Kansas Incubator Spins Out Two New Device Firms

Olathe, Kansas-based Novita Therapeutics LLC has spun out two new medical device companies.

Novita, founded by local entrepreneur Nick Franano in November 2009 as an incubator, has raised $9.4 million to begin developing several new products. Franano later created Flow Forward Medical LLC and Metactive Medical LLC as subsidiaries of Novita, and both have reached the point where they can stand alone, he said.

“When I look at the potential of these two companies, when you look at the potential revenue for the products, it’s pretty easy within a decade to get to $750 million in revenue and 350 employees in a $1 billion dollar business,” Franano told the Kansas City Business Journal. “So it’s really a wonderful opportunity for both companies.”

Flow Forward is developing a product called the AFE System, which dilates a kidney failure patient’s veins to make it easier to connect them to hemodialysis equipment. Metactive is developing two products—a Ballstent Microcatheter and a Blockstent Microcatheter—for use in treating cardiovascular disease and brain aneurysms. The two companies each are seeking a series A-1 follow-on financing round of between $1 million and $3 million.

The products, product rights, intellectual property and assets associated with each company will remain with them. They’ll be managed by NT Management, which Franano formed to employ Novita employees. The management company will hold a management contract with Flow Forward and Metactive as independent companies.

Franano will act as CEO of both companies for now, and both will be headquartered at the Kansas Bioscience Park Venture Accelerator in Olathe.

Franano said Novita had a unique investment structure that allowed investors to initially support Novita, accumulate a dividend over time and ultimately convert that dividend into investment in Novita’s spinout companies. Fifty-two percent of Novita’s investors’ equity was converted into Metactive, and 48 percent went into Flow Forward, the newspaper reported.

“It was a bit of an unusual structure,” Franano explained to the Journal. “So we had to do a lot of explaining about why we set it up that way and how it balanced the different interests. And most people, when they really understood it, were fine with it and made the investment.”

But now that Novita has served its purpose, Franano said he will disband the organization. Its structure has already been developed, so it would be easy to resurrect if it ever made sense, he said. For now, he’s focusing on Metactive and Flow Forward.

“We’re really doing this extra round of financing to get ready for clinical testing and to set us up for what I would call a ‘company defining’ financing,” Franano said. “Part of the thing we’re discussing now for the next stage is does it make more sense for us to find a strategic partner or to raise venture capital?”

Both options come with benefits he said, and that’s something they’re still working out. He said that big round of financing would set the companies on a clear path for the future. Metactive, for example, would need $8 million to $10 million to complete human clinical trials in one product and launch commercial sales in another.

“The most exciting part of all of this really has been how well the products that we invented, essentially, have worked in our preclinical studies,” Franano said. “If 10 years from now all of those products are on the market, I’d feel really good about that. I’d like to keep inventing.”