MassDevice Q&A: Amar Sawhney

Amar Sawhney has a knack for turning gel into gold.

Over the years, the serial entrepreneur managed to leverage his work in hydrogel technology at the University of Texas into the basis for six companies, including one snapped up by Genzyme early in the decade and another that Covidien predecessor Tyco Healthcare acquired in 2006.

Now the 42-year-old is looking to take a new venture, I-Therapeutix, to the next level. It’s also using hydrogels — water-based biodegradable liquids that morph into solids in the body — to develop the I-Zip ocular bandage for healing incisions in the eye after surgery. The bandage is applied as a liquid, but changes into a soft, protective barrier which then breaks down into tears when the therapy is complete.

MassDevice caught up with Sawhney this week to discuss his background, how he made the transition from inventor to CEO and his take on the regulatory and economic landscapes for the medical device industry.

MassDevice: What was your first job?

Amar Sawhney: It was a startup called Focal Inc. I started based on my graduate work in 1992 at the University of Texas. I never really had a job, so I had to build my own. I was the technology founder, not the CEO. Focal went public in 1997 and was sold to Genzyme [in 2001], but I had left by then. I was involved in the IPO but not in the sale; by then I had gone on to start Confluent Surgical.

MassDevice: So your first job was a company you started? How’d you know how to run a company?

{IMAGELEFT:}AS: I started out as a technical guy and of necessity I have become a chief executive. You have to know the business side to start a company. Luckily, I have my friend Fred Khosavri, who is a serial entrepreneur on the West Coast who has served as a mentor for me. We collaborate on all our ventures now.

But starting Focal was a great experience for me. I had to get a job, so I had to start my own company. When things look like they’re unfortunate, it can also be the best thing that ever happened to you. A lot of my colleagues found good careers, but I have been lucky enough to do this.

MassDevice: What’s the biggest takeaway from doing business during this recession?

AS: You have to stay true to fundamentals: Being capital-efficient, being innovative and executing rapidly. If you are true to the fundamentals, capital will always be available and you will not be leveraging any bubble.

Don’t ride waves, because sometime they’re up but they always go down. Too many people get fascinated by the bubbles. When we started Confluent, it was during the Internet bubble. Everybody was running after the latest Internet play, but we were building a successful medtech company with good products.

I don’t raise money because of of my track record. I do it only on an as-needed basis. That’s why we get appropriate valuations. If you don’t become part of these extreme events, than you won’t get dragged down when the extreme events fail.

MassDevice: What long-term effects will the recession have on your business? Will those stick, or can you wait out the storm and go back to business as usual?

AS: We build companies not only to get acquired, but to build businesses that make money in the long term. They’re not just a flash in the pan.

So when questions get asked about healthcare reform and these flash-in-the-pan events, I say, “If you have solid products helping patients improve the quality of life, improve health and reduce mortality, then those products will never go out of fashion.”

Unfortunately, the world tends to ride waves and that can be very seductive. Yes, innovation comes from waves, but sometimes they get over-capitalized and that creates wasteful habits.

A good example is some of the biotech companies that are stumbling around in need of more funding — it creates a “downer” environment. So in this environment lots of good ideas will not get funded, because of mistakes made by irrational levels of funding people did in the heyday.

MassDevice: What advice do you have for people with great ideas who can’t get funding?

AS: They can take comfort in the fact that you can continue to incubate in an academic setting, or wait until the storm passes. It’s always good to launch, but you also have to balance that with waiting for a good environment because entry is fragile. A lot of this is confidence; the actual crisis will take time to flush out of the system, but confidence will go up soon.

MassDevice: We’re in a period of great flux in the medical industry. What do you think it will look like in 20 years?

AS: There are things that have gotten out of control and now the reaction is swinging back on the community. A lot of orthopedic and spine companies were resorting to questionable practices; consequently, the onus is on the healthcare reform effort, which is putting a big burden on companies to comply with new rulings. [The gift ban] is a huge burden on companies. It will make it difficult for Massachusetts companies, because everyone is penalized for the action of a few unscrupulous players.

These new rules are changing the way we do things. Innovation will not go out of fashion, but in an environment where we can’t pay for these new innovations it’s going to be difficult to push forward. There will be changes in the healthcare system, probably where the government provides a base minimum for care. We see that in optometry with procedures like Lasik, where people pay out of pocket for it. I think there will be two poles of healthcare that may evolve towards the government paying base level and if you want premium you’ll pay out-of-pocket.

Innovation will still be there, but how you pay for it will have to change. The biggest barrier to getting markets innovated is not technology, it’s not regulation; it’s reimbursement and getting it paid for.

If you make the greatest device in the world but nobody can pay for it, what are you going to do?

There will always be people pushing the boundary, but how they will get paid will affect what devices are available. There’s no limit to human ingenuity, but it has to have a framework and checks and balances.

MassDevice: How have regulatory rule changes affected training a salesforce?

{IMAGELEFT:}AS: As we get into selling our products, the code of ethics needs to be robustly explained. You can’t do what orthopedic and spine companies have done. You can explain the product, but you cannot pay them to use the product. There have to be clear boundaries. The products have to stand on their own. But the level of enforcement is making it very difficult.

It’s going to be problematic, but we are still planning to be in compliance. The companies with products already in play will have a tougher time with compliance than a company like ours, which is just starting commercialization. Those companies will spend more energy doing this stuff.

It’s like Sarbanes-Oxley in that way for small companies. Sarbanes-Oxley made it very difficult to access to public markets. There is no doubt that something needs to be done, but when pendulum swings it tends to swing to the extreme.

MassDevice: When you’re building a team today, what are your focus areas — R&D, regulatory, sales and marketing, operations?

AS: It varies. When you’re getting started, you need to make sure you have a good R&D, but at the same time you need good operations people. Companies that don’t have that have a very high level of difficulty. It’s like Organogenesis, which made a great product, but they made it at a price that was higher than they could sell it at. So you have to have good operations. We do cost-of-goods analysis at a very early stage to make sure the product can be profitable. You also need good marketing, because you have to get feedback from your customers.

MassDevice: What rules or regulations have you the most concerned?

AS: Sarbanes-Oxley is always out there, because there are only three ways to get to some kind of sustainability. One of them is to sell it, two is to take it public, or three is to build a sustainable, profitable company. Sarbanes-Oxley makes it very difficult to take your company public.

MassDevice: Will the industry ever go from the face-to-face transactions gift bans make so difficult to something that can be done online?

AS: No, not really. These are procedure-specific products. It’s not pills. For years pharma wanted pills and injections that could be done the same way, without training the physicians. But medical devices need training and hand-holding and often the design is improved with physician feedback, so that loop is much more critical for medical device companies. Pharma needs the link with academia and the laboratories; medical devices need the link with physicians.

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