At the end of a conversation in the offices of Simbionix, someone wanted to call a cab. Everyone felt slightly embarrassed at the need to ask one of the managers for permission. It is no accident that all 38 employees remaining at the company (compared with the 50 who once worked there), are acutely aware of the need to save costs.
”We were caught with our pants down between two financing rounds, and I’m not ashamed to say so,” says cofounder and CEO David Barkay. “We raised money at a high company value of $20 million on our potential, without any sales. The market decline did us a favor by forcing us to look at ourselves, reduce expenses, and take responsibility for our fate, without depending on the capital market.”
Simbionix made a strategic decision: “We would live on our sales and on what we had, become an attractive company, and then raise capital. We lowered our own salaries, including (those of) the executives and founders, by at least 35%.” Barkay himself says he now earns NIS 22,000 per month gross. “Six company employees earn more than I do. We raised the salaries of some employees, because the gap between the higher and lower salaries was extreme. Production line workers earning less than NIS 4,500 gross per month got a raise.”
”Globes”: They still earn low wages.
Barkay: We have the $2 million the investors gave us, which wasn’t designated for salaries.
The policy indeed lowered Simbionix’s burn rate. “From 1997 up to the present time, we spent over $4 million,” Barkay says. “We’ll finish the year with $7 million in revenue.” There should be a happy end, too, since Simbionix is now talking about an IPO in Europe.
First of all, however, what do they sell? The company develops software-intensive solutions for operating rooms and training simulators for Minimally Invasive Surgery (MIS).
Medical schools examine their students in mathematics and chemistry, but find it hard to drill them in inserting a tube into a sensitive area of the patient’s body, not to mention all sorts of other maneuvers. “There’s a paradox today,” Barkay explains. “The person in the department with the most knowledge, usually the department head, has no time to teach.”
What happens when a doctor who has not been properly trained starts working inside the intestinal tract? In the US, he is sued for medical negligence for the slightest scratch. Simbionix’s solution is a simulator that includes content. It presents 30 medical cases for each disease and condition in the intestinal or urinary tract, incorporating data from actual patients. The system can choose a patient who is appropriate for the doctor’s level. According to Barkay, “There was no commercial system for the digestive tract. There were academic systems, but they couldn’t be sold. We’ve managed to manufacture a system with a very good price-capability ratio. The market is waiting for a simulator like this to replace supercomputers costing $300,000-400,000.”
Simbionix’s technology utilizes developments from computer games. An intern finds himself practicing shooting a ball at a basket and puncturing balloons within the intestinal tract to develop maximum coordination and sensitivity to the patient’s limits. If the physician - in -training performs a negligent action or makes an incautious movement, the computer emits a cry of pain. The simulator accumulates a score for each doctor and grades him on decision-making, motor preciseness, and the right choice of tools. Polyps can be removed from the intestine, kidney stones exploded in the urinary tract, and so forth, all in virtual fashion. Call it cyberscopia. Simbionix’s goal is to reach a situation by 2003 in which training and licensing of physicians is done through simulation, preferably using its own systems.
Who are your competitors?
”There’s a company called Immersion Medical. They’re now launching a product for the digestive system, but it provides only observer capability, not surgical tools. They came to us to sign a cooperation agreement, and we’re discussing it now. We have no competitors in urological simulation.”
Barkay, R&D manager Ran Bronstein, and marketing and medical development manager Edna Chosack founded Simbionix in 1997. After a stay in the Zisapel brothers’ RAD biomedical incubator, they launched their first product – a simulator for endoscopic procedures, and the company moved to Lod. Barkay is still on good terms with the Zisapels, although the company’s technology benefited from the incubator, rather than its money. Incidentally, Simbionix’s Swiss investors bought the Zisapel’s stake in the company for $800,000.
What about the eagerly awaited cash flow? Sixty units of the endoscopic system have already been sold, together with the medical cases. The unit price was $50,000, yielding a $3 million sales volume. Last year, Simbionix sold $700,000 worth of systems. After the urology system is launched next year, the company expects sales to reach $7 million (“We already have orders for some of this”). Barkay expects to begin making a profit as soon as December 2001.
A development and know-how agreement was signed with the prestigious Cleveland Clinic at the beginning of June. The company also cooperates with the University of South Carolina. Commercial companies, including tool manufacturers Wilson-Cook and Pentax, are finding Simbionix of strategic interest and are distributing its products. They are also, among other things, hosting Simbionix at their pavilions in professional exhibitions. Simbionix also works closely with dental simulation company Den-X and with MedSim.
Overseas marketing is done partly through direct sales to customers, such as hospitals and universities, and partly through distributors, such as Pentax and Wilson-Cook. How to sell is determined by geography – “In places like Japan, we prefer that a Japanese distributor sell to Japanese,” Barkay says.
Preparations for the IPO have been underway for eight months, together with potential underwriter UBS Warburg. The plan is to issue on the new Zurich stock exchange, where medical equipment rules the roost. Meanwhile, the company is holding its second financing round, now in its final stages, at the current company value and from the existing shareholders: Swiss investors (“ in the banking and healthcare fields”), and Koor Venture Capital.
Simbionix’s new development, a guiding camera for abdominal MIS, is a cooperative effort with Pentax. These operations currently utilize a camera inserted through a small abdominal incision. Since the abdomen remains closed, everything done within the abdomen is guided by the camera. One surgeon usually moves the camera to the desired location, while the other performs the operation, and who knows what can happen if they disagree? With Simbionix’s systems, the surgeon can also control the robot camera’s movements. The company is still afraid to disclose how it works, but says it is quite futuristic. The camera includes artificial intelligence capabilities that enable it to “know” that it should focus on areas of interest to the surgeon, for example on the surgical tools, rather than the surgical thread. The camera will warn the surgeon against damaging inessential areas by halting its operations.
This system will be ready for sale in Europe in 2003. Simbionix hopes the robot control system will be ready for separate sale in about a year. Dreams for the more distant future include fields such as tele-medicine, micro-medicine, and nano-medicine. Meanwhile, the company is looking to the nearer future.
Published by Israel's Business Arena on July 17, 2001