OPTICAL COHERENCE TOMOGRAPHY/BIOIMAGING: One decade and $500M: The impact of federal funding on OCT - Part 2

EDITOR'S NOTE: This article is the follow-up article to "One decade and $500M: The impact of federal funding on OCT—Part 1," which appears in the September/October 2011 issue of BioOptics World.

Over the past decade, governments around the world have invested hundreds of millions of dollars in research and development involving optical coherence tomography (OCT). Part Two of this two-part article explores the return on that investment in terms of product and economic growth in the for-profit sector.

By Eric A. Swanson

As discussed in Part 1 of this article, determining the impact of research dollars for academic institutions is difficult. Thankfully, it is a little easier to estimate impact on government funding that traces its way from academic institutions to for-profit business, or funding that is given directly to for-profit business. To do this, we can look at the impact commercial products (if any) have had—or may yet have—on the marketplace. 

Government grants fuel for-profit growth
Government-sponsored academic research is seeding important for-profit entities including LightLab Imaging (in collaboration with Massachusetts Institute of Technology), Bioptigen and Oncoscope (separate companies both in association with Duke University), NinePoint Medical (with Massachusetts General Hospital), Diagnostic Photonics (with University of Illinois Urbana-Champaign), and Imalux (with the Institute of Applied Physics at the Russian Academy of Sciences). These and other for-profit OCT companies—along with estimates of their revenue (small 0–$10M, medium $10M–$100M, and large $100M+), equity financing, and connections to sources of government funding—are listed in Table 10. Note there are smaller OCT system companies and many, many more subsystem and component companies supplying the OCT market that are not listed.

TABLE 10: A sampling of OCT system and subsystem companies.

Company Field Status Estimated yearly OCT revenue OCT equity finance Connection to government OCT funding
Avinger

Cardiology

Startup

0 ~$25M Unknown

Axsun Technologies

OCT systems

Acquired by Volcano

Medium 0

Axsun's OCT effort is believed to be mainly internal funding from revenue and VC money from other markets. Axsun was acquired by Volcano Corp. for $21M.

Bioptigen

Ophthalmology

Startup

Small

~$4M

Co-founded by J. Izatt at Duke University. Raised direct government funds of ~$4M.

Carl Zeiss Medtech

Ophthalmology

Established company

Large

N/A

Acquired Advanced Ophthalmic Devices (AOD; founded by J. Fujimoto at MIT, C. Pulifiato at NEEI, and E. Swanson at Tufts Medical) in 1994. AOD received no direct government funding, nor did Zeiss for many years.

Canon/Optopol Technology

Ophthalmology

Established company

Medium

Unknown

Optopol had connections to leading researchers at Nicolaus Copernicus University, which received ~$4M of government funding over 10 years. Canon Medical Systems acquired Optopol for $94M in 2010.

D4D Technologies

Dentistry

Established company

0  Unknown  Unknown

Diagnostic Photonics Incorporated

Oncology

Startup 0

~$1.7M

Co-founded by S. Boppart and S. Carney at University of Illinois at Urbana-Champaign.

Hagg-Streit

Ophthalmology

Established company

Small

N/A

Unknown

Heidelberg Engineering

Ophthalmology

Established company

Medium

N/A

Unknown

Heliotis AG

Microscopy

Established company

Small

Unknown

Spin-off of CSEM, a government-sponsored research institution in Switzerland.

Imalux

Oncology, guiding biopsy and surgery

Startup Small ~$7M

Co-founded by F. Feldchtein , A. Sergeev, V. Gelikonov, and G. Gelikonov from the Russian Academy of Sciences. Imalux received about $2.5M of direct government funding from NIH and other funding from the Edison Biotechnology Fund.

Lantis Laser

Dentistry Startup 0

~$2.5M

Licensed IP from MIT, Lawrence Livermore Lab, and others. OCT work supported by government funding.

Lightlab Imaging/St. Jude Medical

Cardiology

Established company

Medium

~$10M

Founded by J. Fujimoto, M. Brezinski, and E. Swanson at MIT. Received a NIST ATP grant in 1998 for $2.6M, but not much other government funding for many years. Acquired by St. Jude Medical for ~$90 M in 2010 just after receiving FDA clearance of its FD-OCT product.

LL Tech

Digital pathology

Startup

Small

~$0.6M

Co-founded by C. Boccara Laboratory at CNRS in France, which receives government funding. Has received ~$3.2M in direct and indirect government funding.

Michelson Diagnostics

Dermatology

Startup Small

~$7.5M

Supported by ~$800K from U.K. government over several years. Licensed OCT patents from University of Toronto.

MicroTomography Inc.

Ophthalmology

Established company

Small Unknown Unknown

Newton Photonics

Glucose sensing

Startup 0

Unknown

Received SBIR grant for $480K.

Nexus Imaging Systems

Endoscopy Startup 0 Unknown Unknown
Nidek

Ophthalmology

Established company

Medium

N/A

Unknown

NinePoint Medical

Endoscopy

Startup 0

~$33M

Licensed numerous patents and other IP; receives assistance from the MGH research group of B. Bouma, G. Tearney, and others.

NovaCam Technologies

Microscopy

Startup

Small Unknown

Works closely with Canadian National Research Center.

OCT Medical Imaging Inc.

Oncology Startup 0 Unknown

Co-founded by Z. Chen from UC Irvine. Has received direct government funding ~$1M.

Oncoscope Oncology Startup 0

~$3.5M

Founded by A. Wax of Duke University.

OptiMedica Ophthalmology Startup Medium

N/A

Unknown
OptiPhase

OCT systems

Established company

Small 0

Won a $1.1M NIST TIP award in 2008 and a few other SBIRs, though most not related to OCT.

Optovue

Ophthalmology

Established company

Medium

~$14M

Progress driven purely by equity  funding, but Optovue participates in government-sponsored clinical trials of its product. Generated ~$50M in revenue in 2010.

OPKO/OTI

Ophthalmology

Established company

Medium Unknown

OPKO acquired OTI for $10M in 2007.

Physical Sciences Incorporated

R&D contractor

Established company

N/A

Unknown

Has received ~$7.5M in government OCT funding.

P&P Optica

High-performance spectrometers

Startup Small

<$500k

No direct government funding for OCT research, but the company supports several university projects via in-kind and cash matching contributions.

Santec

OCT systems

Established company

Medium Unknown Unknown

Shenzhen Moptium Imaging Co.

OCT systems

Startup Small Unknown Unknown

Solianis Monitoring AG

Glucose sensing

Startup Small

Unknown

Unknown

Terumo Cardiovascular Systems

Cardiology

Established company

Not yet FDA-cleared

N/A

Licensed numerous patents and other IP; receives assistance from the MGH research group of B. Bouma, G. Tearney, and others.

Thorlabs

OCT systems

Established company

Medium

N/A

Collaborates with numerous universities, but most OCT effort is believed to be internally funded.

Tomey

Ophthalmology

Established company

Small Unknown Unknown

Tomophase Corporation

Pulmonology

Startup Small

~$5M

Unknown

Topcon Medical Systems

Ophthalmology

Established company

Medium

N/A

Unknown

Tornado Medical Systems

Oncology Startup 0

~$7M

Won substantial Canadian Provincial Government Grant.

Volcano Corporation

Cardiology Startup

Not yet FDA-cleared

N/A

Acquired Cardiospectra for $63M for its start in OCT. Cardiospectra was founded by M. Feldman and T. Miller from the University of Texas at Austin.

 TOTAL

   

~$300M+

~$125M+

 

As shown, the amount of venture investment is well in excess of $125M and the current yearly worldwide OCT capital equipment and disposable market is on the order of $300M and numerous analyst firms expect the arena to grow soon to $1B/year as many of the companies obtain FDA and CE approvals and begin to sell their OCT products (including companies such as Terumo and Volcano, which appear to be getting close to FDA approvals for their cardiovascular products). The R&D investment would be substantially higher than $125M of venture capital if R&D investment dollar data for all the companies were shown and higher still if companies that manufacture OCT components or sub-systems rather than instruments as well as internal R&D dollars were considered.

So far there has been almost $200M in exits for OCT startup companies, including the $90M LightLab acquisition by St. Jude Medical, $21M Axsun acquisition, and $63M Cardiospectra acquisition—both by Volcano Corp., $94M Optopol acquisition by Canon Medical Systems, $10M Ophthalmic Technologies Inc. (OTI) acquisition by OPKO Health. OCT instrument and subsystem revenue integrated since the first product became commercial in the mid-1990s is more than $1B. If only funding from other government programs could pay similar current and ongoing dividends!

While grants invested in for-profit companies can be applied to fundamental research just as in academic institutions, funding from the U.S. Small Business Innovative Research (SBIR) and similar grants are mandated to advance businesses, create jobs, and move products into the marketplace. There are a few examples of repeated government investment in for-profit companies that are not leading to positive for-profit results, and conversely there are for-profit OCT companies that have not taken any direct government money and are doing extremely well. In fact, most of today’s largest OCT companies (e.g., Carl Zeiss Meditec, Optovue, LightLab, and Volcano) have received little if any government funding.  Optovue, an impressive ophthalmic OCT system company founded in December 2003, is an exemplary success story. Optovue raised ~$14M in equity financing, and was the first to commercialize a spectral domain system. It has grown market share rapidly and recorded ~$50M in revenue in 2010. The company was equity financed and received no direct or indirect government funding for financing or growth. Optovue has announced plans to enter the optometry markets with an innovative “pay per use” model and has ambitions to bring OCT capital expenditures to a point where it can thrive through the developing world.  According to CEO Jay Wei, "it is clear that academia continues to need government funding, but what would best benefit companies like Optovue are tax incentives."

Bioptigen is an example of a successful startup spawned from academic research dollars of co-founder Joseph Izatt at Duke University and Case Western Reserve University (~$10M funding OCT-related research) that grew with the aid of for-profit government funding (~$4M). According to Bioptigen CEO Eric Buckland, "Grant funds have been invaluable to Bioptigen and allowed us to explore underserved and niche applications, including preclinical research and pediatric ophthalmology that may not have found funding otherwise, but are nevertheless important markets. The rules for winning the grants are clear and the open competitive nature of the process allows good ideas to get through. They are particularly valuable as seed financing, particularly in a financial environment where risk capital (e.g., corporate and venture capital) moves up stream to more developed technologies and larger addressable markets. Furthermore, SBIRs are accessible to geographic areas with much less well developed pools of risk capital. The major problem with building a company with SBIRs is it is a very slow process." Due to the U.S. government budget battles, SBIRs have been on life support for the past year and without reauthorization, they could expire or be substantially altered in the future.

A global phenomenon
In the U.K., startup Michelson Diagnostics has received substantial assistance from the regional and central government (~$800K) and has introduced an impressive OCT product for dermatology and other markets. Michelson also licensed some patents from the University of Toronto. The U.K. government "Enterprise Investment Scheme" program promotes early stage investment by providing tax relief to angel investors. Along with other similar programs, this has created an environment in the UK favorable to 'angel' investment in seed-and very early-stage investments. According to CEO Jon Holmes, "The Enterprise Investment Scheme has been critical to Michelson in enabling us to raise finance in early years." It seems many programs in the U.K. and E.U. are required by law to have grants to companies be matched, or more than matched, by privately sourced funding.  Although there are U.S. government grant programs that have matching requirements (e.g., NIST ATP/TIP), some people have suggested that more matching of private capital on for-profit government grants could help the U.S. to avoid repeatedly funding companies that either do not transition to real products and profitability, or are not commercially oriented.

Dr. Felix Feldchtein, an OCT pioneer at the Institute of Applied Physics at the Russian Academy of Sciences and co-founder of Imalux (along with A. Sergeev, V. Gelikonov, and G. Gelikonov), stated that "early support by the Russian Foundation of Fundamental Research was instrumental for early technology development of OCT in Russia prior to founding Imalux." Feldchtein, a long time resident of the U.S. and serial entrepreneur, thinks that many SBIR and equivalent programs are not sufficiently business oriented. "Programs are often judged mainly by academically minded panels focusing on academic merit," he said. "As a result, scientifically innovative proposals with very questionable commercial potential are winning over innovative technologies which are ready for the market but have already lost academic attractiveness." This statement seems to have merit: It is easy to find examples of for-profit companies (inside and outside the OCT market) that have repeatedly won government SBIR or other money and have never produced a successful product.

Optiphase, a private company in the OCT space (and other spaces) primarily doing OEM business, did not take equity financing in its early years (1990s), but won several SBIR grants and a NIST TIP grant exceeding $1M that collectively functioned as venture capital funding without dilution. Optiphase business has been up in 2011 and over the past three years, and the company still reviews government solicitations, but is cautious to pursue only ideas that are aligned with fundamental corporate needs. CEO and founder Jeff Bush cautions, "Grants and similar R&D government sponsored funding vehicles are generally hazardous to your bottom line. However, for startups with little or no external funding, they are the essential ingredients to future livelihood, which I fully condone and encourage." Many successful businessmen would agree with the idea of carefully weighing whether to chase government funding because doing so can put companies a risk of running like a government instead of as the nimble, efficient, creative, and profit-driven entities they need to be to survive in today’s globally competitive markets.

LLTech, a startup with offices in France and the U.S., develops a full-field OCT microscopy system with sub-micron resolution in 3-D, and recently introduced its Light-CT product for digital pathology and other markets. The company has raised ~$1M in equity and about $3.2M in direct and indirect grants from the French government. Founder and CEO Bertrand Le Conte de Poly stated, "It is hard to access private capital in France for early-stage startups without a proof-of-concept completed. Access to grants for LLTech directly or access for grants from third parties that use LLTech equipment have been greatly beneficial for moving our vision of digital pathology forward. For the future it would be beneficial to reduce the amount of paper work and the long process."

In addition to successful OCT system companies founded directly by university researchers who were funded by government grants, there are success stories of established companies that acquired OCT technology. Among these is Volcano Corp., which acquired intravascular OCT technology from Cardiospectra for $63M in 2007. Cardiospectra was founded out of government sponsored OCT research at the University of Texas at Austin.

The European Canon Medical Systems acquired Optopol, private company founded in Poland in 1992, for $94M in 2009. Most of Optopol’s income came from the resale of brand-name ophthalmology and dermatology equipment as well as in-house production of perimeters and topographers for ophthalmology.  Optopol wanted to move from services to "high-tech production" of an industry-leading product, and had access to a world-leading OCT research group at Nicolaus Copernicus University (NCU)—publisher of leading research papers in OCT and ophthalmology. Over the past decade NCU has received ~$4.2M (~$11M Zloty) of public sponsored research (Polish government, European Science Foundation, and EC). NCU worked to transfer critical technology "know-how" across a wide range of engineering and manufacturing fronts into Optopol, which resulted not only in a $94M acquisition by Canon, but created important high-tech jobs in Poland. According to Maciej Wojtkowski, a leading NCU researcher, "For our group at NCU it was more about having an industrial partner, which in the long term could give job opportunities for MSc and Ph.D. students and Ph.D.s from our group—it was one of the conditions of our collaboration was creation by Optopol an R&D office at NCU." Many people would agree that this seems an excellent decision on the part of Dr. Wojtkowski, one that created a winning situation that hopefully will continue to pay dividends for Poland and future NCU alumni.

Future offerings and funding
Other system, subsystem, and component companies (including but not limited to those listed in Table 10) may be on their way to bringing important products to market or already have commercial products. One example is Praevium Inc., which just demonstrated an impressive high-performance OCT swept source based on optically pumped VCSEL technology that will soon be commercialized, was supported in part by NIH and other U.S. government agencies for-profit oriented funding. Currently there is a dearth of choices for commercially available high-performance, low-cost, compact frequency swept light sources.

Another example of government dollars transitioning to commercial dollars includes Goodrich/Sensors Unlimited, which is turning defense dollars into high-speed NIR camera systems that appear imminently useful for spectral domain OCT imaging.

There has been, and continues to be, tremendous scientific and commercial progress in OCT technology and its application. Government funding has not only helped spur that progress, it appears that it was instrumental and that the payback to society has been exceptional in terms of advancing clinical care to millions of people, creating new businesses, and jobs.

Within the U.S. and elsewhere, however, it is unlikely that that the government funding base will continue to grow by 25% per year as it did in 2010: The competition is already fierce and it will become more difficult for institutions and PIs to keep the funding levels they now have. Research that is not "high-impact" will probably get weeded out. Funding pressure will be especially difficult on weaker, for-profit companies unable to show profit. Comments from a sampling of successful CEOs in the OCT space indicate that continued funding is important, but there are ways to improve the funding process.

It would be interesting to compare the funding and impact on other fields outside OCT or medical diagnostic equipment. For example, a field such as nanotechnology, which is often viewed as over-hyped, is frequently featured in the mainstream media and thus is in the consciousness of the public. By contrast, OCT is not well known—either to the public or at the highest levels of funding agencies. However, OCT has made major fundamental scientific and clinical advances and appears to continue to pay back handsomely in terms of for-profit company and jobs creation, and is growing mostly due to its widespread utility rather than hype.

The future still looks bright as OCT begins to have major impacts beyond ophthalmology and is integrated with other diagnostic imaging modalities and therapeutic procedures. Despite the increased pressure on government funding, the use of OCT will likely continue to grow as it is increasingly used in clinical studies in many medical and surgical specialties. A strong argument could be made to funding agencies that OCT is not a place to cut because of strong potential for growth, impact, and return-on-investment.


A pioneer in optical coherence tomography (OCT) and a serial entrepreneur, Eric A. Swanson is co-founder of such companies as Advanced Ophthalmic Devices and LightLab Imaging. Among his activities in technology research and development, he serves on various boards for companies, including NinePoint Medical. He is also editor of the non-profit news outlet, OCT News (www.octnews.org). Contact him at eric@hivefire.com.

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