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 Medical device and diagnostics developer Sleep Solutions Inc. said Wednesday, March 5, it has closed a $20.5 million fourth round of venture funding led by TPG Biotechnology II fund to advance products to identify and treat sleep apnea and other disorders.The deal includes previous investors MedVenture Associates of Emeryville, Calif., Lava Ventures of Honolulu and Emergent Medical Ventures of Portola Valley, Calif., and brings total investment in the 16-year-old Pasadena, Md.-based company to $54.5 million. The new investment is designed to boost sales and marketing of products and services to treat nighttime breathing disorders in a home setting to avoid more costly clinical treatment. Sleep Solutions CEO Mike Thomas said the new funding round marks a transition for the company that will allow it to continue developing new approaches to treating sleep disorders, while expanding marketing of products and services directly to physicians. "We have spent the last several years working with insurance companies to have our services approved, and now we are going to establish direct contact with physicians," Thomas said. "We are building a direct sales force to drive adoption and awareness at the physician level and directly to the consumer." Sleep Solutions markets the only device (pictured) approved by the U.S. Food and Drug Administration for unattended home use to diagnose sleep apnea. The company is going directly after the market for sleep care centers, which typically charge patients from $1,000 to $2,500 per night, with a home telemedical service that costs 30% to 50% less, Thomas said. Sleep Solutions produces a device that it ships directly to patients and physicians to monitor sleep patterns for three consecutive nights. The devices record data, which is then analyzed by the company to create a treatment regimen. In addition to charging for the diagnostics, Sleep Solutions' business model includes resale of continuous airway pressure devices produced by multiple manufacturers to open breathing passages. The company recently won Medicare reimbursement approval for its diagnostic device and is working with insurers to expand reimbursement for an additional telemedical device that monitors patient use of treatment devices to report back to physicians and insurance companies on patient compliance. Thomas said that reimbursement for sleep disorder treatment is driven in part by improving patient's quality of life to cut down on the incidence of stroke and heart disease, as well as other side effects such as erectile dysfunction and depression. Thomas said more than 40 million Americans have sleep disorders, but that only about 10% receive treatment. Insurance companies typically reimburse for diagnostics at the approximately 3,000 sleep centers around the country, but that home diagnostics could enlarge the market, which Thomas pegged at about $3 billion a year. Keith Grossman, managing director with San Francisco-based TPG Biotech, called sleep disorders one of the most serious and under-diagnosed medical problems, and said that sleep treatment centers are both costly and limited in capacity to serve large numbers of patients. He said Sleep Solutions' approach combined with existing strong support from private insurers and now Medicare, positions the company for an aggressive nationwide launch. Thomas did not disclose a valuation for the round, but he said the deal was oversubscribed and that it won a significant increase over the company's previous investment. Sleep Solutions did not use an outside adviser in putting the round together, and had legal work on the deal from Elton Satusky of Wilson Sonsini Goodrich & Rosati PC in Palo Alto, Calif. Alan Mendelson of Latham & Watkins LLP in Menlo Park, Calif., represented the investors. - Clifford Carlsen
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