The experienced CEOs on this panel have authored some of the greatest stories in Medtech. In this discussion, they delve into their approaches to managing start-ups to multi-million – or billion – dollar acquisitions or IPOs. How do they accurately assess a struggling company and direct a team to turn weakness into strength?
Tom Salemi: Hi, everyone, this is Tom Salemi. Welcome back to the Medtech Talk Podcast. Very, very happy to have you back. and I hope you’ve enjoyed some of the content that we’ve put up on the healthegy.com website. That’s the word “health” followed by the letters EGY.com. Or just go to Medtechconference.com. Healthegy is the company that organizes the Medtech Conference as well as many other stellar programs. You should check out healthegy.com for our complete lineup. But if you look at healthegy,com or medtechconference.com, you’ll see we’ve got the panel discussions from our Medtech Conference up there for your enjoyment. And they’re being enjoyed, so thank you for those who are visiting. I wanted to pull one of our better panels off, and we looked at some surveys from our attendees, and this was a very popular panel, and it should be. It was called What it Takes to Win in Medtech. And we were blessed to have four stellar leaders in medtech. We had Michael Ackerman of Oculeve, Andrew Cleeland of Twelve, Mike DeMane of Nevro, and Keith Grossman of Thoratec. And they were all nominees for our Medtech Conference Innovator of the Year award. As you saw in a previous Medtech Talk Newsletter, the award went to Andrew Cleeland. But we could not have gone wrong. Our voters could not have gone wrong with any of the selections. We were so fortunate to have them up on stage. And they were joined by Tom Gunderson, former device analyst for Piper Jaffrey. He led a terrific conversation. It was so good, in fact, that I want to hand over the mic to Tom Gunderson and play that interview, which you can also see, you can watch, rather, on Medtechconference.com. I want to play that interview here on the Podcast and just share it with as many people as possible. They covered so much ground, I don’t want to take any more time describing how interesting it was. So let’s just roll the interview, What it Takes to Win in Medtech.
Tom Gunderson: Welcome, everybody. We’ve got 30 minutes to go through a simple topic of what it takes to win in medtech. What you saw in the quick videos was these guys have done it, and so we’re hoping to get some pearls of wisdom that we can go through. And to jump right into it, this audience doesn’t need to know again that we need large, underserved markets, that we need a regulatory pathway, somebody to pay for it, IP, etc. We’re going to try and dig in a little bit and see if we can get some real world experience. So let me just start from my immediate left and down the row. And one of the topics that we picked is clinical trials. Not just clinical trials, but Michael DeMane, I think you brought this up earlier, and that was it’s more about not just talking about outcomes, but actually delivering. Michael, can you talk a little bit about that?
Michael DeMane: So thanks Tom. I think it was kind of addressed in the last panel as well. Look, I’ve been doing this for 35 years, and if you’ve been doing it that long, you’ve come from a time when you got the minimum amount of data to secure an approval. And then once you’re in the market, then you just made it happen. But as was eloquently stated in the last panel, I think it’s a different environment now. And now it’s yes, you have to secure the approval, but you need sufficient data to show that your product brings value to the system and that you’re addressing all the stakeholders, both the payers, the physician or the surgeon, and the hospitals. So as you’re collecting that data to secure the approval, doing it in a way, in a manner that allows you to have a dialog with all the stakeholders is, I think, increasingly important.
TG: What did you see that was different at Nevro than maybe wouldn’t have been done 7 or 8 years ago? Along those lines?
MD: Well, yeah. I had a special case in that I would love to say that I was forward thinking and I had all the answers, and I plotted it out strategically. At the end of the day, we came along at a time when the FDA had become much more stringent about data requirements to go into the market, and we had to take the first ever true, modern day pivotal trial in the spinal cord stimulation space. Then they surprised us and informed us it had to be a comparative effectiveness trial. So as you imagine, there was a lot of consternation on the part of the board and the investors that we were going take up [?] the company trial and run it for multiple years and see what happened. When the dust settled, we actually had a very, very good outcome, and we had superiority in all primary and secondary endpoints, and that ultimately had been the primary value driver for the company. But again, in all honesty, we were kind of pressured into it, and ultimately that created the primary value of the company.
TG: Andrew, talk a little bit about how you’ve seen clinical trials change, and the decision to be acquired prior to FDA approval, both on Twelve and on Ardian.
Andrew Cleeland: So I think I want to add to what Mike was just saying that there’s no doubt about it, right, that the requirements for clinical trials haven’t changed. They’re changing. And again, we just heard that a couple minutes ago, that we can’t provide you guidance as to what you’re going to need to do; it’s going to continue to change. So I think that we need to think of this as a suite of tests, a suite of clinical trials. It’s not just one big trial anymore. You need to be looking at very early stage feasibility exploratory work, moving into your definitive trials, moving into your market based trials. And I think that that’s an ongoing event. So why did we decide to sell early? I think that was your question.
TG: From a clinical perspective. I was thinking –
AC: Because the choice wasn’t ours. The choice was the acquiring company’s. And I think that we were in the good position I think first with Ardian. We had a good randomized, controlled trial. We realized the next trial needed to be much larger. It would be better in the hands of someone like Medtronic. And with Twelve, it was just very early. We were 6 patients when we were acquired. So there wasn’t any real thought behind that, to be honest.
TG: Told you you’d get pearls. Keith, the other three gentlemen are going to be talking about their experience with startups. Thoratec’s not a startup. You did a remarkable resurrection according to the video, but it wasn’t exactly the overnight success, was it? I think Thoratec was one of the more mature medtech companies out there when it was purchased recently. How do you view clinical trials within the scope of a larger, more mature company?
Keith Grossman: Well, I think they’re still very important. I guess the message from my standpoint, and we all maybe bring one primary message to this topic today in a short period of time is that everybody out there running a company should be planning for the long haul. And there are companies that get acquired after a handful of patients. I think Andrew has run both of them. There aren’t very many of them. And anecdotally, I actually – what the slide didn’t say is I ran Thoratec two times. And the first time, I started in 1996. The company was already 20 years old, gone public, been delisted, and got its first FDA approval after 20 years for a ventricular assist device. Took a long time and took a lot of capital, at least in those days. The conventional wisdom for that company when I joined was this is going to get acquired. Just get the product launched and it’s a big market, it’s heart failure, it’s end stage, there’s nothing to do for these patients, very hard to get these products approved and to get them to work. These are companies that have to be owned. That was the conventional wisdom, which of course was true; just the timing was a little off. It took another 20 years before Thoratec was actually acquired. And in the process we built a $500 million company, not because that was what somebody drew out, because we had to, because a buyer didn’t show up. And I think more often than not, as you build a company in the early stages, you sort of have to assume that you’re going to have to be around for the long haul. And I don’t see that in the planning often enough for early stage companies. I think too often we think about what is that next milestone, how do we finance to that first really dispositive clinical data set, how do we finance to that critical commercial approval. When in fact I think the answer that you also need to understand is how much cash are we going to consume before we get this business to break even, because we might have to. Are we a good public markets candidate? If not, how are we going to finance this company? If your board asked you what the strategic road map is for your company, you ought to be able to articulate what the thesis is for every potential buyer, who those buyers are, when they would be interested. Are they interested defensively? Or are they white space buyers? Are there buyers that have a particular advantage in terms of synergies that would allow them to pay more? Are there buyers that are panicked about another buyer owning your business before they can? And you need to understand that road map, and you need to understand how to finance to get to milestones that are not only interesting to them, but that get you to break even in a cost effective manner. And maybe just one more quick anecdote. Has nothing to do with my operating experience, but I have the pleasure of being on the board of Outset. We heard from Leslie Trigg earlier. That was a company that was started as a home dialysis product. I mean a pure and simple. And it still is, and still will be, by the way. But along the way, the market told Leslie and her team, you know what, this may be a lot better device for a new mode of therapy, the in centers healthcare that Leslie described. And the company did a remarkably good analysis of what it would take to get to market and build a company on the back of either indication. And it was very clear that there was a lot more value to be added by starting with the in center healthcare indication, and probably getting to home care over time. And it changed the entire strategy. So you think, well, I’ll worry about those big issues later. I’ve got a company just to get started. But in that case, it actually informed the development of the product, the features and benefits of the product very early on. So that would be my, sorry, long winded message to all of you is really, assume you’re going to be at the helm of whatever you’re starting and building for the duration, and have a plan.
TG: Michael Ackerman, talk a little bit about Oculeve. And I think you did 200 plus patients prior to you being acquired? How did that fit with the valuation of the company?
Michael Ackerman: Sure. And first of all, that’s the first time I’ve come on stage to walk-out music, so I’m definitely going to be back next year. That was great. So yeah, we did. So and just to echo some of the things that Keith and Andrew just said, I mean we weren’t planning on being acquired. We actually just pre-emptively were approached by Allergan. And the very things that we were doing for the – really were the best things for the business to advance and ultimately be a profitable, standalone company were the very same things that Allergan was interested in. And we did that in a period of about 2 years at about 250 patients. And that was in a series of 8 different trials, and every trial had a different goal. So we’re iterating the product, or in our case, it’s a first in class treatment. So we had to prove to our board and our investors that it actually worked. We had to prove to the rest of the community and the physicians that it worked as well. We also – some of those patients were for nailing down our FDA pivotal trial, and we were able to go to the FDA with really solid data in hand and said, Look, we know we can hit this trial design. This is the trial design that we want, and got them to agree to it.
TG: Thanks. Michael DeMane, let’s start again with you, and we’ll just kind of keep the same order until you guys disperse into chaos and have a conversation among yourselves. And what I’d like to talk about a little bit is we saw the video ahead, and you’re up for this award, and congratulations on that. But basically, what we’ve got here for the audience are the winners of What It Takes to Win in Medtech up here. And yet, when we go through the brief histories, it makes it sound a little bit easier than it really is. So maybe we can dive into this a little bit and talk about a period or an event that I would call a fork in the road or a pivot point, where a decision has to be made between several different ways of going, and you made that decision, right or wrong, had to come back, or kept going along that arm. Give us a sense of what it was like at Nevro, Michael.
MD: Sure. Great question. I think I’d point to 2 forks in the road or pivot points. The first I’ve already alluded to, and that was the decision to do the – that the company pivotal trial in the US. That decision, it was a vigorous debate at my very first day on the job. It was a board meeting. All the smart money in the room said it was sheer lunacy to do that study. Because if you think about it, at that time, FDA was pretty erratic, not so predictable. So there was that whole element of risk. And then there was the fact that we really didn’t know would we be able to conduct a trial, pass it, get on the market. And of course if you don’t, you basically shutter the company and every investor around the table, which is my venture board, would basically zero out their investment. And their view at the time was wouldn’t it be more prudent to sell the company to one of the big companies and maybe we get 50 cents on a dollar, but at least we get something back. And so that was an intense debate. And ultimately, when the dust settled, we had agreed to go forward with the study. And it ended up being a fortuitous decision for the company. I would say the other pivot point, really, when I started in March of 2011, we were one month into commercialization in Europe of the product. So we had a CE Mark and we had just made the decision to do the study in the US. And I would classify or categorize our go to market strategy as any sale, anywhere. And that seemed to me to be short sighted, and we might be able to drive some revenue, but the lack of controls and specificity of the sort of patients that we were going into is something that it felt like it would go to a bad place. And we decided to kind of withdraw and to go to the right accounts and the right patients and make sure that we were delivering superior outcomes in those accounts and in those patients. Ultimately, I was doing that because I wanted to refine the therapy and really know what we had. But secondarily, it was a defensive approach because I lived in fear that I would, after the pivotal trial in the US, I would be at a panel meeting in Washington and I’d have reports of bad outcomes coming over the transom from Europe or Australia. And I would say that that ended up being a very important but correct decision for the company in terms of value creation.
TG: When you do it that way, do you end up having to say no to some pretty powerful outside the US physicians or institutions? And how did that go?
MD: You know, I would answer that, Tom, that it really didn’t occur initially in that we didn’t have a compelling data set. So there wasn’t a lot of pull from the market. And so there wasn’t that tension. Now, that said, I would say that our commercialization in the United States, which commenced basically a year ago today, we are also being very deliberate in how we commercialize in the United States. Again, we’re going for peak market share as opposed to a short term land grab. And in this case, in the US, yes, there is a lot of tension, and you have to have some uncomfortable conversations with individuals who would like to use the product, but we either aren’t in a position to support it properly, or we think that account may not be the most prudent customer for us to work with.
TG: Andrew, on Ardian or Twelve, give us some insight as to pivot points where you had to make a critical decision one way or the other.
AC: Yeah. When you told me about this question, I think it was last month, I thought about it, and look, every single one of us in this room has had a major pivot point, at least one. There’s no straight lines in our industry. And what I thought I’d want to do is turn it around a little bit, that it’s the pivots that happen every single day are the ones that are actually important. These major pivots are manageable and right, they’re scary, but there’s a lot of thought and action that goes into it. I think the one that’s really important is what happens every single day. The four of us are up here representing a lot of talented, committed folks, and I think that those sort of decisions that happen in the engineering meeting that’s going on back at Twelve Medtronic right now are the ones that makes or breaks the companies. And so you need two things. I think you need to make sure that you have a very talented team. And there’s a lot of lip service that goes on to having talent within your organization. I think this is something that you really need to be focusing on. You have to have exceptional teams, and I think that both Twelve and Ardian, we’ve been very fortunate to be able to create that culture. And the second is a very clear sense of mission that everyone across the organization in a very flat organization understands what their role is and what they’re doing, and enables you to take those right decisions. Because they all add up. We talk about things being a stack-up of inches, and what makes one company different to another company are those little stack-ups of those decisions that you make over time.
TS: We’re going to take just a very quick break to ask you to go to the medtechconference.com or healthegy.com, sign up for the Medtech Talk Newsletter if you haven’t already. We will send you our original device content. We’ll send you podcasts like this one, except new, and video content as well. It’s a great way to keep abreast of what’s going on in medtech, to hear some interesting perspectives and points of view, and also just to keep in touch with what we’re doing on the medtech front. It’s an exciting area where we are seeing lots of opportunity. So please go to medtechconference.com and sign up for the Medtech Talk Newsletter. Now back to this talk.
TG: So let me dig on that a little bit from the standpoint of talent is important. And you’re in the Bay Area, and you’re lucky to have access to talent. But a lot of the people that I’ve interacted with out there are serial; they go from company to company. Mission changes. I’m curious for the audience. How did you get everyone agreeing to the mission? It’s not just standing up the CEO with a Power Point and saying, Here’s our mission; who disagrees? How do you keep that alive and keep that going in a startup where you’ve got such a disparate group of people?
AC: That’s a fantastic question. I think that’s the key –
TG: What would you do?
AC: – is to be able to – what do we do? I think that we are very clear and consistent in that mission. It’s on a daily basis. At Ardian, we set up a set of core principles that we worked on. It wasn’t something that I set up; it was something that we as a team pulled together. It took us six months and there’s a lot of folks out there now shaking their heads, saying, Why would you waste your time doing that? I’ll tell you that in the long run that if you have a core way, a consistent way of working together, it enables you to be able to bring in folks that actually agree with you. There are a lot of smart, talented people that I’m sure couldn’t work with me, with my style. But what we wanted to do is make sure that we got a group of people that were very cohesive and that we put – we had team above self was one of our things. I think it’s just consistency, making sure that in every decision you make, you’re referring back to that core mission. And so everyone within the organization sees that consistent message being lived, not just spoken about.
MA: To add to that a little bit in terms of how we achieved that at Oculeve, it’s from a practical perspective, it’s our vision was to be the world leader in dry eye treatment. We came up with that as a team, and came up with our core values as a team, and then literally at staff meeting every single morning, or every Monday, rather, we put up the very first slide is our vision on the first slide. And it’s our top five goals and it’s our values. And so every time we come in, everybody sees it. We ask ourselves, we encourage each other to be challenged. Is what we’re doing consistent with the vision and what we’re doing? Just briefly on the pivot point, we did have a very meaningful pivot, switching from an implantable device to a hand-held, noninvasive stimulator. I think really it was sticking to that vision, addressing the clinical need and not being tied to even a technology that really allowed us to do that and have a reasonably smooth transition through that.
KG: So I guess maybe to answer your first question in terms of pivot points, and I agree with Andrew there are sort of pivot points that are meaningful every day, every week, every month in running a company, but as I reflect back on those that I think are maybe most interesting to this group would be those that revolve with Conceptus during my time there. And when I arrived at Conceptus, the company had gone public, gone through that magic $100 million revenue barrier, and still was an independent company. Growth had slowed; the company had never been profitable. In fact, growth had started to go negative. We had some- one of those rare cases, I think, in medtech where we actually had some value buyer interest. There aren’t a lot of value buyers in our space, but we actually had some interest in acquiring the company when we were at our all-time low. And so we had an early decision to make when I got there, and that was whether or not it was the best thing to do for shareholders to exit at that time, or whether or not there were changes in that particular business model, which is why I had gone there in the first place, that we thought could create more organic value and still create interest among maybe a broader set of strategic acquirers. We decided to do that, admittedly a risk when you’re running a public company and you have fiduciary duty to your shareholders. But we were able to make some changes in the commercial business model, and also make some changes in our R&D strategy. And about a year and a half later we had I think our second big inflection point was “are we a single product company?” There are single product companies who can build for a long time very successfully. I think Thoratec, by the way, would easily have been one of those if we had had that continued opportunity. And there are others where I think the risk is significantly greater, and I think Conceptus was actually one of those. So we had decided if we were to stay independent, diversification was a necessity, and we were really clear eyed about the risk that comes with diversification. So we took that opportunity to explore what was a continued expression of strategic interest and sell the company at that time. So we had really two infection points, both involving whether or not a change of control, acquisition for the company made sense. We made a decision one way at one point, and a year, year and a half later, we made it exactly 180 degrees the other way for those reasons.
TG: So one last topic that I’d like to year your guys’ thoughts on was one of the ones that everybody in the room has to face from time to time, sometimes chronically and constantly. And that is access to capital. Michael DeMane, you made a comment to me, and Andrew, we talked a little bit about this last night. I found it a little surprising. Michael, you were at Medtronic for a very long time. You go to Nevro. The size difference of those companies is vast, and your comment was that the delta between running a startup and running a project at Medtronic is not as great as I might think. Can you elaborate on that a little bit, and then sort of segue into the access to capital question?
MD: So I think my comments maybe reflect how I manage. Everyone kind of has a different approach, even within a large organization. My approach to the market was to focus on employees, making sure that they were the best of the best, making sure that they had kind of the tools and the guidance on where to go, taking care of customers and making sure there was a rich, new product pipeline. So I mean it’s kind of blocking and tackling. You can do that and should do that in a large organization. Large organizations sometimes can be replete with all sorts of extraneous political stuff, and you have to play that game. But if you do it without taking care of the business ultimately, it catches up with you. And my comments to Tom earlier off line was that really, going to a small company, and truly it was a startup when I went to Nevro, I found it was all the same. You still had technology you had to manage, you had people you had to manage and hire, you had customers to take care of. So it’s all the same, but maybe you’re allowed a little more focus than you might in a larger company. So that was really what I was trying to say. Now in terms of access to capital, so in my short 6 years at Nevro, I’ve raised $500 million. It’s a lot of money, and I have found that at each step of the way, they’re all looking for the same thing. And we talked about it. Do you have the right organization, the right people to invest behind? What’s reimbursable? What is it? What’s the data? What are the clinical outcomes and are they measured, measured well? And are they reproducible? And then it’s basically the rest of it is kind of secondary. And they’ll check all the other boxes, but that’s where they go first. And as long as you can answer those questions with clarity and consistency – and consistency is really important there – the money is there, as we heard earlier today. The money is there, but you’ve got to check those boxes.
AC: Sort of interested in what I told you last night after a couple of beers. So I don’t remember.
TG: And that’s different from other nights how? It’s the access to capital side. And so Michael goes through the process raising most of that 500 million through public markets and doing an IPO and setting up what is becoming increasingly expensive, and that’s getting a sales force together that can sell the product. On your side, if we go back, imagine after the success of Ardian that Twelve might have been easier – you can correct me if I’m wrong. But getting started with something as outlandish as Ardian started with and then ended up doing quite well, what was the process of trying to get capital for that company?
AC: Yeah. It did get a little easier after Ardian, but still lots and lots of nos. We all get lots and lots of nos. But going back, I think I’ve been incredibly fortunate. Both of these companies are Foundry companies, and so there’s a syndicate of investors to start with. And so I think at the end of the day, having that syndicate is what provides the ability to then raise further rounds, further capital. And they were a sophisticated group, too, and I think that’s also important. We haven’t been in the situation where we’ve needed to go out and get funds from folks who don’t know what the game is. And as we were saying before, there are a lot of pivots along the way, a lot of near death experiences in these companies. And if you don’t have that sophisticated, strong syndicate, you’re going to struggle. So I’ve been lucky. But definitely I remember everyone who said no to me, too. But there’s a lot of nos along the way.
AC: I see one sitting two steps up from me.
KG: Sorry, I’m still trying to figure out what the hell Mike did with all that money he raised, $500 million. I’m stuck on that. Look, it’s a great question, but I don’t think there are any magic answers. There’s always going to be money, I don’t care how big the pool is or how small it is for medtech. There’s always going to be money for great teams and great stories. And it kind of is that simple. So if you’ve got the right business plan, you’ve got the right story, and you can articulate exactly how you’re going to create value, not just with this round, but over the long run as I said earlier, there’s always going to be capital available. You know, provided Mike doesn’t go somewhere else and suck it all up in his next venture, there will always be money available for great stories. And it really isn’t one key here, and I’m sorry if that’s what you’re looking for, Tom. It really is a whole bucket of fundamentals. It’s execution, it’s having a great story and telling it in the appropriate way.
TG: Michael Ackerman, you were going out and raising money for the first time. How – they don’t know you, they don’t know the product area. What was raising capital like for you?
MA: Well, at first it was tough. It’s again sort of unproven CEO, you had brand new idea in a drug dominated space. We raised our series A in 2012. It’s not a great time to be raising money in general. You know, it was also a lot of nos, at least to start. And so the original plan, we were going to go out and we were going to raise a series A, and it didn’t quite work out that way. So we backed down to some seed capital, and got going on that seed capital and actually ended up getting some early human data. And then when we went back out, had a lot more successful go of it. It was at that time, it was OK, you guys have been at this for a little while; it seems like you’re making good decisions; there’s a little bit promise in the technology. I think one thing that was, I think, particularly I don’t know if unique, but I think a story we’re sharing with regard to the series A and just to echo some of the comments this morning about the importance of investors and the board, but also having enough power in the syndicate to keep going in the event that you end up in choppy water: we had gotten a lead term sheet from NEA, and it was for two investors. So Kleiner had seeded us, so it was NEA and Kleiner. And at the last minute, Bill Link from Versant came and said, you know, Is there any room? And it was like Well, not really. But ultimately, we ended up taking some pretty meaningful dilution as a founding team, one, to get the third investor in the syndicate on board so that we had plenty of money to go the next round or possibly even the one after that if necessary. But also just to get Bill on the board. And that was a really one of the better business decisions that we made. He was just so incredible on many dimensions, but also very pivotal on getting our deal done with Allergan.
TG: Thank you guys. Excellent
TS: Well, I’m sure you enjoyed that conversation with Tom Gunderson leading a great Q&A with four stellar leaders in medtech, Michael Ackerman, Andrew Cleeland, Mike DeMane and Keith Grossman. We’re so grateful you came out to the Medtech Conference and that they agreed to participate in that panel. It really anchored the day and I think lifted a lot of people’s spirits. It was just a very strong, practical advice for medtech leaders and medtech CEOs who are looking to carry their companies up that next step. So thank you again to the participants, thank you to everyone who attended, and thank you of course to our Medtech Talk Podcast listeners for joining us today. And I hope you will tune in next week for another medtech tale of innovation.