CEO Believes Novel Ultrasound Cancer Treatment Technology, and Long Hours, Will Deliver a Clear Winner

THE MX Q&A

“Starting a new company requires more than working 9 to 5. It's about doing what is needed to get things done,” says Tony Falco PhD CEO and founder of Resonant Medical (Montreal). That effort includes putting together a “solid business team” blessed with tons of entrepreneurial talent, conducting an exhaustive patent search, and writing a strong business plan.

No amount of business savvy will compensate for a duff product, of course, and Falco believes Resonant has a clear winner in its Clarity System. Developed by Falco at Montreal's McGill University Health Center, where he had completed a doctorate in medical physics, was teaching graduate courses, had an active research program and clinical responsibilities, the system uses 3-D ultrasound image-guided radiation therapy (IGRT) to treat prostate- and breast-cancer patients. Falco and his business partner, Fred Francis, founded Resonant Medical in 2000 after negotiating exclusive licensing rights with McGill, which owned . Falco's technology patent.
Based on initial success with prostate cancer patients since 2004, the breast system is the first use of 3-D ultrasound technology for IGRT to help women and their doctors combat the disease. The Clarity System enables radiation therapists to compare a fused ultrasound-CT image taken during treatment planning with ultrasound images from each consecutive day of treatment. This breakthrough allows doctors to monitor the daily movement of tumor cavities so that the physicians can pinpoint the actual location of the lump for more focused radiation placement. This focusing capability can minimize radiation margins around prostate or lumpectomy cavities, according to the company. Cancer centers in the United States, Canada, and Europe are now using the Clarity System.
Falco discussed a range of topics about the start-up with MX, including the system's genesis, the challenges of technology transfer, the demands of launching a company, the rigors of the clinical trial process, and what he's learned from customer feedback.
MX: The Clarity System was developed at McGill University Health Center. What business challenges did you face transferring technology from an academic setting to the commercial sector? Which challenges are unique to Resonant's situation and which are broadly applicable?
Tony Falco: The biggest challenge with transferring a technology from an academic setting to the commercial sector was finding the seed capital to run the first clinical trials and develop a research and development team, which are part of the first phase in creating any new technology.
The second challenge was negotiating the transfer of the license of the patent for the Clarity System. Since I was working for McGill University at the time, any ideas that I generated for Clarity were property of McGill. As a result, the first patent that was written around the core Clarity technology was a McGill patent. When my business partner, Fred Francis, and I founded Resonant Medical in 2000, we had to negotiate to exclusively license this patent, which was challenging because there can be more risk with a small, newly formed company than with selling the patent to a large, well-established medical device company.
Here's a related question. You were a teacher and clinician at McGill University and have a doctorate in medical physics. Clearly, you also have some business acumen as well. Is the key to tech transfer assembling a good business team? How did Resonant put its business plan together?
The key to building any company that is successful from the start is assembling a solid business team and finding people who have an entrepreneurial background. Starting a new company requires more than working 9 to 5. It's about doing what is needed to get things done. It's important to find people who are willing to make sacrifices and put in many years of hard work before they are able to receive the fruits of their labor as shareholders. Fred and I conducted an international search to find the right people who could help develop and bring the Clarity System to market.
Putting together our business plan took many months. We did a lot of research to make sure we could present Clarity to investors from a business perspective, not only from a technology perspective. We had to show them that Clarity could generate revenue. Once we put the business plan together, one of things that was very helpful was having the plan evaluated and critiqued by advisers who have a lot of experience looking at many business plans and guiding companies as consultants. I felt this was very valuable because it helped us hone in on how to pitch Clarity to investors.
For example, the original business plan focused on the use of Clarity for women's cancers and gynecological treatments. However, when we met with advisers one of the things that come out of the first discussions was that the technology most likely wouldn't fly with investors because women's health wasn't yet a proven area in the radiation therapy space as a way of generating money. However, there had already been a few products used to guide radiation therapy for prostate cancer. They weren't doing it to the level of accuracy and high quality images as with the Clarity System but there were at least comparable products and companies. We decided to switch the focus of our business plan to enable us to make comparisons with other players in the prostate and men's health market to show that Resonant had great potential to generate revenue as well.
Can you describe how you developed the Clarity System at McGill?
The idea for the Clarity System came out of my PhD work at McGill, which started in 1996 and was focused on developing a digital x-ray-based detector for imaging soft tissue. One of the questions that came out of my research was how we could get x-ray imaging to the level where it can image soft tissue. Up to that point, 2-D x-ray imaging had been used to image bony anatomy. My PhD work became focused on harnessing the x-ray energies by developing a new type of digital detector.
One of the major findings of my research, however, was that even though the imaging quality that I developed worked better than anything that was available at that time, I came to the conclusion that x-ray just wasn't suitable for imaging soft tissue. As a result, I went down a new path and started to develop ideas using 3-D ultrasound in new ways, particularly during the planning stages of radiation therapy and on a daily basis during treatment delivery. I began to explore the idea of comparing an ultrasound image at one point in time to an ultrasound image at another point in time, which would enable the comparison of “apples to apples”, to show changes in anatomy over time.
Was there a breakthrough or “aha!” moment in the development of the 3-D ultrasound Clarity technology? When did you realize at the university level that the technology would meet your intended goal of combining 3-D ultrasound and IGRT for the treatment of soft tissue cancers?
Once we started running clinical trials, we found that we could see the actual anatomy clearly using 3-D ultrasound even better than the best x-ray imaging available at the time. Additionally, we found that we could find ways of pattern recognizing the anatomy and identifying differences in movement and shape changes [over time.] That was really the breakthrough moment—comparing 3-D ultrasound images at different points in time and developing tools to show displacements and changes in time.
By acquiring head and neck images and prostate images, everything started fitting together. We found that the anatomy actually changes much more than physicians thought. We knew we had something that could help take radiation therapy to the next level.
How much due diligence goes into determining whether there's a market for your technology?
The most critical part of developing a business plan is doing the due diligence to determine if there's a market for the technology. This requires researching potentially competitive companies and products to find out what is currently available, as well as university groups that may be working on something similar to find out what might be coming out in the next two to three years.
It's also important to do an intense patent search for competitors, as well as for the well-known, established companies working in the space of ultrasound and IGRT. In developing the business plan for the Clarity System, we looked through many hundreds of patents to make sure there wasn't already a 3-D ultrasound technology for IGRT, that we weren't infringing on another patent and so we could get a better idea of what our competitors were doing to help us justify what we were doing. Additionally, we researched university groups, had discussions with key luminaries in the space and read various publications, as well as attended tradeshows to see other technologies in action.
Do you see IGRT replacing CAT scans or x-rays in most cancer treatment? Or will CT and x-rays work in tandem with 3-D imaging to improve treatment of breast and prostate?
We do not compete with CAT scans and x-rays. We complement what they do by providing even more information. This is beneficial because it allows us to joint sell with vendors in the CT scan and x-ray space. As a result, we are not limited in market share and can sell into markets where these technologies are not helpful, such as tracking changes in anatomy in the radiation treatment room.
While CT images can be effective for planning cases involving bony and lung anatomy, their application in the treatment of prostate and breast cancers, as well as other soft tissue cancers, is inadequate. By definition, 2-D x-rays image mostly bone and lung contrast whereas CT scans image other anatomy but do not do a good job of distinguishing one type of soft tissue from another adjacent type of soft tissue. Radiation oncologists are left to plan treatment on what they do not see, versus what is seen. The Clarity System uses CT in tandem with 3-D ultrasound by comparing an ultrasound-CT fused image taken at the time of treatment planning with daily ultrasounds to ensure accurate planning and precise targeting of radiation.
How big is the market for image-guided radiation therapy?
The market for IGRT, in the strictest sense, in the United States is about $600 million, which is not huge, but it's a market that requires very fine-tuned and accurate technology. The market is based on about 5000 treatment rooms and 2500 planning rooms in the U.S. and about as many in Europe.
How long did the clinical trial process take before FDA approval in 2004? Did it go as expected? Were there any bumps in the road?
The clinical trial process for the Clarity System took about 15 months and involved 40 patients. The trial was conducted at McGill University and consisted of thousands of data points, which we analyzed and used for the FDA submission.
The FDA submission went smoothly and the whole process was very fast, lasting less than six months. The FDA 510(k) clearance was broad, clearing the Clarity System for use on all soft tissue cancers. They felt the clinical trial was well run and the data was so clear that we were able to get clearance for broad use, which has enabled us to develop prostate and breast modules.
In terms of treatment costs is the Clarity system more or less expensive than traditional CAT scans or x-rays?
The Clarity System is one-third to one-tenth less expensive than other imaging products, from CT and MRI scanners to x-ray scanners. This puts us in a good position because most clinics can afford Clarity in both the planning and treatment rooms.
I understand that the Clarity System is being used in medical centers around the world. What feedback, good or bad, have you received from its worldwide user base? Is there anything you learned that surprised you, for instance? Or disappointed you, for that matter? Did the technology have to meet different national regulations?
The technology was approved by regulatory [bodies] in each market. In the U.S. we have 510k clearance by the FDA, in Europe we have CE Mark and in Canada we have Health Canada Clearance, enabling us to market and sell the Clarity System in these three markets. We were surprised at how quick [the] product was taken up in Europe by many of the big luminary sites. We've actually surpassed our sales expectations in Europe during the last 18 months. They are using the Clarity System for prostate, breast and soon for other cancers, such as bladder cancers.
The feedback we've been getting from physicians has been very positive in terms of the “wow factor.” Many say that they didn't realize what they weren't able to see with CT until they had Clarity and that they are surprised by how much the anatomy does move. Many physicians also say they can more easily and accurately find the cancerous area and can therefore treat the patient better. We also hear from physicians who are using Clarity that they wouldn't treat their patients without using the system.
Our customers are a great source of wealth in terms of feedback. In fact, all the changes in the last few years that have been made to our products were based on customer feedback, making our product iterations that much stronger. For example, [information] we've received is that compared with the prostate module for Clarity, the breast module takes more time because breast treatment can be more complex. As a result, we are releasing a new product for the breast module this June that will automate some of the steps that are now being done manually in treating breast cancer patients.
What did you learn from treating prostate cancer cases since 2004 that you were able to put to use in developing the 3-D ultrasound technology for breast cancer treatment?
One of the big things we learned from treating prostate cases, which we've adapted for the breast module, is the importance of the training curriculum. When training radiation therapists on the prostate module, we learned that they aren't trained proficiently on sonography, so we've revamped the training to make it much more hands-on, enabling therapists to train the use of Clarity on real patients. As a result, we've been able to reduce the ramp-up time in the clinic from two to four months with the prostate module to two to four weeks for the breast module.
How much money did you need to raise in order to launch Resonant in 2000, and how have you been able to sustain your start-up during this down economy?
Resonant was founded in 2000, and in 2002, we first raised about $500,000 in seed capital, which we used to run the first clinical trial at McGill and build our first prototype for the Clarity System. Then we raised another $500,000, which we used to finish off the trial analysis and submit the data to FDA.
In early 2003, we raised $12 million to build the professional research and development, regulatory, quality, and manufacturing teams needed to start building the Clarity Systems and get ready to go out in the field.
In 2005, we raised $24 million, which we used to fully commercialize the Clarity System for prostate and to start the clinical trials to develop the breast product. We conducted six trials running simultaneously to prove the different aspects of how the breast module could improve radiation treatment.
We have been able to sustain the company in this down economy by relying on the European market to bring in revenue that we hadn't initially expected. We've also streamlined the processes of the company. With 32 employees, we run everything from company support and sales, all the way through to R&D.
The February issue of the International Journal of Radiation Oncology, Biology, and Physics study shows that the variability in lumpectomy cavity contours between physicians was reduced with the Clarity system in 40% of the 20 women who took part. How did this clinical study come about?
Dr. Ivo Olivotto of British Columbia Cancer Agency (BCCA) was one of the first physicians we reached out to for feedback on the Clarity System because of his expertise in breast cancer and breast cancer treatment. He was very interested in the use of Clarity during the planning stages of radiation treatment. As a result, we felt the BCCA would be a great place to run a clinical trial to show the benefits of 3-D ultrasound at the time of planning.
Speaking of other companies and medical imaging, how much competition, if any, does Resonant face in the ultrasound realm that Clarity focuses on?
There is little competition today in the ultrasound realm. There are three other products for IGRT based on ultrasound. They are all based on taking ultrasound images on each day of treatment and comparing them with the original CT image taken during the planning stages. However, because CT does not show the contrast between soft tissues well, these methods result in a comparison between “apples and oranges,” that is, between CT and ultrasound, which can cause errors in alignment. The Clarity System is the only ultrasound product that compares an ultrasound image at the time of planning with an ultrasound image on each day of treatment, resulting in a comparison of apples to apples. As a result, Clarity is more accurate in determining movements and shape changes from day to day in the anatomy and in the cancerous organ.
Last question. Are you still teaching? What advice would you give aspiring medical device entrepreneurs?
While at McGill I was teaching graduate courses on how radiation interacts with tissue and imaging detectors and doing research, which is where most of my ideas for creating Resonant came from. I also did five years of clinical work. I'm now working full-time for Resonant.
The advice I would give to aspiring medical device entrepreneurs is to make sure you're partnering with the right people. It's difficult to start a company and develop an idea into a product alone. You need to understand the importance of sharing the work, as well as the success that comes out of it. While a successful medical device company may start with a great idea, it's only the first step. You need to find people with other skill sets to develop the idea fully, commercialize it, and enable the product to reach its greatest potential.

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