AtriCure: Making Order Out Of Chaos

Atrial fibrillation (AF), once thought of as a benign condition affecting a relatively small patient population, has recently been found to be a major contributor to stroke and congestive heart failure (CHF), and is expected to afflict a much larger patient pool, particularly as the population ages, making AF one of the largest unmet cardiovascular clinical opportunities. The only current cure for AF is a traumatic, rarely performed surgical procedure. Palliative treatments are limited to drug regimens that are often ineffective and can produce serious side effects; or electrophysiology and cardiac rhythm management procedures that are only used for a relatively small number of patients. The size of the AF patient market and the recent discovery that AF is a precursor to stroke and CHF have elevated the condition in importance to product companies, making it one of the most competitive areas for the next generation of cardiovascular devices, and attracting interest from all the major cardiology companies, as well as many start-ups. AtriCure is developing novel technology that for the first time enables surgeons to ensure they are producing lesions that are transmural, meaning they completely penetrate the cardiac tissue. Transmural lesions have been shown to provide the only effective means of curing AF. The company's first-mover advantage puts it ahead of the pack, at least for now. AtriCure's challenge is to expand the application of its technology to avoid being marginalized when the inevitable rush of big and small players enter the market.

Can a first-mover advantage and novel technology enable a start-up to gain a foothold in one of cardiology's next major markets, atrial fibrillation?

by Stephen Levin

• Atrial fibrillation (AF), once thought of as a benign condition affecting a relatively small patient population, has recently been found to be a major contributor to stroke and congestive heart failure (CHF), and to afflict a much larger patient pool, particularly as the population ages, making AF one of the largest unmet cardiovascular clinical opportunities.

• The only current cure for AF is a traumatic, rarely performed surgical procedure. Palliative treatments are limited to drug regimens that are often ineffective and can produce serious side effects; or electrophysiology and cardiac rhythm management procedures that are only used for a relatively small number of patients.

• The size of the AF patient market and the recent discovery that AF is a precursor to stroke and CHF have elevated the condition in importance to product companies, making it one of the most competitive areas for the next generation of cardiovascular devices, and attracting interest from all the major cardiology companies, as well as many start-ups.

• AtriCure is developing novel technology that for the first time enables surgeons to ensure they are producing lesions that are transmural, meaning they completely penetrate the cardiac tissue. Transmural lesions have been shown to provide the only effective means of curing AF.

• The company's first-mover advantage puts it ahead of the pack, at least for now. AtriCure's challenge is to expand the application of its technology to avoid being marginalized when the inevitable rush of big and small players enter the market.

The traditional notion is that entrepreneurs are born and not bred—either you've got that risk-taking spirit in your core and you can deal with the uncertainties that go along with start-up culture, or you don't. For Mike Hooven, founder, president, and CEO of West Chester, Ohio-based AtriCure Inc. , there was never any doubt about which group he fell into. Prior to launching AtriCure, Hooven was director of new product development for Ethicon Endo-Surgery Inc. , a Johnson & Johnson operating company located in the Cincinnati suburbs. "I told my superiors right from the start that I wanted to work here for about five years, get the experience, and make the contacts so I could start my own business and sell products back to the J&J's of the world," Hooven explains.

For Hooven, the entrepreneurial itch was so strong that when, true to his plan, he left Ethicon in April 1994 to found his own company, Enable Medical Corp. , it was without the slightest notion of what kind of technology or what clinical area Enable would focus on. One of the first things Hooven set out to do was meet with physicians in an effort to come up with an unmet clinical need for which he could develop a new product. Dan Smith, MD, a surgeon who had recently joined the faculty of the University of Cincinnati Medical Center from the Mayo Clinic, was among the first clinicians Hooven met with, and when Hooven told Smith he had just started a medical device company, Smith said, "OK, show me what you've got." Hooven handed Smith his business card and said, "That's it."

Hooven used his contacts with physicians like Smith and his own device background to look at a range of technologies and clinical applications, and initially drew upon his background at Ethicon in radio-frequency (RF) energy devices to set the product development path in motion at Enable. The company developed a variety of instruments for endoscopic and minimally invasive surgery (MIS) that were sold both as OEM and branded devices.

After employing this strategy for five years at Enable, Hooven got some unsolicited advice from his mentor and Enable investor, Norm Weldon. "I told him, ‘None of us is ever going to make any real money unless we can concentrate on a single, high value, large market opportunity,'" Weldon recalls. At that point, Hooven came under the tutelage of Enable board member, Donald Harrison, MD, former president of the American Heart Association and chief of cardiology at the Stanford University Medical Center, who in 1999 was vice provost of medical affairs at the University of Cincinnati Medical Center. Harrison helped Hooven explore potential market opportunities. Based on those discussions, Hooven came up with an idea for an atrial fibrillation (AF) device. While that initial device proved unsuccessful, Hooven realized that he had found the major opportunity he'd been after, and in November 2000, spun AtriCure out of Enable to focus exclusively on AF. Atrial fibrillation, once thought of as a benign condition affecting a relatively small patient population, has recently been found to be a major contributor to stroke and congestive heart failure (CHF), and to afflict a much larger patient pool, particularly as the population ages, making AF one of the largest unmet cardiovascular clinical opportunities.

AtriCure's proprietary RF ablation technology will be used either as an adjunct to a cardiothoracic procedure or as a stand-alone minimally invasive procedure. The significance of this technology is that it provides surgeons with an elegant device that ensures the creation of transmural lesions (completely penetrating tissue), which have been shown, through a complex surgical procedure, to be the only way to cure AF. All other current available means of treating AF are palliative, not curative. The curative surgical procedure is a traumatic surgery called the Maze procedure, which because it is so hard on the patient and complex for the surgeon, is rarely performed. Palliative treatments are limited to drug regimens that are often ineffective and can produce serious side effects, or electrophysiology (EP) and cardiac rhythm management procedures that are only used for a relatively small number of patients.

Clearly the size of the AF market offers a tremendous opportunity for a start-up like AtriCure. But this opportunity does not come without challenges. Cardiovascular surgeons are notoriously slow adopters of new technology. AtriCure claims that initial surgeon reaction to its device has been extremely positive because it is very easy to use and requires no significant learning curve. And the company also knows that, with surgeons losing increasing numbers of potential bypass surgery candidates to interventional cardiologists, a trend that only looks to continue with the advent of drug-coated stents, a device that may open up a new patient population for surgeons may be welcomed.

But every major cardiovascular device company is looking to enter the AF space, as are many start-ups, utilizing a variety of energy sources and both surgical and interventional approaches. The question for AtriCure is whether its first-mover advantage in generating transmural lesions, which is likely to result in the company's device being used initially by surgeons for the adjunctive treatment of AF, can provide the company with the momentum that will enable it to drive more broad-based adoption aimed at the ultimate goal of treating AF as a stand-alone procedure. Phrased differently: can AtriCure establish itself as a technology leader in this market in time to withstand the inevitable stampede of competition that is likely not far behind, or will it ultimately remain a niche player?

Enabling Technology

For Mike Hooven, starting his own company is the culmination of 20 years in the medical device industry. A mechanical engineer by training, Hooven's first job out of college was with then-independent Cordis Corp. , now part of J&J, in 1981. The Cordis connection is significant not simply because it was Hooven's introduction to the device industry, but more importantly, it was there that he came under the tutelage of Norm Weldon, a relationship that ultimately led to the launching of both Enable and AtriCure. Weldon, who moved on from Cordis to become one of the device industry's leading serial entrepreneurs and investors through his investment firm, Partisan Management Group, recognized Hooven's potential early on and maintained a relationship with him as an advisor and investor.

After five years of working in neurosurgical product development at Cordis, Hooven switched gears to join what was then Siemens-Pacesetter Inc., where he started managing sensor and lead development, and eventually moved on to manage pacemaker development. In 1988, Hooven got the opportunity to get in on the ground floor of what ultimately would become Ethicon Endo-Surgery, but at the time was called Ethicon Mechanical, so he moved to the Cincinnati area where he and his companies have since been located.

When Hooven joined Ethicon, the company had recently acquired Senmed Inc. , the Cincinnati-based surgical stapling spin-out of industrial stapler manufacturer Senco. It wasn't until 1990 that Ethicon Mechanical began developing the first trocars and other tools for endosurgical applications, products that proved so successful the division soon changed its name. During Hooven's six years at Ethicon, he estimates he was involved in developing more than 120 new products and many more that were never produced or were in development when he left.

Norm Weldon told Hooven, "If you ever talk your wife into starting your own company, we'll raise the money for you." When the time came in April 1994 that Hooven was ready to make the entrepreneurial leap, he took $23,000 of his own money and got a thousand dollars each from Weldon, Weldon's partner Karen Cassidy, and a former Ethicon executive, and launched Enable, valued at a nickel per share, in the Hooven family basement. The question then became what business was Enable going to get into?

Knowing that Hooven eventually wanted to start his own company, Weldon had advised him to make sure that, whenever he left Ethicon, it was clear that he was leaving behind all resident product ideas. Hooven considers this wise advice for any emerging entrepreneur, primarily because, "it enables you to leave the company on real good terms, which will only help down the road." While Hooven didn't draw directly on any Ethicon-based product ideas, he was able to utilize the general understanding of endosurgery that he gained there. "I had done some work at Ethicon using radio-frequency energy so I knew it was a broad field with many potential applications, and I just decided to focus there," Hooven explains.

Two months after starting the company, Hooven had prototypes of two endosurgical products he was able to demonstrate to Enable's board, impressing them sufficiently to raise an additional $425,000 at a step-up of one dollar per share. The second financing round came from the original investors plus a group of angels, hand-picked and personally solicited by Norm Weldon and his business partner, Karen Cassidy. These potential investors were selected not only for their financial resources, Hooven points out, but also because "every one of them could do something for Enable besides just give us money. We were looking for people who could help us down the road." These included medical device CEOs, investment bankers, venture capitalists, and investors with technical expertise.

Remaining on good terms with Ethicon turned out to help Enable sooner than Hooven expected, as the start-up's first few deals were evaluation projects for his former employer. Enable also did similar endosurgery device evaluation projects for United States Surgical , now part of Tyco International Ltd. 's subsidiary Tyco Healthcare Group , and CardioThoracic Systems Inc. (CTS), now part of Guidant Corp.

For its first five years, Enable Medical operated on a number of different fronts, including manufacturing its own branded products, and doing OEM work and handling product evaluation projects for other device companies. In 1999, Norm Weldon impressed upon Mike Hooven the importance of focusing Enable's business on a significant market opportunity. "If you can get Mike to focus on a problem, he will eventually come up with an original, patentable, saleable solution," says Weldon. "The trick is to get him to focus on something that's really important because he can focus on a $3 million a year product as easily as he can on a $300 million a year product because at heart he's a terrific engineer whose first love is solving technical problems."

Getting to the Heart of the Matter

The primary area Hooven chose for Enable to focus on was cardiovascular devices and again he sought the advice of a senior device industry figure, this time on the clinical side, to help narrow the company's scope. In this case, Hooven went to Donald Harrison and asked him to join Enable's board of directors. Harrison had trained leading physician/entrepreneurs at Stanford, including Thomas Fogarty, MD, while also founding EP Technologies, an early player in electrophysiology devices.

Hooven asked Harrison what the big unmet needs were in cardiac medicine and Harrison replied, "There are two—congestive heart failure and atrial fibrillation." Since Hooven was then serving on the board of a CHF company, that only left AF. He admits having only a very basic understanding of atrial fibrillation at the time, so Harrison introduced him to electrophysiologists for a crash course on a-fib.

AF is the most common form of cardiac arrhythmia, affecting more than five million people in the US, Europe, and Japan, including 2.5 million in the US alone, with 300,000 new cases reported in the US each year. And Mike Hooven estimates that there probably are as many as another one million people who have a-fib but don't know it. Until recently, AF was thought to be simply a nuisance arrhythmia with few significant consequences. Research done in the last few years, however, indicates that a-fib can reduce cardiac output by 30% and has linked the condition to increased rates of stroke, CHF, and cardiomyopathy. A number of other health disorders have also been tied to AF, including thyroid problems, heart valve disease, hypertension, sick sinus syndrome, pericarditis, lung disease, and congenital heart defects.

Basically, AF involves a loss of synchrony between the atria (the heart's upper chambers) and the ventricles (the lower, primary pumping chambers) that disrupts the normal sinus rhythm, which is the electrical signal that circulates among all four chambers to trigger the heart's pumping action, producing a regular heartbeat. Normal sinus rhythm generally begins in the right atrium and proceeds as a single, orderly wave front. The most common form of AF occurs when this wave front breaks up into multiple components, each circulating rapidly and chaotically through the atria, which then contract in an uncoordinated and ineffective manner. A-fib is often characterized as a storm of electrical energy that travels in spinning wavelets across both atria, causing these chambers to quiver (or fibrillate) at rates of up to 300-600 times per minute (with normal sinus rhythm being 70-90). The uncoordinated atrial contractions lead to a reduction in blood flow through the heart's chambers, causing the blood to pool in the atrium, which is what ultimately can lead to blood clots and strokes.

AF is typically characterized as either chronic atrial fibrillation (CAF), where the patient constantly experiences fibrillation, or paroxysmal atrial fibrillation (PAF), where AF episodes are intermittent, ranging from several per week to a few per year, which is the form of AF afflicting both former Senator Bill Bradley and former President George Bush. Hooven estimates that the AF patient population is split pretty evenly between CAF and PAF sufferers.

It is estimated that, in the US, 40% of the 81,000 patients who annually undergo mitral valve surgery and 5% of the 400,000 patients who undergo coronary artery bypass graft (CABG) surgery suffer from AF, comprising a group of 50,000 adjunctive surgical patients who Mike Hooven believes are the best initial candidates for conversion to a procedure using AtriCure's device.

A broad range of physical symptoms may be associated with AF. Some people have absolutely no awareness of being in a-fib, while others know exactly when their heart rhythm destabilizes from normal sinus rhythm to AF, which can feel like an uncomfortable flopping sensation inside their chest. One AF patient told Mike Hooven it was like having a bird in your chest. AF may be accompanied by shortness of breath, profuse sweating, chest pain, exercise intolerance, extreme fatigue, dizziness (pre-syncope) and fainting (syncope). While it can occur at any age and in either sex, its prevalence tends to increase with aging—6% of the US population over 60 and 10% of those over 80 have AF—and affects men slightly more often than women. AF is the leading cause of US hospital admissions for heart irregularities—nearly 35% (more than 400,000)—and the reason for nearly two million annual outpatient visits. Health care costs for treating the condition in the US are approaching $4 billion a year.

If At First You Don't Succeed….

Mike Hooven recognized that if he could come up with a simple and less traumatic means of creating transmural lesions, which is the basis for the success of the Maze procedure, the only current effective method of curing AF (see sidebar), it would address the kind of significant unmet clinical need in AF that he was looking for. In 2000, still at Enable, he initially developed a technology that, "while it worked incredibly well in laboratory bench testing, when we tried it on tissue, it didn't work at all." The problem: the technology wasn't producing transmural lesions; the tissue wasn't being penetrated all the way through. And the nature of electrical conduction is that even a lesion that effectively penetrates 99% of tissue will still enable the erratic electrical currents to pass through. Indeed, partial lesions are actually more problematic, Hooven explains, because the AF pathways then become harder to locate.

For Hooven, who, like many device entrepreneurs, is primarily interested in the engineering/inventing side of start-ups, rather than the business management side, the failure of his initial technology represented an immediate challenge. "I was alone in the lab when I realized my first idea didn't work and I remember saying, ‘I'm not leaving this lab until I figure this out,'" he recalls. Hooven readily admits to being "the engineer/inventor guy," noting, "I'm a CEO because that's what I need to do to get these ideas developed."

Hooven sees companies developing in three stages: proof of technology on the lab bench and in preclinical testing; clinical testing to prove the technology can be successfully used by physicians on patients; and manufacturing and selling the proven product. "The first two stages are my strengths, and as AtriCure grows, I will eventually turn the CEO job over to somebody who has the sales and marketing background to take the company through that final stage," he explains.

Hooven's solution to the transmurality problem drew upon bipolar RF technology he'd helped develop at Enable. Most ablation technologies employ single-pole mono- or unipolar RF energy sources. The challenge in attempting to use monopolar RF energy to create transmural lesions is being able to generate sufficient energy for the lesion to go completely through the tissue without charring the tissue surface nearest the energy source. The bipolar RF energy approach that Hooven applied proved successful, which created a dilemma: would he develop the AF technology at Enable, with all of that company's other businesses, or would he spin-out that technology into a separate company concentrating exclusively on AF?

Again Hooven consulted with Weldon and Cassidy, and they agreed a spin-out was the best way to go. So in November 2000, AtriCure was formed and housed around the corner from Enable. "One of the reasons we spun it out was that by defining this as a discrete project and spinning it out, we'd give the company focus," Weldon explains. The other advantage to the spin-out was being able to design the company, from the start, to be what Weldon calls "an independent financeable opportunity—something that you can show to a venture capitalist and have them go for." In Weldon's view, the elements that embody such an entity are "a large market opportunity; a simple, explainable, and protectable technology; and the support of physicians who say they have to have something like this to do their jobs better." Adds Cassidy, "It also really helps if you are focusing on an area that has already gotten the attention, at least to some degree, of Wall Street." Since the bipolar RF technology for a-fib met all those requirements, Hooven and his investors agreed that spinning-out AtriCure was preferable to turning Enable Medical into an AF company.

Bipolar, In a Good Way

What distinguishes AtriCure's device is its use of bipolar RF energy, which means that, using the system's proprietary handpiece, the surgeon can clamp the tissue between two jaw-like poles. Hooven points out that this clamping design enables the surgeon to create lesions on any type of tissue no matter its thickness, uniformity, or fluid level. Once the tissue is clamped, the surgeon steps on a foot pedal that is connected to AtriCure's ablation and sensing unit (ASU)—which generates the RF energy—and sends, through the tissue, RF energy that alternates between electrodes located on each of the poles 500,000 times per second. At the same time, using proprietary TransMurTech technology, the ASU also monitors the amount of current flowing between the two electrodes (at a rate of ten times per second) to measure the conductance of the atrial tissue. When the amount of current drops below a certain level, which indicates that a transmural lesion has been created, the system emits a loud beep and the surgeon cuts off the energy flow, preventing unnecessary ablation. According to Mike Hooven, the device takes an average of less than ten seconds to create a lesion.

One of the criticisms of using RF energy to treat AF, as noted, is the risk of charring that could result in thrombosis, a risk Hooven contends the AtriCure device eliminates by applying the energy from both sides of the tissue, rather than the traditional unipolar approach that attempts to penetrate the tissue by applying energy to only one tissue surface. Another factor that also contributes to thrombosis is what is called lateral thermal spread, in which the energy causes a broad lesion to be created. "Since the surgeon is clamping right next to the pulmonary veins, thermal spread could heat the adjacent blood, tissue, or structures, and create thrombosis," Hooven explains. He claims that lesions created with the AtriCure device are generally 2-3mms wide, thereby minimizing any collateral risk. Other devices create lesions that are 5-10mms in width,.

Another risk is that clamping a coronary vessel can cause injury and trigger stenosis. Thus, the AtriCure device actually clamps on the atrial cuff, which is located above the pulmonary veins, thereby minimizing the risk of pulmonary vein stenosis.

One of the challenges for any company looking to introduce a new device to cardiovascular surgeons, particularly one that will change their practice patterns, is the fact that, as a group, heart surgeons are perhaps the most conservative and slowest adopters of new technology. So ease of use becomes a critical factor in driving adoption. Much of the initial promise of minimally invasive cardiac surgery (MICS) technology offered by companies such as Heartport Inc. (now part of J&J's Ethicon) was limited because the complexity of these techniques and devices out-weighed for surgeons any advantages they may have held over existing procedures, making them unwilling to change their existing practice patterns.

In the case of AF, however, unlike CABG surgery, there are no viable existing surgical procedures, Maze notwithstanding. And at a time when heart surgeons are scrambling to replace patients lost to interventional cardiologists, the opportunity to treat a new patient population may make surgeons more receptive to adopting new technology. In fact, Mike Hooven believes that electrophysiologists, who are the physicians that currently attempt to treat many chronic AF patients, are not only unworried about losing AF patients, but he contends that EPs will gladly refer these patients to surgeons if a viable surgical treatment is available "because there's very little the EPs can do for them."

In the case of AtriCure's device, ease of use is a major selling point. Patrick McCarthy of the Cleveland Clinic calls it "the anti-Heartport" because it's so easy to learn to use. McCarthy, who has used the AtriCure device on some 20 patients, says he only had to do two cases before he was comfortable using the product.

In addition to ease of use, McCarthy says there are two other significant advantages that the AtriCure device has over its current competition: guaranteed transmurality and speed. "I know that when I do a Maze procedure, I'm going to get 100% transmurality—that's the gold standard, and I want that same result if I'm using one of these devices. So far, AtriCure's is the only one that assures me reproducible transmural lesions," he explains. McCarthy adds that it only takes a few minutes and does not add significantly to procedure time. In fact, he suggests the device may end up significantly saving OR time and costs for adjunctive AF patients who may otherwise have to be re-admitted to the hospital and operated on a second time.

On the cost issue, one battle AtriCure doesn't have to fight is reimbursement, which already exists. Not only will the hospital be reimbursed for a stand-alone AF surgery—approximately $28,000 currently—but the surgeon will also be reimbursed: $2,000 for stand-alone AF surgery and $1,000-1,500 if the AF procedure is performed as an adjunct to another coronary procedure. The current cost of the AtriCure system is $35,000 for the generator and $2,200 for the single-use instrument.

Surgery Makes a Comeback

AtriCure's technology is initially being utilized by surgeons on AF patients already undergoing other cardiovascular surgical procedures. Most of those in that group of 50,000 adjunctive AF patients described previously are undergoing either mitral valve or CABG procedures. The device can be used either during traditional open surgery or utilizing MICS techniques. Hooven estimates the size of that adjunctive patient market opportunity at $100 million.

The fact that AtriCure is initially focusing on developing a technology that can be used in a surgical procedure to treat AF represents a significant shift from the approach that the industry was taking a decade ago following the discovery of the success of the Maze procedure. Once it was proven in the early 1990s that the Maze procedure could cure AF, electrophysiology companies, including EP Technologies Inc. (now part of Boston Scientific Corp. ) and, later, Atrionix Inc. (now part of J&J's Cordis Corp.), and large device companies with EP franchises, including Guidant, set out to develop catheter-based procedures that could duplicate the Maze's surgical results.

However, through the late 1990s, no company was able to come up with a successful catheter-based approach. Indeed, AtriCure's early efforts also centered on developing a percutaneous, catheter-based approach, working together with Don Harrison, who's an interventional cardiologist. To date, efforts to develop percutaneous ablation catheters to treat AF have been risky and unsuccessful. These catheters must be introduced into the left atrium through a septal puncture, which is a much riskier procedure than accessing the heart through the right side as is most often done. Procedure times have exceeded twelve hours, and no studies have been able to consistently produce continuous and transmural lesions. Significant complications have also been reported including stroke rates as high as 10% and pulmonary vein stenosis.

Recognizing the obvious difficulty of this approach, AtriCure and other device companies began re-thinking how to approach AF and started working on surgical approaches that were essentially modified versions of the Maze procedure. It was discovered that paroxysmal a-fib typically develops as a result of several foci in the pulmonary veins that start firing erratically, although no one know exactly why. This led to the discovery that more than 90% of paroxysmal AF patients can be treated effectively by using transmural lesions to isolate only the pulmonary veins; it isn't necessary to perform the equivalent of a full Maze with its 13 lesions, which is what is necessary to treat chronic AF.

Much of the seminal research on AF was done at Washington University 's Barnes-Jewish Hospital, which is where cardiovascular surgeon James L. Cox, MD, developed the Maze procedure. Mike Hooven contacted Ralph J. Damiano, Jr., MD, a heart surgeon at Barnes, and Rick Schuessler, PhD, a researcher there who helped Cox with his Maze work, to assist AtriCure on the company's fundamental research to understand how to treat a-fib. "Our whole methodology in developing our device was that we were not going to focus on trying to develop a procedure to cure a-fib," Hooven explains. "We were going to focus on developing a technology that we could incorporate into an instrument that would then allow surgeons to figure out a procedure for treating a-fib." And the feedback AtriCure got from heart surgeons was that the biggest unmet clinical need was that no device could guarantee the creation of a transmural lesion. So instead of a catheter-based interventional procedure, AtriCure focused on developing a handheld surgical device that could ensure the creation of transmural lesions.

AtriCure was not alone in the recent realization that interventional approaches to treat AF, which are likely to require PMA regulatory approval, were at least several years away, whereas surgical treatments could be introduced more quickly since they are likely to fall within the 510(k) process. Indeed, that realization was also a significant factor for Alan Kaganov of US Venture Partners (USVP), which ultimately led AtriCure's first venture financing round. Kaganov had been the first CEO of EP Technologies, but after leaving the company in 1993 had not focused exclusively on the EP space until returning to examine the area more closely for his AtriCure investment in 2001. He observes, "I thought the industry would have made a lot more progress. I'm amazed that they haven't gone at the pace I would have guessed in closing the gap on developing a successful interventional AF procedure." It was in part that lack of overall progress on catheter-based AF technologies that made Kaganov receptive to other solutions such as AtriCure's—what he calls "hybrid or combination approaches" that utilize surgical tools that may, in the future, be combined with interventional techniques.

This shift in focus on the part of product companies from efforts to develop catheter-based approaches to looking for surgical solutions has already resulted in products coming to market. In late 1998 and early 1999, Boston Scientific developed an RF surgical device and AFx Inc. came out with a microwave-powered surgical system, both applicable to treat AF. Both of these surgical approaches are particularly viable for that group of adjunctive AF patients who are already in surgery for some other procedure, which is the initial market opportunity that AtriCure is also pursuing.

Start-up Spins Out Start-up

Once the spin-out decision was made, the next challenge was funding the company at a time when dot-coms were still the rage and the financing environment was not particularly welcoming to medical device start-ups. (See "Dealmaking for the Revolution," IN VIVO, March 2001 [A#2001800063.) Initially, AtriCure's board of directors provided a $1.2 million bridge loan to serve as seed money while Hooven went out in search of venture financing.

Dot-com mania notwithstanding, financing AtriCure proved easier than expected. "It may have been a nasty environment for funding device start-ups," says Norm Weldon, "but not if you have the right kind of product and company, which was the case with AtriCure."

Another factor that eased AtriCure's financing path is that spin-outs tend to be more attractive to venture investors in times of inhospitable public markets. In such markets, VCs are forced to carry their portfolio companies longer because of the limited available exit strategies and therefore tend to look for companies that are further along in terms of product development and closer to revenue generation/profitability. This kind of environment tends to favor spin-outs because, as Alan Kaganov of USVP points out, "Spin-outs tend to be a little further along because a dedicated team has been focused on that application prior to the spin-out and they've had a chance to advance the ideas and the technology past the stage of a typical start-up."

Kaganov was speaking with Randy Wolf, MD, a cardiovascular surgeon from Ohio State University Medical Center, at the American College of Cardiology meeting in March 2001, and asked him, "What's hot in heart surgery?" Wolf replied, "AtriCure." Wolf, who was one of the surgeons advising Hooven, told Kaganov about AtriCure's technology and suggested the venture capitalist take a look at the company.

A sign of how small the medical device world can be at times: Kaganov was quite familiar with AF from his days of heading EP Technologies, which Don Harrison founded, but was initially unaware of Harrison's connection with AtriCure.

Wolf's description of AtriCure's technology attracted Kaganov's interest. Kaganov met with Hooven, who offered USVP the opportunity to lead the deal, an opportunity Kaganov says he had no problem selling to his partners. This first round of venture financing closed on June 5, 2001, with Charter Ventures (a fund that Don Harrison is involved with, headed by Barr Dolan) and Partisan Management joining USVP in raising a total of $5.15 million. [See Deal]

This money has taken AtriCure through FDA approval and a limited US product roll-out that began in November 2001. The company received 510(k) clearances (in the summer and fall of 2001) for its technology with one indication for the ablation and coagulation of soft tissue and another for the ablation and coagulation of tissue in thoracic surgery, but none yet specifically for treating AF.

"Right now we're selling everything we can make," says Mike Hooven, acknowledging that the company's immediate need is to ramp up its manufacturing capability to meet product demand. "We've got a pile of purchase orders from hospitals willing to pay full list price just sitting there because we can't yet produce enough systems to meet the demand; we just didn't anticipate the explosive demand for this product," he admits.

AtriCure is in the process of raising its next financing round and today's financing environment for device companies is not much better than it was nearly a year ago when AtriCure did its first venture round. Despite the cool financing climate, it again looks as if the company will not have a problem attracting additional investment, further validating the fact that investors today, knowing they may be in for a longer haul, much prefer more mature companies. AtriCure initially was looking to raise $15 million in this next round, but the level of investor interest may bump that up to $20 million, much of which will go to boost the company's manufacturing and sales and marketing infrastructure to enhance its direct sales efforts in the US. AtriCure has not yet begun selling overseas.

Surviving the Stampede

The ability of the AtriCure device to ensure transmural lesions, along with its ease of use, gives the company a first-mover advantage in what soon will be a crowded market. In an opportunity as large and technically complex as a-fib, looking to bite off manageable chunks a piece at a time represents a realistic strategy for a start-up company. Having started by developing a device to be used during traditional open surgery (on a stopped heart using the cardiopulmonary bypass pump) through a full sternotomy, AtriCure has refined the system so it can also be used off-pump in beating heart MICS procedures. "While the company started with a niche product to be used as an adjunct to other cardiac surgeries, I believe they can also come up with a stand-alone product that can treat a very different market segment," says Norm Weldon, adding that as so-called product niches go, AtriCure's initial market represents a significant opportunity.

Alan Kaganov argues that the ultimate device solution to treating AF will come down to two questions of science: lesion science, in terms of placement and number of lesions, and access science, in terms of being able to place a device in the necessary locations within the heart to generate those lesions. While we know that at least some paroxysmal AF patients can be successfully treated with a pair of lesions that isolate only the pulmonary veins, we also know that treating most chronic and some paroxysmal AF patients will require more lesions. But the question is how many are needed and no one currently knows. Mike Hooven says that even Maze-inventor Jim Cox acknowledges he isn't sure whether all 13 lesions are needed to cure chronic AF.

"The first question for AtriCure," according to Alan Kaganov, "is what extent of all the required lesions can its technology ultimately produce? And, more importantly, can it produce the critical lesions necessary to establish the company as the AF technology leader?"

If AtriCure can solve the lesion question, it must then, Kaganov argues, address the access issue. "In the open chest, everyone has equal access. The question will be, as surgeons move increasingly toward a closed-chest, less invasive procedure, which technology will solve both the access problem and the lesion science problem?"

At this point, AtriCure can't afford to look over its shoulder at the stampede of companies bearing down on it in the surgical AF market. The competition is coming from both large and small companies attempting to utilize a wide range of technologies. In addition to AFx's microwave and Boston Scientific's unipolar RF products already on the market, other examples include an RF device from Medtronic Inc. , a laser product from CardioFocus Inc. (to be distributed by Edwards Lifesciences Inc.) [See Deal], and cryogenic approaches from CryoCath Technologies Inc. and CooperVision Inc. (a division of Cooper Companies Inc. ).

One industry executive described AtriCure's approach as "a good partial treatment, but not a complete treatment," suggesting that the company's handheld device may be too large and cumbersome to administer the Maze-like lesions easily. Hooven takes issue with that view of AtriCure's technology, noting that the company's device can produce all of the Maze lesions throughout the heart. Indeed, surgeons are already using the AtriCure device for stand-alone AF surgeries. The marketing challenge for AtriCure going forward is to move beyond the low-hanging fruit of the adjunctive AF patient market, and work with hospitals, surgeons, and patients to increase awareness of a stand-alone surgical approach to treating AF.

A Cure Worse Than the Disease

Current treatment for chronic AF is limited primarily to drug regimens, and, in a small number of severe cases, a therapy called ablate and pace. Drug treatment involves medications that restore normal sinus rhythm (including procainamide, quinidine, disopyramide and amiodarone); drugs that control the ventricular pace, which is associated with the rapid beating felt by some patients (including beta blockers, calcium channel blockers and digoxin); and anticoagulants with warfarin (Coumadin) to reduce the risk of blood clot formation and stroke associated with AF. Patient responses to these drug regimens vary widely and several of the medications carry significant side effects, while none cures the underlying problem.

Ablation generally involves an electrophysiologist using a mapping procedure to identify certain problematic electrical points or foci that are causing the arrhythmia. The physician then directs energy, generally RF, through catheters to destroy the tissue that is the source of the arrhythmia. Treating AF with ablation typically requires destroying tissue at the AV node, which when operating normally conducts all electrical impulses from the atria to the ventricles to stimulate the heart's pumping. Ablating the AV node essentially disconnects the electrical pathway and therefore requires placement of a permanent pacemaker at the time of the procedure to provide a steady heartbeat. Although this procedure often diminishes the symptoms of AF, it does not cure the condition—in fact the atria continue to fibrillate—nor does it diminish the increased risk of stroke. People with AF are five times more likely to have a stroke and 25 times more likely to die of a stroke, and AF is thought to be responsible for 15% of the 500,000 strokes occurring annually in the US.

Paroxysmal AF patients are most commonly treated with drugs or cardioversion, where the patient is anesthetized and given a powerful electrical shock to return the heart to normal sinus rhythm. Again, neither approach cures the underlying condition.

The only current effective method of curing AF is a surgical procedure so traumatic that it is only performed in the most desperate cases. Called the Maze procedure, it was developed in the early 1990s by James L. Cox, MD, a cardiovascular surgeon at Barnes-Jewish Hospital at Washington University in St. Louis, MO. Strategic placement of incisions in both atria stops the formation and conduction of errant electrical impulses and channels the normal electrical impulse in one direction from the top of the heart to the bottom. The goal is to create a continuous, transmural (completely penetrating the tissue) line of electrically non-conductive tissue, or lesion, in the atrial wall with minimal damage to the surrounding tissue. This requires that a lesion be an uninterrupted line that permeates completely through the tissue at every point along the line because any small gap results in a failed lesion that will permit conduction of the erratic impulse. The extreme variability in the thickness, uniformity, and blood content of the atrial wall add to the difficulty of creating these lesions.

The procedure's name derives from the fact that, as with a maze, the incisions serve to block the flow of the unwanted electrical impulses, while channeling the normal impulses through the heart. Scar tissue generated by the incisions permanently blocks the abnormal paths of the electrical impulses that cause AF, thus eradicating the arrhythmia. However, Maze surgery is so lengthy, complex, and traumatic for patients since it effectively involves operating on a stopped heart through a sternotomy (large chest incision) and essentially resecting the heart, resulting in high morbidity and mortality rates that, according to current estimates, fewer than 1,000 of these procedures are performed annually in the US. Patrick McCarthy, MD, a cardiovascular surgeon at the Cleveland Clinic Foundation, notes that indeed there are only a handful of surgeons in the US who will even perform the procedure.

While no one really understands exactly what causes AF, the development of the Maze procedure led to the discovery that 13 long, continuous linear lesions, 10-15 cms in length, cut into the atria would cure the condition. Even without understanding the mechanism of action behind a-fib, clinicians discovered that, in large part, the condition is related to the size of the atria. Research has shown that it is extremely difficult to induce smaller animals with smaller atria, like rats and rabbits, into AF. Humans appear to be about right in the middle, size-wise, with larger people more likely to have a-fib. On the other end of the spectrum, larger animals like elephants and whales are almost always in AF. One of the reasons the Maze procedure is effective in curing the condition is that incising long lesions essentially shrinks the atria. Another theory holds that AF is caused by the energy wavelets feeding upon themselves in a continuous circuit, and that disrupting that circuit through the use of long lesions stops the erratic arrhythmia.