Twelve Step Program: Lessons learned from a recent medtech success story
The road to success often seems nicely paved when young medtech entrepreneurs look at the success of companies that have thrived before them. However, not very often do you get to hear an innovator’s retrospective look on the real challenges they faced as they took their company from ideation to exit. Stanford Biodesign alumni and current fellows recently attended a panel session hosted by Hank Plain (Lightstone Ventures) where they had the opportunity to hear from three panelists: Andrew Cleeland (CEO, Twelve), Alexei Marko (CEO, Neovasc) and Matt McLean (Director R&D, Twelve). In August 2015, Medtronic acquired Twelve, the transcatheter mitral valve replacement (TMVR) company which was also the 12th company to emerge from medtech incubator The Foundry. While it was not the first TMVR acquisition announced that summer (Edwards acquired CardiAQ for ~$400 million and Abbott acquired Tendyne for ~$250 million), it was the largest: $408 million at closing plus $50 million upon achievement of CE Mark. The panelists shared their stories on how the Twelve team worked fiercely to bring forward a concept from paper to first-in-man to acquisition in four years while working in collaboration with a direct competitor to make such magic happen.
The panelists brought to the table over 50 years of combined experience in starting companies and bringing ideas to fruition. Prior to Twelve, Andrew was CEO of Ardian, a company he sold to Medtronic in 2011 for $800 million. Andrew joined Twelve as the 5th employee, whereas Matt, recruited from NeoTract where he had spent six years in product development, became the 4th employee. Alexei has been running Neovasc, a publicly traded company (NASDAQ: NVCN and TSX: NVC), which is also a major competitor of Twelve with its own transcatheter valve (Tiara) for treatment of mitral regurgitation.
The night evolved into a lively discussion focused on three main themes.
R&D’s true formula: Build. Test. Fail. Build.
Every Thursday evening at Twelve served as D-Day. Following Matt’s mantra of “have deadlines, have something to show”, in the founding days of the company, the team’s focus was to build crude prototypes and test in-house. Their test system was elegant and simple, comprising of a pig’s heart and a boat pump, meant solely to test design concepts and obtain the most relevant information as quickly as possible. Friday mornings involved a postmortem, where everyone in the team would be present to discuss successes, failures, lessons learned, and the changes required. Everyone on the team was comfortable speaking their mind and letting go of their ideas because they all understood that goal was to treat mitral valve regurgitation, and that it did not matter whose idea was best. This disciplined process of weekly test, fail, debug, and iterate serves perhaps as the leading reason for Twelve’s rapid development cycle that allowed them to move quickly from bench to animal work.
Matt also stressed on the importance of being able to separately test different aspects of a device rather than wait until you have a perfect product. With Twelve’s device, the tissue valve was tested for durability separately while the team refined the fixation and outer structure design that engaged the tissue. By the time the team was ready for human studies, they had collected five years of tissue durability data and two years of structural durability data – another key aspect that allowed them to move from concept to first-in-man in under three years.
The third piece of advice from Matt came after a few failures. The team learned early on in an animal model that accurate placement of the device was key to its success. They also learned in a first-in-man study that they needed to ensure they had the right visualization tools. At this time in their development, however, they had misgauged the differences between a young animal model and an aged diseased human heart. The often-heard words of “although animal models are useful, they are not representative” came as a quick realization in their first human case. The team faced some setbacks, and although their first patient died the next day after placement of the valve, in all cases that have followed the team knew exactly where and how the valve was to be placed. Unpleasant things are bound to happen when in a highly risky procedure and a very sick patient population. However, quickly learning from those mistakes to ensure safety and efficacy for future procedures was a conscious choice that has served paramount for Twelve’s long term success.
Love, not loathe, your competitor
How can you be fiercely competitive and still be family? Andrew and Alexei highlighted key aspects of what drove two companies operating in the same competitive space to work collaboratively to make a business that would be better and bigger. Mitral regurgitation and development of valves are problems that have been studied extensively for 50-60 years. Neovasc had been involved in the development and manufacture of transcatheter valves since before 2008 and had received interest from a number of people in the mitral space. Twelve at this time was examining the problem from a different lens of “How do we get an implant to the mitral annulus, how do we get it to stay there, and how do we get it to seal?” When introduced, the two teams had never heard of the other, and although initially wary, a business contract was drawn. Neovasc was Twelve’s supplier for the tissue and design and manufacture of certain components of the valve. Twelve had the delivery and fixation system. Both companies were crucial to the success of a product for mitral replacement and each one recognized the other had a strong asset that complemented their own. So instead of dismissing competition or engaging in confrontation, both which can be fatal mistakes, they chose to keep open communication, develop trust, and work together. As Alexei describes it, “You always go into business with people you respect. Competitors should always be assessed on each other’s strengths rather than pitting against their weaknesses.” For two guys who should have been bitter competitors, secretive about their development, and fighting to be the first to reach the end; they figured out a way to work together focusing primarily on the end goal and not whose design won. As Andrew puts it, “When you focus on why you are in this business and when that answer is to help people, you solve all problems that come your way together.”
After completing three human cases, Twelve started receiving acquisition inquires. This really surprised the team because not only are acquisitions at the early clinical stage very rare in medtech, but also because their early clinical results had shown some difficult patient outcomes. However, the market demand to have an asset in the mitral space after the aortic space’s success drove the interest. And at that time, there was a scarcity of companies with promising technologies in this space. Instead of taking the first acquisition offer that came its way, Twelve raised another investment round and decided to take the product further down the development line. They maintained an open and trustworthy relationship with all potential acquirers, essentially following the number one rule of acquisition of getting firms to compete against each other, and when the time came to make a decision, they were all ready. Andrew accredits Twelve’s success to “working on a large unmet clinical need in an established market with a great team of people”. To speak to their success, only one engineer has left the team 18 months since the acquisition.
As parting words of advice from moderator Hank, “If you are after a big idea that you think a VC will never fund because it will cost $100 million, look to the success of Twelve and their efficient management. They spent $35 million and addressed a need in a competitive market by bringing in early clinical data, enough to move the needle for Medtronic.”
We thank the panelists for their wise words and insights. As young entrepreneurs, we take them to heart and hope to learn from them as we work towards creating the future products of medtech.
Shaili Sharma, PhD is the 2016-2017 Cottrell Endowed Innovation Fellow.