Waypoint Medical: A Case Study

We met Gerry Makoid and his partner Dick Woolfield in 2010. By that time, they had already become the largest DME (Distributor of Medical Equipment) of lymphedema compression devices in the eastern U.S. – through their sister company, ReMarx Medical. Lymphedema compression is a highly effective way to non invasively treat patients with chronically poor circulation – often resulting from the patient being obese, diabetic, very old or a combination of the three. Based on his extensive field experience as a distributor of these products, Gerry realized that existing devices were insufficient on many levels; they were bulky, expensive and probably most importantly, malfunctioned frequently. The opportunity to build a more efficient, lower cost and more reliable device for this critical treatment was ripe. To pursue this new opportunity, Gerry formed a new company, Waypoint Medical, capitalized it with personal funds from his ReMarx company and set out to design, build and achieve FDA approval for his new line of better devices. It was critical that Waypoint be separate from ReMarx because it was necessary for Waypoint to be able to sell to and service all DME’s. Although Gerry and Dick would be the owners of both ReMarx and Waypoint, the idea was to keep Remarx focused on its distribution leadership and have Waypoint stay focused on making and servicing the devices for all DME customers, of which ReMarx would be just one. Once the line was FDA approved and ready for production, Waypoint needed to secure working capital since the reimbursement time line of his customer’s patients was very long and therefore would result in long payment cycles for Waypoint. Investing additional equity was an option, but an expensive and unnecessary one in Waypoint’s view. Rather, Waypoint sought a financing partner capable of funding all of its rapidly growing working capital needs.

We recently sat down with Gerry to talk more about Waypoint Medical and its partnership with Fundamental Financial.

What was unique about the situation and opportunity for Waypoint Medical?

Like nearly all areas of health delivery, reimbursement rates in lymphedema compression were increasingly under pressure. The industry needed new devices that were both more efficient and cost-effective. We knew that we were well positioned to not only lead the design efforts for a new line of devices, but also to deliver the necessary distribution through our ReMarx company.

Did you face any special financing or capitalization challenges?

There were many. Dick and I did not want to raise third-party equity. In part, because we did not want to deal with all of the strings that come along with taking money from a venture-capital partner, and in part because we didn’t think third-party equity was necessary. We had invested $500,000 ourselves already. This amount allowed us to complete product development and FDA approval. It was also enough to produce the first batch of our low price-point device, the CiruFlow 5208.

We also had a complicated production/licensing/exclusivity relationship with our device design and manufacturing partner. It was very functional from a commercial point of view, but also resulted in an intricate relationship – one that our bank simply could not wrap their arms around. And if this weren’t complicated enough, we knew that we would be selling a fair portion of the new devices to our sister company, ReMarx. This was another nuance that made perfect sense from a commercial point of view, but gave our bank serious pause.

Why Fundamental?

Our bank, whom we had been doing business with for over 15 years at ReMarx, wouldn’t lend to Waypoint and wouldn’t allow us to borrow at ReMarx to fund Waypoint. In the end, our story was a complicated one and Fundamental took the time to figure it out. They offered us a structure that adequately met all of Waypoint’s working-capital needs. In addition, Fundamental didn’t require us to sign up for any long-term commitment. The new product line was a very high-margin one and we knew that we would quickly be able to fund a large portion of Waypoint’s working capital needs with internally generated profits and shortly thereafter be in a position to access bank capital if we wanted.

The flexibility Fundamental offered was precisely what we needed. We trusted them and they delivered on everything they promised. Dick and I still own all of the Waypoint today (in addition to ReMarx) -- and that would not have been possible without a financing partner like Fundamental.