Looking Good: Are Lifestyle Devices the Future of Medical Technology?

Whether treating excess weight gain or the visual effects of aging, medical device companies are beginning to tap into a market for quality of life condition that have been largely the province of pharmaceutical companies. A combination of changing demographics and advances in less-invasive technology has created new opportunities for devices that treat less-than-life threatening conditions.

Whether treating weight gain or the face of aging, device companies are beginning to tap into a market for quality of life conditions that has been largely the province of drug companies.

by David Cassak

• Historically, medical device firms have focused on quality of life conditions, such as obesity or cosmetic surgery, only in cases of highest acuity, thereby missing a huge, consumer-driven opportunity.

• But some device start-ups are looking to expand quality of life opportunities, by bringing to market non-invasive technology that can treat a wider range of cases.

• Satiety's non-invasive approach to obesity still focuses on the serious health implications of the moderately obese, but Thermage's RF device for cosmetic surgery is as close to a consumer-driven device as we're likely to see.

• It may be too much to say that quality of life opportunities will, broadly speaking, transform medical devices, but for a handful of companies, lifestyle plays, with their large consumer appeal and mostly self-pay profile, should be a huge winner.

Historically, medical devices have drawn much of their value from the fact that they either keep people from dying or significantly arrest, if not cure, major debilitating illnesses. Typically reserved for the highest-acuity, most seriously ill patients, devices and the procedures they enable may not serve large markets, but they bring a compelling clinical value by stepping in after earlier efforts at treatment with a drug regimen have failed.

Indeed, no one would choose going under a knife when he or she could just as easily take a pill, unless the pill didn't work. But over the past decade, a number of trends have led some start-ups and their investors to question this highly valued but narrow view of device opportunities. Aging demographics have always been a boon for device companies, but the fact that as people live longer, they have greater expectations of living a full and robust life have led many to seek more from their health care provider than simply palliative care for high-acuity conditions.

At the same time, advances in medical technology have greatly expanded therapeutic options. Highly invasive surgery, with all of its attendant risks and complications, is no longer the first and only recourse for many physicians and patients. As more and more procedures are converted to less-invasive approaches, they can be offered to a wider range of patients, not just those too frail or old to tolerate conventional surgery, but also younger patients willing to assume the trade-off of procedure risk and complication for a richer lifestyle through a broad range of less-than-life-essential treatments.

The explosion of information about and interest in health care brought about by the Internet is both cause and effect of this new interest in a healthier, fuller lifestyle for an aging Baby Boomer generation. People today no longer look to health care only to ward off death; they also see it as a way to fix what they don't like, no matter how trivial from an acuity standpoint. The dramatic success of Viagra for erectile dysfunction suggests that consumers, in the US at least, are now eager to seek medical treatment for conditions they'd have ignored in the past.

Thus the growing interest in what has been called quality of life (QOL) or lifestyle medicine, a field targeted as much at consumers as at physicians. But while drugs like Viagra redefine the notion of a blockbuster product for pharmaceutical firms, device companies have for the most part sat on the sidelines, focusing on lifestyle issues such as obesity, aging or depression only when the condition gets so severe that the patient is at risk for major health complications. That may be changing, however. A small but growing number of device companies, including Satiety Inc. (obesity) and Thermage Inc. (cosmetic surgery), are targeting quality of life conditions, hoping to reap many of the benefits—including a huge and largely self-pay market—while confronting all of the challenges, such as marketing directly to consumers, that drug companies have faced.

At the Crossroads

In one respect at least, bariatric device company Satiety is typical of medical device plays in quality of life: that is, in denying or qualifying the label. "I'm not sure I'd channel us that narrowly," says CEO Matt Collier, former CEO of Avocet Medical Inc. , who joined Satiety last October after serving on its board. "There are quality of life aspects to obesity, to be sure, but it's much larger than that. There are huge clinical issues around what we do."

Collier's qualification underscores one critical difference between the ways device companies and drug companies approach quality of life opportunities: while drug companies tend to see QOL as largely consumer-driven and embracing huge patient populations, device firms tend to see it as physician-driven, addressing the underlying disease or condition only at a relatively severe endpoint. Thus, Satiety is less about losing those ugly extra pounds that you put on at Thanksgiving than about dealing with the serious complications and co-morbidities that come with obesity. "If you're talking about the man or woman who wants to lose 10 or 15 pounds because his or her clothes are too tight, that's really a cosmetic function," notes Satiety chairman Hank Plain, who is also vice chairman of The Foundry Inc. , the device incubator where Satiety got its start. "But the farther you go down the spectrum, the more you see that obesity really is the root cause of many evils."

That's not to say that Satiety rejects the notion of quality of life altogether. Rather, patients whose excess weight makes it difficult for them to walk up a flight of stairs without stopping often face a different kind of quality of life problem than those who don't like the way they look in a bathing suit. Thus, for most device companies, qualifications of quality of life definitions limit their opportunity; they're less likely to target a consumer-driven demand, as drug companies do, and more likely to see a physician specialist, who must perform some kind of procedure, as their key customer. Indeed, many QOL device plays focus only on patients who have found a preliminary drug regimen unsuccessful. Thus, in erectile dysfunction, for example, start-ups like Vivus Inc. expected their market to be defined by men with more severe cases of the problem, those who were attracted to therapy by the availability of Viagra but found that the drug wasn't enough.

Similarly, Satiety is not for the patient for whom diet and exercise or drugs like Xenical or Meridia/Reductil are enough. But as more and more evidence emerges about the health risks associated with obesity, even a focus on more serious manifestations hardly seems a limitation. Notes Matt Collier, "I don't think there's another medical application today that will have a greater impact on the overall health of society and on reducing medical costs as obesity." For Satiety, obesity stands at the crossroads of quality of life and compelling clinical value.

A French Fried Nation

It's hard to pick up a newspaper today or turn on a television set and not see some story about just how serious the problem of obesity is. By some estimates, as many as 60-65% of the US population is overweight and 20% is obese. A recent article in Time magazine noted that the US military has recently revamped its mess-hall food menus because even in a population group where physical fitness and training are part of the culture, some 54% of military personnel are overweight and 6% are obese. (One reason: notwithstanding our image of the battle-ready soldier, a significant number of military personnel hold sedentary desk jobs.)

Indeed, the US Surgeon General's recent call-to-action on obesity tagged the condition as the number-one health problem facing Americans today. "The biggest driver of health care costs isn't the graying of America, as we've heard for the past decade, it's the increasing number of people who are gaining weight," says Collier. And it isn't being fat per se, but the complications from it that cause problems. People with a body mass index (BMI) of 30 or higher, the clinical definition of obesity, have two to three times the rates of hypertension, congestive heart failure, and diabetes as those with a normal BMI. (BMI has its critics as a measure of obesity, but it provides an easy way of framing the issue.)

The good news is, studies clearly show that weight loss can significantly reduce, perhaps even eliminate, the health risks. One study of more than 500 patients who had recently undergone surgery to treat their obesity showed that the incidence of hypertension went from 118 in the group before surgery down to 10 after surgery; high cholesterol showed a similar decline, from 275 to 8; diabetes, from 85 to 1. Even some forms of cancer, such as colorectal, go down when people drop a significant amount of excess weight. "A lot of these problems are completely reversible," says Collier. "If you lose weight, they go away."

Reports of overweight teenagers suing McDonald's because their fast food binges led to obesity only reinforce the growing concern about an American population that is growing fatter and, by implication, unhealthier every day. And it isn't just in the US, argues Collier: "The UK, Brazil, and Germany are right on our heels, and even China has one of the fastest growing [overweight] populations." The irony is striking: over the past century, the single biggest cause of death was malnutrition—that is, people not getting enough nutritional food to eat; over the next century, it's likely to be just the opposite: people eating too much and too much of the wrong food.

The urgency—and opportunity—feel greater because concerns about obesity seem to have come out of nowhere. Five years ago, few people, and certainly few device companies, put obesity high on their priority list. Today, it's the number-one health concern in the nation and at the forefront of a new way of thinking about health problems. "In a lot of ways, this is a lot like smoking in the 1950s and early 1960s when the first data about its health risks were just starting to come out," argues Hank Plain, who notes that with smoking, cosmetic issues quickly morphed into real clinical concerns. "Suddenly, people tried to quit not because they were coughing too much, but because they were worried about cancer."

Satiety officials expect the current urgency about obesity to translate directly into marketplace opportunity. Despite the relative newness of obesity as a major health concern, Collier argues, "There's a history of adoption in this market that shows it to be one of the most rapidly adopting in the world of medical devices." In fact, where health insurance lags, he notes, patients have even shown a willingness to pay for weight-loss approaches out of pocket—that's why there's so much interest in the kind of stomach-reduction surgery that celebrities such as Al Roker and Carnie Wilson have undergone. "Five years ago, if you were significantly overweight, it didn't necessarily occur to you that the best way to deal with the problem was to go get surgery," says Collier. "People thought about diet or exercise, but not surgery as a way to lose weight. But if you watch the audience reaction when Al Roker talks about his procedure, it's clear that people now see surgery as a more acceptable avenue to pursue."

A Twin Birth

At the same time, Collier goes on, because of the health benefits, doctors tend to be equally strong advocates of more aggressive weight-loss strategies for their seriously obese patients. "One of the patient groups that doctors typically worry about most is Type II diabetics," he says. "And dealing with them is difficult; they're in and out of the office on a frequent basis, with a myriad of problems. If doctors can get those patients to lose 20% of their excess weight, which a device like ours can deliver"—diet drugs typically peak at around a 10% excess weight loss and decrease in efficacy from there—"a majority of their patients will be off their meds and asymptomatic."

For all of these reasons, say Satiety officials, both interest and demand in weight-loss surgery are spiraling: while there were approximately 100,000 bariatric procedures done this year, some projections put the number of procedures at 250,000 in 2005. "The underlying patient population fueling this demand is growing larger every year in numbers greater than the entirety of most other medical device markets," says Collier.

Satiety's target market is the moderately obese, those with a BMI lower than the 40 that the morbidly obese register. "This is more than a cosmetic concern," says Hank Plain. "At the same time, if your BMI is significantly more than 40, you're likely to be better treated with gastric bypass surgery." Driven by consumer demand, on the one hand, and physician concern on the other, what Satiety hopes to do, says Matt Collier, "is to harness the motivation of a quality of life issue to deliver a real clinical value."

Launched in 2001, Satiety is actually the product of the efforts of two leading device incubators, The Foundry and Fogarty Engineering Inc. , to find a less-invasive solution to the challenge of bariatric surgery. Working with two leading bariatric surgeons, Steve Scott, MD, and Roger DeLaTorre, MD, both from Wentzeville, MO, just outside St. Louis, Fogarty had been working on new surgical tools and implants to treat the morbidly obese.

At the same time, but independently, executives at Redwood, City, CA-based The Foundry had identified obesity as an opportunity and, consistent with their overall strategy, had begun to think about less-invasive approaches to treat the condition. (See "Growing Companies," IN VIVO, January 2002 (Also see "Growing Companies--Part 1" - In Vivo, 1 Jan, 2002.).) "Part of our process at The Foundry is to review those markets that are not being served today and see if we can take an existing surgical procedure and develop either a catheter-based, incision-free approach or some other novel way of doing it," says Hank Plain. (As such, The Foundry approach would more likely target moderately obese patients.) When The Foundry approached its venture partner, Three Arch Partners, about funding the project, the VC firm, which also has ties to Fogarty Engineering, suggested putting the two projects together.

The fact that each project targeted different obesity populations was only a plus, says Plain. "We recognized that one project was likely to have a quicker regulatory path and that, over time, things were likely to shake out so that one of the two would become a higher priority over the short term. It's just the reality when you take two projects forward in a start-up environment."

The merger of the two efforts and Satiety's Series A financing happened simultaneously, with The Foundry's investors, Three Arch, Morgenthaler Ventures, and ABS Ventures, putting in a total of $4 million. Satiety recently closed on a Series B financing in which it raised $10 million, a round that included the same investors plus Venrock Associates. For now, at least, however, Satiety is focusing on its less-invasive approach, rather than an implant, both because the patient population is greater and the regulatory path likely to be more straightforward.

An Unlikely Winner

Though bariatric surgery feels like an up-and-coming market, it has, like the health concerns surrounding obesity itself, been around for a while. And rocky though it's been, it is precisely the difficult history of bariatric medicine that gives start-ups like Satiety high hopes.

In the late 1980s, Baxter International Inc. introduced a device called the Garren Bubble, an inflatable balloon that was deployed in the stomach through a gastric over-tube; it was designed to help patients lose weight by reducing the available volume in the stomach and thus restricting food intake. The problem with the Garren Bubble: not only did it lead to lower than expected weight loss, in some patients, it led to severe complications when it accidentally deflated and migrated into their intestines.

Given the problems, Baxter pulled the device off the market after only nine months. But in that time, 100,000 or so patients paid anywhere from $2,500 to $5,000 for the procedure, virtually all of it out of pocket—this despite the fact that there was little solid clinical data to support Garren Bubble's weight-loss claims and despite the difficulties Baxter's training and physician support systems had in keeping up with the huge patient demand.

Hank Plain insists that the problems surrounding the Garren Bubble would make life difficult for companies developing obesity devices for the next ten years. Still, the lesson that bariatric companies take away from the Garren fiasco was that, in a medical device industry that is often tied in knots by reimbursement and adoption issues, people respond enthusiastically to new weight-reduction approaches; the 100,000 patients who signed up for the bubble during its nine-month life "make it one of the fastest medical device ramp-ups of all time," notes Matt Collier. Just as important, he goes on, the Garren experience proves that patients will pay for weight reduction surgery themselves if they have to. Even today, Collier notes that, despite compelling arguments for the overall impact that obesity has on a person's health, insurers may take time to catch up, forcing the market to be self-pay, at least in the beginning. Not to worry, he says: "People will pay for this; they'll line up in droves to get the right procedure done."

The trick is finding a procedure and a device that work well. "There has been a lot of trial and error, and a number of early procedures didn't work," notes Hank Plain, not just Garren, but also the Gomez stapling procedure, which in essence tried to reduce the stomach in half horizontally. Even the Lap Band procedure, introduced by BioEnteric Corp., which does work and has become widely adopted in Europe, stumbled in its US launch and is only now beginning to catch on here, notes Satiety officials. Plain notes that what has given obesity its recent push has been the evolution of effective surgical approaches. "When you get surgical procedures that begin to work well, like the Roux En-Y or Lap Band, places like The Foundry and Fogarty Engineering and others come along and try to build on that," he says.

Other radical surgical approaches include BPD (bilio-pancreatic diversion), for patients with a BMI of 60 or greater, which cuts the stomach to a narrow sleeve that bypasses most of the upper, small intestines, essentially allowing food to run directly into the lower, large intestines, with practically no absorption; and VBG, or vertical banded gastroplasty, which reshapes the stomach to create a small pouch in order to restrict food intake.

But radical surgery, while it is often the best hope of the morbidly obese, has its drawbacks. For one thing, though effective, it can, as noted, be dangerous for some patients. While Al Roker has been a popular speaker on the talk show circuit, so has Charlie Weis, a coach for the New England Patriots, who almost died from his surgery and has been warning people of the potential hazards.

Even when not life-threatening, the complications can be daunting for patients. The body's physiological response to intestinal bypass is sometimes to make the patient feel as if he or she has to go to the bathroom with tremendous urgency, because the lower intestines aren't used to dealing with undigested carbohydrates, which are rich foods. Moreover, with many radical bypass procedures, the faster and more directly the food passes through a patient's system, the greater the likelihood that essential nutrients and vitamins will pass through as well, without being absorbed by the body. Finally, there are compliance issues with surgery (and all capacity-restricting strategies): prevented by their newly-smaller stomachs from having a second helping of food at lunch or dinner, some patients compensate by downing milkshakes all afternoon and evening.

A Middle Path

Not surprisingly, as companies have sought a more effective device and procedure, they've discovered different ways to go about the problem of promoting major weight loss. Some, such as electronic stimulation companies Cyberonics Inc. , Transneuronix Inc. , and Interpace Corp., are, in different ways, trying to control the rhythms or flexes of the stomach, much the way a pacemaker does with the heart, in order to slow the passage of food from the stomach to the intestines. In doing so, they give the patient a longer-lasting feeling of fullness, thereby helping to restrict food intake. The problem with this approach, say Satiety officials: since there's no surgical predicate, there's no real way at this stage of predicting either outcomes or complications. Indeed, if the food winds up staying in the stomach too long, some patients experience a range of complications including nerve damage, nausea, and discomfort. (A related approach, by Silhouette Corp., a start-up from radio frequency guru Stu Edwards, is trying to achieve an effect similar to pacing through ablation.)

On the other hand, new surgical tools such as the Lap Band follow the generally accepted treatment approach, i.e., surgery, but tend to be applied only to the most severely obese—thus dramatically increasing the risk of both complications and morbidities, including sepsis and even death, and, at the same time, limiting the potential patient population.

Another problem with surgical procedures like the Roux En-Y gastric bypass: they are complex and can be difficult to perform. While most surgeons find they can master a new procedure after a dozen or so proctored cases in training, many find they need to do up to 100 laparoscopic Roux En-Y's under supervision before going off on their own.

Satiety's approach hopes to cut a middle path: using a device that accesses the stomach through the patient's mouth, much like a gastric scope, it creates a restriction in the stomach, much as in a Lap Band procedure. In limiting the intake of food, Satiety's device borrows techniques from surgery, but with few of the risks; at the same time, it offers all of the benefits of a less-invasive (in fact, non-invasive) procedure, including the ability to be done on an outpatient basis. "We can envision the day when the patient can have the procedure done in the morning and go golfing in the afternoon," says Collier.

Gather Round the Campfire

Noting the ever-increasing number of obesity cases in the US projected over the next several years, Matt Collier says that "We're losing the war against obesity; we're not even beginning to slow the growth, much less getting at the underlying problem, because we just don't have the tools in our arsenal right now." And that's particularly true for the moderately obese. While those only slightly overweight can take a drug like Xenical and those who are morbidly obese can have bypass surgery, "There's nothing in the middle," he goes on. "We need something that has moderate to significant efficacy and a low risk profile, and there's nothing like that today."

In addition to a large and growing patient population that is often self-pay, the obesity market is attractive for other reasons, say Satiety officials. For one thing, unlike cardiovascular devices, it's a market that's been so underserved for so long, there are few competitive hurdles for small companies to get over. "If you look at the competitive landscape today, it doesn't yet look crowded at all," says Collier.

Moreover, the sales and marketing targets are manageable, even for a start-up, and expanding quickly. Satiety officials note that there are a couple of thousand bariatric surgeons in the US, a figure growing every day as more and more general surgeons turn to this more lucrative subspecialty. (So great is the demand for surgery and so small the number of qualified surgeons, there's a waiting list of 9-18 months for many bariatric procedures, depending on where in the US you live.) But GI physicians will also be able to do the Satiety procedure, given its less-invasive profile, and may in fact constitute the company's largest potential market, if only because there are so many more of them than there are bariatric surgeons. Moreover, Satiety officials insist that their device doesn't eliminate the need for more complex procedures, particularly in the morbidly obese; thus in some patient groups, the Satiety device may be a bridge to a more radical surgery down the road.

So great is the interest in obesity, says Collier, that despite the current chilly financing environment for devices generally speaking, the response to Satiety's recent fundraising efforts was enormous. "When the investing climate gets cold, it's not unusual for investors to hover around the same few campfires," says Collier. "And I think it's quite apparent that obesity is going to be one of those campfires for the foreseeable future." Indeed, for many of the VCs Satiety spoke with, obesity was already high on their priority list, he says. "For most of the others, it will soon be there."

An Innovation for General Surgery

One of the most interesting aspects of the heightened interest in obesity is that it promises to invigorate what some device executives and investors have long thought of as a no-man's land of device innovation: general surgery. A decade ago, a flurry of interest around laparoscopic cholecystectomy and minimally invasive surgery (MIS) put innovation in general surgery in the spotlight. But while lap choly has become a standard of care and MIS approaches have spread to other specialties (most notably cardiac and orthopedics), the technology revolution in general surgery quickly hit a wall due, first, to the failure of other general surgery procedures, such as appendectomies and hernia repair to reach the same MIS penetration levels as gall bladder removal and, second, to market leaders US Surgical, now part of Tyco International Ltd. , and Ethicon Endo-Surgery Inc. , a Johnson & Johnson operating company, who quickly locked up distribution channels, making market access all but impossible for small companies.

Indeed, absent a new opportunity like MIS, innovation in surgical instruments tends to be understated, to say the least: advances like a longer shaft on an instrument or even a more flexible tip tend to be low-margin, incremental improvements over what's already on the market and therefore difficult to differentiate in the minds of surgeons and difficult to charge a lot for. "A lot of those products were improvements, but they weren't really revolutionary," notes Hank Plain. Adds Matt Collier, "You had zero access to the clinician for what were only incrementally improved products that had to be bought through the hospital [materials manager]. Building their own sales forces and getting their products into the hospital was virtually impossible [for a small company]."

Creating a Procedure

Combine such obstacles with a significant technology boom in cardiovascular devices, and it's not hard to see why company and investor interest in general surgery remained low. Key to the difficulties for MIS start-ups: the technology enabled existing procedures to be done laparoscopically, but otherwise didn't change the clinical or business model. "They didn't eliminate surgery and they weren't procedures that could be translated to the interventionalist," Plain goes on. "If interventional cardiology still had to be performed by the cardiac surgeon, it wouldn't be where it is today," i.e., with a new, technology-hungry customer constantly on the look-out for new procedures and opportunities. "What really drove interventional cardiology was catheter-based approaches that ultimately got into the hands of interventionalists."

By implication, Satiety officials argue that what makes their approach valuable is that it follows the same model: transforming what has been an exclusively surgical procedure into one with a much wider base of support. "Why didn't [angioplasty] catch on with bypass surgeons?" Plain asks rhetorically. "Because surgeons like to cut." By analogy, what's needed in obesity, he goes on, is a "procedure that can be done in 30 minutes or less and expands the market from the bariatric surgeon to the gastroenterologist. There may be other techniques that evolve, but ultimately we need to get this into the hands of the GI."

For GIs, the opportunity lies in adding another non-invasive procedure, like the colonoscopies that have become their bread and butter revenue generator. But the opportunity also suggests what may be Satiety's biggest challenge. Says one industry executive, "You have GIs who are doing colonoscopies every half hour. The question is, will they give those up for another procedure?"

Attracting Attention

Still, even if its less-invasive system doesn't completely replace surgical approaches—company officials don't expect or intend that it will—or win over GIs completely, Satiety believes innovations in tools and approaches to treat obesity, generally speaking, will open the door to new interest on the part of investors. "For the last fifteen years, device innovation has been focused on other areas," says Collier. "Bariatrics and general surgery have been more or less ignored. But they're now coming back to life." With about a dozen start-ups working somewhere in the space, Collier says, "I predict, without really going out on a limb, that within the next year or so, there will be a dozen more companies in our space."

Helping, not hindering, investor confidence has been the interest shown by large companies even at this early stage. Over the past 18 months, Medtronic Corp. bought Endonetics Inc. [See Deal] and licensed technology from Transneuronix, J&J's Ethicon bought Swedish start-up Obtech Medical AG [See Deal], a European competitor to BioEnteric's lap band, and Boston Scientific Corp. acquired Enteric Medical Technologies Inc. [See Deal]. (Both Enteric's and Endonetics' devices target gastroesophageal reflux disease, or GERD, but have potential applications in obesity.)

Moreover, J&J recently announced that obesity is now a number-one priority, not just for surgical products companies such as Ethicon, but across all of its operating companies. Part of the reason: the huge market potential. "You have to get out of the mindset that this is just another $50 surgical instrument," says Hank Plain. "We're talking about a whole new procedure where the disposables cost a couple of thousand dollars. That's a real business." That's also why a lot of large companies are ahead of start-ups in terms of interest in this space, he goes on. "Big companies already recognize it as one they want to be playing in. They just don't have the technology."

Competing Against a Drug Regimen

It would be a stretch to call Satiety a "first mover" in obesity; there are, as noted, nearly a dozen companies of all sizes in the space. But company officials insist they do have an early lead in a new approach, less-invasive approach, targeted at a moderately obese patient population that, historically, has been all but ignored. "If you're talking about devices that take surgical procedures and translate them into less-invasive procedures, we have the early IP in that space," says Matt Collier. Moreover, Satiety's roots in two different approaches give it a broad IP platform, embracing both less-invasive and implantable approaches.

And Satiety officials believe that other issues device companies typically run into, most notably reimbursement, should also fall into place. As noted, not only has there historically been a large self-pay market for weight-loss procedures, but the current health concerns and the severe health complications that accompany obesity should make payers willing to come to the table. "Our reimbursement path could be easier than those of many other devices," argues Hank Plain. "Our target customer isn't really the Medicare patient. It's private pay and employers who are today paying for co-morbidities like daily insulin injections for an employee. That's a great trade-off for patients, payers, and the health care system."

Given the strong demand and the compelling clinical value of weight loss, the real challenge for Satiety, and for any obesity company, will be to establish its particular approach, not just against other device technologies, whether pacing companies or surgical tools, but also against more broadly targeted drug therapies. That means finding a middle ground between the broad consumer appeal that drugs typically have and the clinical value that devices offer. Says Collier, "We benefit from both sides [i.e., quality of life and clinical value]; they pay for quality of life enhancement but they get the overall health benefits."

Collier dismisses concerns that, as has happened with other QOL device plays, the presence of pharmaceutical therapies doesn't so much open doors as shut them. In erectile dysfunction, for example, Viagra gave a huge boost to the market, but many of the device plays didn't get the anticipated benefit; rather, Viagra wound up overwhelming the category. "There's always that risk," he says. "But if you were reluctant to go up against a future potential disruptive change, you'd never do a start-up to begin with."

More specifically, he notes, drug therapies have simply not been effective enough in driving significant weight loss in the obese population to represent a real threat. Even Phen-Phen, which despite its bad side-effect profile was the most effective weight-loss drug regimen, reached a peak at around six months with 13% weight loss, says Collier. "What happens is the body adapts physiologically to the pharmaceutical and so, by the end of the year, the average weight loss with Phen-Phen was only around 4kg. And that was in morbidly obese patients. The primary issue isn't reducing side effects, it's creating something that works over a long period of time."

Collier knows that drug companies are spending heavily on obesity research. Still, he says, "If I were a betting man, I wouldn't place my money on finding a pharmacological solution to obesity, if only because the metabolic cycles associated with obesity are some of the most complex and least understood mechanisms in the body." That's why drug companies are working on obesity cocktails. "To try to adjust that pharmacologically is a pretty daunting task," he goes on. "The only thing that's been proven to work for significant durable weight loss is a surgical procedure—you have to restrict what people can eat."

Indeed, Satiety's greatest hope may lie simply in the intractable nature of weight gain and loss: if relatively easy strategies such as diet, exercise or pills really helped people lose weight, we wouldn't be facing the obesity epidemic we have today. Notes Hank Plain, "If Jenny Craig worked, we'd all be skinny."

A Boom in Cosmetic Surgery

While Satiety's innovative technology addresses a major health concern, i.e., the complications associated with extreme excess weight, it also has a strong consumer appeal, rooted in people's obsession with how much they weigh. But if, as Gloria Vanderbilt once said, you can't be too rich or too thin, neither can you look too young. And in offering an innovative approach to cosmetic surgery, based on a patented technology to deliver RF-generated heat to deep tissue that erases wrinkles and tightens sagging skin, Hayward, CA-based Thermage is defining an even clearer quality of life opportunity for device companies.

Indeed, if there's any clinical area growing faster than bariatric medicine, it's surely cosmetic surgery. According to some estimates, the number of cosmetic procedures has grown 2000% over the last several years. Recent data compiled by the American Academy of Cosmetic Surgery suggests that the US market for aesthetic procedures was over $25 billion in 2000 and is growing at greater than 25% per year.

And among cosmetic surgery procedures, demand is growing fastest in precisely those procedures that are least invasive and have the shortest recovery times, such as micro-dermabrasions; physicians are not only seeing more patients come in, but can do more of these non-invasive procedures per week or month. "The market for traditional, invasive procedures, such as face lifts, is stable, and it's still a very good business for most physicians," notes Edward Ebbers, Thermage's VP of sales and marketing. "But the biggest growth is in non-invasive procedures with minimal downtime. Products such as Botox are undergoing explosive growth in popularity."

Such procedures aren't just simpler to do, they're also focused on what Thermage officials call "regular maintenance," rather than major reconstructive operations. With Botox, for example, patients go in for what is a relatively minor procedure, and then return again and again for touch-ups or maintenance. "There aren't many medical technology markets that are seeing double-digit growth over a five-year period," Ebbers goes on. "But all of the demographics, from both a physicians' and patients' standpoint, feed into the continuing growth of cosmetic procedures."

Cost aside, the benefits for both patient and physician are clear. Patients, particularly women, like the convenience of frequent, minor procedures requiring minimum downtime; physicians, for their part, are finding a whole new type of practice. Five years ago, the biggest customer for plastic surgery wasn't the 55-year-old socialite seeking a face lift; it was men, ages 18 to 34, who were undergoing extensive reconstructive surgery, most often following car and motorcycle accidents. The ease and convenience of this new type of non-invasive procedure not only gives traditional plastic/reconstructive surgeons a whole new customer base, it also opens up the segment to other providers, most notably dermatologists, who can do these non-invasive procedures in their offices.

Indeed, 80% of the procedures in this fast-growing segment of aesthetic surgery are done by dermatologists. One key to the growth: non-invasive procedures are, for the most part, self-pay, with none of the reimbursement headaches that device-driven procedures typically face. That's good news for physicians and one reason they're eager to embrace this new subspecialty. Notes Ebbers, "You have very motivated providers of these services who are being squeezed by the reimbursement practices of managed care and Medicare, and are seeking additional sources of income." At the same time, the aging of the Baby Boom generation ensures a steady flow of patients. "Literally every 8 seconds of each day, someone else in this country is turning 50," he goes on, "and there's an increasing premium for a youthful appearance that many are able to afford." Moreover, the patients tend not to be young men, but middle-aged women: 80%, perhaps even 90% of the customers for these procedures are female. "They tend to be patients seeking multiple procedures over a period of time and are good customers for the physicians to establish a relationship with," Ebbers says.

Cleaning Up Surgery

Thermage was founded in 1996 by Edward Knowlton, MD, a plastic surgeon in private practice in Danville, CA, who first recognized the potential of RF (radio-frequency) to deliver heat to tighten dermal tissue and thus eliminate wrinkles. Under conventional CO2 resurfacing, plastic surgeons use laser energy to ablate the surface of the skin; Knowlton observed that repeated passes with a laser caused a contraction that tightened the skin but, in the process, caused the first layer of skin to burn off. Wrinkles were eliminated but, as with any invasive procedure, at a cost, including pain and suffering on the part of the patient and long recovery times. "Knowlton recognized that it was the heating of the dermal tissue that led to the contraction that tightens loose skin," notes Ebbers. "And he reasoned that it must be possible to deliver heat to [the lower layers] of skin without first destroying the outer layer of skin and thus to get the advantage of tightening deeper tissue without the disadvantages of destroying the skin surface."

Thermage officials note that as we age, there are really two different kinds of cosmetic problems we encounter with our skin: surface damage or defects and changes in physical properties that cause skin to wrinkle or discolor. There are lots of procedures that deal with the surface problems—chemical peels, resurfacing, dermabrasion and micro-dermabrasion—so many, in fact, that Ebbers says the treatment of the superficial damage "is almost a commodity market."

Thermage's device doesn't replace procedures such as chemical peels or dermabrasions, but offers a kind of next-step therapy, one that addresses a different aspect of the cosmetic problem—sagging skin. Thus, say company officials, while there are many treatments for superficial damage caused by exposure to the sun, only Thermage's ThermaCool TC system tightens the loose skin and sagging deep tissue caused by age and gravity.

More to the point, procedures such as chemical peels are successful, but only deal with the thin, epidermal layer at the surface of the skin. "There really is nothing, short of an invasive surgical procedure, to deal with the underlying laxity or looseness in dermal tissue," notes Ebbers. But while surgery can repair the deeper tissue damage that causes skin stretching and sagging, the inherent trauma of a surgical procedure comes at a price: higher complication rates, more pain and longer recovery times for the patient, and higher costs.

Like Satiety, Thermage turns what has been a messy, invasive surgery into a non-invasive procedure. "Nothing short of a scalpel can do what we do," says Ebbers, who adds that the Thermage procedure doesn't replace surgery, but offers an alternative for less severe cases. "If a facelift is really needed, this isn't a substitute," he insists. "But there are many patients who have moderate degrees of sagging who are by no means ready for a major facelift but are ready for this kind of procedure."

Reaching Deep

Key to the company's approach: a patented technology that enables Thermage to do what it calls "volumetric" heating—reaching a deeper level of skin—as opposed to the small, flat, surface plane of heat that lasers deliver, which Thermage president and CEO Robert Byrnes likens to spot welding. "There are many energy sources that heat along an X/Y axis," notes Ed Ebbers. "We get into the Z or depth axis with uniform heating, which is only possible with our patented radio frequency heating source, as opposed to a light-based sources that heat superficial tissue."

The Thermage ThermaCool TC system consists of an RF generator with a cooling module that provides a cryogen to cool the skin to prevent surface damage. Attached to the generator is a handpiece with a patented disposable treatment tip that works on the principle of capacitive coupling with the skin; it is through this tip that the physician delivers the volumetric heating that tightens the tissue under the skin. The key to the procedure lies in the treatment tip: a consumable with a programmable electronic chip that directs the delivery of heat and limits the number of firings that can be done with each tip. (Each firing lasts a few seconds and is preceded and followed by cooling of the skin.) A fragile membrane, one-thousandth of an inch thick, within the tip provides for the capacitive coupling to the skin and also limits the tip to single-use; beyond a certain number of firings, it actually can be unsafe for the patient, and special electronics built into the tip enforce its single use.

During the procedure, a pre-cooled mist is sprayed on the membrane, creating a protective layer for the skin's surface. Heat is then applied to the deep tissue, simultaneous to the surface cooling, to offer both therapy and protection at the same time. The depth of the heating can be modified by using a different treatment tip, and there are a number of different tip designs either to deliver different therapeutic effects or to adjust to the different properties of the skin, depending on what part of the body is being treated.

As heat is delivered on a programmed basis, it creates, in effect, an injury deep in the tissue that causes an immediate contraction and tightening of the skin. The hand piece also cools the delivery site just after heat is delivered to keep the heat from coming to the surface of the skin and damaging the epidermis. Audible signals from the system guides the physician, telling him or her when to start and finish, and what's happening during the treatment. "It's a very controlled process from the time the physician touches the skin to the time it leaves the skin," notes Ebbers.

As with any heat-based therapy, there's always the risk that physicians will deliver too much heat or too long a dose, resulting in the potential for some burning and scarring; early clinical trials reported a small incidence (2%) of burns and negligible scarring. But histological studies show that, if the device is used properly, though the RF heat damages some deep tissue, it leaves enough surrounding tissue to prevent scarring and give the body an opportunity to heal; any inadvertent scars received during the procedure should go away within a short period of time after treatment, says Thermage.

Depending on the procedure being done and the amount of skin being heated, treatment can last from twenty minutes to one hour. Patients usually feel something during the procedure: "There's a fair amount of energy going into the skin," Ebbers notes, though any discomfort can be controlled through anesthesia, usually local. Different tip selection can also minimize pain while optimizing the efficacy of the procedure. The effects of volumetric heating usually last for at least six months, say Thermage officials, and patients sometimes continue to improve after that. But since aging is, by its very nature, a progressive disease, the patient will, eventually, need to have the procedure repeated to sustain the effect.

The disposable tip, in its various forms, is key not just to Thermage's clinical efficacy, but also to its business model. "What separates us from a lot of other companies in this space is that their business is based on a single, large capital equipment sale whereby with every unit they sell, their market gets smaller by one customer," note Ed Ebbers. "With our model, every unit we sell increases the potential business" because it increases the likelihood of future tip sales. The model should also help Thermage promote product line extensions as it explores new uses of its RF therapy: with each new application, the company need only market "a new, improved treatment tip that has different properties, instead of requiring physicians to buy a whole new machine," says Ebbers.

The Botox Precedent

As an alternative to invasive surgery, RF's non-invasive approach offers what Thermage hopes will be an important tool for the large target group of dermatologists who now can keep patients that, in the past, they'd have had to refer to plastic surgeons. And in a market that is growing more and more competitive as it grows more lucrative, plastic surgeons, for their part, face the pressure to adopt a less-invasive approach with all of the patient benefits that non-surgical solutions offer.

As with device solutions to obesity, Thermage enters a market in which it will potentially compete with pharmaceutical agents, specifically Botox, which arguably created the market for minimally invasive approaches to eliminate wrinkles. Certainly in the race for branding and public awareness, Botox wins hands-down: the name is virtually synonymous with the desire to look young, and television comedy shows frequently spoof the overuse of Botox in a youth-obsessed culture.

Officials at Thermage play down the competition with Botox, not because the latter doesn't work, but because the two approaches are, they insist, complementary. "It's like brushing and flossing," says Bob Byrnes. "Two different ways to treat the same problem." (Thermage officials also play down the kind of backlash against their technology that we've seen with Botox: any aesthetic procedure contains some element of artistry or skill, they say. But it's much harder to overtreat with Thermage's device than with Botox, and they've yet to have a patient wind up with a look of surprise permanently etched on her face as a result of a physician who tightened the deep tissue too much.)

Botox, notes Ed Ebbers, works by temporarily relaxing the muscles that control facial expression, thereby smoothing skin surfaces. "Our ThermaCool TC procedure causes a permanent change in loose tissue that is non-muscular. Since Botox doesn't affect loose tissue, they're very complementary." Some physicians may use both Botox and Thermage's deep tissue heating to treat the same problem, injecting Botox to smooth out deep furrows and using Thermage's device to tighten loose tissue. In fact, the Vancouver, BC-based medical team that pioneered the use of Botox as a muscle relaxant in treating facial muscles recently became the first practice to buy two Thermage systems for use in conjunction with Botox.

Moreover, the effects of Botox are immediate—apparent within a day or two—but short-lived; Thermage's approach can take weeks or even a couple of months to take effect, but lasts longer. That means patients are getting a Thermage treatment every two years, compared with Botox, which is injected every two to four months.

In fact, Botox serves as a nice predicate or analogy for Thermage, setting a precedent for replacing a highly invasive, often grisly surgery—in Botox's case, a surgical brow lift—with a less invasive, frequently performed procedure that has very short recovery times. Botox not only represents a more appealing alternative, it has, more importantly, helped to expand the market, from 150,000 brow lifts to 2 million Botox cases each year. Thermage officials argue that there are a lot of women who, for a variety of reasons, including a reluctance to go under a knife, resist having surgery but will say yes to their procedure. In addition, by offering a non-surgical alternative, the device also expands the number of physicians who can offer this procedure, from around 2,500 surgeons to more than 15,000, including a greatly expanded dermatologist market.

Expanding The Market

But even if you assume that there will be some overlap between Botox and Thermage's device—perhaps in treating some wrinkles around the eyes or lips—Thermage officials hope, again like Satiety, that, in creating a widely-publicized approach that appeals to the hearts and minds of a growing consumer public, this high-profile pharmaceutical will benefit all companies in the space, most notably by making youth-restoring procedures appealing to a wider audience than the stereotypical wealthy suburban matron. "What Botox is doing is expanding the market," says Bob Byrnes. "Yes, the concentration is still very much in major markets such as Southern California, New York, and Florida. But in fact, this market is exploding, and the population that is looking for procedures like this extends well beyond the golden zip codes."

Indeed, Thermage is betting that the phenomenon is global: the company has already placed some units in Canada and has engaged a distributor in Japan; it should have additional overseas distributors in place by the end of this year.

The combination of self-pay, broad consumer appeal and Botox's high profile makes Thermage an atypical device play, but one attractive to investors. Another appealing aspect: despite the fact that the market is large, growing, and almost all self-pay, there are as yet no dominant players in the aesthetic surgery market who can clog distribution channels or make market access difficult. "There's no 500-pound gorilla to contend with," says Ed Ebbers. "That means we have the potential to establish ourselves as one of the significant players in this category with a reasonable investment in resources."

Neither does Thermage worry about competition from other RF companies, such as ArthroCare Corp. , which has a dermatology business unit, or the ENT business of Gyrus Group PLC . "They're all primarily ablative technologies," Ebbers goes on. "Their endpoint is to produce scar tissue for the purpose of gross tissue ablation. We're non-ablative and we avoid scarring."

Thermage's first funding, which raised $1.4 million, came in 1997, led by then-IVP (now Versant Ventures); a second round was done two years later and included IVP and Morgenthaler Ventures. Following some key patent filings, the company did two rounds of fundraising in 2000, netting $26 million in an event the company calls an "extended" C round since the valuation was the same in both financings. In total, Thermage has raised $47 million in its three rounds from VCs Delphi Ventures, Technology Partners, DFJ eplanet Ventures, and Essex Woodlands Health Ventures, in addition to IVP and Morgenthaler. The $47 million has been enough to see the company to commercialization: Thermage received 510(k) clearance for general surgical use last year and received its first cosmetic claim, for periorbital wrinkles and eyelids, in October of 2002. (In Canada, the company received a clearance for a non-invasive brow lift, an indication they hope to get clearance for soon in the US.)

A CEO Search

In the fall of 2002, Thermage's board was conducting a search for a new CEO. The search committee had narrowed the list to two finalists when, at the last minute, Bob Byrnes, who had joined the board the previous summer and was part of the search, offered to throw his name in the ring for consideration. The committee was stunned.

Byrnes is, after all, hardly a typical CEO for a device start-up. A seasoned executive with 38 years' experience in the industry, he spent the first 12 years of his career in a variety of sales and marketing positions with some of the industry's largest companies: Eli Lilly & Co. , Abbott Laboratories Inc. , and American Hospital Supply Corp. In the late 1970s, Byrnes left AHSC to be part of a West Coast biotech start-up, Genentech Inc. , and, following that company's hugely successful IPO in 1980, helped to start home care pioneer Home Healthcare of America with Jim Sweeney, who had been Byrnes's director of marketing at AHSC. After HHA, Byrnes did one more start-up, a product and service company focusing on high-risk pregnancy called Tokos Medical Corp., which he left in 1997, after it merged with Healthdyne Technologies Inc. (now part of Respironics Inc. ) to pursue the life of successful serial entrepreneurs: board seats, consulting, and the like.

But if Byrnes was unlike a typical device start-up CEO, Thermage, to his mind, wasn't a typical device start-up. "When we created Home Healthcare of America, the idea of in-home IV therapy was a very foreign concept to most people," says Byrnes, explaining his thinking by way of analogy. For one thing, payers thought IV therapy could only be provided in an inpatient setting and therefore balked at reimbursing for such care in other settings. "We had to change the whole model, and I see something very similar at Thermage. We're changing people's perspective as it relates to skin rejuvenation, face lifts, and related procedures."

In doing so, Thermage has some of the appeal of a typical device company and a lot of the appeal of a non-typical company. Like many device technologies, the company's business is built on a razor/razor blade model, with revenues driven by the sale of disposable tips, rather than the RF unit itself. Moreover, the company's target audience is, as Byrnes' puts it, "small, concentrated, and accessible," meaning Thermage can get pretty good market coverage and penetration with a relatively small sales force—it currently has 12 reps in the field, in anticipation of a full commercial roll-out this year. "We're not selling boxes, we're selling procedures," he goes on. "We need people who know how to integrate this into an existing practice."

In fact, though its non-invasive approach greatly expands the number of physicians who can potentially use the device, the company's business model is based on the theory that it is better to serve a smaller group of high-volume physicians who are building a practice around the new procedure than a wide audience of sometime users. "We want customers who are doing 20 or 30 cases a month as opposed to one or two," says Byrnes.

But atypical of most device start-ups, Thermage's target market is almost entirely self-pay, which means that one major concern for device companies—whether large payers will reimburse for the technology and the procedure—goes away. And Thermage's non-invasive approach only reinforces the appeal for the self-pay crowd. "If you look at where there's the fastest growth in plastic surgery, it's not in the big-ticket, $20,000 face lift, it's this less expensive, less invasive procedure," notes Ed Ebbers. "The $1,000-4,000 medium intervention is where people are willing to spend money." Though Thermage won't tell physicians what they should charge for the procedure, company officials expect they'll price the procedure anywhere from $1,000 to $2,500, depending on where they practice.

A Different Kind of Medicine

It is precisely this appeal to consumers—much different in its way than Satiety's appeal to moderately obese patients who risk severe health complications if they don't address the problem—that makes Thermage's target market much more of a consumer-oriented quality of life market. Unlike most device plays, Thermage isn't targeting sick patients, those with high-acuity conditions that tend to severely limit the potential of a so-called quality of life play. While it's true that people who spend too much time in the sun risk skin cancer, Thermage's device isn't at all an adjunct cancer therapy. Rather, the device is for those who are watching their skin age naturally and don't like what they see. "They just want to stop the clock," says Bob Byrnes. In fact, Thermage's most promising market may lie not with women who are already experiencing aging skin, but rather with those who, concerned about the likelihood of future sagging, want to address the problem proactively. "There's a definite appeal to a younger woman, 35 to 45 years old, who wants to stay looking young," he adds. "She may not be looking old now, but she doesn't want to get there either, and she has the time and money to deal with the problem now."

Indeed, this kind of aesthetic or plastic surgery is a different kind of medicine from the high-acuity care for an aging demographic that procedure-focused devices typically address. "Walk into one of these aesthetic centers some time," Ed Ebbers prompts. "They're beautifully lit, nicely decorated, with great music and pictures of attractive people on the wall. The staff is usually made up of attractive people, too." The patient sits down to wait her turn and, within 30 minutes of positive reinforcement, she's already begun to think of other cosmetic problems she'd like taken care of.

Thus, growth comes not just because the minimally invasive procedure requires repeated treatments, but also because patients generally begin with one problem—say, wrinkles around their eyes—and soon schedule other procedures, such as fixing the sagging skin that gathers around the jowls. Doctors, too, appreciate the psychological dynamic at work. "There's such an immediate reinforcement that something good is happening, that the first thing the patient thinks of is, ‘What else can you do for me?'" Ebbers goes on. "For the doctor, it's a kind of annuity income as they go from one procedure to another."

That natural expansion is part of the reason why Thermage officials see their device as a platform technology with wide application. "It should be useful for many conditions for which sub-epidermal heating has potential benefits," says Ebbers—that is, anywhere the patient needs to have deep tissue heating without making an incision.

How far that extends into areas other than plastic or aesthetic surgery isn't clear. Thermage has already begun to look beyond facial wrinkles and sagging—to help women soften or reduce stretch marks following pregnancy or weight loss, for example, or to firm up skin that sometimes sags off the butt—though both are, arguably, simply an extension of the cosmetic applications. In addition, because Thermage's RF energy can reach the sebaceous gland, it may have use as a treatment for acne. Finally, there may be some applications in a market related to another fast-growing field, obesity—specifically, Thermage's deep tissue heating may help to shrink cellulite by heating small deposits of fat until they, in effect, boil away.

Finally, there's the possibility that the market could expand in another direction: by bringing men into the fold. Today, more and more men seem interested in matters of style and fashion—witness all of the new magazines and cable TV shows targeted at men who are concerned about how they look and dress. Bob Byrnes argues that one reason men in the past haven't been as eager as women for plastic surgery is that the long recovery times made it difficult to disguise the fact they had a procedure done. "But if you could have something done that was subtle, where over several months, your skin looked rejuvenated and you looked younger, you might try this," he says.

Thermage officials expect that as interest in less-invasive procedures grows, the company should find few obstacles, particularly the regulatory hurdle of proving safety and efficacy, to keep the market from expanding as well. Of course, in aesthetic procedures, demonstrating safety and efficacy are two different issues. Thermage officials note that the safety profile of the device is evident almost immediately; whether it's efficacious requires a follow-up of two to six months. And with the device in limited commercial release for the past year—there are about 150 systems currently in place today—they believe its efficacy has been well-established. Indeed, in the company's largest clinical trial to date, of 86 patients enrolled, 80% saw a significant improvement in the quantitative assessment of their wrinkles after six months. "It was consistent with our model of an immediate change in the collagen followed by a subsequent wound healing process over time that causes an additional resolution of the wrinkling," notes Ed Ebbers. More to the point, he goes on, "What we saw in our clinical trial is comparable to what facial plastic surgeons get with a surgical brow lift procedure," a result achieved not by surgically lifting the brow, however, but by tightening the skin adjacent to the wrinkles.

A Media Blitz

Still, Thermage's biggest challenge may lie in convincing physicians that the procedure really works. Ebbers notes that "the data base we have is still fairly small, and while there are some physicians who are very willing, given the current state of the data, to jump on early, there are others who are going to wait a bit longer." He's convinced, however, that unlike other medical device, and in particular surgical device markets, the combination of growing patient demand and intense competition among physicians to tap into a new market suggests that "physicians face more pressure to innovate in their market at a relatively early stage than they otherwise might."

For now, Thermage's marketing efforts will focus on physicians, says Bob Byrnes. But the company is already seeing tremendous interest among consumer media, particularly TV and radio, for whom a story about a radical new way to stay young without the pain and discomfort of surgery is proving awfully appealing. A recent three-minute news report done by a New York television station was syndicated to 53 other TV stations around the country the next week and an additional dozen the week after. "We're getting significant media coverage," Byrnes notes. In just the first two-and-a-half months of this year, the Thermage procedure was featured on well over 100 broadcast outlets around the country.

Thermage officials note that such exposure results in hundreds of inquiries a week from patients following up on the news reports they've just seen and a dramatic ramp-up in visits to the company's website. For that reason, Byrnes dismisses the notion that the cost of a consumer-driven PR campaign might prove too much for what is, still, a medical device start-up. "Obviously, we're going to start with that small, concentrated physician population," he says. "But once we can prove efficacy, the noise level should begin to percolate and then we'll be in a position to do a lot of things proactively from a PR standpoint. I don't think money is going to be an issue."

Asked whether Thermage will embark on a direct-to-consumer (DTC) advertising campaign, Byrnes says, "not this year or next but probably the year after that." But Byrnes doesn't think Thermage will have to push much to get its message out. A lot of the PR and advertising will come not from Thermage itself, but from physicians in their local markets promoting the fact that they now offer a non-invasive alternative to face lifts. "I've only been here a couple of months, but I've been amazed in talking to clinicians at how much buzz there is in the medical arena," he says, adding, "Doctors see this as something they can market because it's the only way to truly tighten tissue without surgery."

On the Radar Screen

In many respects, quality of life devices turn traditional device business models on their head—most notably in their appeal to a broad consumer audience, in addition to or sometimes opposed to a physician-only marketing approach, and in their strong self-pay profile. But how much QOL devices truly differ from traditional device plays is a matter of debate, particularly among those venture investors, many of whom have spent the last 15 years investing in more conventional areas such as cardiovascular devices and orthopedics.

Indeed, executives at venture capital firm Morgenthaler Ventures, investors in both Satiety and Thermage, are more likely to see the link between both companies in terms of what they call "surgery without knives" than as quality of life or lifestyle plays. Robin Bellas, a Morgenthaler partner, notes that surgery has historically been highly invasive, very expensive, and fraught with complications such as infections, morbidities, and mortalities. "The system has been moving toward minimally invasive surgery for all of the obvious reasons," he notes. "The question is, can we move farther along that spectrum to surgery without knives to take advantage of the body's natural portals? Can we take a gold-standard surgery and replace it not with MIS, but with a non-invasive procedure?"

Still, Bellas concedes that investing in quality of life opportunities, differentiated from more traditional device plays, have begun to appear on Morgenthaler's radar screen. "Whenever we raise a new fund, we go off site to develop a strategic road map as to where the opportunities are," he notes. After the last such session, he goes on, Morgenthaler concluded that, "Cardiovascular is obviously important, but when you look at the next 50 most-performed procedures, there are a lot of other opportunities beyond that"—and many of those revolve around questions of how we age gracefully. "From acute illnesses to chronic conditions, we're going to be looking more at lifestyle investing to address issues of avoiding illness and coping with aging," says Bellas.

In that respect, Satiety was a natural opportunity, offering a non-invasive alternative to a high-risk surgical procedure in a clinical area with clear lifestyle implications. Still, precisely because they promise a large, consumer-driven self-pay market, QOL plays present challenges to venture capitalists used to investing in more traditional device segments—perhaps most importantly, how to properly assess the device's potential. For Satiety, Morgenthaler began with a traditional approach to market projection, looking at the number of bariatric surgeries predicted over the next several years. "By that measure alone, Satiety is playing in a $1.5 billion market," notes Bellas, and that's before any calculation for applications beyond obesity, such as GERD. "Any time you can get a platform technology that plays in two markets, even if they're small, that's a good opportunity," he adds.

Of course, such a calculation doesn't factor in the huge consumer-driven demand implicit in quality of life plays. But that's also the point: the question for device companies that go into QOL markets is whether they tend to underplay the opportunity by focusing only on the higher-acuity cases, only to miss the biggest part of the quality of life opportunity. In erectile dysfunction, you don't treat the Viagra population, you treat those whom Viagra didn't help; in obesity, you bypass the Xenical patient to focus on the moderately obese.

Gary Shaffer, the Morgenthaler partner who led the investment in Thermage, notes this distinction makes Thermage "the exception that proves the rule" about device opportunities. "Generally, the greater acuity or severity of an illness, the greater the medical need and the greater the success [of the company]," he notes. But in aesthetic surgery, "with the exception perhaps of treating something like active acne or acne scarring, which can be disfiguring, the great majority of the procedures are cosmetic and consumer-oriented and therefore a different category."

The question is, whether the less-than-life threatening nature of a device or procedure argues for lower adoption rates—i.e., whether people go for procedures less often when they don't absolutely need one. "And for me, the answer is very clearly no," Shaffer goes on. "These are non-clinical indications, but with very high demand."

A Difficult Model

The proof, he argues, is that the same patient population is already spending millions of dollars out of pocket for similar procedures. If anything, says Shaffer, technology like Thermage's, with its non-invasive approach resulting in lower pain and shorter recovery times, can accelerate the market. "There's a lot of interest in cosmetic surgery, but surgical face lifts are still only done in the hundreds of thousands per year, not the millions," he notes. The same is true for laser skin treatments: though not technically a surgical procedure, the downtime for the patient discourages many from having the procedure done. Any procedure that's easy to do, with short patient downtime, should find a lot of new patients, he says.

Still, Shaffer concedes, "it's an unusual dynamic. I can't think of another one in devices besides cosmetic surgery." And for that reason, the modeling or analysis of the opportunity is perhaps even more of an issue for Thermage than Satiety. "Modeling this isn't easy, because there's a lot that's new about this, and anytime you do something really new, by definition, it's hard to model," says Shaffer, who concedes that Morgenthaler saw the investment as "relatively risky" when they made it.

What gave the venture firm confidence, he goes on, is that, in cosmetic surgery as opposed to, say, bariatric surgery, the market is already well-defined by less-invasive procedures such as chemical peels and dermabrasions that are done in the hundreds of thousands each year. "Some are device-related, some are pharmaceutical, like Botox," he says. "But it's clear that this is a category where you can grow revenue quickly if you have something that works and has a benign patient profile." Ultimately, says Shaffer, "we became convinced that the opportunity for Thermage isn't constrained by the market itself, but by how safe and effective the device would prove to be because this is a contact procedure"—and with hundreds of procedures already done, he goes on, "We know with certainty that this procedure is extremely safe and effective."

It would be a stretch to say that quality of life opportunities will redefine what it means to be a medical device start-up. Even with advances in less-invasive technology, few people will choose a procedure over a pill—more often than not, drugs will still be a regimen of first choice, leaving devices to those who don't respond to pills. For that reason and the fact that devices are so inextricably dependent on procedures, device companies, even in quality of life clinical areas, aren't likely to abandon their focus on physicians to concentrate on a more consumer-oriented market. Still, for a handful of companies in very specific markets, the virtues of a QOL market—with its huge consumer base, its appeal to a different kind of aging population, and its largely self-pay profile—will likely prove extremely lucrative in the years to come.