From the Trenches - TVL Case Study: SpectraPhase

by: Ramiro Palma - Principal, Texas Venture Labs

During the spring of 2011, I was fortunate enough to work with two really great companies as a Principal in Texas Venture Labs.  One of them was a medical devices company by the name of SpectraPhase that was working to commercialize an intravenous catheter to continuously monitor the blood glucose levels of patients in the ICU. 

A growing body of research suggested that tightly monitoring and controlling glucose levels for patients in the ICU would improve outcomes and lower treatment costs.  Given that ICUs are typically a loss-center for hospitals, the ability to lower treatment costs and readmissions rates appeared to be addressing a significant pain point.

In addition, the team had worked together at a previous medical devices startup and had received some non-dilutive funding in the form of research grants to develop the product.

Examining the original market

Unfortunately, as anyone who has worked in an FDA regulated environment can attest, bringing a product to market can take a lot of time.  SpectraPhase had a runway of six months and without a product there was no way to raise money and extend the runway.

In addition, the market was littered with competitors, both active and defunct.  More than $300MM had been poured into this area over the last decade without a single company making it past Phase II clinical trials.

Given SpectraPhase’s short runway, the crowded market and the burden of educating physicians, SpectraPhase engaged the TVL team to identify new markets for the product.

Considering new markets

There were essentially two tracks to our approach.  First, we wanted to identify and size markets for sensing other physiological parameters in the ICU or hospital setting, the main targets being arterial blood gas, pH and anesthetic concentrations in the surgical ward.  Second, we wanted to identify markets where a continuous glucose sensor would be valuable.  The main markets here were in environmental water quality monitoring, bioprocess monitoring (e.g., industrial fermentation batches producing biologic drugs), alcohol fermentation (e.g., craft breweries) and wastewater treatment.

Based on interviews with anesthesiologists and surgeons performed by the SpectraPhase team, it seemed that surgical monitoring of arterial blood gas was potentially attractive.  Interviews conducted by the TVL team with brewers, environmental engineers, wastewater engineers and former process engineers at Merck led us to conclude that bioprocess monitoring and wastewater monitoring were both very attractive candidates for SpectraPhase to attack.

Final recommendations

After completing this research, it was obvious that the current R&D efforts should continue as planned. Nearly every candidate market wanted to measure glucose or another sugar molecules.   Further, because wastewater monitoring had the lowest regulatory burden of any target market as well as the lowest technical requirements for the product, it was recommended that this market should be pursued as a beachhead.

Unfortunately, SpectraPhase ran out of runway before they were able to complete a prototype and raise an additional round, but should the development ever resume, there will be a clear go-to-market strategy as well as an obvious growth strategy based on entering the newly identified markets.

Ramiro Palma is a fourth-year PhD student in Chemical Engineering at The University of Texas at Austin.  He has worked in the medical devices space with roles in venture capital, a medical devices startup, and a Fortune 100 company. Ramiro is entering his fourth semester as a Principal of Texas Venture Labs in the spring.