The extended family of Gilad Glick, CEO of medical device company Itamar Medical, was closely watching what was on the plate of his eight-and-a-half year old niece Ofri, who had a weight problem and a methylphenidate prescription, which caused her to have difficulty in focusing and performing well in school. Her parents had several times been scolded that they were not sufficiently strict about making the girl eat less. "My doctors also pressured me, telling me I ate too much", says Ofri, today 10 years old and the "Queen of the Class" (a heartwarming transition that will be explained later). Glick sat at the family dinner and felt, for the first time, that what was happening around the table was not "another article I am reading about other people and their anonymous children - it’s happening in my family, in the middle of Friday night dinner".
Glick, who runs the company that markets the WatchPAT, a home sleep testing device for the diagnosis of Sleep Breathing Disorders (SBD), was very familiar with the relationship between sleep health and weight gain, and at the time was examining the possibility of using the WatchPAT device on young people. In fact, according to various studies, in approximately a quarter of children suffering from ADHD, the source of the problem is not neurological or behavioral, but lack of sleep. "So there I was, sitting at dinner, and suddenly all the cards fell into place," he says. Many of the regulatory processes of the body, including proper metabolism, occur during the REM phase of sleep, and when this phase is damaged so are these processes.
There was no point in asking Ofri whether she slept well. She wouldn’t have known. Sleep disorder derives from respiratory arrest during sleep when the brain identifies a problem and rouses the person to a non-conscious waking state so that they will start breathing again and continue sleeping. To a healthy person this happens once or twice an hour during sleep. To a person with sleep disorder, this occurs many more times, and yet they are still unaware of how badly they are sleeping. They do not know why they are tired all day long, gaining weight, not reacting to certain medications, and experiencing all sorts of other problems.
Instead, Glick asked his niece a set of questions which were prepared by Dr. Giora Pillar, Head of the Pediatrics Department at Carmel Hospital and of the sleep laboratory at Rambam Medical Center. One of the first questions was: "Is it easy for you to wake up in the morning?" By the way, to reassure concerned parents, consistent difficulty in waking up in the morning can be a symptom of sleep disorder among adults and children pre-adolescence. Adolescents have difficulty waking up in the morning for other reasons related to their age.
What did you answer, Ofri?
"That they had to pull the covers from me so I would wake up."
And, in general, what was this period in your life like?
"Very tough. I had a lot of battles, over weight, concentration, and my social life. For three years I was shunned and didn’t go to class birthday parties. I was always tired, unable to focus, and had a lot of throat infections. Almost every two weeks I was on antibiotics".
At that time, as part of the veteran biomed company's quest to overcome the many barriers in its way, to conquer the market, and finally deliver on its 17-year-old promise, Itamar Medical was looking into expanding its market to younger ages, between 12 and 17, but the technology was not proven and approved for children. The other solution, a sleep lab, encountered Ofri's refusal. It’s not easy for a child to think of going to sleep in a strange bed and in a strange place like a lab.
Professor Pillar measured Ofri’s fingers, and determined that the watch-like device would fit her. The WatchPAT comprises a watch-like device that is worn on the arm, and a "thimble" worn on the finger. The thimble is the heart of the device's technology and it sends information about the body to the measuring device.
On the first night, they had a dry run. Ofri wore the device but it measured nothing, since many children become anxious and worry and don’t sleep well when they are aware of the examination. "Ofri was really excited", remembers Glick. During the second night they ran the examination and discovered that Ofri unconsciously woke up approximately 13 times every hour, meaning she suffered from severe sleep disturbance. "No wonder she woke up tired", says Glick. "She hadn't slept all night, every night, for almost her whole life."
Remember the throat infections Ofri mentioned? It turned out that their source was enlarged tonsils, which made it difficult for Ofri to breathe during sleep. A simple procedure changed her entire life, but doctors did not make the connection between enlarged tonsils and sleep disorder, and between these problems and weight gain and lack of concentration, and so instead of solving the problem they gave her antibiotics, Ritalin, and a lot of rebukes that destroyed her self-esteem.
Now, just over a year later, Ofri, dressed in a light summer dress, is enjoying her summer vacation before starting fifth grade. She has lost over 10 kilograms, is succeeding at school, and her social status is strong. "I feel free now," she says with a broad smile, "I'm not fighting all those battles."
From niches to huge markets?
Ofri is now free of battles, but her uncle and his company are in the middle of an ongoing one, which is essentially how to raise the market share of WatchPAT which currently stands at just over 10%. In fact, Itamar Medical’s story illustrates the hard truth for biomed companies: the company can have amazing technology and yet still have to bang its head against the wall and search for new directions, like a little girl not sleeping well during the night, to find a way through in the darkness.
Itamar Medical was founded on the basis of another non-invasive diagnostic device, the EndoPAT, which, by means of a thimble monitor, can identify risk of heart attack. The EndoPAT has been stuck for three years, and so Glick decided to proceed with the WatchPAT. A few weeks ago, and after substantial investment in the required trial, Itamar received the long-waited FDA approval to expand the use of WatchPAT. But even here, despite the remarkable ease of the test with the thimble, the company is not able to penetrate the mass market of sleep disorders, and needs to look for special groups, such as patients with heart disease (whose condition is aggravated by sleep disorders - more on that later on) and children and teenagers, such as Ofri.
The vision of Glick and the company’s investors, who include founder Giora Yaron, medical equipment giant Medtronic, and the Viola fund, is that these niches - and they mostly build their hopes on the huge number of cardiac patients - will grow into vast markets, but this remains to be seen. Meanwhile the company's sales are growing, mainly in the US, although it is still reporting losses: $12 million since the beginning of 2016, compared with $5.8 million in the corresponding period last year, the increased loss being attributable to higher marketing costs. Add to that the intense competition in the field of home testing devices for sleep apnea, and you have a very difficult market to crack.
Itamar Medical’s device - a sort of wristwatch on the arm and thimble on the finger and nothing more (an invention of Prof. Peretz Lavie, who is currently president of the Technion - Israel Institute of Technology) - is much easier and more pleasant to use than competing devices. The competitors’ devices, according to Glick, consist of tubes inserted into the nose and belts worn on the chest. But, and it's a significant but, Itamar’s examination is three times as expensive. The main cost is the thimble, which is partly perishable and which is discarded at the end of the examination. This is the company's profit model, as the watch itself survives many years.
US HMOs are presumably more interested in the large price difference than in the fact that your test is easier.
"That's why we are at 10%. We are the Mercedes of this market. We are not good for everyone, but we are good for those who for various reasons cannot use the other devices. One of our largest customers is the Veterans Association in the US. People with post-traumatic stress disorder cannot put things on their face. Nor can children, who will refuse to wear a complicated device on themselves, which is why it is so important to us to reach this market with our product. Also all the cardiac patients, who are main target market, are miserable with arrhythmia and heart failure. They do not sleep well and have chest pain. They will not agree, and will not be able, to be strapped up."
The reason that the competitors are cheaper is not because they have low production costs, but rather because they prefer to sell their devices at uneconomic prices, and provide a total solution package. In most cases this means a CPAP (continuous positive airway pressure) device, a pump that supplies air under pressure through a mask. Itamar’s way of countering this was to obtain its own total solution package, by signing distribution agreements with CPAP companies.
The first agreement was signed three months ago with DeVilbiss, the fourth largest CPAP manufacturer in the US. What is special about this contract, Glick says with pride, is that it Is not the larger partner DeVilbiss- a company with annual sales of $17 million- that will distribute Itamar's products, but the opposite. He attributes this to that fact that Itamar, because of its focus on cardiac patients, has a strong marketing and distribution network in cardiology, which is not common among producers of sleep solutions.
Will this package will reduce the price of the device?
"We don't describe it that way, but all in all it will be more economic. The commission we will receive from the CPAP companies will allow this."
I have no complaint about the investors
Itamar also recently signed a marketing agreement with Medtronic, one of the world's largest cardiology companies (and one of the owners of Itamar from day one). Under this agreement, Medtronic will promote Itamar's product among cardiologists in return for a commission that is "negligible in comparison with what they are used to."
How do you market a sleep test for patients to a cardiologist?
"Our pitch is that if you treat sleep apnea, cardiology treatments succeed, and if not, then in the long run the majority of patients, who suffer from recurring sleep disorders as well, will find that their cardiac problems also recur. Cardiac patients are almost all also sleep patients, or should be."
Why?
"There are several proven connecting mechanisms. The first and most obvious is that the attempt to get air into the heart when there is a blockage creates enormous negative pressure in the chest and over time damages the heart muscle. In half of the patients, invasive treatments and procedures for arrhythmias fail, and these are also the patients suffering from sleep disorders. The second is that among the group of patients who do not respond to blood pressure medication, 87% have sleep disorders, and it was discovered that when these sleep disorders are treated, the patients begin to respond to the medication."
In the past Itamar suffered from a poor relationship with the American Association of Sleep Physicians. How is the relationship today?
"The doctors had sleep clinics where they sent patients and received over a thousand dollars for each examination. They removed us from the Association's guidelines, but meanwhile they lost the battle, not to us, but to the insurance companies, which prefer the much cheaper home sleep test where possible. Countless numbers of sleep clinics are closing down, and they realized that we are not the enemy. Since I came along after the battles, I'm not painted in the same colors, and there are no resentments. Today, we are members of the Association, like all other players in the field."
What has occurred in Glick's era is a $28 million investment from Viola in August 2015 for 24% of the company. "I knew I needed more money," he says. "Before my time, the company issued bonds totaling approximately $20 million, but that's debt, and it goes without saying that bonds are not an ideal solution for a company that is losing money, because a board of directors such as ours will not take of the risk of failing to repay debt. The money is there, but I can only look at it and not use it. I knew I needed greater investment, mainly for marketing but also for R&D."
Then you thought about Nasdaq. Why didn’t that happen?
"We looked at the option of the Nasdaq but we didn’t take it because at the time there was a crisis in China, and we were not ready yet either. For Nasdaq you have to have consistent results, and although we are not too small for Nasdaq it would be better if we grew a bit. That wasn't the right road."
You went as far as China.
"I looked for money in China as well, and we found a few investors, but that too was problematic. There is a big cultural problem. The Chinese are very good at taking over a company, but less good as part investors. There is a communication problem, they have many agendas, and in collaborating with them you become a member of the Chinese ruling party."
And then the connection with Viola was formed?
"Yes, I had immediate chemistry with Jonathan Kolber and Sami Totah (general partners at Viola), and both are directors at Itamar. They are the ultimate team because they have nothing in common. Totah understands the operations; he’s a technology man who knows how to make economic calculations and delves deeply into all the details, while Kolber is a visionary who sees the big picture. I get extraordinary enjoyment from the connection with both of them."
What did they see that convinced them to invest in Itamar?
"I think that like me they see the vision, that Itamar is the world’s leading company in solutions for sleep disorders in cardiac patients. Today it’s a small niche, but it will be big, and there is no competition there today. I can't guarantee that it will succeed, but if it does, it will be huge."
Since you didn’t list on Nasdaq, you are only traded in Tel Aviv. Do you consider your stock price low relative to what you would have had on Nasdaq?
"Our market cap is five times sales. This is the average for medical companies on Nasdaq, but the average includes companies that are not growing and don’t have potential, and we’ve grown in the US by 40% this year, so I don’t think I should be at the average. On the other hand, we have not shown our potential in our financials. The breakthrough should come when we demonstrate the growth. It’s not an inherent problem in the Tel Aviv Stock Exchange, its Itamar’s problem, which has baggage from the past and there's skepticism about it. I would like to see a different price, but I have no complaint against the investors."
"It became my vision"
Glick, 43, was born in Neve Monosson when the neighborhood was surrounded by fields. After studying at Ort Singlovski, he enlisted and became a signals officer with thoughts of an army career. His wife had other plans. She was working at Indigo and was relocated to the Netherlands. "Either you come, or there are plenty of tall and handsome Dutch men here." Glick took the hint, finished his military service without signing on for the career army, and caught a plane.
The plan was to go to Philips University in Eindhoven, and find a part time job. He saw an ad about an Israeli company that was looking for a technician in the Netherlands. It was a tiny company belonging to entrepreneur Shlomo Ben Haim called Biosense in the field of diagnostics and treatments for heart rhythm disorders that was eventually sold to Johnson & Johnson for $400 million. Glick was the first technician in Biosense Europe, and soon was one of the most important figures in the company. After 18 months, the exit to Johnson & Johnson came along. Glick was 21 at the time, and though he had no stock options, Ben Haim granted him them in retrospect so he could be a partner in the exit.
Glick stayed with Biosense under Johnson & Johnson, became responsible for sales and marketing in Western Europe (France, Belgium and the Netherlands), and then received a phone call that transferred him, his wife and Norel, his six months old first born child, to the headquarters in California. At the end of the process Glick became number two in Biosense Webster, which by then had annual sales of over a billion dollars, as VP of Marketing and Sales Worldwide. But one day, after 20 years abroad, he and his wife decided that although they were in a golden cage, "it wasn’t worth it."
"I didn’t know my nieces and nephews," he recalls, "My children were starting to become Americans." Glick gave notice that he was leaving in a year, and began thinking what to do. Biosense R&D director Uri Yaron, brother of Giora Yaron, told him "Meet Giora, he’s looking for someone to manage Itamar Medical."
You managed sales of over $1.5 billion; Itamar back then had sales of $12 million. It’s a very different scale. How were you persuaded?
"Have you ever met Giora Yaron? It's impossible not to be persuaded by him," he laughs. "He realized that it looked as though the company was too small for me, and I was sure that I would work Monday mornings and the rest would be inertia, but the reality was completely different, and it became my vision, this company."
You came from the cardiology side, and when you arrived at the company you declared that the sleep product was fine, but the main thing for the company was the cardiology product. How did you change direction?
"When you begin a journey like this, you see the end, but in the middle there are a lot of things you do not see. Anyone who tells you that he can see the whole road is either a genius or a liar- and I am neither."
What did you see in mid-journey? What's the problem with EndoPAT?
"It’s an amazing product, it can detect any cardiology risk, but it’s not specific. That is, it cannot say exactly where the risk arises, what the problem is, and medicine today won't accept that. The Western doctor wants a diagnosis at the end of which he'll know whether he should give a pill or send the patient for a medical procedure, and if so which one."
That makes sense, doesn't it?
"It took me almost a year to figure it out. With my background and connections from Biosense, it was natural to me to go to cardiologists. I tried with all my might to push EndoPAT, and I saw that among the opinion leaders, the professors who conduct large studies, there were many who published studies on EndoPAT, but they weren’t using it clinically. When I asked why, at first they said it was too expensive, so I lowered the price and nothing changed. And we continued to peel the onion and reached the conclusion that the issue was not the price, but the lack of specificity.
"The only place we continue to market the cardiology product is Japan (in collaboration with Philips), because they believe in preventive medicine- a doctor can send every patient that might have a cardiac risk for a diagnosis, and the government covers almost all the expense."
The way to make the EndoPAT a more specific diagnostic tool is through a large five-year study that will cost millions of dollars, and Glick says that such a study is not in the current plans of the company as it has a lot more to do in the field of sleep. That is unless another Friday night dinner comes along that reshuffles the cards again.
Published by Globes [online], Israel business news - www.globes-online.com - on September 25, 2016
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