The MX Q&A: Dave Springer, Cayenne Medical

Launched in 2005 with a new technology for soft tissue reconstruction, Cayenne brought Springer in to lead the privately held company as it builds on its success in knee devices with the upcoming launch of shoulder products. Cayenne’s product line for repairing knee ligaments and meniscuses include the iFix Interference Screw System for ACL procedures and the CrossFix II. The company introduced its AperFix II system for soft-tissue multi-ligament reconstruction in 2007 and announced in November 2010 that it had reached 50,000 implants. The company’s knee products have been used in medical procedures for everyday athletes as well as professionals such as the Buffalo Bills.

Springer says that “key doctors” perform three to four shoulder procedures for every knee surgery, a statistic that tracks the needs of an aging boomer cohort. “While we grew our knee business…we saw an opportunity to leverage the strong [physician] relationships and our innovative brand to move into the shoulder market,” Springer says. In June 2011 Cayenne signed a strategic partnership with Parametrics Medical, a U.S.-based provider of bone and tissue allografts.

A founding member of Cayenne, Hart stepped down for health reasons but remains with the company as executive chairman. Springer joined the company from CHF Solutions of Brooklyn Park, MN, which specializes in ultrafiltration devices for treating fluid overload. He served as CEO of CHF for four years, overseeing its growth and eventually shepherding the company’s sale to Gambro in 2010. Some of the same financial backers of CHF are providing private equity funds for Cayenne, Springer says.

He also served as senior vice president of the U.S. division of St. Jude Medical and was a cofounder of WebMD, where he held positions of executive vice president of business development and senior vice president of sales. Springer is a graduate of Purdue with a bachelor of science degree in industrial management.

Springer spoke with MX about what he looks for in a successful company, the make-up of suitable start-up personnel, the “rocket growth ride” of WebMD, and the huge importance of quality control for small device firms.

MX: What mindset does a chief executive need to have in order to successfully transition from a somewhat established company such as CHF Solutions to a relatively new private start-up like Cayenne Medical?

Dave Springer: Actually, CHF Solutions was very similar in many respects. It was privately held, venture-backed, it raised a lot of money and was really looking to commercialize. With CHF Solution we were able to turn that around, grow it significantly, get it profitable, and it was acquired last year by Gambro. Cayenne actually has been an excellent growth-profile company, and some similar investors were in CHF that are in Cayenne.

What I was trying to tap into is your background of 20 years or more of working with device companies. What do you look for? The market segment is a key factor, obviously. Growth opportunities as well?

I did spend quite a bit of time with large medical device companies in my career, and the transition to start-ups is different. You don’t have as many resources, dollars, and people, so you really have to be a player-coach. You have to be willing to roll up your sleeves; we joke that some days you take out the garbage. Not literally, but metaphorically.

You look for the same thing in both cases. You look for opportunity. For me with medical devices or with the healthcare IT segment where I spent time, what you’re looking for is an unmet need and a company that’s able to fulfill it. And you also look at market size: Is this a market with a big enough unmet need that, if you’re successful, you could build something of value?

From a personal standpoint doesn’t it take a certain type of person to want to go to a start-up? To be leaving the relative security of your former position?

You’re right. People have called me who want to come to work at a start-up, and I tell them, “I know you well. You like the expense account. You like the nicer hotels. If you like the security for your family, don’t come.” It can be risky, and in this environment since 2008 a lot of good companies have shut down.

They have good ideas and good products; it’s just that they’re swimming against a strong current.

Well, you have more challenges now. You have regulatory challenges, reimbursement [concerns.] All those things. You could have a great technology, but to make it successful is a lot of work. Although I would caution that in this environment we’ve seen large stable companies lay off people. It’s tougher in this environment. Look at our economy. Nothing’s really secure. I think you have to make a difference wherever you work.

Speaking of differences and similarities, is there anything that you can take from your previous experiences up to your most recent position that have helped you during the transition since February?

The differences are clearly the space, being orthopedic versus cardiovascular. The list of contacts and your network are different, so I think that’s been the challenge. The similarities [are each] is a medical device. There are similar processes and procedures. Distribution is a different call point, but physician interaction and the distribution channel are very similar. I’ve worked at direct organizations, independents, and hybrids, and that’s what we have here.

Do you have a preference? In a quiet moment do you find yourself thinking, “I like working with this type of organizational set-up as opposed to the other?”

You always have preferences, but the preference is what organization’s set-up is going to give you the best opportunity for success with the most efficient use of capital. Those are the challenges you have in a start-up; you might not be able to go to the perfect world, just because of capital restraints.

As far as adapting your experiences, how did being a cofounder of WebMD help you?

That was a tremendous learning experience and a rocket growth ride. You learn from every experience. We created a real culture, and we had a vision. And that vision was articulated from the top all the way down to our shipping personnel. The energy [was good.] We worked hard; we had a lot of fun. But at the end of the day we still had to execute. There was the gamut. At the end we had $800 million in revenue and 550 people in my organization. That was from starting with five people. It was just a tremendous growth experience and all the learning you get from that.

We acquired a lot of companies, integrated them, and that was challenging. That was the biggest experience.

Do you ever look back on how the companies you worked with are doing after you’ve left? Or talk to your former colleagues?

Oh, of course. If you put blood, sweat, and tears into things you always care about them deeply, and you’re interested in their continued success. I’m still very proud of WebMD, what we made of it, and what it’s become.

Cayenne’s pursuing a business strategy of shifting to shoulder products. What can you take from your work with knee devices that could prove helpful in developing the shoulder repair technology?

We learned a lot. The similarity is the call point; that’s most important. The same doctors who are repairing knees are doing shoulders. We are in the cases every day with these doctors, and Cayenne didn’t have the opportunity to help address their shoulder needs. While we grew our knee business, and continue to grow that, we saw an opportunity to leverage the strong relationships and our innovative brand to move into the shoulder market.

What I quickly learned from getting out with key doctors is they do three or four shoulders for every knee. Going to shoulder devices is a line extension for us that helps us with our distribution and having our people be more productive every day.

How would you describe the level of competition in soft tissue repair devices?

There is a high level of competition. You have a couple of very strong players and a number of entrants in the market. The real challenge is: you can’t come with just a single skew. For a single solution you have to have a full complement to be effective, and that’s what we’ll do. When I say that, I mean full instrumentation and suture passers as well as a full line of rotator cuff and glenoid solutions. This is an important requirement of physicians and our distributor organization.

Do you compete on price in this area or on technology, or both?

I think it’s both. This environment’s getting more competitive. There’s some great technology out there, but it’s price prohibitive for some surgery centers or physicians or hospitals to use it. We want to be a top- tier product solution but also cost effective.

You mentioned reimbursement a minute ago. Is that a big issue you’re grappling with?

Currently, in the key area we’re in reimbursement is fine, and in fact with shoulder procedures it has gone up recently. So—knock on wood—reimbursement currently is not an issue.

How would you describe the path to 510(k) and CE mark approval for Cayenne?

That’s a loaded question, because as you know the rules have changed. There’s more uncertainty with the agency than in the past. We’re a 510(k) product, and it’s been relatively straightforward in what we have to do.

Regarding the level of competition and new product introductions, is it possible to miss a market window? How does a company time the introduction of a new product to make sure a competitor doesn’t get in first with its device?

Excellent question. Obviously, you can always miss a window. We were founded as a company on shoulder IP and chose to focus on the knee first because of what we saw as a large, unmet need and a way for us to better address the goals of the sports medicine doctor on bone-to-tissue healing. We feel that the opportunity is right for us to leverage the excellent installed base we’ve done in the knee with top-tier solutions for the shoulder.

Will it be challenging? Yes, but we don’t need to have total dominance to have a very significant company.

You can have a decent slice of the market.

Yes, with a 10% share you’re going to have a very large company.

Given the demographic trends, it seems the market for reconstruction devices would be a strong one. Do you have any market growth projections?

The reports we looked at in sports medicine show a 5% to 8% growth rate. With shoulder on the higher end, so maybe, say, 10% for shoulder, and knee [growth projections] on the lower end.

In the aging population, as you’re well aware, shoulder pain is something that people want to get fixed, because it’s very difficult to live with, and it affects an older population demographic. That’s versus ACLs, which typically affect a younger, more athletic population.

I understand Cayenne intends to introduce the shoulder product next year.  Do you have more specific information on that?

Yes, we will launch our full line at AAOS (Academy) in February.

The new partnership with Parametrics Medical taps tissue banks and requires a well-trained sales force that can respond to surgeons’ specific requirements. What are some of the challenges Cayenne faces in setting up such an interconnected business and technology arrangement? One that requires several components to work well together.

I think you hit it: It needs training. That’s the biggest challenge or opportunity. Actually, 40% of soft tissue reconstruction is done with an allograft. This is complementary to what our team is already doing. In our partnership with Parametrics we selected them because there were two key advantages. One, they had a 99% fill rate. There are challenges in this space to have everything the doctor needs when he needs it. Two, they had many of the sterility options that physicians may require or want. Actually having them tell our reps what is required is easy, and then Parametrics helps with our response for our team.

Is it easier in this downturn to find a quality sales force?

People are the most important part of any company. That is something that we, and everyone, have to work hard at. Our biggest challenge is we have an independent sales force, and we need to motivate them to give us more of their time currently with our structure. We believe that by expanding to the shoulder we have more revenue opportunities that will require more of their time and expertise.

I was just wondering whether the pool of qualified candidates was larger these days with the economy such as it is.

Clearly, you need a higher level of expertise to be able to cover it. The good news is there’s always talent, and if you have excellent solutions talent wants to be with you. And as some companies have gone more to a more-people, lower-cost model you can pick up some of the more skilled people in that transition.

You’ve been quoted saying that Cayenne runs its quality systems like a large public company does. How does a small, privately run company manage that?

When I say that, you need the processes. Having worked in my past and whereat Cayenne with a head of regulatory and quality who has worked with the systems and processes of a large organization and brings that to the small organization is invaluable. The paperwork, keeping up with regulations, and the administrative aspect are huge, which sometimes could be compromised in a smaller company.

What I’m trying to say is we’re not compromising that. For the size of our company we have four full-time people in quality, and that’s for a company that outsources all its manufacturing.

How does that work out as a percentage of your budget? Do you have to take a bigger percentage than average out of your budget in order to maintain that focus?

Yes, there’s a commitment to quality. You learn in medical devices that one bad event or recall could be catastrophic. That’s a scenario where you can’t compromise. We’re dealing and the agencies so you really need to be buttoned up.

Speaking of budgets, how would you describe the state of private equity funding for Cayenne’s products in particular and other devices generally? You mentioned earlier that things had gotten tight, but you’re pretty well-connected at this point?

Yes, we have an excellent syndicate that believes in where we are and where we’re going and feels confident. The market has got more difficult to raise money in, as you know. As I mentioned earlier, some very good technologies have been cut down or sold. I think what’s attractive for us is that we’re a late-stage, revenue-generating company, and there’s a short-term path to profitability. That is helping us as we look to close our final round of financing in the fourth quarter here, which will get us to profitability.

Are you at liberty to discuss your level of financial backing?

The company’s done well with not a huge amount of capital invested, and we just need a little bit more to get us self-sufficient.

Okay. But there are no figures you can release?

I’d prefer not to. But the biggest [device] areas being funded are early-stage big-ideas and late-stage companies that take the last money in.

I’ve asked this question of pretty much every CEO I’ve spoken with. Does the uncertainty surrounding healthcare coverage and the Affordable Care Act—especially with a Supreme Court ruling expected this term—affect companies such as Cayenne?

We’re always affected by regulations or what may happen with coverage, so we watch that closely. I think it’s too hard to predict how we can possibly be impacted, but there are things like the Sunshine Act that we are positioned to be in compliance with, effective 2013. Obviously, that’s an area we all watch very closely. Also, the uncertainty hurts and affects funding of new technologies.

That’s where there may be a greater impact—on new technology that may not have a clear reimbursement or regulatory path. And then you add uncertainty on healthcare coverage.

Would you consider that concern one of the overall trends or challenges over the next couple of years? Do you foresee any trends in orthopedics or in medical devices generally?

There’s a trend where we’re going to have to continue to do more for less. I believe the physician community understands that, and successful companies need to figure out how they can help. This is why we think we’re well positioned, having a fast, simple, easy, and reproducible procedure that allows for a shorter operating time and excellent outcomes for patients. If you can do that in a cost-effective product manner, you’re going to be successful.

Yes, there’s a big focus on outcome-based healthcare.

I think having more and more data…is going to be more and more important over the next five years.

And we may get computerized sharing of medical records. Who knows? We’ll see how that works out.

That is a goal. It’s a challenge. We had that vision with WebMD to connect everyone, and what we found out is that there’s an incentive not to be connected. In fact, I always joke that we went out for a personal health record back in ’99, and we had some partners that said, “That’s great, but that’s our data. You’re not taking our pharmacy data or our claims data and sharing it with anyone. That’s our data.” But things have evolved.

Speaking of evolved, with Steve Jobs’s passing do you take anything at all as a CEO from his leadership style or his success with Apple? He worked in a different industry, of course.

Oh, I think a tremendous amount. He had vision. But he also was not afraid to continue to challenge his team, make them accountable, and really focus on product and what was really going to be impactful. I mean, we all would aspire to have that kind of reputation and vision.