Medical Device Link.

Originally Published MX November/December 2004

COVER STORY

Interview by Steve Halasey

No one likes to be caught trying to predict the future, but sometimes the signs are just too strong to resist. That's certainly the case for Proxima Therapeutics Inc. (Alpharetta, GA), a privately held medical device company that develops, manufactures, and distributes products for postsurgical radiation treatment of cancer.

In less than 10 years, Proxima has grown from one good idea and one full-time employee to a company with attractive products poised to change the standard of care in two surgical fields. The company's two current products are already considered technological and clinical leaders. The GliaSite radiation therapy system is designed to treat newly diagnosed, metastatic, and recurrent brain tumors by delivering radiation from within the cavity created by the surgical removal of the tumor. The MammoSite radiation therapy system delivers partial-breast irradiation in conjunction with breast conservation therapy.

Some early strategy and a strong belief in an innovative technology that benefits both patient and practitioner have taken this focused start-up to the verge of profitability. And this year, the company's tenacity and patience finally began to pay off.

Proxima Therapeutics president and CEO Timothy J. Patrick on starting small and getting noticed.

Earlier this year, the Centers for Medicare and Medicaid Services (CMS) assigned new healthcare common procedure coding system (HCPCS) codes for placement of the MammoSite balloon catheter, making it easier for clinicians to receive reimbursement for the procedure. Meanwhile, the company has continued to amass favorable data from clinical studies of its technologies, resulting in a significant body of presentations and publications in support of the products. Most recently, the company has received FDA clearance for the next generation of its MammoSite device, which incorporates features to make the system easier to use and even less invasive.

With such successes in hand, it's no wonder that Proxima officials have high hopes for 2005—and beyond. In this excerpted interview with MX editor-in-chief Steve Halasey, Proxima president and CEO Timothy J. Patrick discusses the trajectory of Proxima Therapeutics from a one-employee start-up to a prepared market entrant that is poised to redefine its market. His story is one of technology, strategy, and persuasion.

MX: You were the first employee of the company, hired in 1996. Who hired you? Who actually owns the company and its intellectual property (IP)?

Timothy J. Patrick: That's a good question, because the start of Proxima was somewhat unique.

The idea came from a tripleboard-certified physician, Jeff Williams, MD, who at the time was at Johns Hopkins (Baltimore). Tragically, he has since died of a heart attack. Williams was the only physician in the world to have three board certifications—in neurosurgery, radiation oncology, and nuclear medicine. He submitted his patent application for a balloon radiation-delivery system privately in 1990, and that first patent was issued in 1995. In the interim, he tried to find partners in other companies to commercialize his idea. Ultimately, he was introduced to John Nehra, a successful medical device venture partner, and Chris Porter, PhD, a medical device development executive.

Nehra, now a partner with New Enterprise Associates, was then representing a fund called Catalyst Ventures (also based in Baltimore), which focused on very-early-stage ideas. He was someone I had known in business for a few years, and he and I had talked about various investment opportunities. Nehra was introduced to Williams by his next-door neighbor, Don Long, MD, the chair of the department of surgery at Johns Hopkins, and he decided to form a company and lead the financing.

The timing of the Proxima opportunity was also right for me personally, since I had just recently been involved in the sale of my former company to C. R. Bard. Proxima's approach struck me as an intriguing idea clinically, and it would make use of my experience in catheter technology and oncology, but in a unique way. Since this would be my first personal foray into the world of venture capital, however, I wanted to do it with someone I trusted—and I had a lot of faith in John Nehra and Chris Porter. Getting people of their caliber involved as investors very early, in fact, has been one of the company's most valuable achievements.

Where did Proxima's seed funding came from?

It came from Catalyst Ventures, and from a company in Minneapolis that has since been acquired a few times, called Wessels, Arnold & Henderson. Boston Scientific in-vested in us at the time, as did Chris Porter. All told, there was an $800,000 investment to get the company started before we ever had a CEO or an employee. It was really just based upon Williams's idea, with John Nehra and Chris Porter moving the idea forward.

What were your milestones on that first tranche of money?

All we had at the time was a working prototype of our first brain tumor device, a patent, and a business plan. I did not take any salary during my first year with the company, and I was the only employee from 1996 until early 1997.

Then, in 1997, we raised our first real venture round, which was led by Chuck Hadley of Rock Hill Ventures. At that time Rock Hill was known as Hillman Medical Ventures, and was funded by the Hillman family of Pittsburgh. By 1997 we had moved the prototype along, moved the business model along, and also moved along the most difficult part of the project to that point, which was the development of a proprietary isotope compound that would work within the brain tumor catheter.

We submitted some additional patents in that first year. Significantly, we broadened the intellectual property. When the patent was first issued to Williams, it was specific in the brain tumor area. We broadened it to include all proliferative disease, specifically solid tumors that were surgically removed. So it was a very important year in terms of the intellectual property.

The GliaSite device now uses the Iotrex compound, but the MammoSite device is still using a seed technology. Is there a reason for that?

Our clinical strategy was never to change more than we had to, so the GliaSite and the MammoSite represent different ways of delivering a proven radiation dose into the tissue that is at risk of recurrence.

We went back and carefully referenced the clinical data and tried to utilize the same isotope, the same dosimetry, the same amount of radiation—in effect, the same scheme that was already proven in the literature for breast and brain cancer treatments. The clinical literature for brain tumors had traditionally used iodine-125 as the radiation source, but the literature in breast cancer had relied on iridium-192. They each have different properties and different penetration.

Since we were changing enough by changing the delivery scheme, the last thing we wanted to do was to try to convince physicians that they should change not only the method of delivery but the isotope as well. That would be a tough sell. So we mimicked the isotope and treatment scheme that had already been shown to be successful in other, earlier clinical studies involving different delivery techniques.

One for the Road

Were you able, then, in 1997 to start taking this on the road? Even without a salary, you must have spent a lot of time on the road.

I did. I'm sure that the company was willing and certainly would have paid me a salary, even with only $800,000 in the bank. But it was important to me that the company get as far along as it could with that limited funding.

Our model was a little unique at the time. I was the only full-time employee when we got our next $4-million funding round. Though we did not have a management team in place, the investors were confident that I would be able to put one together.

So, imagine a single person going around promoting an idea and being the only person involved with it on a full-time basis. Of course, we did have some excellent consultants in the R&D and regulatory arenas. But as the only full-time person, it was very engaging, and certainly very focusing, to know that if I failed, the company was over. For me, the difference between a start-up and working at a bigger company, is the need to raise money and convince people that the company has the wherewithal to turn a concept into a device that works, and then ultimately get it cleared and generate revenue.

So yes, I was on the road virtually constantly until we got that funding closed in early 1997.

Were you not only meeting with potential investors but also perhaps seeing clinicians in the field to get their testimony that the idea was good, so that when you met with the investors you could cite the support of those clinicians?

Those were the two major balls being juggled: spending time with physicians, validating that they thought the concept was interesting and would have some utility, and trying to get people to agree to be involved in preclinical studies.

In addition, the company had started with a focus on being a brain tumor company, but one of the early investors, Chuck Hadley, indicated that the Hillman fund was really interested in investing only if we could find a breast cancer company that would validate our concept for use in breast cancer as well. So, in addition to working with the clinicians and with the other venture capital sources, I was also spending time in the breast cancer world trying to get another company—Biopsys Medical, which was subsequently acquired by Johnson & Johnson—to validate the idea and agree to contribute some funding in that Series B round. Only in that way was Chuck going to be comfortable that we had an idea that could potentially be two products in development, not just one.

You had to restructure your business plan, in midstream and on the fly, to accommodate these new ideas that the investors were bringing in?

Absolutely. There was not a lot of spare time at that point for rewriting the business plan. But one of the things I learned was that you really gain an in-depth understanding of the business you are in when you are trying to raise venture funds, working with the clinicians, writing the business plan, and trying to get other companies to validate your concept. When you are doing all of those things concurrently, you gain tremendous understanding of the business that you are trying to develop.

Years later, I was able to rely on some of that knowledge that was built up when critical decisions needed to be made at the company.

Besides moving into breast cancer, what other suggestions did the early clinicians have? What kind of arrangements did you have to make with them in order to have a conversation?

They were under nondisclosure agreements.

My early career was spent with American Hospital Supply, which back in the 1990s was the largest medical device and hospital supply firm. If you wanted to have a meeting with someone, you called up and said, "I am so-and-so with American Hospital Supply." They did not know who you were, but they had heard of your company, and so they said, "Come on in." By contrast, the whole process of getting attention for a company that was very small was somewhat of a challenge to me, because I was not used to it.

We also wanted to be dealing with the world's best—we were not interested in dealing with somebody just because they were available—so we tried to deal with people who had proven through peer-reviewed publications that they had specific expertise in this area. In the brain tumor world, Dr. Williams was helpful in pointing us to people who could potentially be of help.

Most of the development work on the GliaSite and then on the MammoSite was highly iterative. We would take an idea or a concept to the clinicians, they would then adjust it, we would go back, then do it again, they would adjust it again, and we would go back. I cannot recall any major epiphanies happening as we went through the development process. Rather, it was a series of stages of lots of hard work and repeatedly making adjustments to the product, so that we could keep making it more and more usable. It was a fun phase for the company, to be spending that much time with folks who were giving us clinical input.

Were you working with an engineer? Who was actually making the adjustments in the prototype?

Until we got funding, the active participants were Dr. Williams, Dr. Porter, who spent a lot of time consulting on the project, and Curtis Amplatz, an R&D consultant in the Minneapolis area. So while I was technically the only employee, we did have a couple of consultants who spent time on the project. We also still had the very important input from Dr. Williams, which helped us get to where we needed to be. Once we got funding, we added some staff in the late spring of 1997.

How much has Proxima raised in venture capital at this point?

About $50 million.

Toward FDA Clearance

One of the earliest company milestones presumably was getting your preclinical research done and then moving toward FDA approval of one of the products. How did you strategize that early decision of which product to advance and how quickly?

To say that we strategized it at the time would perhaps be giving me too much credit. I woke up every morning thinking that we had better make good progress or we will never get another round of funding. That really does focus you on getting to the next step.

Going back to 1997, there were many companies that had only a concept and maybe some preclinical data, and yet would then go public. Of course, most of those companies ended up failing. Instead, we focused on going through the steps that would be required to get to commercialization.

So, the first accomplishment was with preclinical work. We had extensive preclinical work utilizing canine models that we conducted with Dr. Jeff Olson at Emory University. Also, we had the ongoing technical project of developing the isotope, a project that we worked on with Jim Simon and his group at Dow Chemical. We knew that these preclinical projects would have to lead to investigational device exemption (IDE) approval by FDA and then, ultimately, to clinical studies that would need to show that the product was safe and provided a benefit to the patient. Then, when we got that accomplished, we were going to have to get the devices cleared by FDA, get reimbursement in place, and generate revenue.

So, while I would like to say that we had this all strategized over a five-year period, what we had in the end was simply knowledge that we had to have a commercial product. Every day we were going to work saying, "What do we have to do to move closer to commercialization?" Then we moved it through the various steps: the preclinical, the clinical study, the commercialization, regulatory approvals, and reimbursement. We focused on putting risk behind us instead of having it remain in front of us.

As you note, there was a period when a lot of money was coming into venture-funded firms. Were you ever tempted to take Proxima public and take advantage of that trend?

While it may have been tempting, we were not quite ready. We were never far enough along to take advantage of the bubble that was created by all of the dot-com enthusiasm and, if you will, the hype that replaced results and enabled some of the companies of that time to go public.

Today, I am very thankful that we were not at the point of going public, because it could have hurt the company. It would have been premature. We would have been trying to manage public investors instead of manage the business. So, in retrospect, I think it was one of the best things that happened that the option was not available to us.

The MammoSite radiation therapy system delivers partial-breast irradiation by means of a balloon catheter.

The GliaSite device was approved in 2001. Was that because it was the one that moved faster? Did something make that one easier to get through the preclinical and clinical work necessary for FDA approval?

No, there was nothing that made it easier. In fact, because we have a proprietary liquid isotope that delivers the radiation in the GliaSite, its development was very complex. It was a detailed and expensive matter to develop that isotope compound. Since the product concept came from Dr. Williams, who was first a neurosurgeon, we really started with our brain tumor application. That project was always a couple of years ahead of our breast cancer project. Even when we were speaking with other companies in 1997 about the breast cancer application, it was still a couple of years behind the first indication for brain tumors.

Our mind-set at the time was that we were working on the brain tumor product long before we ever began to think about the breast cancer product, or at least about commercializing it. The latter was always one of the concepts we had considered, but we were not moving it along. It was just sort of the sequence that existed.

Did using the Iotrex agent present particular complexities for your FDA filing? Was this cleared or approved? Is it a 510(k)?

Both of our products were 510(k)s with clinical studies. The GliaSite and MammoSite products both required a clinical study prior to a clearance of the 510(k). Having a proprietary liquid isotope that was placed into the GliaSite balloon catheter required a lot of work in order to convince FDA that in fact we had a system that was safe.

For this, we worked with a couple of individuals and firms in particular. For the dosimetry studies we worked with Jeff Williamson, who was at the Mallinckrodt Institute in St. Louis. Prior to the GliaSite no one had ever studied exactly how that dose would be deposited into the tissue, which was absolutely required before we could treat any patients with this system. So Jeff did some wonderful work, spending several years starting in 1996 to get it completed and published in peer-reviewed journal articles.

Concurrently, Jim Simon's group at Dow Chemical in Texas was doing the isotope chemistry for us. We had to prove that the liquid radioisotope would do no harm to the patient if it became available in the body. It required a lot of chemistry development to ensure that if the isotope ever became available, it would be very rapidly excreted through the renal system and would not be attracted to the thyroid, the bones, or other organs. That was the second critical piece of the development project on that isotope. Collectively, the dosimetry and the development of that liquid compound chemistry and testing added a great deal of complexity and expense to the project.

Once we got those done, we had to be able to actually manufacture the product for a clinical study. So this was yet another level of complexity, because while Dow did the development work, they were not a manufacturer.

I had an old boss whose favorite saying was, "All progress is made by unreasonable people." Had we known the complexities involved in the isotope project, we might have reconsidered. But the good news is, we did not know of the complexities when we got started. So we continued to plow ahead and once we were in the middle of it we had no choice but to make it work.

It sounds as though you were developing a fair amount of IP as you went through the process.

We absolutely were. Today, we have licensed patents that relate to the isotope compound and to additional items that were not part of the originally conceived idea. As we moved through the development process, new ideas came to us that were unique and proprietary. While these advances were a lot of work, they also resulted in a higher level of IP protection.

How did you figure out what to file and what not to file? You must have proprietary trade secrets as well.

Well, we were involved with an IP firm and an attorney, Thomas Engellener, of Nutter McClennon & Fish (Boston). Tom was involved even when I first joined the company back in 1996, since Chris Porter and Jeff Williams had already been in touch with him. We have used other outside attorneys as well, but the consistent attorney has been Engellener. It has been very helpful to have somebody we could rely on to provide advice and guidance from the very earliest days of the company.

Did he file the original IP for Jeff Williams?

He did not. I have never met that attorney, who was in Oklahoma City, because Dr. Williams was at the University of Oklahoma at the time the original IP was submitted.

Proxima Therapeutics president and CEO Timothy J. Patrick poses with plaques representing patents for the company's GliaSite and MammoSite radiation therapy systems. (click to enlarge)

The MammoSite device was approved a year later, in May 2002, again a 510(k) with an IDE and some clinical work behind it. Did FDA raise special issues on that? It had the advantage of not having a completely new agent.

That's right, it used iridium-192 delivered from a computer-controlled high-dose-rate afterloader into the middle of the balloon. So we did not have to go through the same process on the isotope that we had with the brain tumor product. That was helpful. But in many ways, there is a very high sensitivity at FDA to breast cancer and breast cancer issues.

One of the issues we faced in breast cancer was that the disease prognosis was different than was the case with the brain tumor product. Unfortunately, for the vast majority of patients, a brain tumor is fatal within a year. It is a very difficult disease, and there is no product today that is curative. What we are trying to accomplish with a brain tumor product is to extend survival for as long as possible at the highest possible quality of life and mental function.

But the standard of care for breast cancer has been whole-breast external-beam radiation therapy, which works quite well. It has delivered a threefold reduction in local recurrences. The medical result was quite good with patients treated that way, and those patients lived a very long time following their surgery. Since a lot of patients tended to do pretty well with the standard care, FDA probably had a different level of sensitivity for the MammoSite, asking more questions and making sure that the agency fully understood the product before allowing it on the market.

Presumably, FDA would expect that a new product launched in a field like that would be not merely safe and effective, but also better than what is already out there. Did you feel pressure to include that kind of outcomes information?

FDA understood that what we were doing was delivering radiation, which was a proven therapy, but delivering it differently and to a different amount of tissue. In our case, the objective really was to work as well as the current standard of care in terms of reducing local recurrences and optimizing cosmetic results, while also being significantly more convenient for the patient.

Our product would allow a therapy to be completed in five days instead of requiring seven weeks of daily visits to a hospital or radiation treatment center as with the standard of care, external-beam radiation. So FDA never held us to a higher standard. There really was not an efficacy issue. There was an implied efficacy—that is, if you placed an appropriate amount of radiation into the target tissue, you could expect to have a good outcome.

Toward FDA Clearance

When you were doing clinical trials—premarket trials and certainly the postmarket trials and studies—the clinicians must have raised the question, "Is this better than what I am using now?"

Certainly, that has been a topic. It is the reason we have placed so much focus on postmarket studies and will continue to do so.

From a clinical perspective, the question is always how much follow-up is enough. Some physicians will consider it sufficient to make a clinical decision if you provide one year's worth of follow-up data. Some want to see two or three years and others want five. We have been in meetings where people have insisted that 15 years' worth of follow-up data be available before any change is made in the way a cancer patient is treated. The volume of data that various individual physicians are comfortable with when they are treating patients covers a fairly wide band.

When you look at the trend in breast cancer patient treatment, you can see how MammoSite is an excellent fit. The proportion of breast cancer patients who get a lumpectomy is growing, but an increasing number of those patients do not receive any follow-up radiation therapy. Many physicians saw that the MammoSite allowed them to treat patients who might not have received any radiation therapy at all.

Because the current standard took seven weeks, a 75-year-old woman who lived a distance from a radiation oncology facility might have had difficulty getting to treatment every day for a couple of months, particularly since the effects of external-beam radiation lead to more fatigue as the treatment progresses. Many women were not actually getting the standard of care because that required a couple of months of daily visits to complete a course of therapy. As a five-day treatment option, MammoSite filled an important medical need.

Our very first patient, who was treated in New Orleans but lived in Mississippi, indicated that she would have had a mastectomy otherwise, because she simply would not have been able to drive back and forth every day to get her radiation therapy. The product has filled that void since the earlier part of its history, where some patients simply would not have been able to get radiation therapy because of the very long, onerous course of therapy that is the standard of care today.

As the postmarket studies continue, those patients are the ones that should allow us to continue to move up the curve of adoption and convince more and more people that this is perhaps a superior way to deliver radiation to breast cancer patients.

So it would seem that, in terms of the choice of potential technology adopters, the nature of the trials, and the likely publications and presentations in which results would appear, you now have a long-term rollout strategy that has evolved considerably from the seat-of-the-pants stage.

One of the most important practices we have followed has been always getting the best person possible to do any particular work that we wanted to have done. Going back to 1996 when we engaged Jeff Williamson to do the dosimetry study, he was recognized as being the most widely published expert in brachytherapy physics.

When we went to do the clinical study for the brain tumor product, we had a number of choices of who was going to conduct that study. Ultimately, we chose to have that study conducted by a group run out of Johns Hopkins that was sponsored by the National Cancer Institute (NCI). That group consisted of Johns Hopkins (Baltimore), Emory University (Atlanta), Vanderbilt University (Nashville), Henry Ford Hospital (Detroit), Wake Forest University Baptist Medical Center (Winston-Salem, NC), the University of Pennsylvania (Philadelphia), and others—all very high-caliber academic teaching institutions with people who had dedicated their lives to research in this area.

Looking back at the things that have influenced the trajectory of the company, I would say that that is one of the best fundamental decisions we have made—to find the best person to do the work and to take the time, and spend the money if required, to get those facilities and those people engaged in studies.

Our publication strategy as we move forward carries this further. Even if individuals are well regarded, they have to be willing to publish, to do it rapidly, and to believe that new information in the field of oncology should be disseminated and should continue to be followed. Those are important parts of our strategy.

We recently attended the American Society for Therapeutic Radiology and Oncology (ASTRO) meeting. A total of 10 abstracts were presented, two on GliaSite and eight on MammoSite. Many of those seeds were planted three or four years ago. The key was working with the right institutions, the right people, having the right focus, so those topics were studied and discussed at the podium.

ASTRO was really a good show for us. It is always nice to get that kind of review of the clinical data when it takes so long to collect and you spend so much time in the early stages pulling it together. It was really great for the organization to have our products get that much attention.

Regarding long-term follow-up, how important is the strategy of your patient registry?

We have several different studies going on with the MammoSite. One being managed out of the University of Southern California is looking at 100 breast cancer patients with ductal carcinoma in situ (DCIS).

The MammoSite patient registry is being run by the American Society of Breast Surgeons (ASBS). That study has accrued more than 1600 patients who received treatment with MammoSite for their breast cancer. This patient registry is the largest study of partial-breast irradiation. The company has had to spend time, money, and a large amount of effort to work with a group like ASBS to try to accrue the patient data, which will be followed for a very long time—10 years or so. We understand how important it is to the clinical community to understand how MammoSite patients are doing over a long period of time.

At the last ASTRO meeting, three-year results from our original FDA study were presented. But there will be many people who want to hear about results at five years, seven years, and 10 years. Still, in a relatively short amount of time, MammoSite has become the most widely used form of partial-breast irradiation, with thousands of women treated to date.

All of the studies that we are doing in breast cancer will have long-term follow-up. The MammoSite registry study is one of the things that helped lead to an NCI study, which will be open any month now, and will accrue 3000 patients to a randomized study looking at external-beam radiation versus partial-breast irradiation. That study will be a randomized prospective Phase III trial. It will ultimately be the gold standard for decades to come, in terms of determining how patients with breast cancer should be treated with radiation therapy.

The trajectory of the studies you are doing would seem to lead in the direction of a change in the standard of care. Will the MammoSite treatment be the gold standard for many conditions in many situations?

We are beginning to see that change in certain patient populations, for instance patients who have very small early-stage tumors and are perhaps a little bit older. Data suggest that those patients might well be overtreated with some of the current techniques. So we are certainly at the start of establishing a standard of care in this population.

Data from our original study show that 98% of the patients were happy with their treatment and indicated that they would recommend it to a family member or a friend. If you have equivalent outcomes, most patients are going to want to have the faster course of treatment if they can.

We did some market research years ago and of the statements made by breast cancer patients during the course of therapy, "Get me out of here" was quite common. These patients had been through multiple diagnostic procedures, they had often been through multiple surgeries, and they had either been through or were going to go through chemotherapy, radiation therapy, and hormonal therapy. This is a very long series of therapies, and these patients get tired of it. They get fatigued and they want their life to return to normal as quickly as possible. So we believe that if future data continue to be as positive in the long term as they have been in the short term, we will absolutely establish a new standard of care based on the fact that patients do not want to go through seven weeks of therapy if they can get an equivalent outcome with five days of therapy.

Ultimately, if a new technology comes along that can be delivered in one minute instead of five days, then the patients will migrate to that. We think that the lengthy therapies in place for many cancers will be replaced by therapies that are much quicker and easier on the patients, assuming that the outcomes with the rapid treatments are as good as or better than their predecessors.

Are there groups of clinicians you find more receptive, more likely to be early adopters of an advanced technology like this?

With both of our products we deal with two constituents at a minimum: the surgeon who removes the tumor and places the catheter, and the radiation oncologist who delivers the radiation therapy to the patient.

Focusing on breast cancer and surgery for a moment, the past three decades have seen a steady minimization of therapy. The trend is marching forward and it is unrelenting. It went from radical mastectomy to modified mastectomy to quadrantectomy to lumpectomy. Most surgeons have participated in the trend, progressively reducing the volume of tissue that they remove and allowing the patient to keep the breast. The survival data are equivalent, showing that it does not matter whether the whole breast is removed or just the lump. Now the patient's breast can be spared rather than having to be removed and reconstructed.

Then along comes a procedure called sentinel node biopsy. Rather than completely removing all of the lymph nodes in a patient with breast cancer, the surgeon performs a test to see if the removed sentinel node is cancerous and, if it is not, leaves the rest of the nodes intact. The patients do better in terms of edema and other side effects if they do not have to have surgery for the rest of those nodes. So breast cancer surgeons have been marching onward with that trend. They have been minimizing therapy for a long period of time and are quite comfortable with it.

Surgeons continue, with new procedure after new procedure, to believe fundamentally that if they can minimize the impact on the patient in terms of tissue removal, they will get an equivalent outcome clinically and a much happier patient with a more natural-looking breast.

Now consider radiation oncologists. They have been delivering whole-breast external-beam radiation therapy for the past two or three decades with no minimization. It has been the same thing in the same way, with minor technical advances for all that time.

So when we go in and talk about the MammoSite, the breast surgeon inherently gets it very quickly: "I understand we are going to do less radiation to a targeted area." That is exactly what they do with their surgery today, and they have seen how good the outcomes are.

Radiation oncologists have not been through that paradigm shift. They have been delivering the same basic dose to the same volume of tissue for quite a long time and seeing good results. To minimize radiation in the breast is more of a foreign concept to them. We have a greater challenge trying to explain the therapeutic benefit of what we are doing to that group.

It is easier for us to present the concept to a surgeon than to a radiation oncologist. The difference between one group that has gone through treatment minimization over and over again and another group that generally has not makes a very intriguing dynamic.

Reimbursement

The opinions of the clinical community, in this case the surgeons and the radiation oncologists, have a lot to do with what third-party payers decide to cover. Brachytherapy has been covered for a long time. Were you able to piggyback onto that existing coverage for the GliaSite product and initially for the MammoSite?

Yes for the GliaSite. The GliaSite essentially piggybacks off existing reimbursement codes for brachytherapy. The MammoSite, because it affects more patients, probably gets more attention from the Centers for Medicare and Medicaid Services (CMS). We received a new-technology pass-through code in April of this year that pays for the catheter for a hospital that uses it. Perhaps even more significant for our company, there will be two new current procedural technology (CPT) codes established on January 1, 2005, that will compensate the surgeon for placing that catheter into the lumpectomy cavity.

We are very thankful to CMS for understanding the impact it has on women. We are in a very favorable reimbursement environment for the MammoSite, where the surgeon is compensated, the radiation oncologist is compensated, and then the hospital is reimbursed for the purchase of the catheter. CMS has been helpful, and some of our own folks have done some wonderful work as well.

It sounds as though you have not really struggled with CMS as some companies in other fields have done.

Well, MammoSite has been on the market for about 2½ years now. In the first year or two, we did have to struggle with it. It just takes CMS a little time.

But we are very fortunate that codes have now been established, as they will be useful to all of the clinicians who are involved in delivering therapy with MammoSite. In our case it has reached a very happy ending in getting all of the important stakeholders compensated for their efforts to treat the patient.

What about the effects of the coding on your efforts toward private-payer adoption? Has that moved forward more quickly than CMS, or is it following along behind CMS?

In most cases, it is following along. We are getting more and more private payers who are writing policies that pay for MammoSite. But CMS really sets the policy in effect, and some of the private payers lag behind to one degree or another. We continue to see private-payer adoption happening at a higher rate though, and when these new CPT codes hit on January 1, and as our clinical data continue to mature, we expect to continue to be successful with the private payers.

You have just gotten FDA approval for the next MammoSite product. What are some of the new features it incorporates?

It incorporates important improvements to the product that take into account the early user feedback. The catheter shaft is thinner, the balloon is tougher and more symmetrical—lots of technical improvements. Essentially the changes are going to make it easier to insert the catheter, it is going to perform better when it is in place, and it will be easier to remove. We look forward to beginning to transition our customers to that next-generation product in early 2005.

We have also received clearance on some patented elliptical-shaped balloons, which we will begin to introduce in the fourth quarter of 2004.

So all in all, you are absolutely positioned for those CPT codes to hit. You are hitting the ground running.

Yes, we think we are at a really good point with respect to the company's future. You plant a lot of seeds early in a start-up company, and you hope they are going to grow. Some do and some don't. In this case, we have a lot of things that are really hitting at the same time. We have CPT codes from CMS. We have maturing clinical data now at three years that look very positive. We have a new family of products, different shapes and sizes, and we will be introducing our next-generation product early in the year. Within the next few months the NCI will be opening up a very large randomized study that will dramatically broaden the patient population for which MammoSite is appropriate.

So we feel very fortunate that a lot of the things we have worked so hard on over the years are starting to come together in a really nice way, for the patients and our customers and, ultimately, for Proxima.

Future Strategies

Will the company turn profitable in 2004 as you once thought?

About mid-2004 we made an adjustment to our marketing team and ended up expanding our sales effort past where we thought we would end up this year. Again, we began to see that there were a lot of good things in sight in 2005. So we spent some additional money in two areas. One was marketing, and the other was additional funding for some of these ongoing clinical studies. We expect to be profitable in 2005.

Is there still significant funding going into R&D and building out the IP portfolio for some of the other applications that might be considered for the technology?

Very much so. We are doing a couple of things. We are trying to expand our portfolio in the markets that we occupy today, our brain tumor and breast cancer offerings. We have some exciting IP issued or submitted in those areas. We also believe that our technology has application in other disease areas. We are moving forward with clinical study plans and with development plans in some other disease states. We are very excited about those.

As the technology is gaining greater acceptance, there is always the possibility that you might decide to take Proxima public. Is that something being considered now?

We have always tried to keep our options open. We raised our last round of venture funding in August of 2002. That was $14 million. Most of that money is still in the bank, and we have a very modest burn rate at this point. So we go into 2005 looking at a year where we do not have to raise additional funding and where we will turn cash flow positive. It has always been important for the company to keep our options open.

Certainly, the public markets are one avenue that we want to make sure we can explore. But more importantly, we have tried to make sure that we always have additional investors around the table and have adequate funding so that we do not ever put ourselves in a position where we have to use an IPO to fund the company.

Do you foresee major investments in building out your sales and marketing force in 2005 beyond what you have already done this year?

Certainly, it is a group that we would expect would need to keep pace with the growth and the opportunities that are in front of them. But we have already made significant investments there. We may continue to make incremental investments in the future, but a lot of those decisions to expand that group were made in 2004.

So you are really quite well set up to bring in a profit next year?

We are. We've been fortunate to have such supportive investors and have worked hard to build Proxima's value through the hard work of our expanding team. Although our technologies are becoming more widely known and used—MammoSite having treated more than 5000 women and GliaSite having treated more than 1000 brain cancer patients—we've never felt we can sit back and rest on our laurels. It's been a fun adventure, and we feel that the best is yet to come!

Photos courtesy Proxima Therapeutics

Copyright ©2004 MX