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Russ: This is The BusinessMakers Show, heard on the radio and seen online at BusinessMakers.com. With me now, I have Michael Lowe, co-founder and CEO of OrthoAccel. Michael, welcome to The BusinessMakers Show.
Michael: Thank you for having me, Russ, it's my pleasure.
Russ: You bet. I guess I should actually say welcome back. I remember seeing your elevator pitch. It might have even been in – It was definitely '08, maybe even earlier, and then I had you on the show in October of '08. You were a passionate entrepreneur with a great idea, and here we are, four plus years later, and you're in business, right?
Michael: That's correct. We're coming off of our first year of US sales in 2012.
Russ: All right, fantastic. And US sales I know that you started earlier. Was it in Europe?
Michael: That's correct. Going back to 2009, we began shipping product to Europe and parts of Asia while we were waiting for FDA clearance, and then received FDA clearance in late 2011 and last year was focused on introducing the US market.
Russ: Okay. So let's start at the top. Tell our audience about OrthoAccel.
Michael: OrthoAccel is a medical device company, and currently we have one product line – it's called the AcceleDent System. It's used by patients with braces for 20 minutes per day, and it pulsates, which causes the teeth to move faster, and as a result the patients don't have to wear braces for as long. We can take a two-year treatment plan and what we're seeing right now in the market with our customers is that that case is being reduced by approximately 50 percent in duration. The company has grown significantly over the last couple of years. We now have 35 full-time employees. Our new office is here in Bellaire, Texas. We've maintained our global business plan. We're shipping product to over 20 countries, but as I mentioned, the focus recently here has been on the US market.
Russ: Okay, well the product itself, it's amazing how consistent (laughter) it is with what you described four years ago. And it's a device, right, that fits in the mouth, when you're wearing braces, and improves the whole process by shortening the time one has to wear braces based upon vibrations, right?
Michael: That's exactly right, Russ. The product is regulated as a class-two medical device. It applies a very gentle pulsing force. We've had patients describe it as if it's a gentle massage for the teeth and gums, which is an interesting description, and, also, lends some insight into why patients tend to be very compliant and use the product. They also are excited about the benefit of getting the braces off sooner, and what we've learned through experience is that a secondary benefit exists – the patients who use AcceleDent don't tend to be as sore after they've had their braces put on and after the adjustment visits.
Russ: Wow, who knows? Maybe it even increases their IQ. You think?
Michael: We are always open to exploring new benefits.
Russ: (laughter) I couldn't resist. But that is so fascinating that it works well. Now, it has to have a power supply, some sort of battery in it, right?
Michael: Well, that's correct. The simple way to describe the product is that there are four components. There's the mouthpiece, of course, that the patient bites down on. There is the activator, which is our name for what you just described – it contains a battery, a microprocessor, and a motor. That's the working end of the device that creates the pulsation. Third is a charging port which doubles as a compliance reader so that patients can dock the device and data is displayed on usage behavior and usage patterns. And then, fourth, a travel shell, which allows patients who are on the go to maintain their usage dynamic in a hygienic-friendly way.
Russ: Where is the product manufactured? China?
Michael: No, the product is actually manufactured in Austin, Texas. So we have an outsourced manufacturing model. We ran a lot of analysis and determined that that was more cost-effective than building a plant and building the manufacturing infrastructure ourselves. And then, the next step was identifying the right partner. And for us, it was really about finding the very best fit. We ran a very sophisticated search and selection process, and it led us to a group by the name of VirTex Assembly, located in Austin, Texas.
Russ: Wow, so was overseas, was China even a consideration?
Michael: We did look at that. It turns out that product categories like ours don't have a lot of touch labor. Most of the costing tends to be tied up in materials and overhead. So it really doesn't make as big of a difference where it's manufactured as it does with other products that are very labor intensive.
Russ: Let's say that I have a daughter who's wearing braces now. I don't. I did (laughter). She wore them for a long time and I'm sure she would love to have shortened that process. But can they start using your product immediately upon the beginning of having the braces installed?
Michael: In fact that is when the indications for use dictate that the patient should begin using AcceleDent, is as soon as the braces are put on, at that very first appointment.
Russ: Okay. How often do you do it? Every day? And how long do you do it every day?
Michael: The indications for use, which were derived from a randomized controlled trial that was approved by FDA, calls for 20 minutes of daily use. And it doesn't matter when during the day, and we have learned that patients have a lot of interesting activities that they are engaged in while using the device, which is really a creature comfort, because it doesn't cause the consumer to have to shut down his or her day for 20 minutes. They can just slot it into whatever behavior they're engaged in otherwise.
Russ: Okay. If someone wore it more than 20 minutes a day, would it even shorten the period even more?
Michael: The best description that I've heard to answer that question came from one of our scientists, and he compared it to vitamins. You can overdose on the vitamins or you can take more than the recommended dosage, but there's not any incremental benefit. And in our case, without going deeply into the science, it turns on a biological switch, and once that switch is on, it cannot be turned more on.
Russ: Okay, now medical devices, God, are so interesting, generally speaking, as compared to other entrepreneurships and other guests I've had on the show seem to take a long time to get off the ground. Did it feel that way to you from when you first started with the company, and how long it took before you actually had orders?
Michael: It did, and that was the business model that we knew we were signing up for in 2007-2008. The capitalization strategy and the business plan were built in anticipation of a long runway to FDA clearance. It's not a black box. There's very good data that's published on how long it takes different classes of medical device from submission to clearance, so we had a good idea as we were planning our resources. Having said that, the head start that we had outside of the US certainly created a desire to get the product into the US as soon as possible, simply because this is the largest global market for orthodontics, and we were starting to see that success take off outside of the US. And so there was a lot of anticipation right up through the end.
Russ: Why was it so much faster in other parts of the world outside the US?
Michael: It was just simply a byproduct of what requirements the regulating authorities have in place. So, to give you an example, in the European Union, the device is regulated as a class-two-A medical device, which is slightly less resource-consuming than a class-two-B device and certainly than a class-three. We were also approved, I should say, in Australia as a class-two-A medical device by the TGA – the Therapeutic Goods Administration. FDA looked at the product and was a bit more conservative in their ruling and how they viewed the technology. We are modulating, regulating biology oftentimes that's in a growing patient if it's a teenage patient in braces, and for those reasons, they decided that we had to abide by requirements that are oftentimes reserved for class-three medical devices, and what I mean by that is that the FDA put a requirement in place to have data presented from a trial that was enrolled under an investigational device exemption. So there was that extra step of a clinical trial, a pivotal trial.
Russ: Okay. So say a parent's watching right now that's just getting ready to go into orthodontics with their child, can they get their device directly from you, or how is it distributed?
Michael: Well, first comment would be to say that the device is not only for children or teenagers, and, in fact, we've discovered that one of our most exciting market segments are adult patients. So I would encourage those adults who are maybe thinking about retreatment or getting braces for the first time to consider AcceleDent and to consider orthodontic treatment in general. Having said that, the device is not sold directly by OrthoAccel to the consumer, it's sold through the orthodontist. As a class-two medical device, we are prohibited from selling through traditional retail channels of trade, like food, drug, mass, and club. We have to sell to an accredited physician – in this case, an orthodontist – and then the patient, consumer, purchases the product from the orthodontist, or has the product included as a part of the treatment plan, but the orthodontist is an important intermediate channel between OrthoAccel and the consumer.
Russ: So perhaps all orthodontists don't offer the product yet.
Michael: No, unfortunately, Russ, we don't have 100 percent market share, although we did have terrific growth last year in 2012. What we found is that doctors who tend to be tuned into newer technologies, the doctors who are offering InvisAlign, the doctors who do a lot of digital treatment planning, perhaps lingual braces, these are the types of doctors from a profile perspective who have come on board with us and started ordering product relatively early here in the product categories lifecycle.
Russ: So as you know it's a business show. Do you actually have a marketing program that's aimed at orthodontists?
Michael: We do. We have a marketing plan that has a foot in each world. There is a focus on the orthodontist as our direct commerce customer, but we also have a plan in place that educates consumers and patients and creates awareness around AcceleDent as a new technology. I would encourage anyone who's interested to visit the website: www.orthoaccel.com. Alternatively, www.acceledent.com. Also, takes you to the same landing page. And there's a lot of information there and in fact we do have a marketing campaign that's live right now that's very interesting. I'll mention it briefly. It invites users to submit a short, 20-second video capturing what they do during the 20 minutes every day that they're using the AcceleDent device. And the entries will be voted on. We are leveraging the social media trends that we're seeing. And the winner wins an iPad.
Russ: All right, talking with Michael Lowe, CEO of Ortho Excel, and we'll talk with him more after this. This is The Business Makers Show heard on radio and seen online at TheBusinessMakers.com. This is The Business Makers Show heard on the radio and seen online at TheBusinessMakers.com, continuing on with Michael Lowe, CEO of Ortho Excel. Now, Michael, you've been selling them in Europe for a while, kind of new in the US. How many of these devices have you got out there on the market today?
Michael: In 2012, I'll answer that question by referencing last year, since we've just closed 2012, we had 2,500 devices that were sold into the market, globally.
Russ: That's pretty cool. And a typical user, and I know when you get into medical devices and the whole medical arena, the prices kind of get varied. What will you have to pay for one of your products?
Michael: That's a difficult question to answer simply because the orthodontist sets the price, and there are several different approaches. A lot of it depends on whether or not the doctor bundles it into the treatment plan or sells it separately as an a-la-carte technology component.
Russ: Okay. So what about benefits and medical benefits and dental benefits? Will they cover the device?
Michael: Benefits in the orthodontic world behave a little bit differently than they do in even the rest of the dental space, certainly different than medicine. What you see is that orthodontics is almost exclusively self-pay. There's a lot of interest in research that's been published – We've done a lot of primary research in this area. Parents tend to approach orthodontics more like private school tuition, for example, than a healthcare expenditure. It's a highly planned purchase, and so for that reason, the reimbursement dynamic really doesn't exist for –
Russ: Well, I knew that's what happened in my family. I thought maybe (laughter) we were the only ones that went down that path. So this is really cool and interesting, particularly since I visited with your four years ago. You must be pleased with where you are today.
Michael: We have been very fortunate. We've been able to attract what I would describe as world class talent. I mentioned that we've built a company here of approximately 35 full-time employees. And the leadership team in particular is terrific. We have been able to recruit everyone who we needed in order to make this happen.
Russ: Really, really cool. Now, I also know it's an interesting story how you got involved. I mean right when I met you I think this was happening at the time – share that with our viewers.
Michael: I was finishing up my MBA at Rice University, and through the Rice Alliance Network, I had come to know a couple of venture capital guys who were in town, and one individual in particular had started a small fund, and his VC model was to put money into very, very early stage technologies – that was the one ingredient, as he described it, and the other ingredient involved identifying capable management. And with the money and the management, the idea was that these deals could be put together and could start hitting early stage milestones relatively quickly. So my background is in dentistry. I actually attended dental school, have worked in the dental industry prior to going back to business school, and I was looking for something in the entrepreneurial vein. I was looking for a general management type role within a very early stage dental company, and I had put the word out through my network and through the Rice network that that's the type of opportunity I was interested in. As good fortune would have it, this individual on the venture side had identified a dental technology, what we know today as Ortho Excel, and was looking to find the management that he could marry to this very early stage science and form a company around it. So we were introduced. We did joint diligence. We did the diligence on it together, and after the course of about six months, everything that we saw caused us to like it more and more. The fund made me essentially a job offer to come run the company.
Russ: Man, doesn't sound like it gets any better than that, does it?
Michael: Timing is everything.
Russ: All right (laughter) that is so cool. Okay, so before we let you go, why don't you share your vision for the company five years down the road? I mean are there going to be – Are there other products in the planning stages right now as well?
Michael: The vision does involve other products. We have never been interested in building a product or building a product line. We've been interested from the beginning in building a company, and to build a company, we believe that a diversified product portfolio is essential, but we don't want to proliferate into the next product category just for the sake of doing so. We want to be very selective and we want to be very careful, because we've built a brand that, within the industry, stands for innovation. Now, today, we are a one-product company, and that's simply because the product and the company has to start somewhere, but we are interested in in-licensing opportunities, the right acquisition opportunities, co-development opportunities. If it's innovative and if it improves the practice of orthodontics, then Ortho Excel is interested.
Russ: Cool. Well, Michael, I really appreciate you bringing us up to date with your company.
Michael: Thank you, Russ. I appreciate it.
Russ: You bet. That's Michael Lowe, the CEO of Ortho Excel. This is The BusinessMakers Show, heard on the radio and seen online at TheBusinessMakers.com.