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Defense Firm Pivots to Biotech

Department of Defense research firm Magzor Corp. has diversified into the medical device sector – only to discover it’s a minefield of funding options, regulatory obstacles and marketing challenges. To combat these issues, Magzor has launched an Indiegogo campaign, started working toward clinical trials for Food and Drug Administration (FDA) approval and begun researching a target market. But is that enough? The Westlake Village company, which develops robotics products under grants from the Pentagon, believes its AdaFlow product can help a lot of people. It’s an elastic band of fabric and wires that wraps around an arm or leg and helps blood circulation through a one-directional wave motion. The battery-powered device, about the size of a muscle brace, can be worn comfortably under clothes. The technology enables the AdaFlow’s wave motions to synchronize with the patient’s heartbeat, making it more efficient than competing treatments such as air bladders and circulation socks. And it will have a price point around $150, said Thara Randhawa, Magzor’s senior systems engineer and head of the team that discovered AdaFlow. Other circulation devices can cost anywhere from $20 to several hundred dollars, depending on capabilities. “We are trying to see if there is an immediate commercial market for it, so we can get the funds we need to get to FDA approval and start doing clinical trials,” he said. Funding research and clinical trials from its own cash and profits is unlikely for Magzor. The company’s primary revenue sources are grants through the Defense Advanced Research Projects Agency, which can’t be used for commercializing AdaFlow. So Magzor has turned to unconventional financial strategies. Crowdfunding science Magzor engineers stumbled across the idea of AdaFlow while doing unrelated robotics work. The company can’t recommend it as a treatment for a specific condition or disease without FDA approval, but the AdaFlow team believes it can greatly benefit patients post-surgery who have circulation issues, the elderly and obese populations and those with blood clots. To gain exposure and money for the development of AdaFlow, the company launched a campaign on crowdfunding site Indiegogo to raise $65,000 in 40 days, starting May 16. The company planned to prove consumer interest through the campaign while raising capital to get the product ready for clinical trials, the first step in the FDA approval process. But by June 6, more than halfway through Magzor’s targeted time period, the campaign had only raised 2 percent of its goal. If Magzor doesn’t raise the full amount after 40 days, it has to return the money to investors. “The campaign has kind of stalled at this point, and we are trying to figure out why,” Randhawa said. “Part of it might be because people don’t see Indiegogo as a platform for funding technology, so people might not be seeing our product in that way.” Indiegogo is often times associated with campaigns for films, music and more art-related projects as opposed to health products. In addition, the platform is typically used by younger, more tech-savvy generations, he said, which may be the wrong type of investor to support a medical device geared toward the aging populace. Vincent Bradley, chief executive of crowdfunding consultancy FlashFunders Inc. in Santa Monica, said a crowdfunding campaign requires careful preparation and timing. Every day of the campaign needs to be planned so that publicity about the product or service gets sent out from staff, or from influencers and bloggers commenting on the product. Those should accompany consistent social media messages and calls to action that advertise the funding campaign to maintain a buzz. “There is a direct correlation between social media comments and capital raised,” Bradley said. “The more conversations you can start around your product, the more likely you are to succeed. … If you are (solely) dependent on the platform, you will fail 100 percent of the time.” Magzor anticipated using the $65,000 to scale down the device, improve the fabrics, make it Bluetooth capable and incorporate a rechargeable lithium polymer battery pack — like those in cellphones. The company also hoped the campaign would attract bigger investors who could fund AdaFlow’s FDA approval process and its potential commercialization. Randhawa sees AdaFlow likely used as a medical device in hospitals, surgical centers and doctors’ offices. But first, Magzor plans to sell a retail version in drugstores to people with poor circulation, such as sedentary office workers and joggers after their workouts. It then hopes to manufacture and market both models to a wider customer base. Magzor realizes by continuing with AdaFlow, it’s entering a new industry, that of medical devices. The company is considering seeking guidance from consultants or law firms. Mike Doonan, partner at executive search firm Schweichler Price Mullarkey & Barry in San Francisco, said that when bringing a product to market, there is no time for trial and error. The more mistakes that are made, the more a company has to back-peddle, giving competitors time to enter the market. “If you bring in an executive who understands the reality of the market and knows where landmines are so you aren’t making those first time mistakes, that will take out a lot of the risk and save you time, so you will be more successful in that space,” he explained. TV strategy Magzor plans to get FDA approval sometime in the next two years, and estimates the clinical trials and approval process to cost anywhere from $200,000 to $2 million, according to Randhawa. He believes that timeline will be possible because parts of the FDA-approval process can be expedited as similar products are already on the market. Brent Reinke, corporate partner at Musick Peeler & Garrett’s Westlake Village office and founder of life-sciences incubator Gold Coast Bio Center, agrees because AdaFlow presents less risk to patients. “This medical device will take far less time to go through clinicals (clinical trials) than a medical device implanted in your body or something that places the recipient of the device at risk if it doesn’t perform properly,” Reinke said. As another alternate strategy to raise money, Magzor auditioned on May 27 for “America’s Greatest Makers,” a reality TV show on Turner Broadcasting System Inc., or TBS, where 24 teams of inventors compete for $1 million by developing a groundbreaking technology product. “We think we are progressing to the next stage in the audition process,” Randhawa said. “We will find out if we are going to be on the show in September, and we are really excited about that.” In the meantime, the company still has to run its main business, such as operating the Magzor Design Platform, a website that allows users with no engineering experience to design and manufacture robotic mechanisms. Magzor realizes AdaFlow’s biggest challenge, in addition to funding, is to find a target end user for AdaFlow, something the company is currently working on identifying. “With Indiegogo, we tried to do a catch-all. Maybe we should have focused on one group like office workers or people who want a good post-workout recovery,” Randhawa said.

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