AccessClosure – from extinction to distinction
On Monday, November 19th, Biodesign Alumni got to hear one of the most incredible turnaround stories in medtech history when Fred Khosravi, John Buckley, Greg Casciaro and Hank Plain shared the story of AccessClosure. Brought back from the brink several times (once after chance encounter in a department store checkout line) this story has the makings of a Hollywood cliffhanger and left the audience in awe.
Fred Khosravi started AccessClosure after realizing that the only thing that patients remembered about catheter based interventions was how painful it was to close vascular access fraught with complications. He believed that replacing vascular access closure with manual pressure with a fail-safe and pain-free alternative presented a great opportunity not only from a business standpoint, but also as an important contribution to patients and the cardiovascular space. Despite several failed attempts by others and the presence of two big players, Fred and Amar Sawhney decided to embark on a journey to solve this problem in 2002.
Fred always stayed true to his original vision but also had a contingency plan to avoid a crisis. This would prove invaluable to AccessClosure on several occasions. Early into clinical trials, the team already had a liquid combo product to form a glue that met the trial endpoints (time to hemostatis superiority, safety, among others) that the founders were not satisfied would take them the distance. Fred explained their dilemma to the company’s chairman, Hank Plain, at the annual PCR (Paris Course on Revascularization) conference, and asked for more time for development. The Board gave the OK but did not sugarcoat the emphasis on avoiding any more delays to commercial plans. This was no small delay as the decision not to commercialize cost the team an extra year and a half in development and added ~$20M in costs. The decision, however hard, reminded the audience of the founding team’s conviction about not just making a contribution, but developing a leadership product that changed the paradigm for patients and hospitals. This level of conviction displayed by management was infectious enough to convince their board to give them more time.
As the company grew larger, it was apparent to Fred that they needed specialized functions with leaders to take this vision forward. In 2007, the team built a sales force led largely by former Fox Hollow executives and hired John Buckley as CFO to take control of the company’s finances and turn up the dial on getting product to customers, largely in high volume accounts in the US Northeast. Management believed in the costly direct sales model, since the product at the time needed some handholding, and the insights gained from clinical experience would prove invaluable in improving the future iterations of the product.
This resulted in a quick revenue ramp to $32M in 2008 (from $4M in 2007) with a device that had an asking price of ~$250 – a commendable achievement in a short time.
But as John pointed out, this growth was not scalable since the cost of sales and marketing alone was running at 80% of sales, before even considering the cost to make the product. It was, however, effective in getting the product into some high-volume markets. Over multiple years, the Company had to work to bring sales and marketing expenses down by aggressive territory management and refinement of the sales staffing model. Eventually, the Company drove these costs down to approximately 35% of revenue brought in, an amazing achievement for a high volume, $250 product.
Sailing through choppy waters…
By late 2008/early 2009 AccessClosure was now approaching a $50M annual revenue run rate when the US financial markets collapsed. Fred and his team decided to transition the company to a new leader with commercial experience and the long and arduous search started. This process took about a year and a half, given that the team needed both an outsider, and a leader with the same passion and vision as their team. In 2008, St. Jude Medical had acquired certain rights to Datascope patents related to vascular closure and subsequently sued AccessClosure for infringement in October 2008. The lawsuits came at a time when the Company was both planning an IPO and had received two offers from strategic buyers and threw a wrench in their immediate plans.
The task was cut out for the new CEO, Greg Casciaro, who stepped in in June 2010 at a time when AccessClosure, although approaching profitability, was actively working to refinance its debt and had a lawsuit pending that could potentially shut down the company. In Greg’s words, his first instincts on starting were to “listen, and do no harm.” Once he had a lay of the land, he acted decisively, making the leadership changes needed to prepare the company for the legal and operational challenges ahead. A court date was set in December 2010, and a jury picked, in rural Texarkana, a jurisdiction historically known to be plaintiff friendly.
The Company received a split verdict in Texarkana – losing on a patent family that had already expired but winning on a crucial patent family that had many years of life left on it. The portion of the litigation that was lost resulted in a $27M judgment against the Company. The Company’s sigh of relief was short lived. In a rare decision by the judge, in November 2011, the judge decided to overrule the jury on the portion of the verdict that the Company won, setting up the possibility of an injunction against AccessClosure. This ruling could not have come at a worse time. AccessClosure was setting up its booth at the Transcatheter Cardiovascular Therapeutics (TCT) conference, where the Company was hoping to continue its market momentum with KOLs and industry leaders..
To make things even worse, the Company’s debt holders were getting nervous with the legal news and demanded immediate repayment of their debt, which coincidentally was contractually due two weeks after the court’s reversal and had already been lined up for refinancing. Meanwhile, the sales force and employees back in the office were getting more and more uncomfortable with the direction in which the legal proceedings were headed. Greg’s philosophy resonated with the crowd – “Communicate. And then over-communicate.” His priority was to ensure that the team that counted on him, and that they were hearing all the information he could possibly have them hear. This even meant that the legal counsel for AccessClosure would periodically get on speakerphone with the entire U.S. sales force.
The AccessClosure team was now faced with the uphill task of raising in excess of $50M while facing a potential injunction from the court and a possible imminent bankruptcy filing at the same time. Fred and Hank led the team with $1M each of their own money, giving other inside investors confidence in going in with him to successfully raise the initial $27M needed to pay off the debt holders.
As expected, the judge ultimately issued a formal injunction against the company in early 2012. Senior management of the Company called the rest of the management of the Company together midday to tell them the news. No manufacturing or sales from this point forward… Serendipitously, later that afternoon the lead local counsel for the Company in Texarkana ran into the newly appointed clerk to the judge’s office at a local department store and discussed the shutting down of his client. The clerk said that they were not aware that the ruling would do such a thing, and asked that the Company file a one paragraph request for a temporary stay of the injunction, which would be considered by the Court. The Company filed the motion the next day and was granted an immediate stay. Touch. And Go.
Persistence, unfaltering vision always pays…
During this period of time the Company also raised the $27M it needed from current investors and its bank to fund a court ordered surety bond for the $27M judgment, which was required to allow the Company to have its Federal Court appeal heard. Through these trying times, the senior team was constantly communicating, and managed to get the company profitable until they finally got a positive ruling in September 2013 in the appeal that allowed them to continue to commercialize. Greg and John recounted that throughout this entire high-wire drama, they managed to keep employee attrition to a minimum, thanks to well thought out quota targets, management retention and compensation programs, new product introductions and a constant open line of communication. Nearly the entire team stayed on, and believed in their leaders’ vision. As Greg recalled after the panel discussion when I had a chance to talk to him, “As a leader, you have to win your team’s trust first. They need to know you have their back, and best interests in mind and then believe it”
With debt paid down, legal clearance to operate and a committed team, the AccessClosure board decided that a cash offer to exit would be the best way to reward early investors for their faith in this team. In April 2014, the company accepted a $320M cash offer from Cardinal Health, a well-deserved exit for a team that worked hard through some of the most trying times a fledgling company could hope to face.
The story was a stark reminder of the brutal realities that lie ahead of many a medical device entrepreneur. It was also a story of courage and unfaltering vision displayed by the leadership team that led AccessClosure to a successful exit and a subject of multiple Harvard Business Case Studies!