Richard Caruso, founder and chairman of Integra LifeSciences in Plainsboro, almost defines entrepreneurship. Starting with a simple idea, this 2006 winner of the national Ernst & Young Entrepreneur of the Year Award pulled together the resources and people he needed to create what is now a very successful medical products company, growing at a rate of about 40 percent a year.
It all began with a newspaper article about how the medical industry was “bragging,” says Caruso, about a new and sophisticated effort — taking body parts out of cadavers and putting them into living people. But Caruso wasn’t so impressed. “As I was reading it,” he says in a telephone interview, “it came across to me as an incredibly primitive way of doing things.”
He then made the leap to what would be a truly revolutionary idea. “I came to the conclusion that since the human body had the ability to generate its own parts,” says Caruso, “why couldn’t we figure out a way to have the body do it again?”
Although many medical professionals at the time did not believe this was possible, Caruso believed in his dream. In 1989 he found people working with promising technologies and used his business experience to pull together those he felt would get the job done.
Caruso will speak on the topic “Are Entrepreneurs Born or Educated?” on Thursday, June 7, at 11:30 a.m., at the Princeton Regional Chamber of Commerce at the Marriott Princeton. Cost: $45. (609-924-1776).
From a Morgan Lane-based company with a troubled history, Caruso created a new firm with a singular objective — to find a way for humans to regenerate their own tissues and organs. It developed the highly purified collagen scaffold technology that is used to repair the dura mater (the thick membrane around the brain), nerves, and tendons, and that regenerates skin and bone.
These core products, used by neurosurgeons, orthopedic surgeons, and dentists, still represent more than one-fourth of the revenues, but the company also has dozens of other medical and surgical instrument products.
After seven difficult years, the technology won approval from the FDA and the company went public. Two years later Caruso hired Stuart Essig, a CEO who could grow the company. Now it is running at an annual rate of more than $500 million, does business in more than 100 countries, and has 2,000 employees worldwide.
Caruso sees one of the defining circumstances of his life as being a first-generation American — his father was a waiter and his mother a housewife.
Caruso believes that at birth people have the freedom they need to be themselves, but along the way, many lose this natural penchant for self-actualization. “From the time we are born,” he explains, “all of the people who want to help us — our parents and the educational system — put certain restrictions on our lives.” In particular, they tell us not to fail and not to take risks, he says, “all the things that are important for you to find out who you are and what you want to do.”
Growing up in Atlantic City, with Italian immigrant parents, Caruso felt that he was able to define his own life and existence. But he worries that in the current generation, which has been subjected to cautionary admonishments throughout their growing up, entrepreneurship is at risk. By overprotecting our children, he believes, we may be limiting their ability to dream, and dreaming is the motivating force behind entrepreneurship.
Caruso traces the source of his own creativity from his experiences finding work as a kid. “You have to be creative to find jobs that you can do as a young person — shining shoes, selling newspapers. You’re on your own, and that’s the initiation of the creative thought process,” he says.
But that’s not what we are teaching our kids as we try to shelter them. “The education we are supplying inadvertently,” he says, “is that if you want something, someone will give it to you.”
Caruso’s parents did not have the resources to send him to college, and he went to Susquehanna University on a football scholarship. Having no real understanding of what a major was, Caruso selected accounting and economics, “because I had heard that accounting grads were doing well.”
After graduation in 1965, he went to graduate school in economics at Bucknell University, and it was there that he started to be more interested specifically in business. On the first day after he got his master’s degree, he started as an auditor with Price Waterhouse and stayed there for 18 months. Although it was great experience, by then he realized that he did not want to be an accountant. “What I really wanted to do,” he asserts, “was to be involved in new businesses and create things.”
He joined LFC Financial Corporation, one of his clients, a startup with only five employees. Venture capital was a nascent industry, and Caruso calls LFC Corporation a “venture financing” firm. “We were involved in very creative lease and investment transactions,” he says, “and I ran into lots of entrepreneurs starting ventures.” These included Fred Smith, who was starting FedEx (Caruso remembers him making a presentation about wanting to compete with the post office by delivering packages overnight); Gene Amdahl of Amdahl Computers; and others.
As he started to explore the nature of the entrepreneurial process, Caruso looked in particular at the idea of mentoring — but not in the accepted understanding of mentors providing help to more or less subservient and ignorant proteges who don’t know what they want to do.
Caruso’s own experience told him that the protege is the person who must create and pursue his dream and find the help necessary to get him there. “In our society, we think that mentoring is highly dependent on the mentor,” he explains, “however, the way I would characterize it is that it is dependent upon the proteges who have a dream that they are passionate about pursuing.”
As Caruso tried to explain his own development as an entrepreneur, he developed a different approach to mentoring, which he calls “open system mentoring.” It is like what Telemachus, the son of Odysseus, practiced in “The Odyssey,” Caruso explains. Odysseus went off to the Trojan War, and while his son was growing up without his father, “he developed a dream and passion to resolve his father’s whereabouts.” Odysseus had left his son in the hands of a family friend, Mentor, who was really the goddess Athena in disguise. “His dream of finding his father was what mentoring is all about,” says Caruso. Telemachus created a dream and then pursued it, finding the help, or mentoring, that he needed as he followed that dream.
To support and promote open system mentoring, both in people’s own lives and in their business endeavors, Caruso created the Uncommon Individual Foundation (www.uif.org). Five full-timers plus consultants and volunteers staff the foundation website that aims to help people release “the uncommon person within them that somehow locks up from the time they were born.” A web-based personal inventory technology, developed by a company that did not survive the dotcom crash, has been donated, and the site’s “Mentorsphere” capability is in beta test mode.
After 20 years of what he calls “an incredibly enjoyable career,” Caruso decided to go back to school, in an economics doctoral program at the London School of Economics, to further pursue the implications of his own trajectory — “growing up in Atlantic City, how do you wind up as an executive somewhere?” His dissertation was about how individuals create new enterprises through the process of open system mentoring, and he received his degree in 1990.
While studying in London, Caruso decided that, for the rest of his working life, he needed to decide what was really important to him, and he came up with nine criteria. He wanted to do something that (1) was intellectually challenging, (2) involved leading-edge technology, (3) allowed him to work with people he liked and respected and who respected him, (4) would benefit mankind, (5) would solve problems on a personal basis, helping people individually, (6) would accomplish something important that hadn’t been done before, (7) would create a vision that others could understand and follow, and (8) would create interesting opportunities for others.
Then and only then, if all the other objectives had been satisfied, Caruso wanted to make sure of criteria No. 9: That he was financially successful. “The financial component needed to be a result,” he emphasizes, “not an objective in and of itself.”
Caruso actually came upon the kernel of Integra at a moment when LFC Financial Corporation had thought momentarily about pursuing ventures other than finance. When it nixed this new strategy as a corporation, Caruso decided it was what he personally wanted to do. “So I left and took what became Integra with me,” he says. That consisted of a few scientists and a few people with experience in the medical industry that he brought together in Radnor, Pennsylvania.
Early on, Caruso was able to take advantage of a promising skin regeneration technology that another company had put aside. Marion Laboratories had been developing this technology and had even acquired Collatec — a company on Morgan Lane formed in part from American Biomaterials and Helitrex — which produced the raw materials necessary for regeneration.
Joe Nichols and Ernest Rich founded Helitrex, and Caruso credits them with playing an important role in the science of using collagen materials. Nichols was a consultant to Integra for a while but has retired and closed his lab at Princeton Service Center. “Not very much of what we are doing today would be possible if it were not for Joe Nichols’ brilliance 20 years ago,” says Caruso. “He was an incredible mentor and always interested in being helpful to us.”
When Nichols’ company floundered, it was bought by American Biomaterials. Its CEO, William MacKay, was the notorious hero of the book “Salesman, Surgeon.” MacKay had earned notoriety for scrubbing up with surgeons and then stepping in to perform the operations, but he went to jail in 1990 on civil and criminal charges involving the wrong use of company funds (U.S. 1 August, 1987, and February 10, 1993). (MacKay is out of jail and is back in business, developing an equestrian-based
real estate community, Fox
Hollow, in Aiken, South Carolina.)
Marion Laboratories took the resulting firm, Collatec, and invested heavily in its infrastructure, pouring $35 million to $55 million dollars into a Kansas City operation to make raw materials for the regeneration technology inspired by John Burke, a Harvard surgeon, and Ioannis Yannas, a chemist at MIT. “By the end of the 1980s, everyone believed they had failed,” says Caruso. Marion Laboratories was bought out by Dow Chemical and renamed Marion Merrill Dow (MMD).
Using his own funds Caruso bought Collatec and, also at a bargain price, scooped up the skin project technology, because he felt it had the potential to regenerate skin for burn victims. Having no cash, the firm negotiated a license agreement for the technology based on future royalties.
Then he purchased the $20 million Kansas City facility for under $1 million and paid nearly $10 million to move it to Morgan Lane. A Little League contact, with whom Caruso had coached for seven years, offered to have his Philadelphia-based refrigeration firm lend half of the money needed to move the equipment. “Getting other people to latch on to this vision — that was an important piece of what we were able to put together,” says Caruso.
Though Integra had one of three competing technologies at the time, says Caruso, “we are the only one that has survived in our original form as a public company.” He notes that although the main competitor, California-based Advanced Tissue Sciences, succeeded in attracting lots of money for its artificial skin developed outside the body, it was late to market and has not had great commercial success.
The manufacturing facility of Integra Biosciences Corporation in Plainsboro shares attributes of a butcher shop, a deli, an industrial kitchen, a milk-processing plant, and a bakery. This plant, headed by a chemical engineer who used to design processes for the food industry, manufactures the collagen matrix implants that have propelled Integra’s growth in the tissue regeneration market and other related areas.
Dan Miller, director of Plainsboro plant operations, explains the process that begins with harvesting the deep flexor tendons from the legs of cows and ends up with large sheets of a material that feels like spongy Styrofoam. Actually it is a form of freeze-dried collagen, the basic structural protein that binds cells together in the body. When cut and packaged, it is the core product.
These products are highly regulated by the Federal Drug Administration and require pre-marketing approval and very extensive clinical trials. So far Integra products have experienced no rejection.
Because the product is actually implanted in the body, it must be entirely sterile, and the number of airborne particles per cubic meter ranges from 100 to 10,000, depending on the product and the stage in the process — that’s in contrast to 300,000 particles per cubic meter in an everyday space.
The cow tendons come either from a slaughterhouse north of Philadelphia or a couple of suppliers from New Zealand. Although all are certified to be free of mad cow disease, some countries prefer the New Zealand sources even though they are significantly more expensive. “The process of getting cow tendon from halfway around the world is pretty challenging,” says Miller. And the fact that Koreans like to eat cow hooves has driven up prices even more.
At the plant, the tendons are cleaned and cut to size and then frozen in long tubes that look like baseball bats. The frozen meat is cut in very thin slices, using a machine very similar to a deli meat slicer — thin enough that enzymes can break through and unravel the strands of collagen. Next the tendons are soaked and purified in a large kettle and enzymes are injected. After being tested for purity, the material, now more of a liquid, is mixed in a tank, pushed through a filter, homogenized, and then poured into trays that look like big cookie sheets. The white sheets that come out of these trays are packed in a sterile box and sent to a plant in Puerto Rico to be cut, double-packaged, and sterilized.
The company’s collagen matrices — whether for the dura mater, skin, peripheral nerves, tendon, or bone — provide scaffolds that are penetrated by the body’s own cells. The matrices inhibit the formation of scar tissue as the body’s cells consume the collagen of the matrix. In the end the implant disappears and healthy native tissue has taken its place.
For five or six years Judy O’Grady, the current head of regulatory affairs who came in with Collatec, was working with Caruso to oversee the quality control for manufacturing the skin regeneration product, the clinical trials, and the regulatory process. (O’Grady was honored last February in a Caruso-inspired Women’s Enterpreneurship Day held at Princeton University.)
Getting Integra Skin on the market was time consuming and expensive, and the company almost went out of business. After all, it was a single-product company betting its future on artificial skin technology.
Because venture capitalists did not understand a product that was neither a drug nor a medical device, the firm turned to other medical companies for investment funding: Alcon Laboratories, Genetic Institute, a Union Carbide subsidiary, and Manor Care.
Caruso’s favorite investment story harks back to Nichols, founder of Helitrex. In the early 1990s Boston Scientific, still a young company, wanted to use collagen for a cardiovascular application. An executive at Boston Scientific had worked with Nichols at Johnson & Johnson. “Because Collatec had a ‘Nichols’ stamp, Boston Scientific came to see us. I told them we would want them to invest in our company and they gave us $5 million, our first large investment,” says Caruso. “It’s an amazing story.”
Integra bought other firms with technologies that could work synergistically. In 1996 the company went public through a merger with an already bankrupt company with public shareholders, Telios Pharmaceuticals, which had spent $100 million developing a different wound care product. Then Caruso raised $30 million in the public markets to commercialize Integra Skin.
In 1996 and 1997 the product was approved and won an award from the FDA as the most innovative new technology of the year. This product, Integra Skin, supported the regeneration of skin for victims of third-degree burns, and it worked extraordinarily well.
Integra Skin got a boost the following year when Betty Shabazz, the widow of Malcolm X, was in a house fire in New York City and ended up with burns over 80 percent of her body. Integra employees drove the skin to the hospital, says Essig, because it needed to be refrigerated. Although there were no complications from the Integra Skin, eventually Shabazz died.
“The company got a lot of notoriety for treating this important individual,” observes Stuart Essig, who came in as CEO in 1998. Two years after its approval, the product was used in 60 percent of burn units in the United States. Essig estimates that by now it has probably saved the lives of 5,000 people.
But it turns out that the artificial skin, which had an original indication from the Federal Drug Administration for life-threatening, third-degree burns, had a much smaller market than expected. Severely burned victims generally die in a couple of weeks due to infection or dehydration. Though they might survive if treated with Integra Skin, they would have to stay in the hospital for several months. Here’s the brutal part: Not all burn victims have the kind of insurance that would allow them to be treated that way.
So only 10,000 people a year were likely to need the product, and not all of them were able to get it. That became a serious business issue. “We had a spectacular product,” says Essig, “but Integra misjudged the size of the market. People had anticipated a billion dollar market opportunity, and it turned out to be a $50 million opportunity.”
So when Essig joined in 1998, his challenge was to identify new markets for the company’s technology and products. Founder Caruso calls the decision to hire Essig “one of the best decisions I ever made.” He looked for “someone passionate about building a company and who was able to share my vision.” Essig has that vision, says Caruso, “and he has done an incredible job in bringing Integra to where it is today.”
Caruso says he was criticized for choosing an investment banker but stuck with his decision because he wanted to keep Integra from being gobbled up by a larger firm: “My dream was to build a major medical company that was going to be successful regenerating the body’s tissues and organs.” He knew that, to avoid being bought out, Integra needed to put together the proper complement of products and technologies.
“Stuart built the company with incredible perspective, understanding that marketing is just as important as having the technology,” says Caruso. “If you sell too few products, you will never survive, and you can’t develop them all internally.”
Essig, a Long Island native whose mother was a nurse and father was a lawyer, was well prepared to take up the reins of Integra, even though he had never run a company before. After getting a bachelor’s degree from the Woodrow Wilson School of Public and International Affairs at Princeton University year, Class of 1983, he pursued his interests in economics and international business at the University of Chicago Graduate School of Business, where he received a masters in business administration and a doctorate in financial economics. His dissertation looked at why firms issue certain kinds of securities in public markets, and he was expecting to be a professor. That was until he got a summer job on Wall Street.
Essig got a permanent job with the merger department of Goldman Sachs in 1988, and his first project was the Bristol-Myers Squibb merger. He advised the medical device division of Bristol-Myers on 10 or 20 deals and ended up running the medical technology section at Goldman Sachs. But Essig had other plans for his future. “My passion,” he says, “was in finding an opportunity to build a medical device company that could have a significant impact both on the industry and on shareholders.”
Through mutual acquaintances he met Caruso, and in 1998 Integra’s board asked him to join as CEO to bring the company into the next stage of commercialization.
His management team explored different body organs that might require soft-tissue regeneration including tendons, the dura mater, gum tissue, and nerves.
“We met for months,” Essig remembers, “and used consultants, industry leaders, clinicians, and technologists, and went through a reinventing process.”
Essig’s experience at Goldman Sachs with executives who were building their companies stood him in good stead. “They were facing a lot of strategic decisions that over the last 10 years we have had to face,” he says. By observing them carefully, Essig came to understand how to grow and finance a business and how to deal with change, which is particularly important in a culture like Integra’s.
“All of us here are very engaged with change,” he explains. “Rather than looking for opportunities to do the same things again and again, we are looking for opportunities to do new things and add value to our customer base.”
New Jersey, with its intellectual capital and its pharmaceutical and biotech concentration, is a draw for entrepreneurs like Caruso. The extraordinary growth of a company like Integra LifeSciences, he says, “should be an encouragement to promote and keep entrepreneurship active and alive in New Jersey.”
Although Governor Jon Corzine has been encouraging entrepreneurship, particularly in the area of research, Caruso believes that the tax structure itself must be modified so that startup businesses “have some period of time where they don’t have the incredible burden that might encourage them to leave the state.” Caruso didn’t leave the state because the people he needed were here, but for others, he says, a better tax structure “could make the difference between success or failure.”
Caruso has just returned from the international Ernst & Young competition in Monte Carlo, where the winner, among 40 countries, turned out to be the Canadian founder of Cirque du Soleil. Yet Caruso’s entry, which included both the UIF foundation and Integra, attracted lots of attention there.
He has high hopes that Governor Corzine, who sent a congratulatory letter to Monte Carlo, will support creating “venture mentospheres” for Rutgers students and entrepreneurs on the UIF website.
“We will try to use the alumni base and the friends of the university to provide the support to bring those projects forward instead of letting them die,” says Caruso. “In New Jersey, the home of the medical pharmaceutical industry, we can put together technology and mentoring resources to give them a better chance.”
Essig tells the story of how, in the process of pulling together the company, Caruso went to Marion Laboratories and met its dying chief executive officer, Ewing Kauffman, who spoke to him about the small group of people developing biomaterials for an artificial skin project.
Kauffman told Caruso he had spent millions as he unsuccessfully tried to bring the product to market, and Caruso said he was going to make the product a success.
And now that Caruso has received the 2006 Entrepreneur of the Year award, endowed by Kauffman, Essig observes that Caruso has “fulfilled the legacy” of the now-deceased Kauffman.
Integra LifeSciences Holdings Corporation (IART), 311E Enterprise Drive and 101 Morgan Lane, Plainsboro 08536; 609-936-3600; fax, 609-275-5363. Stuart M. Essig, CEO. Home page: www.integra-ls.com.