Reducing the number of polyps that colonoscopies miss

EndoChoice's Israel development center has devised an endoscope with a 330-degree arc.

In early 2013, US gastroenterology company EndoChoice Inc. merged with Israel's Peer Medical, which had developed an endoscope that provides a wider than usual image. A year later, this merger, which was supported by $43 million from an investor group headed by Sequoia Capital and Accelmed (of Dr. Uri Geiger and Mori Arkin), is yielding handsome results: EndoChoice has a development center in Israel with 60 employees, out of EndoChoice's 450 employees, and the merged company has $60 million in sales. The Israeli product, an endoscope with a 330-degree arc (compared with the current 170 degrees arc) is its main activity.

It is interesting to tarry on the story of how EndoChoice was founded, precisely because it is the opposite of almost every story about the founding of an Israeli company. EndoChoice was founded by a group of veteran salespeople in the gastroenterology business who did not establish their business around a technological concept, but around a target clientele: endoscopic doctors. "The endoscopist is a doctor who treats the digestive tract with minimally invasive devices through natural body orifices. This group of doctors is underserved," EndoChoice International CEO Dr. Yoram Ashery told "Globes". "In this field, camera companies that can build devices with marvelous miniature cameras operate, but do not know medical needs well, or surgical equipment companies, which try to adapt non-invasive cardiology products for gastroenterology, sometimes successfully, and sometimes not."

The staff of EndoChoice, which was founded in 2007 by president and CEO Mark Gilreath, a former VP marketing at Given Imaging Ltd. (Nasdaq: GIVN; TASE: GIVN) (where he met Ashery), decided to take the whole category of gastroenterology products and develop the best-in-class product, not necessarily by adopting breakthrough changes and innovations, but on the basis of their experience and thorough familiarity of the market.

Some of the products include major innovations, but the products are still similar enough to existing products that they can be approved under abbreviated licensing tracks and doctors can adopt them with the feeling that they are getting an improved product without the need to change their habits.

An endoscope was lacking

However, EndoChoice lacked one important product - the endoscope. "This was the 'stickiest' product in the field," says Ashery. "It's very hard to separate a doctor from his beloved endoscope, but the company's three leading products were very similar to each other. It was obvious to us that in this business we needed a product that was not only a bit better, but exceptional."

This is where the connection with Peer Medical, founded by Avi Levy, who had previously founded SightLine, which was sold to Stryker Corporation (NYSE: SYK) for $150 million in 2006, came in. "Peer Medical had solved the main problem in colonoscopy," says Ashery. "Current colonoscopes only look forward, but the colon has many folds, and the non-malignant or malignant polyp that we're looking for is often hiding behind one of these folds. A colonoscope that only looks forward won't see this. The proportion of misses is high - about 20%. Three years ago, a California company, Aventis Medical Systems launched a product that looks backwards, but this was another device. Peer Medical's product looks both forwards and backwards in a single device."

"It is not easy to insert the chip, optics, electronic board in a 12-millimeter space," EndoChoice Israel CEO Nati Yehiev told "Globes". "Peer Medical designed this creatively and smartly. The breakthrough was in switching from fiber optics to LED, but that was only part of the matter. They succeeded in dismantling the endoscope's head into components and completely redesigned it. They even used ideas from origami. The Japanese now feel affection for the product, which is good because the market is dominated by Japanese companies."

EndoChoice conducted a trial of the project, in which the percentage of misses was just 8%, compared with 42% for classic products (in external studies).

Peer Medical's founder Levy relates how the idea of the merger with EndoChoice came about. "I wanted to hire Mark Gilreath for Peer Medical's advisory committee. It then had maybe $8-9 million in sales, and we were just getting started. Then we made progress and they made progress, and the idea of a merger came up. When we approached investors, we realized that the combination of the Israeli technology with an American distribution channel was very sexy. During the fundraising, I said that we might buy a factory in Germany to manufacture the endoscope for us, and we'd really be in the forefront with all the endoscope companies. And that is how it was," he told "Globes".

The combination of Israeli technology with a foreign distribution channel was also the dream of Accelmed, a major investor in Peer Medical. The merged company is projected to have $60 million in sales this year, even taking into account that the product was only launched in mid-2013. By 2015, the endoscope should account for half of the company's business.

Israel is a small but developed market

Peer Medical's capabilities are not only suitable for a colonoscope, but for any endoscope, making its product EndoChoice's leading product. At the same time, the company has established an independent marketing company in Israel. "We have a special affinity for Israel, but that is not the only reason," says Yehiev. "Israel is greatly admired in this field. Many doctors working here are the leaders in the field in terms of research. Setting up an international sales team is a challenge, but Israel is a market that is both small enough on one hand and developed enough on the other hand to make it worthwhile."

"Globes": Will Sequoia lead another financing round?

Ashery: "The company is already profitable, but it is now making many investments and should return to profitability in 2014 or 2015. If we raise capital, it will be a public offering in the US, say for the acquisition of a gastroenterology company of the same size."

Published by Globes [online], Israel business news - www.globes-online.com - on January 6, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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