Date: Jul 12, 2016 Author: Lisa Eckelbecker Source: telegram.com (
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WORCESTER - When Grove Instruments Inc. shut its doors and filed for bankruptcy in April, the medical device developer had just $200 in the bank and a mountain of debt.
Advisers, a state agency, investors and others were due more than $6 million from Grove - a tiny, privately held company that had no products on the market after more than 20 years of effort to develop a device to measure blood sugar without needles.
Grove had struggled financially before, insiders said. At one point, one of its founders took no salary for two years.
But in the months before it folded, challenges mounted. It paid out $1.5 million in precious funds when a loan came due. Longtime employees were laid off.
Now a Chapter 7 bankruptcy trustee is looking to sell the business as a whole or in parts.
The demise of Grove impacts more than its workers and business partners. One of the company's largest debts is owed to the Massachusetts Life Sciences Center, a state agency that loaned $750,000 in public money to Grove, but failed to properly secure the deal with collateral. That mistake means the lender could lose its place at the front of the line for any funds that result from Grove's liquidation.
Insiders who believed Grove was close to making its technology work have been left saddened.
"We faced a lot of hardship, but nobody lost faith in the project," said Stevan Kun, formerly Grove's principal scientist.
Grove was working on a vexing problem. People with diabetes - a disease that leaves the body unable to produce enough insulin to process glucose, or sugar - typically test their blood several times a day. The classic method involves pricking a fingertip, placing a drop of blood on a plastic test strip coated with enzyme, and inserting the strip into a meter for a reading.
New technologies have reduced the amount of blood needed for glucose testing, allowed patients to take blood from body parts other than fingertips, and launched devices with tiny catheters that continuously monitor glucose levels.
But Grove was among organizations aiming for a noninvasive approach, which would involve shining light -- sometimes infrared -- into the skin, measuring what happens, and using the data to calculate glucose levels.
No one has managed to launch such a device yet in the United States.
"It would be great if you could put a Star Trek tricorder on your arm to tell you what your blood glucose level is, but that's still - and I'm going to upset the (approximately) 70 blood glucose companies still doing this - not possible," said Christopher R. Lambert, associate professor of chemistry and biochemistry at Worcester Polytechnic Institute.
The U.S. market for test strips and meters is forecast to reach $4.16 billion by 2016, however, so the market for a new testing device is potentially large.
Grove Instruments got its start in 1989, built on the technology of Hannu Harjunmaa, a Finnish researcher, and Robert A. Peura, a former WPI professor.
Formerly known as Vivascan Corp., the business tapped individuals, foundations and government grants to finance operations. It won about $7.8 million in National Institutes of Health grants.
The George F. and Sybil H. Fuller Foundation of Worcester invested $1.1 million in Grove, one of five investments it made in local companies to stimulate job growth, said Mark W. Fuller, chairman of the foundation and a former Grove director.
The foundation knew some of its investments were unlikely to succeed, Mr. Fuller said.
"Certainly wish it wasn't this one, because it had so much promise," he said.
Grove's core technology was an "optical bridge" designed to sense sugar in blood vessels in the earlobe. The technology was deployed in a device was small enough to fit in one hand.
Mr. Harjunmaa, who was laid off in February, called the technology his life's work. When money was tight, he worked two years without pay, he said.
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"I refused to stop working, and I continued to work in my basement," he said.
The work was costly. Filings in a lawsuit showed Grove lost about $3.9 million in 2013, after losing about $5 million in 2012.
The company and its investors sometimes clashed. In 2010, the company sued Caisson Capital Partners of St. Louis, alleging the investment firm had contracted to create a syndicate of investors to put up to $10 million into Grove, but instead began soliciting venture capitalists to buy Grove stock. Caisson denied the allegations. The lawsuit was dismissed in 2011.
Another battle involved Connecticut investor Edmund A. Schwesinger Jr. Between 2000 and 2008, Mr. Schwesinger advanced a total of $555,630 to Grove. Grove issued three notes in 2010 to Mr. Schwesinger, agreeing to interest rates of 8 percent, 10 percent and 20 percent on different portions of the loan. Grove also agreed to pay off the loans by the end of 2014.
A few months later, filings show, Grove sued Mr. Schwesinger, saying he was already demanding payment. Mr. Schwesinger argued that Grove never sent him the notes.
The case was ultimately dismissed. Grove paid Mr. Schwesinger nearly $1.5 million in December 2014.
Mr. Schwesinger said he grew concerned about Grove's progress toward the development of a device.
"We kept hearing good stuff about it and how successful they were," he said. "I didn't see the evidence, and to this date I don't know how close they were to a home run before they closed the doors."
In its final months, Chief Executive Officer Arthur Combs, who had raised $20 million to $25 million for the business over his seven-year tenure, left the company.
Mr. Combs said the company's next steps "were viewed in one way by the board and another way by senior management."
Richard F. Burtt, Grove chairman and a life sciences business adviser, took over as acting chief executive. Job cuts followed.
Mr. Burtt declined to answer questions and referred inquiries to lawyer David M. Nickless. Mr. Nickless deferred comment to Janice G. Marsh, a Worcester lawyer who was appointed trustee of the estate.
Ms. Marsh said she is in the process of trying to sell Grove's assets, which include office equipment and intellectual property.
"I can't tell you what's going to happen," she said.
One of the largest creditors, the Massachusetts Life Sciences Center, should have been in a strong position to recover some money if any Grove assets were sold. The center, which oversees state grants and loans to the life sciences industry, filed a form with the Secretary of State's office to secure collateral, but it failed to attach a description of the property to its filing.
Ms. Marsh said it's her position that the center's collateral is available for her to sell.
The center is looking into the filing, said Angus G. McQuilken, vice president of communications and marketing for the center. The employee who made it is no longer with the center, he said.
"We're not sure if that, in the end, will make much of a difference, because it is not clear if there will be any substantial assets" from Grove, Mr. McQuilken said. "But we are part of the bankruptcy process and will be pursuing whatever recovery we can get for our funds through that process."
