This year’s Biodesign Alumni Annual Event featured a panel discussion with the iRhythm team. The San Francisco-based company has changed the way cardiac arrhythmias are diagnosed through their cloud connected wearable biosensing technology. Panel members from iRhythm included Founder and former CMO Uday Kumar, Derrick Sung (Executive VP, Strategy & Corporate Development), Mark Day (Executive VP of R&D), and iRhythm’s CEO Kevin King, who brought the company public.
Co-authored by Holly Rockweiler
A sequel is always a hit at the box office, so on April 5, 2016, SBAA hosted another panel on the thrills and challenges of the consumer medical technologies. This time, four new panelists joined everyone’s favorite director (host) Josh Makower, MD at the Palo Alto Office of Wilson Sonsini Goodrich & Rosati (WSGR) for a deep dive into consumer medtech, brought to you by our executive producers (otherwise known as sponsors), WSGR and Silicon Valley Bank.
The last panel asked whether the grass is really greener in consumer medtech (the allure of selling directly to your customer, the chance to skip the FDA, and potentially no need for reimbursement, oh my!). This 2016 redux explored the decisions 4 early stage companies have made in their pursuit of a smash success.
In the early going it’s just like any other great medtech company: follow the unmet need and listen to your users
On the panel were Raphael Michel (CEO and Founder of Eargo, makers of consumer-focused hearing aids), Kelly Brezoczky (CEO and Founder of Butterfly Health, makers of a daily disposable solution for fecal incontinence), Sean Kerman (Founder and VP of Engineering at Owlet, makers of a pulse oximeter baby monitor) and Biodesign alum Varun Boriah ’13-‘14 (Co-Founder and CEO of Lully, makers of pediatric sleep solutions). The common thread among each founder’s story was his or her insight on an unmet need that had been ignored by so many before them. Raphael, a mechanical engineer with an MBA, built the first Eargo prototype after he learned from his father, an ENT, how frequently patients refuse hearing aids that could really help them. After a successful career at Procter & Gamble, Kelly started her company to address the often-overlooked suffering of people with bowel incontinence. Sean started Owlet during his Master’s program in Electrical Engineering at BYU based on direct consumer research with new parents desperate for peace of mind while their babies slept. Varun started Lully out of the Stanford Biodesign Fellowship based on the insight that parent sleep quality is highly dependent on their children’s.
With a clear, unmet need, how do you determine product-market fit? For Butterfly, it was a combination of high ratings of their prototype from 10 patients, a strong IP position, and proof of manufacturability. Lully evaluated product-market fit by measuring both the response to an online ad asking parents to pay to participate in their clinical trial and the efficacy of the prototype in a trial. Owlet raised $300k in a Kickstarter campaign and also used a fake website to see how many people would try to buy their product before it was available. Eargo had an “unfair competitive advantage” because the inventor of the Eargo hearing device is an ENT surgeon with a deep understanding of (1) what his patients were looking for in a hearing aid and (2) how to design a product for the ear. Raphael rapidly iterated prototypes of this invention until he received universally positive feedback from users, both existing hearing aid users and first-time users.
If you got the money, honey, I’ve got the time…
With a great need and a great product, it should be easy to make it rain, right? Not so fast… The panelists unanimously agreed it is challenging to fundraise for consumer healthcare products, but their stories highlight the power of grit and tenacity. Raphael raised his first funds from his friends’ faith in him, living check-to-check for the first 9 months. But things changed when he closed a seed round in the summer of 2013. In the panelists’ experience, traditional medtech investors were scared by the consumer marketing requirements; yet tech investors were afraid of the FDA and wanted much more extensive consumer market research than each company had. Raphael focused on “hybrid funds,” i.e. funds that had both consumer and health groups, as they would understand both sides of Eargo’s business. This was a huge success for him, and he was able to raise a significant round. In Sean’s case, Utah investors expected revenue before investing, so his team joined the Techstars accelerator and moved to New York where the investors were more used to Owlet’s approach to building a company. In retrospect, he said, Owlet should have raised money earlier to keep up with its rapid sales growth. Varun’s experience was that Seed fundraising was a 5-month, time-consuming effort that significantly impacted Lully’s small team’s ability to continue developing. To improve her fundraising chances, Karen (1) made sure the team hit every milestone between their Series A and B, and (2) focused on building product awareness in their fragmented, baby-boomer market. Karen knew from her P&G experience that a strong brand is highly valued by consumer product investors. This is expensive and time-consuming to build, requiring a deep knowledge of your target customers, but for Butterfly this made sense because they needed scale to test the retail market.
Making it happen
Product: check. Funding: check! But now…how do you build product at the right volume as you grow? Tailor your manufacturing to fit your company’s unique needs. All four panelists spoke of the importance of partnering with a solid contract manufacturer (CM), yet each company took a slightly different approach. Lully introduced its product in stages. For the first 6 months, Lully repurposed an off-the-shelf product with about 80% of the functionality they needed. This allowed them to answer a number of market and design questions before jumping into their own manufacturing. Lully’s US manufacturing gives them brand value with their target demographic; they started with a CM in Portland, OR but soon moved it to Fremont, CA, which is closer to their company headquarters, in to maintain better quality control. For Owlet, it was more complicated. It took the company 18 months, the help of some incredible technical consultants, and all of their Seed funding to build a fully functional product. Though their initial price was higher than they expected, they made major technical breakthroughs that led to market differentiation in the end. On the manufacturing side, they started in the US for similar brand value, but ultimately the COGS didn’t fit their business model so they moved to an OUS manufacturer that met their high quality bar.
Butterfly’s high-volume paper product required $2 million upfront to establish their line with their US CM, and then the company had to work in earnest to reduce the COGS to pennies per piece. Eargo outsourced non-critical components as early as possible and found that their CM provided significant design help for free. Eargo also split manufacturing of their labor-intensive product between two CMs in Asia to protect against the likelihood of counterfeit devices also being produced. In summary, the panelists provided lucid but very different perspectives on US vs. OUS manufacturing. Control of final product is easier when it is built close to home, but cost saving (and surprisingly quality improvements) could be found outside the US with a careful selection process.
“It’s the marketing, stupid”
Ok, with all of the groundwork in place, is the grass indeed greening? How do you market a consumer health product, and do you need FDA’s blessing or not? Eargo answered the question with a hybrid team. The fact that their R&D people are from the medical device world and their marketing people are from the consumer electronics world helped navigate the nuances of selling a consumer health product. With a deep understanding of their target consumer, Eargo’s Chief Business Officer pushed humor in their marketing campaign as a way to destigmatize hearing loss and connect to their customer’s emotions. For Kelly, the key to Butterfly’s success was getting the right marketing claim language (approved by both the FDA and the FTC) and perfecting the entire consumer experience (even the packaging!).
Owlet made the bold choice to go directly to the consumer with its product (rather than making it a prescription). This meant they had to sacrifice the specificity of their claims, as they marketed the product as a general wellness device. With the help of a brand consultant, Owlet decided to market their product as a “breathing monitor” rather than a “pulse oximeter”. This simple change made their product easier for consumers to understand and dropped customer acquisition cost by 90%. At Lully, since night terrors are not considered a medical condition, their product is not technically a medical device. They had initially entertained pursuing a De Novo 510(k), but they decided that the trade-off between the high capital expense and extensive time commitment vs. more powerful claims wasn’t worth it, as market research informed them that both pediatricians and parents were fine with broader, consumer-level language. Across the panel’s response, it was clear that there are significant differences when marketing a product to a consumer vs. a clinician. Kelly, in her final point, highlighted that it can be important for your marketing efforts to connect with both the doctor and the consumer if consumers are likely going to ask the doctor for his or her recommendation.
Always be closing…
If you build it, they will come right? If only it were that easy. Josh’s last topic for the panelists was sales channels. Most of Lully’s sales come from their website, which they love, as this channel gives them complete control over product messaging. Lully plans to stick to online sales because, as Varun put it, “no one is going to Target looking for a night terrors product.” Online, targeted marketing has been their key to success. Sean mentioned similarly that Owlet sells primarily through its own website. The company had experimented with selling on Amazon, but found that their marketing dollars converted to higher sales when they were on their website exclusively. He thinks Amazon will be an effective channel though when they are selling at higher volumes. Currently, Eargo also only sells online and over the phone, as this allows them to engage with and learn from their customers. He recognizes that retail is great place to scale quickly, but it is a high bar for which they aren’t currently ready.
Kelly had a more traditional sales strategy, dictated of course by a keen understanding of the Butterfly customer. According to Kelly, less than 1% of incontinence products are sold online; therefore, Butterfly went straight to retail. While the Butterfly product is available online, the prices are higher there, so they don’t undercut their retail partners. Kelly added that their Amazon channel is growing sales twice as fast as any other channel however, leading her to question a long-standing belief that retail is the best channel for consumer medical devices. She pointed out that while consumers do visit brick and mortar stores to purchase products like Butterfly’s, no one spends a lot of time in the incontinence aisle, so this is a difficult place to educate customers about a really disruptive innovation. In summary, determining the appropriate sales channel for a consumer medical product, like every other aspect of your business, is driven by knowing your customers and how they want to be reached.
Consumers rule…just make sure you listen to them!
Part 2 of the Stanford Biodesign Alumni Association’s consumer panel highlighted four products, four companies, and four stories of how the consumer medtech world is evolving and improving consumer’s lives. It’s clear that the simple distinction of marketing to non-clinical customers drives a broad array of design, fundraising, and manufacturing decisions in directions very different from that of traditional medtech products. While the panelist answers diverged based on their very specific product needs and market insights, a few golden rules stood out:
- Validate your product-market fit early on with unbiased data from the actual purchasers of the product
- Understand your potential investors well, and focus on building value and your brand early to optimize fundraising success
- Manufacturing site selection is critical because it affects customer perception of your product, operational scalability, COGS, and product quality
- Market and sell to your customers with claim language and sales channels that meet them where they are
All of these lessons are reflected in Biodesign core tenets of starting from an unmet need, knowing your user, and stakeholder analysis. And with the growing power consumers wield over their healthcare, this panel provided critical insights for the changes that can be expected in next decade and beyond. Josh’s questions and the varied answers given by the panelists gave all who attended great examples of how to build a successful consumer medical product.
Those of us who went through the Biodesign fellowship in recent years have heard many times how ridiculous it is to start a medical device company out of the program in the current environment. When my teammate, Shreya Mehta, and I told people that we were planning to do just that with an implantable device that was going to require clinical trials, a non-trivial FDA process, and third-party reimbursement, people looked at us like we were certifiably insane. So when we first went out looking for funding for Zenflow in late 2014, we knew we were going to have to bring our A-game and cast a broad net. Having witnessed a mass exodus of investors from early-stage medtech to the seemingly greener pastures of Healthcare IT and Consumer Software, we began compiling a long list of non-traditional investors, accelerators, and grant opportunities. As I had spent some time in the software world beforehand, I was familiar with Y Combinator (YC), the accelerator that started accelerators, and the place where startup unicorns – or even decacorns like Dropbox – were supposedly born. But why would this shrine to hackers that fully embraces Marc Andreesen’s “Software is eating the world” philosophy want anything to do with a company that has a purely mechanical product and comes from an industry that is not eating the world, but rather being eaten by it? Our hopes were not high to say the least. But sure enough, right there on YC’s Requests For Startups page was a beacon of hope: “Medical devices also seem like fertile ground for startups.” So you’re telling me there’s a chance!
Being CEO is filled with challenges and lessons, and part of the job is learning along the way. Navigating the uncertainty of the burgeoning fertility field further sets the stage for many important lessons to share. At a recent SBAA tableside chat, Biodesign alumni had the opportunity to sit down and hear first-hand from Lissa Goldenstein, CEO of ARC Fertility, on the many lessons learned in her 12 years of experience as a CEO of 4 companies, both public and private. She answered questions about her path to the CEO role, the challenges of bringing a new technology to the fertility market and, in particular, her lessons on navigating the FDA clearance process.
A year ago this month, our community tragically and prematurely lost one of its greatest leaders. In honor of Ferolyn, and to keep her strong spirit of mentorship alive, we decided to revisit this blog post from 2010 [reprinted in full below]. Back then, little did I know that what we wrote would still be one of the highest-ranking hits on Google under Ferolyn’s name and that it would even be quoted in one of her obituaries. Back then, the MedTechWomen organization was in its infancy, and these Biodesign Alumni Tableside Chat events were one of the only ways for us to glean such meaningful advice from mentors like Ferolyn.
On October 28, 2015, a gathering of the Stanford Biodesign Alumni association, the current Biodesign fellows, and Women in Medtech members, was treated to a delightful fireside chat on the Neuromodulation frontier. The panelists shared a wide array of perspectives first-hand: from entrepreneurs building exciting neurostimulation products, to leaders of publicly traded companies marketing neuromodulation devices and even included the venture capital perspective on the future of this promising field of bioelectronic medicines. Hosted graciously at the T3 Advisors’ office in Palo Alto, this event was a treat for the audience who were entirely engaged in a lively discussion over cocktails.
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.
Medical device development has been burdened lately by a high regulatory burden and an increasing uncertainty around reimbursement [1, 2]. In reaction to this, consumer medical devices with minimal regulatory burden that are mostly self-pay and self-treat, have garnered significant interest from the medical device community.
In a panel discussion moderated by Josh Makower, MD (Co-founder of Stanford Biodesign Innovation Program, Founder of ExploraMed incubator, and General Partner at New Enterprise Associates) and hosted by Wilson Sonsini Goodrich and Rosati (WSGR) and Silicon Valley Bank (SVB), the question of whether the grass is really greener was posed to a panel of four guests with diverse backgrounds that brought multiple perspectives to this question. Comprising the panel were Asha Nayak, MD (Global Medical Director at Intel Corp), Charles Wang, MD (Co-founder and COO of Lumo Bodytech), Karl Ronn (Co-founder and Board of Directors Member at Butterfly Health), and Karen Long (President and CEO at Nuelle).
You don’t have to look far to find stories of the tension that can form between a CEO and their investors. What doesn’t always get as much attention as these dramatic tales, however, are the stories where each role finds their complement in the other, providing the stability that allows a startup to fight through a sea of obstacles and ultimately achieve success. At a recent SBAA tableside chat, Biodesign alumni had the opportunity to sit down and hear firsthand of one such supportive partnership between Intersect ENT’s CEO Lisa Earnhardt and lead investor Dana Mead of KPCB. They shared with us both the highs and lows that brought Intersect ENT from an early-stage startup all the way to achieving an increasingly rare medtech IPO.
This year’s SBAA annual alumni event featured a presentation by Ulthera, the Mesa, Arizona-based aesthetic therapeutic company, along with a dynamic panel consisting of Matt Likens (Ulthera CEO), Michael Peterson (Vice President, R&D), Justin Klein (NEA), and moderated by Alan Mendelson (Latham & Watkins). The jam packed event also consisted of a presentation by Jonathan Norris, Managing Director of Healthcare at Silicon Valley Bank, to provide a medtech investment update.
Ulthera’s signature technology is used in the Ultherapy procedure, which is FDA-cleared to lift skin above the eyebrow, on the neck and under the chin, as well as improve lines and wrinkles on the décolletage. The Ulthera System delivers micro-focused ultrasound energy at prescribed depths below the surface of the skin. It consists of a control unit & handpiece along with disposable transducers that provide recurring revenue.
When an aspiring entrepreneur imagines sitting down with a medtech idol, she probably imagines a successful medical device exec. Or maybe she thinks of a serial physician entrepreneur? A Super Bowl champion linebacker? A VC?
If your pattern recognition algorithm is going berserk, it’s with good reason. But the exception to prove the rule is Milt McColl, who is not just one, but all four of these! A four-for-one special? Talk about bang for your buck. Our alumni group hosted him for a tableside chat earlier this year and got to chat intimately with him.
Rounding the corner for the final stretch of Biodesign year 14, SBAA engaged our friends at Rock Health to discuss the digital health funding landscape and the state of predictive analytics as clinical decision support (CDS) tools. Strategy Manager Teresa Wang and Managing Director Malay Gandhi walked us through some numbers, trends, and case examples.
What does success look like for medical devices these days? It’s easy to lose track of the wins with all the doom-and-gloom circulating about reimbursement struggles and regulatory pitfalls. Success might not look like what it used to, but it’s there.
Bill Starling, the notable medical device entrepreneur, discussed this topic at a recent Stanford Biodesign Alumni Association event. And who better than a guy who has seen success in many forms across his career? Read more
When the first question made its way down the panel to Brook Byers (of Kleiner, Perkins, Caufield & Byers), he momentarily ignored the topic at hand to posit: “In a room full of Biodesign Alumni, my hunch is there are a lot of people in here with an engineering or science background.”
Following some nods throughout the audience, he lurched into what can only be described as a good old-fashioned Higgs Boson joke: “So a Higgs Boson walks into a Catholic Church, and the Priest says, ‘We don’t allow your kind in here!’”
Loma Vista Medical operated lean, pivoted multiple times, and owned their technical challenges as they drove the tortuous road towards an acquisition.
Lean before lean was cool
In 1989, long before Loma Vista Medical, Alex Tilson and Mark Scheeff met at Stanford while getting their mechanical engineering degrees (ME) and leading the Stanford Solar Car Project. The team designed, built, and raced multiple generations of cars across the US and Australia (www.worldsolarchallenge.org/). Successfully competing against more well-funded teams imprinted a “lean mindset” on both of them. This mindset was invaluable as they built and eventually sold, Loma Vista Medical, to CR Bard in July 2013. A select group of Biodesign Fellow Alumni enjoyed a lively dinner with Mark and Alex as they detailed their successful and unique journey from start-up to exit.
Last Fall, the Biodesign Fellow Alumni were joined by Nick Mourlas and Avi Roop to discuss the story of Tarsus Medical. This was an especially exciting event for us, as both Nick and Avi are alumni from 2001 and 2008 respectively. After Biodesign, Nick became CEO of a company he co-founded out of Biodesign, Acumen Medical, and led the company to its acquisition by Medtronic in 2009. His next move was to join Tarsus as the CEO, a position he held until its acquisition by Integra Life Sciences. In Avi’s short post-Biodesign career, he earned an MBA from UC Berkeley, then became Director of Sales and Marketing for Tarsus Medical through the time of acquisition while continuing to work on projects started at Biodesign.
Trade-offs drive success, conviction drives success, and team drives success.
Duke Rohlen closed our Biodesign Alumni Annual Event with this quip and it provides a great summary of the CV Ingenuity (CVI) story. As CEO and president, Duke was joined by CFO Doug Koo and NEA investor Justin Klein for a panel discussion that highlighted the company’s path. Read more
A Brief Glimpse Inside the Prolific Mind of ForSight Labs’ CEO/Founder
The Biodesign Alumni Association had the pleasure of dining with Angela Macfarlane at the October Tableside Chat. She has spent time with some of the fundamental medical device innovators, from Tom Fogarty, to ExploraMed, to The Foundry. She is currently the CEO of ForSight Labs, an ophthalmology incubator, that she helped to create with Eugene de Juan, Jr. MD and The Foundry in 2005. ForSight Labs has spun out 5 companies over the last 6 years, each focused on a key clinical need in ophthalmology, including device and drug-device combinations. Read more
When Dr. Thomas Fogarty is in the office, he holds meetings all day long. Not unlike the President, he is briefed moments before every meeting. With each new visitor, he brings a fresh enthusiasm to the table, an eagerness to listen and to be impressed. Everybody gets a fair shot, and many are successful—unless, of course, they commit a cardinal sin. Read more
The medtech industry is built upon the ideas of creative physicians thinking outside the box; here’s advice from a modern-day physician-innovator.
Given their understanding of disease and pathophysiology, innovative physicians have been the source for many of the major technology advancements throughout the history of medicine. Although commercializing medical technologies today has become more complex than ever – physician still play a vital role in conceiving new products and getting them to patients.
Todd Alamin, MD, an Associate Professor of Orthopaedic Surgery at Stanford University and serial medical device entrepreneur (founder of InnoSpine, acquired by Kyphon; and Simpirica), recently sat down with the Biodesign Alumni group to discuss his experiences being involved in both clinical practice and medical device entrepreneurship. From a deep personal history of combining medtech innovation and clinical practice specializing in spine surgery, Todd was able to provide insights into what makes for a successful physician-innovator. Read more
Medtech sales is being turned on its head by policy changes and the growth of Big Medicine. Sales reps and device innovators can pivot their strategy and still be successful if they properly identify stakeholders and adapt their value proposition.
Only a few years ago, a medical device sales representative (“rep”) could establish a relationship with a clinician, convince this provider of a new product’s clinical benefit, and close a sale. These days, throughout the medtech industry, we often hear horror stories of hospital systems taking purchasing decisions away from clinicians, large group purchasing organizations (GPOs) stifling innovation, and physician-owned distributors trying to replace sales reps. What in the heck is going on with medtech sales?
Despite frequent grumblings heard throughout our industry, the data show that the Life Science investing climate might not be as bad as we were all led to believe. In the July Silicon Valley Bank report “Continued Rebound: Trends in Life Science M&A”, by Jonathan Norris, it looks like Life Science “Big Exits” (upfront payment of at least $50MM device/$75MM biotech) are on the rise. SVB looked at private merger or acquisition transactions of U.S. venture-capital backed Life Science companies since 2005 and pointed to positive momentum in the life science industry and continued solid exit activity. Mr. Norris of SVB was nice enough to share additional figures along with his July report with Biodesign Alumni. Read more
In his constant search for the latest trends in medtech investment, Brad Vale shares some secrets to the success of one of the oldest corporate venture arms.
The Biodesign Alumni group recently had the pleasure of sharing dinner with Brad Vale, an industry leader in corporate venture funding and the VP, Head of Venture Investments of Johnson & Johnson Development Corp (JJDC). Naturally, the theme of the evening revolved around the role of corporate partners in financing and supporting early stage product growth. We walked away from the evening with three key lessons that Brad imparted on the alumni: (1) investment sources are rapidly changing in the medtech industry and will continue to involve more and more angel and corporate venture partners; (2) carefully monitoring environmental changes in the industry rather than following a rigid investment protocol allows early stage investors to be strategic rather than reactionary; and (3) invest first in the people, then in the solution. Read more
If There’s a New Model, What Is It? How Lean Can Be Rewarding
Last month several Biodesign alums had the opportunity for an in-depth personal conversation with serial medical device entrepreneur Erik van der Burg. Many of us were eager for the chance to hear directly from Erik about his approach to medical device startups.
We’ve been exposed to many of the headlining success stories of the past few years, which are always inspiring. However, the current funding environment has made the classic model of a big game-changing idea backed by bold venture capitalists as difficult as ever. Tolerance for risk among funding sources has diminished. This environment has led many in the space to ask: “What is the new funding model?”
Beverly Huss, President and CEO of Vibrynt, joined our Biodesign Women Alumni group for dinner a few weeks ago.Vibrynt is dedicated to creating minimally invasive therapies for patients suffering from morbid obesity. We had a wonderful time learning about Beverly’s experiences, both as a CEO and as someone who has spanned the gamut of leadership roles in a big company, namely Guidant: research and development, manufacturing, sales, marketing, finance, regulatory affairs, quality assurance, clinical affairs, and human resources. Beverly concluded her career at Guidant as President of Endovascular Solutions and Vice President of Guidant Corporation before transitioning to Vibrynt.
People First – Mentorship, Team, & Network
Beverly was enjoying a well-deserved half-retirement when she was asked to be the CEO of Vibrynt.