We recently caught up with Dr. Scott Wolf, a prolific medical device entrepreneur and investor who founded Aerin Medical to bring non-surgical therapies to patients with common nasal airway problems.
Prior to founding Aerin Medical, Scott started Zeltiq Aesthetics, the maker of CoolSculpting. His other startups include Endogastric Solutions and Cardiac Dimensions, and he was a partner at Prospect Venture Partners as well as VP at Frazier Healthcare Ventures, both leading life science venture capital firms. Scott received his M.D. from George Washington University and his B.A. from the University of Pennsylvania.
You won’t find many people with more hands-on medtech experience than Dr. Scott Wolf. In this interview, we’ll discuss Aerin’s technology, break down the advantages of cash-pay versus insurance reimbursement, and get Scott’s advice for would-be founders hoping to turn a great idea into a real prototype.
Listen to the Interview with Dr. Scott Wolf
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Read the Interview with Dr. Scott Wolf
The following interview has been lightly edited for readability.
Scott, welcome to Medsider! Can you tell us more about your professional background leading up to your work with Aerin Medical?
I've spent my whole career in life science startups, either founding companies or investing in them as a venture capitalist or angel investor. I’ve started a number of companies over my career, and after founding Zeltiq, I went off on my own and started Aerin Medical.
Let's go back to circa 2010. Tell us how the idea for the Aerin platform came to be. Start with what it is and why a patient may benefit from this technology.
Aerin develops solutions for nasal obstruction, rhinitis, chronic rhinitis, and focuses on all of the most common complaints that bring people into the ENT office. We do this with a proprietary temperature-controlled radiofrequency platform. It’s the first office platform where you can accomplish things that you could only do with surgery in the past. So, we have two products now, VivAer, a product for nasal obstruction and RhinAer, which is for chronic rhinitis.
Chronic nasal obstruction is probably the most common complaint that ENTs hear. A patient will typically go through a traditional approach where they'll try allergy therapy and all the medical therapy they can. And they'll finally get to the ENT and find that they have a deviated septum or enlarged turbinates. My original idea was to focus less on the patient’s anatomic problem and more on helping them breath better.
I started looking at what causes the resistance in your nose and there's this area called the nasal valve. It's an atomic structure in your nose that's the narrowest part of your nasal airway. So, my thought was, if we enlarge that area, wouldn't a patient breathe better? I previously founded a company using radiofrequency energy to shrink tissue for wrinkles. So, I knew something about how to shape tissue without ablating it. It's similar to a Breathe Right strip inside the body, where we’re curving this little piece of tissue. That's the novel part about what we're doing for nasal obstruction.
This is a minimally invasive procedure that someone gets done in an ENT office, correct?
Yes, it's done under local anesthetic and it's quite quick. You can basically have the procedure done in about half an hour for both sides and go right back to your normal activity. So, it's all office-based. The physician just does it with a speculum and doesn’t even need an endoscope for our nasal obstruction product. For our rhinitis product, we use an endoscope, but it's similar technology and also quite quick.
There are folks in the Medsider community that have big ideas. What's your advice for taking an idea that’s maybe on the back of a napkin and turning into an actual alpha or beta product.
I think this is the key question for everybody who wants to start a company. One quote I've always loved is, “Whatever you do, or dream you can do, begin it. Boldness has genius, power and magic in it.” Your first step could be almost anything. It could be naming the company. You could make mistakes, but it really doesn't matter as long as there’s movement towards the goal. For Aerin, I had to show that this would be a safe and effective thing to do before we raised any money on it. We were able to build a prototype, test it on animal tissue from the butcher, and use benchtop testing to make various changes.
I love the fact that you sourced tissue from the butcher for early feasibility work. In that spirit, let's put ourselves in the shoes of a startup founder who has a great idea and maybe even a great pitch deck. Raising seed-stage money in medtech is arguably one of the toughest things to do. How much budget do you think is needed to build a prototype and functionally test it?
With Aerin, for probably $100,000, we got through the initial benchtop studies to get to rapid prototyping and 3D printing. The goal is to do as much as you can for the money that you have. Do what you can with supplies from Home Depot or the butcher. The point is showing investors your potential impact. Andrew Frazier is our VP of Engineering. He was able to get a prototype done for very little money with rapid prototyping. We kept prototyping in this fashion all the way through our first human study. As the only full-time employees, we were able to get through our first human study for under a million dollars.
What's your take on pursuing class III devices? Do you have a rule where you only work on 510(K) devices? Alternatively, why would you consider a De Novo device or even a more capital-intensive PMA product?
I don't have any rule against De Novo or PMA devices. It's really about how fast you can get to a cash-flow positive environment and how much money it's going to take to get through your clinical studies. For Aerin, we're in the middle of two randomized controlled studies. Even though it’s a 510(k) device, we ended up doing more studies than a PMA path would have required. But it's expensive, and for a PMA, you have to spend that money in advance before you have approval. So, that's the big difference. 510(K) is always going to be, in general, easier to build a company around.
Given your experience with regulatory nuances, has anything made you think: I'm not ever going to make that mistake again?
Yes, the timing of endpoints. I started one spinal implant company with partners of mine from Scout Medical back in the day. That one required a two-year follow-up for the endpoint. So, yeah. I'll never do that again. It's too long.
What are some of the best practices you've followed when developing clinical evidence plans for the various startups you’ve worked on?
Well, the worst thing that can happen to a company is they have a late-stage failure in a clinical study. You never want that to happen. So, your strategy should be to ring out all of the risks before you get to the point where you're doing large human studies.
Also, be very careful about the endpoints. They have to be the primary thing that's not only going to get your FDA clearance or approval, but also the thing that patients and physicians care about the most.
In addition, one of the critical objectives for the whole company is how fast you can enroll patients in clinical studies. You're burning cash while doing these studies. So plan ahead. For example, with Aerin, we’re using social media advertising to recruit patients and that's gone very well.
Let's talk about insurance coverage and reimbursement. When designing medtech devices, is a long path to a CPT code or insurance coverage something that will give you pause?
If you are going for a new code, you have to have a very good plan and really understand what you need to do. And have the capital to do it. It's always best to have an existing, well-reimbursed code. I think that's obvious, but it's definitely doable to build a successful company while going for a new code. We’re pursuing both at Aerin right now.
I recently interviewed Mike Kujak with Francis Medical and Sean Saint with Companion Medical, which recently sold to Medtronic. When it comes to insurance coverage and reimbursement, they both mentioned that you've got to start early with the goal of establishing relationships with payers. Has that been your experience as well?
Yes, exactly what they said. Unless it's pure self-pay like aesthetics, you're going to encounter both coding and payment issues. So, working with the academies to plan for new codes and then working with the payers for their reimbursement decisions, you definitely need to have a plan for that. We actually have someone in-house now whose sole job is to work on this subject area.
Let's chat a little bit about your experiences with Zeltiq and CoolSculpting. What do you think about the cash-pay environment and the world of aesthetics? What advice do you have for other medtech folks who are thinking about going all-in on cash-pay?
Cash-pay is a pleasure when you come from the world of coding, reimbursement, and payment. On the other hand, it is very competitive and there will be new technologies coming down the pike at a fast pace. So, you can grow to a certain point very quickly and then I think it's difficult to hang on to that lead position forever.
As a venture investor and a very successful startup founder, what's your general advice for medtech founders that are trying to raise money for their early-stage companies (pre-seed, seed, and Series A)?
In medtech, raising a seed round is very difficult. You need to be able to wring out the risks and convince seed investors your idea is worth it. So, it needs to have a very large market. Your idea has to have a straightforward regulatory and clinical plan. And obviously, it needs to be safe and work. One mistake I see when first-time founders go to raise their seed round is they're not confident enough.
Renee Ryan recently raised a really interesting point around dilution. I’m paraphrasing, but she referenced that many founders get too caught up in how much they're being diluted. Instead, she advised them to focus on who's backing the company and the value those investors bring to the table. While on this topic, Scott, what should early-stage founders expect in terms of dilution?
There's going to be a lot of dilution over time. It's not just the first round either. It’s through the follow-up raises too. But even if you get diluted early, that money will get you to higher valuations in future rounds, so you might be in much better shape. What really hurts are down rounds. Most documents are worded so if there's a down round, the founders get extra dilution and that really hurts. What Renee said is right. If you can get the right investors that are going to help you meet your goals to raise money at a higher valuation, that's going to be worth a lot to you.
With Aerin Medical, what are you most excited about over the next few years?
I think the platform, this temperature-controlled radiofrequency, can do a lot in the nasal passage. It's basically the first non-ablative technology that can treat the nasal passage. I’m excited to see physicians start to look at it differently as a first-line therapy for nasal obstruction or rhinitis.
Thanks so much for your time today, Scott. I’ve got a few more rapid-fire questions to close us out. What is the most important piece of advice you'd give to someone that is starting their entrepreneurial journey?
Number one is to keep your personal burn rate low so that you don't have to be up late at night worrying about where your next meal is coming from or how are you’re going to pay the rent. So, keep that low until you've made it.
What influential books, podcasts or any other resources have been most helpful throughout your startup adventures?
The one I go back to a lot is Ralph Waldo Emerson's, Essay on Self-Reliance. He talks about how to listen to your inner voice, how to take your ideas seriously and drown out the doubters that you're inevitably going to hear. I also like reading about people who've gone through difficult times and come out on the other side. So, Abraham Lincoln is my favorite. There's a great book called Team of Rivals that I think is really inspiring as well.
If you had to teach a class on one thing, what would the topic be?
The history of science. I really find it fascinating how Einstein came up with his ideas or how the great discoveries have been made.
Starting in your late 20s or early 30s, knowing everything you know now, would you do anything differently?
Not really. First of all, if you watch enough Star Trek, you know that you’re not supposed to mess with temporal anomalies. I guess I would probably not stress so much over everything and avoid some sleepless nights.
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