Envoy Medical, Story of American Capitalism[Part 2]

January 12, 2012 

Envoy Medical Business Plan

I have always supported local businesses and have been a local Chamber of Commerce member wherever I have worked or served..  Whether it is a medical practice, an ice cream store or a print shop, I think about their business plan, their market, their appearance, their attitude, their advertising and their product.  When Bank of America announced debit card fees last year, I watched the papers for the small banks to run ads of no fees or to post banner signs—nothing!  Eventually B of A dropped the fees but it was a missed opportunity for the small banks to gain new customers.  Our community recently opened a 22 field soccer and lacrosse complex in the middle of nowhere (The NFL Combine and the US Soccer Women’s Olympic team are both there this month).  One strip mall with a pizza shop is the only retail within a mile.  Over 78 teams from 20 states as well as France, Turkey and Brazil were here for a competition last month.  Did the pizza guy bring in extra supplies and help? Did he distribute coupons and deals to the thousands attending?  I hope so as I want every entrepreneur to do well, big and small.

I investigated my consumer investment in Envoy Medical’s product for 18 months prior to paying the $30,000, I wanted to be sure they were well financed and would be around if problems occurred and I investigated their business plan.

It is estimated that 31.5 million people in the United States have at least some hearing loss. Of those people, more than 90 percent suffer from sensorineural hearing loss which results from problems that originate in the inner ear, the auditory nerve (which runs from the inner ear to the brain) or in the brain itself.

Envoy Medical’s target market comprises people with moderate to severe sensorineural hearing loss—about 18.5 million people, or more than half of all people with sensorineural hearing loss.

At the time of submission to the FDA in December, 2009, Envoy Medical has spent over $150,000,000!  I was shocked to read that the Rush Limbaugh airtime is billed out at $250,000 a month.   Fine for me but how do they reach my liberal friends.  I hear their commercials with talk hosts Glen Beck and Laura Ingraham as well.  I guess they figure the folks with $30,000 to spend are conservatives.

Investor Glen Taylor has admitted that the implant is expensive but said: “We have to learn how to drive down costs.” CEO Patrick Spearman said two years ago that in order to hold costs down, “We brought everything in house that we could to keep costs down, quality up, and ensure product availability,”   Envoy Medical manufactures the device at its White Bear Lake headquarters, where it employs 50 people. (Rhetorical Query—do the OWS alleged 99% hire and employ folks)


To help overcome the lack of insurance coverage, Envoy Medical offers its own financing.  Investor Roger Lucas was quoted as saying, “Just last week, I got a call from a waitress making less than $40,000 a year-- when she found out we’d finance it and what the payment would be, she said, ‘That’s my car payment. I’ll just hang onto my car a while longer.’”

I found it interesting that they have forged ahead with little expectation of insurance coverage for the implant happening anytime soon.  Their materials and agreements clearly lower this expectation.  I have submitted a claim for reimbursement as a “medical necessity” which it is as I can no longer function at meetings and events due to my severe hearing loss.  I did not send in the agreements with my claim as there was so much pessimism for insurance.





I do like the fact that Envoy Medical will not deal with insurance companies in setting arbitrary rates.  They will let the market, the folks that can afford the implant, decide if it is a good medical investment for them.  Med City News quoted Patrick Spearman last year saying, “The patient will decide whether this works or not, not the medical community.” Envoy will not even bother to apply for reimbursement.



Last year, Spearman estimated Envoy Medical’s 2010 revenue at $10 million and 2011 revenue at $50 million. As of yet, no other company has started to develop a technology to compete with Esteem.



Competition may change, too. “It’s inevitable that we will get competition, because this development is profound,” the late Ken Dahlberg (founder of Miracle Ear) said in 2010. He added, “It is an absolute threat to the hearing aid industry”.  Normally, medical device companies market their technology to doctors, with hopes they will recommend them to patients. However, Envoy will take its message directly to the consumer through mass radio and TV ads.



It was reported last year that about 90-to-100 surgeons are training to implant the device, including doctors from Mayo Clinic, Harvard University and Yale University,   To my knowledge, my doctor has always met the four hour goal (based on the fact I am online with half of his patients) as the patient is under anesthesia. Just like I told my kids, “nothing good happens after midnight”, nothing good happens after four hours of anesthesia either.  I have heard of many cases with other physicians running from 6 to 9 hours.  I know that Envoy Medical will not continue to approve of doctors who consistently exceed that time frame.

In Medical Device Daily, April, 2009 some insight to the business plan was given by CEO Patrick Spearman., he said, "We have a lot of money and keep putting in money ourselves...To raise $25 million to $30 million should be a slam-dunk. We have such a high value, it makes raising money easy. We believe the company can be sold, after FDA approval of Esteem”.  The goal, he has said, is to go public and then create a surgical franchise.

"It takes a skilled surgeon to implant the Esteem and we want to make sure they are properly trained and we want control of it all," he said. "There's a steep learning curve. Our marketing strategy will be completely different. We're not going to hospitals and doctors. We're going to launch our own surgical centers and use direct-to-consumer advertising. If you use a hospital, the cost of surgery is $30 to $40 a minute. If you have your own center, it's $6 to $10 per minute, like a plastic surgeon."

Spearman has been further quoted as saying, "Initially, there are enough people who can afford this...we're not going to be at the beck and call of the medical community on what we can charge. When they see the success, they'll come to us. The public will sell this product. If a pacemaker is put in, how can you tell if it's working? Only the doctor can tell. With our device, the patient can tell if it works or not. This product is a public interest story and we're going to devote tens of millions to advertising."  He believes the volume of sales will reduce the overall cost of Esteem.

It appears the Envoy Medical is on course to an IPO.  They filed with the SEC for a $20,000,000 security offering on November 17, 2011.  The FDA approval, the trained physicians and word of mouth of successfully implanted patients may make this another successful American story of reinvestment, the essence of capitalism. 

[Attribution and Disclaimer-- Sources used for this post were: Twin Cities Business, Hearing Aid Home, Med City News, Forbes, Medical Device Daily, Fox 26 Houston. The information herein is from reliable sources and deemed to be accurate. If any information is believed to be inaccurate, please notify and corrections will be made]