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A recent jury decision cleared Vascular Solutions of charges of improper off-label marketing. Former Acclarent CEO Bill Facteau discusses his indictment in a similar case, the coming court case, and the support he has received.
Tom Salemi: Hi, everybody, thanks for joining Medtech Talk. It’s great to have you here on the show. Medtech Talk of course is affiliated with The Medtech Conference. That’ll be happening on June 1st in Minneapolis. Tickets are selling, but we’d love you to be there. So go to medtechconference.com for information about the conference and to find out how to register. Again, June first in Minneapolis at the Lowe’s Minneapolis Hotel. When you’re on the website, check out our breakout sessions. We’ve done them before; we’re doing them again. A lot of great topics from Fox Rothschild and McDermott Will and Emery, PwC and SVB. But one of the breakouts we’re going to highlight today is going to be put on by DuVal and Associates, Mark DuVal, who actually is featured in a piece this week, a video report put out by Reason.com on the charges brought against Howard Root and Vascular Solutions regarding off label promotion. So check out the website; check out his breakout session. But find the Reason story. We’ll tweet it out on our Twitter account @medtechtalk. And listen to today’s podcast. We haven’t spoken with Howard Root, but early this year, I did get to speak with Bill Facteau, now CEO of Earlens, formerly of Acclarent, of course a great member of the Medtech Conference community. Bill is facing a similar challenge this month in Boston. He is going to be on trial regarding some off label charges pertaining to Acclarent. He was indicted last year, and has really endured quite a year. But he stepped up at the interview at JP Morgan early this year and really shared his take on the whole situation. So go to medtechconference.com, check out the breakout session, and please enjoy this conversation with Bill Facteau of Earlens.
TS: You’ve authored one of the better stories in medtech with the acquisition of Acclarent, God, it’s gotta be what, nine years ago?
Bill Facteau: Well, 2010.
TS: Oh, did it close 2010?
TS: All right, I had 2008 in my mind. But it was a while ago. Seems like yesterday. And it was a great return for investors, and it helped a lot of people, and J&J did well with the acquisition. But it’s a story that’s not quite over yet.
TS: I was wondering if you could bring everyone up to speed on an unfortunate chapter that’s being written right now.
BF: Yeah, yeah, now definitely the book continues. Hopefully we’re getting to the later chapters or the ending. But as you know, and many – unfortunately, I was indicted in April of last year. So I guess I’ll state the obvious. Number one is if you can avoid getting indicted, that’d be a good thing.
TS: Write that down.
BF: It’s not a fun thing to go through. But unfortunately, I can’t talk to the merits of the case.
BF: Although I’d like to. But discretion is probably the better part of valor here. I’m actually looking forward to kind of getting through the process and getting to a day where I can get my day in court, which will be in May.
TS: Oh, that is coming.
BF: So I’m looking forward to it, but it is going to be, I think, a big thing for our industry, so it’s one that we’re going to want to pay attention to. But I do think I’ve got a lot of conviction for the facts in the case, and they are friendly. But we’re going to have to go through the process, which is unfortunate.
TS: And what was it centered around, the indictment?
BF: The center of the indictment was really around a regulatory belief by a US Attorney in Boston that we created fraud on the FDA by pursuing a 510K that she didn’t believe had a viable application. So again, we see it differently, but we’re going to have to wait until it plays itself out.
TS: What has the reaction been? We talked about it a year ago when it first came down –
TS: – and it was before our Medtech Conference, and you came and you had every right to say no, I’m not going to participate in a panel. But you came. You were pretty courageous and up front about it, so I’ll give you credit for that.
BF: Yeah, thank you.
TS: But as things go on, I mean you’re interacting with people privately, you’re having meetings here, you’re meeting with investors and colleagues. What sort of response have you received from folks?
BF: Yeah. It has been under – I mean it’s overwhelmingly positive. I mean it quite frankly is not what I would have expected. So I’ve been really fortunate. You find out a lot about, I think, who your friends are, you go through one of these types of issues. And I think that certainly rings true. So my board, investors, friends, you know, have been amazingly supportive. So to me, that is what keeps you going. You can go two ways on this: you can find the biggest rock and try to hide behind it, or you look people in the eye and say, you know, we feel good about what we created. And people that know you and trust you, they’ve been incredibly supportive. So I’ve been pleased.
TS: And I imagine there’s people who think there but for the grace of God go I. I mean it could – this is an industry that’s undergoing more and more scrutiny.
TS: Do you feel that there’s some concern that this may be the beginning of something for the sector?
BF: I think there’s no doubt that there is. I’m hopeful that we can make it the end if we’re successful here because we do live in a world of uncertainty, a highly regulated industry and we don’t always have the benefit of hindsight as to how these decisions are made, especially in areas that may not be really clear. So I’m hopeful that this could help our industry over the long term, but there’s no doubt that it’s going to have significant implications on what we do. So kind of stay posted. I’m not the only one. You probably know of Howard Root’s case that’s actually going to go before mine. So I think these are going to be very, very interesting cases in the medical device world.
TS: Hi, Tom here. I hope you’re enjoying this conversation with Bill Facteau. While you’re on the Medtech Conference page, sign up for Medtech Talk, the Newsletter. We send it out once a week. It’s got exclusive reporting by our medtech staff, including yours truly, as well as podcasts and videos and other information regarding the medtech community. So sign up for Medtech Talk, and now back to this conversation with Bill Facteau.
TS: Well, let’s focus on what you’re doing for your full-time job, which is your Earlens. I mean even prior to this experience, you were done with Acclarent, you worked with Exploramed for a while.
TS: And you kind of adopted the thesis that private pay might be the better way to go.
TS: And you were looking at opportunities there. How did you happen upon Earlens? Was that while you were at Exploramed?
BF: Yeah. So I had Rodney Perkins, who’s the founder of Earlens, had been recruiting me for some time after the Acclarent acquisition. And he approached me. At the time, I wasn’t ready to run anything immediately. I had stayed with J&J for a couple of years afterward and made sure that the acquisition, you know, transition went through properly. But I did decide to join the board afterwards. And but that was the time I also joined Josh at Exploramed as vice-chair. And really, our charter at that point was to try to find a consumer kind of play with a medical side to it. And we were successful in starting a company or two there. But when I looked at Earlens, it really met the criteria that were set out to do. I mean these are big markets that are continually growing, and will grow for some time. Consumer focused, the direct to consumer, not a lot of options out there. There is a dissatisfaction with the current technology, and these are markets that are completely underserved. I mean only out of four or five people actually that could benefit from a hearing aid get one. And then there’s no reimbursement issue. It’s all cash pay out of pocket, which is a major difference, I think, than what we see in the medical world where we need people to reimburse.
TS: The hearing assistance space is one that medtech folks have looked at for a long time. What was it about Earlens? Can you talk a bit about the product and its approach? Why was it attractive enough to get you to lead the company?
BF: So to me, what really separated it were a few things. You’re right in that it’s been very, very difficult, and today there are no large kind of usual suspect in the medtech world that participate in the hearing aid world. And I think primarily it’s because the channel has been very, very difficult. So what Earlens brings that I think is different than some of the others are really two. One, it’s proprietary differentiated technology. So the hearing aid world, which is a large market, there’s eleven billion of them sold each year – or 11 million of these sold each year. Sorry, that’d be really big. But 11 million that are sold each year. They all use the same mechanism of action. It’s a microphone and a speaker and it amplifies sound. So there’s really not a lot of differentiation there. They’re competing in a red ocean strategy, one attribute over another. Earlens is completely different. It doesn’t use a speaker. It gets replaced with actual laser that shines light onto a lens that sits on the eardrum.
BF: So it truly is proprietary differentiated, which is always something that has attracted me in my search of technologies and companies that I want to be involved in. And the other is going to be the channel. We’re going to – we certainly don’t want to alienate the audiologists, and we’re going to do everything we can to make sure that they’re part of this. But really the focus is going to be in the ENT channel, which as you know, we know really well. At Acclarent, we were able to train 6500 ENTs, and we think that this is going to resonate with them for a lot of reasons. One, it is completely different. Two, we think that it’s going to fill a need or a gap where the current technology doesn’t address, and that’s really providing a full spectrum of sound, including out to the high frequencies. And we’re able to give a significant amount of gain before feedback. So a lot of these patients coming to the ENT, but the ENTs kind of let them go, and they disappear for about 9 years or so before they get a hearing aid. And we think that we can change that through the relationships and the focus that we’re going to have on ENT. So those are the two major differences.
TS: Where would this idea fall short? What’s the biggest hurdle in your way that you need to clear?
BF: Well, I mean any time you set out to do something that no one else has done before, there’s going to be risk, right?
BF: I mean there’s a reason. And no one’s ever come with a light based technology before. It is complicated, a lot more so than the current technology that’s out there. But if it performs as I think, and it has so far – we’re getting ready to commercialize – but there is going to be a little more complexity. It’s going to be a higher end, so from a cost perspective, those are all going to be risks. But at the end of the day, I think at this point what we have ahead of us is retiring the commercial risk. So it is about commercial execution at this point. And that’s what we gotta get through.
TS: And it’s going to be at a price that you think people will be willing to pay?
BF: You know, not everyone likely will be able to pay for it out of the gate. But it will be a high end hearing aid. But at the end of the day, over a 3-year period, it’s equivalent to kind of $10 a day. So as we were talking about earlier, when you are faced with losing one of your senses, it’s a big issue. And we all rely on our hearing, and as it starts to diminish over time, there’s a good amount of people that are really looking for a better option than what they have today. So I think it’s a big market, and we don’t have to get much of it to be successful.
TS: That’s exciting. I didn’t realize it had a laser component, so that’s really exciting. It must introduce a lot of efficiencies, but some complexities as well.
BF: Yeah, definitely. Definitely.
TS: Final question: medtech is going through some changes and facing some challenges. You may have a unique perspective on this, but what is it about – what’s the single biggest thing that’s perhaps broken in medtech and that needs to be fixed?
BF: Reimbursement. To me, having lived the Acclarent experience and having to take on the societies and fight the payers for a care that is, you know, clearly better for the patient, this is the challenge I think we have as our industry. I mean it used to be if it works – and we know it works, right? I mean this is the beauty of the business that we’re in. There’s no smoke and mirrors here. Physicians, hospitals will eventually determine whether or not this works. So what we don’t have today is we go through this long process to get finally to market through FDA, and then there’s no guarantee that we’re going to get reimbursed. And I think the single biggest thing that we can do as an industry is come together and somehow create a way in which our technology, once it gets through that process, has a place to at least then be studied in the real world. And at three years after that, if it’s not performing, if it’s not delivering, then I think that’s the time to say that there’s no place for it. But right now, we’re in no man’s land, and the uncertainty creates a challenge. And so I think it’s backwards. I think the burden of proof should be on us to get it through, show the value proposition, get it through the FDA, get it available. And then I think the burden of proof to not pay should be on payers and CMS. And they have the ability to track all these outcomes better than we do by going through and looking at it. And I think that we need a hunting license to get started. And if it doesn’t work, it won’t survive. I mean that’s just the world we live in. But we got a huge barrier called reimbursement, and payers are – they’re paid to say no. The business model is profitability through attrition. And if it’s new it’s no. And that’s hard. It’s impacting access to great technology.
TS: That’s everything, you’re right.
TS: Great. Well, thanks for taking some time today, and good luck this spring.
BF: Thanks. I appreciate it. Take care. Thanks, Tom.
TS: Bill Facteau, thank you again for joining us and for sharing the challenges facing you, and best of luck with Earlens. Sounds like a great company and look forward to hearing many great things from that startup going forward. And thank you to our Medtech Talk listeners for joining us again today. Don’t forget to go to medtechconference.com, check out our agenda, including the breakout session that Mark DuVal will be giving on this entire topic. And we’ll try to talk to Mark at a future Podcast. So go to medtechconference.com, register for the June first conference, and we will see you in Minneapolis.