When John Kornberg joined then-BioDrain Medical in 2011 as an investor, the company had spent the past decade developing its Streamway surgical waste management device and getting clearance to commercialize it in the U.S. But, Kornberg told MassDevice.com recently, it was quickly apparent that BioDrain was stalled, unable to leverage its 510(k) clearance from the FDA into significant U.S. sales.
By the end of 2012, he told us, Kornberg had taken control of the company and ushered in a restructuring so complete that the Eagan, Minn.-based medical device company even re-named itself as Skyline Medical.
What Kornberg could not have seen coming was exit of the dominant player in the surgical waste management spoace, after the 2012 recall of Stryker‘s (NYSE:SYK) Neptune waste management system.
"This is an unbelievable opportunity for us," Kornberg said. "Our technology is really more advanced than anything else on the market."
That’s because previous options relied on a cannister-based approach to capture, measure and dispose of fluid surgical waste. Unlike those older systems, which increase the risk of exposure to potentially harmful surgical waste for patients and caregivers alike, the Skyline’s Streamway system connects directly to the surgical suite’s drainage system. That in turn eliminates the need to collect and empty or dispose of the waste, Kornberg explained.
It’s clear that Stryker’s exit has been a boon for Skyline, which saw its 3rd-quarter sales grow nearly 109%; sales over the 1st 3 quarters of 2013 surged by a whopping 290%.
That’s just the beginning for Skyline, Kornberg told us, as the company is gearing up for overseas expansion during the 4th quarter.
Read on for a transcript of our chat, edited for clarity, in which Kornberg explains the history of Skyline, the difference between the Streamway and its competitors, and how the Stryker recall has affected his company.
MassDevice.com: Can you give us a primer on how you came to be CEO of Skyline?
Josh Kornberg: I was an investor in the company, starting at the end of 2011. By the beginning of 2012, I was unhappy with how management was – specifically, how former CEO [Kevin
Davidson] was running the company – and basically went through the process of removing him and taking the company through a very extensive restructuring. I initially became a board member as an investor in March and as a board member took over as CEO in April and then became permanent CEO and I am now president, CEO & chairman of the company.
MassDevice.com: What were the main drivers of your dissatisfaction with the company’s direction? How did you go about addressing the problems?
Josh Kornberg: A short history of the company is that it was founded in 2002 in Minnesota by the individuals who were trying to develop this particular technology that we’re now manufacturing and selling in the U.S. It took them a long time and a lot of capital, like a lot of technologies and medical devices, and in 2009, they received their 510(k) and went public. So it became a public company and was still based in Minnesota. In 2009, the same year, they received their 510(k). That’s a short history of the company.
The reality is that from that point through the end of 2011 when I got involved, the company had really just been mismanaged. What I did was at the beginning of 2012, when I took over as a director, as a board member, as CEO, I took the company through an extensive restructuring, which means that as of today we have a whole new staff. We have now 13 full-time employees in our office which is headquartered in Eagan, Minn. We have a manufacturing facility and our corporate office is there as well. Those are all new employees we’ve brought on from the beginning of our restructuring process. I have switched all of our suppliers who we deal with. There were various suppliers who were international. We had 1 of our products being manufactured in Mexico and 1 in Asia. I brought all our suppliers for the parts of our technology to be all local to Minnesota.
That did a couple things for us. One, it gave us a lot more quality control. It reduced our cost, and gave us a much better product line. So we’re now running at, going forward, an approximate 80% gross margin at both our capital and disposable products. Again, with the restructuring, it was a matter of a whole new staff; we have a new board of directors, we have a new medical advisory board, we have all new suppliers, we have a technology we spent the past year, year-and-a-half improving.
So when I say restructuring, this is as bare-bones as it gets. We’re in a really good position right now and we have a great team at the company. We have in-house engineers. We have a COO [David Johnson] who has been in the medical device business for more than 35 years dealing with devices, research & development and the FDA. We have a CFO [Bob Myers] who has more than 30 years’ experience in this space and we have a really talented group of people and fantastic suppliers for the various parts of our product line.
MassDevice.com: What are the differentiators for Skyline’s Streamway surgical waste system?
Josh Kornberg: Our technology is really more advanced than anything else on the market. The market right now is, other than us, 100% canister-based systems. We are something that is very new to the market and there are various features that allow our technology to stand out from anything else that’s being used right now. You have to keep in mind that this is a very big market, in terms of the customer base, so this is a big deal to have something in this country that is so different from what people have been using in this country for so many years.
Customers, which are hospitals and surgical centers, have been using canisters, hand-held canisters. They’re glass or plastic and range from 1 to 3 liters. They’ve been using those forever, and it wasn’t until Stryker came along and brought a technology from an inventor that allowed for a more efficient process in the canister space, so they basically took the canister and they made it a mobile canister. That did a couple of good things for the market, in terms of safety and efficiency, and that’s only a very small step from what’s been going on for so long. They’ve been in the market for a very long time and we can get into some of the issues that they are facing. That’s the market right there, it’s canisters and canister-based systems.
What we are is very different from any of those. The features that are easy to highlight are the cost-effectiveness, the efficiency, the environmental component, which is really important in this day and age.
The number 1 feature that our customers talk about and why they like it so much is the safety component. The technology that we have, that we’re selling in the USA right now and going to be expanding overseas in the 4th quarter of this year, takes away the exposure risks to the staff and patients.
We take away all those canisters that are handled by the staff members of the hospital or surgical center – either a hand-held canister, which has its obvious dangers in terms of these fluids leaking or going on a staff member, to the mobile system that Stryker has sold, which is safer but still has that canister component.
We take all that and we just change the market. We put our technology and we install it on the wall of the operating room. No one touches any canisters, there’s no exposure to fluids, and we have a process that takes the fluid from the patient table, through our technology, which calculates the ongoing fluid level (which is important for many procedures) and it takes it directly to the hospital’s system. There’s no risk of that fluid, which can be dangerous in some cases, spilling or splashing onto a staff member.
That’s really an important feature here. When you talk about safety, that’s the number 1 component. In addition to that, infectious control, which deals with safety as well. Our technology is the number 1 technology in the country for any infectious control department, for the simple reason that our technology is installed on the wall of the operating room. It doesn’t leave the operating room. Every other system, the canister-based system, is taken into the operating room. In and out. That is what infectious control is about. It is about managing that process in and out of the operating room.
If you think about the way they dispose of canisters, they dispose of them in 2 ways after they’re filled up after a procedure with fluid. One way is that they add a solidifier to the fluid and they throw the canister, which is now solid, into a red bag, and that’s taken to a landfill. The other way is that the staff members would take the canister out of the room after they’re filled with fluids and walk them down to a separate room where there’s a slop sink. The staff member would then, or is supposed to, put on a lot of protective gear – a whole new suit of protective clothing, shirt,pants, robe, hat, gloves, goggles, numerous items in terms of protective gear – then open the lid of the canister and pour that fluid down the sink.
That’s a very archaic system the industry uses to dispose of the fluid. They’ve been using for a very long time. That’s effectively how they dispose of the fluid. There’s clear,r inherent risk in moving canisters in and out of the operating room and disposing of it in either of those ways.
MassDevice.com: How does the Streamway take costs out of the healthcare system?
Josh Kornberg: We are much more cost-effective than any other product on the market. In terms of direct cost, buying the capital equipment; in terms of our disposables and the indirect cost; and in terms of the labor for handling those canisters based systems, which we don’t.
The turnover time is very significant, especially with the exponential growth of the out-patient surgery centers and the centers that are really trying to be for-profit, and even hospitals, in terms of the number of procedures and increasing that and the turnover time.
In terms of the cost, there is a significant difference between the direct capital cost and the disposable cost and the indirect costs. You have to add the cost from the side of potential spillage. Statistically there are a certain amount of occurrences where staff in the operating room would have some form of exposure, no matter how minute it would be, to the fluid from a canister. There are protocols in place so that when any type of exposure occurs, the nurses have to be immediately treated, have X days off. There is a significant cost to that, in terms of liability.
And if you think about the end of a procedure, taking the canisters in and out of a procedural room. Keep in mind, canisters have a finite capacity. If you look at orthopedic procedures that have high fluid volume, there are cases in which you have to stop a procedure, take out those canisters that are filled with fluid and bring in new ones, in any canister-based system. They all have finite capacity. We have the only system in the country with unlimited capacity. We can handle any volume of fluid in any procedure. It doesn’t matter what the procedure is, whether it’s thoracentesis or an imaging or the ones I’ve mentioned, orthopedic surgeries. The fluid is coming into our machine and being calculated, so there is unlimited capacity.
On turnover time, we have a procedural kit that it used for every procedure. At the end of the procedure, the 2 components, which are a filter and a cleaning solution, are taken off our capital equipment and new ones are put on. At the end of the procedure, a staff member would press a button on the display on the front of the machine and there would be a roughly 3-4 minute cleaning cycle, where the cleaning fluid goes through our machine and cleans all the film from the procedure. The turnover time for our unit between procedures is 5 minutes. If you think about everything I described, the ways of disposal of canister and canister-based systems, clearly there is a significant increase in the turnover time versus our system.
MassDevice.com: Stryker recalled its Neptune waste management system last year. How has that affected the market for competing systems like the Streamway?
Josh Kornberg: I would say the confidence in [Stryker’s] system is clearly eroded and that’s why Stryker customers are switching to alternative products. That’s just a fact, it’s not me telling you that, it’s statistically proven. This is all public information on the FDA website.
As a little bit of background, Stryker bought their technology from the inventor and they’ve been creating different iterations over the years for somewhere between 7 to 10 years, is my guess. They’ve sold a lot of units. I would say 20,000, according to the FDA website. Last year their technology was associated with a Class I recall, so that obviously means patient death. I’m not sure if that was the first 1, but there could have been other cases in the past with their unit. Around the same time, which is significant for our perspective, the FDA discovered they didn’t have 510(k) clearance to actually sell their Neptune device, so that’s why they’ve been out of the market for a while now. That’s why we have been starting to take away their customers. We will do that in larger numbers shortly, because it’s taken time for the market to adapt.
In general, with hospitals there is always a more difficult process for the decision-makers to switch to different capital equipment. It’s just the way it works. Change is not something hospitals like, so to speak. Now that Stryker can’t say, “You know, we’ll fix the problem right away,” it’s been a year almost, the market is now making the decision to go with alternative products.
And there is really only us and 1 other product out there, that product being a product Zimmer (NYSE:ZMH) has that is similar to Stryker’s. We have by far the best technology in the country, but there is really 1 other competitor out there, which is Zimmer’s Dornoch system.
The customers, if you were to call any of them that have been using Stryker for years, have been deciding recently to switch to a new technology. There is no longer confidence in the system. And when you have to use a system that’s associated with a Class I recall, and does not have 510(k) clearance, there is a different process every day that you have to go through. A certificate of medical necessity has to be used, in that case. There has to be a significant reason for a customer to still be using that type of technology. If you’re a hospital that’s not something you want to be dealing with all the time. We’re now seeing calls 6 to 12 months later, after this whole [Stryker] issue occurred, we’re seeing a mass exodus away from Stryker’s unit to new technologies such as ours or the only other competitor on the market.
This is an unbelievable opportunity for us. We’re taking it very seriously. We have spent a lot of time at the FDA understanding what components of that unit are not considered safe, from the FDA’s point of view, so we’ve modified our system in that we’ve put additional safety measures. Not just to make ours stand out, which it does, but because we take patient and staff safety so seriously.
When a staff member is beginning to use our technology for a new procedure, there’s more than 1 step that they go through to adjust the vacuum pressure, which was part of the reason the Class I recall occurred after the patient death with the Neptune system. So we’ve really taken the extra step to work on how we can make ours not only the best technology in this country, but the safest as well.