34 min reading time

If you haven’t heard CEO and Founder of Mobisante Sailesh Chutani speak, you’re in for a treat.

His MobiUS device was the very first smartphone device to be cleared by the FDA.

As mobile device companies pour hundreds of millions into smartphone innovations, Mobisante – and its clients – benefit. The smartphone is the computing platform, doing all the number-crunching, the image formation, and the network communication. Mobisante’s work sits on top of it all.

“Before 2008 it would have been technically impossible for us to do what we’re doing. These transitions are fairly recent and that’s why I think people haven’t completely grasped the implications of these transitions.”

As I said, you’re in for a treat. Click to watch the video and read the transcript.

Joe Hage: Great job Mark. Very engaged audience thank you very much. Sailesh will join us in a moment and I’ll take this time while Lee sets up to say thank you to a gentleman who’s not here today. Jeff Bauer designed all my pretty graphics and the like so if you have a need for brochures and things like that, let me know and I can put you in touch with him because he was delightful to work with.

I also want to give a shout out to my cinematographer Michael. He does medical videos and I have some on my site that I can tell you personally has driven business for me. Just a short two three-minute value proposition and people come and they watch and they completely know what I’m about. If that’s in your consideration set I can certainly put you in touch with Michael.

Sailesh, we have Kenny to help you get set up. In the meanwhile I’ll tell you a little anecdote about Sailesh. He and I both live in Seattle town and I had read an article about him in Seattle Business magazine. Now, Sailesh correct me if I’m wrong but as he shared yesterday, he’s a CEO of a company called Mobisante, he’s one of the co-founders. Melissa is here, raise your hand Melissa.

Melissa wrote her doctorate and part of her doctorate was about the product that Sailesh invented. So she signed up and she’s like, “This is really cool I’ve got to meet this guy … and they became very fast friends and they were inseparable last night … but I’m not spreading any rumors or anything like that.

(Laughter)

Sailesh has a distinctive look I think you’ll agree and so when I saw him at a TEDx conference in Seattle that we both attended I was like, “You’re that guy from the magazine,” and we shared a gyro for lunch and, well, before this [10x conference] thing was really planned or anything I said, “I’m thinking of having a conference and I really think people would be interested in your technology.”

With nothing planned, with nothing written … he’s a CEO of a company he said, “Absolutely.” He’s what this group this about. Let’s hear it for Sailesh.

(Applause)

He was at Microsoft if I’m not mistaken in their health group for quite some time. This concept of his took on a life of his own so he found a couple of strategic friends to make it a reality. Are you all set up?

Sailesh Chutani: I think so, yeah.

Joe Hage: Then I’ll stop talking and introduce Sailesh Chutani.

Sailesh Chutani: Good morning and thank you very much for having me here. I’ll try to keep it interactive but I thought what I would highlight for this group is (and most of you may already know that these things are happening) but really put in perspective what in fact [the impact of] mobile technologies will have in the medical device industry. Really addressing the issue of how do you increase access of healthcare across the world while keeping the hang along the cost itself.

Before I do that I want to ask for your perspective. What do you think is behind the increase in cost in the healthcare system? I’m sure all of you have very, very well-informed diverse perspectives so I’m just curious if people want to opine on what’s behind the increase in cost.

Male Speaker: Third party payors

Sailesh Chutani: Third party payors. Others.

Male Speaker: Increase in invasive procedures.

Sailesh Chutani: Increase in invasive procedures. Okay.

Male Speaker: Technology.

Sailesh Chutani: Technology, do you want to elaborate?

Male Speaker: High cost.

Sailesh Chutani: High cost of technology.

Male Speaker: Wages for healthcare professionals and hospital administrators.

Sailesh Chutani: Wages for healthcare professionals and hospital administrators. Okay.

Male Speaker: The availability of more therapies and more things you can do that adds to the cost.

Sailesh Chutani: The availability of more therapies and more things you can do that adds to the cost.

Male Speaker: Cost of regulatory procedures.

Sailesh Chutani: Cost of regulatory procedures, yes.

Male Speaker: An aging population.

Sailesh Chutani: An aging population. Absolutely.

Male Speaker: Not enough focus on prevention.

Sailesh Chutani: Not enough focus on prevention, yeah. That’s a pretty good sample of the kind of things that drive the cost in the healthcare system not only in the US, actually across the world. So I just took a crack at enumerating a few of these and the ones that I want to focus on are what you already mentioned: The cost of devices and intervention itself.

And really where are you providing and who’s providing care?

If you’re providing care in a place like a hospital, that’s pretty expensive. It’s a high-cost fixed-cost infrastructure … anybody walks in you’ve already got a couple of hundred dollars or more in cost. If the people who are providing care are highly-trained doctors physicians, well that’s pretty expensive too.

Obviously devices themselves some of the medical devices you see are fairly expensive. I think the biggest distortion – and this is typical of the US market, not so much in other markets – that you don’t really have a transparent quality or price signal in the market. Payors are not the same as the ones who are using the services so it creates all kinds of distortions and you don’t really have an open market.

I don’t know when was the last time we were looking for healthcare and we could really shop around the way we shop for a car or other amenities. So these things have a way of distorting cost in system.

What I’ll focus on is one element of why are the medical devices expensive? If you look at traditional companies that have been building medical devices I think when they started out and if they had competition needs they had no needs but to do everything custom. If you want to build a handle device like GE does with Vscan well you’re probably doing custom screen you’re doing custom chips. All of these things are fairly expensive.

In order for you to get to market you’ve got to have supplied like TI, Texas Instrument and say, “Okay well, can you build this for me?” These people are used to building things in millions of volumes so if you want something in a couple of hundred or a couple of thousand, I mean that’s pretty much most medical devices you don’t sell more than a few thousand a year, you’re looking at a very high-cost structure for doing all those custom things.

Obviously if it’s a medical device you have to go through regulatory process. You can’t really get away from that. I think that’s the cost of doing business. The things that I want to focus on are the two distortions that come around because historically, medical device companies have really taken the approach that they need to do everything custom because that gives them more control and they think they can get to market faster.

Very often there are gaps between your needs and what you can find in the market. But some of those things have changed in the last five years and I’ll allude to some of those changes that can be leveraged by companies like ours.

The other piece is a lot of the adoption of medical devices came around driven by reimbursement. If you know the devices and the usage is going to be paid for handsomely, you don’t worry about making these things expensive. Because the way you’re selling the devices is, well, you invest $1 million in this fancy infrastructure you pay it off in 18 months and then it’s all profit for the next couple of years.

I think it’s time to revisit some of that because:

There’s tremendous potential in using devices to actually reduce cost and increase efficiencies. But that argues for a very different mindset and a different approach to designing those devices.

Now contrast what’s happened in medical device industry with what’s happened in mobile industry. I think some of you remember 2005 you practically didn’t have many people using smartphones, most people they use smartphones they use BlackBerries and I think people in their 30s probably don’t even know what I’m talking about if I mention BlackBerry or RIMM.

But the fact of the matter is here’s an industry that was driven by essentially consumer adoption and large scale markets. They were able to leverage Moore’s Law to get costs down very dramatically, improve performance and at the same time open up a completely huge new market that people didn’t even think existed.

Just to put things in perspective, I think the number of mobile phones should cross PCs in volume about a year-and-a-half ago and PC market used to be a huge market. There are a couple of other interesting things happening in the mobile industry. Qualcomm came up with a chipset called Snap Dragon in 2008 I believe or 2009 somewhere around there that was for the first time that you could get 1GHZ computing in mobile devices.

Why that’s interesting is when you hit that kind of computation capacity you can start to do real-time imaging on the phone itself. So for all practical purpose of what you have in a phone and things that you’re carrying whether it’s an iPhone or a Samsung or any of those it’s actually more powerful than a supercomputer of 14 years ago.

There is no reason why you shouldn’t be looking at to build some interesting innovative medical devices. There is a very fundamental difference in a phone compared to a PC. These are very personal things you’re carrying on your person all the time plus they have connectivity.

You can start to think of these devices not only as a way to monitor what an individual is doing, but also build some diagnostics around it and I’ll give you some examples of that. Take all this information in real-time and start to make sense for what’s happening in real-time across populations you’re interested in. I think you can imagine the epidemiology possibilities when you have infrastructure like that.

It also opens up a different kind of telemedicine. Traditional telemedicine has all been about having very high bandwidth networks that allow for face-to-face video. I think here we can start to augment that paradigm by not needing high bandwidth video networks but using the low bandwidth 3G or such networks. On devices like these what you’re exchanging there is not face-to-face video but physiological information and really what’s happening with patients’ bodies.

Here are some of the examples of the kind of sensors people have developed in the last few years. This is the kind of research I used to fund when I was at Microsoft and I’m seeing most of these things come out in the market over the last year or so. You can see some example there’s a company called Alive Core they’ve developed a single lead EKG which is really a case that slides under your iPhone and you can do basic heart monitoring.

You have a company called CellScope out of California is another company I used to fund when they were a research project in Berkeley. They have developed essentially an attachment that will convert a phone into an otoscope so you can look for ear infections.

Another company out of University of Washington has developed a way to scan for retina to look for different conditions that can be detected as such. Then you have spirometers, oximeters, blood glucose, weight monitors all kind of things. The point is people have sort of woken up to this concept that you have these very sophisticated sensors that connect to a device like this and get yourself a medical device essentially. A fraction of the cost with some modalities that are fundamentally novel because you have connectivity.

How do these things come together? As I mentioned, the two big cost drivers in the healthcare system are where are you providing care and who’s providing it? To the extent you can move more care out of expensive settings like hospitals and to clinics and eventually to patients’ homes you start to reduce cost. To the extent you can enable mid-level professionals whether it’s nurses, nurse practitioners, and eventually patients themselves to manage more of that provision of care you start to reduce costs as well.

In order to facilitate those transitions you do need different kinds of devices because traditional medical devices for diagnostics for monitoring they have been designed to be used in hospitals by highly-trained professionals. To give an example if you want to go for an ultrasound exam, they will bring this huge card base machine, it’s probably got 15 different controls.

It will require training for about three weeks to really learn how to master how to operate those knobs and controls. You can’t have those kinds of devices if they’re going to be used in an elder care facility or in patients’ own homes to look for bladder volume or look for kidney issues and things like that.

At this point I thought I would transition and give you an example of how have we gone about it? What’s our journey been like? Yesterday I mentioned to the folks from the FDA, we were the first smartphone device to be cleared by the FDA and that was quite a challenge. We were very lucky that the team we worked with was absolutely very knowledgeable about ultrasound. We had to sort of work with them to help them understand how smartphone fits into this picture.

The process itself was pretty expensive and long drawn but I think now things are much easier because as I mentioned those devices earlier, all of these things have gone through the FDA so there is a set of devices that are now predicate devices. If you’re starting out now you’ll have a set of predicate devices that you could claim substantial equivalence to so things are a lot easier.

As Joe mentioned I used to be a Microsoft. I didn’t know anything about medical devices or imaging. I was funding research focused on developing tools that can leverage mobile technologies to improve access to healthcare, finance and education.

I funded a research project at Washington University in St. Louis with David Zar and he developed the proof of concept that led to the product. What was interesting was every time he showed this proof of concept to people we had a line-up of people who wanted to buy this. We got tired of making excuses and part of our brain registered, “This is market validation we should take it seriously.”

Then we got funding from two community clinics in eastern Washington that got us going. The main thing we wanted to look at is can you have … and we’ve discovered a lot of research that has already been done. Currently if you want to do imaging even in hospitals you’re looking at a typical wait time of 45 minutes. Even though they have a lot of devices, they actually have more needs for point-of-care imaging. Imaging right where the patient is rather than having to reel in the devices or taking patients somewhere.

We thought what is the impact if you have true point-of-care imaging right when you need it?

The data we discovered was pretty amazing. An example here is if you have a patient in ICU or in NICU and you have to move that patient for imaging, you’re looking at a cost of $7,000 just for the move. Because you have to untangle all the equipment that they may be on, you have to people who manage the process and a whole bunch of things you have to manage.

If you’re doing line placement the traditional way palpitating a landmark technique you get it wrong and you get pneumothorax infection, the cost of managing that complication can be $70,000. That does not take into account any legal exposure you have because you have a bad outcome and the fact that you have a lot of the resources for which you’re not going to be reimbursed because you’re not longer reimbursed for hospital-acquired conditions.

When you think of the economic equation here, it’s not about reimbursement at all because what are you going to get reimbursed for an ultrasound exam? Typically it’s $50 to $150.

The impact on actually avoiding complication or improving efficiency is a lot bigger. I think that’s the main point I want to get across. There is a huge opportunity here for building devices that can address the efficiency part of the equation.

The other interesting things about ultrasound imaging: It’s not radiation-based so it’s safe. Unlike radiation-based modalities you can actually miniaturize this quite a bit. This is our first generation device that we went to market with last year.

(Applause)

Thank you. You can tell it’s got some interesting modalities I can carry it in my pocket and it’s easy to use. The phone factor is something we’re working on so don’t get too worried about it. I get stopped a lot at customs and immigration whenever I go elsewhere, they’re curious about this.

You can ask why is it that ultrasound is not more broadly available in point-of-care setting?

The three major issues, first the traditional systems they’re very expensive they’re huge and they’re very complicated. I think the issue of complexity probably dwarfs everything else.

What we did we started with the smartphone. We use it as a computing platform that’s what we do. The smartphone does all the number-crunching, the image formation and the network communication. We could do this because of the Qualcomm chips that I mentioned.

Before 2008 it would have been technically impossible for us to do what we’re doing. These transitions are fairly recent and that’s why I think people haven’t completely grasped the implications of these transitions.

The other thing we focused on was since this was going to be a point-of-care device, it has to be really really simple to use. We designed the user interface to be very straight-forward. I can give it to any one of you here I think in five minutes you’ll learn by yourself how to operate the device. Not necessarily how to acquire good images but you’ll learn how to operate the device. That’s a pretty big simplification.

The other differentiator here compared to other handheld devices is we designed around network connectivity. It’s not just the device that takes images, we can take the images off the device using wireless network whether it’s a cellular or Wi-Fi and then manage those images for you.

Down the road we can provide you image management services that go with it and that’s a huge cost-reduction because if you have to manage images yourself, you’re looking at paying tens of thousands of dollars for a pack system plus paying for machines and people to manage that. If the device comes with that, that’s pretty attractive.

Once you have images on the cloud, we can also give you services like 24/7 access to radiology overread. That opens up interesting possibilities as well for ultrasound. It’s already done in CT and MRI. Companies like NightHawk provide overread services and I think we can do the same with ultrasound. That makes it a lot easier for you to do quality control audits and things like that.

So is that a real market? If you think about ultrasound market everybody focuses on the top of the pyramid. That’s the $4 billion market. It’s been a $4 billion market for a very long time. This is a traditional market where machines cost you hundreds of thousands of dollars.

They’re like the craziest super computers, beautiful machines. They can give you 4D imaging. You can see a 24-week old fetus in real-time and make out all the gestures. I don’t know what the diagnostic value of those things are but presumably there is.

What companies like SonoSite did was they moved sort of down the pyramid a little bit. They made the devices more robust, a lot cheaper and easier to use and focused on image and some medicine folks. That opened up a huge market. The company was acquired for $1 billion last year and they had annual revenues of quarter-billion dollars.

I think what we want to do is take this one level further – improve the accessibility a lot, improve affordability a lot and also play with different kinds of business models where people don’t have to necessarily get this modality as a capital equipment but can also take is as an operating expense so where they are leasing through our partners.

We are also providing them services to manage the whole imaging lifecycle. We think that market is $1.7 billion annual market. That’s just within the United States and Europe.

Male Speaker: Are you going to expand?

Sailesh Chutani: You’ve got checks to write? (Laughs) What’s also interesting is that each section of the pyramid the basis of competition is very different. If you are going to sell to the top of the pyramid, you have to compete with those massive wonderful machines. That’s very difficult for an outside to come in and compete with.

We are focused on the underserved market where our current competition is people are either not using ultrasound imaging at all, they’re doing guess works. For line placement they’re trying to palpitate or use landmarks. It’s a fancy way of saying, “Try to figure out where the vein is before you stick something in.” We’re giving you imaging where you take the guesswork out of that.

Or we’re focused on segments where currently there’s a lot of resource contention where there are so many hurdles before you can get hold of an imaging device for your purposes. That’s in the point-of-care settings in hospitals. I think that’s very critical if you’re going to go in this market you really want to make sure the segments you go after you have some advantages and incumbents can’t just destroy you because you don’t want to play by their rules necessarily.

What does that mean from a systems perspective? Essentially if you have very expensive equipment, you have only a few institutions and few people in those institutions that can afford it. Say hospitals you’re looking at thousands. If you change the affordability you can target providers like doctors. That’s in order of magnitude. If you improve this even further now you’re talking of nurses, nurse practitioners and eventually healthcare workers. That’s a pretty big market. Now you’re looking at consumer electronic style market here. That’s a pretty different way of thinking about medical devices.

If you have been in the medical device industry, the timeline here would come as a surprise to you. I think that’s another element. If you’re able to leverage consumer electronic technologies, I think you can shrink your time to market pretty dramatically not to mention the cost of goods and the operations infrastructure you have to put in place.

We started in December, 2009. We prepared our FDA submission very early in 2010. Got in January, 2011 and we launched in November, 2011. It was 18 months from the time we were a proof of concept through the FDA and in the market. That’s quite dramatic for a medical device. I think part of it is that we really focused on leveraging existing infrastructure not having to design from scratch. That’s an opportunity a company five years ago didn’t have. We were fortunate that our timing from a technology perspective was pretty good.

This is an evolving device. The beauty of it I can keep offering better quality, better image quality, better resolution more or less for free.

Last month we launched a tablet-based product. Now a tablet gives you four times larger screen, twice the resolution, higher frame rate so that you can do even more interesting cardiac imaging. I didn’t have to do a lot of work. I had to essentially port myself for a stack to work on a different platform and my FDA clearance was for both of those devices.

I’m getting this leverage from an industry that’s investing tens of billions of dollars in proving the platform. I can essentially offer the same benefits to my customers for better image quality and as these devices get cheaper, I can pass the savings on to you as well. That’s a pretty interesting dynamic to be able to leverage.

How that translates if you’re trying to build a company or a business is your capital needs are significantly lower. Without giving the numbers, I can assure you I have raised in order of magnitude lower capital than a typical medical device company at my stage would have. It won’t have been possible if I had done it the standard way.

Because this is kind of crossing boundaries between consumer electronics, medical and ultrasound imaging, you do have to pay attention to what sorts of people you have to have onboard. It is not a very traditional team that you bring onboard, you have to bring different perspectives. This gives you an idea of the kind of people we have onboard.

Marcus Smith, he was the CFO of SonoSite. He was the one that did the billion-dollar deal with Fuji. And SonoSite knows the ultrasound industry really, really well so he’s our CFO and Senior VP of Corporate Development.

David Zar was the PI at Wash U and he’s been working on ultrasound technologies for 20+ years so you need that deep technical expertise on ultrasound.

And then Jeff Baker he comes from a point-of-care selling background. He was with EPOCAL and i-STAT where they figured out how to solve point-of-care of blood diagnostics into hospitals.

Again you need that perspective. Our Chief Medical Officer, Dr. Younggren, he was in the US Army for more than a decade and he pioneered the use of ultrasound by medics in the battlefield to be able to do quick look and triage. And how do you train people to use technology like this to really help improve their efficiency and effectiveness in the field. That’s pretty important because some of the markets we’re going after have exactly the same characteristics.

My background is really in the software industry but doing a lot of new product services, turnarounds and such.

I think together we’re able to get our heads around some of the problems we have to deal with. It also helps if you’re the first one to do something that people think is science fiction. The way it helps is you get a lot of very interesting media exposure. Most people think we must have a million-dollar marketing budget. I assure you, and Joe knows that, we don’t.

But the story is compelling. People see devices like this they can say, “Yeah that’s where the healthcare industry is going to go and that’s the kind of impact it’ll have.” We also won a fair number of awards national as well as international.

I think part of this is this evolution is inevitable. If it wasn’t us it would have been someone else. You can see this in industry after industry.

I’ve given an example of the computing industry because that’s what I know best. You had large mainframes, then you got minis, laptops and now you’ve got things that can fit in the pocket.

Similar things you can join the dots in the ultrasound imaging industry as well. You had the mainframe equivalent, large card-base systems then you had the laptop-style thanks to SonoSite then you have devices like ours.

So this is pretty inevitable and what’s important is when these transitions happen with every jump in form factor and affordability, you’re talking about opening up a fundamentally new market that’s a lot bigger than the traditional market and you customer base expands. It’s not the traditional uses these are new uses you didn’t even think existed.

So this is a classic Clayton Christianson innovators I don’t know if you’re familiar with that that those kinds of innovations really … as in the computing industry, every time you had a change of paradigm, the leaders in the new paradigm are not the same as the leader in the old paradigm.

So there’s an opportunity for new companies to get started even though you look at regulatory environment, the financing environment, it can be pretty depressing. But fact of the matter is you can still get things done and create a lot of value. The world does catch up with you eventually so you just have to have enough patience and foresight to hang in there.

I want to leave with just a couple of examples. How are we doing on time Joe?

Joe Hage: We’re doing fine.

Sailesh Chutani: Okay so I’ll give you some example of why I think this is becoming a large trend and it’s not just a couple of isolated companies. If you’re familiar with TedMed, it’s a medical conference that brings in the top leaders from around the world. The last one took place in Washington, DC a couple of weeks ago.

They set up a booth called Smartphone Physical where they had medical students essentially doing a complete physical exam using technologies that worked on the smartphone itself. So I’ll take you the website so you have a sense. I’ll show you some of the devices. Okay, this is an example of the blood pressure monitor. I’m feeling a little bit challenged here, give me a second please.

For a former Microsoft person I should know better, right? (Laughter)

Joe Hage: What an embarrassment. (Laughter)

Sailesh Chutani: So some of the devices I showed you, actually let me just go back again. Hopefully I’ll know better to navigate. If not, I’ll do what I did before. So you can see there’s a way to measure what’s happening in your eye. Being able to do actually do a complete eye measurement. Instead of going to an ophthalmologist where they have these massive machines they have figured out a way to compress it down to a very tiny form factor.

You can see the implications for emerging markets smaller clinics where you can afford these sorts of devices. This one you can carry to the exam right away, it works beautifully.

Then you have companies like Qualcomm that make the chips that go in your cellphone they have launched this thing called the X PRIZE, the Tricorder X PRIZE. The idea here is, if you’re familiar with Star Trek, they have these small devices that they scan and tell you what’s wrong with you. And Qualcomm thinks that’s actually feasible today with a little bit of innovation so they have a $10 million price and it’s open to companies, research groups who come up with a way of capturing in a very small factor, a small form factor, a phone-based form factor, a way to determine what’s wrong with someone by essentially non-invasive measurements.

There are some serious teams that are competing in this price. You can tell that in a couple of years even if nobody wins the price, it’ll drive a whole series of innovation in making diagnostics easier.

And I’ll show you a video that was featured at Ted Intel. So Intel organized a Ted-style event internally and Eric Dishman who is the head of all of the healthcare initiatives for Intel he demonstrated how technologies like ours could be used to enable more of the healthcare to move out closer to the patients. So rather than me explaining, let me jump into the video. I’ll show you just a clip and not the whole thing.

(Video Plays)

Eric Dishman: I want to share some personal friends and stories with you that I’ve actually never talked about in public before to help illustrate the idea and the need and the hope for us to reinvent … who just take it and not ask any questions. Now the problem with this model is that it’s unsustainable globally, it’s unaffordable globally … we need to invent what I …”

Oops, he’s mostly critiquing why the existing system doesn’t work. I think the network here is not too happy.

“… called a personal health system. So what does this personal health system look like and what new technologies and roles is it going to entail? Now I’m going to start by actually sharing with you a new friend of Libby somebody I’ve become quite attached to over the last six months. This is Libby or actually this is an ultrasound image of Libby. This is the kidney transplant I was never supposed to have.

Now this is an image that we shot a couple of weeks ago for today and you’ll notice on the edge of this image there are some dark spots there which is just really concerning for me. So we’re going to actually do a live exam to sort of see how Libby’s doing. This is not a wardrobe malfunction I have to take my belt off here. Don’t you at the front in the front row worry or anything. (Laughter)

I’m going to use a device from a company called Mobisante this is a portable ultrasound. It can plug into a smartphone, it can plug into a tablet. Mobisante is up in Redmond, Washington. They kindly trained me to actually do this on myself. They’re not approved to do this; patients are not approved to do this. This is a concept demo so I’m going to make that clear. I’ve got to gel up now the people in the front row are very nervous.

I want to actually introduce you to Dr. Batiuk who’s another friend of mine. He’s up in Legacy Good Samaritan Hospital in Portland, Oregon. So let me just make sure hey Dr. Batiuk can you hear me okay? And actually can you see Libby?

Dr. Thomas Batiuk: Hi there Eric, you look busy. How are you?

Eric Dishman: I’m good. I’m just taking my clothes off in front of a few hundred people. It’s wonderful. (Laughter) So just I wanted to see is does this look the image that you need to get? And I know you want to look and see if those spots are still there.

Dr. Thomas Batiuk: Well let’s scan around a little bit here give me a layout of the land. Okay, turn it a little bit in the inside, a little towards the middle for me. Okay, that’s good. How about up a little bit? Okay, freeze that image that’s a good one for me.

Eric Dishman: All right. Now last week when I did this you had me actually sort of measure that spot to the right. Should I do that again?

Dr. Thomas Batiuk: Yeah let’s do that.

Eric Dishman: All right. This is kind of hard to do with one hand on your belly and one hand on measuring but I’ve got it I think and I’ll save that image and actually send it to you. So tell me a little bit about what this dark spot means. It’s not something I was very happy about.

Dr. Thomas Batiuk: Many people after a kidney transplant will develop a little fluid collection around the kidney. Most of the time it doesn’t create any kind of mischief but it does warrant looking at. So I’m happy we’ve got an opportunity to look at it today make sure it’s not growing or it’s not creating any problems. Based on the other images we have I’m really happy how it looks today.

Eric Dishman: All right. Well I guess we’ll double-check it when I come in. I’ve got my six-month biopsy in a couple of weeks and I’m going to let you do that in the clinic because I don’t think I can do that one myself.

Dr. Thomas Batiuk: Good choice.

Eric Dishman: All right. Thanks Dr. Batiuk. All right, so what you’re sort of seeing here is an example of disruptive technology. It’s a mobile, social and analytic technologies. These are the foundations of what’s going to make personal health possible. Now, there’s really three pillars of this personal health I want to talk to you about now and it’s Care Anywhere, Care Networking and Care Customization. You just saw a little bit of the first two with my interaction with Dr. Batiuk.

Sailesh Chutani: Okay, so you get a sense for what’s possible. I mean if you were in a research environment five to 10 years ago to make that demo possible, you would have spent a fortune to do real-time remote ultrasound. We could do that with commodity electronics no set up at all …

Joe Hage: Who else in this room just wants to clap right now? Was that awesome?

Sailesh Chutani: Thank you. And then there are also organizations like HIMSS and NIH who are taking this trend pretty seriously. mHealth Summit started a couple of years ago, NIH was a sponsor. Now HIMSS has taken over because it’s become so big. And this is one of the best forums that brings together not only innovators, the policy makers, regulators and companies and it just keeps growing. So this is a pretty real trend and worth taking seriously.

So I’ll wrap up so we can do some Q&A. I think this is going to be a completely new generation of medical devices what I showed you as the first wave. But there will be very interesting things coming down the road. They will be designed for a different use model and a totally different business model as well. Reimbursements will play less of a role, it’ll be about improving efficiency and increasing access.

And quite frankly it’s an opportunity for new companies to play because I don’t think the established players would be as actively involved in the early stages because it’s a different business model and that’s good. I think eventually a lot of these companies will acquire smaller companies but the discovery and the development of the market will probably be led by start-up companies. And that’s a good thing I mean it keeps everything very dynamic.

So happy to take questions.

Joe Hage: That was awesome, Man! (Laughter)

Sailesh Chutani: Don’t you love Joe as a cheerleader? (Laughter)

Khalid Kader: Khalid Kader from … well, I’m going to ask you the question as a Navy engineer. The defense have they started the acquisition at all? Defense …

Sailesh Chutani: We are under trials at places like Madigan we have talked to folks at Fort Detrick.

Khalid: Out of the Navy.

Sailesh Chutani: We haven’t had any direct contact with Navy yet but …

Khalid: Can we talk later?

Sailesh Chutani: Absolutely. Something to keep in mind if you’re a small company and you have to do business with the government you have to get on GSA Schedules … very expensive; painful. So you’re better off finding a company that already is on Schedule and they can yeah.

Unless you have Special Ops guys they can work around a whole bunch of things. (Laughter) Other questions?

Joe Bjorklund: I’m Joe Bjorklund, Sailesh. We actually have run in very parallel circles in our careers. I was a part of the early management team at SonoSite …

Sailesh Chutani: Oh okay.

Joe Bjorklund: … and also Ultrasonics. But I wanted to ask you because one of the things you’re going to face and I’m sure you already have faced is you have to manage expectations all at the same time while really working against some really headwinds. And what I’m really wondering about is have you gone about, obviously when you come with a whole new paradigm like this, there’s a real establishment that’s going to push back when it comes to there’s a lot of money in ultrasound education.

There’s a lot of existing money in the current paradigm in terms of wanting to push a certain image quality. How do you manage the expectations and really the perception that there’s a lot of interest in the market to identify this as a toy and not as a true clinical device? I’m curious how you’ve gone about that.

Sailesh Chutani: I think that’s a great question and it’s something we grappled with when we started and we’ve grappled with. It’s helped us figure how you position ourselves in the market so we’re very careful in being upfront saying, “This is not a replacement for your existing high-end infrastructure. It’s not a replacement for those hundred thousand dollars, $50,000 machines but it’s giving you imaging where your current choices are limited imaging or no imaging whatsoever. So it’s really point-of-care imaging and it’s focused on quick look in triage and guided procedures.

If I go back to the slide here. This slide is pretty critical. If we played in the first or the second level of the pyramid we’ll lose. That’s a game we can’t win because GE or SonoSite control a lot more money. But what we find is there is a pretty underserved segment out there. So an example would be pick lines, central lines, nurses are the ones doing these procedures. And you want to make sure every one of them has a device that allows them to get it right the first time.

It’s very difficult to justify a $40,000 commitment for each nurse or doctor in the hospital. But if you’re looking at say, a $10,000 device, that’s a very different game especially if you make it also easy to manage images in the whole process. No, you’re absolutely right, if you’re playing in the top two layers of the pyramid, it will play out very predictably. The big companies will essentially make it very difficult if not impossible for us to win. And we’re being very careful and not doing that.

Barb Peterson: Fabulous! I think it’s a great idea so here’s my question. Who pays for it today? And so the patient had it and he sent the image to the doctor. Are the doctors going to read it if they’re not getting paid to read it, what’s the liability and then how are you dealing with HIPPA issues?

Sailesh Chutani: So the first thing I should mention is that was a proof of concept. That’s not how the device is being used today. It’s sold only to medical professionals so it’s a regulated device. It’s not sold to consumers it’s sold to medical professionals. Because it’s ultrasound, you can use the existing CPT codes, we didn’t have to get new CPT codes. If reimbursement if important, and a lot of physician practices it is important, that’s how there’s no issue.

If you’re in the hospital environment you’re already under DRG system so that’s how the payments get done. But it’s a standard ultrasound device there’s no different. There is a subset of things that for example we don’t have Color Doppler so there are CPT codes rather Color Doppler procedures that don’t apply. But for standard B Mode ultrasound all the regular CPT codes apply.

Male Speaker: Sailesh, I think your innovation ingenuity is mind-blowing and I think you’re building markets in a very amazing way. I wanted to ask you, have you looked at this in the context of combining the imagery with a geographic information system? And do you see any specific applications for that? I was thinking tumors storing tumors on a geospatial mapping array potentially in terms of tracking types of disease. What do you think?

Sailesh Chutani: You know a lot of our IP is around those areas so I can’t give you a lot more details but absolutely. I mean that’s what connectivity enables you. Not only do you have information in real-time with the image related but the device is capturing a whole bunch of other data. It’s location data, other data. We thought very deeply about what will be interesting ways of leveraging the connectivity. I think for epidemiology that becomes very relevant.

But to get there you have to have enough presence in the market, you have to have enough of these sensors out there that are being used by providers. But I would say three or four years from now that will be the way you track diseases because you have people doing stuff in the community.

Dov Gal: I didn’t introduce myself before. My name is Dov Gal and I’m here as a consultant doing clinical research and regulatory affairs for a medical device company. I have a question and a comment. 15 years ago I was involved with a company with a very very innovative approach basically using electromagnetic field adopted from pilot cockpit technology in order to guide biopsies using ultrasound.

The challenges that we faced were it took us five years after we started commercialization. And challenged I’m asking you have you addressed them are training and the liability issues because you’re attracting a market, if I understand correctly, where ultrasound expertise is not the highest. So how are you going to ensure that images that are taken by people using your system are interpreted in the right way? There are a lot of liability issues there.

The other thing that we faced was the challenge of getting from the early adopters into the broader markets. So if you have addressed these two issues in your plan that’s the question.

Another comment is with the mobile health moving forward, I can see how if you could design applications where you have a problem that is fixed on certain areas then you can submit data from patients using telemedicine. Have you thought about that?

Sailesh Chutani: Okay, great question. I think your first question was around training, product liability. There are three levels of complexity in ultrasound. One is how do you operate the device? How do you do the right thing to acquire diagnostically useful images for what you’re trying to do? The third bit is how do you make sense of what the images are telling you?

The third one is the hardest and you’ll always need extensive training in the foreseeable future. Well the doctors, radiologists will have to do that, stenographers. We have solved the first problem – made it really easy operate the device. There’s a huge group of people who are solving the second problem – how do you develop very simplified acquisition protocols?

We’re not talking about being able to do a broad range of diagnostics. If I want to teach someone how to distinguish abscess from cellulitis, that’s not a very complicated training protocol because you’re looking for fluid – fluid lights up very nicely. Then you talk about training the mid-level professionals, we’re talking of taking very targeted, very narrow procedures.

The training for that is a couple of hours and then some number of supervised procedures and then you check off. Different hospitals have different requirements before they’ll let their professionals use ultrasound. So that’s one thing to keep mind.

In terms of being able to diagnose things, that I think in the foreseeable future you will need experts. The way our device helps us if you have standardized image acquisition protocols, then a remote expert, radiologist could do that for you they could do the diagnosis. We ran this experiment last year. We had a group take our device in Sierra Leone and they screened about 300 patients there.

We set up an overread service with the radiologist at the hospital in Seattle and 12 of those patients were referred for an expert opinion. I think three of them were taken for an emergency intervention that saved their lives. So the model actually works quite well. When you have connectivity you can leverage the fact that the expertise you need for diagnosis may not be present where you are.

And there are companies now that focus on training all kinds of professionals. Their fellowships out there, in fact, our Chief Medical Officer he used to run a training organization like that and he trained the medics in the army. But it is a pretty significant issue you have to handle but we don’t have to do it on our own. I think there’s a partnership we can create with other companies.

And that’s an advantage that I think that SonoSite didn’t have when they started they actually created all the training materials. We are piggybacking off the things people have already done. Important when you’re a startup you don’t have unlimited resources. Very finite resources.

Todd Staples: Morning Sailesh. I’m Todd Staples. We haven’t been introduced yet but I’m a sales and marketing channel consultant. I deal with startups like yours all the time. You know I think it’s really exciting the product that you have. I think what excites me more about the product than anything else is the fact that you’re doing a lot of the innovation and the approach on a business model.

So business model and innovation is every bit as important as technology innovation in my thinking. How you implement that and how you disrupt the market with that is really a huge factor I think in your ultimate success. In my opinion I think you’re probably maybe a year even a year early. So it may take you another year before you really get the traction you want but it’s just awesome to see that you’re so on …

Sailesh Chutani: Well we haven’t solved all the problems or discovered all the answers. I think what I can assert with some confidence is, we are as likely if not more likely than anyone else to get there because we’re in the market. This is what we live and breathe. There is no other distraction. We don’t have large businesses to worry about cannibalizing and we live and die by this. If you don’t sell don’t succeed there is no paycheck. So there’s a lot of motivation to make this work.

Todd Staples: Absolutely. Well I have a lot of questions but I’ll just limit it to one. With so much emphasis on a startup and getting that initial traction you need to get the attention to get the revenues built up quickly. All the issues in the US with the FDA and HIPPA compliance and all the other things, clearly there’s a large population worldwide of patients that are managing chronic illnesses from home that could benefit from this technology just like you showed in the video. Why the US as an initial entry?

Sailesh Chutani: Well when I started the company my initial focus was emerging markets. I used to run businesses for Microsoft outside of US. I had a realistic idea of how difficult that is. I learned very quickly that for medical devices the level of complexity is even higher. You have to not only worry about IP issues, you have regulatory issues. You have to have connections with the local healthcare ministries you have to know the politics. It’s very complex.

So as you go deeper you find it’s not the ideal answer when you’re starting out. And the second thing is we would have to be there locally. If I was going out to the Chinese, Brazilian or the Indian market I would have to essentially move there and make sure we are in that context right. Otherwise very hard to do things remotely. Just sending people for one business trip takes away your margins.

So we’ve sort of stepped back and decided to focus on the US market because of that. And we also discovered there are a lot of underserved niches in the US market that are very attractive. The whole guided procedures I’m happy to give you more details offline. I mean we found lots of niches that are underserved that are very attractive that we can serve adequately today and well today.

And then that gives us revenue streams, that gives us economies of scale that allows us to build up more clinical evidence base. All these things are going to be critical as we are ready to go international. And the other thing we hold off from going international is finding the right partners who have the ecosystem understanding of the relationships. And they will have a vested interest in making sure our IP doesn’t walk out of the door.

Terry Mandel: Terry Mandel, BioMedLink. Improving access to affordable biomedical innovation in the developing world. Thank you, perfect segue.

I had a similar question. If the underserved markets you were looking at were, of course there’s lot of niches yet in the developed world and the developing world obviously is a much, much bigger opportunity in terms of numbers. My question had to do whether you felt like, and it sounds like you do, that at some point your pricing structure or your financing mechanisms will make it possible to really work in very, very low research settings because now as you know 85 to 90 percent of the world is already able to connect.

Sailesh Chutani: No, absolutely. Absolutely. I think there are two things we’ll have to get there. One will happen which is that as our volumes and market presence increases here we’ll be able to reduce prices further and make the product portfolio more robust and complete. Have some of the functionality that’s needed.

The second piece I don’t control but I think it actually holds the field back. A lot of organizations the NGOs that cater to the underserved community, they’re very used to having everything given to them for free. Which means that if you’re a company trying to build products to serve their market, you’re out of luck. So that’s a dynamic that I think will have to change because if it doesn’t change there’s nothing that companies like ours can do to really serve those markets. Absolutely.

Tom Kramer: Hi Tom Kramer from Kablooe Design. I wonder if you could comment on two hurdles that you may have had to encounter when you were on this journey. The first that Apple doesn’t allow any medical device apps for their devices. And the second question is how difficult was it to get HIPAA-sensitive data … did you get FDA to allow you to have HIPAA-sensitive data on the cloud?

Sailesh Chutani: We don’t work on iOS today for the precisely the reason you articulated. Actually the technical limitations currently iOS doesn’t have support for USB host meaning that’s number one. Now we have a way to work with Apple devices down the road that we’re working on because that’s an important class of devices in the US market at least.

The other thing in order for us to get through the FDA we had to establish that we’re HIPAA-compliant so we had to show … and we are. There is a lot of security that you have to manage properly. We don’t have the cloud yet that’s something we’re working towards as part of our next product rollout, but we have the ability from the device to send the data in a HIPAA-compliant secure manner to either a system that can archive or to a person who can provide you with overread. So that works out of the box today and it’s completely HIPAA-compliant.

Fergus Fleming: Hi just one question. Are you looking at other sense of modalities to integrate and to supplement the ultrasound?

Sailesh Chutani: Yeah, absolutely.

Joe Hage: Oh pardon me. I’m so excited I knocked over her coffee. Just hold on a second. I wasn’t counting on a one-word answer. Here you go, Terry. (Laughter)

Terry Maytin: Great presentation. Terry Maytin, Gyroscope Digital.

Sailesh Chutani: I just had my FDA audit last year so I’ve become trained in giving yes and no answers and then keeping my trap zipped. (Laughs)

Terry Maytin: Great presentation.

Sailesh Chutani: Thank you.

Male Speaker: You showed a slide earlier which is very interesting showing how you’re expanding the concentric circles. To some extent you had white space there you have nurses and I assume you looked at EMT workers potentially and that kind of care of care setting. What I’m curious about is when you have people like Vscan as a competitor, what thought process, without going into any great details, do you have about how you consider your product pricing? So you don’t have the money to go into extensive HUR studies that sort of thing but what sort of inputs do you use?

Sailesh Chutani: Okay, so you’re asking me a couple of related questions here – how are we competing with Vscan? That was number one. One thing I have to say if you’re a startup company and you’re a big company that goes into market with products that look like they’re solving the same problem that’s actually a good thing. It validates the market. There’s no way I would take out Super Bowl ads or Winter Olympic ads like GE would and that’s wonderful.

So before GE launched Vscan it took me a lot longer to explain to people what we were trying to do. Afterwards it was much simpler. And it’s a pretty big market so I don’t think having big players is a bad thing. I think it’s actually a good outcome.

The approach is very different though. I mean GE is still building those devices in a traditional manner. They have to worry about self-cannibalization although in the emerging markets that’s less of a factor. I’ll give you specific example a Vscan you have only one translucent frequency and that’s Fake Stripe. We can swap transducers, we support four or five different kind of transducers that cover the complete clinical range because we think it should be a solution by itself. Vscan doesn’t have network connectivity built-in so that …

I think it’s just a very different approach to the market. And I’m sure they’ll get to the answer as well but if you are a smart ambitious engineer in GE, chances are you want to work on high margin product units. This is a very classic dynamic. So we’re counting on some of those factors to play out. But it’s a good thing that GE has validated the market I think that helps. Absolutely.

Carl Rosner: I’m Carl Rosner; CardioMag. You’ve done a great job in explaining all of the pitfalls that you had overcome. But since SonoSite seems to be a leader and they already are acquired for $1 billion, don’t you think that within the next year or two somebody will approach you with an offer that you can’t refuse?

Sailesh Chutani: Yeah, why not? That would be fine by us.

(Laughter)

So the follow-up question was what are we doing with medical societies? So we are in the process of identifying a small group of people with whom we’ll engage with. I mean we are reaching out to radiologists, stenographers, all kinds of societies absolutely. Because you have to bring the ecosystem along and having good relationships is critical.

Joe Hage: So the final question is mine. You are part of our Medical Device Group family. We’re part of your inaugural graduating class from 10x and I think I speak on our behalf. Collectively can we give you some money (Sailesh laughs) and be your investors and just ride this fantastic innovation of yours with you?

Sailesh Chutani: Okay, so I think I’ll interpret that as saying okay where are we on the financing side? Is that what you’re asking?

Joe Hage: No, I want to give you my money (laughter) and I want to get rich with you. That’s my question. Can I do that and can they do that?

Sailesh Chutani: If you are an accredited investor and you’re willing to write checks of $50,000 and above, we’re happy to chat with you.

Joe Hage: I’m going to need to borrow some money from you guys.

(Laughter)

Sailesh Chutani, thank you very much.

[End of Session]