Medsider: Learn from Medtech and Healthtech Founders and CEOs - Funding a Medtech Startup in Uncertain Times: Interview with NovaScan CEO Craig Davis

Episode Date: July 20, 2023

In this episode of Medsider Radio, we sat down with Craig Davis, CEO of NovaScan, a company revolutionizing cancer diagnostics with a low-cost, single-use device capable of real-time cancer detection and stratification.Craig is a strategist, entrepreneur, and leader with a resume boasting a unique blend of business acumen, investment insight, and technical expertise. In this interview, Craig unveils his journey from being a partner at LaSalle Investments to leading the charge in revolutionizing cancer diagnostics. He delves into the myriad of challenges entrepreneurs face, like fostering efficient early-stage development, designing clinical trials for rapid data collection, and mastering the art of fundraising in an ever-evolving financial landscape. Before we jump into the conversation, I wanted to mention a few things:If you’re into learning from proven medtech and health tech leaders and want to know when new content and interviews go live, head over to Medsider.com and sign up for our free newsletter. You’ll get access to gated articles, and lots of other interesting healthcare content.Second, if you want even more inside info from proven experts, think about a Medsider premium membership. We talk to experienced life science leaders about the nuts and bolts of running a business and bringing products to market.This is your place for valuable knowledge on specific topics like seed funding, prototyping, insurance reimbursement, and positioning a medtech startup for an exit.In addition to the entire back catalog of Medsider interviews over the past decade, premium members get a copy of every volume of Medsider Mentors at no additional cost. If you’re interested, go to medsider.com/subscribe to learn more.

Realize that, you know, there is money out there. If you've got a fantastic technology, you can get that funded. You absolutely can win with it. But the bar has gone a little bit higher. So you get to step up your game in pretty much every level. Welcome to MedSider, where you can learn from the brightest founders and CEOs in medical devices and health technology. Join tens of thousands of ambitious doers as we unpack the insights, tactics, and secrets behind the most successful life science startups in the world. Now, here's your host.

Scott Nelson. Hey there, it's Scott. In this episode of Medsider, I sat down with Novaskan CEO Craig Davis, who unveils his journey from being a partner at LaSalle investments to leading the charge in revolutionizing cancer diagnostics. Craig delves into the myriad of challenges that entrepreneurs face like fostering efficient early stage development, designing clinical trials for rapid data collection, and mastering the art of fundraising in an ever-evolving financial landscape.

Here are the key things that we discussed in this conversation. First, early-stage development calls for efficiency and creativity. It's possible to go off the beaten track and find quicker paths for product iteration, resulting in the savings of time and money. Second, when it comes to clinical trials, the magic formula is a fusion of rapid data collection, smart setup, and perfect execution. Shaking things up by moving trials to unconventional venues, while keeping study integrity intact, can speed up the data harvest. Third, the bar in fundraising is high, but entrepreneurs who show resilience, adaptability, a solid exit plan, and a willingness to do what it takes will capture investors'

interest. Before we jump into this episode, I wanted to let you know that we just released the latest edition of Medsider Mentors Volume 3, which summarizes the key learnings from the most popular Medsider interviews over the last several months with folks like Jim Persley, CEO of Hinge Health, Carol Burns, CEO of Cajent Vascular, and other leaders of some of the hottest startups of the space. Look, it's tough to listen or read every Medsider interview that comes out, even the best ones. But there are so many valuable lessons you can glean from the founders and CEOs that join our program. So that's why we decided to create Medsider Mentors. It's the easiest way for you to learn from the world's best medical device and health technology entrepreneurs in one

central place. If you're interested in learning more, head over to MedsiderRadio.com forward slash mentors. Premium members get free access to all past and future volumes. If you're not a premium member yet, you should definitely consider signing up. In addition to every volume of Medsider mentors, you'll get full access to the entire library of interviews dating back to 2010. This includes conversations with experts like Nadine Yared, CEO of CVRX, Renee Ryan, CEO of Cala Health, and so many others. Learn more by visiting MedsiderRadio.com forward slash mentors. All right, Craig, welcome to Medsider Radio.

Appreciate you coming on. Thank you for having me. Yeah, looking forward to discussion. Craig, I recorded kind of a very brief bio on your background at the outset of this interview. But let's start there. Tell us a little bit more about kind of what you've been up to, you know, over your career, kind of in the broader healthcare ecosystem leading up to your current role as CEO of Novascan. Yeah, I've been here for six years and it's been, you know, learning experience every day.

It's been a blast. Previous to Novascan, I was a couple things, right? So I was a partner in a venture firm that we did early stage deals. We typically put the first money in. It was a family office in Chicago, but we would put the first money in companies. that was good for me in terms of lots of operating experience because they always had lots of holes, right? So you'd step in as, you know, interim CEO, interim this, interim that, you sort of learn it. And, you know, some of them when I would run them, it would be painful because they're just like winding them down.

But it was healthy. It was, I learned a lot. I'm famous to that I was an investment banker in the healthcare space, putting together deals in Euroginey and primarily that. I had also been a management consultant to a bunch of med tech companies. And in between there, I put together a, you know, one of my large clients was a Minneapolis company called American Medical Systems. I partnered with the former number two there, and we had tried to do a roll-up in the Euro-Gynese base. We raised $350 million from a private equity backer in Chicago. Basically, my career has been, you know, broad, but it's been a med-tech element in almost everything I've done.

Got it. And I've been here for six years. And I love Nova Scam. I can't wait to take it to an exit. Yeah. I'm excited to learn a little bit more about Nova Scan. And we're recording this kind of in mid, mid-ish, 2003. So it looks like you've been at it. You know, you said six years or so. Yeah, dating back to 2015, 16 time frame just to kind of put a little bit of a framework around that. So, and Craig, before we go any further, LaSelle investments, that was the kind of the early stage. Yeah. Okay, fun that you were investing out of. Okay, got it. Makes sense. Well, cool. Let's, we'll certainly get into this and more. detail, but tell us a little bit about, you know, Nova Scan, like what you're building and really how the kind of the idea for the technology came about. And let's not go too deep if it can be more of an elevator pitch, because we'll, you know, we'll go back in time and kind of maybe learn a little bit more about experiences. But give us a sense for kind of what you've been building over the past, you know, six plus years. Right. So we have an oncology diagnostics platform that works in vivo and ex vivo. And, you know, we don't require a big tower. We don't require something

visual, anything like that. It works electrically. So we look at the impedance and we calculate a parameter called the coal frequency. And we found empirically and theoretically that it increases a thousand X as cancer develops and advances. And so literally what we can do is we can place tissue on it in the body or outside the body. We can scan it in a few seconds and we can tell you if cancer's present. Then we can also inform if that cancer is likely to be very aggressive or not. We see it as a platform technology that can take place in all types of tissue. But our data set is in skin, breast, lung, pancreatic, and esophageal. In terms of the device itself, is this relatively small?

Is it like, is it handheld, this kind of the scanning technology? It absolutely can be. I mean, our, our GI device, for example, is, you know, it's smaller than a shoebox. Okay. It's probably bigger than a cell phone. And you place the tissue on it and we scan it. We'll inform it in, you know, a few seconds if there's cancer present or not. You know, go for that, is it do that in such a way that it doesn't violate work.

workflow that, you know, the clinician is doing, he'll take a sample, we'll put it on it. And before you do the next sample, we'll tell you if there's cancer there or not. Okay, got it, got it. So in theory, if a physician's doing a biopsy, right, where they normally, they normally, you know, pull, you know, tissue with some sort of, you know, probe, have to send it to a lab, etc. In theory, right on the spot, they could extract tissue, put it on the, the Nova scan, sort of, or scan it with Nova Scan, and then right then and there, they could have a sense for, you know, whether Exactly. Is this kind of how they.

Okay. Right. So we think our benefits in a few different ways, right? So in thoracic or in a lot of GI, because it's sort of you have a last inch problem. You can look at it under CT and sort of get to where the lesion is. But it is difficult to know if you've captured a pathologically relevant amount of cancer in that sample of biopsy you've just taken. And you won't know that until after the fact.

And you might, the clinician might be confident that the patient has cancer. But if you can't assess it. pathologically, they can't treat the patient. It's really a problem in like robotic bronchoscopy, for example, and, you know, pancreatic and biliary procedures in different way in prostate. You know, it's sort of the same thing. You can get there, but getting real-time information on the presence of cancer in a way that's pathologically relevant is a big deal. And, you know, there are some places they'll have a rose process in place where they can do rapid on-site evaluation right next to it. but that's often not present.

And even when it is present, it's expensive, right? Because you have to have a pathologist or a pathology tech sitting there and waiting. This is something that is faster. You don't require someone. It can be done in five seconds. Got it, got it. And that underlining sort of mechanism where you're measuring impedance, did that sort of idea, was that originated, you know, by a physician, by a PhD?

Like, where did this kind of this idea come from? Yeah. So impedance has been around for a while. The innovation here is taking the coal frequency, which is derived from impedance. And that came from the professor at the University of Wisconsin. He was at the Indian Engineering School at UWM. This has been sort of his life's work, and he realized that. And, you know, he'd been running it sort of as a lab project type company for a long time.

And I so took it out in returning to a real company. We have real team. Got it. Got it. And was this one of the investments that you made at LaSalle then? I mean, I did this right after. I left us out. Okay. Okay, cool. Got it. Makes sense. Give us a kind of an overview of where the company's at in terms of development, you know, Clinreg, commercialization, et cetera. Right. So we're a clinical stage

company, right? So we don't have any revenues. We're not much leading forward. Are, you know, we're active in a few different areas. We're active in skin. Where in that case, that's our most complicated product. We have something there where you would scan tissue, you place on it. And we will scan across that and we will tell you if there's cancer in the margin and we'll tell you where it is. And that one we were partnering with a company in Japan called PHC was formerly called Panasonic Healthcare. It's a $3 billion Japanese conglomerate focused on health care. And they are our manufacturing partner and the division of them will likely be our commercial partner. For lung and GI, we are clinical stage.

We are active in the clinic in the Texas Medical Center. We're about to be active in the University of Chicago, one in GI and one in Therataph. And so we are capturing a data set there. Our data today is, you know, sensitivity and specificity around 90. And, you know, we're putting that, we're meeting with all the strategics, and we'd like to take that to clearance ourselves and then see if we can partner. Got it, got it. And these, the regulatory pathways for these various kind of applications.

These can both be class two de novos. Okay. It's ex-bevo, we're adjunctive. But I don't have confirmation from the FDA across all of it. Got it. Yeah. Yeah, fairly complicated once you start, you know, getting into. to various applications beyond GI, thoracic, scan, et cetera.

So, and then if you're listening and don't make it to the full summary article on MedSider, definitely check out Novascan, Inc.com. That's the website for Craig's company, Nova NOVA, SCAN, Inc, inc, inc,com. That's the website. If you want to go check that out and learn a little bit more about the technology and the company that Craig and his team are building. So with that said, Craig, let's kind of, you know, step inside the MedSider Time Machine a little bit more about like your career, what you've learned along the way,

key insights, you know, building Nova Scan over the past, you know, six plus years now. We'll spend about, you know, maybe 20 minutes or so, you know, talking about some of these cross-functional topics. But the first one being early stage, you know, alpha and beta development. You know, this can be, you know, incredibly challenging, especially when you're trying to really be capital efficient, right? There's not a lot of dollars to be had, especially in the early stages. You know that all too well with your time at LaSalle. you know, you've got to do a lot with a very small amount of money. So, you know, when you think about your, how you've coached up other entrepreneurs, right, to be able to kind of iterate quickly through this early

stage development work, you know, are there a few things that kind of often have come up or things that you've really, you know, try to emphasize over the, you know, yeah. Well, comes to mind most recently, which is probably most poignant and relevant for your audience is, you know, as you go through cycles and you start to, you develop a product, you're actually getting data with it. You're super excited. And you go to you. IRAB approval, and it can take a year. And you know, you're burning money that entire time. That's very, very expensive.

So I think one of the important things that we do is we try to look at the outset, you know, what's the IRB path likely going to be at this institution or the other institutions would be more efficient and effective. We've done a lot of work using outside IRBs, you know, with ASCs and such, whereas I can take something you can take at a leading medical center can take 12 months and we can do it in three weeks. And then, you know, getting the data is really important for us. you've got to iterate based on it, right? I wish I was so smart to figure everything out the first

time. But I'm not, and I respectfully suggest that most of your audience isn't. So you'll have to think or you have to make changes, right? And you know, be able to have that process fast, efficient. It's just a really, really big deal. Right. I think that's a really important point when you're thinking about, you know, what is the, what is the clinical sort of data collection process look like? And, you know, is this a technology that you could use? And, you know, is this a technology that you could use, right, in an ASC, in an office-based lab, you know, somewhere outside the hospital, right? So you can avoid those really link the IRB approval processes.

We have that in a couple different areas, right? So our dermatology products are all office-based, right? So we've used outside IRBs for every single site that we have. In GI, we are getting data in an ASC that is unusual because they also do pancreatic data within that ASC. But we found that. And we have a relationship and we built that.

And that's part of the beauty of doing it, right? Looking at someplace we can get that quickly. And again, if you're listening to this, you may not be working on a device or in a therapeutic arena that lends itself to this. But I think that the important message here is don't be afraid to be creative here. You know, it reminds me of the leaf therapeutic.

It's L-I-E-E-E-F and it's Rohan. His last name is escaping movie. I interviewed him on the show maybe 18 months ago, two years ago, something like that. and they intentionally commercialized their device for consumer audience up front, right? You know, avoided making any, you know, bold claims, et cetera, with the intent just to collect clinical data, right? It wasn't, they didn't really want to earn revenue, but it was, it was sort of a fast track

for them to, to be able to, you know, glean insights from actual users. And so, you know, that's just one example of many, right, where you could sort of fast track that process to begin to collect more valuable information as you're thinking about developing in those early, early, early stages. Very creative. Right. Right.

Anything else to add before we kind of jump to the next topic? That's probably the biggest point that strikes me right now, right? I mean, be able to be responsive and built quick prototypes. We are in an incubator in Chicago that's probably unique in that we have thousands of feet worth of machine shop adjacent. And so we have a wet lab. We have lots of CNC. We have lots of machining ability, lots of rapid prototyping and lots of all that. And we, you know, I think our canary product, which is our, you know, for instant

detection of ex-fivo GI and thoracicum, we build it together in our lab in, you know, several weeks. If I just send it out, it would take me six months. Right, right. Yeah, even if you could get someone to even focus or prioritize it, right? Yeah, yeah, no doubt, no doubt. It's one of the advantages of working, you know, with the right sort of incubator or accelerators. If they have got that, those type of capabilities, that's usually really, really nice

advantage for sure. Let's talk a little bit about your GI trial. I think you commenced it earlier this year. I don't recall the exact the exact month. So that's a big kind of hurdle across. So congrats on that. When you were kind of in the phase of building out that strategy, right, for your GI clinical work. And maybe you don't have to speak specifically to that if you don't want to. But really when you think about kind of that that Glenn Reg process, what are, you know, some of the key, key things or key, key tips that you think other med tech early stage entrepreneurs would really need to understand when it comes to this topic? I think it goes back to the first point, right?

You know, how can we get data quickly? I think that also informs on if you have a platform like we do, that informs on not only just where you're doing it, but also what particular disease conditions you're trying to treat, right? So we have a focus on pancreatic cancer. We have highly confident. We have a little bit of data this will come billiary. but to get to a sufficient data set that's compelling would take me a long time. Right.

So I'm not going to leave with that I can't. There aren't enough cases. I would need six sites. It's going to take the year after the IB to die. I want to go faster than that, right? So that definitely points that, you know, fast, rapid cycle time, you know, clock does it a burner? What else can I tell you? Right.

In terms of that, G. I try. Are you running it then in the ASC then in order to kind of maximize for, optimized for speed? We are. So we are present when the comes in. So it's in the Texas

Medical Center, right? So we have a person that flies down every week for a few days. We'll do cases and they'll fly back, right? And then the data will come to us. And then we will,

our stuff is pretty simple, right? We don't impact the tissue in any way. So we evaluate whether it works or not based on concordance with pathology. So we'll make our assessment. We'll have the results of the answers.

Then we looked at pathology when that comes back and we look for concordance. Got it. And will you use this data for your actual reg submission or is this just simply to collect data in order to inform sort of continued iteration on the technology? We're using discussions with the FDA, but it's not pivotal trial data. Okay. So it's, I mean, our stuff works. We have an algorithm.

And we need a data set to fully satisfy that algorithm to refine it. We're capturing that to do that. and then we'll take that one for the pivotal trial. Got it, got it. This reminds me of a conversation. I don't think he'll be afraid. Well, I'll be somewhat sensitive to what I share, but it reminds me of a topic with Monty Madsen,

who's one of the founders of Safion, which was a company in the kind of the chronic venous insufficiency space. And when I was at Cavidian, we acquired this company. I remember him mentioning, though, with a lot of their early stage clinical work, even though it wasn't used for regulatory submission, they did it in a way where they wanted to use, use it, right, for correspondence with FDA. And what they performed that early stage clinical work so

well and documented it so well that FDA actually, you know, signal, it was, it was very positive, right, in front of FDA, even though it wasn't, it wasn't pivotal data, right? But FDA always viewed it very positively because they documented it so well. They executed it so well. And I just think that's a, that's an important reminder for anyone that's doing, you know, some of this early stage clinical work, that even though, you know, Craig, to your point, it's not going to be, it's not pivotal work. It's not going to be used in the application itself. That doesn't mean that you should just, you to do it, do it sloppily, right? You know, make sure you got your eyes, cross your teas, do it in a well where if you did

actually present it to FDA or it was part of, you know, correspondence, you know, it looks favorable, right? Because that's sort of a representation of, you know, kind of you and your company and how you guys are going to execute. We will present it to the FDA. We'll also publish it. And the journals will submit it to conferences. It's who we are, right? Right.

I've raised money based off data, right? It's important. Yeah, yep. Good stuff. Let's transition to fundraising, right? I mean, this is something that's, you know, clearly in your wheelhouse, you've got a ton of experience kind of across the board, you know,

whether it's, you know, any consultancy type of capacity or if it's, you know, investing yourself or in this, you know, in the case of Nova Scan, you know, raising rounds of capital. I think you wrapped up your series B in late 21. You know, we're recording this, you know, about a year and a half later or so mid, mid-23. The environment is much different, right, for fundraising. So talk to us a little bit about just,

how you're approaching kind of this process for Novoscan. And really what are, what are some of the key things that, you know, other founders and CEOs really need to get right during this process in order to be successful with their fundraising, you know, activities? It is a very different environment than it was 18 months ago. Right. And we just all have to accept that and then learn from that and move on. It's a challenge. I think that I saw an article in the Wall Street Journal that the last quarter of 22 was the worst quarter for venture funds raising additional rounds, rest of funds,

in like 10 years. Hey there, it's Scott, and thanks for listening in so far. The rest of this conversation is only available via our private podcast for MedSider Premium Members. If you're not a premium member yet, you should definitely consider signing up. You'll get full access to the entire library of interviews dating back to 2010.

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