Cook Medical Group and Boston Scientific Corp. (NYSE:BSX) both got their start with catheter-based devices, but the medical device giants’ similarities don’t stop there. As Boston Scientific founder John Abele told MassDevice last month, his firm got its start in an unlikely place: the basement of a Catholic Church in Belmont, Mass.
Cook, the world’s largest privately held medical device maker, had similarly humble origins. Founders Bill and Gayle Cook started their company out of one of the two bedrooms of their Bloomington, Ind., apartment in 1963. Rob Lyles, vice president and global leader of Cook Medical’s Peripheral Intervention unit, told us that the company today employs about 11,000 people around the world and posted sales of about $1.7 billion last year.
In a wide-ranging chat, Lyles filled us in on the company’s start, the impact of gift bans, 510(k) reform and the medical device excise tax and what’s new for his division.
MassDevice: Can you give us a bit of background on how Cook Medical got its start?
Rob Lyles: Bill and Gayle Cook started the company in Bloomington, Ind., in 1963, so they have been in business for 47 years. It’s actually a really cool story, very much an American business success story that became a global success story. Bill had been involved in some dental needles and some other things working up in Chicago and they decided to move back to Bloomington. He had a brother in law that told him about this technique called the Seldinger technique, which was a catheter-based, wire-guided needle technique being done in Europe. Physicians here in the States were starting to do it, but they didn’t have any place to buy the tools. There weren’t really any companies that were making that stuff. So he and Gayle moved to Bloomington and in a two-bedroom apartment — one bedroom was the company and the other was where Bill and Gayle were raising their family — they started making the tools, the catheters, wire guides and needles.
They’d been in business less than a year when Bill and Gayle went to the Radiological Society of North America annual meeting in Chicago and met a physician by the name of Charles Dotter, who is kind of known as the god-father of interventional radiology. He and Bill met and it sparked a friendship and working relationship. It was a physician that had a problem, and a business guy and engineer who had a solution, and they came together and started working, for a number of years until Dr. Dotter’s death in 1985. Interestingly, especially in light of everything we talk about today regarding sunshine laws, Dr. Dotter never accepted a royalty from the company, never made any money off the company. He and Bill were great friends, but he was just a doctor who wanted the tools and had no interest in the commercial side of things.
Forward to today, from one bedroom in Middle America, we’re a very globalized company. We have about 11,000 employees globally, we did just about $1.7 billion in revenue last year, we have nine different business units that serve 42 different specialties of medicine, a very broad offering.
My division is the peripheral intervention division, one of the largest divisions in the company, with about 6,500 products. Cook overall sells about 15,000 medical devices. We do business in 135 countries or so, we have to work our way through about 35 or 36 different regulatory regions globally to get our products on the market in various places.
Today we’re the largest privately held medical device manufacturer in the world, still owned by the Cook family: Bill, Gayle and their son Carl are still the owners and Bill, even though he’s been retired for a number of years, he still comes into the office every morning.
MassDevice: What’s your background and how long have you been with the company?
RL: I’ve been with Cook for seven years. My background came out of some different industries. I’d worked in the medical business for a number of years on the strategic and marketing and consultancy side. My first entry into healthcare came when I spent several years working with hospitals on their strategic planning, a lot of their marketing and PR efforts. I got to know the Cook organization during that time. Then I left that and went outside of healthcare for a few years, was most recently with Royal Dutch Philips on the consumer side of the business. Then I came back and joined Cook about seven years ago and have been riding that rocket ever since. It’s been a wonderful experience.
MassDevice: What do you think is the most pressing issue facing the industry overall?
RL: Without a doubt in my mind, it is innovation. Obviously there is call for change from all quarters. We all see the need to make sure that healthcare is something we can all afford, our children can afford and our grandchildren someday. So we see the need to make it better for patients, with better outcomes, to be more effective and to either limit the cost and/or better utilize the healthcare dollar. It may not even be spending less money, but for the money we are spending, ensure that we can treat more patients and get better outcomes for those patients.
Those are the goals that are starting to create all these pressures in healthcare reform, in looking at conflicts of interest and all of that. What I deeply worry about is what’s getting lost in the conversation, what’s getting caught in the crosshairs is the innovation itself. A story like Cook, especially, a 47-year-old company started in a two-bedroom apartment, now has gone on to create the jobs its created, but more importantly to create the things that have helped patients in the last 47 years and the technologies that have come from that. That’s what I think is the biggest challenge for all of us. The regulatory burden is necessary — we need to make sure that the things coming out of an industry like this are safe and effective, but do so in a way that doesn’t completely squash innovation.
Innovation can be a fragile and tender process. You need the space to be able to do it and you need to let the great thinkers in these areas do the things they do and come up with interesting solutions. When it gets over-controlled and over-regulated, when every time you’re trying to do something you’re staring down the barrel of another five years and another clinical trial, I’m afraid were going to stifle innovation.
MassDevice: What about the looming changes to the 510(k) program? Are those a major concern for Cook?
RL: Absolutely. Although we’re one of the big guys now, we have never lost our sensitivity to being that company that started small and that was and continues to be very entrepreneurial. The observation that we make in this whole thing is that the 510(k) process in general, like any piece of legislation of course, is not perfect. But in general it seems to give the regulators the tools they need. The challenges I hear are that more complicated devices are being put through the 510(k) process. That’s not a failure of the process — the people who administer that process have the ability to demand more data from us, so I don’t know that overhauling it is going to help. Could a Cook Medical start again in 2010? Could you have that entrepreneur and that doctor coming together and figuring it out and then dial forward four-and-a-half decades later to this robust organization that’s created a lot of good health for patients and created a lot of good jobs? The answer, I’m afraid, is ‘no.’
Some people have said to me, "You guys are probably all for it, because it’s a barrier to entry into the market, right?" And the answer is for us is. “No, no, this is about helping patients.”
This is about solving a problem. If this had existed in 1963, we wouldn’t have been able to do all the good stuff we’ve done in the last four-and-a-half decades. In general I would say it’s not a perfect piece of regulation. If they need to look at certain elements of it, sure, but the idea of either throwing it out or doing some radical, radical changes is going to squash innovation and ultimately create a situation in which patients lose.
This is ultimately about patients. We’ve got to get good technology through a process and get it to where it’s safe and effective, absolutely, but if you quell the innovation medicine will slow down. It will not advance at the pace that it can now, and there are so many problems out there still to solve. We want a process that reflects that and can keep up with that.
MassDevice: Is the 2.3 percent medical device tax that’s baked into the healthcare reform act on your radar?
RL: Oh yeah. Like a lot of folks, the impact of that is very real. The most direct line I can connect is that the bill will absolutely cost jobs. It’s very real to us, when you look at a company like ours you’re looking at a $20-million- or $30-million-a-year tax bill that we didn’t have before. And again, the big guys are lucky in that we’re at least big enough that we can navigate something like that. But where it starts to come out is there are some very direct correlations to jobs and the ability to expand and the ability to go and build a new facility in a community that needs jobs.
We do operate a little differently in that we are privately held. At the Cook organization we are very attuned to the communities that we exist in, not only because we all live and work in those communities. For example, Canton, Ill., is town over in the middle part of Illinois, three or four hours from our current facility. It’s a little town that used to have an International Harvester plant years ago. They pulled out and the local economy and the town in general has been kind of devastated since then, it’s literally been in a slump for 20 or 30 years. We just built a new facility in that town.
Why Canton, Ill.? Well, it just happens to be Bill Cook’s hometown. He went back and said, “I want to do something that’s good for this place. We need the manufacturing capacity, we’re healthy, we’re growing.” It’s the ability to go into these places and not just build the plant, but revamp the downtown — which is what he did in Bloomington as well — really take these communities and provide jobs so they can really rebuild themselves and be robust, growing, driving communities again.
How many other Cantons just got pulled off the payroll because now we’ve got to go pay a tax bill of $20 million or $30 million a year? That directly translates into the ability to create jobs, to help set up and foster additional communities that could desperately use the jobs and the help. So yeah, it is a very real impact and a direct-line impact for us. The math shakes out and it just costs you jobs and the ability to expand. It’s just a shame, especially in this economy, because the one thing we need is jobs.
MassDevice: Based on Dr. Dotter’s legacy of never taking a dime from Cook, what’s the company’s policy toward contact with physicians?
RL: We certainly are a company that believes that inventors can be and should be rewarded for their innovation and their invention. In the case of Dr. Dotter, it just happened that he had no interest in that and it was such early days for the industry that it just wasn’t a part of the conversation yet. It was just two good friends changing medicine together and probably not even realizing they were in fact changing medicine.
Dial forward today: Is it appropriate to pay royalties to an inventor for their idea? Sure. We have absolutely no problem with that. It happens in every other industry and there’s certainly no reason that it can’t happen in medicine as well. Obviously it gets challenging, especially for outsiders, both society and regulators and legislators, when they look inside and say, “Wait a minute, that sounds nice in concept but now you’re talking about physicians benefiting from their ideas in medical devices.”
And the answer is, “Sure, yeah.” If we were working on a problem and you need a catheter that can get into an artery where no catheter has ever been able to get to, and the doctor is the one who says, “If you put a tip on it like this, or if you made it out of a material like this so I could twist it just at the last second, it would allow me to get in there better.” Well yeah, that’s his idea and if we can bring that through and make it better for patients and it becomes a product, it’s fair that he would receive a royalty in compensation. Paying inventors for their invention through royalties or any other mechanism, no problem as long as its appropriate and is done to recognize their invention.
The other part of it, in terms of how we interact with physicians, that’s undergoing a tremendous amount of change. Things are changing in that side of the business, obviously with laws in states like Massachusetts and Vermont — and we’re also seeing it on an institutional level in places like Stanford, the University of Wisconsin has a stringent policy these days. Being a private company, we’ve always tried to hold a pretty high bar relative to ethics. We’re not part of AdvaMed, our codes have always been stricter than AdvaMed’s, so in terms of behavior itself it’s not that much of a shift for us. What it does do, though, when you’ve got Massachusetts, that’s one set of rules; Vermont, that’s another set of rules; Stanford, there’s another set of rules: If we’re going to come up with a set of rules, let’s come up with one set of rules, because administering 50 different sets of rules is really expensive. That adds to the administrative burden on us, which adds to the cost of healthcare, ultimately. Rather than having 50 different states making 50 different codes, if in fact this is a pathway where everybody wants to go, let’s just go there once. Get one set of rules that applies to everybody in all states. That way, from an administrative perspective, we can live under one set of rules.
That’s not to say that I or we think the rules ought to be changed as they are. We certainly comply with them. So in a state like Massachusetts that has laws on the books, our reps are very explicitly trained, they absolutely follow those rules. We have an internal corporate code that mandates that and we absolutely comply. We don’t play around the edges on that in any way, shape or form.
Having said that, do we agree that there’s a problem in going out to dinner with a doc to talk about a device? No. I don’t think there’s an inherent problem with that. The relationship that we as device companies have with physicians is unique. I think a lot of people look at it and want to draw a parallel between pharma and medical device. The medical device conversation is about innovation, but it’s also about iteration. It’s about ideas and about solving a problem: “Here’s the problem and here’s a potential solution,” and as you’re talking about the solution it morphs into two or three other solutions that you weren’t thinking about before. It’s an incredibly iterative, interactive dialogue that goes on over the course of weeks and months and years. So the venue for that, a lot of times, is at a meeting: “Let’s go sit down and have lunch and talk about that idea.” Inherently in itself, that doesn’t create any problems, because the exchange of ideas is what creates innovation. Pharma doesn’t necessarily have that level of dialogue, because you’re talking about 18 or 20 years to bring a drug to market and huge, huge clinical trials. What they’re doing is a different animal than devices, where we’re iterating all the time and making adjustments constantly to improve these devices.
It’s been assigned ulterior and poor motives by outsiders, and, honestly, some other companies have acted poorly in this space. But I know the company that I work for and that I stand for has always played it very straight.
MassDevice: What’s new in peripheral intervention for Cook?
RL: It’s just a blossoming market. Estimates in the space, ballpark, it’s a $3 billion to $3.5 billion space right now, growing anywhere from 10 percent to 20 percent a year, depending on whose numbers you look at. Which puts it at an $8 billion to $10 billion market in the next eight years or so. It’s a space with a lot of financial opportunity. That’s because of some key diseases that are really now coming to the forefront in terms of our ability to treat them.
First and foremost there’s peripheral arterial disease. Between the U.S. and Europe, PAD affects almost 27 million people. It is a very serious condition. Your five-year survivability with PAD is worse than several cancers, including colon cancer. It’s actually worse than if you have a heart attack. If you survive a heart attack, your chance of living if you just have coronary disease is longer than it is with peripheral artery disease. So there’s tremendous patient need here.
What that’s colliding with is the Baby Boom generation, which is now reaching its mid-60s. It’s a generation where, and this is true across all of the generations now, diabetes is absolutely at epidemic proportions. Advancing age and diabetes are two key precursors of peripheral artery disease. So you have a populational dynamic that’s hitting right now and then all the other lifestyle factors — obesity is another significant warning factor for PAD; smoking is definitely one of the issues. So all of these things that we wrestle with as a society collide on this issue. PAD is a big deal and it’s going to continue to be a big deal for years to come, unfortunately.
The way it expresses itself is people have disease in their arteries and their legs. It starts with leg pain when they exercise and will advance to where they have leg pain all the time. As it progresses, it will get to the point where they develop ulcers as their leg is essentially starved of oxygen. The muscles literally get cell breakdown.
What we see as the opportunity is to develop minimally invasive devices to treat that. If you had peripheral artery disease problems in your leg 20 years ago, and even 10 years ago in many cases, the only thing they could do for you was to do bypass surgery. Open surgery, highly invasive, with all the pain and hospital stays and risk of infection. In the last five to 10 years or so, especially in the last three or four years, companies like Cook have developed an entire set of minimally invasive tools and specifically tailored them to the periphery. So they’re purpose-built for the periphery. We’re not just taking tools for the heart and trying to use them for the leg.
The procedure kind of breaks into three chunks, if you will. There’s the part where you access the vessel, then where you go in and actually target the part of the vessel where the disease is and then where you actually apply some sort of treatment. That treatment could be balloon angioplasty, it could be a stent, it could be a number of different things. What we’ve done is tailored unique tools.
A specific example is below the knee, in the tibial vessels. Reaching the tibial vessels has always been something that there weren’t really good tools to do. If you had something wrong below the knee five years ago, doctors really struggled to be able to help you, because they couldn’t get minimally invasive tools down below the knee. They weren’t small enough, they didn’t push well enough, they couldn’t navigate. Now we’ve got a set of devices where a physician can literally go up and over the arch where the iliacs start, all the way down to the feet. They can even get into the arteries of your toes now. So opening up those options for physicians allows them to treat patients in a way they never have before, which is a really exciting advance.
The second piece is, once you’re there, treating it. That can take the form of simpler tools, like balloon angioplasty; the stent technologies have improved dramatically in the last several years. Although it’s not approved for use in the U.S., but is in clinical trials, our Zilver PTX is a drug-eluting stent for the superficial femoral artery. We ran the largest clinical trial ever conducted on this space, with a single-arm study with about 791 patients and a randomized trial with another 480 patients. Some of the early work just came out and what that study is showing is that the device is producing better results in the superficial femoral artery than other technologies that have been available to date.
It’s about giving doctors a toolbox because a doctor doesn’t know what they’re going to get into with a leg case. They’re often very complicated cases, they can be very challenging. Several years ago we said, “Let’s develop all the tools a physician would need.” When they go to that case they can’t know everything they’re going to face. It’s just the nature of leg cases, they’re very challenging. There are unexpected twists and turns. So the idea was to have all these tools so that once they come to a challenge, say they’re having trouble getting across the diseased area, they still have other tools they can go to.
MassDevice: You just filed for pre-market approval for the Zilver PTX. What’s the outlook on the timeline for US. approval?
RL: It’s hard to know. We’re hopeful that by this time next year we would have that FDA approval. The submission itself was 43,000 pages. We have a picture of our regulatory folks standing behind a regular table and the two stacks of paper are up to their shoulders. It looks like they’re standing between two skyscrapers.