June 4, 2002
SMALL BUSINESS

FROM THE ARCHIVES: June 4, 2002

Case Study
How the Right CEO Ended a Saga
For This Medical-Device Company

By PAULETTE THOMAS

THE PROBLEM: Finding a chief executive who could steer a medical-device company through a regulatory maze.

The company, Cardiac Telecom Corp. of Greensburg, Pa., developed a "home-based, real-time cardiac surveillance system." A recovering heart patient wears a wireless, 11-ounce heart monitor at home, which relays data to paramedics at the Cardiac Telecom office. Back in 1989, the company's officials expected the Food and Drug Administration to approve the device in 90 days.

Actual lapsed time? Eight years.

During that time, the company had five chief executives. "They were all good people," says Mel Pirchesky, a local venture capitalist who backed the company, "just not the right fit." None could get FDA approval.

The first was a techie, an engineer who lacked business experience. He quit. Going to the opposite extreme, they hired a marketing guy, who was weak on technology. He was fired. Next, working through a headhunter, they hired a veteran of a large company, who was rattled by the extreme demands of a start-up. Following him was the inventor of the device, who decided it wasn't the role for him. Finally, a board member, an experienced health-care professional, took the post, but died unexpectedly a few months later.

Meanwhile, perfunctory FDA filings bounced around, never getting to the heart of the issues, says Mr. Pirchesky. The agency approved the device for hospitals, but not for home use -- the company's business model.

THE SOLUTION: The company tapped Lee Erlichman, a former chief executive of a small software company. He understood execution. Most important, he understood that in a regulated business, the care and feeding of regulators must come first.

Mr. Erlichman abandoned the previous FDA filings. He started from scratch, launching new clinical trials to address FDA issues that the company had never satisfied. It was costly and time-consuming, but ultimately successful. "We needed to make the FDA part of the solution instead of the problem," Mr. Erlichman said. Soon the company was marginally profitable.
But the firm found itself in another regulatory morass -- Medicare. Cardiac Telecom had partnered with a company that encountered a billing problem with Medicare. Once again, Mr. Erlichman went full bore at regulators whose inaction threatened to unplug the company.
After Medicare's Pennsylvania medical director viewed the operation live, reimbursement resumed. It took six months -- an eternity in an angel-financed start-up, and Mr. Erlichman worked without pay. Today, Cardiac Telecom is back on track, just adding two sales positions to its 15 employees.

THE LESSON: Pick the CEO who can solve the biggest problem. "In a start-up, it's like a horse race," says Mr. Pirchesky, the investor. "It's all about the jockey."

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