WHITE BEAR TOWNSHIP, MINNESOTA– It took nearly 15 years, $105 million, a name change and countless technical hiccups, but Envoy Medical Corp. investors can finally see the endgame.
Or more accurately, they can hear the endgame.
In December, a scientific panel advising the Food and Drug Administration unanimously recommended the agency approve the company’s Esteem technology, an implantable device designed to help patients with moderate to severe hearing loss. The decision paves the way for the FDA to formally approve Esteem in February, allowing Envoy to start selling the $30,000 system the following month.
Investors always say they believe in a big payday. But these aren’t just any investors: Minnesota Timberwolves owner and billionaire Glen Taylor owns 15 percent of Envoy; Roger Lucas of biotech firm Techne Corp. control a 19 percent stake; former Medtronic Inc. vice chairman Glen Nelson, a prolific investor, owns a little under 1 percent.
In an interview, Roger Lucas, a former senior vice president and chief scientific officer for Techne, said he believes Envoy will go public in two years and reach a $3 billion to $5 billion market cap. He has invested $15 million in Envoy.
“I was looking for a biological solution beyond hearing aids,” Lucas said.
Despite Lucas’ optimism and Esteem’s promising clinical results, significant obstacles remain. Doctors may not embrace such a new technology. At $30,000, Esteem costs more than a pacemaker (not to mention most cars,) and not likely to win reimbursement, experts say. As a result, Envoy, which plans to market Esteem directly to consumers through TV and radio ads, will finance the procedures.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
“The cost is high,” said Dr. Stephanie Lockhart, director of audiology at the University of Cincinnati’s “Traditional hearing aids range in price from a few hundred dollars each up to about $3,000. Most insurance companies do not cover the cost of hearing aids. I question whether the implantable device would be covered.”
And any surgery carries risk, Lockhart said.
“In this surgery, the ossicular chain (three small bones in the middle ear), are disturbed,” she said. “Although I’m sure that the device failure rate would be low, in the event that the device did fail, the patient would be left with additional hearing loss.”
Esteem is worth the risk and money, especially in treating conductive and/or sensorineural hearing loss, said Envoy CEO Patrick Spearman. In normal hearing, sound causes the ear drum to vibrate, moving fluid inside the cochlea, an oval-shaped area in the inner ear. The motion prompts tiny hairs to touch nerve endings, which converts the movement into electric signals sent to the brain.
In conductive hearing loss, sound moving through outer and middle ear is blocked. Sensorineural hearing loss is more severe–the hairs don’t vibrate properly, disrupting the electric signals to the brain.
Hearing aids, which rely on microphones to amplify sound, are flawed devices because they don’t effectively filter out unwanted noise, Spearman said.
“It’s like listening to a megaphone or the [fast food restaurant] drive-through speaker,” he said.
In addition, wearing hearing aids carry a social stigma, Spearman said. That’s why Envoy named its device Esteem because it builds self confidence–people can’t see Esteem because the entire system is implanted in the ear. Newer generation cochlear implant devices like Nucleus Freedom and Baha Cordelle require patients to wear external components.
“When you wear glasses, people don’t think you’re disabled because [they think the glasses] work,” Spearman said. “Esteem accomplishes what hearing aids set out to do but haven’t been able to do.”
Here’s how Esteem works: The system consists of a sensor, sound processor and driver. The sensor picks up vibrations from the ear drum and converts them into electric signals. The sound processor, a specially designed computer chip, cleans up the signals and boosts its power. Finally, the driver converts the signals back into mechanical vibrations and transmits them into the cochlea.
“Using the natural ear is the number one advantage we have,” Spearman said.
The patient can turn on/off Esteem through a remote control-like device and adjust volume and personal settings.
Dr. Lockhart of the University of Cincinnati praised Esteem’s design.
“The device is invisible,” she said. “Many people shy away from hearing aids because of the stigma. With traditional hearing aids you must remove the devices when you swim, shower, or sleep. Also, excessive perspiration can be harmful to the hearing aids. There would be no daily maintenance required [like] cleaning. Since there is nothing that has to be inserted into the ear canal, this device would be comfortable to wear.”
One feature that sets Esteem apart is its battery, which is based on pacemaker technology. That’s not surprising since the company, first called St. Croix Medical, was founded in 1995 by Ted Adams, a former vice president of research and development for Cardiac Pacemakers and St. Jude Medical and director of engineering for Medtronic Inc.
Designing a piezoelectric battery small enough for the ear took Envoy several years to develop. Because of its miniature size, the battery had to consume less power and perform reliably. The company says Esteem’s battery lasts six years (a replacement battery could cost $2,000), while hearing aids and other cochlear implants must be recharged.
Envoy faced other challenges. Normally, companies first perfect their technology on animals, something that can’t be done with a hearing device (pigs and rats don’t understand humans anyway). During Envoy’s first clinical trial, the driver broke loose in several patients. The company says it has fixed the problem.
Spearman says Envoy’s clinical data shows Esteem improved patients Speech Reception Threshold scores by an average of 11 decibels over hearing aids. While the FDA won’t yet allow Envoy to claim Esteem is superior to hearing aids, Spearman is confident the agency will do so.
Selling Esteem might be tougher than creating the technology.
“The biggest problem is getting surgeons up to speed,” Lucas said. “That will be the bottleneck. It is fairly difficult to implant properly.”
Assuming doctors want to learn. Some physicians are reluctant to try new technologies, especially if there’s conflicting opinions on safety and performance, Spearman said.
According to a December 2008 survey of 594 patients who received cochlear implants, only 46 percent of respondents said a audiologist or hearing instrument specialist referred them to the technology compared to 34 percent from a primary care doctor or a ear, nose and throat specialist. Twenty percent reported no professional referral, instead relying on friends, family and the Internet.
“The market penetration of cochlear implants is surprisingly low,” said the survey, conducted by Cochlear Americas and published in The Hearing Review. “Many patients who fall within the current candidacy range are never referred to evaluation for a cochlear implant. And that can present problems for the patient and dispensing professional.”
Normally, medical device companies market their technology to doctors, with hopes they will recommend them to patients. However, Envoy will take its message directly to the consumer through mass radio and TV ads.
“The patient will decide whether this works or not, not the medical community,” Spearman said.
Envoy will not even bother to apply for reimbursement. To help patients afford the $30,000 device and operation, the company will offer customers financing options.
“I think that this may be a good solution for people who are unsuccessful with hearing aids and who can afford the technology,” Dr. Lockhart said.
