Rochester phone app firm evolves into $925 million heart monitor maker

·7 min read

Feb. 20—In 2007, four men sitting around a table in Rochester hammered out a rough idea to start a smartphone app firm. Their plans later morphed into a remote heart monitor manufacturer purchased by Boston Scientific for $925 million in cash in January.

The story of how a group of southeastern Minnesota software developers ended up creating one of the top remote cardiac monitor devices in the world starts with Rochester's mix of cutting-edge technology and innovative health care.

Preventice Solutions' road twisted and turned along the way to the Boston Scientific sale, but it was always the team of Jon Otterstatter, Greg Wobig, Scott Burrichter and Dan Spors behind the wheel. Spors left company in 2015.

'It clicked'

Three of Preventice's founders went to college in Winona, and one had roots in Wisconsin. Their paths had crossed many times over the years as they worked in Rochester for IBM or IBM vendors. Eventually, they all ended up at ShowCase Corp.

"That's where the whole thing started, right there," remembered Wobig. "It clicked ... the way we worked together ... the way we tackled things."

Winona State grads Wobig, Burrichter and Spors were not as comfortable in a big corporate setting.

"It was overwhelming. Small seemed good," said Wobig.

When SPSS Inc. acquired ShowCase in 2001, the trio left and formed a small consulting firm called Boost Information Systems. Otterstatter stayed on until 2007. Once he "retired" from SPSS/ShowCase, the guys at Boost met to have a chat.

"They said, 'We don't think you're done,"" remembered Otterstatter.

Brainstorming 'big'

That kicked off some brainstorming about what kind of company the four of them could run together. They had some money in the bank and could forgo salaries for a while. The goal was to make something that could go "big" rather than something small that could provide a decent income.

"We looked at a number of things. We had experience in software analytics. We had experience in mobile. That was the days of Palm Pilots, Blackberries ... Nokia," said Burrichter.

Preventice was soon launched and entered the new world of smartphone apps, though their experience at IBM and ShowCase resulted in more than the usual iPhone apps of the time. Preventice's apps could collect and analyze data.

"We had a platform behind the app. We were taking an enterprise approach," said Burrichter. "Pharma companies soon saw the value of that data and analysis."

Otterstatter describes that time as "a turning point," when they understood the potential of mobility software and health care.

"The health care platform was going to be the thing," he said.

Preventice started working with Merck, Pfizer, Coppertone and other health-related companies with their mobile applications. They created 50 to 60 apps during the early days of the smartphone app goldrush.

One of their iPhone apps — a UV sunscreen aid made for Coppertone — was demonstrated on ABC's "Good Morning America" in July 2010.

The Rochester company had 30 to 40 employees in 2010, but not all of them were working on apps. A 2009 meeting with Mayo Clinic Ventures had resulted in a new project.

A Mayo venture

Mayo Clinic Ventures Chair Steve VanNurden had told the Preventice team about a new remote monitor device that had potential.

"I believed that someday you would be able to monitor patients remotely but did not know when the technology would be ready for the marketplace," recalled VanNurden who now works in Colorado. "Dr. Paul Friedman and Dr. Charles Bruce were visionaries, and we often discussed how we could advance this idea to benefit patients.

"How could patients, who at the time had to be admitted into the hospital, be sent home with a monitoring device? The physicians had the medical expertise, but not necessarily the data analytics expertise needed."

It was still in the very early stages of development, but the Mayo team was thinking about a mobile "front-end" system to communicate with phones and collect data.

"When we were introduced to it, it was basically a circuit board with wires hanging off of it," remembered Burrichter. "At that point, we weren't medical device people. We were software people with a background in analytics."

However, VanNurden soon offered Preventice an exclusive license to commercialize the technology.

"So we became hardware guys," said Wobig.

Flipping to hardware

Taking on the remote monitor project meant learning about the U.S. Food and Drug Administration. It meant finishing the work on the monitor and designing a patch to allow patients to wear it. It meant coming up with a name for the monitor, "Body Guardian." The "big pivot" meant raising money, less than a half million dollars at first, from the Merck Global Health Innovation Fund to finance the project.

"We were flipping from a service company to a product company," said Burrichter.

In the two years it took to develop the BodyGuardian patch device and related system, about 90 percent of the Preventice team continued to create commercial mobile projects to keep the lights on as 10 percent worked on the monitor.

That flipped to 90 percent working on the monitor after the FDA approved the BodyGuardian monitor to track nonlethal arrhythmia in 2012, just five years after Preventice formed as a software company.

The company had 50 to 60 employees at that point. Otterstatter opened a corporate office in Minneapolis, but the bulk of the company and all of the development team continued to work in Rochester.

Pepin Manufacturing Inc. in Lake City did the initial work on the monitor's patch, which is designed for a patient to wear 30 days comfortably. In the early days, many physicians bluntly told the Preventice team that a patch would never work.

"We were just crazy enough to believe in ourselves, anyway," said Otterstatter. Patches are now the industry standard for remote health monitoring devices.

From 2013 to 2015, Preventice sold about 50,000 units of the first generation Body Guardian, with Mayo Clinic as its first customer.

Mayo Clinic turned out to be unique in its desire to do its own monitoring. Preventice soon realized that most health care centers worked with independent test facilities to monitor patients. That meant Preventice needed help with the service aspect.

Preventice found that Houston, Texas-based eCardio Diagnostics could help with that part of the operation. With help from Merck, Preventice merged with the much-larger eCardio in 2014. The headquarters moved to Texas, though Rochester still was home to the development facility.

That merger occupied much of the attention and energy at Preventice for two years, though another big change happened in 2015. Boston Scientific Corp. purchased a controlling interest in Preventice, which gave the company a major boost.

The company grew quickly to include a variety of products, including those using artificial intelligence-supported systems. Preventice reported $158 million in net sales in 2020.

$925 million cash

In January, Boston Scientific upped its bet on Preventice by purchasing it with "an upfront cash payment of $925 million, and up to an additional $300 million in a potential commercial milestone payment." Since Boston Scientific already holds an equity stake of about 22 percent as an investor, the net payment will be about $720 million, with "a milestone payment" of up to $230 million.

"It makes sense. We diagnose what they treat. We're the first step in the chain. They have the devices to treat what our products diagnose," said Burrichter.

What does that mean for the 100 employees who work in Building 003 on the Rochester Technology Campus?

Otterstatter points out that Boston Scientific has already shown an interest in Rochester by opening a joint venture with Mayo Clinic in One Discovery Square in downtown. He doesn't see any big change coming for Preventice's Rochester presence, other than maybe some growth.

The acquisition doesn't mean the founders are retiring to warm climes. All three remaining founders are still at work and have no plans leave the company.

"As a developer, I'm excited about the opportunity to go to another scale," said Wobig.

Otterstatter smiled as he thought about the future andwhere Preventice started in 2007.

"We've closed the chapter, but not the book. There's another chapter coming," he said.

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