The MX Q&A: Steve Sagon, CardioFocus

Sagon says the physician connections are essential to the success of the Marlborough, MA-based company’s European rollout for the HeartLight endoscopic ablation system. Designed for treating conditions such as atrial fibrillation, the device features a catheter that combines a micro-endoscope and light-energy fibers. The technology enables physicians to see inside the heart and directly target laser energy for the first time in order to isolate pulmonary veins.

A recent 200-patient clinical study showed that the visually guided laser balloon (VGLB) method achieved an isolation rate of nearly 99% on pulmonary veins, according to the company, which received a CE mark for the HeartLight in 2009 for treating atrial fibrillation. CardioFocus expects to begin an IDE in 2011 for eventual U.S. approval, an effort that Sagon believes will be aided by the company’s European clinical track record.

“I think to be able to have strong relationships with physicians who can help you to develop and research the technology that you have is really what has put, and kept, CardioFocus on the map,” Sagon says. A 30-year veteran of the device industry, Sagon became president and CEO of CardioFocus in 2005 after holding a variety of sales, marketing, and management positions in the electrophysiology and catheter ablation fields. The general manager and then president of Bard Electrophysiology Division from 1996 to 2003, Sagon subsequently served as executive vice president of CardioNet, a start-up developing remote monitors for cardiac arrhythmia patients. He holds a BA from Franklin & Marshall and a JD from Emory University.

MX caught up with the busy executive as he was traveling by car from Wisconsin to Manhattan. Sagon rode shotgun while discussing the importance of cultivating physician contacts, his liberal arts background, the European and U.S. regulatory climate, how the HeartLight could benefit from healthcare reform, and related topics.

MX: Are you driving or is somebody else driving?

Steve Sagon: Someone else is driving. So I can focus intently on what you’re saying.

Good. What in your business experience in the device industry has been most valuable to you in your six-year tenure at CardioFocus?

You know, I’ve been in the device business for a little over 30 years, and I think I was probably in it for a decade before I realized what was most important. But clearly, I’ve always worked with physician specialists, and I think in cardiac electrophysiology you have that to the nth degree. These are people who are intensively involved in the technical aspect of what they’re doing as well as the medical aspect, and I think to be able to have strong relationships with physicians who can help you to develop and research the technology that you have is really what has put, and kept, CardioFocus on the map.

Our customers are cardiologists, but an electrophysiologist is a cardiologist subspecialist. And in the U.S. I think there are almost 20,000 cardiologists, but there are probably 2000 to 3000 EPs. So when you’re talking about the leaders in the field, it’s a couple of dozen people. The fact that I was in this field for 16 years before I started at CardioFocus was a big deal.

Because you had the connections.

Yeah. We knew how to value the opinions of a variety of different people.

Looking at your bio, I see that you have a BA degree from Franklin & Marshall and a JD degree. Do you have any background at all in what you’re doing now?

Do you mean like in science?

Yes.

I think that’s a great question. What I had a background in was in being curious about technical devices. I remember my first device job, which was as a product manager for an infusion pump company, and I was feeling very intimidated by all the drug combinations that could be infused with that device but trying to boil everything down to what the apparatus needed to do. No one ever expects you to be a doctor, and it’s kind of obnoxious if anyone outside of the healthcare field tries to be a doctor. You’re supposed to be an expert on your device and understand how your device fits into what people do. So, even though I spent more time in philosophy and law classes, I understood how to speak. And maybe even better, how to listen. It was really “what have we got?” and relying on a physician to tell us how that might be helpful. And if we were wrong, we were wrong, but at least we knew that.

What have you learned about the success of the visually guided laser balloon technology in Europe that may help CardioFocus introduce the product in the U.S.?

I think it’s everything. During my career when I started, Europe was happy to get the devices that the United States developed. Presently, nobody develops a medical device without going to Europe first, so things have completely flip-flopped.

First, we learned about the medical aspects of what we were doing: Did the device function effectively? Was it easy to use? Certainly, in Europe you have more competition because more devices are approved and are on the market. You’re really facing major league pitching in Europe much more than you would in the U.S., where only a limited number of devices are available. So I think we were very fortunate that we had good relationships with physicians who realized the same factor. Interestingly, leading U.S. physicians also recognized that they couldn’t work with advanced technologies unless they had partners in Europe.

For instance, when we started working with [lead investigator] Vivek Reddy, Vivek worked with people that he had met at Mass General who now lived in Europe. On a Friday afternoon he’d get on a plane in his scrubs and we’d end up in Prague and we’d perform clinical procedures all weekend long. We learned everything we need to learn and we learned it in a welcoming, informal environment. I can’t say enough about that. You spend as much social time as working time with people when you’re working around the clock. Assuming that it clicks, everybody becomes an informal partner in what you’re doing, because nobody wants to waste their time.

How long have you been in the European market and where in particular?

Officially, with a commercial device since November 2010, but unofficially, doing research, since 2002. We could say 2009 and make everything look simple, but I think it would probably do a disservice to the eight years of course correction that we went through to get it right.

And also familiarizing people with what you’ve got, because it takes a while for clinicians to gravitate to something that they’d like to do.

You mentioned Prague; are there any specific regions in Europe where you are most pleased with your progress?

We didn’t design having an outpost in Prague. It was really a function of the researchers we were working with. But it became very clear to me that Prague was the place where we could introduce other physicians to the technology. I was targeting leading physicians who were in Germany and in the UK. Really no big surprise there. Germany is the biggest market; it’s well-financed, and it’s highly sophisticated. And the UK is a natural market for any U.S. company.

We took advantage of having an installation in Prague, let’s say, and we would invite physicians to come see, and we would follow the ones who were inspired enough to bring it back to their own labs. Germany is the most obvious market if you want to get started.

Are there FDA regulatory issues you’re facing with the HeartLight that make it more difficult to introduce it in the United States? Or is the general regulatory climate here a little more rigid?

I would say if you were intent on being in the U.S. before you want to be anywhere else, FDA is a real roadblock. What FDA wants is more involved than what European authorities want. If you’re willing to be in the path of least resistance, it’s easier to be in Europe. They require one-tenth the number of patients that we’ll have to study in the U.S., and we could become legal and actually generate revenue with our device.

If you said to yourself, “I must be in the U.S. before I’m anywhere else,” all of a sudden FDA is a bottleneck. You’d be staring at a multiyear pathway, and that’s after you got everything right. So what we’re really doing is we’re pursuing both European commercialization and FDA approval of our IDE for a pivotal study, but I look at the FDA work as confirmatory of what we’re doing in Europe.

Does European success help a company like CardioFocus with FDA approval? To say: “Look, this is what we’ve done in Europe; we’re doing well there.”

Sure. I think the people at FDA aren’t in a glass bubble, they see what gets published, and if you’re doing work in Europe, you’re going to have a research trail. On the other hand, officially, you don’t really need any cases in the U.S. to acquire the permission to do U.S. feasibility. As a matter of fact, the first time we obtained U.S. regulatory approval for a feasibility study, we had done all our work outside the U.S.

If a company thinks it has only once choice, FDA is a problem, but if you look at it more holistically, it’s just a natural sequence.

How was the HeartLight ablation system developed, and how much did it cost to develop?

It’s much easier to answer the second question—it cost a lot. We’ve been investing in this product for a decade, and you can see in the press releases, my first “raise” was in 2006 and we’ve raised money continually thereafter. So under my guidance we put about $50 million into this product.

But how was it developed? It’s really kind of strange in this case. The product has a number of different technologies in it.

People who are unfamiliar with all the specifics gravitate to the fact that “oh, there’s a laser inside of it.” Frankly, the laser was the first element that the company started with. The company was actually started in the early 1990s by people who were just enthused by lasers. By the time we were trying to put together a completely integrated device to perform the procedure we recognized that the endoscope was the more important technology. What we were really bringing to physicians was the capacity to see inside your heart.

Decades ago, an electrophysiologist would have been trained in the cath lab and in the OR. Today, it’s a rarity when an electrophysiologist goes into the OR. Their perception of the whole anatomy may be pretty limited, so being able to show them a picture of what they’re doing and have that picture be a real-time, full-color picture is a huge leap. I just want to make one point, I’m sure you know people who have had a knee operation, and if somebody said they were getting one and the orthopedic surgeon wasn’t using an endoscope, you’d say, “go get another doctor.” Typically, someone who’s doing a procedure on a beating heart is using all kinds of derivative ways to figure out what their anatomical position is. First, there’s fluoroscopy. They’ll use angiography as well. They might use intercardiac echo. They’ll use a CT that was acquired a week before the procedure. And they’ll try to triangulate all this information and put it together with the live x-rays that they’re using during the procedure. And it’s amazing that they can do this. So when you show somebody a real picture of what they’re doing, all those other tools kind of fade away.

You describe several components to the technology. Are all the IP rights sewn up?

I think the key to our IP is we’re doing all these things together. Delivering energy into the heart is not novel, and I think it could no longer be protected. But delivering energy under endoscopic guidance, where you provide a visual indicator of where the energy will be delivered is highly protectable.

One of the things that we’re doing is projecting energy; we’re actually projecting a light beam. You don’t have to teach somebody how to use a laser pointer; they figure that out right away. What they quickly figure out right after that is that it’s very easy to shine a light on a surface that might be slippery to an ordinary catheter. It has all these advantages that aren’t immediately apparent.

Speaking of the advantages and the upside of what you’re describing, I have a term I call the “better mousetrap conundrum”—and since you studied philosophy you’ll know whether I’m using the word correctly. Say a company such as CardioFocus has this world-beating technology, that’s no guarantee of success, as you know. From where you sit as CEO what internal and external issues make the difference between success and failure for a company with this better mousetrap?

Great question. Because when you’re sitting across the table from your VCs and you say you want to do another study—and they start looking at the price tag—enthusiasm can wane. I can remember when we were trying to figure out what to study. We knew we had to acquire information regarding the safety of what we were doing; that’s pretty much standard. But then when you want to measure efficacy, it was typically measured by doing a year’s worth of follow-up. In arrhythmia detection the thoroughness with which you look for recurrence has a direct bearing on the quality of the follow-up you might get. All I’m trying to say is the harder you look the more you tend to find.

Not everybody would gear themselves up for world-class studies. We had spent a lot of time with FDA. We knew what they were looking for, and we always designed our studies so that they were easy to interpret. For instance, we would only do a single intervention, not multiple procedures. We would always equip the patients with monitors so that they could immediately detect any symptomatic occurrences. But we did one additional thing that was really kind of pushing the state of the art at the time, and this was in Prague. I’m not sure we could have done this in the U.S. We asked patients to come back to the lab 90 days post-procedure for the physician to take another look at the durability of what we had done. The benefit to the patient is if there was a gap, the gap would be repaired. The benefits to the company were instead of having to wait a year to find out whether the patient still had an arrhythmia, we could look and see whether the physician’s work was still intact. After all, that was the intervention that they made. What we started finding out—and it held up over time—is that 85% to 90% of the interventions we were making were durable. When we started to look comparatively at what people were getting with other technologies, we found that we were better than twice as good.

The thrust of your question is: You have a great technology. How do you pursue it, and how do you measure it in a way that people find there’s credibility and what you’re measuring is of interest? So all of a sudden the field is talking about the durability of the intervention as well as the clinical outcome of the patient. It stands to reason that if the intervention wasn’t durable and you got a good outcome, it might not be because of the intervention. I think what we did is really added to the physician’s vocabulary and then provided a legitimate method to distinguish among different technologies. And other companies have picked this up as well.

Regarding other companies, I understand that CardioFocus may consider collaborations. Is that true?

Yeah, but, even though your investors dream of the day that somebody makes an offer you can’t refuse, I think you have to behave as if you’re going to be independent forever. The physicians that we’re working with in Europe and our sales staff and our clinical engineers are all enthused because they’re delivering something of value, and I don’t know whether we’re going to have to do that for months or for years. We’re really scaling up to be able to have a very durable field presence. As a result, we’re probably not going as fast as is humanly possible, but we’re acquiring physician partners and supporting them in the manner in which they need to be supported to get things to go well.

As for partners, on the financial side you mentioned $50 million in development costs. Has VC backing been hard or easy to come by in this economic climate? Early in the last decade during product development things were obviously better. How is the VC climate for you now?

Well, I think we were very lucky. There are no two ways about it. Because we had good data at the time that the VC funding availability was at its worst. And we had a very solid group of investors who had prepared for those sorts of eventualities. Even though you’ve seen a tremendous winnowing of the available VC money, we have VCs with a couple of billion dollars under management, and they were prepared for this.

All that said, everybody would like to see a 10-times return on their investment. Whether that matches the reality for our class of device and everything else remains to be determined.

On the government side again, how has the Affordable Care Act or healthcare reform in general affected business, if at all?

Well, I wish I could quote it to you. It’s certainly a broad topic, but the topic that has been most impressive to me is the idea that there would be some kind of measure of comparative effectiveness. In the field in which we’re working, where a physician will typically tell a patient that he might need several atrial fibrillation ablation procedures to get the clinical results that they want, and I know that that physician can get paid for each one of those procedures [and] I have a technology that might require fewer repeat procedures, I think we’re on the right side of a comparative effectiveness measurement. I’m looking forward to that. I wish I could afford to run that study, but I’m at least confident that we’d win it.

As a taxpayer, I don’t know if the United States can afford to spend more than 20% of its GDP on healthcare. So someday we’re going to have to find a way to distinguish between the technologies that are truly worth it and those that aren’t. Comparative effectiveness or outcomes measurement are exactly what we’ve developed our product for. All that said, it’s a little frightening not to know when those standards will reveal themselves.

Exactly. That’s what I keep hearing, that the uncertainty surrounding the whole issue is a problem.

I was just going to say if all of a sudden someone says in the next 24 months you need to produce your study with comparative effectiveness data it may not be as much fun as I’m envisioning.

But how does the VGLB technology compare in cost with the other competing ablation technologies, such as RF, for instance?

You can compare energy to energy, and I will do that if you’re curious. But I think comparing system to system is what’s most interesting. Let me just try both. System to system we really have a standalone product, where the visualization element is a component of our catheter. So when you insert our catheter you can see what you need to see of the anatomy, you can see where you need to treat, and you can see where you’re treating. So it’s essentially ablate what you see and see what you ablate.

As far as the energy is concerned light energy has a huge advantage because it’s very efficient in terms of being able to transmit the amount of energy you want to deliver. There are no huge contact variables. RF technology, which is the standard in the field, needs intimate contact with the surface of the heart in order to transfer the energy. There are actually companies—Endosense is one of them—that are making their whole technology related to controlling the quality of contact. There are all these technologies required to deliver RF energy efficiently, whereas light energy doesn’t need all those accessories. I don’t need extra visualization tools. I don’t need extra mapping tools. I don’t need extra contact sensing tools. And as a result a hospital with multiple EP rooms might not have to equip each lab similarly in order to pursue cases with our technology, for instance, than using RF technology.

So, in terms of cost, though?

We’re definitely aiming at the premium side of the market. We’ve been fortunate that some of the other companies have made that easier for us because of all the different accessories that have to be used. My feeling is that if you merge your last two questions, if there were a comparative effectiveness measurement we could charge 150% of what everybody else charges and still be cheaper. If you just looked at it as device by device, I can eliminate so many other products that would need to be used, I think if we were simply getting the price that other people were collecting, we’d do just fine.

What’s the next step? What’s going to happen over the next six months for CardioFocus?

Our goals are two-fold. We’re continuing our commercialization in Europe. We’ve just made our application to FDA for an IDE for a pivotal study. So, I imagine six months from now we’ll be enrolling patients in that study and treating those patients in the United States while we’re continuing to bring the technology to more labs in Europe. So it’s a dual strategy, and although it’s a cliché, we have to execute on both of them. We have to enroll the patients in the U.S. clinical trial, and we have to keep treating patients in Europe. And I’ll say we’re looking forward to the milestone where we’ll have treated the 1000th patient with this technology, and then we have the follow-up results to demonstrate the effectiveness.

Finally, on the topic of studies and clinical trials what challenges if any are there in establishing solid clinical trials during device development?

Like I said, we’ve had multiple conversations with FDA, and our typical response is probably saying ‘no’ to all the CROs that want us to contract with them. We intend to do the study execution and the monitoring on our own. We’ll contract with physicians to perform our clinical oversight, and we’ll probably engage some universities to do the statistics. Although it’s complex to integrate all that needs to be done—and I think the burden is that little companies really have a tough time getting in touch with all these resources—if you follow the field and you do research that’s equivalent to what universities do, FDA has a tough time being critical.

Ultimately, it comes back to the first question. If you have great physician relationships and they’ll introduce you to the people who can help you accomplish the study, you can’t go wrong.

Okay, sounds good. Where are you now on your travels? Are you still in the Midwest?

Pennsylvania is a very big state. (Laughs.) I’m about 100 miles from Manhattan.