Medsider: Learn from Medtech and Healthtech Founders and CEOs - Why Your Medical Device Company Needs Different Value Props For Different Stakeholders: Interview With Steve Anderson, Co-Founder and CEO of Preceptis Medical

Episode Date: December 6, 2021

In this episode of Medsider Radio, we caught up with Steve Anderson, CEO of Preceptis Medical, and a serial medical device entrepreneur. While serving as CEO of Acorn Cardiovascular, he and a neighbor came up with the idea of creating a device that could help doctors insert a tube in children’s ears in the doctor’s office instead of the operating room. They ended up starting Preceptis Medical in 2011, and in 2020, their Hummingbird device received clearance from the FDA.In this discussion, Steve explains why your value proposition needs to be front of mind from the start, why having someone who’s been there and done it before can help you navigate the process of getting to market and writing a study protocol that shows regulators exactly what they need to see. 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 healthcare 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 exclusive Ask Me Anything interviews and masterclasses with some of the world’s most successful medtech founders and executives. Since making the premium memberships available, I’ve been pleasantly surprised at how many people have signed up. If you’re interested, go to medsider.com/subscribe to learn more.Lastly, here's the link to the full interview with Steve if you'd rather read it instead.

make certain that your story is clear and concise and that the value proposition and the market are there. Again, you can have a cool technology, but that may not mean anything. You can have a good market, but not a good technology. You can even have a big market and a cool technology, but the value proposition when you pull into economy economics is still not there. So you've got to really be able to explain the value proposition and make them confident that, you know, that how you're going to execute on it with the use of proceeds and why you're going to be successful if they invest in you. 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, and in this episode of Medsider Radio, we caught up with Steve Anderson, CEO of Perceptus Medical and a fellow serial medical device entrepreneur. While leading and serving a CEO of Acorn Cardiovascular, he and a neighbor came up with the idea of creating a device that could help doctors insert a tube in children's ears in the doctor's office instead of the operating room. They ended up starting Perceptus Medical in 2011, and then in 2020, their Hummingbird device received clearance from FDA. In this fun discussion, Steve explains why your value proposition needs to be front of mind from the start,

why having someone who's been there and done it before can help you navigate the process of getting to market, and writing a study protocol that shows regulators exactly what they need to see. Okay, so before we jump into the discussion, I want to mention a few things. First, since you're listening to Medsider, you're probably aware of how expensive it is to run clinical trials. Anyone who spent time in the MedTech space knows that you typically need to commit hundreds of thousands of dollars, oftentimes millions towards clinical research. But it doesn't have to be that way. And here's why.

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for your first study at no cost. Some exclusions apply, so visit Medsiderradiot.com forward slash proofpilot to learn more. Okay, second, if you're into learning from proven MedTech leaders and want to know when the new content and interviews go live, head over to Medsider.com and sign up for our free news. You'll get access to gated articles and lots of other interesting healthcare content. If you want even more inside info from MedTech experts, think about a MedSider premium membership. We talked to experienced healthcare 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 exclusive Ask Me Anything interviews and masterclasses with some of the world's most successful MedTech founders and executives. Since making the premium memberships available, I've been pleasantly surprised at how many people have signed up. So if you're interested, go to medsider.com to learn more. All right, without further ado, let's get to the interview. Hey, Steve, welcome to Medsider Radio.

Appreciate you coming on. Thank you. Happy to be here, Scott. All right, well, I provided kind of a brief bio at the outset of this episode. But let's start with you adding a little bit of a little bit of color, a little bit of context to your background. And maybe take us to kind of your like briefly touch on your early years in the medical

device space, maybe leading up to your time at Acorn, cardiovascular, and your transition to perceptus medical now. Well, sounds good. I'm a true medical alley guy. And that's Medical Alley being the local trade association for, you know, devices in health care in Minnesota. We're pretty proud of what we've accomplished here. And in fact, my, I went to the University of Minnesota, got an undergraduate degree in mechanical engineering. And then I did graduate work and got a master's degree in biomedical engineering. While I was, while I was doing my undergrad,

I was fortunate enough to get a job at Medtronic. And it, you know, it really opened my eyes as to the opportunity. I think at that point, you know, a lot of people in our in our class and at our business, we're looking at supercomputers, at thin films, you know, a lot of the chemis we're looking at things in the petroleum industry. Still a lot of, a lot of people going into automotive. I mean, this is back in, you know, 19, I'm dating myself, but, you know, back in in 1984, 85, and having the opportunity to see the medical device industry, really in some ways, a nascent industry at that time is a great opportunity for me. When I started a Medtronic, I think that they were under 300 million in revenue.

Wow. If you can imagine that. And the first project that worked on was a pacemaker that was not rate responsive. It was Brady only and was the size of a, of, bigger than a hockey puck. So we've come a long way from there. But so I, you know, from Medtronic, I went and worked at St. Jude Medical, which in the early stages when St. Jude was evolving into, you know, the preeminent mechanical valve

company in the world. I then worked for a while at Tuft, TU.V. Sue Deutschestein, which is the largest notified body in the world. And so I was actually a regulator for a while. And then I went back into the startup space. This is my third startup. I was at a company called St. Croix Medical, which was doing fully implantable hearing systems. And then I was at Acorn Cardiovascular, which was focused on heart failure.

And now I've been at Perceptus Medical, which is developing innovative solutions, instruments that enable ear tube surgery for children to be done. done in an office without general anesthetic and without the risk of general anesthetic, without the cost of an operating room and far more convenience. Got it. And I'm anxious to learn a little bit more about that technology and kind of what you guys are doing at perceptive or perceptus. But before we go there, Steve, I know, I mean, you mentioned this, you know, that you've got a lot of, a deep, deep level of experience kind on the regulatory side. What, at a curiosity, what, what sort of, what caused you to kind of pursue that

path, you know, with, with more rigor, you know, dating back to your days at St. Jude and then kind of moving on to, to, is there something, there's something that intrigued you about that, that field? Is it the complexity, the nuance? What was it? Yeah, that's a good question. Something I haven't thought about in a long time. When I was in Medtronic, and again, I was working, you know, I was really a Yeah, right? I mean, I was not a degree to engineer yet, and I was working full-time whenever I could and part-time during the school year. But one of the things that I was interested in in mechanical engineering, I did a lot of materials work and kind of combining materials of mechanical engineering, which meant I was interested in fracture mechanics and failure analysis. And a lot of the emphasis was on, was on cyclic fatigue. And so that was a big emphasis of what I was studying in school.

And you think back on this in 1983, 84, the medical device, the MDR regs only came out in 1984. And so I got pulled into some projects at Medtronic. Your projects is a wrong word. I got pulled into some departments who were responsible for issuing reports based on the medical device reporting regulation because I had this background and failure analysis and was used to, you know, analyzing and writing up reports on honestly things that did fail. And so that's how I got the kind of the exposure to regulatory. And when I started at St. Jude, I was working on a project that was very unique.

and I had a little bit of background in this project at Medtronic and really nobody else in the world had kind of worked on what we were working on. So I was kind of fortunate that I was kind of flagged for having a unique expertise. But then the more we worked on it, the more we realized that the biggest challenge that we had in the project was with the FDA. And so I kind of evolved in that project from the development side to having to be the person to handle it from a regulatory perspective. of and, you know, wrote up the reports and did the submissions. So it just kind of evolved into that. And I ended up, you know, between Medtronic and St. Jude is, you know, where you kind of develop a lot of your early core competencies.

And mine were in, you know, development, clinical, regulatory, quality systems, some operations work and some of the early work in reimbursement. And if you think about that, those things are all the early value creators for startup companies. Right. The things you need to get through, I wasn't, I was not quite as interested in that time in kind of pure, in the pure line function of sales. I kind of enjoyed the other work. I did some marketing, but, you know, in terms of line function, it was really the operation

side. I didn't do any sales work. But all of that combination of work, you know, kind of led me down. the path into startups because again, that's what you're doing as a startup device company. Right, right. Yeah, that's that's super interested. Not bad core competencies to kind of fall into, so to speak, and really hone, you know, early, early on in your career. It is interesting, Scott. You know, a lot of the people are going into startups. A lot of them come out of finance. A lot of them are out of sales. I kind of came in from the other path, right?

I came in from the path of the other functions in the company that you literally used to build the foundation of that of that startup. And so I had a little bit different path into the startup space and the sea level positions in the startup space. But in a lot of ways, I think it was an ideal background. Yeah, there's no doubt. I often, you know, when I'm talking to friends that aren't as familiar with the the medical device or the med tech space.

I kind of always use the analogy that folks that are experienced with Clint, reg, and, you know, engineering, R&D, et cetera, it's like the equivalent of developers, right, in the world of software. You know, it's folks with those types of skill sets, you know, that can get, that are crucial, you know, in the early days of a. Yeah, you have to know the details in the early days. Yeah. It can't be something that's handed off.

You have to, you have to understand them enough to know which questions to ask get a minimum. Right, right. And I, you know, some of the, I spent, I consider myself largely a commercial guy. That's where I spent most of my career in MetTech. But it's, it's probably one of the things that I would do differently if I had a chance to rewind the clock, right, is I would actually probably get more involved in that side of the business earlier on in my career. Because when I did have that opportunity with, with Cavidian, it was, it was so, I mean, it was instrumental, you know, in terms of getting my, getting my hands, you know, dirty, so to speak, with, a lot of the, especially the regulatory side of the business, which I didn't really have a great

level of familiarity with at the time. So with that said, Steve, let's move forward to kind of your time at ACORN. I think maybe I'm not sure entirely if you were in the process of kind of shutting that company down or pivoting. But what, I mean, this was kind of back in the 2010, 11 time frame. What attracted you to perceptus? Kind of walk us through that story. And then we'll kind of jump into to some of the things that you've learned, you know, over the past, you know, 20, plus of your career in MedTac. I'll say this too. When I was at ACORN,

and we ended up selling the assets of ACORN to another company in the space, we didn't get as far as we wanted, but I was very proud of the work that we did there. And I reminded the people there that, you know, in the startup space, you know, you don't always win. But every bit of work,

every bit of science that we produced expanded the field of heart failure and our understanding of it. And we did some seminal work there in understanding, you know, reverse remodeling and what it meant. And, you know, it became the gold standard in the space for understanding reverse remodeling of the heart, you know, from dilator cardiomyopathy. And so, you know, that's kind of a message going forward to everybody is that, you know, you're going to have successes and you're going to have failures in all likelihood, more failures in the startup space than successes. These are hard jobs and hard projects you're taking on. This is why you have to go to alternative investment capital.

Banks aren't going to give you a loan. It's too risky. But everything that you're doing, you know, you're doing with your passion, you're putting your heart and soul into it. And that's why people can succeed with it. And it also means that the work you're creating is important work. It doesn't always end up that there's a monetization of that company, but you're almost always advancing what we know in health care.

And so that's something that I'm proud of and kind of advice in my career for people as are thinking about these jobs. But as often as the case, you know, when you're working on one area, you're always thinking about other things. And I have a son with special needs. He was born in Spinaephedda. He's a wonderful, wonderful kid. But, you know, his name is Noah and non-ambulatory.

Tori had, you know, hydrocephalus or he had shunt, had rods in his back. He's probably had 25 surgeries. And so I spent a lot of time around these types of kids, these children's hospitals, these parents. And I recognized what a dearth there was of technology, medical device technology, for these kids. And the problem of pediatric devices is that there's, there's never as much incentive to do this because oftentimes the markets are very small

and the regulatory and clinical obstacles and even the commercial obstacles are higher because they're children. And so on the back of my mind, I wanted to do something with pediatric devices. And that was kind of my goal after Acorn. And one of my neighbors, I didn't even know what he did for a living. And I don't think you knew what I did for a living. And we got to know each other and our kids were, you know, swimming in the pool and we're watching them and having a beer on a summer night. And it, you know, it turns out we figured out what each other did. And so we started talking and comparing notes and ideas. And he was very, very smart, very creative guy's name Dr. Mike Luchin. And it also turned out we were from the same part of Northern

Minnesota as a, as a coincidence. So we got to know each other sharing ideas. And we were both interested in this space. And that's where the idea for Perceptus came out of the idea that there had to be a better way to do ear tube surgery for children. So, you know, adults are mostly done in the office. Children are done in the operating room because they can't tolerate the trauma of an office procedure that adults can sit through. So, you know, we wanted to think about how we could, how we could do this and what we could do in terms of technology to enable these procedures to be done in the office in young children. And so that's how we got started. It was literally, you know, two guys sitting around, you know, a pool having a beer with our kids, watching our

kids swim. And that's where the idea came from. That's great. So like a classic startup story then. And so with you were, I mean, it sounds like you were like, you know, at the ground floor of perceptus. I mean, you're, as I mentioned, kind of at the outset of this interview, you know, you're president and CEO now. But you were, you know, found, you know, you helped found the company in its infancy. Is that right? Yeah. It's, you what happened was as while I was still. So this was back in 2008, 2009.

And Mike Luchin and Keith Leland, who was a mechanical engineer designer, great designer that Mike knew. I'd never met him before. And so he brought in, he had brought in Keith to help him on some other ideas that he was working on. And then the three of us, you know, collaborated on what became Perceptus medical. And the more we looked at it, the more we're interested in the idea of what we could do here. But, you know, the big advantage for me is I, you know, those guys did a lot of the work, you know, kind of as a skunk work project at night. You know, Keith was, you know, cutting parts and developing prototypes in his garage. You know, we'd meet maybe once a month.

I'd, you know, I'd look over what they were doing. We'd kick around the strategies of how to do things. But I really didn't have too much time to do much outside of my ACORN job and with my young family and a child with special needs. So those guys carried, I would say, carried the water with me being there more sporadically. But as ACORN was being, the sale of ACORN is being consummated, you know, we started talking about if I should take over once that was done. And we made a decision that we were going to try it. And literally, for me, what it was, was we still were not certain if this was a technology, a licensing agreement, or a real company. and because we hadn't done enough work on the reimbursement side.

And so at the end of 2010, early 2011, you know, I jumped in as a CEO with the idea that we'd work really hard on this for four months on the reimbursement and then make a decision if this was kind of a no-go, go-no-go as a company. And the more I looked at the reimbursement side, the more I became convinced that we had a great opportunity here. There was obviously coverage error and it was coding in place. And while the payment wasn't what we needed to be, there was tremendous opportunity here in working with the payers because of the fact that there would be so much cost savings by moving transitioning procedures from the operating room to the office. And so about midway through 2011, we started,

really getting serious about raising capital and we closed our early seed capital at the end of that year and converted from an LLC to a C-Corp and then got busy starting in early 2012. I love it. Since we're on the topic of reimbursement, as you well know, Steve, that's like sometimes, you know, I consider it, you know, just as important, if not more important than, you know, a regulatory clearance or approval, right? Because if you're, if you're, if you're device is approved by a regulatory body, but, you know, no one gets paid to use it. You know, it's like a tree falling in the forest, you know, and if no one's around to hear it, you know, it's like it never fell. So with that said, can you talk to us a little bit more about

your thoughts around coverage and reimbursement? And really more specifically, like as a, you know, as a serial kind of med tech entrepreneur, would you take on a project with a device that didn't have a CPT code in place or, you know, existing, you know, coverage at the payer level? It's a really good question. Let me start first on the reimbursement side. It's the most important thing that we do. You can't succeed without a successful development, manufacturing, reg clenst strategy, and execution. You know, you can't succeed without that. But even with those, if you do not have a successful strategy and ability to execute on reimbursement, you will not succeed. It's where the rubber hits the road in our space. It's where, you know, it's where investors, you know, spend a lot of

their time looking. They have to understand, you know, is there going to be adequate? Is there going to be coverage? If not how long it's going to take? If there's not codes, what can you have in the meantime? And then what kind of payment are you looking for it? Because, if the economics don't work, you just, you're not going to be successful commercial. Yeah. It's good to hear you say that, especially considering your, you know, your deep, you know, reg and clinical expertise, you know, for you to say that's, that is the most important thing. It's not, it's not maybe. It is the most important part. It is. It's where the rubber hits the road. Yep. You know, and it goes to the heart of our business.

You know, we always think of, you know, the hospitals and the physicians as our customers, right? But, I mean, really deep down, I mean, is it the payers? Yeah. It certainly is. And, you know, it's not easy to blaze new ground in reimbursement with payers. I mean, they have economic priorities that they have to adhere to also. and it's not always economic. I mean, I think when you've got life-saving technologies, it can save lives,

I think that you can take more chances, you know, large markets, even, you know, high ASPs. You're more willing to enter startup areas without having all of your reimbursement pinned down. A lot of times some of that is because if they are life-saving technology, technologies are often inpatient. And the DRG system is the most fleshed out aspect of reimbursement in a lot of ways. But I think it gets more difficult when it's non-life saving technologies. And maybe things that are outpatient, right? Or home use or things like that. I mean, it gets harder and harder because oftentimes the, you know, the payments are smaller and smaller. And you have to make certain that the incentives are there for everybody involved.

You have to understand the incentives of your stakeholders. And really what it gets down to is having a very clear idea what your value proposition is. What are you providing that is going to provide value to the stakeholders? Right. And I love what you just said because it resonates with me probably because I, I literally just had a conversation. And by the time our interview is published, the interview with Nick Anderson will go live.

He's one of my favorite, you know, healthcare economists. And we did a whole podcast on this topic. And he said the same thing that you just mentioned, Steve. He said, you know, the one thing I really try to stress with, you know, med tech startups that I'm consulting with is that, you know, your customer is not the hospital. It's not the physician. Your customer is the payer, which is true in a lot of ways.

right? I would argue, you know, there's multiple customers, right? You can't ignore either. But so many, you know, startup entrepreneurs, you know, forget about, you know, that crucial aspect, you know, that's, it's, and there's two very different camps of payers, right? And then Medicare, Medicaid. So it's, it's extremely challenging in that, you know, it's, you know, one of the jokes in our industry is, I mean, you become an expert on reimbursement in one technology, you're an expert on one technology. It doesn't, it means you figured out one small piece of the pie. And, you know, that doesn't always translate to other technologies or spaces.

You've, you have to keep learning. You have to talk to a lot of people. You know, it's, it's a very challenging area that at times, I think, overwhelms people. Yeah, there's no doubt. You know, before we kind of transition to some of these other, other questions I've got down for you. If you had to sum up your thoughts, right, on on insurance, coverage and reimbursement in general, is there one piece of advice that you give to other, you know, med tech or health tech startup, you know, founders, entrepreneurs, leaders of those

companies? Is there something that you, what's the one thing that you'd like to tell them about on this topic? Well, I think the one thing I'd say is when I look at the serial entrepreneurs that are really successful, you know, they have an ability to recognize value and a successful value proposition. But before they get to that point, you know, they understand, they understand these different areas. They understand what the regulatory path is likely to be, what the clinical path is likely to be, what the reimbursement path is likely to be, how much capital it's going to take to get through these different phases and really, you know, trying to figure out, making certain that you understand within that value proposition, look at all of the stakeholders associated with

the technology and look and see how that technology is going to affect them. You know, I mean, another way to look at it is, you know, you're going to be making changes to flow and logistics and payments. and you have to look at all of the players and understand there may be typically whenever there's there's change in the healthcare system there's winners and losers it's like tax code and you have to understand who the winners are who the losers are and understand what your story is for both so it really goes back to make certain you do the homework and you have to divine your value proposition that's good good stuff um let's transition to something that's that's uh

that's definitely in your wheelhouse, which we already kind of chatted about earlier on in this conversation, which is regulatory, right? Clinton and Reg. You know, when you think about this, topic, you know, within the framework of, you know, of med tech startups, you know, is it, is in navigating some of those, those nuances with various regulatory pathways, whether it's a, you know, a non-clinical 510K or a clinical 510K or a de novo, et cetera, you know, what, you know, what one to two pieces of advice, maybe would you give to other startup leaders? I guess the advice I would have is from a regulatory standpoint, start early, you know, with the FDA. I'll look for every bit of information you can.

Look for if you're in, you know, the individuals who are currently regulating that thing your technology at the FDA. They're the obvious funds. But there's other people, too. Look for other people in that space. Sometimes you can come across, you know, people in the industry who have worked in that space before navigated those regulatory waters and can give you advice on not just the technology and how it's treated, but even the individuals, right, within the agency.

Sometimes you can be lucky enough to find former FDAers who worked in that space who are not working as consultants. So you really have to put together an understanding of the background, how, how, how, devices have been regulated, you know, who is doing the regulation and what are, you know, maybe their strengths and weaknesses. So you have to start early and don't just think it's, you know, we're going to have one pre-submeeting with the FDA and that's all I need to worry about. Look for every bit of information and understanding of that regulatory puzzle that you can find. 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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