Mike Carrel also told MD+DI that the company’s current focus is on raising market awareness for its cardiac surgical ablation system for atrial fibrillation and explained that its net loss is all part of the plan.
What does a successful CEO do after he’s sold his company to its biggest customer for $273 million? That was the question facing Mike Carrel following the sale of Vital Images (Minnetonka, MN), the medical imaging software company he headed for three years, to Toshiba Medical Systems (Tustin, CA) in 2011. Carrel is credited with expanding Vital Images’ business to more than 90 countries and bringing in more than $100 million in equity financing to the company.
A colleague referred Carrel to AtriCure (West Chester, OH) while he was helping with the Toshiba transition through the better part of 2012. In November of that year he was appointed president and CEO of the manufacturer of cardiac surgical ablation systems for atrial fibrillation (AF) treatment following the resignation of his predecessor, David Drachman, in September 2012.
“I was in the process of starting my own business and looking for some opportunities, and this one came up and got me excited,” Carrel says. “I turned down about 10 other opportunities.”
Carrel’s description of AtriCure’s attributes makes it clear why he believes he and the company are a good match. A self-described “growth-oriented CEO,” Carrel praises AtriCure’s technology, noting that the company’s Synergy Ablation System is the first surgical ablation device in the United States to receive FDA approval to treat AF. He also mentions AtriCure’s systems for exclusion of the left atrial appendage as well as its sales momentum, growth potential, and physicians training program in the Maze IV procedure for using the system.
AtriCure began 2013 on a positive note. On January 7 the company reported preliminary revenue for the fourth quarter of 2012 of approximately $18.4 million, a 9.5% bump over the same period in 2011. AtriCure has projected growth of $70.2 million for 2012, a 9.1% increase over 2011.
Carrel is the former president and CEO of the publicly traded tech firm Zamba Corp. and is the former chief financial officer of privately held NextNet Wireless, a broadband wireless systems vendor now owned by Motorola. He holds a bachelor’s degree in accounting from Pennsylvania State University and an MBA from the University of Pennsylvania Wharton School. Now in the getting-to-know-you phase at AtriCure, Carrel has been visiting customers in the United States and has plans for a European swing. MD+DI caught up with the new AtriCure CEO to discuss the importance of making transparent business decisions, how to assemble a strong sales force, guiding a company through a time of transition, and his skepticism about the business benefits of the Affordable Care Act.
MD+DI: I understand you’ve recently been visiting field offices. What have you learned?
Carrel: I’ve confirmed what I knew before, which is that we’ve got a great market-leading company that has great products, and we have loyal customers who give really good feedback on where we should go with the business. I feel like the market opportunity is extremely large, and we’ve got an opportunity to take advantage of it. So I’d say I’ve confirmed my excitement for the opportunity and for working with this foundation for building a strong company.
MD+DI: Do you have a priority list of what you need to do, especially after your recent business visits?
Carrel: A big focus for us is going to be market development, both internationally and in the United States. We’ve got great products that people are using today, but just more than 20% of people who are getting open procedures—people who have AF when they go into an open procedure—are having it done. We’ve got to create more market awareness and training and education relative to that. So we’ve got to double-down and put the necessary investments in place to make sure these physicians are trained and aware of how they can better treat their patients. That is the No. 1 focus we’ve got in the business, both domestically and internationally.
MD+DI: AtriCure’s 2011 report shows that revenue grew about 9% over 2010, with 35% growth overseas, to $15.5 million. When you look at those figures do you think this is a good thing you’re stepping into or are you thinking you’d better keep this momentum going?
Carrel: I think it’s a combination of things. Looking at the momentum on the sales side was one of the things. More important was the foundation from a technology standpoint and the fact that we’re the only ones with the AF labeling on the product in the marketplace today. I think those are bigger generators for me than anything else—then being able to take advantage of that.
MD+DI: AtriCure has been developing itself and operating at a net loss since the launch in 2000.
Carrel: That’s a planned net loss. The company is investing. I don’t look at it as a net loss as much as I look at it as the company’s continuing to invest in those things that are important: customer service, the products, and market development. For a business our size you’ve got to make that decision in terms of at what point you want to be profitable. Right now our plan is to be around the profitability angle but not to be profitable quite yet.
MD+DI: Do you have a timeline on that?
Carrel: I can’t disclose that yet.
MD+DI: AtriCure is the first U.S. medical device manufacturer to receive FDA approval for an ablation system. That’s got to be an advantage.
Carrel: Yes, a big advantage.
MD+DI: Speaking of moving forward, the company has invested in an Institute of Surgeon Training. How is that working out?
Carrel: We’re required by FDA to actually train people on the Maze IV procedure, and we’ve trained almost 1000 physicians to date, using not only our technology but also making them aware of how to actually perform the surgery. We use external physicians at the top of their field who are doing the training; we don’t actually do the training ourselves. These physicians take a test and they get certified at the end of it that they can actually perform the Maze procedure. We are in the process of continuing that education. We’re revamping the program to make it even more effective based on the feedback we’re getting, and we anticipate doubling down in 2013 on that.
MD+DI: What did you bring from your experience at Vital Images and previous executive positions that will help you as chief executive at AtriCure?
Carrel: I’m a growth-oriented CEO. That’s what I was able to do at Vital Images, helping a company navigate through growth. When [a company has] good fundamentals in technology or good relationships with physicians, how do you accelerate that growth? I brought that experience and expertise here, on top of relationships with physicians, selling to hospitals, understanding what that selling process looks like to help accelerate some of that growth. I’ve actually been through…major leadership transitions and [demonstrated] how…you navigate and keep the team motivated [and] keep the customers motivated while you’re navigating through that change.
MD+DI: How do you keep your people motivated at a time of transition?
Carrel: The most important thing is being genuine, getting out and meeting and learning from people, taking what they say seriously and following up on it. Also being transparent and genuine about your decisions—if you make a decision, you’re very clear about it. Some decisions you’re not going to like, but you be very clear about why you’re making those decisions. That transparency is absolutely critical.
MD+DI: Along those lines, what are the challenges of finding and training a solid sales force?
Carrel: You’ve got to find people I call “hungry, humble, and smart.” They’re hungry to make a difference. They want to be part of the medical community. They’re smart in the sense that they can get up to speed very quickly, and they’re hungry to learn what they want in this space. They’re humble in the sense that they’ve got to work with physicians and other people. Those are the ones who are doing the work, and [the sales force] are the ones providing a service to those people. Finding that mix of people from a sales standpoint is not always easy, but that’s what they look for.
MD+DI: What specific background do you look for?
Carrel: Typically a strong clinical background and a selling background into either the surgical or the cardiology space in some capacity. Those are some of the key components.
MD+DI: Are people with that background readily available these days?
Carrel: “Readily available” would be a strong description. I’d say that the good ones are out there.
MD+DI: On the clinical side what’s the status of the 350-patient postapproval study AtriCure is conducting? I understand there are at least 58 participants at the moment.
Carrel: We continue to move forward on that. It’s a five-year study so it’ll take us probably a good five years to get through the whole thing. We’ll probably have about 90 or so enrolled by the end of 2012, and we’ll continue to enroll into the next year.
MD+DI: Last year AtriCure received a $1 million grant from Ohio’s Third Frontier Commission to develop a left atrial appendage exclusion device. How beneficial is this type of funding?
Carrel: Well, we have a device, and I’m actually looking at that grant, but I don’t have enough knowledge just now to give you an update on the grant at this point.
MD+DI: Could you describe how you got the CEO job?
Carrel: I was referred to it. As you know, I sold my last business to Toshiba. [AtriCure] was looking for somebody who’d run a public company before in the medical device industry, and I got referred by somebody I knew in that space. I was in the process of starting my own business and looking for some opportunities, and this one came up and got me excited. I turned down about 10 other opportunities.
MD+DI: Your competition for AF treatment includes Medtronic and St. Jude Medical. That means you really have to be on your game, right?
Carrel: Yes, that’s exactly right. We have to be demonstrably better than everybody else. (Laughs.)
MD+DI: When you’re talking to customers do they bring up the competition at all?
Carrel: Oh, sure. We compete pretty effectively with the Medtronics of the world. But, you know, AtriCure has got a great brand, and that’s actually one of the things that attracted me to them. They’re really the leading independent brand in this space, and physicians really want to work with the best company that has the best technology. We’re fortunate that we’re on solid financial footing, we’ve got great products, and we’re recognized that way. People know that we’re going to be much more focused than Medtronic, which is the biggest competitor.
They’re a $16 billion company, and this is but one small, small, small, small little division that doesn’t really move the needle for them. This is all we do, so we’re experts in it. Their sales guys are selling 15 other different products.
MD+DI: AtriCure reports that foreign markets are “underpenetrated,” with just 24% of the company’s total revenue coming from overseas customers. Where are you especially strong overseas and where would you like to grow?
Carrel: We’re especially strong in Europe. We’re growing big in Japan and China, and I’d love to continue to grow fast in China and Japan. I’d like to get into some of the Eastern Bloc countries.
MD+DI: What do you need to do to make that happen?
Carrel: We need to build our team.
MD+DI: Is that a challenge?
Carrel: It’s an opportunity more than a challenge. I think there are some great people out there. We’ve got to put together a plan on how we’re going to grow in that part of the world, and we’re in the process of doing that. I feel like we’ve got a good leader [in Patricia Kennedy, vice president general manager, international,] who’s managing and leading that today, so we’re going to work with her and build that out.
MD+DI: Because AtriCure’s AF device is used in elective surgery, could either the slow economy or third-party reimbursement issues affect your business?
Carrel: Absolutely, those two things affect it tremendously. Reimbursement is a big deal in any medical device that’s being sold. There are codes that apply to what we sell, making sure that they’re applied properly and understanding it. That’s a critical part of our business, trying to figure out ways to make sure the physicians are well-educated in what they can and can’t do.
MD+DI: Will the uncertainty about the fiscal health of the country affect AtriCure’s business?
Carrel: It’s affecting everybody’s business because it affects the psychology of anybody buying any products. The answer to that is: Not directly but indirectly, yes. It is what it is, and we’ve got to work and build around it.
MD+DI: Finally, it looks like the Affordable Care Act will survive, and the excise tax may or may not survive, but in general how do you feel about the potential influx of some 30 million new customers?
Carrel: I’m not as bullish as Obama is that it’s going to grow our business. I think it’s to be told whether or not that group of people is going to have an impact on our business. I know that the medical device tax is going to have an impact on my bottom line. I’m not necessarily getting the topline growth to justify that. If I do, it’s icing on the cake, and that’ll be great. I think it’s faulty legislation. I just think it’s a way to tax people, and I don’t like it at all.
John Conroy is a frequent contributor to MD+DI.