The Perils of Venture Capital Funding for Clinical Research


When I was a stroke fellow, UCSD was the coordinating center for a multicenter trial of a promising device called NeuroThera, made by a local company called PhotoThera. NeuroThera was kind of like an ultrasound machine, except that instead of insonating tissue with ultrasonic waves, it illuminated tissue with near-infrared light. There is pre-clinical evidence that cytochrome C oxidase (the last complex in the electron transport chain) responds to stimulation with near-infrared light by increasing ATP production. The theory was that driving ATP production in the ischemic penumbra may salvage some brain tissue and improve outcomes after stroke. A phase II study called NEST-1 was positive, and we were coordinating and participating in what was hoped to be a definitive, phase 3 study, NEST-2.

So, my co-fellows and I ran around San Diego shaving the heads of stroke patients who consented to study participation and illuminating their brains with the NeuroThera device, as pictured above. If I remember correctly, it was 2 minutes per site times 20 sites–something like that. The study was negative, but there were some encouraging signals in patients with mild-moderate stroke severity and superficially-located infarcts. NEST-3 was designed to focus on these patients.

Turns out that NEST-3 was stopped early by its data safety and monitoring board for futility, and what happened next is tragically fascinating. The study was funded through venture capital, and the investors pulled out of the venture upon learning of the futility analysis. This left no money to properly close out the study and publish the negative results. For example, all of the company’s employees were abruptly terminated, and so everyone who hung on to ensure that the study was wrapped up in a responsible manner worked for free. Wow.

The study manuscript was published online in Stroke yesterday, and there’s an accompanying editorial that goes into more detail about the way this played out. The editorialists make the sensible suggestion that money be escrowed during such studies to ensure that they can be closed out properly should investment be abruptly withdrawn.

About Justin A. Sattin

I'm a vascular neurologist and residency program director. I created this blog in order to share some thoughts with my resident and other colleagues, and to foster my own learning as well.
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3 Responses to The Perils of Venture Capital Funding for Clinical Research

  1. Shiv Shukla says:

    Photothera raised and blew through $147.21 MILLION so with all due respect, the company had more than a fair opportunity to prove its therapy. Funding should have been pulled a long time before that much capital was spent. It saddens me to know that such a ridiculous sum of money was squandered by a group of experts in a company which had all the benefits of an “experienced team.” Patents were filed on treatments for bone fracture, preservation of organs, improving cardiac microcirculation, treatment for depression, and enhancement of neurological function, but on what grounds? Is no one accountable for a loss of nearly $150M? That is a huge cost to society! Easily 15 novel medtech startups could have been funded with that capital so there is absolutely no reason to feel sorry for Photothera. Rather, I think there should be an investigation into the utilization of those funds and a justification for such a colossal failure. Multiple NeuroThera devices are now up for sale on ebay for less than $1,500 and one can easily see the off-the-shelf components (power supply, etc.) that were pieced together so engineering costs could not have possibly been more than 10% of the funding. The executive team and directors should not just be able to wash their hands of the failure and move on continuing to be active influencers to the community, they don’t deserve that opportunity. So once again, what is important is exactly what happened to funding and who is responsible?

    • Justin A. Sattin says:

      $150 million is indeed a lot of money, and if there is suspicion of misallocation of funds, then that should be investigated by the proper authorities and those responsible held to account.

      On the other hand, if the money was properly spent and the studies were simply negative, then I don’t share your umbrage; that’s just how the cookie crumbles. Some studies are positive but many are negative, just as some businesses succeed and many fail. Investors take risks in the hope that they’ll see a profit, but with the understanding that they might have to take a loss.

      Furthermore, even if it turns out that there was malfeasance in this study or company, it is still inappropriate to yank the funding while human subjects were still participating. The amount of money required to properly close out the study would have been trivial as compared to the $150 million supposedly spent already. Regardless, the stroke patients who generously allowed their hair to be shaven and to be subjected to the phototherapy and the follow-up study visits deserve more than to have their participation go to waste just because the funders got fed up with the study / company’s alleged financial mismanagement.

  2. Shiv Shukla says:

    Let’s take a step back and look at the basics:
    When there’s a stroke, brain cells die (due to lethal chain reaction of TRPM7 channel-Cell. 2003 Dec 26) because they can only survive for a few minutes without oxygen. TRPM7, when activated causes brain cells to produce large quantities of free radicals – toxic molecules that break down the cell’s DNA, proteins, and other components(1). Photothera’s claim? “Mitochondria treated with IR light generate a proton gradient, leading to synthesis of ATP…Rescues neurons in vitro and in animal models.” [RED FLAG]

    Fine, let’s agree that the neurons are rescued in in-vitro and small animal models. Did anybody take into consideration that humans have thicker skulls and larger brains? Even worse, Photothera wasn’t using neruonavigation. That means the location of the stroke was estimated.[RED FLAG] You mentioned “it is still inappropriate to yank the funding while human subjects were still participating.” We should also consider how inappropriate it is to design an inaccurate study (not using neuronavigation) with misleading claims. Neuronavigation technology existed in 2000 but there’s no mention of it by Photothera. Where was the focus of the company? Why are there so many patents focused on money-making “single-use” and “disposable wearables” when, as stated by Photothera, “Mechanism of action is not fully determined?”[RED FLAG]

    In the 660 patient NEST-II study, approximately 119 patients, out of 331 active achieved favorable outcomes vs 101 from sham which achieved favorable outcomes. So the difference? 18/330 actually received positive benefits from the therapy, that’s only 5% more patients then sham![RED FLAG] So what does Photothera do? Raise another $50 million to do the same study on 1000 patients at 48 sites around the world.[RED FLAG] At the 5% rate of therapeutic benefit, that means and estimated 1/20 patients at each site would receive positive benefits from the therapy. That seems super responsible. Not to mention that clear data existed that post-stroke neurons deprived of oxygen and nutrients would last approximately 3 hours IF the activity of TRPM7 is interfered with. According to the Nest-III protocol: “The initiation of the TLT procedure must be feasible for each subject between 4.5 and 24 hours of stroke onset.”[RED FLAG] Interesting choice.

    Moving forward, what was the need for a 57 center study in 4 countries when, as the company claimed, “We had insufficient human experience with TLT to be able to correctly power the study.”[RED FLAG] A properly designed trial uses a “power calculation” to determine how many patients are required in the treatment and control groups to adequately test the hypothesis. The logical decision would have been to get the data to figure out the number of patients to include in the study for statistically significant results. So were the actions of the company based on sound judgement? I think not. There are so many obvious red flags but no one seems to have paid attention. How is that possible? “The studies were simply negative…” because they were flawed to begin with so the money was definitely not properly spent. This is why it’s not possible to be okay with how the cookie has crumbled. So to your point, I agree that the patients definitely “…deserve[d] more than to have their participation go to waste …”


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