Doctors of Invention

Could heart surgery someday be done in a doctor's office? Two companies with strong Stanford ties are pioneering minimally invasive techniques and carving up a billion-dollar market.

May/June 1998

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Doctors of Invention

Photo: Glenn Matsumura

When Greg Ribakove, a young heart surgeon at New York University Medical Center, walks into the operating room for his first case of the day, his 66-year-old patient is prepped and ready. Another surgeon and several scrub nurses are already here; so is an anesthesiologist to sedate the patient and a perfusionist to operate the heart-lung machine. Color monitors display zigzag readouts of the patient's vital signs, and a technician monitors a grainy ultrasound image of the heart on a video screen. A radio on a back table is tuned to a local talk show.

Ribakove typically begins his workday by sawing a patient's breastbone in half and ratcheting it apart with big steel retractors. But on this raw December morning, he is doing something different – something a bit more delicate and not yet standard, something he learned while spending a year in surgical training at Stanford a couple of years earlier. He performs a single-coronary-artery bypass operation through a 3-inch incision just below the patient's left nipple. He does it quickly and skillfully. The procedure takes 2½ hours, and four days later, the patient will be resting at home on the way to full recovery.

This procedure – known as a minimally invasive operation – is the hottest thing in heart surgery. The new approach has galvanized doctors, patients and investors alike because it avoids the big, traumatic neck-to-navel incision called a median sternotomy, shortens the patient's hospital stay and gets him back to work sooner. First performed on April 1, 1995, the procedure was invented by Wes Sterman and John Stevens, medical school classmates at Stanford. The two co-founded Heartport Inc. of Redwood City to make the specialized equipment needed to do the surgery.

Sterman, '82, MD '87, MBA '87, and Stevens, MD '87, were first, but they are no longer alone. Another Silicon Valley company, CardioThoracic Systems (CTS) of Cupertino, is in on the act – and also has a Stanford connection. Its founders have pioneered what they see as an even less traumatic way of doing heart surgery: a bypass operation that's performed while the heart continues beating. This method eliminates the heart-lung machine, which Tom Fogarty, a Stanford surgeon and CTS board member, claims can be more traumatic than the median sternotomy that both operations eliminate.

Both versions of this new surgery are technically breathtaking, and both are less invasive than standard bypass or valve surgery. In fact, the surgical innovators foresee a day when cardiac surgery will be done in a doctor's office. What's less clear, however, is which method will become the most widely used or prove to be the better business investment in the lucrative cardiac-treatment market, or where either fits in the spectrum of treatments for heart disease. In the past, such questions would have been answered by surgeons in operating rooms at academic medical centers. But in today's environment, where drug and device firms, HMOs and insurance companies set the agenda, they are as likely to be answered by entrepreneurs and financial analysts, in the marketplace and in the media. The stakes are enormous. The companies that emerge from this competition will share a market worth a billion dollars or more annually.

More importantly, however, the competition itself represents the way medical innovation will evolve in the 21st century. Faced with limits on their income and frustrated by the conservatism of academic medicine, doctors are looking for other ways to make money. They also want to solve the kind of practical, hands-on problems that have rarely interested academic researchers. "Physicians today are much more clinically oriented. They want to do things in an efficient way," says Fogarty, a professor of surgery, who invented the forerunner of the technology for balloon angioplasty in the early 1960s and has been an avid medical entrepreneur ever since. "The academic community is geared toward more basic research."

The battle now under way for dominance in the heart surgery market is being closely watched by everyone interested in medical-device development. But the stakes are highest for patients. What will happen, for example, if one operation proves less effective medically than the other but is more effectively marketed? Using conservative assumptions, a 1 percent difference in mortality rates could lead to 2,000 excess deaths a year if the wrong procedure prevails.

Wes Sterman, the heartport founder who set all this in motion, had an entrepreneurial bent even as a first-year medical student. He was struck by the fact that he and his fellow students were paying the school bookstore a lot of money for their instruments – stethoscopes, ophthalmoscopes, otoscopes. He speculated correctly that if he could go directly to the manufacturers with a block of guaranteed sales, he would be able to buy the same equipment for less than the bookstore paid. He put together a group of about 80 students, bought the instruments from 3M at a sharp discount and sold them for exactly what he paid. His profit, apart from experience and the gratitude of his fellow students, was on the float: He held the money for 60 to 90 days, earning what interest he could with it. Flush with this success, Sterman started a company, MedSurge, to sell equipment to medical students. Before he finished medical school, he was selling supplies to students at UC campuses in Davis, San Diego, San Francisco and Los Angeles.

While still in medical school, Sterman had been auditing classes at the Stanford business school. When he finished his medical studies, he enrolled full time and received an MBA. Now armed with three Stanford degrees, he was well-positioned to capitalize on his belief that there was virtue in treating disease as a business opportunity.

In early 1987, Sterman was hired by a venture capital firm as an expert in biotechnology, biopharmaceuticals, medical-device technology and health-care services. While working at the firm – Menlo Ventures – he started a company called Endovascular Technologies, which developed a minimally invasive means of treating abdominal aortic aneurysms, a weakening of the main artery supplying blood

But Sterman was especially attracted to the challenges of treating a sick heart. He had always kept in mind that cardiac surgeons are among the most highly paid; the procedures they perform are often the most expensive, dangerous and complicated. So as an entrepreneur, he has focused on the heart. "There are," he says, "a lot of characteristics that all add up to a potentially good business opportunity." He talks about the special appeal of cardiovascular devices, biopharmaceuticals and services, noting that companies competing in this market tend to have "the highest valuations, the highest price points, the highest gross margins."

When Sterman began to look around for new business ideas, it was natural that he turn to John Stevens, his medical-school classmate from Salt Lake City, who was pursuing a career as a cardiac surgeon. Although on an academic track – he was an assistant professor of medicine at Stanford – Stevens was interested in business. For six months in 1991, Sterman and Stevens batted around ideas, finally concluding that they could succeed at something no one else had ever tried: coronary-bypass and valve surgery done without splitting the patient's chest.

The business opportunity seemed enormous, possibly in the billions of dollars annually. Unlike new drugs, medical devices could be brought to market quickly and relatively inexpensively. What's more, without the trauma of open-chest surgery, patients could go home in a couple of days and return to work and other normal activities in a week or two, without major scarring. This would be attractive not only to patients but to insurance companies, who would benefit from shorter hospital stays, and to private employers and the federal government, who would suffer less productivity loss. (Standard bypass surgery usually requires a five- to 10-day hospital stay and up to 12 weeks of recovery time.) To develop the necessary devices and techniques, in late 1991 Sterman and Stevens set up Stanford Surgical Technologies, which eventually became Heartport.

The two doctor-entrepreneurs knew that it would be a challenge to get cardiac doctors to switch from a procedure – traditional open-chest surgery – that is so familiar and successful. But they believed surgeons would adapt, especially since the new system retained the familiar "pump" – a heart-lung machine that takes over while the heart is stopped. The patient would be hooked up to the pump by a system of thin tubes inserted through the groin, a method similar to one that had been used in the past. The surgery would be done with specially designed instruments through small incisions between the ribs. Using tiny scopes inserted through small holes, surgeons would be able to view their work on a video monitor.

They knew what they wanted to do, but the technological barriers were formidable. They had to design optical systems and find ways of placing scopes so that the operating field could be clearly seen. New surgical instruments that could be operated through small incisions had to be made. And, perhaps most difficult of all, Heartport had to demonstrate that any good heart surgeon could master the operation. Similar technologies were being used for operating on gall bladders and knees, but the relentlessly pulsing, life-sustaining heart posed much greater difficulties.

As the prototype instruments came out of the engineering shop in 1994, Stevens and his colleagues tested them on dogs' arteries, sometimes less than 1 millimeter in diameter (a human coronary artery is rarely less than 2 millimeters, or 8/100 of an inch, in diameter). By 1995, with FDA approval, Heartport began testing the procedure in the United States on human patients. Simultaneously, human trials were conducted in England and Germany. By 1996, the Heartport operation was being done at 10 of the most elite hospitals in the nation, including NYU, Duke and Johns Hopkins. Plans were in the works to train surgeons from about 200 other hospitals. The business Sterman and Stevens had imagined in 1991 was about to become a reality.

One of Heartport's first hires, in 1991, was Chuck Taylor, a soft-spoken, diffident young man who never graduated from college but had lots of engineering talent. Taylor harbored entrepreneurial dreams of his own, and he left the company after a year and a half to pursue them. He became Heartport's first competitor.

Like so many Silicon Valley success stories, he started a company in his garage. Taylor's original goal was to build suturing machines for use in all kinds of minimally invasive surgery. He believed that, along with gall bladder and knee surgery, one day there would be a market in minimally invasive heart surgery, a conviction bolstered by his experience at Heartport and early conversations with Stanford's Tom Fogarty when the two met at a cardiology conference. His interest was further aroused when a potential investor told him that successful heart surgery had been done "off pump" – on a beating heart – as opposed to the standard practice of stopping the heart and harnessing a machine to take over the function of the heart and lungs.

Taylor began working with Mark Ratcliffe, a cardiac surgeon at the San Francisco Veterans Hospital, and familiarized himself with the literature on beating-heart coronary-artery surgery. It turned out to have a long history, going back at least to 1964. In recent years, it has been done mostly in Argentina, Brazil and, less frequently, the United States. In South America, doctors use the off-pump technique mainly because it is much cheaper to do heart surgery without a heart-lung machine. Indeed, many hospitals in poorer countries do not even own one of the $150,000 devices.

But Ratcliffe was skeptical about suturing a moving artery. He told Taylor, "I'm just not convinced that I can sew a good anastomosis [juncture] while the heart is bouncing up and down." Without a solid juncture, the rerouted arteries wouldn't hold over the long term. Taylor's response was to begin working on a two-pronged, forklike device (page 74) to stabilize the coronary artery being sewn so that it would move less than the underlying heart muscle. Ratcliffe began testing Taylor's prototypes in an animal laboratory.

Then one day, a woman named Judy Vivian phoned Taylor. She runs a company that organizes educational activities for surgeons and told Taylor that an Argentine surgeon named Federico Benetti was looking for someone to help him make instruments for an unusual procedure he had just developed – minimally invasive bypass surgery on a beating heart. The call was a shot of adrenaline. Taylor immediately phoned Benetti, who agreed to come to San Francisco for discussions.

In June 1995, Benetti flew to the United States to talk about forming a company and to demonstrate his operation for Taylor, Ratcliffe and Rich Ferrari, a Silicon Valley businessman with medical-device experience, and a handful of others. The patient was a pig, and the operation was done in an animal lab at UC-San Francisco. Taylor remembers the excitement of seeing a bypass operation on a beating heart for the first time: "He [Benetti] made a little hole in the pig about 2 inches square." Working through this "keyhole," the Argentine surgeon proceeded to connect the pig's mammary artery to its heart, bypassing an artery that frequently clogs in humans. "It's not the greatest looking anastomosis I've ever seen," an admiring Ratcliffe said. "But, hey, it's flowing, the pig's alive, and it didn't take long."

CardioThoracic Systems was set up in September 1995, with Taylor as the chief technical officer, Ferrari as the CEO and Benetti as scientific adviser and co-founder. Fogarty brought his long experience as an inventor and entrepreneur to the table. With a line of specialized instruments and a training program to teach surgeons its keyhole technique, CTS was positioned to compete with Heartport. In the spring of 1996, both companies made initial public stock offerings. By early 1997, CTS had made major inroads among surgeons and Wall Street analysts. They liked the open-chest beating-heart technique because it didn't require any sophisticated new technology.

But CTS's approach had limitations. Using the small incision, surgeons could only reach one or two vessels on the front of the heart. The founders of Heartport had foreseen this problem from the beginning and opted for their on-pump approach that allowed repair of vessels all around the heart and also made it possible for surgeons to cut into the stopped heart to repair faulty valves and fix congenital defects. And despite the evidence of success in South America, Sterman and Stevens continued to question whether suturing on a beating heart could achieve the same precision as their stopped-heart technique.

By 1995, there was still plenty of skepticism about both companies among leading surgeons. To some, the reception was reminiscent of the criticism that greeted standard bypass surgery 30 years before. Bruce Lytle, '67, a motorcycle-riding cardiac surgeon at the Cleveland Clinic, summed up his and his colleagues' wait-and-see attitude on minimally invasive operations with a terse line from Bruce Springsteen's "Thunder Road": "The door's open but the ride it ain't free." A more prolix establishment view came from the Council on Cardio-Thoracic and Vascular Surgery of the American Heart Association: "Despite tremendous enthusiasm on the part of patients, industry and the press, [the] widespread adoption [of minimally invasive heart surgery] cannot be endorsed until suitable data have accumulated and a conscientious critique can be done."

Sterman, who owns 13 percent of Heartport's stock, and Stevens, who owns 10 percent, remained confident. By the end of 1995, Heartport had a market valuation of about $800 million compared to CTS's $250 million. Heartport had multiple patents and about 250 employees, including various kinds of engineers, lawyers and clinicians, and sales, marketing and promotional professionals. It also had a four-year lead on CTS – still its only viable competitor – and, Sterman and Stevens believed, a less traumatic way of doing bypass surgery.

But the cozy two-way competition changed dramatically in 1996. Minimally invasive heart surgery made too much clinical sense – and way too much business sense. Top surgeons were quickly climbing on board. One way or another, through small incisions on a beating heart or a stopped heart, minimally invasive bypass surgery could and would be done. With the proverbial genie out of the bottle, big companies like Baxter Healthcare Corp., Johnson & Johnson and Boston Scientific joined the fray. U.S. Surgical developed a beating-heart kit to compete with CTS. Medtronic prepared to market a $10,000 stabilizer known as the Octopus for beating-heart surgery. Once a two-way battle, now it was a free-for-all. The media were beginning to report the story, casting it as a fierce competition for market share.

Minimally invasive heart surgery became the hottest topic at cardiology and cardiac surgery conferences. Wall Street was hyperbolic. Smith Barney estimated the potential worldwide market at 533,000 operations a year and reported that minimally invasive cardiac surgery will "revolutionize the way cardiac surgery is performed [and] will likely be the focal point for cardiovascular product development for years to come." And Alex Brown & Sons Inc. weighed in, saying, "With an estimated $4 billion market potential, it could eventually become the largest medical device market known."

By late last year, some of the excitement – along with the stock prices of CTS and Heartport – had cooled. While early clinical studies were encouraging, the realization was sinking in that it would take time to turn around 30 years of established cardiac surgery procedures and practices. Both companies adapted accordingly. Heartport had already retreated from its port-access technology that required surgeons to view the operating field on a TV monitor. The company was now selling a system that allowed surgeons to work directly on the heart through a 3- to 4-inch incision. And CTS, in addition to its original mini-incision kit, began marketing a new system that gave the option of returning to the traditional median sternotomy. Surgeons cracked open the chest but operated on a beating heart. This enabled doctors to reroute multiple arteries – not just those at the front of the heart – while still eliminating the expense and potential complications of the heart-lung machine. The irony: An approach once mostly confined to poor Latin American countries was now being viewed as a surgical advance.

Right now, the minimally invasive beating-heart operations have outstripped the Heartport system. About 16,000 have been performed worldwide, half of those using CTS equipment. Heartport's on-pump approach still has an enthusiastic cadre of surgeons who believe that sewing on a beating heart won't yield good long-term results. And it remains the only minimally invasive technique that allows valve and congenital defect repair inside the heart itself. But its share of the market – about 3,500 operations performed so far – remains smaller than that of CTS and its clones. Of course, all the minimally invasive operations still account for a mere 2 percent of the 722,000 annual U.S. heart surgeries.

Those numbers may explain why Heartport and CTS today see each other not so much as rivals, but as innovators working on complementary technologies. They share a goal: to convince average cardiac surgeons to embrace alternative techniques. "Surgeons like familiar reference points," Stanford's Fogarty says. "They don't like huge quantum leaps." For Heartport and CTS, that may mean nudging the doctors along one step at a time.

Stephen Klaidman is a Washington, D.C.-based writer. His forthcoming book, tentatively titled Healers of the Heart (Oxford University Press), examines the business of heart surgery.

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