Prioritizing Complex Markets, Products, Regulations and Reimbursement
Karen Zaderej is CEO of Axogen, where they provide technology solutions to help restore feeling and functionality to damaged peripheral nerves. After a 17-year career at the Ethicon Division of Johnson and Johnson, Karen took on the challenge of a start-up, and has built a successful company that is delivering much-needed solutions to clinicians and patients. In this episode she shares what nerve repair is, why it is important to bodily function and the quality of life of patients, why regulatory excellence is one of their key strategies, building a successful career, and the unique way they funded their company.
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Episode Transcript
This transcript was generated using an automated transcription service and is minimally edited. Please forgive the mistakes contained within it.
Patrick Kothe 00:31
Welcome! We've discussed many different types of medical devices in past episodes, but we haven't spent much time discussing biological tissue. Tissue is an important part of our medical device industry, from autografts that are taken from and used in the same patient. You know, think of the use of saphenous vein and bypass surgery to xenografts were tissues taken from another species, thick of heart valves made of pig or cow tissue to allografts that are taken from one human and use in another. Think of cornea replacement. This tissue that we're using, depending on your where it comes from can be very complex to categorize and to regulate, and also has a geographical component as well with different regulatory bodies in different parts of the world. Our guest today is Karen Zaderej, CEO of Axogen, where they provide technology solutions to help restore feeling and functionality to damage peripheral nerves. After a 17 year career at the Ethicon division of Johnson and Johnson, Karen took on the challenge of a startup company, and has built a successful group that's delivering much needed solutions to clinicians and patients. Karen, her team have developed strategies and products that have led to the developing field of nerve repair, using tissue as a source for many other products. In our conversation, we discuss what nerve repair is why it's important to bodily function and the quality of life of patients. Why regulatory excellence is one of their key strategies, building a successful career and the unique way they funded their company. Here's our conversation. Karen, when many of us think about medical device, we think about plastic and metal, and and lately software. But your company is built around another type of material. And sometimes the regulatory bodies have different opinions and changes on those different materials. And we'll get into that in a couple of minutes. But But I wanted to start off the conversation kind of talking about the problem that you guys are solving what's the patient problem that you're solving at oxygen?
Karen Zaderej 03:02
Sure, well, we are solving a problem people haven't thought about a lot, but actually is a big problem for many patients. And that's the area of peripheral nerve damage. So nerves run alter your body, the wires that carry signals to let your muscles move or to tell your muscles to move, and also to give you feedback about the environment. So that's all of your sensation, temperature, vibration, all of those signals are carried on nerves. And nerves can be damaged in lots of ways. It can be something like a traumatic injury, where there's obviously soft tissue damage and the nerve is is injured, you can be injured in surgery nerves are cut many times in accessing what you're trying to get to in the surgery, or they may be caught when they're trying with a retractor to get space in the surgery, they might get compressed, all of those are ways that nerves can get damaged. And there can also be congenital or just natural anatomical variations that can cause constrictions on nerve like carpal tunnel syndrome, where you have the numbness and pain in your fingers. That's still a nerve issue, but it's created through a natural anatomical constriction on the nerve. And so when you think of that wide variety, people don't think of those things as nerve injuries, but they're actually the impact of these wires of your body not able to carry signals. And we saw an opportunity to really help patients across a variety of problem sets. And that was the birth of of oxygen, the company that we're we're focused on today.
Patrick Kothe 04:33
So let's talk about the types of products that you use to repair nerve damage.
Karen Zaderej 04:40
Yeah, there are lots of things that you can do in the area of nerve we really focus today on three concepts that we're helping surgeons with. And these are all surgical repairs that we do. So this is when a nerve is cut. How do you restore the continuity of that nerve allow regeneration and that signaling to occur? her. And nerves are a little different than other types of tissue and that you can't pull them together if there's a loss of segment of nerve, because it cuts off the blood supply and they don't heal well. And so if there is a loss of segment, you have to do something to bridge the gap between the two nerve ends rather than snugging up the ends of the nerve. So that's our flagship product that's advanced nerve graft. Now there are other times when a nerve can have a sharp laceration, there's no loss of segment, you can bring the two nerve ends together without any tension on them. That's the standard surgeons would use to decide that it's appropriate to do a direct or co optation assisted repair. And we have x a guard nerve connector that is used to help in that situation. And it basically, there's no tension on the nerve ends, but you still have to mechanically hold the nerve ends together. And it's ideal if you can also seal up the coaptation so that you don't get infiltration in between the two nerve ends as the healing process is going on. So we have two products to help when a nerve is cut. Another time is when you have that compression, like I mentioned in carpal tunnel. Now compression can come from that anatomical constriction. But it can also come from things like surgery, post surgery and soft tissue attachments may impede or impinge on the nerve. It can be in trauma in particular, where you might have a plate on a bone adjacent to the nerve and it puts pressure or a kink on the nerve. And there can be a need to surround the nerve and protect it from that, that compressive force. And so we've actually got nerve protector which is used to create essentially a sleeve around the nerve and keeps the surrounding tissue up and off of the nerve and yet allows the nerve to glide freely, which is particularly important in your arms and legs. As you move around. You don't want to have something holding the nerve in place. Actually, if it's if it's held in place, when you move, it'll be like a sharp painful tug. And so we want to make sure that that nerve can freely glide. And then the last thing that we do today is help surgeons when they need to end a nerve. So there can be a lot of times when you cut a nerve and surgery, you can't replace or repair that nerve happens actually every day in surgery. But you know, think of it as an example an amputation, obviously, you can't connect the nerve ends because there's no distal stump to connect to. But you need to do something to manage that end of the nerve or what will happen is nerve fibers will sprout out they'll get tangled up into a scar ball that's called an aroma. And that neuroma can become quite painful. And that is the source of phantom limb pain. So when people talk about as a lower limb amputee, if they say their foot hurts, but obviously they don't have a foot, How can their foot hurt? Well, the nerve that used to go to their foot now is sending aberrant signals back to the brain and and the brain interprets those aberrant signals as pain. And so we see an opportunity to help reduce chronic pain by actually resolving these physical anomalies in the nerve, and then managing that nerve end. And those are the three problems that we really focus on helping surgeons with the solving for their patients.
Patrick Kothe 08:14
So many times when someone goes in for a surgery, it's performed and and nerves are cut, and surgeon may say, well, it may take a period of time for this recover maybe six, six months until you get feeling back or you have have that is that natural growth, or have they done something to do repair at the time of surgery?
Karen Zaderej 08:40
Yeah, well, first, let's talk about what normal nerve recovery is like because nerves do heal slowly. So even with the repair, so we talked about nervous transected, they repair it with advanced nerve graft. What happens with nerves is from the point that the the nerve is cut, it will need to regenerate from that point all the way to the distal target. So if you have a cut, let's say at your elbow, the nerve is cut. Ultimately, the regeneration will happen through that repair site through the original nerve, this still remaining intact and all the way to your fingertips for you to achieve regeneration and functional recovery in sensation and your fingertips. And that regeneration process is very slow. So these nerve fibers move about a millimeter a day. So if you add up all of that time, if you have a cut here in the middle of the elbow, by the time the wound is healing, and that regeneration process starts you're probably looking at a year before you have full recovery at your fingertips. And so it is a still slow process in terms of the full functional recovery and regeneration. Now sometimes surgeons will say, Hey, you have a little bit of damage here but you're you're feeling numb. Don't worry, you should see things coming back in the next few months. And typically what that means is that it is They traction injury. So that's they had to retractors they may have pushed or clipped the nerve a bit. The nerve itself is intact. And it will in many cases, not all, but in many cases still be able to grow through that structure and restore continuity, you won't have damaged all of the nerve fibers, only some of them and that's why you have this loss of sensation or perhaps a weakness. The thing to watch in those situations is sometimes it may also turn into a neuroma. So if pain comes back in that three to six month timeframe, then that's probably a signal that there may be a problem with the nerve as well as the regeneration. So so that's the sort of feedback that we try and get and raise awareness with surgeons is to think about both the problems that surgery can cause to nerves, but that also that there are solutions to those problems, and a patient needs to see a specialist within a reasonable time period to get that fixed.
Patrick Kothe 11:00
At this point in time, you've been on the market for quite a while, how has that education filtered down to the surgeons? I mean, is it something that they know about that they haven't adopted? Or is it still they don't know? What they need to know?
Karen Zaderej 11:15
Yeah, all across the gamut in different surgical areas. One of the interesting challenges we're going into nerve repairs because it is so broad and diffuse, you can't tackle everything as an especially as a smaller company when we started out at the same time. So we decided to prioritize where we would put our efforts and and see opportunities to continue to expand in many places even beyond where we are today. But the areas that we focused initially were those traumatic injuries. So there is already high awareness of the potential for nerve injuries and trauma. And there were good referral pathways in place to refer if there's soft tissue damage and parent nerve injury from the emergency department to either hand or plastic surgeon for the surgery to fix the nerve. And so we started focusing on the traumatic injuries because obviously, the referral patterns were already there. But then we needed to raise awareness in other areas even start talking about the injuries in nerves and to start raising that awareness with the with the clinical population. And so we added in two areas of surgical oncology. So there, if you think about it broadly, every time you take out a tumor, there's a risk that you may be cutting a nerve and many of the morbidities of these surgical oncology procedures are actually nerve injuries, they aren't because you had a tumor there because in and getting the tumor out safely, they need to go ahead and get an especially a malignant one to clean margin. And that may include removing part of a nerve. And so we've started focusing in first in oral maxillofacial surgery. So when people have a mandible reconstruction, traditionally, they would have cut out the nerves that would give you sensation for that half of the mouse and those are now repairable at the time of the procedure. And we've been working to raise awareness with these Oral Maxillofacial Surgeons and head neck surgeons who do these procedures. I would say there's reasonably good awareness now that there is a solution set and we're working to expand out to get people trained and, and also to recognize the impact on patients patients. In many cases for these quality of life, things need to advocate for themselves that it's important to them that they want to have sensation in their mouth. We started also in breast reconstruction. So traditionally, when women had a breast reconstruction, they were given the shape of breasts, but the woman didn't have restoration of feeling restored that just wasn't traditionally part of the reconstructive process. And what we found in talking to women is that this was actually quite important to them, obviously, their first priority is to live to be there for their families. But when you start talking about what's their quality of life expectations, sensation is pretty high on that list. And fact that they talked about how important it is to be able to hug their children and still feel that nurturing sense that they can feel them when they hug them. And and that's hard to do if you have no sensation. And so we started working with some leading surgeons on techniques for nerve repair and develop the recent sation technique. And at the same time started to educate patients to be able to ask questions to, to first of all be knowledgeable that they would be numb following their procedure unless they had a recent session technique and to be able to advocate for what was important to them. And what we found, quite honestly, is that women were uncomfortable initially bringing this topic up to their often male surgeons. And so we have tried to help them get a voice so that they can bring up if it's important to them, they can bring it up and they can have that conversation. And so today I think we've done a very good job of Cree Eating a patient awareness that we have educational tools to help patients be good advocates for their own health care pathway. And and they are going in and talking to their surgeons, we actually have tools that they can print down of questions to ask your surgeon things for you to consider in your care pathway. And we find that those tools are used quite frequently. And actually, I'm getting surgeons saying to me now, what are you people doing everybody's walking in with your list. So we so I feel pretty good about that, that patients are recognizing and making good choices for themselves and having those conversations with surgeons, so So certainly, we think there's an opportunity to continue to raise awareness in breast reconstruction, we initially focused on what's called the deep flaps, or these are where they do essentially a tummy tuck and use that tummy tuck to create the breast. And we're just now expanding into the breast implants as well to provide that same sort of education for women who choose an implant route for their reconstruction. So, so lots of opportunity there. But I think we've got a very good start and in helping those patients be good advocates. And then I mentioned pain before. And that's the fourth area that we've started to work in. nerves that heal badly can cause pretty significant chronic pain. And that has, in the past been something that following the surgery, that patient comes back, they do an assessment of the patient to make sure that the original surgery was done correctly. For example, if it was a total joint replacement, they're going to do an x ray, they're going to make sure that the joint looks good. But if that was all good, the only option that surgeon had would be to send that patient to a pain clinic to be to have the the symptoms of pain managed. And typically, that would be with a variety of pharmaceutical options for this type of peripheral nerve pain. And with the now thinking of well, it is actually a physical anomaly in the nerve, it there's an opportunity to do a referral to a pain surgeon, which is usually a hand or plastic surgeon who also does the surgical treatment of pain. And they can do a relatively simple diagnostic with a nerve block, which would if that takes away the pain, it's a pretty good option that it is it is likely the nerve that causes the pain, and then the surgical procedure to remove the neuroma and either repair it or terminated as we talked about with AquaGuard nerve cap. So we think that's a an important area to help people who are in chronic pain actually solve the cause of the pain rather than just treating the symptoms.
Patrick Kothe 17:36
So you've got kind of a complex group of products as well as solutions. So an applications. So the products, some of them are, you know, the connectors are non biological, and nerves are biological material. And I imagine that you can we'll talk a little bit about the regulatory side of things and how things go through regulatory. But as you're talking through here, I'm also thinking about the reimbursement side of things, and kind of what approach you took. So let's start off with reimbursement here, because you've got some more preventative types of things, and then some that are solving issues. So how did you approach reimbursement for all of these different applications?
Karen Zaderej 18:23
Yeah, great question. And obviously, you can have a wonderful solution. But if nobody can afford it, it's not going to reach much help in patient care. And our goal is to help patients. And so what we do so in all the areas that we're in today, we're actually treating symptomatic issues. So versus a preventative because that gets to be even more complicated. But even then, you're talking about a surgical procedure, the way reimbursement in every country, obviously, is different. But let's just talk about the US for right now. The way these are typically going to be reimburses under the DRG or CPT for the procedure, inpatient versus outpatient. And so you've got to look at the overall reimbursement to make a determination as to whether an area can afford to have this added cost. If you can't do that, then there has to be some other value proposition for the hospital and the physician to be interested in. In doing this. They're all interested in good health care. I'm not trying to say that people aren't interested in doing that. But there's an economic component to all of this. And so in trauma, we actually have a recent publication that validated this information. So it's very exciting. This is just come out at the end of December in any publication and PRS is that we're actually replacing surgical techniques. So they didn't ignore these nerve repairs before and trauma and others they might have. But what they did was a surgical technique, which was an autograph, so it's taking a nerve from somewhere else in the patient's body, creating a permanent deficit in one place to pick something that was more important to the patient and another, the most common there If they took gave you a lack of sensation sort of the top inside of your foot, it was the sural nerve nerve and it provided that sensation. But if that allowed you to move your hand, most patients would say that's, that's okay, I'm I'm willing to do that. On the other hand, it's not free, even though it's coming out of the patient's own body, this material is free, but there is a surgical procedure to remove it that takes 30 to 90 minutes of our time. It has the drapes and sutures and, and materials that you need to do any kind of surgery and then closure of that of that wound. And, of course, hard to quantify in terms of cost. But there's also the risk of complications following that surgical procedure. And just the cosmetic issue with a long incision, typically from just below the knee to typically just above the ankle, so you have a really long incision down the back of the leg. But if you look at just the tangible cost, the paper showed that in Medicare claims data that we were actually equivalent in both inpatient and outpatient substituting our off the shelf product for for the surgical procedure. Important to note that surgical procedure is not reimbursed separately, it's considered part of the repair. So so good to say in that case, well, good, we're providing an option without the downside morbidity and the cosmetic deficiencies that you end up with an autograph that provides equivalent clinical outcomes and is the same in terms of cost. That value proposition is different if you're talking about something like breast reconstruction where they've never repaired the nerves. And so in these situations, you have to look at the value in terms of quality of life, and see Is that sufficient that patients will gravitate to where they can get a particular part of a procedure done, and that's our value proposition in breast reconstruction is that we're again arming patients to be advocates for their own health care. In this case, it might mean they need to change hospitals to have their surgery done to go get re sensation as a part of their reconstruction. Again, that's where they're going to decide, Is it important enough that I'm going to move to another hospital or maybe even another town to get my surgical technique done in the way that that I want it. And in breast reconstruction, we are seeing it is pretty important. And patients are willing to, at least to some extent, change their care pathway to get the procedure completed. Other areas, there might not be as much mobility, but it may still be an opportunity for a private pay. In some procedures, we've not actively pursued that. But I do think there are surgical procedures that will ultimately come to is this private pay or or some other option in order to get the procedure completed?
Patrick Kothe 22:56
On the pain side? Have you gotten things reimbursed there and done done analysis based on medication costs and those types of things? Yeah,
Karen Zaderej 23:07
we're so on the pain side, I think there is opportunity to get some direct reimbursement. We have not completed that work yet. But CMS is actively looking for alternatives to opioids in particular, we have some preliminary data that with our AquaGuard nerve cap that shows that we can reduce pain. If you look at these patients, they're on a pain pain scale of zero to 100. They're about 80. So pretty high on a pain scale. With removing the neuroma, you can drop them down. So there'll be you know, in the 20 range and then actually dropping down to in the teens or near zero and durable out over time. So that's the other part with pain is that sometimes the brain remaps and the even though you've removed this stimulus, they actually come back and the pain is restored, or at least isn't the the sensation of pain is restored. And this case, were able to show that we had a reduction in pain and it was durable out over 12 months. And in those cases where patients were on opioids, their opioid usage dropped. So again, small study is initial data, but certainly very promising. And CMS is looking for some of these alternatives. They actually put out a bid for biologics and drugs and are providing some reimbursement options for biologics and drugs that meet that pain reduction. But they have said that they'll be doing that as well in medical devices. And so we've been in conversations with them and and think there's a real opportunity not just for our treatment, but for any of these medical devices that can help reduce opioid usage. I think there's a health need for that and CMS is interested in providing reimbursement to support that.
Patrick Kothe 24:43
So let's talk about the ELA graphs. Tell me where they come from, approximately how you know what size they are, how long they are, and how you process them.
Karen Zaderej 24:53
Sure. So our flagship product advanced nerve graft is made of human tissue so it is a which is called an alligator. For those people not familiar with that terminology. So essentially through the tissue and organ donation process, every family or even you on your driver's license often can check whether you're interested in being an organ and or tissue donor. And with that, upon death, you're signed off to do to consent to go through a medical review to see if you're qualified to be an organ and or tissue donor. And, and so we go through that process where we work with a number of recovery agencies across the country that they will actually recover nerves through recently deceased donors, and it's at the time of death, essentially. And then we go through a pretty detailed medical and actually Social History screen to make sure that we have tissue that we believe will be safe and appropriate for transplant into a living patient. That takes a while. So in the meantime, we store the tissue frozen. And then we go through a pretty rigorous process where we decellularized the tissue. Now why do we decelerate it, it's not that cells are bad. But in particular nerve cells, the schwann cells within a nerve are highly immunogenic. And so you'd have a strong immune response. And you'd need to take immunosuppression, which in itself causes other health issues, and probably is not warranted, just the complications would create enough health risk that it's not weighed by the benefit that you get in nerve surgery. So we want to make sure that we remove the immune response that you would get in having the cells there. And essentially, what we're left with is a three dimensional matrix of human proteins. And the body sees that and responds by saying, oh, I should essentially make a nerve here. And in fact, it recruits cells from the patient's own body, the schwann cells from either end of the nerve will migrate in, as well as actually as quickly as it revascularize is, and and then it provides a guidance, both physical support for the regenerating nerve fibers they need, they need some sort of road to follow. So this gives them the physical road to follow, but also provides biochemical cues that gives them a direction and a path to follow. So think of it as like the lights on a runway, you've got a runway that is the equivalent of the road, but the lights tell the direction or path to follow. And there are certain proteins that give those cues to your nerve regeneration that ultimately ends up providing that complete recovery. Now, interestingly, in nerves, there are also certain proteins naturally that shut down regeneration. And it's just part of the healing cascade that happens so that your body does not continue to generate nerves over time. So certain proteins go into place, and they basically create a stasis or, or constant system where there's not continued regeneration. And we want that regeneration. And so we also, in addition to all of that, selectively go into this protein matrix and inactivate certain proteins. So in essence, we take the stop signs away that allows full regeneration to happen. And nicely, when regeneration is done, the body puts back the stop signs. So the regeneration process once complete, we'll go ahead and remove and replace the portions of those proteins that we've removed so that you have again a stable system. So that is the how we get the nerves and how we have advanced nerve graft is through tissue donation.
Patrick Kothe 28:42
When you think about arteries throughout the body, you've got different size arteries, aorta is a big one. And then you got your smaller arteries kind of kind of going through our nerves the same way different different size nerves, when you're obtaining tissue to to come in. Do you need different size nerves? In order to satisfy all the different applications throughout
Karen Zaderej 29:03
the Yeah, no great, great question. Nerves are different diameters throughout the body, you go from, you know, in your fingers, your digital nerves are maybe a millimeter in diameter to your sciatic nerve, which can be you know, a close maybe the size of your thumb. So you've got kind of a whole range of diameters across the across the body. We provide various diameters from one millimeter up to five millimeter. When they get into larger diameters, like the sciatic nerve, they actually will typically do a bundled or for circular repair. So in that case, you've got nerves are sort of built like, like a cable, right? There's bundles of wires that are grouped together in a fascicle. And then those fast signals are grouped together to create an overall nerve, and we get into the very large nerves, you're going to try and match fascicles and so they'll typically use our law larger diameter nerves, but they'll use several of them to repair like a sciatic injury.
Patrick Kothe 30:06
Who does the nerve repair surgeries at every type of surgeon or specific types of surgeons,
Karen Zaderej 30:12
yet not every type of surgeon, nerves are often even often tiny, and they're typically the repairs done with magnification either microscope or loops. And so it is typically only surgeons who are micro surgically trained who will do this kind of repair. So there are most commonly hand surgeons, or plastic surgeons are trained in microsurgery. And then there's some other specialists who may do different types of reconstructive procedures, who will end up also doing so that they may be a specialist in oral maxillofacial surgery. But they're also micro surgically trained to do reconstructive techniques. So it wouldn't be every oral surgeon but those that are micro surgically trained will do this repair.
Patrick Kothe 30:57
So going to your breast surgery issue, that's typically not gonna be a micro surgical person who's going to do removal of the breast or reconstruction of breast is that correct? So do you have two surgeons that are performing a procedure at the same time? Are they staged?
Karen Zaderej 31:17
Yes. So the oncologist who removes the the breast will not be micro surgically trained, but they typically partner with a plastic surgeon who is it's the plastic surgeon who will do the reconstruction. And so they will be typically micro surgically trained to be able to do that. And they have to partner regardless if this patient wants to have a reconstruction, there are a number of considerations they need to think about, where are the blood vessels? How do I hook them up? How do I build this flap? What do I do with the skin? All of those are considerations. So they do plan those reconstructions and typically work as teams already.
Patrick Kothe 31:54
So on your sales and marketing strategy. are you marketing to the microsurgical? Micro surgeons? are you marketing to general surgery? Or who's your target market? And who is your tertiary market?
Karen Zaderej 32:09
Yeah, great question. Same problem I talked about before is that this is such a vast area, I could really in a perfect world educate everybody about nerves, but I don't have the bandwidth to do all of that. So we focused on the person who's doing the training, or excuse me, who's doing the repair and training those surgeons for what the options are in nerve repair. We are looking at raising awareness across the board. So for example, trauma physicians, can we raise awareness so that they're better it's even identifying those nerve injuries as they come in to the emergency department, or, or other surgeons, for example, in oral maxillofacial, one of the areas that we think is interesting and could be an expansion area, are I intragenic injuries from dental procedures. So this is putting in dental implants or extracting wisdom teeth, they sometimes rarely, so don't be scared everybody that this is they should be afraid of their dentist. But sometimes they go in and actually transect this nerve that runs right here through the jaw that gives you sensation of your lip and chin area. And and what happens is the patient calls back the next day and says how come the anesthesia didn't wear off and you know, I know the anesthesia is already worn off. But something's happened to the nerve. We need to educate or raise awareness with the the broader dentist community and oral surgeon community to get those referrals to a specialist in that case. So again, it's all about information flow so that they get the referrals going. But those are expansion areas. Today we focus predominantly on that person who is doing the repair, we've got so much opportunity even with that group, that it's sort of an 8020 rule, you spend your time on the thing that you think will yield the biggest impact.
Patrick Kothe 33:58
And it sounds like you did the same thing where you choosing which markets to attack first, as you know, which which ones are going to have the largest clinical benefit as well as financial opportunity.
Karen Zaderej 34:10
Yeah, absolutely. Again, it's so much fun to think about all the things we can do in nerve but we're not going to do all of them right now.
Patrick Kothe 34:18
Just thinking about those, those people that take 12 months to get good sensation back in their foot after a total knee or or something like that, and it's not necessarily something that that surgeon is going to do. So how do you prevent that from ticking or how do you make that less than 12 months? By doing some some surgery at that at that point in time?
Karen Zaderej 34:44
Yep. Now, there are a gazillion technical term, a gazillion opportunities to continue to expand and nerve repair to to both make it more accessible to surgeons who are not comfortable with my for surgery microsurgical techniques and to think about that point of, let's call it intentional injury of nerves. That sounds funny. But in surgery that's part of it is you need to move nerves to the side to be able to get to things that are deeper. And so nerves are intentionally injured in surgery, and can we help arm those surgeons down the road with ways that they can put them back at the end of that surgery, so you don't have deficits that are repaired in a second procedure.
Patrick Kothe 35:30
Fascinating business. As I said, you know, we're used to dealing with, with metal and plastic and things but Allah grafts are something that I've been a part of with different companies, but a lot of a lot of people aren't familiar with it. And it's a different business. And it's not only processing, but it's obtaining as well and developing those those relationships as well. But you didn't, I want to, I want to shift the conversation a bit, because I want to go go to start talking a little bit about career, you spent quite a bit of time in this space, but you had a life before this space, too. So So you you joined the company, in what year did you join
Karen Zaderej 36:11
it as well, officially, they can start paying me in 2006. I started working with him in 2005. But you know, there was no money then. So if my official start date is 2006
Patrick Kothe 36:24
I know that drill? Well. It's not it's a very painful drill. So So prior to that you had quite a successful career at Ethicon. Tell me a little bit about getting into the business and, and, and the different things that allowed you to grow within us within us.
Karen Zaderej 36:41
Yeah, I did, I started my med device career at Johnson and Johnson Ethicon as the primary company and and it was just a great place to learn, learn all about the business and and all the different functional parts of a business and how they fit together. And I'm really grateful during that timeframe that I got a nice broad chance to am an engineer undergrad MBA. And so I started in engineering, I worked in manufacturing, I got a chance to do some r&d things, I moved into strategy and to marketing and to sales, business development, got a nice broad sense of how all the pieces of the functions fit together and make a strong organization. I also decided that for me, what I really like is new stuff. And so and what you find in big companies is that they have really best in class processes and and they can create tremendous horsepower around a successful patient solution. But they don't generally, and this is a generalization, but they don't generally create that solution. They generally buy it and bring it in. So I did business development, which is that licensing and acquisition component for a period of time and really enjoyed that. But finally, was honest with myself saying, you know, I think I'd really rather be on the other side of the table, be the smaller company coming in with something that's really impactful that can change patients lives and it's something new and innovative. And and to sort of build that from the ground up. And so I did decide to leave very unusual thing for somebody to leave again, fabulous company, I learned a lot my friends all thought I was completely out of my mind that I quit this fabulous company and job and left with no job because I said I'm gonna go start something I don't, I'm not going to go be hired, I'm gonna go start something. And and ultimately, I didn't found oxygen. But I joined a very tiny team when they had I was the sixth employee in 2006.
Patrick Kothe 38:56
So going back to your career progression at Ethicon when you started off in engineering and r&d. And then you moved into these other roles. Was that something purposeful from you? Was it something a management track that the company had? What were you trying to do by getting all of these different experiences
Karen Zaderej 39:19
j&j really does a good job of having those career discussions to say what's the right thing for you? There's not one management track, there's multiple management tracks, and what's the right thing for you and for me, it was to move from being a pure engineer and to really, things that I had discovered I really enjoyed and that's marketing and and to continue to think about market development and how do you change the behaviors of surgeons? After they've been trained after they've gone through their residency and their fellowship? And what do you need to do? What are the critical elements you need to build in that market to make change happen? You And I just was fascinated by that. So I was really grateful I had a chance to do that and continue to grow and development within to develop myself within within j&j. I think there are some different skills that you need in small company. So the big company, small company piece, you know, I learned the big company things, but I think I had some inherent characteristics that allowed me to move from a big company to a small company, I'm not, you know, I've had people ask me all the time, which is better, and I don't think there's a better, I think it is really what gives an individual their most enjoyment and passion. And, and there are some downsides to being in both and and so in a big company, you're really focused on leveraging and influencing within the organization to get resources, but at least resources exist in a small company, that you gotta go create the resources, because they aren't there. And another big difference that I've seen in a, in a big company, they tend to be much more cautious about the clear aiming and assessment. So we used to joke say, aim, aim, aim, aim, aim, aim, okay, now you can shoot, that's, if you think of that analogy. We're in a small company, it's sort of getting the general direction, and go and go that way. But there's a real difference. Again, in scale and a small company, if your aim is off a little bit, you can course correct pretty quickly. And whereas in a big organization, it's just more less flexible, less ability to turn and course correct. And so that aim has to be really correct upfront. The problem is, it trains people to not deal with ambiguity and data. So in a big company, people can learn a bad habit, and that's freezing in the face of poor data. And in a small company, if you freeze you die, you cannot just stop in place, because you're burning capital. And, and when you're a tiny company, Every Day Counts. And so it's better to take a step forward, and then of course, correct than it is to stand still and not move forward.
Patrick Kothe 42:19
The phrase that I use Aries, you need to be directionally correct, you don't need to be perfect, directionally correct. Because you're gonna make some of those changes, but same time, we're gonna we're in a different field to in many other fields, software, apps, whatever, fail fast is something that you know, it's something that's that that's invoked, you don't necessarily want to fail in medical device, you, you want
Karen Zaderej 42:48
to pick your risk, you can fail from a business standpoint, not that I encourage people to do that. But that's a business risk. And that's a choice you can take what you can't fail at is patient safety. And so you can't compromise on that. And anyway, you know, one, it's it, you know, you're dealing with people's lives, and you don't want to be trivial about that. But also it is the total end to all the work that you've done if you make a mistake. And that's you do have to be very careful, in my opinion, in the area of of patient safety. But if you're trying to decide, you know, what's the best targeting of your surgeons? Well, you know, you can fix that as you go along.
Patrick Kothe 43:28
So flexibility and being able to do a lot of different things is something that's important. And in the startup world, we started talking about changes within regulatory, and there let's talk about that a little bit. Because that's a place where as a startup company, you need to be nimble, but you need to have deep domain expertise and and a lot of different areas. So can you talk to me a little bit about what's going on from a regulatory standpoint at your company, and how you're managing that as a, you know, you're not you're not a startup anymore, you're what you're going to do close to 150 million this coming year. So you've got a significant Company, but you don't have all the resources that a j&j has. So how do you pick and choose what how you manage and how you resource in a changing regulatory environment?
Karen Zaderej 44:24
Yeah, I think it starts with your strategy as a business to decide what are you focused on and we have chosen to be focused on really, what is the best solution for peripheral nerve repair, which means we allow so means we're very narrow and peripheral nerve repair and even though we call on hand surgeons, we're not going to sell them handsets to fix bones, we're going to focus on peripheral nerves. On the other hand, it means that we have a bright a wider array of skill sets we need and things like regulatory pathways or Technology. So, you know, we have Allah grafts and Xena graphs animal based regenerative medicine, but we also are doing work in areas beyond that in our pipeline. So we are looking from a discovery standpoint at technologies even past those. And so we've said those are all fine, we're agnostic as to regulatory pathway with the notable exception of systemic drugs, just that's that is out of our skill set. But today, we have tissue, medical devices, and now a biologic that we work on. So we do have a broader range of regulatory pathways than most medical device companies would, would plan to do. And it means you've got to resource it and have the skill sets within the organization to be able to navigate those pathways. So you just have to make sure you keep bringing in a like any organization, but especially in smaller and growing organizations, talent is your fuel talent is what allows you to do all of the things that you have laid out in your strategy. And you have to be very strategic and thinking about your talent, you're trying to get people who can be as flexible and diverse as possible. We're still deep subject matter, expertise. And that's how you recruit is to bring people in like that.
Patrick Kothe 46:13
We kind of describe things from more of a US perspective. But every one of those areas, whether it be device, or biologics, or Xena, graphs are regulated differently in different parts of the world. So not only do you have products, but you have geographic issues dealing with that as well. And you, you can't, in my estimation, you can't bring everything in house, you need to have some outside experts as well.
Karen Zaderej 46:43
Yeah, well, you definitely leverage lots of outside experts. And you know, it's the sort of extended family of people who can give you advice, both informally and formally as consultants. And you're absolutely right, it's our product. If I look at advanced nerve graph, just as an example, again, a human Allah graph, human Allah graphs are exempt from CE mark, which means you have to go country by country, even across Europe. So you can't do a CE mark. And even across Europe, in some places, they're regulated as a tissue. And some places, they're regulated as a medical device and others, they're regulated, actually more like a biologic. And so you have a wide range of regulatory requirements across with the exact same product with the exact same claims across country to country. And so it does take bringing in some local expertise to help figure out how you navigate that. And then of course, just getting regulatory approval is not enough, you also have to think about reimbursement and think, what's the next step to get reimbursement in each of those countries. And so bringing in resources is an important tool to make sure that you're navigating appropriately. And I would also just go back to the and prioritizing, because, again, you cannot do everything everywhere, all at the same time. So well, we are starting to get an international presence, we've definitely prioritized us as our first market. We've built a dossier of data in the US now that we can then take to other countries. And because we have such an extensive dossier in the US, as yet, we've not run into requests that we don't already have data for so but you really have to think about how you're going to roll from country to country, when you've got these diverse regulatory processes.
Patrick Kothe 48:29
It was really interesting to hear you talk about regulatory is more more or less a strategic competitive advantage within your company. It's something that is it's important in every medical device company, but it's not as critical in in, in other companies, so elevating that that group within your company sounds like something that, you know, as you said, it's a strategic decision that you made, because it helps to drive your business.
Karen Zaderej 48:59
Yeah, we've, we believe it is an important strategy and in fact, would view our regulatory strategies as having greater impact on keeping us as a unique player in the market, even above IP. So we do both. But I think there's usually medical devices more focused on IP, and we recognize the opportunity to do IP and regulatory pathways to help make sure especially when you're doing complicated market development, you don't want to carve a pathway and spend the effort in doing that, only to have somebody else in there selling for five cents less and and trying to convert your business over to them with a me too product. So it was important if we were going to do the investment to do this expensive market development build the amount of clinical data that we've built. We needed to make sure that we built it in a way that we had the elbow room to continue to benefit from that work.
Patrick Kothe 49:57
We started kind of going down to the The career pathway. And I want to go back to that for a second, where you learned different things with different functional areas. But you also learn through different experiences that you have, in each job, one of the learnings that I think you had came in around in around the 2008 to 2011 timeframe, when we had a real issue, financial crisis going on, and you were at a startup company, and trying trying to trying to manage that. And one of the things within startups is, you don't have a startup unless you have cash. And startups are always burning cash. So you took quite a pretty unique step in how you funded the company. Let's talk about that a little bit.
Karen Zaderej 50:47
Sure. You're exactly right, startups are fueled by talent and money. So you have to have both in order to be able to execute on your vision. And in 2007, we had our first clinical implants, we are head down working really hard, trying to NVC back. So we are venture capital back trying to meet our next milestone to get our next tranche of money. And I guess the big learning that I had is always have your head up when you're the CEO, there are other people may have their head down, but you have to have your head up. And I was surprised to find that because of the economic downturn, the VCs ultimately said, you know, we think this is going to be bad. And from a macroeconomic standpoint, you guys have done a great job. But we think we need to fund our already commercial companies and not our development stage companies. And so that next tranche of money, it doesn't exist, and I was not prepared for that. So that was a lifelong lesson of always have plan A and plan B, and preferably, and Plan C, for you who are in that situation. And so we do that today, we always have backup plans. But I didn't have a backup plan at that point. And so we looked around and said, All right, we're gonna have to figure out how do we move forward both in prioritizing ruthless prioritization about what is most important for the company to move forward. And, and at the same time, figure out how to raise capital in a market where we weren't fundable from the traditional routes, like venture capital. And so we did a variety of things. For a period of time, I went directly to high net worth individuals and raised money through friends of friends, and actually funded the company for several years that way. At some point, friends of friends stopped returning your phone calls. So if you're okay, I'm running out of friends of friends. And we still have to have money, because that's part of the fuel of how things get done. So this is probably in the 2010 timeframe. And what I found is at that point, VCs were out raising their own funds that they'd burned through the funds that they had previously, they hadn't been able to raise money in the 2008 2009 timeframe. They were raising funds in 2010, but then close their funds. And I was on a countdown to bankruptcy, I literally had X number of weeks of cash. And in fact, I met every Friday was my employees and told them how long I had run away for payroll, just believed in being transparent and telling people that we were doing very good work, and they were doing all the right things. But I didn't want people to be in a situation that they were surprised. So we met and talked about very openly, here's how much cash we have. And here's how long I think it'll last and then we get a little bit more something would come in and okay, oh, we've got a little longer runway, that's good. But that couldn't last forever. So I was out talking to VCs and found, while they were interested in investing, they couldn't give me a firm timeline. And so looking for a Plan B, remember a plan a plan B, plan C, we were introduced to a company in a really unique situation, they were a public company, they had been operating for a number of years, they'd sold products for a number of years, ended up in IP litigation, and got awards and settlements so that they had cash. But as a result, they'd also out licensed their IP in those settlements. And so they were in a unique situation of having money and a public platform, but they really no longer had products. And here we were a little starving for money company, but we had great products and a good operating team. And so we did what's called a reverse merger. And so with that, we became instantly a public company without a true IPO. So we're a public company no one has ever heard of, because then had all the marketing of an IPO. And it was a penny stock. So pink sheets not very easily traded not very liquid. In the short term. It didn't matter because we had enough cash with the capital that they had for us to work another couple of years, we got through some development milestones, and then actually in 2013, so we did that reverse merger in 2011. And then in 2013, went out and did sort of a, it was a public raise, but we did it in a way that was like a pseudo IPO. So it was really our first introduction to the public markets, and we uplisted to NASDAQ. And so from that point, we've been a public company actually traded on NASDAQ, and, and at least, a little more awareness about us and then medtech investors.
Patrick Kothe 55:33
So I've, I've done private companies been CEO of private companies, I've never been CEO of a publicly traded company, tell me about the differences between being private and being public.
Karen Zaderej 55:45
Yeah, there's a lot of differences. In fact, when we moved to be a public company, I've always believed in reaching out and asking for advice from people who have been down a path in front of me. So I found about 10 CEOs that had one way or another taking a company public in the prior year. And and they were very generous with their time, I just wanted to ask questions that say, Well, what did you learn? And what would you have done differently? And how did your team adapt to the change? And, and pretty much universally, we heard things I didn't necessarily want to hear, but they said, it's going to, it's going to cost more to be a public company than you think it will. That the short term focus on quarter over quarter results is going to change the culture of your company. And it just is the way it is because you're gonna have to stay focused on the quarter you can't miss on a quarter. And and this was the one that was the hardest for me actually to believe. But they said your your team will make the journey. Your team today will will look around and say wow, I really miss you know, the nostalgia of what we used to have as a smaller, less visible less being in living the glass house than we are today. And they'll make choices that are the right thing for them. So you need to be comfortable with that. And I'm glad I made those phone calls, we did have some of that transition, we did have people who looked around and said, Wow, this is just it's I'm so glad oxygen is growing. But it's just not for me now that it's a public company. And having said that, on the other hand, there was a lot more capital availability in the public markets than we would ever have had in the private markets. And because we always had a long time horizon, we also were able to outlast what you would typically have with a VC fund life. So for those of you who are in the private markets, you should always know your VCs have a life to their funds. And when it's time to close out the fund, they need to monetize their investment in you. And that means you're going to get sold. And so or something will happen to monetize that investment. And and we didn't have that issue because it being in the public markets, we could move past that. So like I said, I don't think one is right or wrong. I think just as a CEO leading through that, you've got to go out with your eyes open and and just understand what your investors are looking for in terms of the return in in their investment in you.
Patrick Kothe 58:12
Not only are your employees and the culture changing, but your management may change as well. So let's talk a little bit about that. And let's frame it in terms of goals, objectives. MPOs. What are your What are your thoughts on setting goals setting objectives, with with employees?
Karen Zaderej 58:40
Well, I'm personally very goal oriented. So I like goals, I think they're important that we that we have a clear cascade of goals. So for example, we have a mission and vision statement that stay pretty durable over time about who we are and what we what we're doing what we're all about, and for us is being passionate about patients, and a vision of what will look like in the future. But then we lay out strategic imperatives that are thinking of it as the map to achieve that vision. And then each year prioritize specific initiatives below each of those strategic imperatives. us as an organization, here are the things we're going to we're going to do collectively we are going to do and then everyone's goal should roll up to those initiatives. And in healthcare in particular, I think that most of what we do is very cross functional. There are very few big initiatives that we're going to do that are only one function is going to be involved. In fact, it's hard to think of hardly any. If you're launching a new product, every functional organization, every function within the organization is going to have a part of that. And so we want to make sure we're addressing all of those cross functional components as they roll up into achieving those, those imperative Through the strategic initiatives that we have, and and so we lay out clear goals each year we try and incentivize, we have corporate bonus goals that we all share in. And then at the department level, they will also be department goals, but we'll pick the top few because it's better to accomplish the few important ones than touch the surface of many really have to put movement going forward and make accomplishments happen. And so that's why we try and set up the incentives to match those strategic initiatives as well.
Patrick Kothe 1:00:34
I think the term that you used earlier was ruthless prioritization. I love that term.
Karen Zaderej 1:00:40
Yeah. Yeah, very hard. We all love all the things that we can do. So it is very hard to do that. But it's important.
Patrick Kothe 1:00:49
Well, I've thoroughly enjoyed the conversation, Karen, and you've had a very interesting career and done a lot of different things. And you talked about searching out mentors, and I assume that you mentor people as well. And you've managed manage a lot of people, what are a couple of things, that you try and work with people, some of the most common things that you see people that need to work on, to help them to level up to help them to move up in an organization, either, either as you're mentoring them, or as you're managing them? What do you think people really need to work on?
Karen Zaderej 1:01:27
Well, I think it's very individualized. I don't think there's one thing that everybody needs, but I think, younger and career, the most important thing is putting tools on your tool belt. So learn as much as you can, and gather as many skill sets, put yourself in, in unique situations, work on important projects, because you'll learn you'll learn from examples around you, you'll learn functional responsibilities. As we move into more leadership roles, I think it's important to understand and continue to grow in developing others, again, that talent is so important. So developing others, delegating to others and setting clear expectations. I'm always amazed that gap is that telephone game, you know, so a manager will tell me I told the team to do this, and I'll hear the team go, we have no idea what we're working on. So so there's a gap in communication. So being very clear, and concise, but clear, in expectations, I think is an important skill set that, interestingly, is sometimes very hard for people to do. So I think all of those are important. And that ultimately, to be a CEO, I think, if I would advise people it's being able to describe and inspire a vision, to create followership. And that's sort of a soft skill, kind of hard to describe. But without that, I think it's, it's harder to be in the the ultimate leadership role. Because people don't understand where the organization is going. And in the smaller companies, that's everything.
Patrick Kothe 1:03:09
It was very interesting talking to Karen, who's got so much experience in large companies, as well as startups, and developing a new product, and a new type of technology, with so many different choices, a few of my takeaways. First, she discussed regulatory strategy having a greater impact on keeping the company as a unique player in the market, greater than intellectual property. And I hadn't really heard that before, of someone using regulatory as a strategic weapon to that degree, every business is different. And she identified that as being something that can help them to be unique, and to have a sustainable competitive advantage. So I would look ask you to look at your company and see what is out of the box thinking that you can put in to say, this is something that that is different, make us unique, and make and make it a sustainable competitive advantage to us. Secondly, change always happens. And she discussed that when she said, you know, we became a public company, and some of the people can adapt and make the journey with you, and others may not. And that's something I've had experience with too. And it's it is something that you need to recognize, but also be comfortable with, and sometimes letting people go to be successful in another setting is the best thing that can happen for you and for them. Finally, the discussion on decision making and large versus large versus small companies. It's not you know, once that right one's not wrong, but it's a different process. When you're in big versus small companies, and the big company, you need to be be more comfortable dealing with ambiguity. Because many times you want to know exactly everything before a decision is made. So being a little bit more comfortable with ambiguity could help in those situations, but also in that big company need to bring people along with you and build consensus. So that's something that if you're in a small company, you need to make sure that you understand that you're going to need to do that as well. And then the concept of being directionally correct with your decision, you're not always going to have all the information be directionally correct. And and make sure that you're going in the right direction, but make a decision. Thank you for listening. Make sure you get episodes downloaded to your device automatically by liking or subscribing to the mastering medical device podcast wherever you get your podcasts. Also, please spread the word until a friend or to listen to the mastering medical device podcast as interviews like today's can help you become a more effective medical device leader. Work hard. Be kind
