When Systagenix Wound Management, the former professional wound care business of Johnson & Johnson’s Ethicon subsidiary, was carved out late last year, the timing wasn’t propitious. Credit markets were frozen and the global economy was staring into an abyss with another Great Depression at the bottom.
Nearly a year later, it’s a different story. The credit crisis has eased, there are signals that the recession may be coming to an end and Systagenix is on a roll, having engineered the spinout with help from backers One Equity Partners and JP MorganChase.
MassDevice talked to CEO Steve Atkinson, who runs the company from its base in Great Britain, and Americas president Scott Schorer why they settled on Quincy, Mass., for their Americas headquarters and what it was like inheriting such a storied business — Johnson & Johnson got its start in 1886 after Robert Wood Johnson, James Wood Johnson and Edward Mead Johnson began producing dressings in a former wallpaper factory in New Brunswick, N.J.
MassDevice: Systagenix was the wound-care business of Ethicon, which was acquired by One Equity Partners late last year. Steve, can you give us a little background history on the acquisition?
Steve Atkinson: This business used to belong a franchise called Johnson & Johnson Medical. Various bits moved to different parts of J&J and various parts of Johnson & Johnson Medical were sold to other companies. This part of J&J Medical was actually merged with Ethicon, which is the large surgical division of Johnson & Johnson.
If you look at the fit for this business with the surgical business, you’ll see the business didn’t really fit in with Ethicon Surgical for a number of reasons, the first being that it had a different route to market. By that I mean that the target audience for Ethicon products is the surgeon in the OR or the operating room nurses and technicians. Those are the sort of customers that would use those products. They will have some contact with procurement and some contact with GPOs, but its primarily a surgeon sell.
This business sells some products to hospitals but few products to ORs. Within the hospital it would be the ER and general med-surg floors that would use the products. So, first problem: different call point.
Second problem: different channel. These surgery products are sold direct to hospitals or via hospital distribution networks throughout the world. Our products would go into hospitals that way, but the large marketplace for these wound care products is the community.
So first of all, starting with the outpatient department and wound care centers, and then also the nursing homes and home care itself. So as you can imagine, there you’re dealing with a defined group of distributors, a different set of reimbursement challenges and the wholesale network as well. There are all kinds of technical and financial flows in the community-type business which are just more complicated than selling to ORs.
So all told, different call point, different sets of products. These are medical products, not surgical products. With a surgical device the product is typically procedure-specific or it’s highly proprietary. In a medical business, there is far more price competition, more competition on features and benefits and so on, than you would typically see in surgical.
Once you’ve got a surgeon using a specific product and technique, there’s a lot of loyalty to that technique after you as a company have helped teach that surgeon that technique with your device. There is no real proprietary technique here with these products. They’re used to solve a medical condition, typically a venous or a diabetic wound.
MassDevice: And how did you come to be involved with the company?
SA: I’d previously been involved in the leveraged buyout and turnaround of Critikon, another part of Johnson & Johnson [Eds. note: GE Medical Systems subsequently acquired Critikon], and that was a very successful turnaround. I was the European VP and managing director of Critikon.
And so one of the board members of Systagenix was the chairman of the board of Critikon. This is my second LBO turnaround, what we’ll call a J&J carveout. It’s actually CFO David Milner’s third. He was also involved in A Company, the dental division of J&J, as was the board director [Bob Stockman] as well.
So it’s quite a specific part of the industry, is a turnaround and building value in a company, and it really helps to have had previous experience in this area.
Doing what were doing, growing businesses, building a business is great fun. Cutting and stripping a business is no fun for anybody. It doesn’t add value. We’re here to build genuine value for this company and for customers and for all the stakeholders involved. You feel good about that.
MassDevice: Why did you get involved with medical devices? What made it a good fit for you?
SA: I’ve been involved in med devices since the age of 21. I’m 42 now, so I’ve spent half of my living life in medical devices. It’s just a great place to be, because of all the sectors you could choose, in this one you actually know that what you’re doing is making a difference to people’s lives. It’s incredibly satisfying. The better we do, the better the patients do.
SS: I got in initially through a slightly different pathway. I was in the military, I did an ROTC scholarship to pay for school and then was in the military. I wanted to do something high-tech. I liked the fact that it was very high-tech. I interviewed at Ethicon and Ethicon Endo, as well as a number of other medical device companies, and chose a high-tech medical device distributor. Basically, they just drop you in the operating room with very little training; it’s a lot of on-the-job training.
I just loved being in there, because you’re really at the cutting edge of patient care and you have a big impact on helping people. That’s one of the reasons why we do well together here, is that we all aren’t just saying it, we actually believe we’re having a significant impact on patient care.
It’s not just making pencils and paper, or tires. We’re actually helping people. Systagenix is the only large company focused 100 percent on wound care. We make more than a million advanced wound care dressings a day, more than 30 million a month. We’re helping a lot of people.
So it’s not only a financial opportunity, to innovate and do well in your career, it’s a fun environment to work in.
MassDevice: What was behind the decision to headquarter your Americas operation in Quincy?
SA: We were very keen to first of all land Scott Schorer as head of Americas. Without wishing to patronize Scott here, he’s a very talented leader and we can’t deny that was one of the reasons why Boston was attractive to us.
But on a broader level, Boston is very much one of the three hubs, really, for medical devices, those being California, New Jersey and Boston. It tends to be where the available partner technologies are, and a lot of the talent. We knew that we would be able to recruit talented people in Boston for this business. And making a company stronger always starts with the people.
SS: Steve, I though you were going to say, “For the beer.”
SA: [Laughing] There is that too. It’s actually not bad, that beer [Eds. note: The beer in question is Samuel Adams Boston Lager].
MassDevice: How have you gone about defining a new corporate culture for Systagenix? How did you ensure continuity both for former Ethicon employees who stayed on and for Ethicon customers?
SA: The people coming across from J&J are typically talented people, well- trained and very knowledgeable in their field. In this instance, the business just hadn’t been invested in for the past three to five years, and so it just hadn’t grown.
The first approach, really, is we’ve got to get across what we’re trying to do. We’re not here as asset strippers. That’s not what we do. We’re here to build a business and our vision is to be the strongest and most admired wound care company in the world — not necessarily the largest, so certainly there are a number of things people can embrace within that vision. And to change the culture from what was a culture of cost-cutting to a culture of growth.
SS: We’ve been very respectful of the heritage we inherited of phenomenal products. J&J does product development very well and there are phenomenal brands here. We tried to preserve as much as possible while radically changing the culture into a much more focused and accountable culture and, as Steve said, much more rational investment. The people that have stayed are people that really want to be part of a fast-paced, accountable, value-centric culture focused on patient care and integrity. Those who were not comfortable in that environment are not here anymore.
MassDevice: And what about continuity for customers?
SA: First of all, having J&J provide transition services to us, that made continuity inevitable. And it’s not by pure chance that the colors we’ve selected for our logo are red, white and blue — the same as J&J’s colors. So you have that continuity of colors, of brand, but what you’ve got is a much more modern, “techie” feel to our branding. So Systagenix, meaning systems that generate wound healing matrices, and the move just from having a family name as the company. Customers can see that continuity, the familiarity that they recognize, but with a much more modern feel.
And that goes back to what we’re trying to do with the products, where we’ve got these heritage brands that customers love. In spite of all the dis-investment, the business didn’t really suffer as much as one would expect, because there’s such lot of brand loyalty out there. We’re taking all that was good about the J&J story and bringing it up to date in a more modern and entrepreneurial approach.
One of the things we’ve done is create a medical advisory board to help us better understand what it’s going to take for us to win in this space, what the unmet needs are, and to deliver against those needs. We’ve done our first product launch already. This company hasn’t launched a product for a few years. So were already on our way. We’re out of the starting gate.
SS: I would add that as far as business continuity, we’ve had to replace all of the shared services that J&J provided to our customers by building our own, so customer care and finance, were built out. We’re in the process of building out all of the IT connectivity for ERP and ordering that J&J provides their customers. We have to provide a seamless transition plan that will be transparent to the market and hopefully to the customers. That’s a huge undertaking.
MassDevice: What areas did you put the most energy into – R&D, regulatory, sales and marketing, operations?
SA: The operations center, we believe, is already one of the most efficient operations centers in the world. its just a fabulous facility. Obviously, the more we sell the more well-leveraged the overhead in the plan, so our real mission here is just selling, expanding our sales force. Since taking on the company [in December 2008], by the end of this 12-month period we’ll have grown the company headcount by more than 30 percent. Most of that head count will have been in sales organizations around the world.
And also, with expansion of our geography, we’ve opened offices in 13 countries now. We’re shipping to 36 different companies in the world already. We actually do business in more than 100 countries — I didn’t even know there were 100 countries, but apparently there are, and we do. But we’ll be dealing significantly in 52 countries by the time we’re done. Come the end of the year, we’ll be more or less there. There are a couple of outliers — Japan, Brazil, the ones with the long regulatory times — but we’ll be there for the majority of the geographies.
Simultaneously, we’re rebuilding the pipeline, because as you can imagine the business just really didn’t have much of a pipeline. We’ve launched the first product that was in the pipleline, and we’ve actually so far rejected more than 150 new development opportunities. I don’t think the business has ever looked at so many different technologies. We’ve put a number into the pipeline already. So we’ve really started to enrich the product pipeline. Not only do we need to grow our sales force, but we need to give them new stuff, better stuff, better than the competition, to sell. We’re well on our way with that.
We’ve walked away from a number of business development opportunities. We’ve also got a number on the go right now. We’re open to expansion via acquisition as well as through product development. Acquisition could either be a technology-specific company or brand from a company. It might give us better geographic reach. There are a number of reasons why we would do an acquisition. Or partnering — there are a number of partner companies out there as well, people approaching us with partnerships.
MassDevice: How has the recession shaped the business in its first year? What strategies and tactics have you adopted to deal with the economic downturn, and what’s your forecast for short- and long-term prospects?
SA: It was just a challenge. Right when this deal was planned close, we were visiting banks when some of the people in the banks didn’t even know if they’d have a job the next day. It was turmoil out there. We’re very, very fortunate to have JP MorganChase as our biggest banker. Without that, this deal would never have gotten done. 1 think it was the only big deal of the quarter. One Equity Partners, they’re kind of the game in town. We just can’t overstate how lucky we are to have such a fantastic bank and equity group supporting us, because I don’t think other groups could have got this deal done.
SS: We don’t have a lot of information about this, the crystal ball isn’t totally clear, but it appears that the economic downturn is affecting our market. That said, these are chronic wounds, and if left untreated they tend to blow up and turn into a bigger problem. They don’t heal themselves untreated. That doesn’t bode well for their individual health. They will get worse at home and then they’ll need the care.
SA:There was certainly a trend of wholesalers and distributors reducing their stock-carrying levels, and we weren’t the only company affected by that. Some of the large multinationals were announcing that on their analysts meetings, seeing stock levels drop, and we saw the same thing.
MassDevice: What do you see as the next-generation technology in wound care?
SA: Without getting too specific, because we haven’t launched these products yet, we have a very strong position in the actives category, with unique intellectual property. We feel that the wound care clinicians, for various reasons — not only for the benefit of the patient, but for the benefit of costs in time, resource, anything else — that it’s much better to actually heal these wounds than just kind of maintain them.
A lot of patients have these wounds, like diabetic ulcers, they have them for years. We feel that our actives can really make the big difference and if we can get those wounds to heal, that’s not only better for patients but it’s better for the payers and clinics and everyone. Economically and clinically it’s a better outcome. So for us, its not a case of, “Let’s invest in general wound care.” It’s a case of, “Let’s focus on where our strength is,” and our strength is in the more advanced areas of wound care.
SS: Because of the great investors and the strong global leadership team, we’re very focused on rational investment that grows so that should pay dividends in the pipeline as we’re allowed to share it over the next years.
Internally, our R&D team is absolutely second to none. We have scientists who have been with the company for a long time, and in wound care for a long time, and then we have probably the most advanced internal manufacturing capabilities in the wound care market. Especially in collagen processing, which is one of the big product lines.
SA: The bench strength we’ve got in our R&D department, I’d say is probably the envy of the industry. We’ve got a lot of PhD doctorates there who are just experts and we hold a lot of IP in the advanced collagen [oxidized regenerated cellulose] area. That’s where the focus really is.
MassDevice: Have the so-called gift bans enacted in various states, including Massachusetts, affected the way you sell your products? How have you adapted to those new requirements?
SA: Compliance and governance are absolutely paramount. Integrity is absolutely one of our company values.
SS: Simply put, we have a very black-and-white view on integrity and compliance and we don’t play any games. We’re very focused on the values, and they’re very simple. We lead with integrity. Every single person that comes in gets a one-on-one on values. We integrate it into our training. We certify on it. And in the U.S., you have to have certification to go out into a healthcare facility, and compliance is a piece of that.
As we remove ourselves from J&J, we’ll have similar compliance programs to monitor ourselves and our activities. But those laws that are coming out aren’t changing our behavior. They’re tending to change the behavior of people who are not doing the right thing. So we’ll just continue doing the right thing. Those laws are fine, because they’ll hopefully attenuate the issues caused by these people who are buying business.
SA: In a perfect world, for us the decision would be made on the strengths and weaknesses of the products, and the support, the training and education, that’s given to support these products. But it’s not an ideal world, so if we’re already there and our competitors aren’t, it’s their businesses that will be affected. It’s only to the benefit of our business to updgrade to a level playing field.
MassDevice: Let’s assume that some form of comparable effectiveness provision makes its way into the healthcare reform package. What’s your take on how such research should be used? Would Systagenix look to participate in a study comparing, say, negative pressure wound therapy, traditional wound therapy and tissue-regenerative therapy?
SA: Yes. We’re highly confident in the outcomes that our products deliver on both the clinical side and the cost-effectiveness side. Any work which would move people to use more innovative products in order to save overall costs, that would be a boost to Systagenix.
SS: Absolutely. In continuing the J&J heritage and maintaining our philosophy, we’re very focused on data and efficacy, both clinical efficacy and economic impact, and health economics and reimbursement. We feel very strongly that we are not going to put a product out there that doesn’t have market advantages over the competition. The more data and comparative effectiveness research that’s out there, the better. We’re the only company in the market that has a multi-thousand, randomized, controlled trial supporting a product. I believe we have a larger body of research on our products than any other company in the wound care space. Comparable effectiveness can only favor a company that takes a scientific approach focused on patients.