Balancing Innovation with Practical Outsourcing

After graduating with a business major from Texas A&M, Daniel Powell initially embarked on an IT consulting career at KPMG, then leaped into the gaming cafe business, which, looking back, he considers a “phenomenal way to lose a lot of money.” 

Danie’s leap into the gaming café business, though financially unfruitful, serendipitously connected him with the medical devices field, leading him to a fulfilling career in the neuromodulation division at St. Jude Medical. But Daniel has always been an entrepreneur at heart, so he wasn’t destined to stay there.

“I just fell in love with this idea of neurostimulation,” he shares. “The body runs on chemicals and electricity, and we're putting electricity into the nervous system to affect a disease state outcome. It just all clicked.” This passion, coupled with his technical and management expertise, culminated in the co-founding of Spark Biomedical.

The Sparrow Ascent, developed by Spark Biomedical, is a wearable treatment for opioid withdrawal relief that utilizes a groundbreaking approach to neurostimulation without the use of drugs. At its core, this innovative technique involves applying electricity to two specific cranial nerves simultaneously: the trigeminal nerve and the vagus nerve. The trigeminal nerve is known for its role in mediating pain and driving the release of endorphins, while the vagus nerve plays a crucial part in managing the body's fight or flight response within the autonomic nervous system.

This concept of dual stimulation was born from the collaborative insights of Navid Khodaparast, Spark's Chief Science Officer with a background in pioneering vagus nerve stimulation for stroke recovery, and Alejandro Covalin, a trigeminal nerve expert. Their expertise in these respective fields, rooted in significant academic and professional work, led to the realization of what could happen when these two complementary nerves are stimulated together. This technique, known as transcutaneous auricular nerve stimulation or tAN™, is the fundamental basis of the Sparrow Ascent.

The device itself is a compact, battery-powered unit that can be easily placed around the ear. The specific points of stimulation are anatomically strategic: the cymba concha, located just above the ear canal, where the vagus nerve is stimulated, and a small divot right in front of the ear for the trigeminal nerve. This design allows for a targeted approach to stimulation, where each nerve receives electricity in a manner akin to speaking two different languages — one at a high frequency and the other at a lower one.

To ensure comfort and effective delivery, the Sparrow Ascent uses a hydrogel to transmit the electricity. This hydrogel provides a comfortable experience for users, covering a larger surface area to evenly distribute the electrical signal without causing the discomfort of pinpricks. It’s similar to a daily disposable Band-Aid when you consider its ease of application and removal.

While typical applications of auricular or vagus nerve stimulation are relatively short, lasting from a few minutes to half an hour, the Sparrow Ascent is used differently. In the case of opioid withdrawal, the fight or flight response is a constant battle, so much so that it might necessitate all-day stimulation. Although the perfect dosing for this kind of prolonged stimulation is still being refined, it’s safe to be worn throughout the day, removing it for sleep, and reapplying it the next morning. This method is effective in providing relief from the intense symptoms of withdrawal, making it a significant advancement in the field of neurostimulation and addiction treatment.

The efficacy of Sparrow Ascent has shown to be quite remarkable — it’s capable of alleviating severe opioid withdrawal symptoms within just 30 to 60 minutes. 

Under Daniel’s leadership, Spark Biomedical achieved remarkable milestones, including FDA clearance for both their first and second-generation devices. The first-generation Sparrow Therapy System, primarily designed for in-patient clinical settings, was followed by the Sparrow Ascent, which is suitable for versatile patient use including in-patient, out-patient, or at-home care via telehealth. The team has also been working on a new device specifically designed for the most vulnerable victims of the opioid epidemic — newborn babies suffering from Neonatal Opioid Withdrawal Syndrome. "That's what I'm most proud of," Powell asserts. In the near future, Daniel hopes the device will make it possible to treat infants born physically dependent on opioids.

Key Learnings From Daniel’s Experience

• Let go of your ego and rigorously test whether you have product-market fit. Focus on creating a minimum viable product (MVP) and explore efficient ways to outsource design and development. In the earliest stages, keep your team lean and mean by relying on a few trusted consultants.
• There are many ways to fund a venture, and relying on only one of them is a risky strategy. Diversify your plan with grants, venture capital, family offices, and angel investors. And make sure to approach each potential partner in a tailored fashion.
• Navigating FDA involves jumping through numerous hoops, some of which you can avoid if you know how. Do thorough research, enlist top-notch consultants, and be ready to guide the regulatory reviewers whenever needed.

Optimize for Viability

In the early stages of a startup, objectively assessing the viability of your idea is key. “We were trying to kill the idea, but the doors just kept opening, and everything just kept working,” Daniel explains. “We were trying to reduce risk each step of the way and not spend money that we didn't have to,” he continues, summing up the keys to early momentum in a startup: being realistic, de-risking the venture at every phase, and managing capital wisely.

The first thing on your agenda should be determining what your minimum viable product (MVP) looks like, with a focus on the ‘minimum.’ While it's tempting to dream big and incorporate every impressive feature into your product, it often leads to unnecessary risks. For instance, “Sparrow not being an implantable product but a wearable, that made life so much easier,” Daniel emphasizes.

In Sparrow’s case, the initial idea included Bluetooth functionality for data collection and analysis as well as other user experience features. However, the Bluetooth feature brought with it regulatory complexities related to HIPAA and cybersecurity. The team made a decision to omit it entirely, at least during the early stages. “Incorporating these aspects would have put massive risk on the project on the FDA clearance front,” Daniel explains. “It wasn’t an absolute necessity. It could be in phase two.” If you get a Sparrow Ascent now, it will come with wireless diagnostics via Bluetooth connectivity, but this feature wasn’t part of the early versions by intention.

Daniel's second piece of advice, in line with his lean startup methodology, is to put all your pride aside. It’s tempting to build an operation where you have complete control over every aspect, but it’s not always the most efficient way. Owning the entire manufacturing chain, a warehouse, all the infrastructure, and employing a large staff can quickly deplete resources. 

Outsourcing, even in critical areas like R&D, can prove to be the smarter choice. The only key asset Daniel holds dear is his collaboration with Spark’s CTO, Alejandro, a tenured senior neuro engineer who was critical in leading the development processes. 

With this efficient model, Daniel was able to pursue quick hits, which led to early wins. “What I was looking for each step of the way is checking the necessary boxes to proceed to the next level — the next level of valuation, the next level of capital,” Daniel shares. Demonstrating the ability to execute quickly was particularly useful in raising future capital. 

Go Broad with Grants, VCs, Family Offices, and Angels

Despite their demonstrated efficiency and experienced team, Daniel admits Spark Biomedical did hit a major roadblock — they almost ran out of money. Luckily, it didn’t sink the ship, but turned out to be a great lesson in the end. Daniel shares, “I'd been very successful at raising money and just got complacent.” Then, several large potential investors fell through. But being a CEO means you have to keep steering the ship toward the light. He recounts, “I sat there and said to myself: ‘I am going to give myself permission to panic today, and then tomorrow, I'm going to work on the problem.’”

Daniel's takeaway for fellow entrepreneurs is straightforward yet rings true: “The one thing I can guarantee every entrepreneur listening to this is everything will take longer, and everything will cost more than you planned, period. Just operate on that as a truism.“

With that in mind, there are a few ways to fund a venture, such as grants. They do bring along a few benefits, like non-dilution and added credibility. However, Daniel doesn’t see them as the primary financial lifeline for his venture but as a complementary strategy. 

“If you're building your business off grants, timelines are going to be horrific. You're rolling the dice, and even if you win, you’re going to have to wait for the grant to be awarded and then for the cash draw. It’s a nine-month waiting period before you can effectively start,” he explains. Yet this doesn’t mean Daniel and his team completely deprioritize grants: "We've been very successful at grants and DoD contracts and have been awarded about $17.5 million in non-dilutive funding in the first five years. Navid and his team are grant-writing machines," Daniel adds.

Despite Spark’s success in raising a substantial amount of non-dilutive funding, Daniel admits his initial lack of understanding of the difference between investor types like angels, high net-worth individuals, family offices, and venture capitalists was a hurdle he needed to cross. You can’t pitch them in the same way, because VCs, for example, are a completely different species in the ecosystem. Instead, Daniel recommends, “Don’t let one of your first pitches be the critical one you need to land.” Allow yourself the space to learn and adapt. 

Daniel offers a golden nugget of advice for dealing with professional investors: “In hindsight, I should have introduced myself to every VC possible over the course of a year, put them on a mailing list, given them regular updates every quarter, become familiar, become an everyday brand that they're watching, and then say: ‘Hey, everybody, I'm going to open a Series A, who wants in?’” It won’t work with every investor, but when it does, it's an excellent approach for drumming up competition and interest.

Understanding FDA: It's Not Black and White

Daniel's journey with FDA was far from straightforward. He puts it candidly, “They're not bad, they're not good. They're just people.” This human element means facing inconsistencies and personalities in your engagement with the agency, which means they might not always follow the procedures you expect. 

“They operate in a massive bureaucratic world where it’s often safer to say ‘no’ than ‘yes,’” Daniel explains. Given that FDA's primary role is to safeguard public safety, its risk-averse nature contrasts with the typical entrepreneur's mindset. To navigate this, Daniel emphasizes you have to prepare thoroughly and sometimes even guide them in the right direction. This means being ready to prove that any minor issue they find is not a societal risk.

Daniel is candid about ensuring that you don’t underestimate the regulatory process. The path to compliance can be muddled, and the benchmarks are not always clear. For instance, Spark faced a unique challenge in passing a biocompatibility test, which wasn't a requirement for other class II wearable manufacturers. Daniel’s takeaway is straightforward: When it comes to regulatory approval, you can’t just wing it. You have to have experienced consultants and knowledgeable people on your side, but even then, you should brace for challenges.

Another insightful piece of advice from Daniel is about the importance of clarity in pre-submission meetings with FDA, which you’ll likely have several of. It’s crucial to make every detail crystal clear to avoid any minor misunderstandings, which can potentially ripple into bigger problems later on.

When it comes to ensuring his cross-functional team is fully aligned, Daniel is proud of his group. “I've really got this fun journey of observing a first-class clinical team go through the planning phase and include the business folks too,” he shares. In the past, as Daniel humorously notes, “Marketing was part of the dirty, nasty people who made money selling stuff and shouldn't come anywhere near the purity of science.” But for a medtech entrepreneur, merging these spheres is essential. Your clinical and business strategies should work hand in hand so that you can insert certain claims in clinical trials to “help sell the story.” This also means that you need to be cognizant of who you’re getting advice from when setting up your clinical trials, about which Daniel warns, “If you get a bunch of academics running your clinical show, your company values will likely be misaligned.”