Runway Healthcare, a Chester County medtech accelerator, is launching its second venture fund and third company.
“We raised under $10 million for the first [venture fund]. This is going to be a much larger fund," said Jeffrey F. O'Donnell Sr., Runway's managing general partner. "We are looking to raise around $30 million. We'll be able to invest in more companies, probably an additional five, in the region."
Runway Healthcare invests in and operates early stage medical device companies. Like its first two companies that focus on developing devices used in bone repair procedures, Waypoint Orthopedics and Toetal Solutions, Runway's latest startup — called Pace Medical — will also be in the orthopedic space and will focus on products for use in foot and ankle fixation.
Runway has five general partners and a 20-person management team across its portfolio companies.
Among its general partners are O'Donnell's son Jeff O'Donnell Jr. and Bill Rhoda. All three have extensive backgrounds in the medical device and orthopedics fields.
O'Donnell Sr. was president and CEO of Kelsey Nash Corp. and Cardiovascular Dynamics in the 1990s. He was then president and CEO of PhotoMedex, a laser treatment device company, for 10 years up until 2009. He subsequently founded and ran Wayne-based Embrella Cardiovascular, a medical device startup company that was sold in 2011 for $43 million to Edwards Life Sciences (NYSE: EW). O'Donnell Sr. then founded and served as CEO of Trice Medical, a medical device company that develops in-office arthroscopy tools, up until retiring from the company in 2019.
His son is CEO at Runway Healthcare, where he oversees the management of its portfolio companies. Earlier in his career, O’Donnell Jr. held a variety of roles at Medtronic, MedImmune, and Synthes. He has also helped operate multiple emerging growth startups in the sports medicine, spine, orthopedic, cardiology, and digital health arenas. Additionally, O'Donnell Jr. is general partner of Mast Labs, which operates a surgical training lab at the Philadelphia Navy Yard.
Rhoda, Runway Healthcare's chief innovation officer, started his career with Synthes as a product development engineer. He later became a founding member of Audobon-based Globus Medical, serving as the vice president of product development. At Runway, he oversees intellectual property, product development, and executive management of its portfolio companies.
William J. Odenthal and Kevin Cody, who both have backgrounds in finance, are also general partners at Runway.
O'Donnell Sr. said he got the idea for Runway Healthcare after retiring from Trice. Runway, he said, was created to address a major flaw in the traditional venture capital system for medtech companies.
Such companies, he said, typically raise a large amount of money to commercialize a single product. The money is then invested in a "complete infrastructure" that includes management and support staff, buildings, labs and more.
"At the end of the year, you look at the finances and you see 20% of the money raised went to product development and 80% went to [selling, general and administrative expenses]," O'Donnell Sr. said. "That seems just crazy."
O'Donnell Sr. thought by merging a venture fund and a management team together, the combined entity could yield a business model where the CEO doesn't have to spend most of their time raising capital. Additionally, he said, efficiencies could be achieved by establishing criteria and standards for investments, protecting intellectual property and navigating the regulatory approval process — all under the direction of a single management team.
"Our idea is to take early stage ideas from doctors and engineer in the region and create those products," O'Donnell Sr. said. "Runway seeds and leads every deal. If we need additional capital, we rely on our existing limited partners to put sidecar investments in the companies. That enabled us to have a relatively small fund to start."
Runway Healthcare's model is to develop a company from its inception and advance products through the regulatory approval process, then exit the investment — typically within two to three years — before product commercialization so it doesn't get involved in assembling sales teams and marketing.
"There's a lot of medtech in the Philadelphia area," Rhoda said. "The environment, with all the universities, is pretty rich with ideas."
O'Donnell Jr. said Runway's role was best described by a person who works in orthopedics business development.
"He said, 'You guys develop commercially ready opportunities for the medical device industry,'" O'Donnell Jr said. "We wrote that down immediately. It was better than anything we could come up with it."
O'Donnell Jr. said Runway's small size enables it to be nimble.
"We have meetings with industry heads, and they have admitted they can't move fast at all," he said. "And the bigger they get, the longer it takes them to get something from the idea phase to approval and then to launch."
Last week, Wayne-based spinal instrumentation company Waypoint Orthopedics — which was co-founded by Runway and orthopedic spine surgeon Dr. Stephen Banco — received Food and Drug Administration marketing clearance for its flagship product: the Waypoint GPS, a smart bone awl for use during pedicle screw pilot hole drilling in vertebral fixation procedures.
"We firmly believe this product will become an everyday instrument for spine surgeons," O'Donnell Jr. said.
Toetal Solutions, founded in 2021 and also based in Malvern, is developing devices for foot and ankle deformities. Its flagship product is the Ziptoe Hammertoe System designed to enable foot and ankle surgeons to address rigid hammertoe deformities with a proprietary deployable nitinol alloy implant.
