In conversation with Arun Menawat

As president and CEO of Novadaq Technologies (NASDAQ:NVDQ; TSX:NDQ), Arun Menawat has led the company through a strategic transformation this year into a direct sales company from one originally dependent on partners to distribute its SPY fluorescent imaging solutions for the operating room. Novadaq’s pioneering imaging platform helps surgeons intraoperatively visualize critical structures including blood vessels, microvasculature and clinically relevant physiology that results in better patient outcomes and reduced healthcare costs. The company now sells three products with its own sales team: SPY Elite for open surgery and PINPOINT for minimally invasive surgery, as well as LUNA for wound care in hospitals and outpatient clinics. Novadaq retains an alliance with Intuitive Surgical (NASDAQ:ISRG) to integrate and supply Firefly SPY imaging into Intuitive’s da Vinci surgical robotic system. In this interview with BioTuesdays, Dr. Menawat discusses the evolution of Novadaq’s business model, new product innovations and co-marketing agreements, and its product pipeline.

What led to Novadaq’s transition into a direct sales company?

We are creators of the market for intraoperative visualization of vascular disease using fluorescence imaging. Our technology applies to different types of surgery and during the early phase it made sense to work with industry leading partners who could help create the market in specific applications such as breast reconstruction. However, as the number of applications grew, it was clear that no potential partner had a sales team to meet our needs. We have created a sales team that could sell a complete fluorescent imaging solution to the hospital ranging from diagnostic applications in the wound clinic to minimally invasive and open surgery suites.

The partnership model was an interim phase for our company so that we could learn what were the best types of surgery to fit our technology and where our technology provided the most value.

Where is Novadaq today in the evolution of its business model?

Our technology represents a new way of thinking in the operating room, so early on we spent a lot of time educating surgeons and hospital administration. Surgeons now get it and know what our technology can do and hospitals are beginning the dialog about standardization of the technology. So, I believe we are moving from a market creation phase to the adoption phase, which reflects our increasing revenue. While we still spend a good bit of our time on education, more of the conversation today is about how to perform new types of surgeries using our technology and not just on what our technology is all about.

What are the economics of direct sales versus partnerships?

With direct sales, all of the revenue comes to us, which is clearly a good thing, but the other side of the coin is that we pick up the cost of selling. Initially, this model requires us to make major investment in building up the sales team and educating the team, which takes a couple of years to do. Over the long haul, though, the direct sales model is more cost effective and gives us pretty good control over the business, which also allows us to easily adjust to changing market requirements and sell product upgrades.

What can we expect from Novadaq going forward?

While we created the market for fluorescence imaging in the operating room, the technology itself is still in its infancy. So what you will see from us is product innovation every year. A direct sales force allows us to quickly approach our customers for their feedback on these products and drive adoption.

Let’s talk about some recent transactions. What was the rationale behind distributing LifeNet Health’s DermACELL tissue products?

DermACELL uses human cadaver tissue that has been cleaned of DNA and impurities for use in breast reconstruction surgeries, as well as in the treatment of diabetic foot ulcers and chronic non-healing wounds. Since it is human skin, it has the ability to recreate tissue shape, acting like a scaffold, to allow a surgeon to recreate the shape of the breast as much as possible. Our SPY device is used in the same surgery for reconstruction so a surgeon can determine which of the patient’s native skin is good to use and where non-native skin has to be added to recreate the shape of the breast. There is a proven, clinical and call point synergy between the use of tissue matrices and Novadaq’s ability to assess the quality of tissue perfusion. Both products work in concert with each other and provide a comprehensive solution for clinicians managing these complex conditions.

What are the benefits of your new SPY-Q Case Management software?

We are integrating this image analysis software toolkit into our LUNA wound care product. SPY-QCM will compile image data using our fluorescence angiography system over the course of a treatment period, and will provide a clear history of a patient’s recovery progress and, if appropriate, allow clinicians to alter treatment strategies to maximize the likelihood of a successful outcome. Monitoring wound microcirculation is a major unmet medical need. This case management software has the potential to change the treatment of wound care from qualitative to quantitative assessment.

What’s the significance of the co-marketing deal with Arthrex?

This is an innovative co-marketing structure to combine our PINPOINT fluorescence imaging with Arthrex’s 4K white light endoscopic system. Both companies will continue to sell their own standalone systems in addition to the combined endoscopic system, giving end users unparalleled choice in providing the best care for their patients in a wide variety of surgical specialties, including orthopedic, general, colorectal and gynecological surgeries. We think this is a great model to drive adoption.

Any other product upgrades you can share with us?

We’re also launching a narrower 5 mm scope, which is required in 35% to 40% of surgeries. It will enable surgeons to do those surgeries they cannot do today with a wider scope.

Were these recent transactions easier to do as a direct sales company?

Definitely. For example, six months before we introduced the new software, we were working with physicians on a pilot scale to qualify our product. It was much easier to work with them on our timelines. Same with the new scope.

What’s in your pipeline?

In our surgery division, we are developing a radiopharmaceutical product that will have features beyond what fluorescent imaging can see. Radiopharmaceutical imaging can see deeper than the 1 cm penetration of fluorescence imaging. So this will be a new product at some point that will compliment today’s imaging. At the other end of the scale in our diagnostics line is laser Doppler, which does not have the imaging depth but does not require injection of a fluorescent agent. It is a screening device, with a point and shoot application. It will allow physicians to compare blood flow in one limb with blood flow in the other limb in order to determine if a patient’s pain is related to some blockage in blood flow. These products would continue our continuum of patient care from the point of entry into a hospital or clinic through diagnosis, treatment, recovery and follow-up.

Can you update the status of your FILM study?

The FILM study is designed to assess the effectiveness of PINPOINT and indocyanine green (ICG) in identification of lymph nodes in patients with cancer, who are undergoing lymph node mapping. We expect to complete enrollment in the second half next year and believe that FILM may result in an FDA approved indication for interstitial injection of ICG and a device approval for the PINPOINT system for lymphatic mapping.

What’s the status of the PILLAR 3 study?

We initiated this Phase 3 study in the second quarter of 2015 and hope to report data in the second half of next year. The study is comparing the value of the use of fluorescence imaging in complex colorectal surgery, compared with current practice where only visible light imaging is used. PILLAR 3 is intended to demonstrate a significant reduction in anastomotic leak rates following lower anterior colon resections using PINPOINT or SPY Elite as an adjunct to standard surgical practice. The history shows colon leak rates of 10% to 15% in these complex colorectal surgeries, and these are very costly complications.

Where is Novadaq on imaging nerves?

At the moment, we have a program underway to image nerves in small animals and we will talk more about this in the second half next year.

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