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"You
may print this Interview".
Cygnus,
Inc.- introducing a revolutionary
non-invasive glucose monitoring device
that can truly impact a huge segment of our society
Healthcare
Medical Equipment and Supplies
NASD: CYGN
Cygnus,
Inc.
400
Penobscot Drive
Redwood City, CA 94063
Phone: (650) 369-4300
John C Hodgman
Chairman, CEO & President
Interview
conducted by
:
Walter Banks
, Co-Publisher
CEOCFOinterviews.com
March 2001
BIO
OF CEO
Mr.
John C Hodgman was appointed Chairman of the Board of Cygnus, Inc. in July
1999 and continues to serve as President and Chief Executive Officer,
positions he has held since August 1998. From May 1995 to August 1998, Mr.
Hodgman served as President, Cygnus Diagnostics, for which he was
responsible for all commercialization efforts for the GlucoWatch®
Biographer, and Chief Financial Officer. Mr. Hodgman joined Cygnus in
August 1994 as Vice President, Finance and Chief Financial Officer.
Prior
to joining Cygnus, Mr. Hodgman served as Vice President of Operations and
Finance and Chief Financial Officer for Central Point Software, a personal
computer and networking software company. Before that, he was the Vice
President of Finance and Administration and Chief Financial Officer of
Ateq Corporation. Mr. Hodgman holds a B.S. degree from Brigham Young
University and an M.B.A. from the University of Utah.
About
Cygnus, Inc.
Cygnus,
Inc., founded in 1985 and headquartered in
Redwood City, California, is engaged in the development and manufacture of
diagnostic medical devices, utilizing proprietary technologies to satisfy
unmet medical needs cost-effectively. Cygnus' current efforts are focused
on the GlucoWatch® Biographer, a glucose monitoring system that allows
adults with diabetes to check their glucose levels, automatically and
non-invasively, up to three times an hour, day and night.
The
GlucoWatch Biographer uses technology that has never been available
before, differing from conventional blood glucose testing devices in
several ways. Perhaps most significantly, it is non-invasive, measuring
glucose collected through the skin, not from blood. It measures and
displays glucose levels automatically, as often as every twenty minutes,
for up to 12 hours. It also creates an "electronic diary,"
storing up to 4,000 values that can be reviewed at the touch of a button,
helping to detect trends and track patterns in glucose levels. In
addition, users can set personal glucose alert levels so that an alarm
sounds if readings are too high or too low, or are declining rapidly.
The
GlucoWatch Biographer system uses an extremely low electric current to
pull glucose through the skin. The glucose is then collected and converted
into an electric signal that is converted into a glucose reading. The
system consists of two integrated parts, the Biographer and the AutoSensor.
The durable Biographer is worn like a watch and calculates, displays and
stores glucose readings. The consumable AutoSensor is a single-use
component that first collects and then converts the glucose into an
electric signal. The AutoSensor snaps into the back of the Biographer and
adheres to the skin, providing up to 12 hours of automatic readings.
CEOCFOinterviews
- Mr. Hodgman, can you give a brief history of Cygnus?
Mr.
Hodgman: “Cygnus has been
in business for about 15 years, founded
by a scientist who wanted to work with transdermal patch technology
– thin adhesive patches that are used to release a drug through the skin
into the body at a controlled rate.
For the first eight years or so, we focused strictly on this
method as we worked to improve
drug therapy and to reduce healthcare costs.
Some of your readers may remember us from the early '90s as the
developer of the Nicotrol® (Pharmacia AB, Stockholm, Sweden)
smoking cessation patch. In
any case, Cygnus became a pioneer in developing seven-day transdermal
delivery systems, and our products were unique in the way they were not
only long-lasting but also comfortable to use.
“Then
the company began to explore iontophoresis, a technology that was already
established at that time. Iontophoresis
uses a tiny amount of electricity to transport fluids
through the skin without puncturing it. We conducted new
research in collaboration with a member of our Scientific
Advisory Board at his university and found that iontophoresis
transported chemicals from the body along with the fluids.
One of the chemical analytes was glucose. This
insight led our team to investigate the potential of using iontophoresis
in reverse as a diagnostic method, and we began research and development
on non-invasive glucose monitoring.
“Over
the last nine years or so this became Cygnus’ predominant technology and
product for the future. We sold the drug delivery transdermal business in
December of l999, and that means that glucose monitoring, the initial
product line using our extraction technique, is now our exclusive venue.
The GlucoWatch® Biographer is our initial model."
CEOCFOinterviews
- Does this look like an actual watch?
Mr.
Hodgman: "Yes, it’s worn like a watch and, like a
normal watch, it tells the time and date.
But it’s actually a remarkably discreet, portable design for the
first (in fact, the only) monitoring system to provide glucose
measurements non-invasively and automatically, without any intervention by
the user, and it does so up to three times an hour, for as long as twelve
hours, day or night. A user is also able to set alerts that sound an
audible alarm if glucose levels are either too high or too low, or if the
level is dropping too rapidly.
“Having
this amount of information is likely to profoundly alter the way people
live with diabetes. You see,
the major concern for people with diabetes is that their glucose can
fluctuate erratically without their knowledge. The problem with what is
called hypoglycemia, or low glucose levels,
is that a person can black out, perhaps while driving, or even go
into a coma and die. For that
reason people with diabetes tend to deliberately keep their glucose at a
high level, known as hyperglycemia. That
tends to alleviate the fear of going too low, but it can lead to the
long-term, serious complications of high glucose levels – blindness,
amputations, kidney disease.
“However,
with the GlucoWatch Biographer, people will be able to take charge of
their condition in a way that just hasn't been feasible before, because
they’ll be able to see with far greater detail how their glucose levels
are affected by what food they eat, by how they exercise, and by which
medications they take. And
they’ll get much more information to use in making major therapy
decisions, such as the amount of insulin to take.
We believe all of this will help people keep their glucose levels
under better control.”
CEOCFOinterviews
- Is this applicable to any other diseases?
Mr.
Hodgman: "We’ve done enough studies to recognize that
there are a number of things that we can do with this technology in the
future. For instance, we can
design specific monitors to test for alcohol or for prescription drugs. If
you needed to keep medication in a certain range of absorption in the
body, our technology would be able to alert you when to take more. You’d
be able to track for street drugs as well. In addition, we’ve done
studies with athletes that have identified certain analytes that we can
measure to help them tune their bodies to perform at more peak levels.
We’re sure there are a number of other opportunities with this
technology. However, the
first one –
and we believe it’s a vitally important one –
is the glucose monitor."
CEOCFOinterviews
- What is the market size for your GlucoWatch Biographer?
Mr.
Hodgman: "According to an estimate from the World Health
Organization, diabetes affects 125 million people worldwide.
That’s the current figure, and the unfortunate fact is that this
number is growing well in excess of 15% a year. In fact, it’s expected
to double by the year 2005, and by 2025 there may be 300 million people
worldwide with diabetes. In
the U.S., approximately 10 million Americans are currently diagnosed with
the disease, with another estimated six million undiagnosed cases.
It’s a leading cause of death in this country, not to mention
that it results in an estimated $100 billion in medical costs annually.
“To
restate these sad statistics in terms of market potential, Roper Starch
and Boston BioMedical Consultants estimate the worldwide market for
glucose measuring products at between $3 billion and $4 billion, and
it’s expected to exceed $4.5 billion by next year.
Estimates are that the U.S. accounts for about 50-60% of this
amount, and Western Europe is around 30%.”
CEOCFOinterviews
- Is your GlucoWatch Biographer more or less expensive than the
conventional way of monitoring your glucose?
Mr.
Hodgman: "Our product is unique – there is nothing on
the market that it can be directly compared with.
On a per-measurement basis, we’d have to say we’re cheaper than
conventional finger stick blood measurements, but our intention is not to
replace finger stick measurements with the GlucoWatch Biographer.
Instead, the Biographer should be used together with standard
testing in order to gain more complete information about glucose levels.
“What’s
more important to understand is that we can do something that finger stick
tests simply cannot do. We can measure glucose levels automatically,
without any intervention from the user, and provide more information than
is feasible with current testing methods. If you have diabetes, you’ll
be able to worry less about it – you’ll be able to live a more normal
life without having to stop whatever you’re doing to measure your
glucose levels to see if you’re okay. If your Biographer sounds an
alarm, you’ll quickly glance at it and see how you’re doing. If
you’re a busy businessperson sitting in a meeting, you’ll be able to
know your glucose level without interrupting your meeting. By the way, the
Biographer stores approximately 4,000 readings, about three months’
worth of data, so you can review your overall patterns of fluctuations.
Eventually, we plan that data will be downloaded into a PC and generate
all kinds of graphs to give patients a more complete picture of the trends
and patterns of their glucose levels."
CEOCFOinterviews
– Now that you’ve received approval from the FDA, what do you need
to do to take the GlucoWatch Biographer to market?
Mr.
Hodgman: "We have a number of events and initiatives
that we want to kick off, but there are a couple of steps that have to
occur. We explained this to our investment community last year when we
received an approvable letter. The product that we submitted to the FDA
was actually frozen in design and in manufacturing processes back in
mid-l998. In other words, the FDA has approved our l998 model and our
pilot manufacturing plant. Pilot
manufacturing plants aren’t intended to meet the strong demand we’re
anticipating, so in order for us to produce the GlucoWatch Biographer
in large enough scale and volume, we’ll initiate a supplemental
submission to the FDA for our new large-scale manufacturing plant and
process. Based on how long we’re told this process could take, we hope
to look to late this year for full commercialization.
“In
the meantime, even before FDA approval, we began a controlled distribution
in the United Kingdom, which is our lead market. This was possible under
the regulatory approval we hold in Europe, called a CE Mark. From our
experiences in the U.K., we have already learned a tremendous amount about
the effectiveness of our training and education programs with patients and
with healthcare professionals. And
we’ve learned a lot about our distribution and customer service
processes. Late this year we anticipate marketing more aggressively in the
U.K., and it’s likely we’ll be in other European countries sometime
this year.”
CEOCFOinterviews
- Would you market your product through partnering?
Mr.
Hodgman: "Definitively so. In the past, with our
transdermal direct delivery technology, we were focused on getting very
large pharmaceutical companies to be our partners. On the GlucoWatch
Biographer side we want to have more independent partners. We have a
partner that does our customer service. We have a partner that does our
physical distribution, we have a partner that does our order taking, and
now we are looking at expanding with other potential partners to handle
sales for us. We could, in fact, at some point get a more comprehensive
partner, that might do all of those tasks as one solo partner. We may also
just continue going forward and getting sales partners to augment our own
sales force down the line."
CEOCFOinterviews
- What is your cash and credit position?
Mr.
Hodgman: "We have sufficient cash on hand and access to
cash to meet the expenses we anticipate for commercializing our product.
If the need arises, we’ll evaluate additional funding
opportunities."
CEOCFOinterviews
- Which will be your primary revenue producer of the future, the device
or the consumables?
Mr.
Hodgman: "We anticipate that frequent usage of the
AutoSensor – the consumable
piece of the GlucoWatch Biographer system –
will make it the primary long-term source of our revenue. In
today's blood glucose monitoring world many monitors are sold at cost or
below cost to promote the use of finger stick strips. We don’t think it
will be necessary for us to use this marketing model, because with regards
to competition we do not know of any other company that has a non-invasive
product close to being submitted to the FDA, whereas ours has been
approved."
CEOCFOinterviews
- What is your current patent position?
Mr.
Hodgman: "We have a very strong patent portfolio. We
basically have a worldwide patent protection on the extraction technology,
which is licensed through the University of California at San Francisco.
In addition we augmented this license with all kinds of patent coverage to
protect ourselves in basically 10 different patent families."
CEOCFOinterviews
- Can you tell us something about your management?
Mr.
Hodgman: "We’ve actually intentionally kept our
officer corps fairly small. There are only four of us. We work closely
together and have weathered a lot of ups and downs together over the last
two and a half or so years. We’ve also worked closely with the financial
community, and we’ve replaced some very volatile debt paper with a more
stable paper that is much more friendly to existing shareholders as well
as, we think, more fair to potential investors coming in. We have adjusted
over time to a number of issues that have arisen, and I could not be
prouder of the officers as well as of the senior management of Cygnus.
There are not too many things that we are afraid to go out and tackle as a
management team."
CEOCFOinterviews
- Is there anything you would like to say to your shareholders and
potential investors?
Mr.
Hodgman: "Many investors have been following us for a
long time, and have been long-term partners with us. I know we have had a
number of ups and downs over the years as we pushed this new technology
forward. Yet our existing shareholders stuck with us. I think they believe
that we are going to be introducing a revolutionary glucose-monitoring
device that can truly impact a huge segment of our society. We certainly
thank them for hanging in there.
“To
potential new investors, we’d like to say we believe in our technology
and think that the ride ahead can be very promising.
On a daily basis we get many phone calls, e-mails and letters from
people with diabetes or their family members, and the potential benefit we
may bring to their lives is the main catalyst for our management, our
employees, and our scientists and engineers who have developed this
cutting-edge technology."
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