Now here’s the best of what YOU had to say:

How long can you go? Creating value with cheap medical devices. Medtronic may be able to play the price disruption game, but we ask ourselves whether the small emerging med-tech company can achieve success (and funding) with a ’tons cheaper’ value proposition. In theory, any company starting fresh with design and manufacturing should be able to take advantage of Moore’s law in a way that the big guys with vast installed bases and capital investments can’t. The opportunity for success is there, but not every company or technology is cut out to win at price-cutting.

A huge American opportunity waiting to happen. Mr. Hague tells me his Cellsonic machines do it all — but none of these indications are FDA cleared — and, without a predicate device on the market, trials will be very, very expensive. Andrew explained the opportunity and outlined what he needs to do next.

Doctors fire patients over money? Sometimes. Health? Definitely. The more typical reason why we fire patients from the practice is because of continued behaviors and actions which place them and me at risk. For example, if a patient with cirrhosis, a severe liver condition, will not keep scheduled medical appointments, we may have to cut him loose.

Big Pharma marketing could teach the FDA about communication. Turns out the Food and Drug Administration doesn’t achieve the impact it’s looking for in communications with physicians. That finding is drawn from a new paper that evaluates the impact of FDA warning labels and public health advisories over the past 20 years.

Meaningful Use Attestations and Audits: A Word to the Wise. 2012 will see the first audits for the CMS EHR Incentives and there will be some real horror stories coming out when incentives are taken back due to incomplete or missing security documentation. Don’t be one of those. As Aunt Bee used to say: “a stitch in time saves nine.”

Earlier in an interview with MedCity News, Phraxis CEO Michael Kallok had said that the company intends to raise $5 million. After the filing, he noted that the $1 million is a bridge financing and that he still hopes to raise $5 million.

“It has taken longer than we anticipated to find investors, so we wanted to keep the development momentum going while we negotiate with venture investors and they do their diligence,” Kallok wrote in an email.

Phraxis is trying to develop an implanted device that will serve as an alternative to how hemodialysis treatment is provided to patients with the goal of reducing infection. The device has a novel connector design that allows one end to be attached to the artery. A synthetic graft material is then attached to this connector and is tunneled under the skin, and the other end is connected to a vein in the patient. The graft doesn’t require any sutures to implant.

The technology was developed by Phraxis’ chief scientific officer Alexander Yevzlin, a professor at the University of Wisconsin-Madison and a director of Interventional Nephrology and the university’s chronic kidney disease clinic. Yevzlin founded the company in 2009 and currently serves as a part-time chief scientific officer.

While the company readies for the larger fundraise and gets close to a final design, Kallok said he has been able to confirm the regulatory path of the implanted device: it will be to require a 510(k) FDA clearance and not the more lengthy and expensive premarket approval. Phraxis also has some data to share about the device — it will present results of animal testing and mechanical modeling at the American Society of Diagnostic and Interventional Nephrologists (ASDIN) annual meeting in New Orleans to be held Feb. 24 through 26.

The ongoing battle to repeal the medical device tax continues with the latest campaign being led by House GOP freshman Todd Rokita from Indiana.

Rokita, along with 74 cosigners, sent a letter Monday to Speaker John Boehner that asked him to bring a bill to the floor that would essentially kill the $2.2 billion annual tax to be paid by the device industry starting next year.

Whether it will be an effective strategy remains to be seen.

But the letter appears to link some hard-to-connect dots. It specifically refers to a study called “Employment Effects of the New Excise Tax on the Medical Device Industry,” by Hudson Institute senior fellows Diana Furchtgott-Roth and Harold Furchtgott-Roth. The study concludes that “device manufacturers will be more likely to close plants in the U.S. and replace them with plants in foreign countries” if the tax is implemented.

That seems to be a stretch.

Medical device manufacturers have had operations in the Asian nation of Japan for years. No one claimed that jobs were being lost here then. And now medical device manufacturers are ramping up their presence in Asia and other international markets, while slowing down in the U.S. precisely because they are smart business people.

All they have to do each quarter is to take a look at their international sales figure and see how the demand from countries like China, India and Brazil are far outstripping demand in the U.S. No wonder CEOs of major companies like Medtronic and Boston Scientific have a new mantra: Go East.

To suggest that the burden of the device tax is leading them to do this is naive at best, disingenuous at worst.

A successful medical device entrepreneur used that very term — disingenuous — to describe Stryker’s claim that it is laying off 5 percent of its workforce and reducing its operating budget by $100 million because of the medical device tax. (The GOP letter also alludes to Stryker.)

But he had this to say about the medical device tax: “You tax something you want less of.”

That sounds reasonable and will likely happen, but it may be hard to measure in the stark terms the device industry and some politicians would have people believe.

A startup that’s developed a device to better secure intravenous lines has landed its first major customer.

Linebacker said winning its first big client would help the startup build credibility for its eponymous product and expand to other healthcare systems, according to a statement from the Columbus-area company.

The company didn’t have to look far for the client, Columbus-area hospital system OhioHealth. Linebacker, which was formerly known as Sybermed, was founded by Dr. David Sybert, chairman of the department of anesthesia at OhioHealth’s Riverside Methodist Hospital in Columbus.

Linebacker is also the name of the company’s product, a disposable, low-cost device designed to lock in a catheter and IV line with a hook-and-loop closure. The company says the device is stronger, more comfortable and more secure than medical tape. The device comes with a strap that allows for customization for patients.

Linebacker has three versions of its device aimed at adults, children and infants.

The company has had customers before, primarily emergency medical crews, but its sales in each of the last two years were under a paltry $12,000, CEO Jack Kromar told Columbus Business First.

“This gives us a reference account — a highly visible, nationally recognized account,” Kromar said to the media outlet. “It adds a significant amount of credibility for us.”

He wanted to raise $5 million and also take advantage of the Minnesota Angel Investment Tax Credit program. But the angel program puts a cap on the amount of money a company can raise and still be considered a qualified business for investors to receive the credit. That amount is $4 million.

So Berman and his two co-founders drew up investor documents such that once the state returns 25 percent of the money invested to the angels, each of them would plow that money back into MicrobEX. Berman closed the round in October where he raised $4 million and the remaining $1 million will come over the course of the year as the state starts making payments.

This unusual negotiation strategy was likely helped by Berman’s track record. He  was a co-founder of Velocimed which St. Jude Medical bought for $74 million in 2005; a board member at Lutonix, which was sold to C.R. Bard for $225 million late last year; and president of Boston Scientific’s Cardiology business between 1995 and 2000.

Berman is also involved as either a co-founder and/or an investor and board member at 10 startups currently.

Neurostimulation company Checkpoint Surgical has raised a $1.7 million series B round of investment and expects to win European regulatory approval of its intraoperative device shortly.

The Cleveland-area company will use the new funding to boost its U.S. sales and marketing staff, CEO Len Cosentino said.

Checkpoint received U.S. Food and Drug Administration clearance to sell its device in late 2009. The company expects to receive the European equivalent, the CE Mark, within a few months.

The company’s handheld, disposable device, called the Checkpoint Stimulator/Locator, stimulates motor nerves so surgeons can avoid damaging them during surgery. The device also helps physicians gauge nerve and muscle health. It’s used primarily by orthopedic; plastic; and ear, nose and throat surgeons.

Checkpoint’s series B round was led by its primary investor, the NDI Healthcare Fund. NDI also runs a neurotechnology incubator that helped start Checkpoint and is best known for the $42 million sale of a urinary incontinence-treating product to Medtronic in 2008.

As a result of the new funding, Checkpoint now has six sales representatives in the field. The company has more than 50 hospital customers and posted strong revenue growth of about 250 percent last year, Cosentino said.

Also on Checkpoint’s priority list: a second version of the Stimulator/Locator that could be used arthroscopically. The second device would essentially do the same thing as the first, but would be designed for use in less-invasive surgeries.

The arthroscopic device is still in development, but Cosentino hopes to begin clinical testing of it sometime this year. A 510(k) submission could follow in 2013.

The chief executive of what was touted as a $100 million investment fund aimed in part at Ohio medical device companies has been indicted for his alleged role in the failure of a suburban Cleveland credit union.

The indictment of 43-year-old businessman Eddy Zai, who was charged with 34 counts related to more than $16 million in unpaid loans, raises questions about the future of the Cleveland Bio Fund, which was planning to invest in small- to medium-sized medical device companies that were looking to expand in China.

Zai surrendered to the FBI this morning, The Plain Dealer reported.

A spokeswoman for the Cleveland Bio Fund said the group would continue.

“The Cleveland Bio Fund is an independent private equity fund that will continue to operate and search for cross-directional business opportunities with China,” she said. “Eddy will no longer be involved. Kristen Laughlin will continue to work on the initiative for the near term until permanent staffing is determined.”

Cleveland Bio Fund was planned to source deals on behalf of Newsummit Pharmaceutical Group, a Chinese company that is backed by renowned U.S. venture capitalists Sequoia Capital and other venture firms. Zai told MedCity News in September that the fund would begin by scouting deals in the Cleveland area and then branch out to the rest of the country.

“We’re as surprised as everyone else” to hear of Zai’s indictment, said a spokeswoman for Cleveland nonprofit biomedical development group BioEnterprise, which is listed as an adviser and “key partner” on the fund’s website.

In a press release announcing the formation of the Cleveland Bio Fund, Newsummit said $30 million of the fund’s anticipated $100 million had already been secured. The fund has not announced any investments. Zai said in September that the fund planned 15 to 20 investments over the next year, but he also said he expected the fund would make an investment by the end of 2011.

Newsummit executives visited Cleveland last year to evaluate medical device investment opportunities.

Zai was also involved in another project, the Cleveland International Fund, which invests in real estate. The idea behind the fund was to source capital from foreign investors looking to take advantage of a federal program that offers green cards to foreign investors who help create jobs. In Cuyahoga County, which includes Cleveland, each investor must put up $500,000 and create at least 10 jobs to gain American residency, The Plain Dealer reported last year. (A similar Columbus-based fund associated with Zai has decided to disband, but the Cleveland International Fund will continue.)

Zai was one of 19 people indicted for roles in the collapse of St. Paul Croatian Federal Credit Union. He is charged with two counts of conspiracy, two counts of bank fraud, one count of bank bribery, 11 counts of money laundering, 17 counts of making false statements to a bank and one count of making false statements to law enforcement, according to The Plain Dealer.

[Photo from flickr user futureatlas.com]

That is an astonishing collapse for a company that had inked licensing deals with the pharma giants like Novartis, been named by Red Herring magazine to its list of  Top 100 private companies globally and raised at least $8 million since 2007 when it was founded.

The company’s basic technology came from the University of Minnesota, where its founder and previous chief executive Shawn Lyndon was CEO in residence. According to his LinkedIn profile, he left the company sometime in January 2011 and a new CEO Rajiv Khosla took over the reins in May. Lyndon is now based in Australia.

It appears that the company closed in December, according to the LinkedIn profile of Sarah Haecker, who was Orasi’s vice president of pharmaceutical business development between October 2009 and December.

It wasn’t exactly clear what led to the company’s demise. A University of Minnesota spokesman referred comment to the company’s board and CFO Dallas Steiner. Steiner did not immediately respond to an email seeking comment. Mike Jerstad, a board member and partner with Prairie Gold Venture Partners, a major investor in Orasi, did not return a call seeking comment.

Frank Jaskulke, director of member services at LifeScience Alley, a Minnesota trade group, said the company was in the process of selling its intellectual property — the parts that were not licensed from the University — to other companies. He said the startup did not fail because of “bad management” but because it had reached that inflection point in the life of all young firms where a decision has to be made whether to move forward or not.

“For them it was a no go,” Jaskulke said, declining to comment further.

Orasi began life in 2007 when it licensed an imaging technology from the University. The goal then was to develop the country’s first U.S. Food and Drug Administration-approved device to diagnose Alzheimer’s by using software that analyzes data from magnetoencephalography (MEG), which measures small electromagnetic signals from electrical activity in the brain in real time. The idea was to scan the brain of a suspected Alzheimer’s patient and contrast it against an image database of normal brain activity.

At one point the company said it owned the largest commercial database of magnetoencephalography (MEG) scans and was the only provider of MEG biomarkers — those critical, genetic clues that scientists use to identify diseases.

Later, the company changed course having realized that its technology would be valuable to drug companies who could use the database to determine whether or not to pursue a therapy instead of spend billions of dollars on a drug that has a high likelihood of failure. That led to partnerships with Novartis and Danish drug maker H/Lundbeck A/S.

Five months before its apparent demise, the company published results of a clinical trial measuring the severity of Alzheimer’s that showed the promise of its technology.

The money will come from a $3 million angel financing round the company hopes to close in May, said CEO John Dinusson. OrthoCor filed its intent to raise $3 million in a regulatory filing in June.

“We are flying high,” Dinusson said.

That’s likely not a surprise given the high-profile endorsement the company got regarding its Active Knee System, a knee brace.

Other than the Active Knee System, OrthoCor also makes heat wraps under the Alleva brand name. They are available for sale right from the company’s website.

The company is also focused on getting its cold wraps in the marketplace, which will be available this summer.

The dry eye treatment developed by TearScience received 510(k) clearance last week, about seven months after the company’s novel medical device received its first marketing go-ahead from the U.S. Food and Drug Administration.

While the speed at which regulators granted the second 510(k) clearance surprised TearScience CEO Tim Willis, he says the sequential filings were by design.

“If you tried to do both of these filings (at once), especially in this regulatory environment, I doubt we’d get cleared by now,” he said.

An estimated 100 million people worldwide have dry eyes, many of them suffering from evaporative dry eye. Evaporative dry eye is caused by insufficient supply of the oils that keep the tear film from evaporating. Dry eye symptoms can be managed with drugs or eye drops, but Morrisville, North Carolina-based TearScience has developed and commercialized a medical device to treat the condition’s underlying cause. The device, LipiFlow, uses a combination of heat and pressure to clear the channels that supply oils to the tear film. According to research firm Market Scope, the dry eye market is a $9 billion a year business. By comparison, Lasik eye surgery represents just a $1.6 billion market.

Willis said that had TearScience been in a position to apply for FDA clearance on its technology 10 years  ago, the company would have submitted everything in one filing — all 7,000 pages of it. But Willis said that the current FDA is risk averse, which slows review of new devices. In hopes of speeding things along, the company made an initial filing for the part of LipiFlow that treats the patient — the disposable piece that is used on the patient’s eye. After that part received FDA clearance, the company filed its application for what the physician uses including upgraded software and a handheld unit. It’s the full unit that TearScience will be marketing in the United States.

The two separate filings may have sparked what could become a new regulatory strategy for other medical device developers. Willis said that one of the firm’s investors told him that he was so impressed with the relative speed of an FDA decision from the two filings that the investor will now press its other companies to pursue the same strategy.

One piece of the commercialization puzzle that TearScience has yet to solve is reimbursement. Insurers do not yet pay for LipiFlow treatment and though the company has applied to instate reimbursement, Willis estimates the entire process can take anywhere from three to 10 years. For now, patients pay between $1,400 and $1,900 out of pocket for a treatment on both eyes that lasts nine to 18 months. Willis said that considering that some people with moderate to severe dry eye are already spending up to $4,000 annually on other remedies, patients are willing to pay. For a physician’s practice, the entire TearScience diagnostic and treatment system costs about $100,0000.

The new system will become available to U.S. doctors in March. It’s the same system that became available last year in Canada, Europe and Asia. The United States is the only market where TearScience made two separate LipiFlow regulatory filings for marketing clearance. Willis said in 2012 TearScience will seek clearance in as many as 20 new countries worldwide.

Photo from Flickr user orangeacid

That some academics don’t necessarily make good business executives is a well-worn fact. And it’s not uncommon that founders — researchers or otherwise — often step aside, or are sometimes jettisoned in the interest of the firm.

But the question is how should founders behave when they are cut off from the company they created? Is it in their interest to go quietly? Or show that they have been hurt?

Dr. Doris Taylor, who drew international attention in 2008 when she and her team created a beating heart at the University of Minnesota’s Center for Cardiovascular Repair, appears to have taken the latter route.

Taylor’s efforts led to the creation of Miromatrix Medical in February 2010, which licensed that technology from the university to find commercial applications. Taylor assumed a board seat while veteran healthcare industry CEO Robert Cohen was installed as the company’s chief executive. But five months later, Taylor was voted off the board. Apparently, she clashed with the CEO. At the time, the University stated that  “Dr. Taylor remains a productive and valued faculty member of the University of Minnesota.”

Not any more. In late January, the Texas Heart Institute announced that it had hired her away from the University of Minnesota.

Taylor made it clear to the Star Tribune that being removed from the board “was one factor in her decision to leave Minnesota.”

Clearly it was a big enough factor to warrant mentioning to a reporter, and once again it demonstrates how hurt Taylor must have felt to be removed.

I refrain from judging whether it was necessary for her to be removed because I am not privy to what went on — comments at the bottom of the Star Tribune story seem to indicate she was a very difficult personality and I have heard the same from someone who did not wish to be quoted.

But that is not important.

I wonder whether it is even in Taylor’s own interest to draw attention to any bad blood. Miromatrix is a startup and has a long way to go before it is deemed a market success. Taylor owns shares in that firm. She has much to gain if the company does well.

And maybe financial self-interest should be what scorned founders focus on, unless the company is involved in some kind of illegal activity that they wish to highlight. Because for someone of Taylor’s talents, her energies are probably better directed at coming up with the next breakthrough idea that will change medicine.

Medical device design usually involves the use of computer-aided design and computer-aided manufacturing, or CAD/CAM environments. The process is long and iterative.

Now, two professors at the University of Minnesota have come up with a 3-D visualization device that aims to revolutionize how medical devices are designed and tested, thereby shortening R&D cycles and the costs associated.

The U’s Office for Technology Commercialization recently showcased the device in the hopes of finding a commercial partner, said Karen Kaehler, technology strategy manager at the OTC, in an interview with MedCity News.

Currently, a medical device company that uses a CAD/CAM-type environment does some development on the computer, but then manufactures multiple prototypes in order to finalize a design.

“That can be a very long iterative process. You make a change. You test it. You make a change. You test it,” Kaehler said.

But using the U’s 3-D immersive visualization and design environment, all the changes, small and big, can be tested without actually manufacturing a prototype.  The system is the brainchild of Art Erdman, director of the U’s Medical Devices Center, and Daniel Keefe, a professor in the department of computer science.

“The idea here is that all of the testing could be done in a virtual environment,” Kaehler said.

Product-specific data can be loaded onto the system along with other types of data such as those from a tissue registry database or a blood flow database. That allows the system to generate the visuals necessary to see how the device is functioning. For instance, in testing a new stent, researchers will actually be able to see how blood is flowing into a coronary artery.

“If companies could use an environment like this and cut out time and testing, both, then surely this would be an advantage then to the industry,” Kaehler said, but she could not say how much cost savings the new system can provide. ”

A “good-sized medical device company” is going to test the system, she said, declining to name the company or where it is based.  The beta test is set to commence later this month. The goal is to answer several questions including whether people using this tool require any training.

“Ideally, we would want it to require minimal training so that it would work like a video game, like plug and play,” Kaehler said.

She hopes that ultimately the system can actually reduce even clinical testing of new medical devices. That would of course require the blessing of the U.S. Food and Drug Administration.

“The FDA has seen this environment and they reasonably would like to see more information about this.” she said. “But they are very supportive and think this would be something they would want the medical device industry to go with as well.”

But don’t expect any changes to occur overnight because the system requires fine-tuning.

Steris' System 1E

Sterilization products maker STERIS (NYSE:STE) reported that shipments of its System 1E sterilizer continue to fall below the company’s earlier projections.

The Mentor, Ohio-based company now projects that it’ll ship 4,000 System 1E units in its fiscal 2012, which is scheduled to end on March 31, company executives said Tuesday in a conference call to discuss STERIS’ third-quarter earnings. In November, STERIS projected that it would ship 5,000 units, and as recently as August, said the number could be as high as 8,000.

The System 1E is a liquid chemical sterilizing system used by hospitals, surgical centers and other healthcare facilities to sterilize heat-sensitive medical instruments. It’s a replacement device for the System 1.

The U.S. Food and Drug Administration is requiring customers transition away from the System 1 because it found in December 2009 that STERIS had made so many changes to the device over the years that the agency hadn’t cleared the modified version of the device. STERIS began shipping the System 1E in December 2010.

In December 2011, the FDA extended by six months until August 2012 a deadline for STERIS to support customers transitioning from the System 1. STERIS said at the time that the extension could result in shipments of as many as 1,000 System 1E units shifting from fiscal 2012 to fiscal 2013, as the latest shipment projections show.

Hurting sales of the System 1E is the lengthy regulatory approval process for one of the device’s accessory parts, called a biological indicator. That part isn’t necessary to operate the System 1E, though many customers prefer to use it. The part indicates the presence of biological materials on equipment.

CEO Walt Rosebrough said Tuesday that STERIS is still awaiting FDA clearance of the accessory part.

STERIS also faced another issue with the System 1E during the quarter, related to water quality and temperature at customers’ facilities. That’s resulted in maintenance “field corrections” the company has had to make on the device. STERIS is seeking regulatory approval for a software modification that could ease the water-related problems, Rosebrough said.

Considering the ongoing System 1E transition issues, plus a restructuring of the company’s operations in the U.S. and Europe, STERIS turned in a solid quarter financially. Revenue grew 8 percent to $355 million, with growth across its three lines of business, compared with the year-ago quarter. Earnings grew 54 percent to 58 cents per diluted share, though that came in below Wall Street’s expectation of 61 cents per share.

As it finishes up its fiscal year, things don’t appear to be getting any easier for STERIS. It downwardly revised its full-year outlook for 2012, and now expects revenue growth at 6 percent and earnings per diluted share between $2.13 and $2.20.

In November, the company projected full-year earnings per diluted share between $2.25 and $2.45.

In the world of high tech gadgetry, consumers are spoiled by the practical implications of Moore’s Law, namely that processing power doubles in 18 months at the same cost. Today’s $500 iPhone packs the same computing punch as did all of NASA’s computers combined back in 1969. The relatively low price tag for powerful computing has expanded the market for personal electronics such as smart phones and iPads to the global middle class, endangering pedestrians and annoying commuters around the world.

With all of the electronics embedded in medical devices, one might expect Moore’s Law to reign over med tech, too, but this is not exactly the case. In some mature device product categories, such as pacemakers, prices are indeed being forced down (but only incrementally). This is primarily a function of increasingly frugal purchasers and intense competition than the availability of ever cheaper components.

In a presentation in Davos at the recent World Economic Forum, Medtronic CEO Omar Ishrak threatened to disrupt his own pacemaker business by developing a 10X cheaper version with the same basic functionality (Moore’s Law in action). It is too early to say whether Ishrak, seeing cheap competition looming, is taking a “if you can’t beat ‘em, join ‘em” approach, or whether he’s sending subliminal “we will crush you so don’t bother” signals to potential low-priced market entrants. Or maybe Ishrak believes Medtronic can contain these low-cost devices to their burgeoning emerging markets business and not cannibalize their existing sales to resume top line growth. Time will tell.

Medtronic may be able to play the price disruption game, but we ask ourselves whether the small emerging med-tech company can achieve success (and funding) with a “tons cheaper” value proposition. In theory, any company starting fresh with design and manufacturing should be able to take advantage of Moore’s law in a way that the big guys with vast installed bases and capital investments can’t. The opportunity for success is there, but not every company or technology is cut out to win at price-cutting.

For med-tech entrepreneurs out there considering the price disruption route, we have developed a little self-scoring quiz to help you determine your chances of success. Simply answer Yes or No to the following questions:

1. Is your device dramatically cheaper than alternatives? Not 10% cheaper, we are talking 5-10x cheaper. A little cheaper gets lost in the noise, and entrenched players can easily play your price game and win. You might as well price 10% higher and make your life easier.

2. Does your technology open up a substantial new market? Remember if you are 10x cheaper you just shrunk the existing market by 10x (e.g. a once attractive $300M market is now a non-fundable $30M market), not to mention the difficulties of dislodging an entrenched competitor. A new market might be geographic, for example developing countries; read about Daktari Diagnostics doing just that in a previous S2N blog. The home market is also a pie-expanding opportunity, for example NxStage Medical’s home hemodialysis technology.

3. Can you get to market on a lean capital diet? If your target market is the US and the regulatory path is PMA, which on average costs $75-$100M to obtain, then better to stick with the high-unit-price approach to building the billion dollar market opportunity you will need to have in your roadshow presentation to raise money.

4. Do you relish the idea of running a commercial entity? If you are a price-disrupter chasing new markets with your low-cost gadget, chances are good you will have to demonstrate not just technical and clinical effectiveness but also market effectiveness. Imaging is an area ripe for Moore’s Law inspired disruption, and companies like MobiSante are out there trying to prove customer demand for dramatically smaller and cheaper equipment. Check out their cool smart-phone based ultrasound device.

Now for the self-scoring: “Yes” answers are worth 100 points, and “No” answers are worth zero. If you don’t understand the question, you get zero points. Add up all your points. The grading curve is very hard; a perfect score of 400 can still fail, but at least you have a shot.

S2N co-founder and techno-geek Tim Kofol contributed to this article.

[Photo from Flickr user cdsessums]

A tendon injury treatment firm that has licensed technology developed at the Mayo Clinic has raised $11.8 million through a PIPE (private investment in a public entity) transaction.

Tenex Health is a California company that has developed the FAST (Focused Aspiration of Soft Tissue) procedure for percutaneous removal of tissue that can help restore the normal functioning of tendons and soft tissue. Last February, Tenex announced the FDA clearance of its portable device used in conjunction with the FAST procedure that allowed soft tissue removal in the elbow, knee, ankle, foot, and shoulder.

The company was previously a private firm but became public with a reverse merger with Direct Pet Health Holdings Inc., which trades over the counter. Tenex was looking to raise only $8 million, but interest from investors led it to offer $11.8 million.

“The financing has allowed us to fully integrate manufacturing and production capabilities with operations and sales as well as expand our physician and consumer marketing campaigns surrounding the FAST procedure,” said Jagi Gill, Tenex Health’s founder in a news release by the firm’s investment bank.

Orthopedic surgeons have also invested in the company, according to Emergent Financial Group, the Minnesota investment bank that worked with Tenex Health.

What does he have to offer a well-heeled multi-national company looking to capitalize in the US?

Is it the beauty device that smooths out cellulite?

The shockwave medical device that heals wounds and injuries?

The low-cost medical device that can handle any mutant strain of malaria?

Mr. Hague tells me his Cellsonic machines do it all – but none of these indications are FDA cleared – and, without a predicate device on the market, trials will be very, very expensive.

Andrew explained the opportunity and outlined what he needs to do next.

Joe Hage: Welcome to #MedDevice. We’ve moved up the time to accommodate our UK-based guest, @CellsonicAndrew. Welcome Andrew! Tell us about Cellsonic.

Andrew Hague: CellSonic makes many machines. The star product is a hand-held, shockwave machine that heals wounds, injuries and smooths out cellulite. It also removes fat. So we are in the medical business and the beauty business.

Joe Hage: One of the things I most enjoy about running the Medical Devices Group on LinkedIn is I get to meet interesting folks like you. You were telling me your products are CE marked but have not been cleared for use in the US.

Joe Hage: You could put each of these indications into one 510(k) application, though, yes?

Andrew Hague: We are not sure because the CellSonic is a Class II machine and we do not know if it possible for this class.

Joe Hage: I’m not a regulatory expert but I’m confident some of my readers are. (If you are an FDA expert, please confirm: The 510(k) process works for Class II devices, yes?)

In the meanwhile, let’s assume an FDA expert responds to this conversation and says, yes, they can help you file your Class II.

Andrew Hague: However, we do not know of another shockwave machine in whose footsteps we can follow. I believe the 510(k) requires a predicate device.

Joe Hage: I believe the sticking point is having trials if you don’t have a predicate device. That’s what would hold up your 510(k).

This tension explains some of the conversation over on the LinkedIn thread where we met, “Is a CE mark good enough?”

Andrew Hague: Yes, without competitors, we have no predicate device so we have to be pioneers. We are looking for a big company which can pay for a lot of FDA trials.

They must also have a big sales force for when permission is recorded there will be a big demand.

The CellSonic Medical machine is a lithotripter with variable power for use in hospitals and clinics to treat bones, wounds, and sports injuries. (Click for more.)

Andrew Hague: A lithotripter breaks a kidney stone noninvasively with sudden acoustic bangs into grains of sand to pee out. On the question of a business partner, we may need two: One for medical, one for beauty.

The market for diabetic foot ulcers is one person in 1000. For cellulite, it is virtually any woman over the age of 30.

Joe Hage: How long has Cellsonic been in business? How did you develop this device?

Andrew Hague: I began with the first lithotripter in England in 1987. Later I was the distributor for a Swiss machine. About ten years ago came the opportunity to make our own machines and only now do we have the CellSonic ready to sell. These are complicated machines to make and easy to use. Ours is half the price of anything similar from China.

Joe Hage: So you do have competitors?

Andrew Hague: We have potential competitors from China. What I hear about their products is, they don’t work. But I am sure, before long, they will work.

Joe Hage: Is this on the beauty side, the medical side, or both?

Andrew Hague: Both. Our clever design will enable us to always be the least expensive.

Joe Hage: OK, I’ll bite. How can you be confident you will always be the least expensive?

Andrew Hague: The design helps keep the cost down and you can’t get cheaper than where we make it, in India.

Now, cosmetic treatments for cellulite may not be terribly price sensitive in America. But if you consider the medical side, this device could potentially help millions with buruli ulcer in Africa and chagas in Latin America, for example.

Malaria kills millions and our device can handle any mutant strain because, instead of treating it pharmacologically, we are mechanically hitting the germ.

When the shockwave travels through the cell, it stretches it four times per second and it comes back under its own elasticity until it eventually ruptures. The small things like viruses, bacteria, and parasites are exploded.

So you can see, being low cost is very important when you consider the third-world markets we can affect.

Joe Hage: Someone will ask, “The poor people have no money. How will you make a profit at that?” And you will say …

Will the UN help?

Andrew Hague: The money is in Geneva. The United Nations, WHO, Unicef, and Medecins sans Frontiere are already spending more than we need to do our job.

Geneva will only listen to its operators in the field. So we need to convince the NGOs that this new technology is better than what is not working properly at present.

Joe Hage: Ok. I follow you. If Geneva and the third world are the primary markets for the medical side, why do you need to partner with a big-heeled multi-national? Why aren’t you approaching Geneva yourself?

Andrew Hague: Outside the US, we don’t need a big partner.

Joe Hage: Then have you already approached Geneva? What was their response?

Andrew Hague: Geneva only listens to workers in the field. So we are now getting the message to West Africa, Ecuador, Peru, and the message will feed back to Geneva.

Joe Hage: Got it. You know, Andrew, this is fascinating to me. I fear this interview is getting long but I have to ask, on a very separate note, you were telling me some intriguing facts about cellulite I had never heard before.

Cellulite is a junk yard for body waste and can only be removed by loosening it and letting the waste escape by encouraging the growth of capillary veins. (More)

Andrew Hague: Cellulite is fat without blood so it cannot be accessed by the digestion system as a reserve fuel. Women get cellulite at the back of the legs. In men it is at the side of the waist, love handles. If you starve, you will still have cellulite. Athletes will get cellulite unless they are very careful.

Joe Hage: How do “men of a certain age” know if they have fat or cellulite around their waists? And what does “very careful” mean in this context?

Andrew Hague: If you don’t know you obviously have both so starve (diet) and see what’s left, that’s the cellulite. It means not being in civilised society. The answer for health is not medicine but transport.

Andrew Hague: Remember we are all cave men. Mechanised transport is a major problem. Walk, run, or cycle and you have all the exercise you need. Ban cars.

Joe Hage: Talk us through your next steps. How, specifically, will you approach beauty and/or medical multi-nationals for FDA clearance?

Andrew Hague: Simultaneously. They are aiming at 10% return on capital and both markets are big enough.

Joe Hage: Let’s use this interview as an opportunity to get your message out there. What should an interested party do? You have the floor, Sir.

Andrew Hague: The US market is unique so it is best run by Americans. The owners could be non-US but surely this is for America. We would create an American company and it would serve American people making profits in America.

Selling to doctors is, of course, different than selling to beauty salons so that’s why separate companies may be best. The next step for CellSonic is treating blood for transfusions. All germs will be killed and the blood safe.

Being able to clean blood leads to cleaning blood in the patient which could cure malaria, hepatitis, and maybe HIV – without drugs.

This means we are competitors to Big Pharma because we solve their problems and do not use drugs. There will always be a need for drugs but now there is a cheaper alternative without side effects.

Joe Hage: Andrew, this has absolutely been one of the most enlightening #MedDevice chats I’ve ever had. Thank you so much.

Andrew Hague: My task is to find the right partners for many years to come. CellSonic will outlive me.

Joe Hage: Yes, unless you live for generations and generations! I wish you the very best, Andrew. Thanks again for talking with us today.

…

>>> Click to review the archive of #MedDevice chats you missed! <<<

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Forget selling medical devices for Medtronic. Land your next gig with the local hospital! Why are hospitals hiring medical device sales reps? Better yet, why are medical device sales reps pursuing new careers with hospitals and what are the future implications of this interesting trend? In this interview with Dr. Richard Ruff, co-founder of Sales Horizons, we learn more about current medical device sales trends and what it takes to become a dominate medical device player in today’s economic environment.

Mitt Romney should talk healthcare; the Romney health plan works. The reform plan, which President Obama used as a model for the national reform, lifted the number of insured residents in the Bay State from 86.6 percent in 2006 to 94.2 percent in 2010, according to a new study published yesterday by Health Affairs.

The nursing job market shortage is most likely a myth. I don’t think employers of nurses are quaking in their boots due to the prospect of a gaping shortage of nurses. Although they might not say so openly (since everyone loves nurses) the forward thinking hospitals are planning for the day when nurses comprise a substantially smaller portion of their costs than they do now. They’ll do it with better decision support systems, workflow tools and robots that will take over many routine and high-skill nursing functions.

Speaking doctor-to-doctor(s) using healthcare social media. It was a live Twitter feed from the meeting of one of the attendees – an electrophysiologist from Christ Hosptial in Cincinnati, Edward J Schloss, MD. In those tweets were a play-by-play of important discussions and the results of opinion polls fielded during the meeting. Here’s what I saw.

How physician innovators can make medical devices more efficient. Although medical device companies spend large sums of money paying “Key Opinion Leaders” (KOL’s) for their thoughts on the future of medicine and products in specific clinical indications, this should not be mistaken for collaboration.

In physics, a black hole is a region in space from which nothing — not even light — can escape.

And that is exactly what the Government Accountability Office, the nonpartisan entity reporting to Congress, encountered when it tried to find out how hospitals could make better purchase decisions when it came to implantable medical devices (IMDs).

Lawmakers concerned that a lack of price transparency is a detriment to competition in the device market and can drive up prices for hospitals and ultimately lead to higher Medicare spending, asked the GAO to find out, “what available information shows about the prices hospitals pay for IMDs and any factors particular to the IMD market that influence those prices.”

The consequent GAO report’s title — Lack of Price Transparency May Hamper Hospitals’ Ability to Be Prudent Purchasers of Implantable Medical Devices  — says it all.

The GAO queried 60 hospitals about their purchase history of IMDs and data compiled from 31 hospitals show that the price that different hospitals paid for the exact same model of implantable device swung wildly. In fact, the price differential between the lowest price and the highest price paid by hospitals for the same model of an automated implantable cardioverter defibrillator was an astounding $6,844.

For another one, the difference was even higher at $8,723. The median prices across  four ICD models ranged from $16,445 to $19,007.

Such data is all the more important given that  between 2004 through 2009, hospital expenses for IMD procedures increased from $16.1 billion to $19.8 billion, “an increase of 4.3 percent per year — a rate equal to that of Medicare spending for all other hospital procedures.”

A complicating factor for hospitals is the physician influence on such decisions, even though they are not involved in actual price negotiations, the GAO noted. Physicians have their own preference for one implantable cardiac or orthopedic device over another, and that led many hospitals to buy similar devices but from different manufactures. So some hospitals found it harder to get volume discounts, the report found.

Hospitals sign confidentiality agreements and are therefore  barred from informing physicians about the price differences between models and manufacturers. Representatives from medical device industry group AdvaMed told the GAO that confidentiality agreements are not unique to the medical device industry. However, a representative from the American Hospital Association said that “confidentiality clauses that restrict hospitals from informing physicians about IMD  prices inhibit hospitals from fully integrating care and making informed, cost-conscious decisions.”

GAO seems to agree with the hospital’s view of medical device pricing stating.

These data suggest that some hospitals have substantially less bargaining power with the small group of companies that manufacture particular IMDs and consequently face challenges in obtaining more favorable prices. The lack of price transparency and the substantial variation in amounts hospitals pay for some IMDs raise questions about whether hospitals are achieving the best prices possible.

So who bears the brunt of this price opacity? GAO has the answer – “ Any excess or unnecessary costs that hospitals incur through IMD pricing may be passed onto the Medicare program.”

In other words, it’s us the taxpayers.

Photo Credit: Flickr user NASA Goddard Photo and Video

A newfangled enlarged prostate treatment is being tested at a Minnesota company, which hopes to be an alternative to failed drugs therapy or surgery in managing benign prostatic hyperplasia (BPH).

NxThera, based in St. Paul, is testing Rezum, a device that uses steam or vapor to target the enlarged tissue of the prostate gland. This therapy is unlike other forms of ablation techniques such as microwave or radio frequency that destroy the tissue but may also affect surrounding healthy tissue.

“When you steam food, think about how quickly and rapidly the food cooks, so what we are doing is that instead of delivering thermal energy via a probe and conducting that heat through the tissue, we are injecting vapor or steam, which is stored thermal energy, into the tissue and driving it convectively through the interstitial spaces between the tissue,” explained Robert Paulson, CEO of NxThera. “So that allows us to treat the tissue significantly more rapidly, much more efficiently without the complications that you see with other thermal energies.”

The company raised $21.6 million last year with the lead investor being American Medical Systems (AMS), now part of Endo Pharmaceuticals.

“AMS’s investment is an indication of their interest in this therapy,” Paulson said. “They are the market leader in the laser surgery business.  We believe (NxThera) is complementary to that business.”

Other investors last year were  Arboretum Ventures, Aberdare Ventures, GDN Holdings,  a group of venture capital investors led by Dr. David Adair, Mitsui & Co. Global Investment, Premier Asia Capital together with Lance Wallin and Brooks Wallin, and Prolog Ventures together with Alafi Capital.

Earlier filings with the U.S. Securities and Exchange Commission seems to indicate that the company raised an additional $5.75 million in previous years.

Paulson said NxThera is planning to ask the U.S. Food and Drug Administration for an investigational device exemption to do a pivotal study following the completion of some pilot studies this year.

He thinks that physicians will see the benefit of this treatment, which unlike laser surgery or transurethral resection, does not require that patients undergo general anesthesia. In transurethral resection, the extra tissue blocking the urethra is surgically removed and requires the patient to stay overnight in the hospital. NxThera’s much less minimally invasive Rezum treatment can be done in the urologist’s office in less than two minutes.

 Photo Credit: Flickr User Amber de Bruin

MedCity News reported back in December that the medical device company had already raised $6.6 million and filed for the CE Mark.

The Hemolung Respiratory Assist System is intended for patients with acute respiratory failure to avoid having to be on a mechanical ventilator. It supplements lung function through a small catheter and administers oxygen into the blood as it removes carbon dioxide.

The global market for noninvasive ventilation was worth an estimated $187 million in 2009 and forecast to reach $263.4 million by 2014, according to a market report from IMS Research.

Despite a successful series B round, ALung CEO Peter DeComo told the Tribune-Review that the company will need at least $25 million more before it can launch its product in the U.S.

The Pittsburgh medical device maker has already raised $40 million since its inception from more than 100 angel investors and venture funds including Eagle Ventures and Birchmere Ventures.

UPDATED AND CORRECTED

On Wednesday, I forwarded the argument of an analyst that Medtronic’s (NYSE:MDT) controversial bone graft product Infuse will likely live on in a diminished form, even if an independent review confirms its safety.

So the obvious question is, who will fill the void left by Infuse?

While no company or product single-handedly can be an alternative to Infuse, Caroline Corner, the analyst from MLV & Co., believes that some companies have products that will now naturally be the surgeon’s next best option.

They are Osteocel Plus sold by California firm NuVasive, a Medtronic rival with which the company is engaged in a lawsuit; Trinity Evolution, sold by Orthofix Biologics in Texas; and Vitoss sold by Pennsylvania firm Orthovita, now part of Stryker.

But there is one company that Corner feels particularly excited about. That company is Montana-based Bacterin International.

The company, which is public, published results of a small clinical trial on 28 patients where its OsteoSponge product went head-to-head with Infuse. Data showed that it had as good spinal fusion rates as Infuse and none of the risks. Bacterin management estimates that Infuse has roughly 35 percent to 40 percent of the orthopedics biologics market, and Corner added that if Bacterin can show positive OsteoSponge clinical data on a larger sample, it would have a winning argument.

The pricing — Corner estimates OsteoSponge costs one-third of  Infuse — can only help given the cost-conscious era we live in right now.

Let the race begin …

This version removes an incorrect quote about OsteoSponge. 

That might not sit well with some medical device makers who have long complained that over the years the agency has become too unpredictable and slow in clearing products for the market.

But “double” is a misleading representation of the facts on the ground as fees in the past have been fairly “modest”, says FDA spokeswoman Karen Riley. In other words, if you are going from zero, the increase is always going to look massive.

The problem is that FDA has long been “overworked and underfunded” Riley says and the tentative deal is merely “correcting a deficit.”

Consider the following she says:

• The $287 million that the FDA will have collected by the end of September over the past five fiscal years represents only 20 percent of the agency’s medical device premarket review activity conducted by the Center for Devices and Radiological Health (CDRH). By contrast, prescription drug user fees account for 60 percent of the review activities conducted by reviewers of the Center for Drug Evaluation and Research (CDER). The increased amount of $595 million that the agency will now collect over the next five years will now account for 35 percent of review activities.
• Attrition rate of CDRH reviewers was 8.6 percent, much higher than the 4.7 percent of CDER reviewers in fiscal year 2010.
• Fees have been modest. Companies with less than $100 million in gross receipts or sales qualify to pay the user fee for small companies. In 2012, that’s $2,024 instead of the standard $4,049 for a 510(k) and $55,013 for a premarket approval application (PMA) or PMA in lieu of the standard $220,050. Further, first-time applications with gross receipts of less than or equal to $30 million don’t pay a fee for a PMA at all.

So it’s unfair to think that the FDA has been robbing medical devices companies blind.

Fine, but now that the agency will collect higher fees, the onus is on CDRH reviewers, new and old, to live up to the higher performance standards that FDA has committed to in this deal. One key benchmark is shorter review times that are supposed to improve progressively over the course of the next five years.

Failure won’t be an option because AdvaMed, the device industry lobby and trade group, will be closely watching.

Home health products supplier Invacare (NYSE:IVC) is still enmeshed in negotiations with the U.S. Food and Drug Administration over a possible shutdown of some wheelchair production at an Elyria, Ohio plant.

In December, Invacare announced that the FDA had asked it to enter into a legal agreement that would require the company to suspend “certain” wheelchair manufacturing operations at the Elyria plant. Negotiations over final details of the agreement have now stretched on for about two months, and potentially longer, depending on when the negotiations began.

CEO Gerry Blouch said Thursday,  in announcing Invacare’s fourth-quarter earnings, that the company is unable to provide investors with any financial guidance for 2012 due to the ongoing negotiations.

“The company is working expeditiously to resolve its negotiations with the FDA and in the meantime continues to add resources in order to make systemic improvements to ensure full compliance with the FDA’s [Quality System Regulation],” Blouch said.

At the time of the December announcement,  Blouch wouldn’t go into detail about any of the issues the FDA cited at the Elyria factory, and said only that the alleged violations “relate generally to processes” involved in the manufacture of wheelchairs.

Last week, Invacare announced plans to move production of a line of manual wheelchairs to Mexico from Elyria. The company didn’t say whether the move was made in part to appease the FDA, but it certainly appears likely. Whether that move was enough to satisfy the FDA’s proposal to suspend “certain” wheelchair manufacturing at the plant remains to be seen.

For the fourth quarter, Invacare reported a loss of $35 million, or $1.10 per share. The loss reflected asset write-downs that totaled $49.5 million related to goodwill and intangibles, and a charge of $8.9 million connected with restructuring activities.

Revenue was essentially flat at $450 million for the quarter.

Infuse

Medtronic’s controversial bone growth product Infuse has been hammered by quarter after quarter of declining sales.

Currently, Yale reviewers are conducting an independent review of the data related to Infuse. The review’s conclusions are eagerly awaited by Medtronic CEO Omar Ishrak who hopes that Infuse will be vindicated once and for all thereby silencing those who have raised questions about the safety of this blockbuster spinal fusion product.

But one research analyst who does not cover Medtronic believes that Infuse’s fortunes won’t rise even if Yale reviewers grant it a clean bill of health.

“Given that we’ve already had the proverbial eyebrow raised about Infuse, will (doctors) go back to it, I don’t think so,” said  Caroline Corner, an analyst with investment bank MLV & Co.

Corner, who holds a Ph.D. in biological and environmental engineering from Cornell University, said that conversations with top spine surgeons across the country lead her to believe that Infuse will have a secondary role.

She said that the doctors who are still using Infuse, albeit at a much lower rate, are using Infuse in procedures for older patients whose risk of developing cancer is not as high as younger patients; those that are hard to treat, or those who have already had a failed back surgery.

“Someone who is a very poor healer, someone who is in a revisional surgery, someone who is older and not in child-bearing age … some doctors still see an (Infuse) application in treating these hard -to-treat people,” Corner said. “But doctors in general are definitely shying away from using Infuse (most of the time).”

The drop in the utilization rate of Infuse now leaves the door open for other companies trying to develop an alternative to Medtronic’s Infuse, Corner said.

Although medical device companies spend large sums of money paying “Key Opinion Leaders” (KOL’s) for their thoughts on the future of medicine and products in specific clinical indications, this should not be mistaken for collaboration.

KOL’s are typically driven by the marketing function within an organization, with larger companies having more specialized strategic marketing resources responsible for coaxing prognostications out of leading clinicians in a field.  Whether these doctors provide technically accurate responses is of little consequence since their opinions are assumed to become self-fulfilling prophecies.

KOL’s are chosen because they are either on “the tour” (i.e. speaking at most scientific conferences) and influencing their peers or are large volume buyers and can move the needle with their own actions.  Either way, medical device companies go out of their way to make these KOL members feel privileged and influential.  That is not to say that these leading clinicians are actually aiding the development of products, just providing critique and conjecture.

So, why aren’t more medical device companies searching for the actual lead-users that can drive innovation and actively collaborate on product development?  Let’s start with hypothetical perspectives for four key medical device company functional areas:

1. Strategic Marketing:  more concerned with being in conversations with perceived leaders in a field than finding the actual innovators; establishing relationships of influence is primary.
2. R&D: doctors are great at identifying clinical needs, but “we (engineers) are the experts on solving problems”.  Note: the actions of R&D teams are often reflective of a “Not Invented Here (NIH) Syndrome”.
3. Business Development: doctor’s don’t understand that a product has to be financially viable and do not spend effort flushing-out a business case.  Let someone create a start-up company around the idea to flush-out most of the risk before we get involved.
4. Legal (patent counsel):  there is too much risk to allow engineers to be exposed to ideas from clinicians before they file for patents; the company could be working in an area that then gets contaminated and the company is vulnerable to suit from a jilted doctor.

Like a comedian’s joke, there is an essence of truth in each of the four stereotypical responses above.  Additionally, there exists a large swath of doctors who don’t have the time, patience or passion for medical device product development despite their curiosity.  So, what is the answer?

Here are three suggestions:

1. Separate clinical trial investigators who present data at scientific conferences from lead-users that contribute to the product development process.  Avoid involving KOL advisors in clinical trials to prevent the perception of influence peddling.
2. Start using Internet-based tools that provide greater exposure to more clinician input in a controlled and documented fashion, protecting intellectual property without the current rigid constraints.  Make more clinicians a part of the development process.  Better tools will enable greater collaborative freedom.
3. Stop pretending that doctor inventors have to be experts in all facets of product development to contribute to the process, or have to be marginalized to providing thumbs up/down input or solely clinical needs.  If a physician has expertise in a clinical specialty and is creative, that doctor has the ability to be an innovator and work with other technical and business resources to drive new medical devices development.  There is a role for a physician innovator in almost all medical device product development teams.
4. Ensure that clinicians share in the risk-reward of the innovation process without letting the relationship be co-opted for marketing purposes.

Physician innovators are valuable resources that are under utilized and misappropriated.  New collaboration tools and approaches are needed to make medical device development more efficient and effective.