The MX Q&A 4846

Missing the forest for the trees will not be a problem for Dave Marver in his new job as president and CEO of Cardiac Science. “Our beautiful headquarters in Bothell, Washington, is blessed with an abundance of trees, wetlands, mountain views, and of course, rain,” notes Marver, who became chief executive on March 31.

Marver says the corporate neighbors in his new sylvan setting will keep him on his toes. “Don't think the gorgeous surroundings make us complacent. There are many successful medical device companies in the area,” he points out. “Having companies like Philips, SonoSite, and Physio-Control in close proximity constantly reminds us to bring our ‘A' game.”
Physio-Control is a division of Medtronic. In October 2008 Marver left Minneapolis-based Medtronic after 14 years to join the $206-million manufacturer of automated external defibrillators (AEDs) and other advanced cardiology devices. During Marver's stint with Medtronic, he held a succession of vice president jobs that included leadership positions in strategy and business development and marketing. He also spent three years at the device giant's international headquarters heading up commercial activities for the cardiac rhythm management business in Western Europe. As business director for Medtronic's patient management business in the United States, Marver also gained expertise in the key areas of informatics and connectivity. Five months after joining Cardiac Science as COO and executive vice president, he was chosen to replace successful CEO John Hinson.
From his new office, Marver plans to keep his eyes on both the forest and the trees. “Our competitors are good companies with good people, and we expect to beat them,” he says. The new CEO took some time out of his busy first-week schedule to discuss a range of topics with MX, including the challenges of overseeing a healthy device firm in a sick economy, his expectations, the importance of medical connectivity, and his plans for the “vastly under-penetrated” AED market.
MX: You spent 14 years at Medtronic and came aboard Cardiac Science in October 2008. Roughly five months later you're named CEO. Were you hired to take over for John Hinson? Was there a succession plan already in place when you were hired?
Dave Marver: The idea that I would succeed John as CEO was always a part of my discussions with John and the board. But such things are rarely guaranteed, and the time lines we considered were greater than five months. Once I started, I didn't spend much time thinking about succession, instead focusing on making a positive impact as quickly as I could.
As it turns out, John had been contemplating a transition out of the company for some time. It can be challenging to run a company for 10 years like he did, and my progress in understanding the company and industry was faster than we anticipated. I was fortunate to have had excellent training and experience at Medtronic to bring to this role.
What expectations did you have when you joined the company? What unexpected events, surprises, or challenges did you encounter?
Having worked in the medical device industry for many years, I knew the company had a great stable of brands, including Burdick, Quinton, and Powerheart. I also knew that the company had been very well run from a financial perspective, which is reflected in our strong balance sheet.
One positive surprise has been the strength of our distribution. We're the industry's clear No. 1 in our ability to reach customers in public access defibrillation globally. We have a dominant distribution capability in primary care. We're No. 1 in ECG, stress, Holter, and AED sales to physician offices. These are real advantages for our company.
One challenge, though not unexpected, was resizing the company in January by 12% to navigate the company through tough economic conditions. It's always difficult to eliminate jobs. Good and dedicated people were affected.
The hope, of course, is that you won't have to make any layoffs. Speaking of related challenges, Cardiac Science saw its NASDAQ stock price drop from 52-week high of $11 to 52-week low of $2.45. How do you position the company going forward? What pressure, if any, are you getting from shareholders?
The stock price drop reflects the fundamental challenges we're all facing selling capital equipment in this market. Still, our company remains strong, and we're focused on doing the right things to build the business for the long-term. Our shareholders understand that. Those I've had an opportunity to meet are optimistic about our future.
New leadership brings new energy. We're going to run this company with greater speed and aggressiveness, with an increased emphasis on seizing opportunities and serving customers.
There are some shareholders who see our balance sheet—$30 million-plus in cash and no debt—and wonder why we're not buying back stock. That's sometimes a smart move, but not right now: There will be opportunities to add capabilities and strengthen our business over the next 24 months. I'm keen to use our cash to grow the company and position it for the future.
Where do you see areas for growth, and where do you see slow or no growth?
I see opportunities for growth across our business. The AED market is vastly underpenetrated.
To give you perspective, there are 96 sudden cardiac deaths in the U.S. for each fire death, yet AEDs are nowhere near as prevalent as fire extinguishers. There is massive potential for the market—and not just in public access defibrillation. Hospitals are also underpenetrated: AHA recommends [placing] automated external defibrillators in hospitals so that resuscitating a sudden cardiac arrest victim is not dependent on a licensed physician.
While some view the cardiac monitoring market as mature, I believe there is untapped opportunity in resting ECG, stress testing, and other parts of our diagnostic business. I'm not ready to be more specific than that because it doesn't serve us to alert our competitors, but I see the business as ripe for new and different approaches.
Corporate development—acquisitions and alliances—will also be part of our growth strategy. While we work on those deals, we're improving our internal systems and infrastructure to give us a better foundation on which we can stack future businesses.
Automated external defibrillator sales are up 54% in Japan and Europe last year. Can that continue?
We continue to see growth in Europe, despite the prevailing economic conditions. This speaks to the underpenetrated market and to the success of our decision to add direct presence and distribution in France and Germany.
We were hugely successful in Japan last year, but those numbers will decline this year. Nihon Kohden has been a valued partner for us there, but they are making some changes that will impact our revenue. Also, the market in Japan has contracted severely as the economy has suffered. We will continue to work with Nihon Kohden to guard our revenue and will explore other ways to grow our business.
Japan remains a wonderful market for AEDs, and it's one we're committed to long-term. We're hopeful we can get back on track with strong growth in that country with smart strategies and good partnerships.
The Los Angeles Fire Department, Boy Scouts of America, and Australian Defence Force bought AEDs. What other customers does Cardiac Science hope or expect to find?
We're very proud to be associated with those groups. Their decision to purchase our devices says a lot about our reputation for quality, dependability, and performance. We're currently deploying with some other large customers and will be able to share more about those relationships at a later date.
How cost-conscious are customers these days, given the economic downturn?
Everyone is cost conscious and appropriately so. Our devices diagnose critical heart problems and literally save lives, so cost is less a factor for us than for most purchases.
What is Cardiac Science's market share for defibrillators?
The worldwide AED market is estimated at over $400 million and is projected to continue to grow significantly. Without revealing our market share, I would say we're a strong No. 2 right now.
Without giving anything away to your competition, what advice would you have for other device company chief executives on how to weather the down economy?
I'm a new CEO; I'm not going to give anyone else advice. I can tell you I'm not going to worry about the economy because it's not something I can control. Instead, I'm going to focus on making the company as strong as possible so it can operate successfully in a down economy and emerge as a coiled spring, poised for many years of sustained growth. I'm also going to call on my background in sales and marketing to ensure that we're serving our customers and helping them care for patients.
It's going on four years since the merger with Quinton Cardiology Systems. The company bulked up in order to compete with larger companies in your field. How would you assess the merger? Has it achieved its intended effect?
By almost any measure, the merger has been a success. When we merged in 2005, the company's revenue was just over $100 million. In 2008, we delivered more than $200 million. This company has well-recognized brands, global reach, growing and recurring revenue streams, and a solid balance sheet.
Together, these afford us a lot of flexibility.
Medical connectivity is growing in importance. President Obama recently announced a plan to invest $10 billion a year over five years in healthcare IT, for instance. Cardiac Science's HeartCentrix software for electronic medical record (EMR) works with Burdick and Quinton devices. Is this a growth area for your company, and what technological, regulatory, or cost challenges do you foresee?
I'm fortunate to have had experience in connectivity and remote data management from my years at Medtronic, and I'm very excited about the changes the stimulus package will bring to cardiac monitoring.
We are already well positioned because most of our devices connect to leading EMRs. The government plan will spur innovation; we're already seeing it in the increased pace with which we're signing up EMR partnerships.
Connectivity is at the heart of all our development work now. We were the first in the industry to include communications as standard features on every Burdick resting ECG we sell. At the American College of Cardiology [meeting] last week we announced DICOM and HL7 connectivity to our Quinton Q-Stress cardiac stress system and to our Q-Tel cardiac rehabilitation system. In fact, we're first to offer DICOM connectivity to the cardiac rehab segment.
We are focused on being a clear leader in this area and future moves will reflect this strategy.
Speaking of President Obama, in March he appointed Margaret Hamburg as FDA commissioner. What regulatory challenges, if any, face Cardiac Science? Do you see any change in direction at FDA that will have an impact on your business?
We value our very good working relationship with the FDA and don't expect anything to change with a new commissioner.
How will you build upon Mr. Hinson's success, which includes fivefold growth and a debt-free balance sheet?
John grew the company from $40 million to $200 million in revenues over 10 years but, at current levels, our market cap doesn't reflect that growth. There are employees and investors who believe we can do a better job creating value; I'm included in that group. For now, I'm focused on running the business and executing our growth strategies. I'd prefer not to share specifics until those plans are well under way.
It's often said that the medical device industry is inoculated against the worst of the economic problems compared with other industries. Do you share this belief?
Every industry is impacted. If our customers are suffering, that affects us. It's our obligation to find ways to help them. Our cash position and debt-free balance sheet give us an opportunity to be aggressive in growing the company despite current conditions.

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