IRAP, and are they willing to ensure that essential programs like this one continue to be adequately financed? You may be surprised at the answers you get.

Yours truly,
John