The MX Q&A: Steve Arless Takes IP Matters to Heart

Steve Arless In this arthritic business environment how many company executives, let alone start-up execs, can say they’re enjoying themselves? Count Steve Arless, chairman and CEO of CardioInsight Technologies, among the handful doing handsprings.

John Conroy

July 1, 2010

9 Min Read
The MX Q&A: Steve Arless Takes IP Matters to Heart

By most measures, CardioInsight is on a good run. Arless made some key early decisions after coming onboard in 2009 that were based on lessons he’d learned during 35 years in the industry, among them making sure the company’s IP was secured for the long term. The Cleveland-based start-up closed a $6 million Series B funding round this past February and recently received $1 million grant from the state of Ohio’s Third Frontier Commission. CardioInsight’s electrocardiographic mapping (ECM) technology is attracting attention from both the investment and medical communities, Arless says, because it’s a true game-changer in a potential billion-dollar annual market that’s eager for cardiac electrophysiology solutions.

The company was founded in 2006 by Charu Ramanathan, MD, CardioInsight’s vice president of clinical and business development and a co-inventor of ECM, and Ping Jia, MD, of Case Western Reserve University, along with Jumpstart Inc. and Draper Triangle Ventures. In development for launch next year, CardioInsight’s system is the first, noninvasive device for treating cardiac arrhythmia and heart failure using simultaneous mapping and pinpointing capabilities, according to the company. ECM uses a type of electrode vest and images from a CT scan to display 3D images of the heart’s electrical activity, the company says. Currently in clinical trials, the system is designed for use in intraprocedural guidance in ablation therapy.

Of course, no start-up is guaranteed a successful launch, no matter the technology’s tremendous upside. When Arless joined the company he says CardioInsight’s financial heartbeat was weak, as was the state of the economy. He tapped into the “very selective” venture capital community and made some necessary personnel and business changes that improved the company’s health. Arless declined to state the company’s market cap.

Arless’s reputation preceded him. As president and CEO of Cryocath Technologies, he took the company, which developed therapeutic catheter ablation technology for atrial fibrillation, from infancy in April 1996 to worldwide sales of more than $40 million by July 2006. Medtronic recently bought Cryocath.

Named Ernst & Young Entrepreneur of the Year in 2006, Arless previously worked for 17 years at Smith & Nephew, serving nearly five of those years as president of the company. He holds a B.Sc. in chemistry from McGill University and an MBA from Concordia University, both in Montreal. MX caught up with the busy executive during a cab ride to O’Hare Airport in Chicago following positive back-to-back meetings with the principal investigator doing clinical research and venture capital executives. “Just one of the roles of the CEO,” says Arless, who discusses those key first steps at CardioInsight, the importance of securing “precious” intellectual property rights, the challenges of clinical trials for start-ups, and related matters.

MX: How did your meetings go?
Steve Arless: Very well, very well. We have lots of momentum going. I’m having a ball. I feel like a big kid in a sandbox right now. It’s just so much fun.

Why is that?
It’s fun when you can actually get interest from the world’s leading physicians and from leading venture capitalists.

What were your initial priorities when you joined CardioInsight?
When I came onboard in the spring of 2009 the first priority was to assess the financial landscape of the company and understand how the company was going to survive financially. When I was coming in, we were at the low point of the economic slump. I had to quickly assess the financial health of the company.

What was your assessment?
I was a realist. I knew it was going to be really tough because the company was an early-stage company, and the venture capital world was very selective about what it was putting its money into, because there wasn’t a lot of money. So they could be very selective. Early-stage companies are hard pressed to survive. We had to develop a survival strategy on the finance side.

Number two, there was a very small team in place when I came onboard. So the number two priority was to assess the team and make changes where I felt they were necessary. In general, until you have a strong team it’s very difficult to go out and raise good money, especially in these economic times. Money is very discerning in that respect.

And then I had to build a global world-class clinical network to support the technology. Those were the three priorities.

How would you assess where you are now with those goals?
I think they’ve all been accomplished, including raising over $6 million at the beginning of this year. We announced a new advisory board chaired by world leaders, and I made a couple of key changes. I brought in a new vice president of product development and a new director of quality and regulatory affairs.

What is the most difficult part of your job right now?
The most difficult part is keeping the organization focused. Because there are so many opportunities for the technology, so many potential applications in cardiac electrophysiology, it’s tempting for a young organization to go after a bunch of them. Especially if you’ve got excited, world-class physicians asking for support. As a small company with limited resources, it’s always better to stay focused on the low-hanging fruit, as I call it, and keep everyone focused on achieving the corporate milestones in a timely fashion. There can be no slippage in milestones for a company at our precarious early stage. Because there’s no money coming in, just money going out. It’s potentially fatal. So, it’s all about keeping the organization focused on the low-hanging-fruit applications and achieving those.

As a self-described “serial entrepreneur,” what do you look for when you decide to work with a medtech company?
First of all, you have to understand we are all products of our past. My most recent entrepreneurial undertaking was Cryocath, which was a successful cardiac company that had transformational technology. It transformed the way atrial fibrillation was being done. You get intoxicated with the challenge of building—not incremental technology—but truly transformational technologies. That’s what I look for and what I saw in CardioInsight.

Ernst & Young selected you as Entrepreneur of the Year in 2006. How has that award affected your career?
It hasn’t really affected it at all. I don’t think that people work with me because I was selected Ernst & Young Entrepreneur of the Year. People work with me because of what I do and what I am today. People look at more substantial aspects of my work. It’s more about your track record in the real world as opposed to an honor.

With 35 years in the business, what have you learned about tech transfer that you could impart as advice to other executives?
You can never overinvest in protecting the technology. With any new technology endeavor spend a disproportionate amount of time and money in protecting what you’re developing, because it’s so special and precious. Protect your intellectual property. When you’re hard-pressed in the beginning and money is short, it’s easy to spend money on the clinical study or on the product development aspect than on investing in long-term patent protection. It really comes out and pays dividends in the end. That would be one of my pieces of advice.

What elements need to be in place for a state or a region to be well-situated for developing medtech companies?
It’s got to have an established incubation system, and they have that in spades here in Cleveland with an incubator such as BioEnterprise. I think they’re world class, and they’re really very supportive and very important to early start-up companies. Effective incubation is one thing I look for.

Number two is a good clinical support network. In Cleveland with the Cleveland Clinic and the University Hospitals you have two world-class clinical centers. Both of them are very supportive and actively involved in technology ideas and very meaningful to me.

And the third thing would be government support like Ohio’s Third Frontier program. We were just awarded a $1 million grant from the state of Ohio for our technical excellence and our potential and our opportunities. A million dollars is a big incentive for a small startup. In Ohio they have a very bold and aggressive program. For a start-up with new technology, that’s critical.

What challenges did you face in setting up your clinical trials for the CardioInsight system?
The challenge of setting up any clinical trial is dotting the I’s and crossing the T’s. In these big teaching hospital centers there are a lot of requirements that have to be met, and there are different approval processes and committees like the IRBs—investigational review boards. And getting other buy-ins from all the players [is a challenge] because a clinical study is not just about the principal investigator; it’s about the support team, the administration of the hospital with technical people, the biomedical engineering group. It’s a very complex process that requires multidisciplined efforts from small companies like ours.

You began your career in Canada. How does Canada compare with the United States in terms of medtech development?
Nobody does it as well as the United States. The best medical technology development in the world happens in the U.S., particularly in key centers in the Bay Area, Boston, and Minneapolis. I don’t think there’s anything much that can be learned from what I experienced in Canada. Other than the fact that there are some very favorable R&D tax credit incentives.

But even here now it’s coming around. The federal government now has a $1 billion program called the Therapeutic Qualified Project Credit program. Right now, we’re applying for refundable tax credits for R&D amounts that were spent this year and last year to encourage ongoing R&D and to support fragile networks of startups. That’s been done for years in Canada.

Are you on target for regulatory approval and commercial release in 2011?
Yes, we’re on target for regulatory approval and commercial release in 2011.

About when?
Right now, we think about the middle of the year.

You haven’t hit any snags so far?
Not yet. I anticipate challenges, but we try to avoid or eliminate snags.

How much will the CardioInsight system sell for? Do you have a price point?
We do, but that’s confidential. We are expecting to price this at a premium as advanced mapping technology. We’re going to definitely price this the way it deserves to be priced as a premium technology.

What impact do you think healthcare reform will have on CardioInsight and the device industry in general?
You know, so many people have given opinions on this, I think I’d rather not say.

But will it affect your business strategy going forward?
The way I look at healthcare reform, giving more people better access to healthcare should help the industry, I would think. There are going to be more people treated.

Do you have any thoughts, though, about the tax that has drawn criticism from some in the device industry?
I have no comment on that. I’ve learned to stay away from [commenting on] a couple of things in life, and taxes is one of them.

Wrapping up, what device trends do you foresee over, say, the next five years?
A megatrend in the device industry is that more and more devices are going to have to go through more sophisticated clinical validation and outcome studies in order to justify reimbursement in the future. There are going to be more sophisticated clinical studies showing improved outcomes that will be required to justify with CMS the ongoing stages of reimbursement for the technology.

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