Episode 12: John Hendrick, President, Safeco
Mr. Hendrick has over three decades of executive experience, building both early stage medical device companies as well as large divisions in medical device corporations. Currently, Mr. Hendrick is president of Safeco a medical device consulting company. Previously, he was CEO of Mynosys Cellular Devices —an ophthalmic company. Prior to that, he was CEO at NeoVista Inc. —a company in the field of age related macular degeneration. Prior to that, he created the medical division at Sanmina-Sci. Mr. Hendrick has been through a successful IPO of VidaMed; which led eventually to Medtronic acquiring the company. Prior to VidaMed, Mr. Hendrick held executive positions at Allergan Medical Optics, Baxter, and American Hospital Supply along with several board positions. Read more.
Julio Martínez-Clark: Welcome to the LATAM Medtech Leaders Podcast. This is a weekly conversation with medtech leaders who have succeeded in Latin America. Today our guest is John Hendrick. Hey, John is great to have you here today.
John Hendrick: Julio, it's my pleasure. I look forward to speaking with you about Latin America. It's been something that I have been involved with over the many years and there's a lot of interesting changes that are starting to happen into the various countries in Latin America.
Julio Martínez-Clark: Fantastic, John. I also look forward to this episode of the podcast. So listeners, I'm very honored to have John Hendrick here on our show today. John has been instrumental in the development of several medical technologies. He has over three decades of executive experience building both early stage medical device companies as well as large divisions in medical device corporations. Currently, Mr. Hendrick is president of Safeco a medical device consulting company. Previously, he was CEO of Mynosys Cellular Devices —an ophthalmic company. Prior to that, he was CEO at NeoVista Inc. —a company in the field of age related macular degeneration. Prior to that, he created the medical division at Sanmina-Sci. Mr. Hendrick has been through a successful IPO of VidaMed; which led eventually to Medtronic acquiring the company. Prior to VidaMed, Mr. Hendrick held executive positions at Allergan Medical Optics, Baxter, and American Hospital Supply along with several board positions. So it's really an honor to have you here, John, and I'm listeners will get a lot of insight from you today. So to get the conversation started, John, could you please tell our listeners about your journey to Latin America? How is it that you got involved with Latin America as a region?
John Hendrick: Well, originally back in my days with American hospitals, why when I was in the cardiovascular division, we had some manufacturing operations down in South America, and net was well over 30 years ago, and this started my trend up going back and forth primarily into Mexico, but as I transitioned into doing startup companies and new medical devices, I started to branch out into various regions of South America, did a lot of clinical work. Even though I was CEO, I felt that it is absolutely paramount that the CEO be really involved in the clinical trials. In fact, I taught a lot of the physicians on how to do the procedure in the OR doing the clinical trials, recording them, etc., and why I think that is important when you think about a startup company, that is the essence. It's the heartbeat of what you do and before you not to have the drive and the understanding and the experience level in the OR and seeing what is exactly happening? I think it's a major area that a lot of CEOs do because what it does is that it not only gives you insight on what is happening in DOR with the physicians and how they're handling the device, but it also gives you direct insight into the actual clinical outcome, you know, the difficult, the other procedure and then, of course, you can see that as you start a clinical trial and your very first patients, and I would call these development trials. It is really important to understand the limitations of your device so that you can correct it early on before you get into a full-blown clinical trial and so one of the things that I have experienced is that there are certain countries down in South America more open to doing clinical work as long as you have satisfied the basic safety requirements of your device, of course you don't want to be just running down there with a device that you don't know is going to be safe, and that's one of the things that I am just really focused on, is doing an extensive amount of animal testing and bench testing in the lab because when we go down there, we don't want to take advantage of a situation where I did a lot of work, which was in El Salvador where a physician that had a company that he just developed. He was out of Indianapolis and he had basically gone down to a couple of sites in El Salvador and had worked with the physicians, got the regulatory requirements all put together and so we use that and that was incredibly invaluable. Now, startup companies, the biggest issue is cash, without question, that is the number one deal that they all have to deal with, and that cash burn is associated with fun. So when you look at doing a clinical trial, the time that you have to wait, once you know that your device is safe, to the time that you actually start the clinical evidence or the data, is a cash save and so if you can save one month and if you got a burn rate of $200,000 or $400,000 a month, you think about this, how many things can you do that can have a $200,000 to $400,000 impact, so selecting a good organization of which now there are a number of them, not only in El Salvador but in Panama, for example, and even Colombia where there are some outstanding physicians that have the staff and that's another important aspect and being able to record the data of a development drought. So I see South America being extremely important right now, especially to medical device startup companies and even to bigger corporations because trying to go through the FDA in any kind of a trial is a long laborious process that you're talking six to nine months if you're lucky.
Julio Martínez-Clark: Yeah, that's true. So John, would you say that you experiences is more on the clinical trials side versus the commercialization side or both?
John Hendrick: I've been commercializing the products since the 1994 all throughout the world, and I think that when you see a CRO they have a specialty that they have been focused on. A lot of them come out though strategic organizations and they sales and marketing, you know, or you might find an engineer, Ph.D. type, that developed a product and now we're going join a new organization, and I can say that my background is very, very broad, you know, I started out in manufacturing and the mentality that I have is that even though I was responsible as a production manager, early on back in the early seventies, I spent the time sitting on the bench learning how to make it. Now I have to admit I wasn't very good at it, but the important factor here, and this is where I think that most leaders and managers miss, is that you don't get your hands in there that understand some of the difficulties that happen so when I started to transfer at a very young age, I advised president being facturing for the cardiovascular division for Edwards Laboratory. I was out there learning how to sew out, and again, I wasn't very good at it, but it allows me to hear the information that is coming from the floor and know that there is always some little friction that occurred. So as I progressed into other organizations, I got involved with patterns and some litigation issues on pending and was successful, but you learn, you're sitting, going through all of the questions, the legal issues, you're looking at the litigated and you're listening to the patent attorneys that actually write the patents and then you get a very good understanding that the prosecutors have patents, that people who write them and the litigators many, many times around disagreement and so you learn something right there. I never would have got that experience if I hadn't been sitting down there and listening right there to table and knowing and still, what do I do now? I always said when I'm doing plant patent work, I always get a patent litigator to come back in and look at it and they always find significant holes, but then it came, it comes to like clinical trials as I mentioned before is that when you think about starting a company and you're bringing in a new product and you're starting a clinical trial, I think that most folks will send down their clinical team and then maybe their regulatory person and their engineers and they do the trial and then you come back and they're going to report what happened. I can tell you every single time, when I was in the room, my hand on the shoulder and the physician going through this, I have three or four people because they have my clinical people there and my engineering people, but we see different things and it allows for discussion immediately that when you're developing a product, especially getting ready for clinical trials, the small little things that you need to understand so I have forced myself to be involved with this and the same thing for reimbursement, you know, I sit at the table and I go through the writing notes, the application with my people. Of course, nobody does anything by themselves here, I always have a very, very excellent group of people around me. What this does is that did the primary thing is that it allows for see decisions and may quickly and minimizes the cost and allows you to do rapid development. So when you asked me what my specialty is, you know, I've been out in the field selling for the last 20 years, you're doing startup company, that's part of what you do in sales. So I have amount of interaction with the physician base because, here again too, is that when you're coming up with a new product that physicians see a lot of products that come out; some of them aren't very good, a few of them are really some game-changers, but they're not that and so they are obviously a little bit suspicious so I think it's also very important to get that relationship with the physician base up there, not only the industry leaders, podium speakers, because those are the what you would call the animators of medicine. It's the more of the center base, the normal guys that are doing the day to day work of medicine that you want to be involved with so that you spread out your perception of what they think of you as a company because at the end of the day, they look at the CEO as the individual as far as the credibility of how good the product is and if you're just a pontificator, you know, they're going to say.
Julio Martínez-Clark: Absolutely. Well, specifically in Latin America. In what countries have you had experience both in clinical research and sales? You mentioned Salvador, but what other countries all the countries were involved in clinical research and what countries you were involved selling products?
John Hendrick: I did a lot of clinical work in Peru and we started out some in Bolivia and Costa Rica, also in Mexico.
Julio Martínez-Clark: What about sales?
John Hendrick: Sales? We have been recently into Mexico and, you know, obviously into El Salvador. Initially, I stayed away from the problem countries recently. We started in Argentina, Argentina is obviously going through some currency issues right now that has affected, and that's a whole thing about distribution and transfer pricing that becomes a significant issue, and then of course Ive done a lot of clinical work in Brazil. I've done a lot of clinical work in both in Brazil as well as sales.
Julio Martínez-Clark: Excellent. So what's your overall perception of Latin America as a place to do first in human trials and to sell products?
John Hendrick: Well, my opinion there are, you know, because of the distance and the time zone and the cost and the speed, you know, I think Latin America is a perfect place for doing clinical work, there's been some work done in the Dominican Republic, but it's a little bit more difficult, they have some of the issues down there now. India is another good place for doing clinical trials, but it is a bear to get there and it's very costly and there are some upsides but there are less downsides. My preference is certainly South America.
Julio Martínez-Clark: Makes sense. All right, so what about commercialization of medical technologies? Do you think it's an attractive market? Is it potentially lucrative market for companies?
John Hendrick: Well sure it is, but it's also depending upon the product, as in every country around the world, the reimbursement promises or the lack of reimbursement is something that you really have to know before you make a step forward into that market, you need to understand that time in the process to get it licensed, to be able to be sold, but using a general statement that it's a good place to go. There are a lot of products out there that you're wanting to try and market in; you may have something just a little bit better. I mean, that's going to be a struggle because they have the same focus as an independent sales force with the company, of course, having an independent salesforce, it's very expensive and so I guess the best way to answer that question is it's going to be very product dependent. If you've got it very new technology that has demonstrated clinical results, number two that before you enter into a market, you've got to get a number of what I would call leaders in the field to be able to get up on the podium. Some of the major meetings down there in South America that are willing to stay in the effectiveness of the product and also too is that there's always an underlying issue which is a big one which physicians will not talk about and that is cost and what is the advantage to them and also understanding and all that, the number of private practices versus big government practices. They also have a different perspective of payment. So I guess the best way to answer this thing is up on the front.
Julio Martínez-Clark: Makes sense. Good answer. All right, let's move on to go market or market access strategies. Some companies have an opportunistic approach to Latin America. In other words, they react, they just wait to meet a distributor in a trade show, have a couple of beers with the distributor, a handshake and they sign a distribution agreement and they dump their inventory under distributor and just hope that distributor sales something. Its a handoff management approach versus a more proactive or offensive approach where companies put together a business plan or what we call a market access plan for every country they try to enter. In other words, they really understand the local market, they develop the local market alongside with the distributor. Sometimes even having a sales agent helping the distributor doing co-marketing activities with the distributor. So what's your take on either these two strategies? Which one do you think is better? And what do you see companies doing in the US as far as there are market access strategies in Latin America?
John Hendrick: I think what happens here is as you described, is that many folks will meet someone at a medical meeting and they will start the discussion out and they will give them a brochure, this is how good we are, etc. One of the things that American companies don't do is that they don't have a good understanding of each one of these individual markets because every country down in South America is different. They aren't just saying, even though a good majority of them may speak Spanish, whereas, in Brazil, they speak Portuguese, but the governments are different, the payment methods are different, the nonpayment methods are different, the wealth of the country is different and then the needs are different and then, of course, you get to look at how many physicians are actually doing the kind of things that you do. So I think that you made a suggestion about getting a good entry plan. That's what I call it, it is an entry plan; getting a good understanding of, you know, if you have a surgical product, okay how many surgeons are they, where are they concentrated at? And you get a good understanding of that market yourself, and I think that you can either do it by finding somebody that has the experience in that market to basically put together an entry plan with all of that data and that market data in place so that now you're prepared to walk in and speak with a distributor in the selected country, if you will, but I like to do a situation where I find, since I've been doing this a long time, I have a lot of contacts in the field and so I will get recommendations, you know, three or four different distributors, and then I will set up a time where I would go down there and meet with each one of these individuals and I would outline to them what I want to see, and then I would ask them to put together their penetration strategy because that's what we're talking about here is penetration. Depending upon what I see in the amount of focus that they put into it, then I'll get it down to a couple and then I want to go in and I want to review it organizations, and then I want to check out from a number of their positions, you know, how they are perceived because as you know, Julio, there are some down there that don't have what I would call the customer service hat on, got a high value in that regard. So that's how I would approach it because once you put your name on a contract to make a change takes a lot of time and now it starts some ill will in the marketplace and it's a major time consumption and you want to be able to start off with a distributor that you've got. At least you've done your homework and you feel fairly confident that they're going to do well.
Julio Martínez-Clark: Okay. So what about obtaining regulatory approvals in these markets in Latin America? What's been your experience? Is it easy, hard? I mean, what's your take on this?
John Hendrick: There is no place that's easy.
Julio Martínez-Clark: I guess what I really meant is predictability. I mean, some countries like Brazil take about a year and I mean the requirements are so convoluted that some companies just forget about Brazil. So that's really what I meant.
John Hendrick: Yeah. I started out with Brazil doing some clinical work down there back in 2005 and the requirements back then were significantly different and I was able to within 45 days get in R&D clinical trial going down there. 2005, now I went back in 2014 and it took a year and a half, what did that tell me is that especially as a startup company, that's unacceptable, that's just not worth it. So now the important factor here to Brazil is that they miss out on new technologies, they are affecting their population and it is terrible to put that situation in place and there is no reason for. On the other side, that I'd mentioned to you about El Salvador, it took me about 45 days to get the government approvals and, of course, all the work that we did with patients down there was for free and in our particular case, on this particular product, it was eyesight, in most of these patients were blind when we brought them in and then, of course, the next day, I tell you, this is one of the good things about what we do, to have these people come back in the next day and they've got tears coming down their face and they can see because these people could not afford to have cataract surgery, and we did over 50 people from a village that was about 50 miles outside of El Salvador. Of course, these patients were about the worst that you could get in these patients were an interesting scenario where the village priest selected the people who have created as a result of this the effect that we had to that village is that they had a mass at the church in the name of my gnosis and when you'd do that kind of good work though, it helped me to be able to make significant changes to the product very quickly and to, you know, in regards to hand to build with the by the physician, etc. that was invaluable. Whereas if you're waiting six or nine months, I mean you just burned all that cash and time and of course time to market regardless of what kind of a product you have is critical; time to market is critical. That's the kind of experience that I really enjoyed. Now, down in Peru for example, with another company where we were treating an age-related macular degeneration patients, that particular product was very restrictive in terms of their radiation because we use a string sham 90 radiation source in conjunction with a drug and a disposable device about as complicated frantically as you want to get and getting through a regulatory process and so we were very successful in getting through the government process in Peru. When you're dealing with a biologic, when you're dealing with a drug and when you're dealing with a medical device disposable, you put all those combinations together. I mean that can be somewhat formidable to try to get through the process, but we were able to do it and then less than 90 days, we had a clinical trial on that in the community hospital there in Peru, but I spent a great deal of time with the shed of the hospitals there and again, we were treating a disease that they had no alternative, whatever the alternative was so expensive that the majority of people could not afford it. When you're looking at these things in clinical trial, just because somebody says, hey, it goes great in Colombia or it goes great in El Salvador, it's also going to depend upon the quality of the doctors, their staff and the government process and how they're perceived, your connections into the government, that's another important aspect. It's important to have individuals that understand that clearly and at least know what they've got to do next or at least try to find the answer.
Julio Martínez-Clark: Yeah, that's a very good point, John. I mean, local help, local support from a contract research organization or somebody, a consultant, is paramount in these type of trials because there are so many intricacies and also cultural differences, etcetera, that need to be addressed. It's just difficult for a foreign company to do a clinical trial in Latin America without local help. All right, John, moving along, what about the importation process, duties? What's your take on this? I mean, both from the commercialization or clinical trial perspective.
John Hendrick: From a clinical trial perspective, it's a little bit easier because once you get an approval and you've got the approval from the government to bring in the product and do the clinical trial, you bring in product and at the port of entry there, you just show the paperwork there and you know typically you're bringing it down, you're not going to want to ship this through there, it's just too difficult and they'll ask to see the paperwork and you get through and I never had any issues. Once you have an approval in the country or commercial selling that process, I typically would not try to do that from the US, I would have a distributor. When I was in a large corporation, I had a direct salespeople down in the area and then they would have a company that was established as a subsidiary of the corporation to then get all of the import duties and the registration done there, but I think for most companies in this small startup, the medium size, they're going to use a distributor. There are two ways to do this, one is you can use a distributor to go through there and apply for all of the activities, or the second place is that there are organizations down there that will apply for you, as you as being the company representative. There are some advantages to the ladder in that if you happen to be a startup company, that with your eyes goal set on exiting at some point in time, the easier and the smoother transition of an exit is to have the name registration in the company so as you transition out of there, you don't have to create any issues with the corporation that's buying you out and trying to deal with the distributorship where they may already have direct salespeople. That's a little bit more expensive way to do it because it's not cheap, but depending upon your company and depending upon how much control you want, and this is a discussion and may be different from country to country. Now, giving a perfect example is Japan. I made a choice in my last company to take on the responsibility of doing all the registrations in the company's name and just use a distributor to distribute the products with the Japanese FDA, and I did that because of the size of the market was significant so it made a lot more sense and it made a more attractive position that if the company were to come in and buy my company, that they could transition very quickly into their own sales. So it depends.
Julio Martínez-Clark: Yeah, you bring up a very good point, but continue, please.
John Hendrick: The other thing too is that distributors are always leery about, hey, I'm going to put time and effort into a company and then you're going to sell it from underneath me, and I'm sure you've probably heard a lot of that, Julio, and you understand it, but they have to understand that's the business that they're in. To be honest with you, I don't know a startup company, whether it's in cardiology, ophthalmology, orthopedics, or urology, that I've been involved with that say, hey, I want to grow this to be a huge company like a Medtronic or Boston Scientific. So if you know that and you're talking to these distributors, of course, they're looking for guarantees and then, of course, you as a CEO are responsible for not getting yourselves tied up for an extraordinary long contract or a very costly out. So it's a little bit of a conundrum, so what do you do? You want to get the best individual that you possibly can and they're not gonna want us put the marketing effort into it, a sales effort into this if they don't have some reasonable assurance, at least not losing your shirt, and coming out somewhat ahead. So what I did is that once I had narrowed it down to the party and we started talking about the contract, and of course that subject always came up, you understand exactly what it is we do, I don't want to know secrecy here, let's put it out on the table, and it's the truth. So number one, it's the truth, you know that, that's where we're coming from; then number two, I don't expect you to put the effort in each of this that I need without you having some reasonable expectation of a good outcome financially from your side and so what I would do is basically upfront say, look, you know, if something were to happen to three or four years down the line, I'm willing to take the sales that you generate, in the profits that you generate from those and gave you a two, three, four, X amount in our agreement. So at the time of an exit, you, here's an incentive for you to do well.
Julio Martínez-Clark: That's a very clever strategy, John, I've never heard that before. Excellent.
John Hendrick: So what that does is that it allows for them to, number one, put the marketing effort into it and the training effort to really move that product along, and so it's almost like a commission-based salesperson. The harder they work, the more they're going to get.
Julio Martínez-Clark: Yeah. They have skin in the game and they have a very good incentive.
John Hendrick: Yeah. And it also makes a very clean break for someone coming in the party that wants to buy the company, they can see it, they know exactly what it's going to cost and they can either make the choice to stay with them or they can stop it, you know, within 30 days.
Julio Martínez-Clark: Sure. Very, very clever. Thank you for that. I mean that's very good. That solves an issue that I've been thinking about for a while, and you give us the answer
John Hendrick: That has been well accepted so far in the marketplace.
Corruption & Bribery
Julio Martínez-Clark: Yeah, I can see how. Okay, John, moving along. What about compliance, John? What about issues related to bribery, corruption in light of the FCPA, the Foreign Corrupt Practices Act? What's been your experience? What have you seen in Latin America?
John Hendrick: We all know if you're spending any time down there, that's an issue and you have to be very careful. How I avoid any of those activities is that I really rely on the distributor to have any conversations in between hospitals or physicians, but I lay out to them, you know, my policy, you can't get into any kind of underhand payments, etcetera. I'm realistic, I know that there are some things that are probably come very close to the edge down there and I saying that, you know, in each one of these countries you have to always got to keep your arms length distance from it. That's just not something you can compromise on because the consequences of that can be severe, especially to an American company so even tries to tell me that, well that's the way they do things in the country, then I said, look, you know, if they're doing that, you better not be involved and you also can't condone it. If you've got a good reputable product and if you've got a distributor that is doing stuff like that, then you shouldn't be dealing with them.
Julio Martínez-Clark: Okay. Very well said. All right, John, closing remarks. So, before we end the show today, I have two more questions for you. One is about the trends that you see coming in Latin America that will benefit or will impact negatively the business of medical devices or clinical trials in the region. I know a trend that you and I discussed a while ago. That's actually how you and I met over the phone when I interview you for this research that I was doing for the EU MDR and how Latin America may benefit from this. So I like to have your take on this from the EU MDR very briefly and any other major trends that you see coming into the region.
John Hendrick: Obviously, there are, I think that everyone is completely aware of some of the political issues that are happening in some of the countries down in South America. Those are impacting marketplaces, but more importantly people that just will keep some of the companies like I have run for in the past. It's just not something that you want to get involved with and then others have some major currency fluctuations that also impact substantially, you know, when it gets to a point that, I give you an example of an I set up a distribution agreement in Argentina and then we know what happened and all of a sudden you have 200% inflation and then the cost of importing the product is almost twice as much as you can sell it for. I mean that just puts the skids on any kind of sales. So you've got to be cognizant of those things, but there are other areas and other South American countries and it's changing all the time where you know more and more physicians are becoming more and more sculptural down there and that it's market opportunity, but as to be somebody again and we have to go back to the individuals in the country because what you knew two years ago is not the same as today and finding somebody that has a close relationship and understanding in that country at least for you to sit down and get an in-depth understanding of what the current status is, I can't tell you how important that is. Don't sit back there in your office and think, you know, as much as I've been in this industry and spent time down there, I wouldn't do that today and even in the countries that I had been in recently, I would do the same thing all over again. People that I know that I have confidence in their skill base and, and their understanding of the marketplace and carefully select the countries right now that make a good partner for you. Brazil used to be a good one for me and now it's just too damn hard and now Mexico is opening up a little bit more, of course, they're expanding and they have some very good physicians base. Costa Rica has got some very, very good positions, Panama is another one, but they're selective sites, but I've used that word depend and it really does it cause I think that if anybody tries to tell you, give you a blanket answer for South America, I would be leery about that. I mean they need to be able to give you a straight answer on that particular market with good data, good information, what're the current trends in the market? Which the current political situation, what's the current issues and thumps of currency? What should you expect in terms of the currency fluctuations? So there is an opportunity in South America and some of the countries I mentioned, you know, other countries that are having trouble right now, but I think at some point they're come out of it once they get some other issues resolved and you want to try to take advantage there.
Julio Martínez-Clark: Yeah, true. Well, John, I have another question for you, but you answered that question already, which is a question that I usually save for the last, which is, what would you say to the CEO of a new medical device company that is looking at Latin America as a destination for a clinical trial or for the sale of its products? You want to elaborate a little more or do you think you've said enough?
John Hendrick: Yeah, contact me, email@example.com and I'll be more than happy to set up a consulting arrangement with you, and I will guarantee that the information that you will get is going to be something that will give you high confidence that you're going in the right direction, but a shorter that I think that, you know, we've kind of gone over everything about my philosophies about entering organization and as well as clinical trials. So I'd like to leave it at that. Julio,
Julio Martínez-Clark: Excellent. John, thank you so much. I am absolutely certain that the listeners got a lot of insights from our conversation today and I look forward to having you on the show probably in the near future to talk about another topic or another trend that may benefit the business in Latin America. Bye John, take care.
John Hendrick: All right, good bye.