Medsider: Learn from Medtech and Healthtech Founders and CEOs - Why Early-Stage Technical Risk Reduction is Crucial for Medical Device Startups: Interview with Diality CEO Osman Khawar

Episode Date: March 8, 2023

In this episode of Medsider Radio, we sat down with Osman Khawar CEO of Diality.After obtaining an MD from the University of Glasgow and an MPH from Johns Hopkins, Osman Khawar went on to become a board-certified nephrologist with a passion for serving dialysis patients. As the CEO of Diality, he and his team are in the midst of creating a hemodialysis system that's versatile, mobile, intuitive, and cost-effective. In this interview, Osman discusses why early-stage technical risk reduction matters and how to navigate regulatory clearance through collaborative relationships. He also shares valuable tips on building and leading a mission-driven team. 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 Osman if you'd rather read the summary instead.

If we think about just sort of areas where people make mistakes, I think the biggest is technical risk reduction. You can have a great idea, and I see a lot of my physician colleagues who have this, and I see a mistake here generally where it's an innovative idea, but technical risk reduction is not on the radar at all. And so I think that idea comes inherent risk, and you have to reduce it early in the project. And the way to do that is to go through a series of prototypes, Alpha, Beta, etc. trip. 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, it's Scott. In this episode of Medsider Radio, I sat down with the CEO of Diallity, Osman-Qar. After obtaining an MD from the University of Glasgow and an MPH from Johns Hopkins, Osman went on to become a board-certified nephrologist with a passion for serving dialysis patients. As the CEO of Diality, he and his team are in the midst of creating a hemodialysis system that's versatile, mobile, intuitive, and cost-effective. Here, a few of the key things that we discussed in this conversation. First, one of the most common shortcomings of med tech companies is the lack of early-stage

technical risk reduction. Reducing uncertainties during the initial phases of development can save you a ton of trouble down the road and give investors the confidence they need to support your venture. Second, the effort needed to build collaborative relationships with the right stakeholders is sometimes underappreciated. For example, one of the best ways to ensure a smooth regulatory clearance process and efficient clinical adoption of your product is to prioritize building alignment with the right people and the right organizations.

Third, the team members and investors you bring on board can make or break your company's success, especially in its earlier stages. A great way to build a mission-driven, patient-centric group of people is to connect them with real-life patients and consumers. Okay, before we jump in, I wanted to point out one thing. Due to a technical issue with the recording, we had to cut the first 30 seconds or so of the audio. So after these short messages, we'll dive right into the discussion with Austin.

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Learn more by visiting medsiderradio.com forward slash mentors. Again, that's medsiderradio.com forward slash mentors. This was, I mean, gosh, 10 plus years ago now, but at the time, we were, you know, I worked with a fair amount of interventional nephrologists. And it was always amazing that outside the years, US, you know, in-home dialysis was much more common. But yet here in the U.S., it seems like it's taken a while to kind of get to this point where, you know, physicians like yourself are building companies to like make this possible. So looking forward to kind of learning, digging into the

technology and kind of what you've learned along the way. But that said, tell us a little bit more about like how, how this idea came to be and kind of what are the, what are the key advantages to the, not only the patient, but maybe even the physician community as well. Yeah, I think they're both important. You know, our promise, brand promise, is really freedom in choice. And dialty's technology really empowers dialysis and kidney care healthcare professionals to make really the best decisions for their patients. And that's really within the unique sort of provider pair space that exists right now. And we can get into the market and exactly how that model came to being and exist today. Nephrologist really should be able to prescribe, in my opinion,

what is best for the dialysis patients without having to really factor in where or by whom that that prescription is administered. And they should do so knowing that it's going to help their practice thrive and grow well. We really conceive diality by the desire to provide more simpler dialysis technology and lower the burden, as I mentioned before, for the adoption of dialysis in the home. But you sort of realized quickly there was other greater dynamics at work in the dialysis landscape. home was just one example of a larger movement to decentralized dialysis delivery, which right now is very much brick and mortar-centric going to a dialysis center and receiving dialysis. And there's a movement really to counteract that.

And we're seeing smaller, lower infrastructure dialysis clinics popping up. We're seeing high growth opportunities in non-traditional home, places like skilled nursing facilities. And COVID really accelerated this, but a lot of it was even prior to COVID. And I think, you know, maybe we'll get into a bit of the history of how dialysis payer model has sort of changed over time. But we also saw an opportunity to enable what are now what we call value-based care providers. It's a new space in dialysis. It's been slowly coming out of models from CMI, but it's really people who rely on data analytics as a broadly focus on dialysis delivery and the total cost of care, not only the dialysis space itself. but also the more broader space.

And so payment models are coming out that are more value-based, really keeping the nephrologist at the center of that model and empowering that nephrologist in a way they have never been empowered before and to leverage that model and improve the lives of patients' impact by kidney disease. You know, dialysis is interesting because, you know, back in the 70s Congress approved payment for dialysis as a disease-specific phenomenon. And it was really one of the first places that we did that. And that was a very innovative decision by Congress.

And since then, I think the payment models in this space have been very innovative. And CMMI has been, I think, key in driving some of those payment models. Quality-based payments were very early in dialysis, something called ESCOs, which is a disease-specific accountable care organization. And now what we're seeing is really risk-based providers who are taking on risk for commercial payers and Medicare Advantage plans likely coming, where total cost of care is much more important. And then driving that improved quality of care is also driving down cost and no tendency. So I think it's a win-win for everyone and every stakeholder.

Got it. So not only are you, do you have the challenge of developing a pretty innovative product in a highly regulated space, you know, you're trying to, you know, navigate this monster challenge of working with, you know, payers, payer relationships and reimbursement. And, you know, hopefully we can talk a little bit more about that. But sort of the nature of the beast and operating in MetTech, you know, lots of, lots of challenges, not only on a product level, but, you know, working with all of these various stakeholders to. Yeah.

I mean, people talk about product market fit. It's really important that you not only understand the product you're building, but the market you're going to supply it to and that that fit is correct. And I think it's really challenging. And it's, you know, it's important to think about where the market is going by the time your product is finished. So you've got that correct fit for when you're coming out with your product. Yeah, I couldn't agree with you more. And like one of the kind of the core thesis that we have at Big Sky Biomedical, which is kind of an incubator,

it's got a hybrid between an incubator and accelerator that I'm involved with is actually, like before we even remotely even consider taking on a project, like we have to check those boxes, right? Like, how is this thing that we, you know, we want to potentially. bring to life, how is it going to be paid for, right? Yes, it has to work. It has to be clinically efficacious, but how is it, you know, who's going to pay for it? You know what I mean? And is it reimbursed?

And do you have like, you know, is that kind of that monster of a process, right? In getting the payers and all of those, the various stakeholders involved, are they on, are they on board? So this should be a fun conversation. Yeah. Yeah, I think medical devices changed. The clinical efficacy is not, it used to be, you know, the primary thing you had to prove. And I think much more now, it's much more about the market and reimbursement in your

quota market space than it used to be. And I think, you know, people embarking upon the journey that I am on need to understand that early. Right. And particularly, I think it's important that you understand a very rapidly changing market like we've seen the dialysis space a last few years. Got it. Got it.

Yeah, totally great. One of the comments that still sort of resonates with me is based on a conversation I had with Nick Anderson. And if you're interested in going back and listening to that interview, I highly recommend. He's probably one of my go-to sort of health economics consultants. And, you know, he said, of all the startups I work with all the time, he's like, I rarely see someone that represents the payer community on the board. He's like, and I think it's just, it's oftentimes a huge misstep.

Whether or not you need someone like that on the board or just closely involved with the company in the earliest stages, he's like, I just see it's a huge gap that I see often with most med tech startups. So I think, you know, if you're listening to this and you're running a med tech startup, which does a lot of those folks in our audience, be thinking about that if you're not already, for sure. So with that said, Osman, let's talk a little bit. Before we kind of go back in time a little bit, give us a sense for kind of where the company is at in terms of development, regulatory, potential commercialization. Yeah, so without getting too much detail, we're a company based in Irvine, Southern California.

We've been in product development, really, for the past four, four and a half years now, final stages of product development and looking at a submission to the agency soon. The general regulatory pathway for a dialysis device is a 510K predicate pathway and normally separation on the user. So generally a 510K for a professional user, be that a nurse or a technician, and then a separate 510K for non-professional user, such as a patient or a caregiver. And so those two are generally separated. And in between the two is generally a clinical trial for the non-professional user. So that's the pathway that we'd be taking to. Got it. And so just to understand, both 510K pathways, both for the professional user and the consumer,

the non-professional user, both require clinical data? Or is it just a lot of it? There's normally bench data that is fairly well described for the professional user, what we call our clinical submission. And then for the home user, it's a clinical trial and human data that's required. Generally for safety efficacy in the home, which I think is appropriate, we're always making sure when we move the medical device to the layperson's primary use, that we're making sure we have, in essence, got usability correct that they can utilize the device safely

and effectively. Got it. Got it. Sounds good. All right. We'll kind of rewind the clock a little bit and go back in time to learn a little bit more about kind of the journey you've been on with Diality so far. for those listening and want to jump right to learning a little bit more about the technology,

diality.com is the website. So d I-I-A-L-I-T-Y dot com, D-I-A-L-I-T-Y-Y dot com, D-A-L-I-T-Y-Y-Y-L-I-T-Y-Y-L-I-T-Y-L-T-Y-Lity. We'll certainly link to that in the show notes for five-plus years ago. I'd love to learn a little bit more about how you've gone about product development, because it sounds like you're almost kind of, you're close to the finish line, you know, fairly close to submitting for regulatory clearance here. Talk to us about kind of what you learned kind of developing the alpha and beta versions of your device. Yeah, I mean, I think that if we think about just sort of areas where people make mistakes, I think the biggest is technical risk reduction. You can have a great idea.

And I see a lot of my physician colleagues who have this, and I see a mistake here generally where it's an innovative idea, but technical risk reduction is not on the radar at all. And so I think that idea comes inherent risk. And you have to reduce it early in the project. And the way to do that is to do, go through a series of prototypes, alpha, beta, et cetera, iterative improvements in each phase. And if you don't do that early in the project, you'll lead to a product that will just not meet your query requirements.

It'll be too complicated. It'll be too big. It'll be too expensive. I think getting that iterative process going early is really, really important. I think software does that great. And I think hardware does that not as well and needs to continue to do that. You know, feasibility prototypes. You answer a lot of fundamental questions about technology.

that you can't get with design and analysis. And the first indication where they're going to hit our desired performance targets is really from there. And, you know, design, build, test, learn cycles at that stage to get some quick answers, reduce the unknowns, reduce the uncertainties, give your investors some confidence. I think that's really, really important to do. Got it. I love that framework around, you know, how can the team, right, the engineering team, reduce the technical risk, you know, as early as possible. And, you know, an interviewer I recorded recently with

Derek Herrera, who's also based here in Southern California, runs Bright Euro, great guy. You know, he actually just recorded a second round. And he mentioned, it's always kind of the balance, right, in startups where you want to be, you know, optimizing for, I'm sorry, you want to be developing an innovative product, right, but always optimizing for sort of the, the, the, only the necessary features, right, in the earliest stages in the first generation, because it's so easy to kind of jump to want to include all of these potential benefits, but oftentimes your product ends up becoming bulky and bloated and leads to all kinds of development and technical risks, as you mentioned.

So definitely a fine balance to. Yeah. I do think that sometimes that happens because the wrong partner is chosen. You've got the wrong investor. You've got the wrong team around you. And particularly, I think, investment pressure on the startup is to get. you know, get somewhere as quickly as possible, but that iteration needs to be understood by your investors. And if you don't, I think, tell that story well, you get yourself in a bind. I think the other

area is definitional problem statement, user needs. That really allows the startup to build and prioritize the right features like we're talking about. And I think in our case, that user needs was, was, you know, my sort of forte to sort of say, this is what the market requires. This is where the market's going. And I think making sure you have that market expertise is really important, like Derek does as well. And considering your device is used in the home, did you primarily focus on, you know, human factors from a consumer standpoint? Or did you get, I mean, obviously as a physician yourself, you sort of inherently understood kind of the needs. But how much did you rely upon, you know, sort of consumer input? Yeah, I mean, just as an organization, we're very much patient-centric. And so,

So, you know, employees, pre-COVID in particular, we used to go to dialysis units, take them there, to they understood and met with patients. We bring patients into the office at our all team meetings to just discuss it. It used to be really key to our culture. It's been a little harder since COVID, but I think it's important that your team is mission-driven and enthusiastic. What you're doing, the only way you can do that is to connect them to the problem in the market. And so I think that that's really key. So we've continued to do that as we've gone along. Obviously, in the medical device space, there are more.

structured ways to do human factors to do some of informative things. But I think in informal ways, you need to continue to inform your team at the same time. Right. Hearing, hearing kind of what you've, sort of the way that you've gone about involving patients reminds me of a discussion I have with Renee and Ryan, with Cala Health, you probably are familiar with her. And she said, when we talked about this, this concept, she said one of the creative ways that they, they were able to get patients involved pretty early on as they went from, you know, Generation 1 to 2 of their device, because it is, it's a medical device, right, but it's very kind of consumer-centric or patient-centric. And she said they opened up, you know, quote-unquote Cala clinics, right, where they actually

invited patients in, you know, for treatments. And it kind of served as a almost what it sounded like as kind of a high, I'm not sure if they're still offering this. They probably are. But I thought it was a really creative approach to, you know, really kind of going deep with with patients and consumers, right, and getting more feedback. Yeah, I think, you know, now we're hearing a lot more about patient-centered. design, right? And it's not been forefront for some time. And I think it's excellent conversations that are going on now in the MetTech space about really making a design patient-centered. And just like you say, people don't have enough, you know, payers on their board, they probably

don't have enough patients connected to them as well. Both of those are important. That's true. Very good point. So we talked a little bit about the regulatory approach, you know, with a device like you're developing a diality. Like when you think about kind of that, that regulatory process in general, especially, you know, considering it requires clinical data, looking back over the past maybe two to three years, are there some key lessons that you've learned with respect to kind of the, you know, navigating the regulatory waters? Yeah, I think my advice would really be as collaborative as you can with the agency. I think that, you know, listening their feedback through the form of presub system or other

ways to understand their current thinking and clarify your plans, move through the project, and recreate a collaborative space between the two entities is really, I think, the key to success. And we have done that. We've had lots of interactions agency. And I think that's important. It gives you confidence. It de-risks your submission. It gives you insight into current thinking, which may not be reflective in current guidelines.

And, you know, we don't always have access to what people have done in the past. And so you don't always know what issues there is front and center of the FTAs. mind. And so I would just encourage as much collaboration as possible. And I think that sort of environment, I think, is responded to well on both sides of the table. And I think it really focuses everyone on what we're trying to do, which is improve the quality of care in the United States. Got it. Let's jump a little bit and circle back around to kind of this, what we briefly touched on earlier, which is, you know, navigating the payer landscape, you know, and you're dealing with this, you're operating an environment where, you know, there's definitely a trend or a shift, right, for dialysis to go from,

you know, the traditional kind of dialysis clinic setting and move it to the home front. But that comes with a whole host of, you know, challenges around who, you know, how is this going to get paid for? Yeah, what does that, what does that look like? And so kind of what in general, can you talk to us a little bit about kind of your approach? Because that's such a, that's such a, a difficult hurdle, right, to kind of not only cross, but just kind of manage, manage through. And so I guess if you had kind of, if there was a group of other MedTech entrepreneurs that had similar types of challenges, right, where they want to develop a device that aligns just kind of this, you know, a trend, you know, talk to us a little bit about kind of your approach and what you've learned.

Yeah, I mean, I think, again, we've been, we've been grateful to have such close and intimate knowledge of the market. And I think that if the market is changing, the parent environment is changing, you're not, you don't have your finger on the pulse. It becomes exceedingly difficult, I think. In the Dallas space, there is an additive trend of value-based care, which I think you can sell traditionally and you can see this new payer models as additive and how do you collaborate best with them.

And again, one of our core values is collaboration. So collaborating with these new value-based care providers, what is important to them, having those conversations early in the design process, you understand what you're developing has value to the new models that are coming, I think is important. So again, I think outreach and conversation, collaboration is going to be important, particularly in a changing payer model. Of course, there's four more ways to approach that, health economic outcomes research and things like that that that you can do. But eventually you want to start talking to real people who are going to buy your device and pilot it. And I think the early you have those conversations relationship to the better time.

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. This includes conversations with experts like Renee Ryan, CEO of Cala Health, Nadia Mare, CEO of CVRX, and so many others. As a premium member, you'll get to join live interviews with these incredible medical device

and health technology entrepreneurs. In addition, you'll get a copy of every volume of MedSider mentors at no additional cost. To learn more, head over to Medsider Radio.com forward slash premium. Again, that's medsiderradio.com forward slash premium.