CD&D National Editor
Charles Maroney has been president/CEO, since February 2006, of CardioMind (Sunnyvale, California), a development-stage company focused on a small-diameter stent delivery platform with applications in treating coronary, neuro and peripheral artery disease. This is currently a $5 billion-plus worldwide market.
Maroney has more than 20 years of medical device experience in start-up companies. Previously, he was president/CEO of Coalescent Surgical (Sunnyvale), a company focused on blood vessel anastomoses and purchased by Medtronic (Minneapolis) in 2005. Prior to Coalescent, Maroney was founder and president/CEO of Prograft Medical (Palo Alto, California), a development-stage company focused on stent graft technology, purchased by W.L. Gore and Associates (Flagstaff, Arizona) in 1997.
Prior to Prograft, Charles had various senior management positions at Target Therapeutics (Fremont, California) in new business development, project management and operations. Target went public in 1991 and was later purchased by Boston Scientific (Natick, Massachusetts).
He also has been a director of venture-backed start-ups Appriva Medical and Paracor Medical (both Sunnyvale), along with Benvenue Medical (Mountain View, California).
Cardiovascular Devices & Drugs discussed with Maroney trends in the cardiovascular sector, ranging from major opportunities to key barriers.
CD&D: When we talked recently about the clinical trials for your company's Sparrow stent, you said that the openness of interventional cardiologists to new technologies helps smaller companies take root within the space. Could you elaborate on that?
Maroney: I think if you look at the history of interventional cardiology from the time they first started with balloons, there were two major companies that got them started, and that was ACS and USCI, which was part of C.R. Bard. And you then saw Scimed come up, and you saw Schneider come up, and many other companies spring up, providing some alternatives to that technology that had arguably better features to them. And you saw interventional cardiologists from the very beginning switching to whatever they thought was the best technology.
And as they progressed out of just plain old balloon angioplasty and looked at lasers and atherectomy catheters and then finally stents, you saw that it was a combination of both small companies and large companies that would move the market, and in fact, traditionally what the cardiologist would do is gravitate toward the best technology — it didn't matter who it came from.
CD&D: It's an interesting difference between the cardiology space and some of the other spaces in terms of the openness of the practitioners to the new technology that's out there.
Maroney: I think to a certain extent, it's almost that the interventional cardiologist and industry have had a synergistic relationship. In some other professions, I would say it's more of a competitive relationship.
I think to the interventionalist, if companies can come up with a new technology to treat patients better, to treat them faster, to treat them more effectively, and to treat them more cost-effectively, those are things they're open to, and they're fine with a company making money on that. Whereas in other markets or other specialties, whether it's cost or tradition or liability issues or whatever, you don't see as much synergy between industry and the physicians.
CD&D: You also mentioned that the large companies have allowed small companies to grow instead of trying to drive the small companies out of business. As you said, the big guys say something like, "If I buy those guys, I can put in my sales force and I can sell five times as much as those guys are selling with their smaller sales force." Does that mean that the big guys are comfortable with a sort of "farm club" for product development?
Maroney: I guess I say yes and no. I agree with most of that statement, because I think larger companies realize that the smaller companies can get in the game and that their existence is inevitable.
It's inevitable because there is plenty of venture capital money out there and other sources of funds to basically get these small companies started and potentially get them to have their own sales force, their own marketing department, their own distribution arm, etc., etc.
So you've seen some small companies break through over the years. Scimed was one, ACS started as essentially a start-up in the late-70s, early-80s. And I think many of the larger companies have realized that, well, if we just go ahead and fight these guys, we probably won't win, because there's enough capital out there — they're going to get funded, so why don't we look at it more from the synergistic perspective?
That said, if you're infringing on their intellectual property, or if you're in discussions with one of their competitors, they're obviously not going to be as friendly as if you were working with them.
CD&D: Along that same line, is more attention being paid by the big companies, more so than in the past, to developing collaborations with smaller companies?
Maroney: I think that it has always been in place, but it has increased as time has gone forward. Many of the products that the larger companies are working on take years and years to develop.
The drug-eluting stent is a classic example. If you look at some of the guys just coming into the market now, whether it's Medtronic or Abbott, they've had programs that have been going on for seven to 10 years. Now they're just going to get U.S. approval.
So I think it does make sense for the larger companies to fill their pipeline with a combination of internal R&D as well as combinations of buying smaller companies, or distribution arrangements, or something along those lines, to make sure that their sales force has the proper breadth and depth of products.
CD&D: As a "small company" guy, the dynamics between the big companies and the small companies must give you some confidence that if you've defined the market right and the product is right for that market, you have a good potential exit strategy either as an acquisition target or in going public and remaining independent for a while. Does your own experiences equate to that?
Maroney: I agree. I do think that a small company needs to have a market niche that is going to be significant enough either to be a stand-alone, or to fit into the bag of a larger company. In the cardiovascular space, that's a big market, so your niche can potentially be small percentagewise and still end up to be quite large.
That said, you still need to set up your company so that you could be an independent, whether that's having a good handle on your IP, having a good team to drive you all the way, be able to have your own FDA and OUS regulatory strategy, reimbursement strategy, manufacturing, sales, the whole shebang — you need to have that capability as well.
The big costs start coming into play with the sales and distribution arm. So I think that's the choice these small companies need to make. Does it make sense to hire these 50, 75, 100 salespeople — and am I going to be able to recapture this — and once I get there, does it make more sense to team up with a larger player before you start adding those costs to your infrastructure?
CD&D: A number of small-company CEOs say, while there is a tendency for the exit strategy to be acquisition, they endorse organizing their company as if they're going to be a stand-alone, because you're just better prepared for doing business following that path. Do you agree?
Maroney: I think you don't have a choice, because it's hard to predict the future, and when your company's technology is ready to hit the market, it may be a prime time to sell it to another player.
But take a few years ago, after Boston Scientific purchased Guidant, they weren't going to buy anything else, and they haven't really bought anything yet, although they keep saying they're in the market and are going to continue to look at acquisitions.
But when they just came off the market, if you were anticipating selling your company to Boston Scientific and you didn't have another strategy, you were in a lot of trouble.
When that happened, a lot of companies in which Boston Scientific had made a lot of equity investments in companies, and a lot of those companies anticipated, OK, we'll get Boston to own 19% of our company and then when we're ready to sell, Boston would be the most likely acquirer. For all those companies, then Boston just didn't have the capital to be able to acquire them, so they had to basically redirect everything that they were doing and either focus on another acquirer or focus on being an independent company.
As a small company, you can't anticipate being acquired. I think you have to anticipate that what you have is strong enough to be able to be an independent player in whatever field you're in. And perhaps it makes more sense being in someone else's bag, and that person agrees with you at that point in time — because timing is important.
CD&D: Besides defining the market and developing the right product to fit that market, what are the other keys for building a small, developing cardio company?
Maroney: I mentioned some of those. You obviously install a team that has experience in all the appropriate areas — manufacturing, reimbursement, FDA approval, obviously R&D and IP. Not anything earth-shatteringly different than what every company tries to set up in order to be successful.
CD&D: Are there development approaches that apply exclusively in the cardio area, or do patterns of development apply across the board in med-tech and beyond?
Maroney: I think in medical devices there are a lot of similarities of all the companies. I think there are some differences in the way you set up a company if you've got a 510(k)-type product or if you've got a PMA-type product.
At least in the cardiovascular space, what's sort of unique is how fast-paced the industry is. If you miss the market opportunity by six months, a year, something along those lines, then you really struggle being able to make it.
I think now, if you look at history, I would say the cardiovascular space is getting a little more mature, and now you see some of those fast-paced things happening in different areas, like spine companies —some of the fast market opportunities of a company like Kyphon.... [Y]ears ago, you would have attributed that to a cardiovascular company, not a spine company.
CD&D: Let's talk about reimbursement a little bit. Just a few years ago there was very little being said about reimbursement — now everybody is really understanding that you've got to be able to gather your data so that you're doing both things, going toward regulatory approval and going toward reimbursement approval at the same time. How can small companies best approach meeting this reality?
Maroney: It's tough for small companies. The rules are different in different industries, and they keep changing, and it's quite expensive. And the expertise in reimbursement hasn't really been in the small company's tool chest yet. Everybody is relying on specialists to help them go in the right direction. So you see the small companies now beginning to meet with the appropriate medical societies.
They're meeting with CMS early ... to understand what sort of clinical data is going to qualify them in order to get reimbursement. But it's not really clear. There's not a stamp of, "Okay, if you do this you're going to get reimbursement."
It becomes a challenge for a small company, because if you focus in on something that might occur, like you might get reimbursement, and you alter your regulatory trial to achieve this, then you may risk getting your regulatory approvals, or getting them approved in a timely fashion. It's definitely an area on all the small companies' minds, but I don't think anybody has come up with a very clear way to handle the regulatory approval and simultaneously the reimbursement approval.
That's a tough topic for a lot of small companies. Are you a 510(k)? Are you a PMA? What kind of clinical trial are you being required to do to get your regulatory approval in the U.S. and overseas?
Even the large companies apply for codes recently, and a couple have been turned down recently. And these guys have invested millions of dollars in those products. Reimbursement is on everyone's mind, and it's going to have to get clearer to the companies. Otherwise we're just going to keep going in circles.
CD&D: The political arena perhaps has more impact on the reimbursement side than anything else to do with regulatory, depending on how the election turns out, not just the presidency but in congress as well. What will be the approach to dealing with the Medicare budget crunch?
Maroney: Whoever takes over, there is going to be more and more scrutiny as the years go on, as the predictions for Medicare running out of money keep coming up, and people keep coming up with new products that are potentially costlier than the old products. I do think, though, that if you look at the regulatory climate right now ... it's tougher today than it was three years ago.
CD&D: At almost every investor meeting I attend, someone jumps up and asks, "What's more important, the idea or the people?" The VCs almost always reply, "Well it's great having the great idea, but you have to have the people to get it headed down the track and to make sure you have an experienced hand at the controls. How do you see the marriage of idea and leader working best?
Maroney: First, I would say that I slightly disagree with the VCs, even though I'm sitting on the other side and am theoretically an experienced leader. I think that what really determines success is the technology.
I think it's rare that you go back in history and find a great technology that didn't go somewhere, because if it's truly great, someone else picks it up. If the first company failed, but it's a really good technology, you'll see somebody pick it up and make it a success.
My view is that the people are important, there's no doubt about it. You need the best team that you can get to run a project and run a company — that's obviously going to give you the best results. But I've seen good teams surrounded by a bad product, and nothing has come of that product.
On the other hand, I've seen great products where people scoffed at the teams [but] they've been incredibly successful. So I think it's the strong idea that certainly I would invest in. The thing that's dynamic about the medical device industry is that people who used to be VCs evolve and become CEOs. People who used to be directors evolve and become the VPs. And many of the company CEOs have left to become VCs. For example, Rich Ferrari and Hank Plain, who are on our board.
CD&D: And does that make the ability to develop this space all that much better, when you have the experienced CEO in a decision-making role at a fund?
Maroney: I totally agree, because they understand what it takes to be an operational guy and what it's going to take to develop this product to get from Point A to Point B.
David Milne, who came out of Boston Scientific, — he's an operational guy and is on my board. And Mike Sweeney has helped us out at InterWest. Those types of people have built companies in the past, so they understand, as you build a company, that you're going to have some speed bumps and that not everything is going to go smooth as silk. But they know how to refocus on the important issues and not on something that is unimportant [that] won't end up building value in your company.
CD&D: Those types of people may play a role in this question. Do you have any med-tech "heroes"?
Maroney: The guys I have respected the most are those who have had the biggest struggles to get funding and to get acceptance of their companies. Target Therapeutics, where I started, was one of those companies, because we tried to get venture funding and everyone turned us down — said it was a small market, nobody was really interested in it, and it was never going to be a real company. And eight to 10 years later, it sold to Boston Scientific for $1.1 billion.
What that taught me was that those who get the highest valuation in a Series A or Series B financing are not always the ones who really win at the end of the day. Sometimes it takes persistence, and it takes a vision to see where your company can go.
A company like Kyphon had trouble getting funding because people didn't understood what the potential could be. AVE wasn't venture-funded, [it] was funded by angels and bootstrapped, and was sold to Medtronic for $3 billion. IVT, which started out as an atherectomy company and worked itself into a cutting balloon company, went through a whole series of venture investments and in the end the venture guys said, "We're not going to invest any more money." I believe the founder ponied up his own cash on the last round, made it work, and then sold it to Boston Scientific I think for $750 million with the earn-out.
The thing that struck me about those companies and the people was that in this industry, it really doesn't come easy. You've got to have the persistence, you've got to have the vision, if you're turned down for financing, or if you can't quite get your first product to work properly or whatever.
Those who have been truly successful in this industry and those who I respect are those who say, "All right, that doesn't matter — that's another hurdle we're going to be able to overcome." Those tend to be the folks that I respect.
CD&D: Besides what CardioMind is doing in the area of small-diameter coronary stents, what other new ideas have caught your eye from other companies in the cardio space?
Maroney: The thing that's important about the cardio space is [the ability] to take a more invasive procedure and make it much less invasive. Certainly all the folks who are working on heart valve replacement through a catheter or mitral valve repair have the potential, if they can solve the technology issues, to be huge corporations. You're taking a very invasive procedure that has a lot of risks to it and basically making it an interventional procedure.
I think from that standpoint, there's a lot of work going on around such technology. At least in the cardiovascular space, that's one of the last frontiers where you actually can take a surgical procedure and turn it into an interventional procedure. So that's probably an area that has a lot of interest, but those guys also have some very high technical challenges that they have to overcome.
CD&D: Is there any question I haven't asked that you wish I had?
Maroney: I have my own version of that question. I always like to ask people is this: if they had made any mistakes in their career, or did something they'd like to have back? That's something I tend to ask either other CEOs on investors, to see if I can learn from their mistakes.
That was one of the reasons I got back into interventional cardiology, because I spent my previous five years in the cardiac surgery space. It was a great technology, and Coalescent Surgical was the market leader in anastomotic technology, but it was very, very painful to get market traction with that subset of surgeons.
That drew me back to interventional cardiology, because [those surgeons] are always eager to use the best technology available. If we can develop it, then they're going to use it. I didn't always get to see that in the surgery arena, because it's very strongly tied to tradition and 20-year outcomes and "This is the way I was trained 20 or 30 years ago."
Getting out of that comfort zone is very difficult for a surgeon, so that drew me back to a market that I thought could accept new technology at a faster pace than others.
Editor's note: For information on CardioMind technology, see p. 21.