Rebirth of a startup

When medical device maker Boston Scientific Corp. shuttered its TriVascular unit in Santa Rosa in 2006, it could have meant the end of a promising new technology.

The biotech startup was developing a next-generation system for repairing abdominal aortic aneurysms, weak spots in arteries that can rupture, causing internal bleeding and death.

Just 14 months after acquiring TriVascular for $65 million, Boston Scientific ended the Santa Rosa project, putting 270 employees out of work.

At the time, Boston Scientific was desperate to trim its costs. The Natick, Mass., company had just spent $27 billion to buy coronary device maker Guidant Corp., following a costly bidding war with medical giant Johnson & Johnson.

TriVascular's technology would take too long and cost too much to bring to market, Boston Scientific said in federal regulatory filings.

For almost two years, TriVascular's equipment sat locked inside its 110,000-square-foot headquarters near Charles M. Schulz-Sonoma County Airport.

Last week, TriVascular was back in business, after venture funds pumped $65 million into the dormant biotech company. As part of the deal, investors will pay Boston Scientific $30 million for the technology.

Boston Scientific also gets the right to a minority stake in the new business, called TriVascular2.

The company's rebirth didn't come about easily, said Michael Chobotov, who co-founded the biotech startup in Santa Rosa in 1998.

"There were periods of time when it had all the signs of not happening," said Chobotov, 47. "But it just made too much sense for all the parties involved."

TriVascular's founders and early investors believed strongly in the technology, Chobotov said.

"There was a lot of motivation for us to keep pressing ahead with it," he said. "It didn't do Boston Scientific any good sitting on the shelf."

Chobotov, an aerospace engineer who helped design NASA's Lunar Prospector, became interested in biotechnology 15 years ago after becoming a private engineering consultant and moving to the Bay Area.

He and a few colleagues began looking for ways to prevent ruptures of aortic aneurysms, the sixth-leading cause of death in adults older than 65.

"It was a challenging engineering problem," Chobotov said.

Rising player in biotech

It was also a lucrative market, which would grow to $500 million by 2006.

The team designed a stent graft, a tiny metal-and-fabric device inserted in an artery that works like a pipeline, relieving pressure from diseased artery walls.

A stent graft for aortic aneurysms was first approved in 1999, but TriVascular's streamlined version improved on the design, making it easier to insert, according to its founders.

Private investors backed the early-stage company, which did its first human implant in 2002. TriVascular also was working on a stent graft for thoracic aneurysms.

The startup soon attracted attention from larger players in the biotech sector. Boston Scientific paid $45 million for an option to purchase TriVascular in 2002.

TriVascular grew to 270 employees after Boston Scientific acquired it in 2005 and stepped up clinical trials aimed at getting its stent graft system on the market.

TriVascular moved into a new facility on Brickway Boulevard, where its corporate parent took a five-year lease.

Workers were shocked when Boston Scientific shut it down in June 2006.

But Chobotov and his partners weren't ready to throw in the towel.

"We began planning a spin-out or buyback," he said.

Under the spin-out plan, TriVascular would become an independent company again but Boston Scientific would maintain an equity stake in the business.

Working from their homes, they contacted TriVascular's original investors and started developing a new business strategy.

It was clear the project would need another source of funds, Chobotov said.

That's when backers approached MPM Capital and New Enterprise Associates, technology venture funds with $11 billion in investments.

MPM, which specializes in biotech, saw TriVascular's potential, said Jim Scopa, MPM's general partner. The startup's stent graft is small enough to fit patients who can't use existing designs, he said.

"We felt it would give us a low-profile, workhorse product that could be used in some patient populations not addressed by the approved products," Scopa said.

Negotiating a buyback

Clinical trials showed the technology's promise, he said. MPM also was impressed by TriVascular's founders, he said.

"Mike and his team are very highly regarded in the industry," Scopa said.

Once the investment group was assembled, TriVascular's founders approached Boston Scientific about buying the technology back.

It took time to get the company's attention, Chobotov said. Boston Scientific, an $8.3 billion company with 28,600 employees, was selling other units and cutting staff worldwide in the wake of its Guidant acquisition.

"There were divestitures of a much larger scale than ours," Chobotov said. "It wasn't the only thing on Boston Scientific's plate."

Key to the negotiations was a valuation of TriVascular's technology, Chobotov said. In all, Boston Scientific had sunk about $130 million into the Santa Rosa unit, but venture firms weren't going to pay that much.

"All sides had to be able to leave that on the table," Chobotov said. "The deal had to stand on its own."

Road to FDA approval

A tentative deal was reached last summer, but it took months to settle the details, he said.

"It took us substantially longer to close the transaction than to assemble the syndicate and reach an agreement," Chobotov said.

Officials at Boston Scientific declined to discuss the negotiations, but a company announcement last week said the TriVascular sale reflected its "commitment to divesting nonstrategic assets."

As part of the deal, investors will provide $35 million for TriVascular2 to finish developing its technology and reserve another $30 million to bring it to the Food and Drug Administration for market approval.

The first round of funding is enough to support TriVascular2 for two or three years, Chobotov said. The company expects to have 80 employees by the end of 2008 and begin new clinical trials next year, he said.

During the hiatus, the company's founders continued working on the technology, coming up with improvements for the next-generation device, Chobotov said.

"We're very excited to be back in business," he said.

You can reach Staff Writer Steve Hart at 521-5205 or steve.hart@pressdemocrat.com.