Investors resurrect Pathway Medical

Pathway Medical Technologies, a medical-device developer that ran out of money and shut down in November, has been brought back to life with a $10.1 million investment and a reinvented business model.

When it hit the wall, the Redmond company had spent six years working on a tiny stainless-steel drill that slithers into coronary arteries to break up and vacuum out fatty buildups. It had sunk $23 million, tested 140 patients in clinical trials and seen some benefits.

But the evidence was not enough to persuade investors to bet on another, larger clinical trial, particularly after a competitor failed in August. The company's last 20 employees were let go three months later.

Chief Executive Tom Clement opted for a different tack: busting up blockages in the peripheral arteries of the legs instead of the heart. The clinical trials would be smaller, cheaper and quicker in that part of the body, he knew.

Clement pitched the idea to investors and ultimately won over Accelerated Technologies, a medical-device investment vehicle guided by seven world-class cardiologists, including Dr. Martin Leon of Columbia University and Dr. Donald Baim of Brigham & Women's Hospital in Boston.

His timing was fortunate.

Fox Hollow Technologies of Redwood City, Calif., a rival that makes a federally approved device to scrape out blockages in peripheral arteries, went public at $14 a share in October. It has shown investors it can sell thousands of units at $2,000 apiece to hospitals, and its stock has soared, closing yesterday at $29.29 a share.

With his new cash in hand, Clement said he will hire back 20 of the 21 key people on Pathway's engineering team. The money also will finance a 50- to 100-patient clinical trial this year.

If all goes well, Clement said, the financing could float the company for the year it will take to win Food and Drug Administration approval. "Man, I'm telling you, after the last few months, this feels great," Clement said.

The financing comes in two parts: $9.1 million from Accelerated Technologies and $1 million from Pathway's earlier investors. The latter include David Auth, the former chief executive of Heart Technology who mentored Clement and other biomedical engineers there before selling the Redmond company to Boston Scientific in 1995.

The founding idea at Pathway three years later was to go beyond the Heart Technology's signature invention, the Rotablator.

Instead of breaking up plaque in the arteries with a diamond-tipped drill, Pathway wanted a sharp stainless-steel drill that could be used in more-sensitive, surgically repaired tissues. The drill was designed to be attached to a vacuum, which can suck up the debris that can sometimes dislodge and clog other parts of the cardiovascular system.

Cardiologists use angioplasty and stents to prop open blocked arteries in the legs, as they do in the heart. But stents sometimes fracture under pressure in the legs, and arteries in the legs propped open by angioplasty can tighten back up. Lasers have been tried but are typically too costly.

Fox Hollow, in its regulatory filings with the Securities and Exchange Commission, has said 2.5 million Americans have been diagnosed with peripheral-artery disease. An estimated 750,000 have severe-enough circulation problems in their legs that they have pain while walking. About 150,000 per year undergo amputations in the U.S.

The procedures are not risk-free. Fox Hollow's filings report that of 172 patients in coronary clinical trials, there were 37 serious side effects, including 10 artery perforations, and eight patient deaths.

In theory, Pathway could face some of the same risks. One advantage is that it sucks out potentially dangerous particles of fat and blood clots. Clement said there is also less risk of serious side effects when clearing out leg arteries.

Dr. William Gray, director of Endovascular Care at Swedish Heart Institute in Seattle, said he's optimistic Pathway's technique could cut through tougher blockages, and be less time-consuming than Fox Hollow's. Gray has consulted for Pathway in the past and may in the future.

"I've been telling Tom for five years this is a great device for the peripherals," Gray said.

Luke Timmerman: 206-515-5644 or ltimmerman@seattletimes.com