On Monday, Scott Smith quit his day job.
Smith’s Socrates Health Solutions is one of 12 startups in the first class selected last month by seed accelerator Health Wildcatters. But until this week, Smith was working nights and weekends to nurture the birth of a non-invasive self-monitoring blood glucose device, while punching in every day for a Boston-based, post-acute care software firm.
At 47, Smith is a serial entrepreneur, participating in five previous startups. Two were sold, one became a public company, and two failed. For the past year, the divorced father of three has leveraged his life savings for what he considers a sure thing.
His device, called the Companion, is clipped to the ear and produces a digital blood glucose reading using infrared light. The technology was developed by a former NASA scientist whom Smith met through his best friend from college. The scientist, who did not know how to market his invention, licensed the technology to Socrates.
Smith bristles with excitement when he describes the business opportunity and his commitment to improving the lives of diabetics. According to the Centers for Disease Control, there were nearly 26 million U.S. adults with diabetes, 7 million of whom were undiagnosed. Another 79 million Americans have prediabetes, according to the CDC.
Smith said a diabetic patient spends an average of $788 a year on test strips. His device, which he said would last two years, likely will be priced at about half of that annual cost. He concedes that he could charge even more, but he believes he has a civic duty to try to lower the national healthcare cost burden. He said the pain of constant finger pricks to draw blood and the expense are barriers to testing adherence. The Companion addresses both problems.
According to Smith, there is no non-invasive blood glucose testing device with Food and Drug Administration approval. Although other companies are working on similar devices, he believes there is room for up to a half-dozen companies in the space. Diabetic test strips are a $10 billion industry annually. He’s shooting for a 12 percent market share by 2018, which would translate into annual revenue of $1 billion and a company of 75 to 100 employees. He is committed to keeping the company in the Dallas metropolitan area.
“Dallas is our home,” he said. “This is a great success story for Dallas.”
Smith said his mission and the product name were inspired by his father, a diabetic linguistics professor and philosophy buff who was fond of quoting Socrates and what is known as the Socratic paradox: “I know one thing: that I know nothing.”
Smith said he hopes to complete FDA clinical trials in 2014 and begin to sell Companion in early 2015. He is seeking to raise $6 million for manufacturing and regulatory hurdles, and is talking to three companies across North Texas and California to help fund the effort and become equity partners.
Once Smith raises the capital, he anticipates his other six executive-team members will quit their day jobs as well; five of the seven worked together in Smith’s previous entrepreneurial ventures. Socrates has hired a consultant who has ushered 18 products through the FDA-approval process, including two other blood glucose monitors, and a local law firm to protect the product’s patent.
Even though Smith is an experienced entrepreneur, he said he is benefiting from the 12-week Wildcatters mentoring program. Each selected company receives $35,000 in seed money in exchange for 8 percent equity. Smith said the biggest benefit is the networking opportunities created by plugging into the deep relationships formed by the accelerator’s leaders and mentors. Smith needs to get in front of retailers such as CVS and Walgreens, large insurers, and venture capitalists.
Smith said the reaction by key industry players to his product has been “fantastic” because finding a non-invasive diabetic device has been a “holy grail” for the industry.
“They fall out of their chair when they see this,” he said. “They are amazed that we have developed the technology. People have been trying to do this for 20 years. There is skepticism and staggering disbelief that, because no one else has done this, they wonder how we did it.”
Health Wildcatters executive director Hubert Zajicek said Smith has “the right entrepreneurial chutzpah, yet he is humble enough to know he doesn’t know everything. [Socrates] is a good match of an entrepreneur with phenomenal technology and a huge opportunity. We love the optimism and enthusiasm of these entrepreneurs. They need them to be all in. If they don’t believe in their product, we can all go home.”
Smith was asked the percentage chance of his product’s success.
“Ninety-nine percent,” he said confidently.
Steve Jacob is founding editor of D Healthcare Daily and author of the book Health Care in 2020: Where Uncertain Reform, Bad Habits, Too Few Doctors and Skyrocketing Costs Are Taking Us. He can be reached at [email protected]