OmniGuide saddles up for some scale

OmniGuide BeamPath first visited OmniGuide in 2009, when the Cambridge, Mass.-based medical device company was developing the BeamPath laser scalpel, aiming for 2 orders of magnitude more precision than the most precise soft-tissue cutting tool.

Today the company has refined that technology even further and has turned its focus toward ramping up commercialization of the BeamPath device, CEO Scott Flora told us this month.

Since coming aboard last year, Flora has shepherded OmniGuide through a $35 million funding round, built out its commercial and technical team and taken its workforce to 145 employees. When we stopped by, OmniGuide was putting the finishing touches on a major expansion of its facility in the heart of Cambridge’s Kendall Square.

The BeamPath technology, developed at the Mass. Institute of Technology by co-founder Yoel Fink, allows photons from a CO2 laser to glide through the hollow core of OmniGuide’s proprietary fiber. The hollow core means there’s no medium for the laser to travel through, increasing the wavelengths the fibers transfer and creating a more precise beam. At a mere tens of microns wide, the beam is able to pass through flexible conduits into previously inaccessible areas of the body.

When we caught up with Flora and CFO Brad Smith, they told us about their plans to achieve scale for the business, the potential for arming surgical robots like Intuitive Surgical’s da Vinci with the BeamPath laser and how the impending medical device tax is likely to hit their operation. Scott, it’s been about 3 years since we last visited OmniGuide. Can you bring us up to speed?

Scott Flora: Since 2009, we’ve established ourselves pretty decently in [ear, nose & throat], and had an attempt at commercializing into neurosurgery. We thought about the business and decided to build on that base of ENT. When we think about what we want to do to grow this business, it’s like a flywheel approach.

We have a really good ENT business; how do we strengthen that through broader product appeal and leverage that momentum? Go to [urology/gynecology], then go to general surgery. That’s the thought process we’re using, not trying to do everything at once.

That’s how we raised the money. We really want to invest the money in commercial talent and in product design talent, then in some beefing up of marketing and surgeon training and those types of things. I understand that you’ve paired the BeamPath device with Intuitive Surgical‘s (NSDQ:ISRG) da Vinci robot. Are arrangements like that something you’re actively seeking out?

SF: Right now I’m focused on building this business. We have a tremendous opportunity just to build off of BeamPath, build a great business off of that.

Intuitive Surgical, or any robotic opportunity, for us actually helps create a market. When surgeons do robotic surgery, with the need and appreciation for precision, they [see the BeamPath] and just go, "Wow! I’ve got to have this if it’s for the robot."

What we’ve done to date with Intuitive is what we’re really interested in. We want to co-exist with them. We haven’t really used their sales force, and we don’t have any joint-venture project development. We’ve just had discussions with them around, "Here’s what we’re all about, here’s what we’re trying to do. If we’re successful, this could help open up some new markets for you."

As of today, that’s about all we’ve done with them. I’m going to keep my head down and build a really good business, and then things will happen.

There’s a lot of interest in the surgical energy business, because it allows a surgeon multiple avenues of resection, ablation and vessel-sealing. We have a strong play in surgical cutting and then we have plain ablation.

And everyone’s looking for the safest option. If I’m a woman and I’m out there looking for the optimal procedure so I can be fertile again, I want to make sure that’s the safest source of energy used. Any thoughts about getting a strategic to come in as a backer, with an option to buy?

SF: We are never going to say no to those conversations. The phone rings. If it fits we do it. You’ve got to be careful not to let those become distractions to running the business.

If it fits. we do it. If not, we are just going to keep building a great business.

It’s easier to market a very well-built business with real customer stickiness and good penetration in the right markets. Where are you on the path to commercialization?

OmniGuide CEO Scott Flora

SF: We hired a new VP of marketing [Carl Vause]. We were fortunate to get a gentleman with procedural experience out of Smith & Nephew. We hired a new chief technology officer, and she’s helping me with my strategy around systems approach.

As far as commercializing, we have 40 reps today. We’ve taken a look at our strategy and we really want to focus on being more meaningful in influential accounts.

We want to a have more reps in more meaningful areas. We actually think that this is a great way to build the business – have 4 reps in Boston and really not worried about, say, North Dakota. We don’t do the typical small company approach and try to have a rep in every major city.

We’re going to really focus on where can we get impact with top influential hospitals. That builds more procedures per rep, builds more recognition and it builds more opportunities to build [key opinion leaders] – which is the 2nd thing we’ll focus on.

We really focused on building our KOLs in both ENT and GYN. Then any market after that we enter. Surgeon training is one of the things the company hadn’t had a strong heritage in. They just focused on getting the product to market and getting out there, but we’ve discovered, through looking at data, we’ve got to be more attentive on surgeon training.

There’s a real issue now with energy and with safety and with hospitals wanting to make sure the surgeons are credentialed. We think we can actually turn that into an opportunity for us to make stronger ties with customers – not only the surgeons, but the hospital – and offer value [proposition] for the hospital as well around procedure and safety. I think that’s a strong play we can make. We’ve actually put money from the raise into that. So what’s your value prop when somebody asks, "How does this help me take costs out of the system?"

SF: We have a lot of clinical data on the benefit of CO2 lasers – it’s well documented. I’ve asked the marketing team to come back and really build up this value proposition.

When we help a surgeon take down adhesions, prior to getting in to doing the endometriosis procedure, they’ve got to take down a whole wall of adhesions.

Well, with cold steel that takes 4 hours. We’re seeing surgeons do this in 20-30 minutes. That’s a 3½ hour cost savings, anesthesia time, et cetera. We’ve got to put that into a medical economic value. And you can do that. You put a dollar sign on it, and then I think we’re going to have a strong value prop. We have a strong value prop around time savings in the OR, getting people out of the hospital faster, tissue drying. We can do some things leading into [preventing] infections.

I’m really more focused on economic value right now, because there’s enough – once you show a surgeon what’s out there with CO2, they go, "Okay, I get it." But it’s the economic piece we’ve got to really nail. Are there are other technologies you have in the pipeline?

SF: We’re launching a new robotic fiber system. It’s technically our 3rd-generation fiber. It’s as far as we can go with a polymer-in-glass fiber. It’s really delivering optimal results. We’re having surgeons say, "You guys have really, finally nailed this thing. It’s really working very well." So we’ll do robotics, then we’re going to go back and retro-fit ENT and then we’ll go back and retro-fit and bring a next generation of [laparoscopy] out.

Then there are some system things we’re thinking about. There is 1 more research project we’re looking at, which would be the next step in fiber technology. That would increase cutting speeds, and also help us reduce cost, improve yields. That’s the kind of stuff we’re thinking about. We’re trying to be really focused because the money – we spent 6 months raising the money and it’s precious. We want to make sure we’re very focused on what we do. What’s the medical device tax going to do a business like this, that’s commercial but not profitable yet?

SF: I had a conversation with one of our senior board members last week, who came by to see me. He’s a great entrepreneur and the CEO of a very large business here in Boston.

He looked at me and said, "I still don’t understand why the government would tax one of the most successful businesses, where we are still leaders in export. Why do they want to stifle technology?"

We’re going get hit. We’re not even a profitable company yet. We’re going to get hit with this tax – I figure it’s 5 jobs. It’s 5 jobs I’m not going to hire in Massachusetts, which I just think is crazy.

Brad Smith: Here’s one way to look at it. It’s a 2.3% tax on your top line. But really, when you think about companies, ultimately if we get to the 20% operating margin, it’s really like a 10% tax on your earnings.

SF: We can’t plan for them repealing it. We have to plan to pay it, so it’s in the model.

BS: The crazy thing is, you pay taxes when you become profitable. This is just completely in the face of that. It makes no sense.

I call it the de-innovation tax, for the reason that you’re going to take away from jobs or investments in R&D. And you’ve got to put in into this ridiculous tax-out. So what about the argument that it’s going to bring device companies more customers, because of the influx of the uninsured?

SF: The way I look at it, many of those patients are getting care today and hospitals are having to foot the bill to a large extent. Very few actually get turned away.

Maybe we get some benefit. It’s forcing us to start following where care is going.

We’ve got to start thinking about where care is going. I always thought one of the exciting things about this technology is that today we’re heavily rooted in the hospital, but the more efficient and the better systems we develop, do we have to be rooted in the hospital?

Can we make smaller systems that become more modular, so that we can start thinking about office-based and out-patient procedures? That will be a big value inflection point for this business.

YYmeta You’ve been on board for about a year now. How has the transition been, downsizing in a way from running a fairly big operation at Covidien?

SF: In a big way. The interesting thing at Covidien is you’ve got an army of people that are really experienced at medical devices and really deep in strategy. And you come to OmniGuide, where you’ve got a small army of people that really want to learn and really want to be successful in medical devices.

You just can’t just go in the hallway and say, "Run that report, do the strategy for me." There aren’t 50 people waiting to give you all the information you need. You’ve got to help the team here figure out how to look at the right information and get focused on the right things, so we can grow to the scales of this business.

I’m not going to tell you that was easy. I think that was a big learning curve for me. I’m just now, probably, getting the real full swing of how to do that. I had a lot of people warn me, who said, "You know, that’s going to be the hardest thing you’re going to have to deal with."

The other thing, too, is that when you’re running a small company, you have to do a lot with a limited amount of resources. You just don’t have unlimited resources or unlimited compensation tools.

This is really fun. It’s really exciting, because we are building a very interesting company here. Every day that we make a product improvement and every day that a surgeon is delighted by our product, there’s another opportunity for us to think about.

We’re a surgical cutting business that allows surgeons to operate more precisely and more safely, so they can do more and different procedures. We can replace things that they’re currently using, and then we can help them do new, different procedures. That’s a really fun thing to build a business on.

We are at a very exciting point in the company. We worked really hard the 1st half of the year to deliver a nice set of results. We got in the fundraising. The fundraising was a lot of work. Now we’ve got execute to our plan, to keep our heads down. We’re excited about growing and bringing this technology to market.

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