Innovating for Niche Populations with Eric Chehab and James Wall

Niche markets and small populations don’t get the attention they need for medtech and healthcare.  Medtech Talk host Swaril Mathur speaks with Eric Chehab, founder and former CEO of Novonate and director of business development of Laborie OB/GYN/NICU, and James Wall, pediatric surgeon and founder of Impact1 at Stanford University, about how they’re bringing medtech innovation to small patient populations. They delve into their experiences of founding their own niche market companies and the lessons learned, including how they navigated commercialization and acquisition processes, convinced the right investors, determined capital efficiency, and more. They also share their thoughts on investors who think niche solutions for niche markets are uninteresting. 

Medtech Talk Links:  
Cambridge Healthtech Institute   
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Gilde Healthcare 
MicroTransponderLinks:
MicroTransponder
Stanford University Links:
Stanford Healthcare
Stanford Medicine Children’s Health
Stanford University 

Laborie Links:
Laborie 

Episode Transcript

Swaril Mathur (00:03):
Welcome to MedTech Talk.
This is your host, swarrelMather.
The focus of today's episode isinnovating for niche
populations.
Niche clinical problems areoften overlooked, not because
the needs aren't real, butbecause the markets aren't big,
and on today's episode we'llexplore what it takes to be
successful in that arena andwhat success even looks like.
I am so excited to have thisconversation with two guests who

(00:26):
have deep experience in thistopic Dr James Wall and Dr Eric
Chahab.
Dr James Wall is a physicianinnovator.
He's a pediatric surgeon atStanford Children's Health.
He was formerly the director ofthe Stanford Biodesign
Innovation Fellowship.
He is the vice president andassociate Medical Officer for
the DaVinci Multiport Robot atIntuitive Surgical, and he's the

(00:48):
founder of Impact One, which isan initiative at Stanford
specifically focused onpediatric and maternal health
innovation.
Eric Chahab earned his PhD inbioengineering at Stanford
University, where he foundedNovanate, a neonatal medical
device startup that we will talka lot more about shortly.
He was the CEO of Novanateuntil its sale to Labry in 2023,

(01:09):
where he is now the director ofbusiness development, and I'll
note, James and Eric have workedtogether.
James was an advisor toNovanate, which is how these two
incredible people know eachother.
So, James and Eric, welcome tothe podcast.

Eric Chehab (01:20):
Thanks so much, Swirl.
Really excited to be here withyou and excited to take a strip
down memory lane.

James Wall (01:25):
Yeah, thanks for having us Swirl.

Swaril Mathur (01:27):
Great, all right.
So, James, Eric, you know, thereality is that medtech
innovation is expensive, andcommercialization even more so,
so it can be hard to justifybuilding and scaling a business
that is going after a small TAM.
And it's hard, yes, but I thinkthe two of you have worked
really hard to prove that it'snot impossible, and so I would
love to tell some of the storiesof what you've worked on and

(01:48):
what techniques and methodsyou've learned for how to
innovate successfully for smallpopulations.
So, James, let's start withyour story.
You're a pediatric surgeon.
Tell us how you started to tuneinto the need for innovation
tailored to pediatricpopulations.

James Wall (02:02):
Sure, tailored to pediatric populations.
Sure, so you know, my storygoes back to really starting as
a biomedical engineer inundergrad and, you know,
learning about medical devicesand wanting to, you know, think
about ways to get involved ininnovating, inventing and
ultimately making an impact forpatients.
I went on to med school andthen I chose pediatric surgery

(02:23):
as my specialty and, you know,fast forward a few years.
I found the biodesign programand learned about innovation,
and that's when really, thisdichotomy hit me that you know,
as a pediatric surgeon, Irealized that things that I was
using in the operating room on aregular basis really were not

(02:43):
designed for kids and for theirunique diseases.
We were really adapting.
So every day of the operatingroom it was adapting instruments
often made for the adultpopulation, very large
instruments for very smallpatients, and that really didn't
hit me.
Until I went to biodesign, Ibegan to learn what you don't
learn in medical school aboutinnovating.

(03:04):
You have to understand marketsize, market access, all the
barriers to entry of a market,whether they be regulatory or
payment, et cetera.
And when you learn that processof innovation, you realize that
it really is difficult toinnovate for small populations
in terms of absolute numbers ofpatients.
And so I began to understandthis dichotomy that there's all

(03:26):
these great medical devicesbeing developed you see a lot of
them for adult cardiology,diabetes, et cetera and why I
wasn't seeing any beingdeveloped for me.
And having that understanding, Ibegan to think huh, you know,
could we do things differentlywithin a realistic framework
that understands that we're in acapital market system?
We do generally have to takeinvestment in order to get

(03:47):
devices to the market.
What are some strategies thatwe could potentially come up
with?
And kind of step number one wasto see if we could do it
ourselves.
And when Eric and I met atStanford over a decade ago
that's kind of where part of thejourney began was saying you
know, the idea that Eric and histeam had from a graduate class
in biodesign I found compelling.

(04:08):
I thought the marketopportunity was small and
challenging, but they had reallydefined such a great value prop
that I thought it was worth ashot.
And I'll let him talk aboutthat and then go and maybe go
back to how that kind offormulated one of my first
strategies that really focuseson value for PEDS.

Swaril Mathur (04:25):
Yeah, absolutely Absolutely.
Now, thanks for thatintroduction, and it's funny
that you bring up kind of thebiodesign process, because even
within that right, there's thisprocess of choosing the most
compelling needs, and often partof that is filtering based on
market size right, and you and Ihave talked in the past about
the fact that there's a veryintentional choice you make
about what you're going tofilter by, and, while many

(04:46):
companies and many innovatorswill choose to filter by market
size and choose the things thathave the biggest dollars, you
could also filter by impact, andit sounds like that's something
that has influenced a lot ofthe things you've worked on.
And also Eric.
So you know, eric, I think weabsolutely want to tell the
Novanate story because it's sucha good example of the lived
journey of actually innovatingfor a niche population.

(05:07):
So can you tell us kind of howthat originated, what that came
out of and why you decided topursue it and what Novonate was?

Eric Chehab (05:25):
Yeah.
So I took the graduatebiodesign course and we were
assigned a general problemstatement of central line
associated bloodstreaminfections or CLABSIs being a
problem and to start research inthat space.
So we started, you know, westarted listing out all the
different types of central linesthat different patients in the
world get.
You know, everything fromhemodialysis to sort of
chemotherapy and everything inbetween, and we started kind of
listing them out, looking attheir infection rates and their
complication rates.
And eventually we sort ofstarted looking at the pediatric
population, listing out all thedifferent types of central

(05:48):
lines in the pediatricpopulation, and pretty quickly
realized that the complicationrates and infection rates are
just a little bit higher inpediatrics.
Sure, the incidence is lowerbecause the kind of overall
number of patients is less, butthe rates were higher, which
meant, you know, it was kind ofmore clinically compelling value
proposition.
So then we started segmentingout the different types of

(06:08):
pediatric central lines and weeventually learned of something
called an umbilical cordcatheter, quite literally looked
around the room, including themed students, and asked them
what an umbilical cord catheterwas.
They did not know, so we typedit into Google Images and we
kind of saw this crazy pictureof this central line that comes
out of the belly button, that isheld at an upright angle, going

(06:28):
through this desiccating pieceof tissue that is kind of
suspended in midair with a pieceof tape that is kind of built
as a bridge from the abdomen,and that looked wild and we
couldn't believe that that washow Stanford University would do
it.
So we went and found aneonatologist or the med
students did, rather and theneonatologist pretty much said,
yep, that is exactly how we doit here at Stanford.
And so we knew we were ontosomething, you know, clinically

(06:51):
meaningful.
We recognized that it had asmaller market opportunity
compared to some of the otherneeds that we had uncovered, but
it just felt very clinicallycompelling and seemed like a
simple solution could be viable.
Very clinically compelling andseemed like a simple solution
could be viable.
And of course, if you're justfiltering based on TAM, it would
not bubble to the top.
But we couldn't get out of ourheads that it would be a pretty

(07:13):
simple solution, a pretty lowcost of development in face of
that kind of smaller TAM, and wefelt like we might have had a
shot to make the economics work.
So we got some good feedback.
We kind of presented at the endof the course.
We wanted to keep it going.
This team sort of tried.
It fizzled off, honestly.
But then a couple of yearslater one of my colleagues it
wasn't even me revived theproject and came to me and said

(07:37):
hey, let's get this going again.
Let's see if there's somethingwe can do.
Let's bring together a new team.
He's the one who found James.
Originally we needed a PI for agrant.
I think we typed in likepediatrics biodesign.

Swaril Mathur (07:49):
And what was the thinking at that point?
Now you're years past this.
You're trying to revive thisproject.
What was going on in your headin terms of picturing?
What was this going to looklike?
Did you have big dollar signsin mind?
What were you hoping for?

Eric Chehab (08:02):
Yeah, no great question.
I mean at first it was just canwe develop a clinically
meaningful technology that canhave an impact on patients?
That's kind of how it started.
Frankly, when we brought Jamesin, I think James was the one
who looked us in the eyes andsaid if we're going to do this,
we need to do this as if we'regoing to start a company and
that's the way it'll actuallyget to patients.
And I think James actually putlike a lot of legitimacy to that

(08:25):
academic endeavor where peoplewere kind of all working on it
part time, you know, for acouple of years or so.
And, you know, even though wesort of incubated within the
university and, you know,developed it slowly but steadily
I remember we were meetingevery Tuesday morning, James, at
8 or 9 am for a couple of yearsand making slow and steady
progress.
At that point we recognizedthat if we were really going to

(08:46):
get this going to patients, weneeded to have kind of a whole
startup company thing in mindand we sort of designed a
company, not just the productbut design a company around this
product, so that we could hitthe ground running if and when
we spun out of the university.
You know, I remember explicitlyJames and I and others had a
conversation like I think.
James said no one's retiringoff this technology or off this

(09:07):
company, and we knew that to betrue, but we knew that we had to
have it make at least somepotential economic sense to get
it to the finish line, yep, yep.

Swaril Mathur (09:16):
So tell us what the first few years I know this
was a long journey, right, buttell us kind of what.
The first couple of years wereworking on this product and,
specifically, as you wereideating what the concept or
what the solution was going tobe, and then testing,
prototyping, building thatsolution, what were the things
that you all had to do?
Very differently because thiswas a small population compared

(09:39):
to how you might have donethings if the population was 100
times that size.

Eric Chehab (09:42):
Yeah, I'll start really quickly.
I mean, when we were still aStanford-based team for about
the two years before we spun outat the university and became
Novenate, it was great becausewe didn't have much overhead, we
weren't paying anyone salaries.
We got like a $90,000 grant,which took us a very long way
because we just, you know, 100%of it essentially went to R&D
and so we were able to take thattime to really develop

(10:06):
prototypes, get creative, takeit to clinicians you know,
physicians but also a lot ofNICU nurses get their feedback,
you know, design differenttesting rigs and we were able
just to be scrappy because wedid not have the pressures of
like burn rates or investors atthe time.
So that was kind of the idealenvironment for the product that

(10:27):
would eventually become a lifebubble.
So when I was in the university, I think, yeah, we were able to
kind of do that.
And then once we became Novate,it was really just staying
capital efficient and, you know,brought investor dollars in,
recognizing that we couldn'tover-raise, and just finding
people that could do a lot ofdifferent things and, yeah, just

(10:47):
getting really efficient withproduct development in early
stages.

Swaril Mathur (10:51):
Yeah, and James, maybe a question for you.
As you've I mean you advisedNovanate, but you've also
advised several other companiesthat have tried to innovate for
niche populations, I hear theneed to be you know capital
efficient in the developmentprocess.
What does that actually mean interms of the decisions you're
making, for example, when you'rebrainstorming and just in the

(11:12):
early stages of trying to figureout what is our solution even
going to be?
Is that the stage at which areyou applying filters around?
We're only going to look atsolution concepts that would be
a 510k, not a PMA, or we're onlygoing to look at technologies
that would be quick and cheap todevelop and manufacture, as
compared to things like activeimplantables?
What are the guardrails thatallowed you to even be capital

(11:33):
efficient, maybe at some ofthese other companies as well?

James Wall (11:36):
Yeah, and I think what's important about me
advising these companies is Iactually started with companies
going after larger markets.
Right, I did the BioDesignfellowship.
I founded Insight MedicalTechnologies, which could be a
whole different podcast in termsof learning, but going after a
much larger epidural anesthesiamarket, getting it through
regulatory, garnering investment, hiring a CEO, all that sort of

(12:00):
stuff.
I also had the greatopportunity to work at Kleiner
Perkins as an intern andinteract with, you know, just an
unbelievable group at the time,including Brooke Byers and Beth
Seidenberg and others who were,you know, actively investing in
biopharma and med tech andreally looking for home runs.
That was their model right andso, and I got the chance to sit

(12:22):
on some boards as a relativelyyoung up and comer in the
industry and that just opened myeyes to, you know, how some
companies approached medtechdevelopment around going after
big targets, going really fast,spending a lot of money on IP
protection, et cetera, et ceteraKind of what we were taught to
do if you're going to do medtechright, and and a lot of what

(12:43):
influenced some of the ways thatwe filtered things in biodesign
, where we often filtered largeopportunities, and I think for
me, that experience allowed meto formulate early on what I
thought were two key strategiesfor innovating in a niche market
.
And the first was what Ericsaid, which is focus on value.
Right, there has to be a hugevalue prop.
And I think the way I summed,you know, I actually heard one

(13:07):
of the more famous SiliconValley investors say one time,
or said to me personally, youknow, I always go for the
biggest possible bullseyebecause I can afford to miss
right, just in terms of TAM,like just in a strategy, and I
was like, okay, well, that one's, you know, not possible.
So what you know?
So now we've got to think theopposite.
We've got to think, okay, we'reactually aiming for a really
tiny bullseye, so we got to belaser focused, that we're going

(13:29):
to deliver value.
So kind of strategy number one.
And what Eric and Carl andLauren and some of the other
people who are involved inNovonate early and I talked
about was let's be sure, right,let's be sure these infections
are more common, that there'sthere's real opportunity to
improve patient outcomes andimprove economics for hospitals
and really a product that coulddo that can become a sustainable

(13:51):
business.
So that was sort of lessonnumber one, strategy number one
Novena proved it.
But that was kind of learnedfrom working on adult
opportunities, where maybe bigwas good enough without a clear
view of the value, and so thatwas number one.
And then capital efficient.
Yeah, how does that work?
It's trade-offs right.
To be capital efficient simplysaid, you have to make

(14:11):
trade-offs right.
You simply can't spend money asfast as you possibly can if
you're going to really try andbe capital efficient.
The point of being capitalefficient, of course, is that
there's only a certain number ofpotential exit opportunities
for a niche market.
Right, there's only so manyacquirers, potentially so many
companies in the space.
So the less you are in, thelower your absolute valuation.

(14:31):
You can still potentiallyreturn money to investors, and
so we really focused on that.
But the trade-offs for me aretime right, how fast you can get
to market, and that's onethat's probably okay to make
right.
There's not a lot of competitionin these spaces.
So you know, burning money to gofast is probably not as
important.
And that's where you can dothings like.
You know, wait for six monthsfor a grant to come in.

(14:52):
You know, do a lot of work inthe university.
Keep the overhead low.
You know, use partial time.
We used a program at Stanfordearly on, before this was ever
thought to be a company, just aproject.
We had some studentsvolunteering time and that was
great.
And then the other.
You can trade off things likeIP too.
Right, you don't have to havethe world's most robust IP

(15:13):
portfolio across the globe.
That can cost hundreds ofthousands, if not millions, of
dollars If you're in arelatively small niche space
where competitors are not goingto rush in to go after your huge
margins and opportunity,because that's not who you are.
So those are a couple, butthere's other things you can
imagine along the way that youcan trade off.
But really time and the kind ofspending we did on adult stuff

(15:34):
was not necessary in my opinion,and that's how we played it out
with Novanade.

Swaril Mathur (15:39):
Yeah, yeah.
A question that comes to mindfor me is around clinical
evidence, right, because that'san area where a lot of spend is
generated for medical technologyinnovation.
So how have you thought or howhave you seen kind of these
companies tackle that questionof how to run efficient, lean
clinical studies, which soundslike an oxymoron?

James Wall (15:57):
Yeah, well, I'll speak to that one and I'll let
Eric add on.
But I think, Eric, you'llprobably agree with that was the
biggest bet we made on Novanate.
I would say the biggest bet wemade.
You know, we had developed theproduct on grant funding within
Stanford to the point where itwas like ready to be
manufactured.
We then decided, okay, we'regoing to spin it out, we're

(16:19):
going to try and make this astartup.
We had customers ready, sothere was very little commercial
risk.
There was very little technicalrisk.
We had filed some IP, but theone thing we didn't have was
clinical evidence and we sort ofwe polled, we talked to the
customers.
There's only so much you can do,right, you know, obviously
everybody wants to show adifference in the most
meaningful outcome, which inthis case would have been CLABSI

(16:40):
, and CLABSIs were give or takethree to 5% at that time in the
neonate population.
And you know, showing adifference of 50% would have
been meaningful.
50% reduction would have led tosignificant cost savings,
significant improvement inmorbidity, mortality.
But it would have taken a lotof patients in each arm of a
study if you were going to do alarge randomized control study,

(17:00):
and that would have probablydoubled the cost of development.
So we said is there a surrogateoutcome that we think is good
enough, at least for the earlystage of innovators, early
adopters, that we can get theproduct to market, show that
there's kind of unit economicsthat work, that it can get to
profitability and sustainability.
It's not going to be abillion-dollar company but it's
got to have those fundamentalsin place.

(17:22):
And that's the bet we made.
We said we think we can do thatand so we used something we
looked at line migration, whichis pretty common.
Lines come out.
The studies are all over theplace, but in the 20 to up to
60% of the time you can haveline migration and that leads to
having to remove the line andreplace it and a lot of people
associate that migration andreplacement with an opportunity

(17:44):
for an infection to happen.
So, short of proving the actualinfection decrease, we thought
that proving line migration,which was doable in, you know,
something like 50 patients asopposed to several hundred, was
really the way to go.
And that was the bet we madethat we could get to market, we
could at least get to earlyadopters through that and then,
once we got to early adopters,we could potentially use real

(18:05):
world evidence or otherstrategies that are capital
efficient to prove our ultimategoal, which is to reduce
infections.

Eric Chehab (18:11):
Yeah, and just a little more detail on like how
we made that bet and what's thatrisk looked like.
So the product was actually510k exempt as class one device.
So we took it to market andcommercialized it in air quotes
before we put it on a singlepatient.
You know, rather than apply foran IDE and sort of do a
pre-commercial like pivotaltrial or something like that,

(18:33):
also dealing with sort of aneonatal population, and felt
like it was the right thing tosubject ourselves to the FDA
requirements before putting iton patient and not asking for
any shortcuts.
So we did that.
So we, you know, registered itwith FDA and then put it on
patients.
And as we were doing somecustomer discovery, and I was
spending tons of time speakingto NICU nursing leaders and

(18:54):
neonatologists and startedshifting our messaging more
around umbilical venous cathetermigration, recognizing that
that was resonating a lot morequickly, because there will be
some NICUs who say, oh yeah, youknow, clabsi rates are 3%, but
not in our NICU, you know, ithasn't happened in two years.
These obliquely venous cathetermigration rates are like 30, 40%

(19:15):
and it clicked a little morequickly and I was speaking, as I
was speaking with a bunch ofphysicians, there was one in
particular.
It just resonated with him andhe told me almost verbatim that
it's like his number one petpeeve in the NICU.
And so we structured somethingwhere we essentially gave him
some money to do his ownindependent clinical study for
this PI driven grant.

(19:36):
You know we had no control overit really took a long time to
complete but but that was, youknow, very capital efficient and
he was just very clinicallyinterested in improving that
already.
So finding the right partnersright helped out a lot.

Swaril Mathur (19:50):
Yeah, yeah.
And so it brings me back tosomething that James had
mentioned earlier, which is, youknow, since your bullseye is
smaller, you've got to reallynail it.
There's no space to miss.
And you know, to that point, itsounds like you were getting
great direct feedback from thekey stakeholders, so that when
you made these trade-offs, youwere making the right trade-offs
right.
I think that's an area where alot of startups get into hot

(20:11):
water.
I mean, even the big,well-funded startups have to
make trade-offs, but it's justthe question of how do you know
which ones to make and how doyou validate that you're making
the right ones.
So that's really helpful.
And while we're talking aboutthe notion of kind of being
capital efficient, I want totalk specifically about funding
strategies.
So, throughout kind of thelifetime of Novonate, can you
tell us how this venture wasfunded?

(20:33):
What worked, what didn't work?
Like did you even approachtraditional MedTech venture
investors?
Did they even take your calls?
What was this process?

Eric Chehab (20:42):
Yeah.
So before we spun out Novinatebut in the sort of six months
before we did, knew that thatwas going to happen started
applying to all the pitchcompetitions, applying to grants
and put ourselves in positionto meet investors.
We applied to present at UCSF'sRosenman Institute and gave a
presentation to them and met acouple of people who were

(21:05):
starting a venture capital fund,which was medical technology
venture partners you know,partnership with the Rosamond
Institute and this just clickedwith them and I remember we gave
the presentation.
It was very quick.
It was in a room with a bunchof people.
We didn't even know whoeveryone was and someone who
might have been James or maybeRoss said well, if you guys know
anyone who'd like to invest inthis, let us know.

(21:26):
Quite literally, as we'rewalking out the door, someone
raised their hand and said well,I would.
And we had no clue who that guywas and he didn't even have a
business card because theyhadn't even closed their first
fund yet.
But we found our way back tohim a couple of weeks later.
Long story short, and that waswhere I do and ended up being on
our board and kind of a primaryVC behind Novanate.

(21:48):
We applied for grants.
Sbirs were a big source offunding eventually, the
Pediatric Device Consortia aswell, and a few other kind of
grant-based things here andthere, and then, yeah, primarily
MedTech Venture Partners andthen a series of angel investors
along the way, funded thecompany.

Swaril Mathur (22:04):
Great, and what was the value proposition to
them?

Eric Chehab (22:09):
Yeah, I mean we kind of framed it realistically.
You know what the TAM was, butwhat the development cost would
be and the fact that we hadde-risked so many things in the
years prior, and so I think theinvestors who invested in it
whether it was VCs or angelskind of viewed it as a low risk
opportunity, not somethingthat's gonna generate like a

(22:31):
very high return.
But for the ones that arelooking for what some investors
call the base hits, in additionto their home run potentials,
this could be a base hitopportunity.
So I think, that there werecertainly some that said just
too small market opportunity.
I don't invest in pediatrics,but for those who are kind of
looking to diversify their risk,you know in their portfolio

(22:52):
this resonated.

Swaril Mathur (22:54):
Yeah, yeah, James , I'm curious.
You know from again from theother companies that you've
advised are there other commonfunding strategies or what is
your typical advice whencompanies are trying to figure
out what funding sources theyshould try to tap?

James Wall (23:07):
Yeah, so in terms of giving advice to the early
stage innovators, which is kindof really what we built Impact
One to do we'll probably talkabout that later but we really
advise them to.
You know, think about the mostefficient use of funds early and
where they can get non-dilutivefunds right, and everyone kind
of talks about non-dilutivefunds, but there's a lot of ways

(23:27):
to do it.
Typically, universities are thebest place to get non-dilutive
funds.
Stanford is particularly goodin terms of having a number of
different programs.
You know we were involved ineverything from StartX to
culture funding, et cetera, etcetera.
So these are all generallyfunds that the university gets

(23:48):
from either foundations and orphilanthropy and or programs
that have been established, andthat money is distributed to
innovation style projects, andso that's kind of one great area
to do it if you're within auniversity, and these vary
across universities, but you getthe gist of it.
There's also federal dollars.
So SBIR, sttr a lot of peopleknow about those programs.

(24:13):
Those are small business,innovation or tech transfer
awards and those are reallyfocused on projects that
probably couldn't be developedby a company because they're too
risky in terms of spending.
You know P&L dollars on R&D,and so they are focused on
external entities, but earlystage med techs can take
advantage of those and I think alot of people in our community

(24:34):
are much more familiar with themthese days.
And then the last is sort ofwhat I call you know,
philanthropy to sustainabilityright, so there's pure
philanthropy, which you know.
Philanthropy to sustainabilityright.
So there's pure philanthropywhich you know usually expects
impact but maybe not return ordoesn't think of it in terms of
a business right, just donatingto you know some particular
cause of.

(24:55):
You know typhoid fever, youknow whatever that you know that
they want to sort of like.
You know fund, you knowsolutions to, and the money gets
spent and impact is created.
When I think about philanthropyto sustainability, it's about
really focusing on the kind ofperson who gives money, who
probably has a businessbackground maybe, who's been

(25:15):
very lucky in venture or whatnottech, particularly in our area
of the world, in the Bay Area,who really understands that you
can build a business on uniteconomics that may not be worth
$10 billion but they can besustainable, can grow and can
kind of work in perpetuity.
But to get that started youneed a little boost right, and
that boost can be non-dilutivephilanthropic dollars as opposed

(25:36):
to venture dollars.
That you know, venture is great, but they have LPs who expect
returns and they have a thesisthat they have to hold.
And if that doesn't fit with aniche development opportunity,
then I think philanthropy is areal opportunity.
But it really needs to beframed and I'm not asking for a
donation here.
I'm asking for a kickstart to asustainable business.

Swaril Mathur (25:54):
Yeah, and when you say sustainable business, do
you mean kind of long-termprofitable business, meaning you
guys expected even at thatpoint that the unit economics
were going to work out such thatyou know you're you're making
more than you're shelling outyeah, I mean, I think it's that
simple right, like if, at somepoint, you're making more than
you're spending, you have yourfuture in your hands, right.

James Wall (26:15):
You may or may not be able to reinvest in
additional projects.
You may not to be able to growas fast as you want, but you are
in control.
You can continue to deliver theproduct to the patients and
grow at a rate that you know,within the bounds of the capital
you have on hand.
Before you get to that point,you're relying on ongoing
investment, and so I thinkyou're also, once you get to

(26:36):
that point, or you havevisibility to, you know, kind of
break even, cashflow positive,either of those.
Then you're at a point whereyou become much more attractive
for acquisition and that was oneof the key unlocks of Novonate
is we got to that point where weproved that the market, you
know, was willing to pay um at aprice, that that for which we

(26:57):
could be profitable, we couldmove towards being, you know,
cashflow positive and ultimatelycould potentially even break
even, and that's when I thinkthe business really was much
more attractive to potentialacquirers.

Swaril Mathur (27:08):
So you know you've mentioned, of course, the
goldmine is to get toprofitability, right, but I want
to talk about how that'spossible, because the big thing
in my mind is commercialization.
Right, we've talked a lot abouthow do you stay capital
efficient through productdevelopment and clinical studies
, but now the big question markis okay, you have this product

(27:30):
that's useful for a very smallpopulation.
How are you going tocommercialize it in a way that's
sustainable and makes financialsense?
So, both with Novonate and withother companies that you've
worked on, James, how did youthink about that?
What was the go-to-marketstrategy?

James Wall (27:39):
Yeah, I'll talk about the strategy and then I'll
let maybe Eric talk about howhe implemented it.
But the strategy we had, or theinsight, maybe not even to the
level of a strategy yet, but theinsight was that we were really
going after a focus group ofcustomers, right, when you think
about most adult med tech, youthink about 8,000 plus hospitals
if hospitals are your customeror hundreds of thousands of

(28:01):
potential physicians around thecountry, you know, when you're
talking about the NICU, you'retalking about very consolidated
care in hospitals.
You know a couple hundredhospitals around the country
that are really high level NICUsand a very small number of
providers compared to adultspecialties.
And so sort of strategy numberone was focus on the biggest
NICUs, which are reallyconsolidated, and you don't need

(28:23):
an enormous sales team to dothat.
And in fact I'll hand it overto not only our CEO but our
early head of commercializationand sales, Eric, to talk about
how he implemented that strategy, because we weren't going to
hire a sales team, right.
So, Eric, take it away.

Eric Chehab (28:37):
Yeah, that's right.
I mean we would have loved tohave a big enough budget to hire
direct sales force, even a fewpeople, to cover the country and
kind of fly around, but wereally couldn't afford it.
So we had to think a little bitoutside the box and nothing too
unusual, but really anindependent sales force that we
are paying, based on commission,where sure there is new risk

(28:59):
there and managing kind of athird party is challenging, but
at least where they're not sortof adding to the burn rate,
we're not paying fixed salariesif they're underperforming and
that of course takes a hit onour product margin and that of
course takes a hit on ourproduct margin.
But you can start to think veryclearly.
You know how to scale that upand how many accounts or how
many units per month, per yearyou would need to become cash

(29:21):
flow positive.
You know, probably strippingaway a lot of the other things
at that point in time.
But we had a pretty clear planin place and we had fumbled
around our commercializationstrategy a bit.
We had tried a few differentthings, but we did find a group
who we were working with andstarted ramping things up with
to kind of deploy thisnationally under that model

(29:43):
where we're basically justpaying them a royalty, if you
will.
And that was the strategy.
And then you know myself, andthen hopefully we had raised a
little more money, someone tomanage that team, provide them
with like all the marketingtools kind of a sales strategy,
if you will, obviously stayingon top of it and make sure that
they're being sufficientlyeffective.
And that was the plan and westarted.

(30:04):
We started down that road andthen strategic discussions with
Labry picked up at that time andeventually kind of became we
got acquired then by Labry.

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Swaril Mathur (30:30):
You know it makes sense that you would have to go
through kind of independentdistributors in order to
commercialize this, becausethat's obviously a lot more
capital, efficient and moreflexible than building your own
sales force.
But again back to the notion oftrade-offs.
Right, there's trade-offs ofdoing that.
You then don't have directcontrol over this outside entity
and you're competing for theirtime and attention and effort

(30:50):
with other things that are intheir bag which, again, you
might not even have visibilityinto.
So what did you learn in theprocess of trying to figure out
who are the right distributionpartners to work with and what
does the structure need to looklike?
What are some of the keylearnings that you had there?

Eric Chehab (31:03):
Yeah, it's a great question and probably one of the
most difficult things that Idid at Novenaid.
And you know I really wanted tomake sure we found the right
partners.
In the early days we, you know,worked with a few reps through
an intermediary, with theincentives weren't like totally
aligned and we really didn'tcontrol enough through that

(31:24):
phase and those reps were quiteunsuccessful at getting the
product into different hospitalsand just realizing that the
incentives weren't sufficientlyaligned.
Then we started looking atdifferent specialty distributor
groups, you know ones that werefamiliar with neonatology or
selling pediatric devices, andthat was really interesting to

(31:45):
us and we were sort of marchingdown that road.
The challenge with that is wewould have kind of had to piece
together the whole US, you know,finding a group on the West
Coast, another on the East Coast, another like in Texas, and
there probably would have beenseven or eight groups that that
that you know were needed tokind of make up the coverage of
the whole country and and I wasintimidating to manage for for

(32:07):
me or really anyone else on ourteam trying to be lean, really
anyone else on our team tryingto be lean so then we found a
group that was actually not veryfamiliar with the neonatal
space but very familiar with thecentral line and central line
securement space and a singlecompany that covered the whole
US and only were selling kind offour other products.
So we would be the fifth.
So it made sense that we couldkind of get their attention and

(32:32):
we were sufficiently optimisticthat we could teach them how to
sell into the NICU, provide themthe tools to be successful in
the space, and that was kind ofthe initial pilot partnership
that we struck.
We never worked with the wholeteam prior to acquisition, but
for about a year we worked witha subset of their group and sort
of scaled up.
But the lesson learned wasreally just making sure that the

(32:54):
incentives are as aligned aspossible, that you're providing
with the tools necessary to besuccessful and you know, even
though it's not the same companyto treat it as close of a
partnership as possible.

Swaril Mathur (33:07):
Mm-hmm, Mm-hmm, Absolutely.
Now.
The Novanate story is a successbecause Novanate was eventually
acquired by Laboree, as wealluded to, and I would love to
kind of talk more about how thathappened.
I mean, I think thepreconceived notion that most of
us have is that big medtechcompanies chase billion-dollar
TAMs, right.
So why did this acquisitionhappen?

(33:28):
How did this fit for Laboreeand what did your conversations
with them look like?

Eric Chehab (33:37):
Yeah, a bit of a long story but in short, I think
when we started having a lineof sight on what profitability
would look like and what Jameswas talking about, we had a
clear plan of what it would taketo get there.
Our board, our investors,encouraged us to start strategic
discussions.
So I remember, you know, I wastasked with providing a
strategic overview of everycompany that could potentially
acquire us, who we knew in thosecompanies or who we needed to

(33:59):
know in those companies.
We have like a couple hourmeeting.
I went through each of them oneby one, what the strategic
rationale could be and we sortof assigned tasks.
I mean James included.
You know, I think James took acouple of companies to find
someone at a certain company toconnect with and that kind of
kicked things off and that wasto be clear, probably two years
before acquisition.
But it started this process ofestablishing relationships,

(34:22):
quarterly or so check-ins by mewith the people that we
connected with at each of thosecompanies, giving them the
updates, seeing if they wantedto discuss things.
On that company list was acompany called Clinical
Innovations who we connectedwith sort of on and off over the
years.
Clinical Innovations eventuallygot acquired by Labry and so

(34:43):
the OBGYN NICU division of Labrywas sort of legacy Clinical
Innovations and during just oneof those check-ins things kind
of resonated.
Obviously internally there wassome strategic shift on their
end and asked us to kind of givea renewed set of presentations
to a new leadership team andthings kind of picked up.
So you know, it wasn'tnecessarily an explicit decision

(35:03):
of, hey, we need to sell thiscompany right now, but a slow
and steady process ofestablishing relationships.
And then you know, eventuallythe stars aligned.

Swaril Mathur (35:13):
And it sounds like a lot of how deals get done
, which is it's slow, and thenit's fast, right, it's a slow
process of reaching out to folks, building relationships, and
then there comes a tipping pointwhere someone's ready to act
and it moves fast.
I'm curious, in some of thoseearly conversations you were
having with a broad list ofstrategics, what was some of the
feedback you were getting?
What were some of the thingsthey were excited about?
What were some of the thingsthey were hesitant about?

Eric Chehab (35:35):
Yeah, great question.
So as a generalization I wouldsay, you know, the clinical need
resonated and for thestrategics that were pretty
familiar with this space theygot it very quickly and it made
logical sense.
You know, for some strategicsthere's a question of whether
they wanted to invest further inthe neonatal space right, if
they weren't a NICU-focusedcompany maybe they had one

(35:57):
product to NICU in their bagwhether there was an explicit
desire to grow into that spaceand invest further in that space
.
Clinical nations and libraryindependently identified the
NICU as an opportunity of growth.
They're primarily a labor anddelivery-focused company and
sort of viewed the NICU as anopportunity of growth.
They're primarily a labor anddelivery-focused company and
viewed the NICU as an adjacentspace to grow into.

(36:17):
It was great that we didn't haveto convince them of that
opportunity.
Strategic alignment, I guess,is the phrase that admittedly I
probably use these days a littlemore than I should, but
conversations about whether thiswas aligned with where they
wanted to take the business.
But I frankly did not have tohave too many discussions or

(36:39):
conversations to convince themof the clinical need and of the
potential clinical value,probably because we spent all
that time in the early phase.

Swaril Mathur (36:49):
Mm.
Hmm, yeah, and that's back toJames.
Yeah, and that's back toJames's earlier point that you
know one of the keys if you'regoing to innovate in this space
is to focus on value proposition, and that holds true across
every stakeholder.
So you had spent some timebuilding relationships with
different strategics.
You started to get a good senseof where there was good
strategic alignment.
Was there any debate about youknow, whether it really was the

(37:10):
right time to sell the companyor what the valuation should be
about?

James Wall (37:13):
whether it really was the right time to sell the
company or what the valuationshould be.
Yeah, so, as a member of theboard a very small board, myself
, one investor and Eric wereally were a working board for
a lot of this journey, and Ericalluded to a process that we
initiated that I think is reallyimportant.
When you're in the pediatricand maternal space, there's not
a lot of potential acquirers, soI think a real intentional

(37:36):
effort to build relationshipswith them early and connect with
them often is important.
You know, as many of ourmentors say, companies are
bought, not sold, and I thinkthat's right.
The strategic has to have someidea of the space and interest,
but keeping those relationshipswarm are important and when the
time's right, I think you canaccelerate things, and so was

(37:59):
great to have that process goingbefore we were out of cash or
in a tight spot or reallylooking to sell, if you will.
And actually, early on, therewas one offer made from a
smaller company.
It was not the most generousoffer and so, but it was an
offer and as a board of acompany that knew its biggest
potential barrier might be exitin terms of the ability to scale

(38:23):
right To join a larger companywith more resources, with more
of a sales force.
It was an opportunity to do thatat a price that was pretty,
pretty hard to wrap our headsaround and we actually said no
to it, which was potentially thecraziest thing that's ever been
done in pediatric innovation isto say no to an acquisition
offer.
That being said, it gave us thediscipline we did the modeling.

(38:45):
It was a hard 72 hours for Eric, more so than the rest of us,
but we were all sweating it.
But it gave us conviction right, it gave us conviction.
We've been in the market, weknow what our margins are, we
think we can hold to them.
The product's becoming sticky,we think we have a strategy for
selling it, we think that can bescaled and if that is all true

(39:07):
which we had conviction in thenthe value of the company is
higher and we should keep going.
We should work towards cashflowpositive to have our you know,
kind of have our future in ourhands and then find a potential
partner who sees that value andultimately, labry was that
partner and things really workedout for everybody.

Swaril Mathur (39:25):
Wow, that's pretty incredible.
I mean, the idea of being insuch a niche space and still
deciding from a limited set ofpotential buyers to turn
something down must have beenmore hand-wringing than you're
letting on, but obviously,ultimately you made the right
decision and there was a greatoutcome for the company and for
the product and for all thepatients that are benefiting
from it now.

(39:46):
So we've talked a lot about theNovanate story in particular and
I know this is one of manyinnovations that you've worked
on, James that is related toniche populations your passion
particularly aligning withpediatric and maternal health
and I want to hear just a littlebit more about Impact One,
which is this program that youstarted at Stanford with a
specific mission to support andaccelerate innovation for niche

(40:09):
populations.
Can you tell us briefly what isImpact One, what is its
objective and what are some ofthe key lessons, key learnings,
that you are trying to instillin innovation for niche
populations?
Can you tell us briefly what isImpact One, what is its
objective and what are some ofthe key lessons, key learnings,
that you are trying to instillin?

James Wall (40:19):
these innovators that you are advising?
Yeah, so Impact One came out ofthat early dichotomy of my
career where I really saw thatthere was a lack of innovation,
a lack of medical devices beingdeveloped for the unique
diseases and needs of childrenand also maternal patients, as I
have part of my practice infetal medicine and when you look
at it objectively, children are25% of the population and, as I

(40:43):
like to say, they're 100% ofthe future.
So I thought they deserved more.
I thought that we could buildan initiative that could help
promote.
And how do we do that?
So, first, what's your missionstatement?
It's to impact lives from dayone, both day one of life, day
one of pregnancy and to do itglobally.
And so the way we do that inImpact One, or the initiatives

(41:05):
that we've built, are educationand really the Impact One
initiative, to be clear, liveswithin the biodesign program at
Stanford, so really aligned withthe biodesign mission of
impacting lives globally, withreally much more of a focus on
pediatric and maternal patients,who've been underserved by our
industry and others.
And so really, it begins witheducation, you know.

(41:26):
And the way we do that is thatwe have a forum.
This is a funny story, is thatwe started this forum probably a
decade ago and the idea was wewould have innovators who had
ideas in pediatric and maternalcome to the forum and present
their project or idea, whateverstage they're at, and that we
would provide advice, guidance,some coaching, based on the fact

(41:47):
that some of us had donestartups and understood the
biodesign process, teach them todefine the need, um, etc.
And I was really worried, for,you know, after about six months
we would run out of projects,right like there would just be
none left because there were sofew people working on this.
And you know, fast forward adecade.
We've expanded it globally, butwe now have two forums a month,

(42:07):
three companies per forum, sixcompanies a month presenting.
We have 60 plus companies whoapply for seed grants through
our pitch competitions annuallyfor both pediatric and maternal,
and we've just had some prettyincredible impact.
So it started with education.

(42:28):
Next, I was able to raise somefunding, initially through
collaboration with UCSF and thePediatric Device Consortium,
grants from the FDA.
We were able to get funding tosupport the program, to bring in
some fellows to start givingout seed funding to companies.
We then were able to enhancethat funding with philanthropic

(42:50):
donors who have given to theprogram, allowing us to really
expand the reach globally, andthat money really allows us to
do the next step, which isenabling innovators right,
really doing translation.
And so translation's about notjust that early education and
coaching but giving themresources through, you know,
directed grants to get an FDAregulatory consultant to do a

(43:14):
prototype, et cetera, whateverthey need early on in their
journey to help de-risk theproject we can fund with
directed grants.
And then we have these seedgrant competitions that give
away up to $100,000 per companyper year to support them in the
early stages.
And then, finally, we do somepolicy work, which could be a
whole kind of podcast on its own, so I won't go into it in too

(43:35):
much detail, but really thinkingabout the ways that you know
policymakers think about PEDSand make sure really at a
fundamental level they're justincluded in the conversation and
thought about when policydecisions are made.
So those are kind of the threecornerstones of the program.

Swaril Mathur (43:53):
Wow, yeah, so really just a breeding ground
for kind of innovations that aregoing after niche markets,
particularly related topediatric and maternal health.

James Wall (44:04):
Exactly.
And then the final part thatwe've done in more recent years
is try and create an ecosystemoutside of Stanford and the
current mechanism for thatsomething I learned from Brooke
Byers, who really built a lot ofthe biopharma industry on a
conference where it wasn't justcompanies he invested in, but
really all companies that weregroundbreaking in the space came

(44:26):
together.
We've started a pediatric andmaternal CEO conference and,
again, 10 years ago I didn'timagine there'd be more than
five or 10 CEOs of pediatric andmaternal companies, but we now
have 50 plus who attend on anannual basis.
Last year we were in New YorkCity, this year we're going to
be in Austin, and the conferenceis really building a community

(44:49):
of leaders in this space who Ihope will not just be one-time
CEOs but will be multiple-timeCEOs, will mentor the next
generation and really build acommunity that has conviction,
belief in the space and theknow-how to get it done.

Swaril Mathur (45:06):
Yeah, wow, that's pretty incredible, and even
hearing this is changing some ofmy preconceived notions about
how much action there is in thisspace.
Right, it's funny when you know.
Even hearing this is changingsome of my preconceived notions
about how much action there isin this space.
Right, it's funny when you saidwe're doing a CEO conference,
in my head I immediately startedpicturing a very small
conference room in some hotel.
You know some hotel's firstfloor.
But it's eye-opening and reallyencouraging to just hear how

(45:29):
much action there is actuallyout there once there are
platforms for it to be supportedand for these people to connect
with each other.

Eric Chehab (45:35):
Yeah, and I'll just add briefly someone who's a
part of that community.
It's tangible the differencethat it makes and, being at that
most recent conference, thisworld of pediatric med tech
startups is small but it'smighty and it's almost
abnormally supportive of itself.
And you know there is not a lotof competition happening in the

(45:58):
pediatric device world and andthere is common challenges that
occur specifically aroundfundraising and go to market
strategies and it's just anecosystem where where the
different CEOs, the differentfounders are so eager to help
each other out and so supportive, and so having these kind of
structure of organizations thatbring these people together,

(46:19):
provide an ecosystem to allowthem to kind of collaborate and
help, you know really makes adifference.

Swaril Mathur (46:25):
That was a great overview of Impact One.
Yeah, that's really encouragingto hear.
Eric and James, can you give usa sense, kind of, since Impact
One was founded, what's kind ofthe scope and scale of the
impact that the program has had?

James Wall (46:37):
And so, since 2019, we've supported over 210
projects across 19 countries andsix continents.
We're still shooting forAntarctica.

(46:58):
We haven't gotten there yet.
The projects that we'vesupported, through both coaching
directed funds as well as seedfunding, have now reached 90,000
plus patients globally.
Those companies have raisedabout $240 million, they've
created over 400 jobs and we'vehad four companies exit, so
we're really proud of theaccomplishments.

(47:19):
Again, it's not all aboutcompany creation, but companies
as vehicles to deliver impactfulmedical technologies to
pediatric and maternal patients.
So stay tuned there's a lotmore to come.

Swaril Mathur (47:30):
Great so, james and Eric, it's been so rewarding
to hear kind of the stories ofthe companies that you have
guided and built that havesuccessfully innovated for niche
populations.
I know there are a lot of folksout there who work in medtech,
either on the investor side orin business development, and
these big strategics who havepreconceived notions about what
makes an attractive market.
So what's the one thing thatyou would say to an investor or

(47:53):
a big strategic who just thinksthat niche solutions for niche
markets are not interesting?

Eric Chehab (47:58):
So I would encourage anyone who is
intimidated by a niche market ora niche TAM to keep in mind the
clinical impact that a productcan make.
You can still have a very bigclinical impact in a smaller
market opportunity.
To some extent, that's why weall work in this medical
technology world is to impactpatients, to improve lives, to

(48:20):
save lives in some cases and tojust sort of do good for the
world, and I think it'simportant to keep that in your
heart and consider that as youmake investments or strategic
moves.

James Wall (48:34):
Yeah, I think.
To add to that, my first pieceof advice to investors would be
don't use the term niche market.
It's a market, right?
I've heard that term used inthe past around women's health,
and that was bonkers.
Women are half the population.
That's a huge market.
So my advice is don't thinkniche, think it's a market.
If you stick to yourfundamentals of assessing TAM

(48:54):
SAM SOM, you stick to yourfundamentals of understanding
the unit economics of theproduct, understanding the value
proposition that's beingcreated, then you really can
assess whether there's anopportunity there.
If you're worried about thingslike regulatory risk and things
that are unknown to you becauseyou haven't worked in the space
before, come talk to people likeus.
Right, it's been done.

(49:14):
There's now models for it.
So my advice is stick tofundamentals and, if there's any
uncertainty, learn from thosewho have done it.
There are real challenges, butthere's also significant
opportunity in the space.

Swaril Mathur (49:27):
Absolutely Well said.
Thank you both for coming onthe podcast today and sharing
your stories.
I think this conversation was areally powerful reminder that
small markets can drive hugeimpact and shouldn't be
overlooked, and we just have tobe willing to rethink how we
innovate, how we fund, how wescale these journeys, and so
this was a really, reallypowerful story.
Thank you both for being hereand MedTech Talk listeners.

(49:50):
We'll see you next time.

James Wall (49:53):
Thanks Swaril.