In this week’s MedtechTalk Podcast, we talk with Oculeve CEO Michael Ackermann about the start-up company that caught the eye of Dry Eye Leader Allergan. Allergan would pay $125 mil-lion up front for Oculeve, which is still developing a neurostimulation treatment for the chronic eye condition. But the deal includes what no doubt will be sizable (but undisclosed) earn outs if Oculeve’s OD-01, a non-invasive nasal neurostimulation device that “tells” the lacrimal gland to increase tear flow. Oculeve had only raised $24 million from venture investors including seed investor Kleiner Perkins Caufield & Byers and first-round backers Versant Ventures and New Enterprise Associates. With that degree of firepower behind it, Oculeve certainly was fueled for the long haul. Ackerman wouldn’t provide details, but clearly Allergan’s offer was significant.
Michael is currently Vice President, Neurostimulation for Allergan, plc, and most recently CEO of Oculeve, Inc., which was acquired by Allergan in August 2015. He has eleven years of experience in medical technology development in both academic and industrial settings in the fields of ophthalmology, chronic pain and movement disorders.
Tom Salemi: Hi, welcome to Medtech Talk, the Podcast affiliated with the Medtech Investing Conference. Thank you for joining us. My name is Tom Salemi and I am your host. It’s been a great summer for exiting opportunities in medtech. We’ve seen some strong IPOs from Glaukos and Conformis. This week, Medtronic announced it’s paid $235 million for the purchase of RF Surgical Systems. And last week was a particularly interesting deal when Allergan, which is a player in the medtech space in aesthetics, stepped up to buy an early stage ophthalmic company called Oculeve. Oculeve has been running in stealth mode for a couple years, keeping a low profile of its technology, a neurostimulation technology that would be used to treat dry eye, which is a growing and serious condition in ophthalmology, and one that’s garnering a lot of attention on the pharmaceutical side. So Allergan’s move into this space was particularly intriguing because it is the leader in selling the only FDA- approved drug for dry eye, Restasis. But Allergan is bolstering its portfolio, or hopes to, by acquiring this early stage neurostimulation technology. We were fortunate to sit down with Michael Ackerman, the CEO of Oculeve, to discuss the company’s approach, although he was still fairly guarded about just what or how Oculeve’s OD-01 product does what it does. But Michael Ackerman shared a bit of the company’s history, a bit of his vision, and talked a bit about Allergan’s growing interest in medtech. We hope you enjoy this conversation.
TS: Michael Ackerman, welcome to the Podcast.
Michael Ackerman: Thanks, Tom.
TS: First off, congratulations. I know what was in the press release about Allergan’s purchase of Oculeve. The up front payment was 125 million, and there’s a potential for earnouts, which I expect will be impressive once they get out. Is there anything else you can share about the potential deal, the announced deal that wasn’t in the release?
MA: Really what I’d like to share is that I’m just extremely proud of the team that has gotten us here. It’s really just an incredibly impressive group of people, and both directly working for the organization and all of our partners as well. These folks have just been pulling off some really impressive feats, and really just proud of what they’ve accomplished. Also just like to say I’m extremely excited to partner with Allergan. Really our primary goal here is to impact as many patients as possible, and I really can’t think of any better organization to achieve that than Allergan.
TS: And Allergan, of course, is a leader in dry eye with its pharmaceutical products, but it’s not really been a player on the device side. So to see it sort of, at least in ophthalmology, to see it sort of shift in this direction is exciting.
MA: That’s right. And obviously Allergan does have some devices in the aesthetic side of the business, and some combination products as well. But I completely agree. I think we’re excited about it as well.
TS: We’ve been sort of chasing each other, or more accurately, I’ve been chasing you, trying to get some more insights on the Oculeve story. I think you were going to be presenting at our OIS in April, and now I understand why that may not have happened, although there might have been some other reasons as well. You’ve been keeping this story to yourself, understandably. But the Stanford Medicine magazine did a nice job describing the technology and giving a little bit of history. It really looks like an innovative design and approach. What can you share about Oculeve’s approach to using neurostimulation to treat dry eye?
MA: Yeah, actually, what I can share is that we’ve actually been practicing a little more under the radar than you think. Actually, the device that’s mentioned in the Stanford Medicine article is actually a different program than the OD-01. It’s a program that we have in development. The OD-01 that’s described in the press release is actually a non-invasive product, and it’s had some really impressive outcomes to date. So it actually has not been mentioned publicly until the press release.
TS: Wow. So I was completely duped by that Stanford story. I was impressed by the decoy story, and it gets even better?
MA: Well, it’s actually not a decoy story. Anything you read in the Stanford article is true. It simply describes one of our programs, but it’s not our lead program, which is the OD-01.
TS: Can you give a little more information about your lead program?
MA: Yeah, I can just give you some brief information, which is that it’s a treatment which works by activating the nasolacrimal reflex, and it’s pretty neat, and we’ll be excited to tell the world about it soon.
TS: Great. Can you talk a bit about the history behind the idea, or how it all came together? According to the Stanford article, which I assume this story is still accurate, you were part of a project team that actually shadowed ophthalmologists, interviewed them, interviewed patients looking for opportunities in ophthalmology. What was that process like, and what did those interviews reveal overall about the ophthalmology sector and the opportunities in ophthalmology?
MA: Sure. So as I believe was mentioned in the Stanford article, this company was really founded out of the Stanford Biodesign program with collaboration in the Department of Ophthalmology. And as part of that, I spent a month with some others as well in the Stanford Department of Ophthalmology Clinic, and basically were shadowing physicians, both in the clinic and in the operating room as well. And it was really remarkable. When I was first there, I thought for sure that unmet needs that would be less relevant would be in the operating room, and there are unmet needs in the operating room to be sure, but frankly, the most compelling ones were actually right there in the clinic. Those in the operating room typically have at least some solution for the disease. So and dry eye became really compelling. It’s really just a remarkably common problem. It seemed like every third patient or so coming into the office had dry eye, if not as a primary complaint, a secondary one, folks coming into the retina clinic or into the glaucoma clinic. And many of them were underserved. So it became a pretty clear under-met clinical need, and one that is a really great market opportunity as well. The genesis of the company was that the lacrimal gland still has function. We’ve actually learned a lot more about the physiology, what’s going on that may well extend beyond the lacrimal gland. It’s basically activating that gland and doing so with a reflex, the nasolacrimal reflex, to increase tear production in patients with dry eye.
TS: Had you done similar surveys or studies in other specialties, or was your focus only on ophthalmology?
MA: No, actually, the focus was ophthalmology and that was really the focus for my time at Stanford Biodesign program. However, the Biodesign program does have fellows focused in other treatment areas as well.
TS: And what drew you to ophthalmology? Did you just see opportunities there that maybe weren’t in other spaces? Or was it just luck that drew you to study this space?
MA: Frankly, it was luck. And now that I’m here in ophthalmology, I’m just delighted at what a wonderful space it is. It’s just a tremendous group of physicians were are incredibly innovative and a wonderful space to be with technology.
TS: Yeah, I think you’ve found a home for yourself. I know Mark Blumenkranz was a director of the company and we did a Podcast with him a bit ago. And he’s just a special guy to talk to about innovation and coming up with new ideas. And you obviously built a remarkable syndicate with Kleiner Perkins and then Versant and NEA coming in. You were clearly going for broke. You had a lot of muscle behind you to see this idea through. How did the deal with Allergan come together?
MA: Yeah, well, I certainly don’t think broke was what we were going for.
TS: It’s an expression. You were going for the win, I should say, not for broke.
MA: Yeah, that’s exactly right. So these 3 firms have been just really magnificent partners. I really couldn’t have asked for any better investors and more supportive and value-add investors or board members. Just extremely fortunate there, and have been extremely fortunate with our team and partners on other dimension as well. The deal with Allergan really was one that started with Brent Saunders and in particular with his relationship with Bill Link and through – basically took some interest after ASCRS.
TS: So this was not something that you were seeking? Or some startups say they like to keep strategics apprised of what’s going on and maintain contacts with them. Were you out there sort of talking to other larger companies, or did you have your head down in startup phase, and you were just trying to build a company and not worrying about an exit at this point?
MA: Yeah, I can really say for the most part we’ve just had our head down and in execution phase. As I mentioned before, really been in a position where we’ve been very selective in [picking them?] and through what media we’ve been making our technology public. But beyond that, I’ll let Allergan describe anything that they wish.
TS: And clearly it was an offer that was too good to refuse. Can you give us any details on what the potential upside is from this deal beyond the 125 million?
MA: What I can say is that obviously it’s a deal that we’re really excited about and we’re really committed to executing and delivering.
TS: Great. Finally, what are your future plans? Going back to the Stanford article, it suggested your deep dive into ophthalmology led to identifying hundreds of opportunities, areas where technology might be of some help. Are you planning to stay with Allergan and see this product through? Or do you have the startup bug and intend to start a new company sooner rather than later?
MA: So I’m really committed to making sure OD-01 reaches its potential. And I’ll be transitioning to the Allergan team.
TS: Excellent. Well, I think we’ll be hearing Allergan’s name more and more going forward, and can’t wait to hear more and see more about OD-01 and its opportunities in dry eye. Thanks for taking a few minutes today, and again, congratulations on your work up to this point and on your potential going forward.
MA: All right, thanks, Tom. Nice talking with you.
TS: Well, thanks, Michael Ackerman, for joining us and for sharing what you could about Oculeve’s approach for dry eye. Just one of those great medtech stories that keeps you excited about the sector, the real promising technology that’s been pushed along on relatively little private capital in as yet still positioned to generate a big earnout for its investors, and create a really meaningful and beneficial product for patients. So hats off to all involved, including Allergan for stepping up so boldly to make that acquisition. And we hope you enjoyed this peek inside Oculeve, and join us next time for another tale of medtech innovation.