Sanovas: Disrupting The MIS Market

Executive Summary

There’s tremendous potential for growth in minimally invasive surgeries, but successfully tapping into that market requires broad expertise. In an exclusive interview, Larry Gerrans, co-founder and CEO of medical device developer Sanovas, talks about his formulated approach to developing technologies, launching new companies, and disrupting the status quo.

There’s tremendous potential for growth in MIS, but tapping into that market requires broad expertise. Larry Gerrans, co-founder and CEO of medtech developer Sanovas, talks about his formulated approach to developing technologies, launching new companies, and disrupting the status quo.

  • Sanovas aims to tap into the global market for minimally invasive surgeries, which it estimates at 3.1 billion patients worldwide.
  • The first six companies it has launched focus on catheters and cameras for MIS. Rollouts in 2015 will feature diagnostics and drug delivery products, as well as surgical robots
  • Part of Sanovas’ formula for success depends on developing products that have an average selling price that does not exceed 20% of reimbursement
  • Although it is facing heavy competition, Sanovas believes its intellectual property and its ability to move quickly give it an advantage over much larger competitors

A series of medtech start-ups are poised to change the way medicine is practiced in a variety of specialties, and the disruptive technologies fueling them are coming from Sanovas Inc.,the medical device developer founded in 2011. Sanovas is led by co-founder and CEO Larry Gerrans, who has a track record of success in previous stints at Johnson & Johnson/DePuy, Stryker Corp., and Smith & Nephew, among others. Gerrans is also known for helping to usher in new technologies, devices, and techniques in minimally invasive surgery (MIS) in the 1990s, and it is his expertise in this area that is playing a major role at Sanovas.

Sanovas has lofty goals, but at their heart is the simple strategy of developing and commercializing technologies that address unmet clinical needs. It has patents for MIS devices designed to let physicians diagnose and treat patients in the small spaces of the body that have previously been unreachable. The focus is on oncology, pulmonology, cardiology, neurosurgery, ENT, GI, general surgery, urology, and gynecology, and the company says it expects to receive its first five clearances from the Food and Drug Administration during 2015.

Meanwhile, the first six companies, spun out in March 2014, are up and running, led by MicroCam Inc.,which is building and promoting the next generation of small-diameter, plug-and-play surgical cameras. The other members of Sanovas’ portfolio are PulmoGenix Inc.,founded to advance a joint venture with Mayo Clinic to develop an asthma therapy [See Deal]; RetinalGenix Inc.,developing an ultra-wide-angle fundus camera to help detect diabetic retinopathy in its early stages; Otogenix Inc.,working on a new balloon sinuplasty technology to improve the treatment of chronic sinusitis; AngioCure Inc.,using a derivation of Sanovas’ three-balloon catheter to perform occlusion, perfusion atherectomy to remove plaque from arteries and veins to reduce the chance of heart attacks and strokes; and Sanovas Pulmonary Inc.,set up to commercialize a suite of access, imaging, physiological metric, diagnostic, therapeutic, and drug delivery technologies for the interventional pulmonary sciences. (See Exhibit 1.)

EXHIBIT 1

Sanovas plans to spin off an additional six companies in 2015, and Gerrans says whereas the 2014 class is basically focused on catheters and cameras for MIS, the next half dozen companies will be geared toward diagnostics, drug delivery, and surgical robots.

A key to Sanovas’ operation is not only the development of technology but also a business model built on a precise formula that targets the development of devices that have a high chance of being adopted by physicians and creating satisfactory revenue. In this interview with START-UP,Gerrans explains the formula as well as other key details of his operation and the market.

START-UP: Sanovas started as a company focused on lung cancer and pulmonary diseases, but you have expanded from there. Can you explain that a little?

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Larry Gerrans: Yes, pulmonary is where it all began. And as we developed the technologies required to overcome the procedural risks and technological challenges of operating in the airways, we found ourselves in possession of an arsenal of new tools that have broad application throughout the body. So, we’ve pinpointed various unmet clinical needs in these other sectors, and we have diversified Sanovas’ assets beyond pulmonary to create technologies that address the unmet clinical needs in these other sectors. These are all game-changing assets that, we believe, are going to fundamentally advance the interventional sciences. We have created an entirely new class of interventional catheters and surgical cameras. We have invented entirely new methods to acquire physiological metrics, perform in vivo diagnostics, and deliver the next generation of in vivo drug delivery technologies and surgical robots.

Sanovas plans to spin off an additional six companies in 2015, and Gerrans says whereas the 2014 class is basically focused on catheters and cameras for MIS, the next half dozen companies will be geared toward diagnostics, drug delivery, and surgical robots. A key to Sanovas’ operation is not only the development of technology but also a business model built on a precise formula that targets the development of devices that have a high chance of being adopted by physicians and creating satisfactory revenue. In this interview with START-UP,Gerrans explains the formula as well as other key details of his operation and the market.

START-UP: Miniaturization of devices for minimally invasive surgeries certainly seems to be a key component to the company. How do you view that market?

Larry Gerrans: Miniaturization is clearly the catalyst of our pursuit. The addressable patient population for minimally invasive surgery has escalated from the 1990s when it was about 750 million, largely comprised of Americans, Europeans, Canadians, and Japanese. What we have seen since then is tremendous growth and affluence in the world’s middle class, to the point where we now have a global patient population of 3.1 billion citizens who have a modicum of wealth, and who have growing governance that recognizes the correlation between health, wealth, and taxation, that can now afford to treat these patients.

The problem that we saw, though, was the providers and the governments in these emerging economies could not afford the exorbitant cost of the capital equipment that’s associated with the delivery of minimally invasive surgery. So, one of the keys to our approach has been not just the focus on miniaturization, which we have achieved, but also the focus on efficient technology platforms that are affordable and portable, that can be used to help grow minimally invasive surgery in these emerging markets. And by virtue of our first-comer status in these emerging markets, we believe that we’re going to be able to grow the enterprise exponentially because we will be able to pull through all the adjunct technologies that are required to deliver MIS to emerging populations – not to mention the fact that we are going to completely and totally reinvent the way minimally invasive surgery is done in the existing market.

We’re going to address the cost concerns in today’s marketplace, and focus our efforts on less invasive technologies that are more affordable and more portable. By virtue of that, we believe we’re going to be able to expand through Sanovas' asset portfolio – minimally invasive surgery – to 3.1 billion patients, globally. That’s what permeates our consciousness as we develop these technologies. It’s not just about minimally invasive or miniaturization. It’s also about globalization.

START-UP: When you’re talking about the addressable and emerging markets, how do you characterize those?

Larry Gerrans: The existing markets have grown to about a billion, as it relates to Europe, the US, Canada, and Japan, and then there’s the rest of the world, where you’ve got another two billion patients out there. That includes China, with no less than 750 million addressable patients. In India, you’ve got over 700 million patients. In Southeast Asia, you’ve got another 200 million. Russia and the Baltic States are also growing. Obviously, the Middle East is quite affluent, and then there’s South America, with Brazil, Argentina, and Columbia growing. They’re all growing in affluence; they’re all growing in independence, from energy independence to internal wealth creation, and also, there’s a recognition by these governments that “health is wealth.” And if you’ve got healthy workers and healthy citizens, they are going to create less welfare, and they’re going to be gainfully employed and drive the taxes and spending to help grow their economies and infrastructure.

START-UP: When you introduce a new technology that changes medical products, even if the product is spectacular, you still have to get physicians to buy into it. How do you get adoption by physicians?

Larry Gerrans: We have an understanding that doctors buy from doctors and the way we focus our business is to work with key opinion leaders, key thought leaders, to make sure that we’re developing products by doctors, for doctors. I think one of the biggest mistakes that I’ve witnessed in my career is allowing engineers to run away with product development without any physician input. That’s just not the way we run our organization. We’ve got over 250 doctors under non-disclosure agreements, and they provide us with a continuous and ongoing consultation to make sure that the technologies we’re delivering are going forward in their hands and those of their peers. And then, once we start to commercialize products, we implement comprehensive training programs.

That was one of the things that really worked well for us during the minimally invasive surgery boom of the 1990s. I was on the ground floor of a lot of the endoscopic technologies. We changed a lot of paradigms in the 1990s and early 2000s, and we’ve become very proficient in teaming up engineers and product managers with physicians to advance minimally invasive procedures. So, really, this pursuit hasn’t been much different. It’s formulaic, quite frankly. And that is making sure that you’re combining solid engineering with state-of-the-art technology and cutting-edge surgeon consultations to make sure we get the products right. And then, again, once you commercialize, it’s about training. It’s all about doctors training doctors, and doctors working with doctors.

And, again, I think the key is giving surgeons and doctors intrinsic ownership in the development of the technology, and the clinical validation of the technology because that leads to peer-reviewed publication. You’re going to find out the good, the bad, and the ugly about technology. I’ve been down this pathway enough to have developed really slick technology that, once it got into the doctors’ hands, they found it was overkill, and they blasted it in the literature, and it fell apart, which sometimes is part of the process. But, almost like a phoenix effect, what came up out of the ashes of that initial failure was the next best technology. So, it’s just perseverance and tenacity, and making sure that you’re working with the doctors to identify their unmet clinical needs, and getting the right technology to develop that is not just going to work for the crème de la crème of the surgical establishment, but is going to work optimally in the hands of the local community physician.

START-UP: The process of getting a product to market has changed significantly in the last 10 or so years, and there are a number of risks. How do you handle that part of the business?

Larry Gerrans: When it comes to commercialization, we’ve got a formulated approach, wherein we first evaluate the addressable marketplace. We will not develop a technology for a condition that has a currently treated patient population of fewer than six figures – and I’m talking mid six figures. And then, for that patient population, given current market dynamics, you’ve got to make sure you are developing a technology that also has established reimbursement. That’s another component, another variable. Then, for the established reimbursement, you have to make sure the average selling price (ASP) of your technology does not exceed 20% of the CPT code, the reimbursement code for that procedure, because you want to make sure you introduce your technology in as innocuous a manner as possible, because as the market has evolved, regrettably, physicians have, in many cases, lost their autonomy in making decisions in the hospital. So, a lot of the decisions on technologies that are being purchased by the hospital are being made at the "C" level and at the materials management level. Doctors are being forced to use technologies that are part of a GPO [Group Purchasing Organization] contract. Oftentimes, those are secured by large multinationals such as Johnson & Johnson or Covidien, for example.

So, if you’re going to introduce new technology, there are a lot of barriers to getting it into a hospital. You’ve got value analysis committees now that meet every quarter, every six months, so that creates a delay to market. You’ve got policies that preclude your selling force from even getting in front of the doctors because vendors have to go through materials management to gain access to the doctor and the surgical lounge, which is, a lot of times, where doctors don’t have much to do and spend time waiting for procedures to turn over. Those were always unique opportunities to educate doctors on new technology. Now that that’s been shut down, it’s tough to get new companies with new reps into these environments. So, you have to be sure you’re delivering the right technology that’s going to captivate the doctor’s attention. So, the formula is, it’s a six-figure patient population with an established reimbursement. The ASP does not exceed 20% of the reimbursement, and that ASP has to have an 80% margin. If you can’t commercialize a product that has an 80% margin, then you just shouldn’t go there. You figure it out, or put it on a back burner, and make it a technology as part of a comprehensive solution. That’s part of our formula.

START-UP: Some companies acquire technology, others develop it or commercialize a product on their own, and some use a combination of both. What’s Sanovas’ model?

Larry Gerrans: Everything is coming from the people we have now, in house. I’ve surrounded Sanovas with some of the best minds and some of the best talents in the industry. I’ve brought a lot of my guys over from J&J and Stryker, and they really help us drive this business. And again, to your point, a lot of companies do go outside for technology. They take a little bit of technology from there, a little bit from another source, and maybe they couple it together and create a new mousetrap. We’re 100% pure innovation. That’s the beauty in Sanovas. We’re developing cutting-edge technologies that are 100% pure innovation and are all the genius of our collective experience and from working with pulmonary physicians to try to help address their unmet needs.

START-UP: And you’re targeting some of those unmet needs with the six companies you spun out at the beginning of the year, right?

Larry Gerrans: Yes. This was the year to diversify the company’s assets and to maximize our shareholder value. So, we’re still pursuing the pulmonary technologies, and we’ve got about 35 or 36 assets in just the pulmonary technology portfolio. But, along the way, we teamed up with the physicians at Mayo Clinic to combine our technologies with their technologies to create a surgical cure for asthma. It’s a very exciting project, and that company, PulmoGenix, is off and running right now, and we’re working on some preclinical studies at Mayo with physicians there.

With MicroCam we’ve got another very exciting technology that effectively displaces 90% of the equipment that’s required to generate an endoscopic image, and lowers the cost of surgical camera systems by 80%. That is a phenomenal advance in surgical endoscopy that is going to be very, very disruptive to the current players in the marketplace and to the economics of endoscopy, in general. Frankly, it’s a long time coming. Having worked for Stryker and for Smith and Nephew, I often lamented the fact that these camera systems were very large, very bulky, and took up a significant footprint in the operating room.

They were fraught with repairs and always created so many problems and heartburn for the operating room staff and the physician. We’ve created a very durable and portable plug-and-play camera that plugs directly into the monitor, and it’s a phenomenal advance. We’ve got one of the more accomplished surgical endoscopy teams in the marketplace at Sanovas, and we’re leading MicroCam into the marketplace now. I think it’s going to be very disruptive, and I think it’s time has come. When you look at the flexible endoscopy marketplace, you’ve got Olympus [Olympus Corp.] with an 80% market share, Pentax [Pentax Corp.] with a 15% market share, and Fuji [Fujinon Inc.] with 5%. So, really you’ve got an oligopoly, if not an outright monopoly, in flexible endoscopy. And those guys are fat and happy with their current systems. Olympus just put out a press release saying it's going to sell new flexible endoscopy system for $130,000. We’re going to sell one for $20,000 that is going to be every bit as good.

Again, serving the life sciences means you’ve got to think about globalization as much as you think about miniaturization. I see a big company like Olympus that could, if it wanted to, deliver these technologies globally and expand the global marketplace, expand the pie, but it's still focused on its existing marketplace, and its driving up its ASP. Granted, the technology is getting better, no question about it, but there is an emerging marketplace out there that needs to be serviced and needs to be paid attention to, and there’s an existing marketplace here in the US that’s trying to drive down cost, not drive up the cost. It cannot be lost on us that we serve the greater good and that is patient care. We serve all people and economics have to factor into that equation.

START-UP: If you’re successful with your plan, then the bigger guys are going to notice and perhaps adjust their models. That would change the competition. How much time do you think you have before that would happen?

Larry Gerrans: Well, if I had one technology, maybe I would be worried. But the reality is, I’ve been an innovator, and I’ve been a leader in life sciences for the last 20 years. I’ve put a lot of the gold standard technologies that you know today on the map. And anybody who knows me knows that I’ve been at the tip of the spear of innovation since the day I stepped into this space. And I will be here until the day I step off this planet. So, I invite the competition, because at the end of the day, I’m a competitor, and I think that anybody who loves what they do in life sciences is going to compete. My attitude is, I can play for you, or I can play against you, but either way, I’m coming to play. And you just have to identify what side of the ball you want to line up on. And I don’t want to say that in an arrogant tone. I’m just saying that matter-of-factly, because I recognize the big guys that are out there. But, I also recognize that those big guys can’t move as fast, and they’re not as agile as we can be. That’s number one. Number two, they don’t have the intellectual property that is going to deliver on the promise of advancing MIS, globally. We do!

FDA REGULATORY DISCLOSURE: Sanovas Inc. is an emerging technology company.
These products are investigational medical devices that have not been approved or cleared for use in the United States.