SmartPill always seemed like a pretty smart bet for the Buffalo Niagara Medical Campus.
The company had a neat product – a capsule patients could swallow to take extensive measurements within their digestive tracts – and a knack for raising cash from investors to get it through that difficult dry period when there are plenty of development and regular business expenses, but no money coming in from sales.
Even better, its management had shown an encouraging commitment to the region by shifting their manufacturing operations here from California four years ago.
But the medical device business isn’t easy. Aside from the technical challenges and the everyday challenges of finding customers willing to buy your product, device manufacturers like SmartPill have an almost insatiable thirst for cash. SmartPill executives managed to raise more than $60 million from investors, and as we learned in recent days, even that wasn’t enough.
With its cash dwindling and investors unwilling to pony up millions more to prop up a company that still had only a few million dollars in sales, SmartPill effectively turned insolvent in late July and was forced to sell out for a paltry $6 million to an Israeli company that makes its own ingestible medical device.
By the time the year is out, SmartPill will close its local office, which occupies a prominent Main Street spot beside the Buffalo Niagara Medical Campus, and the new owner, Given Imaging, will start making SmartPill’s products at its own plant in Israel. About 13 local workers will be without jobs.
“Obvously, we had all hoped for a better result, but we are pleased that we were able to find a home for the business,” David L. Barthel, SmartPill’s president and chief executive officer, said in a letter to investors. “It has been a long road for all of us.”
In fact, the length of the road is one of the biggest challenges local companies face as they try to become part of the dream to turn the Buffalo Niagara region into a hotbed for medical device manufacturing and life sciences companies. It simply takes so much time – and so much money – that even companies with promising products have to endure a staggering fight to survive during the first few years.
For SmartPill, that struggle dragged on for nine years before the money well ran dry.
For Cleveland BioLabs, another local life sciences company with a promising anti-radiation sickness drug, the well is still pumping, but it has taken a lot of priming over the past year.
Cleveland BioLabs was in a tough spot in the spring of 2011 after its key federal funding source cut them off because they weren’t convinced the clinical trials the company was conducting were going to satisfy the federal regulators whose approval was needed to start selling its Entolimod’s anti-radiation sickness drug.
After more than a year of back and forth, the company and the U.S. Food and Drug Administration finally agreed last month on the path the studies should take. That opened the door to the company’s pitch last week for as much as $50 million in funding from the Biomedical Advanced Research and Development Authority, or BARDA.
That money, if granted, would be a godsend, providing enough to fund the rest of the development program that, if successful, would allow its anti-radiation sickness drug to gain FDA approval. For Cleveland BioLabs’ investors, the federal funding would not reduce the value of their holdings in the company, as would be the case if the financing came from private investors who, naturally, would want a piece of the action in return for their cash.
We saw the downside of that private funding on Friday, when Cleveland BioLabs raised $15 million by selling additional stock and warrants to investors. That sale, while giving the company much-needed cash to keep the lights on, devalued the shares that its investors already owned. Cleveland BioLabs’ stock, which had been above $8 in the spring of 2011, has been pummeled since the federal funding dried up. On Friday, it lost almost a quarter of its remaining value, falling below $2.
That’s the price you pay when you really need a lot of money.
Even if Cleveland BioLabs gets the FDA’s OK, it won’t be a game-changer for the Buffalo Niagara region. The company already has a deal to make the drug in Europe. And to fund the development of its cancer drugs, which have shown early promise but are years away from the market – if they work – Cleveland BioLabs has taken on Russian partners and has shifted much of the clinical work there.
In the life sciences business, there are a lot of “ifs.”
That’s why banking a big part of the region’s economic hopes on that industry is a high-risk bet, albeit one that could pay off big under the right circumstances.