Just What Doctor Orders : A Medical Entrepreneur Keeps His Balance on the Leading Edge

Marvin Loeb’s new technologies sound like they are straight out of science-fiction thrillers.

One company founded by Loeb is developing a chemical carrier to transmit drugs to the brain. Another owns the patent on a surgically implanted sugar sensor that monitors insulin production in diabetics. Still another is developing a way to treat cancer by removing from the blood an amino acid necessary for cancer cell survival.

Since 1962, Loeb has created 27 companies, of which 11 have gone public, eight were sold or merged with other firms, four have remained private and four have failed.

One of Loeb’s biggest successes is Trimedyne, a Santa Ana manufacturer of laser catheters.

Last year, Trimedyne became the first firm to receive Food and Drug Administration approval to market a laser catheter to treat arteriosclerosis in the leg by burning away fatty deposits inside arteries. Sales took off after FDA approval was received, and the company’s fortunes could soar even higher if Trimedyne’s laser catheter receives approval as a treatment for coronary diseases.

But Trimedyne’s success was followed by a board room squabble. One of the company’s major shareholders, once a close ally of Loeb, has threatened a proxy fight to remove Loeb as chairman and replace him with someone with more management experience.

Adversity isn’t new to Loeb. Besides his recent fight to retain control of Trimedyne, the 61-year-old biochemist-turned-entrepreneur launched his own proxy battle to regain the reins at Contracap, a Wilmette, Ill., contraceptive maker that he founded.

In an interview with Times staff writer John Charles Tighe, Loeb, who moved to Orange County from Illinois four years ago, discussed his never-ending pursuit of new technologies, new managers and new investors.

Q. How do you describe the kind of technological breakthroughs you’re interested in developing?

A. They’re leading-edge technologies. Sometimes you get so far out on the edge, you fall off.

Q. Are they sometimes too far out?

A. Oh, not really. When I first proposed using a laser to get the plaque out of coronary arteries from the inside, many cardiologists said that would never be done. And now at Trimedyne, we’re part way through human clinical trials, and we’re doing it successfully. Some cardiologists who are more forward-thinking say, let’s try it. Because if it works and it eliminates coronary bypass surgery, it would be tremendously important both in terms of saving thousands of lives and in saving several billion dollars in health-care costs.

Q. Some people say the technologies your companies develop come from university research laboratories. And they say that many nights you stay up until 3 a.m. or 4 a.m. reading obscure medical journals.

A. That’s true. I depend upon three sources for technology. Two are individual physicians or business people in the medical field who come to me with proposals they think are viable. But the major source is university laboratories and researchers.

Very frequently, when a scientist at a university comes up with an idea that is advanced and that he believes has real potential, he’s reluctant to go to the National Institutes of Health because the approval process for a grant takes at least a year and frequently longer. In the meantime, his idea has been broadcast, and other researchers might start to work on the idea, maybe in a slightly different manner.

Q. So affiliating with you becomes an option?

A. Right. On those occasions, the university contacts me because I’m fairly well known among the staffs of maybe one-third of the medical schools of the United States that are responsible for licensing technology. One of the companies that I formed some years ago manages the licensing of patents for about 40 medical schools.

This doesn’t just mean that the university calls and says, we have this terrific idea, and I immediately form a company, raise money, hire people and start to develop it. There’s a period of maybe six months to a year of study in which I have to become familiar with the technology, at least sufficiently familiar to determine whether other people are developing something of a similar nature because I don’t want to be in the pack.

Q. You’ve never been accused of running with the pack.

A. That’s right. I’ve never had any interest in opening the second or third gas station at the busiest intersection.

Q. So if the development of the technology is at an advanced stage, you’ll probably turn it down?

A. It depends. I really like concepts at a very early stage. But on occasion, I’ve developed technology from people who come to me with a fairly advanced product, and they’re looking for more development money.

Q. What makes you know if a technology can be turned into a business?

A. A very sensitive stomach. I get a gut reaction to the technology. I have a group of about 30 physicians in various specialties who I depend upon to review technologies. And frequently--and happily--I go against them when I have a strong opinion that I’m seeing something others don’t see. It’s sort of like listening to a different drummer.

What people don’t understand is the immense number of projects that I turn down.

Q. Can you give us numbers?

A. Some weeks it would be five or six, and some weeks 50. Many of the projects I turn down are simply not important enough medically or commercially for me to devote the time and the effort to them. I’m currently trying to stay active in not more than five or six projects.

Q. Doesn’t that stretch you thin?

A. In the medical field because of the time it takes to do these things, there are great stretches of time when nothing is going on. You’ve developed the product. You’ve tested it in the laboratory and on animals, and you’ve manufactured a sufficient supply for the human clinical trials. Then you sit on your hands for two years, waiting for the trials to be completed. So it’s not at all difficult to manage eight or 10 of these, or to supervise, I should say, instead of manage, because I’m not active in the day-to-day management of any of the companies.

Q. Forming a company around a technology you want to develop means that it’s not just science anymore. It has to be managed, which can become a corporate mess.

A. Frequently. There are a few parables that exist in this business. One of which is the importance of management. Good management can not make a bad technology commercially successful. Bad management can ruin an excellent technology.

Q. Which means you have to be concerned with finding not only technologies, but also managers?

A. That’s right. The kind of managers we look for are strong, independent, decisive people who resent someone looking over their shoulders. So I’m constantly in the middle, trying to find strong people who will work cooperatively, take suggestions and work for the joint good. Occasionally, I’m lucky enough to get a manager who is emotionally mature enough to not be embarrassed to ask for help. Too frequently egos cause problems.

Q. Where do you get these people?

A. I like them to have administrative and marketing experience with bottom-line responsibilities. Hopefully they’ll have run a small business or a division of a larger company successfully. I’m not after middle-line officers of major companies. They usually have very limited overview, and they haven’t had bottom-line responsibility.

Q. When you’re deciding whether to develop a technology, how much of the time are you wondering if you’ll be able to raise the money?

A. When I look at a technology, I begin to estimate what it’s going to take in terms of time and money to develop it and what other avenues might be explored by competitors. And what the patent position is, because if you don’t have a strong patent position to protect yourself commercially, your market will be invaded by larger companies.

And, once you make the decision to go ahead, and you raise the first half-million or million dollars, you’re committed. You now have to protect the investors’ interests. And it’s very difficult to close it up and to write a letter to the investors and say we suffered a loss.

Q. Where have you found investors, especially 25 years ago, who were willing to risk money in undeveloped medical technologies?

A. When I started forming ventures and raising capital in 1962, there were very few venture capital firms. Those few that existed did not finance start-ups. Life insurance companies and mutual funds didn’t make those investments either. As a consequence, I had to go to private investors.

So I developed well-to-do private investors who were interested first in a return on their investment, and secondly, on doing something helpful in the medical field.

Q. And then you started taking the companies public?

A. Because my investors are private individuals who like to see a market for the stock, I satisfy that desire by taking the companies public for them. Taking a company public is not only a lot of work, but it’s a real pain on a day-to-day basis conforming to all of the (Securities and Exchange Commission) regulations and doing all of the filings that are necessary. It’s not fun, and it’s not novel for me.

Q. Going public is not your first choice, then?

A. It is sometimes my first choice because the public market is designed to provide capital. And for the second and third rounds of a venture, it frequently is a better source of capital than institutional investors. But I don’t form a company with the view of taking it public any more than I form a company with the view of selling it.

Q. Each successful company or offering gives you that much more clout for your next project?

A. That does help. Success of course breeds success.

Q. Trimedyne’s success is helping your other ventures then?

A. That’s right. One of my firms that was sold to a major public company at 54 times the original investor’s cost caused a flush of capital (for other start-ups) to be available.

It keeps growing. Last year, companies in which I’m the principal stockholder raised approximately $23 million in new capital. The previous year, it was probably about $12 million or $15 million. And this year, if the market stays on a reasonably even keel, I would hope to raise something significantly larger.

Q. Who is your favorite investor?

A. Without doubt, Charles Allen of Allen & Co., an investment banking firm in New York.

Q. What makes him so great?

A. The Allen family has something approaching $2 billion. Charles has been an investor in almost everything I’ve done since I met him in 1968. He’s extremely perceptive. In a two-minute or five-minute presentation, he not only understands the technology and what I’m trying to accomplish, but he is very supportive of those efforts. He’s 84, and he can tell you what every one of the companies is doing and what their current progress is. He’s truly the most unusual person I’ve ever met.

Q. But he doesn’t want to take a role in the firms?

A. Oh, no.

Q. That’s another reason you like him?

A. Well, he’s had very good experience with me, and he relies on me to watch out for not only him, but for all the investors.

Q. You prefer an investor who doesn’t want to come in and sit on the board?

A. Not necessarily. I have several investors who we’re happy to have on the board. At one of my companies, we have a venture capital firm that has been extremely helpful. I was chairman of that company, and the representative of the venture capital firm was vice chairman. A few months ago, we reversed those roles, and now he’s chairman and I’m vice chairman.

Q. In one of your companies, Contracap, you own about 22% of the controlling stock, but you have little control over operations. How can that happen?

A. I formed the company, but I never maintained a majority of the board. In 1985, after the prior management failed in two clinical trials, I had to conduct a proxy fight so that management could be replaced. It ended up in a settlement in which I was accorded three seats on the board, and a venture capital firm three seats on the board and the seventh seat was to be filled by a new president.

The new president simply sided with the other three directors, and they had a majority of the board. The company is more than 8 years old and has spent more than $4.3 million developing a custom-fitted cervical cap, a long-wearing contraceptive device. Contracap has not conducted a clinical trial successfully anywhere, has not had a product approved by the FDA and it will be out of money in a year to a year and a half. It has become a do-nothing situation. I decided to conduct yet another proxy to obtain a board so that the management of the company can be taken in hand.

Q. Irving Harris and his associates are large investors in several of your companies, including Trimedyne. You once had a good relationship. Now the Harris group is seeking to remove you at Trimedyne, and the relationship has gone bad because you didn’t give in.

A. It’s difficult for me to understand their motives, when a company is doing as well as Trimedyne. From December, when the former president (Michael Henson) tendered his resignation, to February, no choice had been made for a replacement or even for a search firm to find an executive. I felt that we could not tolerate that vacuum, which was causing great concern and unrest among employees. And so I had to take strong steps to find a replacement and get the company back on track.

Q. Why didn’t you step down?

A. I believe I am right for the job. While I don’t believe in being involved in the company’s daily operations, I have the ability to find good managers to do that job.

Q. The Harris group supported you for years. How did you feel when they opposed you?

A. I was hurt. All of us look for appreciation. On occasion, I’ve had to go against the desire of large stockholders when I thought I was right. I am there to do what I believe is right for the company. But it still hurts the ego. I’ve heard that if you want affection, buy a dog.

Q. Some of your critics say you don’t know when to remove yourself and let go of a company.

A. Of the 27 ventures that I’ve formed over the last 25 years, 11 went public, and six of those were merged with or sold to larger public companies. And of the 12 companies that remained private, eight were merged or sold to larger companies.

Only four of the 27 ventures have failed. Of those, we lost 100% of the investment in three, and one-third of the investment in one. That one is an example of the ability to determine that the technology is not going to succeed and to cut it off quickly before the loss gets larger.

Q. You cut it off by shutting it down?

A. We shut it down, with great anguish on the part of management who had to find other jobs and give back their leased Cadillacs. Typically, if left to management, the investors rarely learn that it’s not going well until the money’s all gone. Of the 23 companies that survived, 14 were sold.

Q. When you form a company, is selling ever part of the plan?

A. Let me explain. When I form a company, I don’t form it with the view of selling it. I form it with the view of developing the technology and making a business. Sometimes, the best interest of the shareholders is served by selling it, and sometimes not. The decision to sell a company is usually based on business considerations. For example, in a young company that’s growing well, ultimately it penetrates a good portion of its available market.

There are approximately 8,000 hospitals in the United States. At some point, maybe when you’ve sold (products to) half of them, sales start to become harder to achieve. Instead of growing 30% or 40% a year, you start to look at growth of 10% or 15% a year. Usually that tells you the time to sell a company may be close, unless you have a technology in the development stage that you think again will cause you to begin growing.

Q. How do you know when to give up on a developing technology?

A. When the researchers convince me that the product can’t be effective and safe.

Q. But Contracap’s device has failed in several clinical trials.

A. We see that it has failed in two large clinical trials and in a small trial at Emory (University), and I get mixed reports on studies in China. But testing this in China has no credibility at all with the medical community. There are large differences in environment, diet, genetics and the incidence of diseases. I’m still told it can be an effective and safe product, and I’m still a believer.