Medsider: Learn from Medtech and Healthtech Founders and CEOs - The 3 Pillars of a Successful Medical Device Startup: Interview With Clarius CEO Ohad Arazi

Episode Date: March 22, 2023

In this episode of Medsider Radio, we sat down with Dr. Ohad Arazi, CEO of Clarius, a leading provider of high-definition wireless ultrasound systems. With his extensive experience in the technology industry, ranging from the Israeli military to industry leaders like McKesson, Telus, and Zebra Medical, Ohad's impact on Clarius' persistent growth is undeniable.In this interview, Ohad shares the inspiring story of Clarius and its innovative handheld ultrasound device. From navigating regulatory hurdles to training audiences on new technology, Ohad explains how Clarius has achieved impressive growth year after year and shares valuable insights relevant to any medtech startup.Before we jump into the conversation, I wanted to mention a few things:If you’re into learning from proven medtech and healthtech 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.Lastly, here's a link to the full interview with Ohad if you'd rather read the summary instead.

As a startup company, you're always disrupting. You have to be blind, deaf, and dumb. Because if you listen to anyone and if you saw everything, you would never do what you're doing because the odds are impossible against you. And your only chance is actually to disrupt the legacy model and really understand why the entity that is now holding the line share of the position can't disrupt themselves. Welcome to MedSider Radio, where you can learn from proven med tech and healthcare thought leaders through uncut and unedited interviews.

Now, here's your host, Scott Nelson. Hey, everyone, in this episode of Medsider, I sat down with Ohad Arasi, the CEO of Clarius, a leading provider of high-definition wireless ultrasound systems. With his extensive experience in the technology industry, ranging from the Israeli military to industry leaders like McKesson, Tellus, and Zebra Medical, Ohad's impact on Clarius's persistent growth is undeniable. Here are a few things that we discussed in this interview. First, to build a product that truly meets the needs of your target market,

critical that you understand its must have features from a functional, clinical, and financial perspective. Second, have a clear understanding of the regulatory and reimbursement pathways and be able to effectively communicate them when pitching investors. Also, understand the surrounding tools and infrastructure that make it easy for your target audience to adopt your product. Third, your channel strategy is crucial and needs to be approached soberly and with intellectual honesty. As a startup, you sometimes need to leave the beaten path and disrupt the legacy market to generate revenue quicker. Before we jump into this episode, I wanted to let you know that we recently released the second volume of Medsider mentors, which summarizes the key learnings from the most

popular Medsider interviews over the last six months or so. Look, it's tough to listen or read every single 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 Erica Rogers, CEO of Silk Road Medical, Dr. David Albert, founder of Alive Corps, and so many others. In addition, As a premium member, you'll get to join live interviews with these incredible medtech and health tech entrepreneurs. Learn more by visiting medsiderradio.com forward slash mentors. Again, that's medsider radio.com forward slash mentors. I recorded kind of a high-level bio at the outset of this interview, but I always like to start kind of hearing from you first. So without getting too far into the weeds, give us a sense for your professional background leading up to your CEO role at Clarius. Yeah, I started my tech career.

in the Israeli military, actually. I'm Israeli originally, and I was a product manager in the Intelligence Corps, which was an amazing training ground. And actually in many ways, you know, people expect the military to be extremely hierarchical and very structured. And I actually found very destructive thinking being fostered where I was at in the military. And so that's where I started my career. I joined a startup that was founded by some people that had come from my unit.

I ended up running it and we sold it in 2005. And then subsequent to that, I moved to Vancouver. My wife's of Vancouverite, so she dragged me here. At first, kicking and screaming, but of course I've learned to love it. It's an amazing place. And through complete serendipity, I ended up at McKesson. McKesson's medical imaging business, which has since been divested to change healthcare, was headquartered right here in Vancouver.

And I came in as director of product and had an awesome 11-year career there, ending up as the senior vice president, GM, running the cardiology imaging business, it's a ton of fun, and a great corporation. And then served as chief strategy officer for a publicly traded company here in Canada, which is TELUS. It's a big telco, which has a substantial healthcare division, which is pretty unique. A lot of TELCOs have dabbled in health care,

and very few have had the staying power. But TELUS has built almost a $2 billion business. And so I was running the EMR business there, doing M&A kind of strategy stuff. And then after 15 years of being a big corporate guy, which I never thought of myself as one, but there you have it. I came back to my startup roots.

I took the helm of a venture-backed Israeli company called Zebra Medical, which was an imaging AI company. And Zebra was sold in early mid-2020. And then subsequent to that, did some advisory roles. And through that, started to work with Clarius, which is a handheld ultrasound company. And I've been here now for just over a year, took over for our amazing founder,

and then I'm having a ton of fun. Awesome, awesome. And we're recording this kind of an early 23, so it looks like you kind of took the helm at Clarius in early, early 2020. And for those that aren't familiar with Clarius, give us a sense for kind of what you're working on and then where you're at in terms of kind of commercialization

and what's ahead for the next, you know, six to 12 months. Yeah, for sure. So Clarius is a digital health company. We're based here in Vancouver, Canada, and we're on a mission to make accurate, easy to use, and affordable ultrasound tools available to all medical professionals across multiple specialties. And that really applies to a variety of care settings and use cases. That could be nurses in the developing world. It could be EMTs in an ambulance, family doctors providing rural medicine, or surgeons performing safer and more accurate procedures and many more. And so we do this by bringing together high performance ultrasound imaging, cloud data,

and artificial intelligence. And that creates this powerful ecosystem that provides significant value to improve patient care and allows us to kind of enable medical imaging in every setting, which is really the mission that we're on. We do all of this with some amazing device that I'm holding in my hand for our viewers. It's the size or our listeners. It's the size of an iPhone 11. It costs under $3,500, and yet it's a full-fledged ultrasound machine.

It has a quality output that's comparable to the cart-based systems that you may have seen at the hospital. Got it. And yeah, you can appreciate Scott how different this is than those big old carts, right? They get wheeled around with all their cables and their knobs and buttons. This is sleek. It's powered by artificial intelligence, which makes it dead easy to use, even by users that haven't been trained as physicians. or as sonographers. Got it.

That's super helpful overview. And for those listening that can't see what Ohad is holding up, it really truly does have the footprint of like an iPhone, iPhone 11, you know, something like that. Really, really sleek design. And if you want to go go check out Clarissa more detail, I mean, you can certainly see what it looks like on the website, which is Clarius.com, C-L-A-R-I-U-S-C-L-A-R-U-S-Clarius. com to, for, you know, if you want to, want to jump to that, jump to the website and don't get a chance to see the show notes for this particular, for this particular interview. But in terms of,

I want to go back and kind of rewind the clock and learn a little bit more how the company's unfolded and kind of what you learned, not only in your experience at Clarius, but really, I mean, you've got a lot of, you know, startup, you've seen a lot of startups, right, in your, in your career thus far. So I want to get your take on that. But before we go there, I think there's probably a fair amount of people listening this that are familiar with Butterfly, right? They've seen Butterfly's ads. they're online. I think I've even seen, you know, some, uh, quite a few, um, offline ads as well for butterfly. And I've always understood butterflies as this kind of like consumerish type of ultrasound

kind of product. Give it, you know, I don't expect you to dog on your competitors, but give us an idea of kind of how, how clear is is different if you can kind of summarize that. Yeah, we've had very divergent go-to-market strategies. And as a result, we've developed very different products, but we are in the same general category, which is handheld ultrasound. So I think that we've had very different strategies. So I think that share a mission to really bring this to the bedside, bring this to the point of care. Butterfly is focused on community care, on primary care physicians and substantially also on medical residency programs. And so they create kind of a lower image quality, kind of a lower cost, simpler device with an

intention of creating, you know, of having diverse use cases with a single device. And so it's kind of like a one size fits all tool. And of course, that entails some tradeoffs, right, in order for it to work, for example, to do cardiac imaging, you need a small form factor so it can fit in between the patient's ribs, but then that means that it will have a very limited field of view if you're doing MSK, carotids, you know, pick line placement, things like that. But kind of their strategy was lower cost, kind of one size fits all. And they're going into the GP market, which I think over time will be very important.

It's still quite early in terms of the adoption cycle of GPs, because there's very few financial drivers for GPs to bring it into their practice. And there's actually disincentives in terms of liability time. I think that's the biggest one. I mean, you know what it's like. You go see your GP. You've got 10 minutes. And so they're spending the first eight minutes talking about your sore throat.

And then it's kind of unlikely to say, well, we've got 90 minutes, Scott, why don't you lie down on the ultrasound bed? I'll do a full scan of your body and I'll see if I can diagnose anything with your liver. And so I think GPs will catch on. And I think we just have to create the right tools for them. that are more streamlined and are more disease state specific for tools that, for conditions that GPs really track and monitor. And so, so Clarius is like we're more like a block of chef's knives.

If you kind of think of them, they're like a Swiss Army knife or a butter knife, or a block of chef's knives, right? So we focus on specific use cases for specialists, not on the GP market. We do serve GPs, but I'd say that it's still early in its adoption. As I mentioned, whereas specialists have very discrete use cases. cases where imaging is being used. And we focus on those. And also we have a line of 10 different probes, seven for human medicine and three for veterinary care. They're all tuned and optimized for the specific use case that you're looking to accomplish with them, right? Because if you're

using imaging to guide a PRP injection into the rotator cuff, it's a very different type of imaging, very different type of depth of field you need image resolution than if you're using it to diagnose or to monitor an obstetrical exam where you're dealing with a much bigger body cavity, organs that are much deeper in the body. And so that's really been our success is selling to specialists because they have very strong drivers, both from a patient care perspective and from a financial one as well, either reimbursement drivers or private pay drivers that are kind of fueling the adoption of using this to increase reimbursement, create more revenue, bring in more patients. And of course, do all of that in an environment that is better for the patient as well.

Got it. Got it. That's super helpful. And I like your analogy of like a chef's block of knives versus just kind of a universal butter knife that kind of helps set the stage for those of us, including myself, that aren't as, don't have the kind of the ultrasound domain expertise that you have. That said, you mentioned a couple things, Oh, Ha, that I really think are paramount to kind to kind of emphasize is one, understanding the economic incentives of your users, right?

and then understanding how your potential solution or your product in this case fits into their kind of their day-to-day sort of protocol, right? The economic incentives have to be there for something to really, like, succeed. But I think, to your point, I mean, you can have a really, like, an otherwise like really cool device, right, at first blush. It looks cool at a booth, at CS or something like that or at any sort of like medical show. But if it's not practical, right, if the user just simply doesn't have enough time to pull it out and use it in a patient interaction, they're just not, it's going to be, they're not going to,

there's going to be no stickness. Yeah, nice to have. Yeah, there's no stickiness to it. So I think those two things, and we'll hopefully dig into this in a little bit more details. The discussion unfolds are just so crucial, I think, for, you know, entrepreneurs that are, that are listening to this, this interview? You got to get to nail those things. You know what I mean? Does your product, is your product really going to be used? Are your, are your users going to be gravitating towards it and wanting to use it? And then are they going to be economic, are the economics aligned, you know, to see this really, you know, have some traction.

So anyway, those are really good points. But with that said, last question, kind of on the high level kind of Clarius front, you're in market, right? You're actively commercializing this device as we speak. That's right. We're about 35 million in revenue. We've been growing at over 50% for three straight years now.

Wow. And really, I think a big key to our success is everything that you just talked about, right? It's really nailing that product market fit, which is such an overused term. But to me, you know, I think about how I started. my career in the medical device space at McKess, and I told you, I came in as director of product, and I really didn't know much about medical imaging. And I spent two years sitting in radiology, dark rooms or in cardiology labs, watching them work and figuring out, why did you do that?

I saw you click there. You picked up that stentophone, which was a tool that many of our listeners might not even remember. But what was that piece of paper for? Who did you call? So you can really think about their environment. And then, especially if you're looking to disrupt the legacy market, think about us. We had to first create image quality that's on par with what specialists were using, which was principally carts or more commonly compact systems, like kind of those laptop-based ultrasounds that would get wheeled around the hospital. And so once you're able to achieve that, though, in order to create that stickiness, in order to convince them to make a replacement decision or to buy into a new technology, change their workflow, which is a very difficult

thing to do in a medical setting at the point of care, we had to really understand how they work. And so we observed, and that's why it's so different, but it's so important to think about each specialist or each user with their discrete use case. Because if I'm an orthopedic surgeon, in that example that I gave injecting PRP into the patient's rotator cuff, first of all, I have ultrasound in one hand, and I have a needle in the other, which is used for the injection. So one thing that I don't have is a third hand. And that's why we had to have some. much AI powered because different from a sonographer that is working all the time with the ultrasound has all these knobs and controls on their compact to optimize the gain, the depth of field,

the contrast. The orthopedic surgeon has to have that done automatically because they're moving the ultrasound and they need AI, which, for example, we just got clearance for an AI that automatically segments the tendon and measures it because they can't drop the needle and now start to pinch the tablet, which they're using to view the images, to place the caliper, to perform the measurement. We have a needle-in-hands feature where AI automatically detects the needle when it's in plain

so that the practitioner can see it accentuated and increase the contrast to know exactly where the needle is relative to the nerve bundle. And by observing them, we saw that what they really need is voice controls. They need to be able to say increase zoom, increase gain, take a snapshot.

Actually, our AI automatically detects the optimal image as the key image that they use for reimbursement Because if they're billing for an image-guided code, they need to retain the record to show the needle in an ultrasound view because if CMS that audits them for their reimbursement, you have to be able to provide that evidence. So things like that all stem from really observing the workflow and understanding where you can add value.

And to me, that's how you build a company, is actually you ensure that it's not just a general alignment of, yes, this has some value, but it's very specific on what is my user doing and how can I help them accomplish their job? because they're so pressed for time and they're met, you know, they've got so many balls in the air. And especially at that one moment where we come in, which is the point of care, the patient is right there. And so like every procedure, every step they make has to be so accurate and precise.

And we really have to make sure we help them accomplish those steps. Got it. That's great. And I could agree with you more. Like having that deep understanding of your customer's experience cannot be underappreciated for sure. I mean, just, I mean, that's like entry into the game. And if you're not doing that, if you're not deeply understanding kind of like what your, what your customer is experiencing and what they, what they truly, you know, need to

accelerate kind of, you know, or make, make their life more efficient or whatever, you know, that you need to make sure that you're checking that box for sure. But that said, though, before we kind of go back in time and learn a little bit more about kind of the journey with Clarias as well as your career, like, so if I'm using your device, and I'm scanning. I mean, I heard you say the AI will take the, you know, the algorithm will take the optimal image, but it has voice controls. Like I can just say like, wow, that's incredible.

Okay, cool. Very cool. And again, no compact systems have that, right? And so it's just, you know, we view this. I said in my opening, this is a digital health company. Yes, there's a device component, but actually workflow to me is software. And that's where we create most of the value. And if you think about it from a commercial lens, over time, I think that the services component

it will be much more substantial than the device. Our device is now retail's for $3,400 U.S., plus a $600 a year annual membership, which is all the software, the AI, the cloud. And probably over time, more of our company's revenue will be coming from the memberships and a subscription, which is all the services that surround the device. The device is the door opener, but it's actually the AI, the software, that lowers that hurdle rate for you to be able to use it day and day out. Yeah, that's very cool.

Awesome. And again, for those listening, clarius.com is the website, C-L-A-R-I-U-S.C-L-A-R-U-S.com. If you want to go check it out, super cool technology for sure. So let's use the next, you know, 15, 20 minutes or so to kind of go back in time a little bit and learn a little bit more about your career as well as the journey with Clarius. And you laid out this, you know, your high-level kind of picture of kind of what your journey's been like personally. And you've been around a lot of startups. So, I mean, if you had to kind of, pinpoint a couple key gaps, right, with other health tech metric entrepreneurs that are in this alpha beta stage of the companies. They're pretty, they're early on trying to figure, trying to figure things out. What do you think they make the most mistakes? Yeah, and it really depends on the stage of the company. But I would say, first of all, in healthcare, there's, I see a lot of companies and a lot of startups that kind of their value proposition is, is generally aligned, but it's also kind of a little bit of motherhood and apple pie. Like this will save time. This will provide efficiency, but those are very general statements. And so how? And how do you

measure that? How do you quantify that? And so probably about 10 years ago, I really started to understand reimbursement. How does it work? How does CMS work? What does Medicare advantage? How do value-based care systems work? So you can really understand the incentives and the drivers, which are governing the buying process, because there's often a difference between your user and your buyer. And even if they're aligned, they're wearing different hats when they're making a buying decision versus a using decision. And I really encourage startups to think about what is the buying decision behind this and what are the drivers? How do you measure that? And if you can't explain that and measure that to yourself, then it will be very, very hard to make that economic case.

And whether it's a health system or it's an individual practitioner who's making a purchase decision, each are doing their own calculus. And you have to understand what motivates them and what drives them. So I always say, you know, like, of course, understand the clinical benefit. And you start there, but you have to surround that with a very crisp understanding of the flow of the money. And what are the drivers? And they also, of course, vary by jurisdiction. So make sure you understand the economics at each market that you serve. Got it.

That's such a great answer. I remember when I first started going deeper on the reimbursement kind of function or topic, it was when I was at Cavidian. And we had just acquired a divide. that required a new CPT code. And I mean, I knew generally, right, to your point, like, I knew the generalities, but I didn't know the specifics. Like, how do you actually do this? What stakeholders do you need to get on board?

How does this actually work? And going deep and truly understanding kind of how those pieces of the puzzle fit together was awesome. I mean, it was a phenomenal experience and it was really eye-opening at the same time. So, I mean, I couldn't agree with you more like understanding those specifics, right? obviously, you know, solving a true clinical need is paramount, but surround, you know, I'm going to steal your your verbage surrounding that, right? And understanding, you know, and being able to quantify, you know, your solution and what those benefits provide.

I mean, that's crucial. It's absolutely key. Yeah. And, and, you know, I can tell you, similar to your experience at COVIDian, you know, sometimes you walk into an environment where you've identified a clinical gap that isn't yet supported by reimbursement. And that's okay as well. There's pathways to do that. There's pathways. to go to the CPT committee through the AMA, which I did actually, you know, when we went at Zebra Medical, in the imaging AI space,

like imaging AI is one of these things that you think, oh, it's such a no-brainer, right? I mean, you have all these medical images that are basically highly nuanced shades of gray with this massive amount of pixel data. You think while machine vision and machine learning can be able to interpret that and help support processes there,

but it's been very hard actually to find the ROI models. And, you know, once we identified, things especially that were not being addressed, not to try to replace or disintermediate the radiologists, but actually complement them by things they weren't doing today that we could leverage AI to stratify risk for a variety of conditions. We found out, okay, there's a clinical value here, but there's no reimbursement value yet.

We created a reimbursement case, and we ultimately got two category three CPT codes for imaging AI, the first two ones. We collaborated with the American College of Radiology, and we paved away. So I would say don't get hamstrung as an entrepreneur, entrepreneur, if there isn't a pathway, you can create it, but you have to be very clear on that value and actually going through the code committee, which you did with COVIDian and I did with

Zebra, it forces you to do the clinical studies and to actually, you know, get deep into that understanding of the value and how can it best be quantified. Right. Yeah, no doubt. And if you're, to your point, right, it doesn't necessarily have to be, it doesn't necessarily have to handcuff you or prevent you from going down this path if you're onto something compelling, right, a sort of compelling technology, but just understanding kind of the general path forward, right? Like if you're going to, you know, create a new code, right, understanding what it's going to cost and take to get there, as well as how do you, how do you actually get payers on, how do you get CMS and private payers on board, right? That's a long process. You're going to need to raise probably multiple

rounds of capital. And hopefully it's in a market that's big enough that can support, you know, the type of valuations, you know, that, you know, angels and VCs want to get on board with, you know what I mean? So just understanding that pathway. And I want to you some more questions about, about Clarius and kind of your overall journey here. But just to add to this, I was on a call yesterday with a super talented engineer, like very experienced,

clever, for sure. And it's probably onto something, onto this device idea and what, you know, the clinical areas that could probably solve, but didn't, didn't have a clue on what the reg or reimbursement pathways looked like at all.

And so, I mean, if you're in that same boat and kind of, you know, trying to pitch, you know, you know, seed investors,

angel investors, or even maybe VC, for that matter. And you don't have a clear kind of narrative or talk track around how you're going to solve for those hurdles. I mean, you got to go back. You got to go back and do that. Don't expect your audience to do that for you. You know what I mean? So just kind of a little side note. But on one thing, you mentioned kind of like understanding kind of reimbursement globally too, right? It's not, it doesn't necessarily have to be just US specific. One thing I noticed kind of doing some background research for this discussion is Clarice has a lot of global regulatory

clearances and approvals. And that's a lot of. impressive for sure, to say the least. Have there been like efficiencies that you've tapped into in order to do that? Because typically that's pretty, I mean, that's a challenge. I mean, regulatory clearance or approval just in one geography is usually a big lift, but let alone, you know, multiple geographies. So, I mean, it's impressive. But if there been any kind of, any, anything that you can share with respect to kind of, you know, that effort at Clarius. 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.

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