Neuromonics Case

Neuromonics In November 2005, Dr Peter Hanley, Chief Executive Officer of Neuromonics Pty Ltd, in Sydney, Australia, reflected on the company’s progress to date. Neuromonics, created to commercialise a new treatment for tinnitus, a hearing disorder, had experimented with various distribution approaches in Australia and had commenced exports to the USA. In planning the company’s international expansion, particularly in the USA, he faced a key choice: whether to proceed, as the company had done to date, with a conservatively capital-rationed approach, or to seek substantial additional capital in order to fund a more aggressive, accelerated growth trajectory.

Tinnitus Tinnitus, a hearing disorder involving the perception of ringing, whistling, buzzing or hammering sounds in the ear in the absence of a corresponding external sound, was believed to affect about 15 to 20 per cent of the world’s adult population. For one per cent, the effects could be devastating, causing sleep disturbance, an inability to relax or concentrate, sensitivity to loud noise, and generally impacting seriously on quality of life. Exposure to excessive noise was considered the most common preventable cause of hearing loss and tinnitus.

The Neuromonics Tinnitus Treatment To treat tinnitus, various approaches had been tried in the past — many of them falling into the ‘snake oil’ category. Other approaches were limited by a lack of consistent clinical efficacy, efficiency and/or user acceptability. Neuromonics identified its major competition as ‘no treatment’, due to family doctors telling their patients that ‘nothing can be done about your condition; you’ll just have to learn to live with it’. The Neuromonics Tinnitus Treatment was discovered and developed over a tenyear period at Western Australia’s Curtin University of Technology by Adjunct Associate Professor Paul Davis, himself a tinnitus sufferer. Central to the treatment was a proprietary acoustic stimulus that was customised to suit each individual, thereby accounting for individual differences in the hearing and tinnitus profile. While it was not a cure for tinnitus, and was not suitable for every patient (10 to 20 per cent of tinnitus sufferers had hearing loss too severe to be helped), Paul Davis’s clinical trials demonstrated that it was more consistently effective (having a 90 per cent success rate), yielded faster results, and was more acceptable to patients than previous alternatives. Combining the acoustic therapy with about five hours of counselling and support from a specialist clinician over six months, the treatment aimed to provide habituation or desensitisation to the tinnitus signal, thereby reducing awareness, distress and disturbance.

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The treatment cost was the equivalent of a pair of mid-range hearing aids, about A$5500, representing a 100 per cent mark-up on the price paid by the clinician to Neuromonics. Some private insurance policies provided partial to full rebate for the treatment. Neuromonics had developed a money-back trial period for patients, allowing for a full refund to the patient plus $500 for the healthcare provider. Return rates were very low, at less than ten per cent of patients.

Healthcare professionals Patients typically go to their family doctor initially to seek assistance with tinnitus. They might then be referred to an ear, nose and throat specialist, and then on to an audiologist. Treatment of tinnitus — including provision of the Neuromonics Tinnitus Treatment — is conducted largely by audiologists. Their education involves an undergraduate degree augmented by a masters’ degree or doctorate in audiology. Audiologists are in short supply around the world. In Australia, there are 1300 registered audiologists; in the USA they number about 10000. They generate most of their income by selling hearing aids, expecting a 70 to 100 per cent mark-up on product sold. Traditionally, they have been conservative in adopting new technologies. Increasingly, audiologists are working in partnership with or being employed by ear, nose and throat specialists; those in private practice are being confronted increasingly by the commercial pressures typical of small business proprietors.

Neuromonics Pty Ltd Neuromonics aimed to become the number one tinnitus treatment company in the world. It was established in July 2001 by Curtin University of Technology inventor Paul Davis and technology-transfer organisation TechStart Australia. At that time, it secured initial financing from venture capital firm Innovation Capital. Dr Peter Hanley was appointed Neuromonics Chief Executive Officer early in 2003. He had a bachelor degree in biochemistry and a PhD in immunology. With 15 years of experience in strategy, investment banking, venture capital and healthcare management, Dr Hanley led a staff of fewer then 20 people, who had various management, technical and clinical skills. Dr Paul Davis was the company’s Chief Scientific Officer. The company also had an experienced advisory team, which included healthcare innovators, technologists and business leaders.

Neuromonics’ progress Between August 2001 and November 2005, Neuromonics had made significant progress in a variety of areas. Key achievements included the following: • Clinical trials. Additional randomised, controlled clinical studies were conducted, taking the accumulated patient experience-base to over 200 people with tinnitus. These studies confirmed the superior efficacy, efficiency and user acceptability of Neuromonics’ treatment relative to available alternatives. They confirmed the earlier findings of Dr Paul Davis, with 90 per cent of tinnitus sufferers achieving at least a 40 per cent improvement in their condition.

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• Intellectual property. Neuromonics was granted core patents covering its proprietary technology in the USA, Australia, New Zealand and Singapore, with other jurisdictions pending. • Treatment delivery system. A robust end-to-end delivery system was developed for the treatment, comprising a portable, non-implantable processor for use by the patient, providing patient control and usage data, as well as software tools and clinical protocols for use by the healthcare professional. • Regulatory approvals. Regulatory clearance was secured for market release in Australia, the USA and New Zealand. • Global market recognition. Through presentations by Dr Paul Davis at global conferences and the company’s exposure to key opinion leaders in the global tinnitus community, Neuromonics gained increased awareness and appreciation for its tinnitus treatment. • Management team and advisers. The company was able to build a strong management team, complemented by knowledgeable advisers, to take it through its