"Raising the price increased demand for our device"

Ori Hadomi Photo: Eyal Izhar

Mazor Robotics CEO Ori Hadomi tells the 17-year story that led to the robotic surgery company's $1.64 billion exit.

It appears that breaking the record for an exit by an Israeli medical device company had a beneficial effect on Ori Hadomi, CEO of Mazor Robotics, sold this year to medical technology giant Medtronic for $1.64 billion. Hadomi appears more serene and satisfied than formerly, although he always gave the impression of being calm and in control. "I had no anxieties about threats to Mazor's existence in recent years," he says. "The problem was how to develop, not how to survive. It took us 17 nail-biting years, though, before we reached that stage."

His statement comes as no surprise. From his early days as CEO of Mazor, Hadomi's methodical management stood out, with no-quarter-given analysis of the failures by him and his team, together with his optimism and self-confidence, which the market sometimes regarded as overselling. Talking with Hadomi now is like taking a management course, with one small difference: the examples he cites are from his own experience.

It was Hadomi's overall character that led him to a very impressive exit, with the company's activity remaining in Israel and continued product development under Medtronic.

"I was addicted to Excel"

"The company was initially named Masor, the initials of Miniature Apparatus for Surgical Operation," Hadomi says. "The first change was to Mazor Surgical, not to Mazor Robotics, because we hadn't yet decided what we wanted to do. Will we really be a robot? What body organ will we operate on? The patents could be used for anything in the body."

Hadomi's first choice, which he also stuck to later, was focusing on spinal column surgery. "My previous job was as an analyst, and I was addicted to Excel. In choosing an area for Mazor to focus on, I therefore compared the brain, spinal column, pelvis, knees, and trauma. I listed all the advantages and disadvantages, weighted all of the values I got in an equation, and came out with the spinal column. It didn't cure my Excel obsession, though, so I ran two more models.

"It's a game, though, because I was the one putting the variables into the spreadsheet. The truth is that I knew I wanted to do the spinal column. I was previously in the dental field, and I felt it wasn't significant enough for people's lives for me. I wanted to do something that really affects people's lives, and that's what we chose, and for all of those years, our belief in our effect was such an important element in what the company did. Today, I know that sometimes this intuition is actually a person's ability to make a multi-faceted decision better than an Excel spreadsheet."

The first system was launched in the US in 2005. "As soon as we installed the first machine with the customer, I realized that it wasn't ready, and we as a company weren't ready: neither to support the system nor to sell it all over the US," Hadomi remembers. He says that he asked the customer to give back the machine and accept a refund. "I didn't want to damage the company's reputation in the US with a product that wasn't ready. Even though the company had marketing approval in the US, it immediately halted its commercial marketing there. Mazor continued marketing in Israel and the Europe, where it could more easily support the product, while in the US, the product was installed only at trial sites.

"It's not good to work with leading opinion-makers at this stage, because they want to work only with a product that works perfectly, and are liable to turn people against your product if it causes them problems," Hadomi says. "At this stage, you need someone who wants to develop together with you, who can be critical with me, and whom I can tell the truth.

"We told the trial sites, 'The system isn't yet what we'd like it to be, but if you don't cooperate with us, we won't be able to achieve progress. I said, 'With the first few dozen patients, it will disrupt your work; after 50 operations, you won't want to operate without it.' Even that was too optimistic. It took 1,000 operations in all the centers before the product became something that helped the doctors more than it hindered them. I didn't hear doctors compliment the product at a conference until 2010. That was a melody I hadn't heard before."

For the patient, even during this period, the result with Mazor's product was better than without it. This was also the period in which Mazor became a public company.

"Globes": What else had to be made ready?

Hadomi: "At that time, the product was called Renaissance. We first considered naming it after the first person to reach the peak of Mt. Everest, who apparently wasn't Sir Edmund Hillary, but the head of his Nepalese contingent, Tenzing Norgay. We thought that this name would represent the device that brings the doctor to the target, but leaves him all of the credit."

Hadomi emphasizes that at this stage, the company was not yet calling its product a robot, "because we thought that the market wasn't yet open to the idea that a robot is the one doing the operation."

"The demand rose when we raised the price"

After 2010, Hadomi felt, "We already have a product, but there's no business." With typical Israeli cheek, he approached Dr. Gary Guthart, president and CEO of Intuitive Surgical, just then beginning to stand out as a leader in robotics. "I wrote him that we weren't even a fly on his wall, and not a competitor in any way, and I wanted to learn from him how to found a robotics company and what I was doing wrong. We had been spinning our wheels for seven years without making any progress. He told me that my e-mail surprised him. I had the privilege of saying that because of the cultural gap, I didn't know that you weren't supposed to do that. He told me, 'You think that your customer is a doctor, but your customer is actually the hospital manager.'" This was a key insight. The question was not just the doctor's convenience or the patient's result; it was the role of the system in marketing the hospital.

With encouragement from his friend, Prof. Dan Ariely, Hadomi raised the price for the device five-fold to $500,000 as part of changing the market's perception of the device. "Logic says that cutting the price increases the demand, but in our case, the price rose and the demand also rose, and the average time for closing a deal was shortened from two years to six months," Hadomi says.

"The robot's capabilities were not substantially different from those of the product we marketed before. The difference was in our positioning as a tool for the hospital manager that could help him market his hospital as being innovative. Together with the robot, we sold a marketing plan with brochures for the hospital. We also had a thicker package of clinical data, and we showed the hospitals how to use it in order to promise the patients that choosing robot surgery would improve their situation.

"Our marketing materials emphasized the value for each of the different players in ecosystem. For example, nurses can come to surgery more relaxed, without being shouted at, because working with a machine requires advance planning from all of the participants. We realized that planning gives the hospital enormous value: it makes it possible to plan inventories, operating theaters, and better communications with the family. We saw that the level of pressure in the operating rooms goes down dramatically. They had no planning tools before that. At the beginning, doctors were averse to the planning stage because it seemed to given them extra work. Afterwards, they wanted the planning tool as a product, even without the robot."

But you didn't agree.

"The maximum value for the patients isn't the planning; it's the connection between planning and performance. Also, from a business standpoint, it would have required a lot of managerial attention, with low profits."

"How much money can you charge for something small?"

At this stage, the US Food and Drug Administration (FDA) forbade the company from call the product a robot; it had to be called a "guidance systems," but the value that Mazor provided for the hospital was the ability to label itself a "hospital with robots."

"We knew that we couldn't charge $500,000 for a product that wasn't a robot, but before we managed to persuade the FDA about the product's name, we decided to call the company, 'Mazor Robotics,' and that gave us the brand, even if the word 'robot' wasn't on the product." Incidentally, Hadomi refused to miniaturize the robot, even though it was technically possible to do so. "How much money can you charge for something small?," he asks rhetorically.

This change was a turning point in Mazor' penetration of the US market. Its share price on Nasdaq and the Tel Aviv Stock Exchange (TASE) more than doubled, but the company was still not close to making a profit and was not completely confident about its future.

Hadomi proposed to Intuitive Surgical integrating Mazor's product in Intuitive's marketing apparatus. "Guthart told me, '85% of our business is prostate and 15% gynecology. Now you're telling me that somewhere, light-years away from there, there's also a spinal column? I don't know about it, and I'm afraid to get near it.' He went on to say, 'Be the masters of your field; don't deal with what you don't know.'"

So Mazor went on building its sales system and hired only US salespeople who knew the market. "People in the US can give you something in marketing that Israel lacks. Even the way they speak - my jaw lacks the professionalism, fluency, precision in messages, and awareness of the customer. US culture is very service-oriented, and salespeople are loyal above all to their customers. They take the connections they have accumulated in the market with them from company to company. They have to believe in the product; otherwise, they won't be willing to sell." Hadomi himself moved to the US in order to be close to the market.

In 2014, the company held an event for its senior management entitled, "The History of the Future." It was a "Vision Day" framed differently, which Hadomi says sometimes gives rise to interesting and possible also more concrete ideas. Those present are asked to imagine where they would like the company to be in five or 10 years, including technical details and newspaper reports. Then they go back and think of what has to happen in order to reach this situation. "We asked ourselves how much we will earn, what the positioning of the product will be, and how our employees will answer the question, 'What is like to work at Mazor'."

Hadomi says that the event was held before most of its management knew about the development of its X system. At that time, Renaissance, the company's leading product, did not completely meet the sales and profit expectations. "There were a lot of malfunctions in the field and a lot of anxiety, because the business model didn't hold water - we didn't know that we'd have to give so much support for every operation, and the recurring revenue didn't cover the investment. It definitely put us at a crossroads."

Insightec CEO Maurice Ferre, the former CEO of robotics company MAKO Surgical, claims he told you from the beginning that you needed your own implants.

"It was very important for us to offer our customers an open platform. We didn't want the implants people to start blocking our way to the doctors, and it was clear that if I'm connected to one implant from the beginning, the other implant people will obstruct me."

The company is now strong enough to work with Medtronic's implant, and that is indeed one of the reasons for the acquisition.

At a certain stage, you had your own implant, which you abandoned, right?

"We developed a very unique implant, which we were very enthusiastic about, which accommodated a minimally invasive back splint. We went as far with it as FDA approval. Had we been a startup based on only one product, we would have been considered a huge promise at that stage. We quickly realized, however, that a competitor in the implants market had to offer all of the implants in order to compete with everything that happens during the operation."

Mazor developed its own imaging and guidance system, and then abandoned it for similar reasons.

"We were too small for this. These developments are very typical of small companies, which ask how they can get money to pay for them, especially if you're having trouble with your core activity. In the end, what is effective is depth, professionalism, and cooperation in areas outside core business."

The decision on the need to connect with implants at this stage, while on the other hand not wishing to develop them independently, led Mazor to propose cooperation with several companies. Medtronic was the preferred one.

"I think that in the end, the two keys to our success were focusing on the sphere in which we wanted to dominate and working with a team that enjoys working together. My father always said, 'Don't work with friends," but I say, 'Work with friends and connect with your team.' Not only is it fun and less wearing; it also results in mutual commitment on a different level. At the same time, the commitment is first of all to the company - it's not a community center. We replaced the entire management when it was necessary.

"Today, the risk in an operation without our robot is seven times as great. It's important for me to have these figures outside, even if the company was sold."

Published by Globes, Israel business news - en.globes.co.il - on December 24, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Ori Hadomi Photo: Eyal Izhar
Ori Hadomi Photo: Eyal Izhar
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