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For almost a decade, SmartPill was a beacon for what the Buffalo Niagara Medical Campus could become.

The company started with a good idea and some smart science, and turned it into a medical device that seemed like something out of Jules Verne. A capsule that a patient could swallow and then allow doctors to collect precise data about acidity levels and pressure as it passed through the digestive tract.

By the beginning of last year, it seemed that SmartPill might be on the verge of a breakout. It had completed three major clinical studies. The company had shown a knack for attracting investors, raising a total of $60 million. Its 2011 sales had jumped by 50 percent to $1.8 million and it had built a staff that ranged between 20 and 30 people. And perhaps most encouraging, it had just won a hard-fought battle to have the SmartPill device recognized as an established tool and procedure by a key medical professional society panel.

“2012 started great,” said Jack Semler, SmartPill's chief technology officer. “This was a high point for us.”

Yet less than 10 months later, it all came crashing down. SmartPill, facing the need for further costly studies that would hamper its revenue growth for another two to three years and stiff resistance from health insurers over reimbursing doctors for SmartPill tests, ran out of money and was forced to sell to an Israeli company that shut its Buffalo operations.

“We had a good device,” Semler said last week during a talk to a life sciences group sponsored by the University at Buffalo – the first extensive comments by a SmartPill executive since the company's demise. “The outcome was not what we hoped for.”

The outcome, though, is a cautionary tale for the medical campus, which is touted by boosters as a potential cure for the region's economic woes. SmartPill's tale shows that the path to success, even with good science, a good product and sales that topped out at $2.4 million last year, is paved with deep pitfalls.

Even in its early days, it seemed like SmartPill was really on to something. Its ingestible capsule appeared to have advantages over the two competing conventional tests for gastrointestinal disorders: A patient just had to swallow the capsule, eat something and wait for nature to take its course. It didn't require hospitalization and it worked on both the colon and the stomach, while the common tests were limited to one or the other.

Investors saw the potential, pumping $36 million into the company from 2008 to 2010. SmartPill's sales topped $1 million for the first time in 2009 and the company ramped up for further growth, adding a string of mid-level executives and taking its manufacturing in-house, moving it from California to Buffalo, where its labor costs were less.

But the company started to run into headwinds. Sales growth slowed in 2010 as health insurers treated SmartPill tests as an emerging technology. The company had to convince doctors that its device was better than the conventional tests, which was hard enough, but the convincing got even harder when the physicians learned that most health insurers wouldn't pay for SmartPill tests unless they went through an appeals process.

“They didn't have the time or the energy to fight that fight,” Semler said. “The big thing that killed us was reimbursement.”

Even though SmartPill won the coveted designation as a proven treatment early last year from a medical professional society panel, it wouldn't take effect until 2013.

Health insurers didn't have to go along with it, either. And most insurers balked at paying because, while the test gave physicians better information, they weren't convinced that data made a difference in how patients were treated or how well those treatments worked.

Even worse, the company learned it needed further clinical tests that would push back its expected ramp-up in sales by at least two years, he said.

“It's 2012, the enemy is time and money,” Semler said. “I need two more years and I need more money.”

Investors, who had been so smitten with SmartPill's promise years before, weren't willing to commit more money for a potential payday that now was years away. As SmartPill began to run out of money, it put itself up for sale, selling out to Given Imaging for a paltry $6 million.

In hindsight, Semler said SmartPill made several mistakes that caused it to burn through its cash faster. Moving its manufacturing to Buffalo, while a point of pride, added to the company's overhead.

“It was a nice thing to do, but it was expensive,” Semler said. “If we could have applied that money to clinical studies, we would have been a lot further along.”

SmartPill also bulked up its staff too quickly based on sales forecasts that turned out to be too optimistic. And a series of spats with investors drove up legal costs.

“I had a ball,” Semler said “You learn. You grow.”

email: drobinson@buffnews.com