Interview with Accuray's Founder, Dr. John Adler

Dr John Adler recently left Accuray's (ARAY) Board of Directors. Below is his departure letter and a personal interview:

Friends and colleagues,

Many of you have asked why I withdrew from the Accuray board, and more recently, even stopped consulting for the company. Because of our friendship and your close involvement with Accuray, I know that I owe you an explanation, but until now my previous board status prevented me from saying much of anything.

The decision to leave Accuray stemmed from the fact that my vision for both the future of The CyberKnife technology and how business should be conducted increasingly diverged from management. My several year effort to serve as a constructive contrarian voice on the board and within the company at large was so unwelcome (by the CEO) that I was twice issued threatening letters by Accuray-paid lawyers, demanding silence and including allegations of defamation. As my voice was muted, I felt constructively terminated from providing any meaningful company leadership.

As the founder, visionary, and passionate spokesman for Accuray, I have felt deflated by this turn of events. But I am hardly the first company founder to be rebuffed, as so beautifully described in the above video excerpted from Steve Jobs’s 2005 Stanford commencement speech: Short: http://www.youtube.com/watch?v=kRt4VUv90Gw, Long: http://www.youtube.com/watch?v=UF8uR6Z6KLc

The realization that even an innovative business genius like him once felt “rejected” by “his” company, does provide solace.

Despite past events, I love what I do and remain energized by the possibility of helping to shape the still emerging field of radiosurgery. Even if our baby, the CyberKnife, is to date THE BEST radiosurgical instrument, I am convinced the future will bring yet better technology and even cooler clinical applications for precision radiation, and with this will come the potential to impact unimaginable types of disease and numbers of patients. However, if I am to be part of this future, I must find or create a partner who shares my enthusiasm for the field of radiosurgery and values my input. As I seek to make this transition, I urge you, no matter what, to remind yourself of my primary purpose. Thank you for your past and continued support.

Matthew Rafat's Interview with Dr. John Adler:

1. You recently left Accuray’s (ARAY) Board of Directors. Did you feel your departure was voluntary or involuntary? Without repeating statements you’ve published elsewhere, please explain.

For all intents and purposes my position at Accuray was “constructively terminated” over the past few years and I ceased to have any meaningful leadership role within the company or on the board of directors. For a long time I tried to be a constructive contrarian voice but Accuray’s current culture tends to mistake disagreement for disloyalty, and when coming from me, criticism was interpreted as merely the whining of a never-satisfied founder. Painful or not, it was time for me to move on and seek out or create a partner who valued my leadership and was genuinely interested in my vision for radiosurgery’s future.

2. When you first founded Accuray, what were your aspirations for the company and for CyberKnife?

At its inception, I dreamed Accuray could dominate the field of radiosurgery, especially the now rapidly emerging field of extracranial radiosurgery. A lot of my dream has come to fruition; a broad range of clinical applications, as first enabled by the CyberKnife, are now becoming ever more accepted. Hopefully someday it will be widely acknowledged that the formation of Accuray proved a decisive moment in this incipient, but very real, surgical revolution.

3. What do you believe are the main reasons CyberKnife has not experienced more widespread adoption within the medical community? How do you think Accuray could improve CyberKnife’s prospects?

Revolutions rarely happen in an instant, but rather take time for ideas to be understood and accepted. This is especially true in surgery. Today it seems unbelievable, but most of the leading hospitals in the 1800s resisted Joseph Lister’s advice for surgeons to wash their hands and sterilize their instruments before operating. Ideas and technology are not enough in themselves. For Accuray to effect meaningful change, the entire culture and eco-system of surgery and radiation therapy need to change in part, a process that involves longer term clinical outcome studies, training, government regulations, product design, the control of hospital budgets, professional and hospital re-imbursement, and more. Meanwhile, with a CyberKnife, we are talking about a very expensive product that crosses current medical specialty lines and requires the construction of a dedicated treatment facility. Moreover, one should not be surprised to realize that physician egos play a huge role at every level. Thrust in the middle of this incredibly complex and turbulent marketplace, Accuray has accomplished a lot over the life of the company. To my way of thinking it is unrealistic to have expected appreciably more success at this stage. Unfortunately expectations for Accuray were allowed to get way ahead of reality the past few years and this has engendered the current disappointment among investors with Accuray’s performance. However, I cannot emphasize enough that given the complexity of the radiosurgery marketplace, this is not a sprint but a marathon. Accuray is fortunate to have a head start because the CyberKnife is such an outstanding product. With the above understanding, it is important to build a business and company culture designed for the long haul.

It would be glib of me to suggest a few simple strategies and imply that they would miraculously transform Accuray’s prospects. It is going to be a long drawn out battle for market share over a decade or more, and to pretend otherwise is disingenuous. However this very realization in itself can help to guide corporate strategy. For example, developing the right long term allies is so critical; ultimately, salesmen don’t sell CyberKnifes, but one set of doctors, typically, but not always in academia, sells to another set of doctors. Moreover, a long drawn out battle implies being very mindful of your cash position. Meanwhile, one should avoid the frequent temptations of losing focus on your core product and customer base. Accuray’s success will be determined by literally thousands of decisions as it navigates the still undefined radiosurgery eco-system. Improving Accuray’s prospects will require a nuanced understanding of this emerging marketplace and deft hand on the leadership tiller. Management and board composition should have the requisite skills and background to make this happen. If Accuray is to succeed in its mission, it is not going to be enough for the board of directors to merely ensure that financial statements are clean.

4. Accuray may believe the medical data relating to CyberKnife patients isn’t yet sufficient to gain FDA approval. Without FDA approval, however, CyberKnife may not experience widespread adoption. This Catch-22 results because so many facilities rely on FDA approval prior to buying and using complex medical equipment. If Accuray’s current Board of Directors were to say that you are being impatient, and there is nothing they can do until CyberKnife has at least fourteen total years of post-operation medical data before FDA approval, what would be your response?

I don’t know that any response is required because I have never been at odds with the Accuray board over this general issue. However, it is important to point out that the CyberKnife has been cleared by the FDA for a broad range of clinical applications. Instead the issue to which you allude is not FDA clearance but governmental and private health insurance reimbursement. In this regard, for many years now I have tried to emphasize, and drive within Accuray, the organizational structures which can help CyberKnife users demonstrate through clinical outcome studies the benefits of radiosurgery for a range of clinical applications. So practically speaking I am among the converted. Moreover, if you are going to demonstrate clinical benefit at 5 years, it is going to take at least five years to produce credible research papers…there is no other way around it and you sometimes have to be patient. However, for many clinical applications, one can still make a compelling argument for CyberKnife radiosurgery today by cleverly utilizing shorter term data, as well as studies created by competitors.

5. In many cases, a company’s founder will cede control and guidance of his or her company in order to promote the company’s growth. eBay (EBAY) is one successful example of a founder accepting a more business-savvy CEO in order to maximize shareholder value. Why is your departure from Accuray different from the usual tensions between founders and less technically-knowledgeable but more business-savvy executives?

When a company transitions from a start-up to a more financially driven enterprise there may come a time when it makes sense for a company to bring in a “professional” CEO. Sometimes a so-called “business-savy” CEO can also burnish company image just prior to an IPO; eBay and Google (GOOG) being cases in point. But then if the CEO is smart, he should step aside and get out of the way! The greatest technology companies are routinely guided for years and years by their founders…HP, Intel, Oracle, Apple, Amazon and Microsoft all come to mind. Eric Schmidt may be the CEO of Google but it is widely understood that his job is to execute the vision of Google’s founders. Meanwhile, the loss of the founders can doom a leading-edge technology company as so aptly illustrated by what happened to Apple after Steve Jobs was fired. The more murky the future, and the greater the need for continued product innovation, the more important it is to keep the founder directing company vision. However, in the event that it becomes necessary to replace the founder, the onus should be on the board of directors to ensure beyond all reasonable doubt that they have the right man or woman! And if a new CEO is brought in who doesn’t measure up, the board should ‘fess up and either promptly recruit a replacement or bring the founder back to take charge.

For Accuray much of the future depends not on making elaborate business deals or driving down the cost of goods (although both of these can be useful objectives), but rather successfully navigating the myriad pitfalls of product development and clinical research. If Accuray is to reap the long term success for which it was once positioned, company leadership, including the board, should have a nuanced view of the most complex medical marketplace imaginable. This emerging radiosurgical marketplace is going to require non-stop innovation, especially in product design and changing the medical eco-system in which radiosurgery resides. If you look at Silicon Valley’s most successful companies, which tend to depend on continuous innovation, the founding team stayed engaged for a very long time.

6. What do you feel Accuray is doing well?

Up until now The Cyberknife continues to be the best overall dedicated radiosurgery system in the medical marketplace. Moreover, Accuray, in conjunction with the not-for-profit CyberKnife Society, which it once helped to create, has been instrumental in working with users to generate vital outcome studies demonstrating radiosurgery’s clinical benefits. In doing so, the CyberKnife has established itself as the gold standard to date for many if not most radiosurgical applications. Once upon a time Accuray was unique in the radiation field for its ability to attract a broad cross section of surgeons. In addition, the company was very successful in getting differentiated technical re-imbursement for CyberKnife radiosurgery. The above is particularly laudable when one is reminded that Intuitive Surgery, arguably the most successful capital equipment medical device company in Silicon Valley over the past decade, has neither conclusive outcome data to support the utilization of its Da Vinci device nor is there special re-imbursement for using its surgical products; so far the Da Vinci is merely an intrinsically cool and rather expensive surgical gizmo. Despite Accuray’s many shortcomings and Intuitive Surgical’s lionization, it is notable that CyberKnife radiosurgery is miles ahead of the Da Vinci concept for surgery when measured by clinical validation and cost effectiveness.

7. What do you feel Accuray is doing poorly?

In planning for unrealistic growth, Accuray scaled operations prematurely and needlessly burned through a lot of cash, and at the same time, communication with investors deteriorated terribly. Of note, since the arrival of CFO Derek Bertocci’s, both of the above issues have improved. However, the company has tragically lost touch with what was once a credible and very unique base of surgical users. The CyberKnife product is increasingly becoming bloated and overly expensive. In parallel, internal company processes have the complexity of a company 10 times the size, which is not a good thing for a company so dependent on rapid innovation. Many CyberKnife features were poorly conceived and in the process of development, robbed engineering talent from more important projects. Rather than envision and drive new clinical applications for radiosurgery, Accuray has chosen to spend a lot of energy and focus backtracking into the traditional radiation oncology market, long dominated by Varian and others. Internally, dissenting opinions are frowned upon, and the Accuray board has virtually no background in any of the medical or technical fields that are relevant to company business. For many years now Accuray has done a very poor job of selling to major US academic centers, which represent vital hubs of clinical research going forward. Moreover, because it’s under represented at major medical centers, Accuray lacks political clout within major medical societies and the government. In belatedly following my mother’s admonition “to not say anything, if you can’t say something nice,” I will stop here.

8. What are your favorite memories during your time with Accuray?

I loved my years as CEO between 1999 and 2000. Going into the company, I was a complete neophyte in the business world, and had so much to learn. Although these were very challenging years from the standpoint of hiring (the competition from technology companies was fierce) and at the same time the ensuing economic downturn was ferocious (making fund raising incredibly tough), during this period the business was finally righted after 5 years of repeated near death experiences. We turned the business around by simply focusing on the product, creating the right team and aggressively selling.

9. Your son, John “Trip” Adler, is an accomplished gentleman in his own right. Please tell us more about him and his company, Scribd.com. What would people be surprised to know about Trip?

Although a very young CEO, Trip has been incredibly successful with Scribd, the company he founded 3 years ago at age 22. If Trip wasn’t my son, I’d be very jealous! However, the nature of Scribd and its business is almost the diametric opposite of Accuray. For those interested in knowing how different I suggest they listen to a podcast at:

http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2333

The world might be surprised to know that Trip is an incredibly talented Jazz saxophone player. I wish he played more often.

[Disclosure: I (the interviewer) own shares of Accuray (ARAY).]

Apple Shareholder Meeting (2010)

Apple, Inc. (AAPL) held its annual shareholder meeting in Cupertino, California on February 25, 2010. Apple offered shareholders only coffee, tea, and water. Steve Jobs attended the meeting in his trademark jeans (with holes in the right knee area) and black turtleneck. Although he looked noticeably thinner than two years ago, he appeared healthy. Al Gore also attended the meeting, and he looked like he was in great shape (unlike previous years, where he appeared to be a tad overweight--perhaps recent Democratic victories have improved his health).

Much of the meeting focused on environmental issues. One person argued that if the science is right, then nothing else matters, and Apple needed to be more environmentally-conscious. Another shareholder summed up the issue by saying, "Pollution is waste, waste is inefficiency--it's as simple as that."

During the Q&A session, a shareholder mentioned Apple's $40 billion in cash, and asked whether Apple would issue a dividend. Mr. Jobs said that the cash provided security and flexibility, and Apple could take risks knowing that "the ground is always there if we miss." Mr. Jobs also implied that the stock price would stagnate if Apple issued a dividend.

Someone else mentioned that Nintendo was doing very well with its Wii and asked if Apple would consider a strategic alliance with Nintendo. Mr. Jobs said that such alliances take a lot of work, and Apple would need a big payoff to consider a strategic alliance.

I was tired of the environment-related questions. I explained that business-wise, it doesn't matter whether the science is right or wrong, only whether a majority of the American public believes that environmental issues are important. If the majority of Americans feel strongly about environmental issues, they will petition Congress or state legislatures to pass more stringent laws mandating certain corporate behavior. However, if Apple at least projects an image of being socially conscious, it will help stave off stringent legislation that might harm the company. In short, being ahead of the curve on environmental issues allows Apple to increase its chances of saving shareholders from potentially harmful and costly legislation. (It also makes little sense to criticize Al Gore whenever the Democrats control Congress, because Mr. Gore's presumed access to Democratic legislators allows him to provide input into legislation affecting Apple.)

Mr. Jobs responded by saying that it was even more simple--being environmentally-conscious "is the right thing to do." He then made several comments showing that Apple sincerely believed in environmental issues not just as a business issue, but as a philosophical issue.

I also asked what challenges Mr. Jobs saw for Apple, i.e., what keeps you up at night? Mr. Jobs first joked, "Shareholder meetings," but then became more serious. He said he was concerned about the overall economy, because if people were concerned about buying textbooks or putting their kids through school, then it would be more difficult for Apple to sell its products.

Overall, the meeting went well. Mr. Jobs was more pro-active in cutting off shareholders who would ramble on, but otherwise, it was a typical Apple meeting--people came to see Mr. Jobs and to get a piece of the Apple mystique.

Bonus: Mark Duncan has been a marketing consultant at askmar (www.askmar.com) for over 25 years, focusing on helping early stage start-ups develop traction in their marketplace. Mr. Duncan's thorough notes on the shareholder meeting are below:

* The meeting started at 10 AM, the formal meeting ending at 9:25 AM. At that point, Steve Jobs took questions and answers to about 10:20 AM.

* Apple wants to do the right thing. We have reduced the size of our packaging because it benefits us both from an environmental and business standpoint. People are noticing, our reputation is pretty good. Can it be better? Yes, but we’re working on it. Our recycling rates are phenomenal.

* What is Apple afraid about most, what keeps you up at night? Fundamentally, we require stability in the world. People aren’t going to buy our products unless they can put food on the table and afford school. We are affected by things beyond our control. Accordingly, we try to do the best we can.

* Why not issue a stock dividend? It is part security and flexibility. It nice to know when you jump that the ground will still be there if we miss. Also, we never know what opportunities are out there. Sometimes you need to think big and pretty large. When you want to do something big and bold, it is nice to be able to write out a check and not have to borrow a lot of money. Our judgment and instinct is to keep out powder dry. Quite frankly, if we issued dividends or did a stock buyback, our stock price would still be in the same place. What really drives our stock price is our ability to grow and keep up with new products that everyone wants.

* Internationally, we opened our first store in China, and have 25 more stores planned for China over the next year.

* [On environmental issues.] We are more interested in walking the talk, than talking the talk. Lots of companies set goals and attend conferences, than don’t actually meet their goals. We are the first and only company to actually do something about it. Dell challenged us on our green statements to the Truth in Advertising board, which found that we were correct [in our claims]. We have audited 100 of our suppliers, and over half of them told us that they had never been audited before. We do it because it is the right thing to do.

* With respect to usability and accessibility. We have the most accessible products in production available today, with a few hundred million passionate users. I personally receive 6 to 12 emails each week about accessibility.

* When I run across a security problem, it would be nice to have a way to email Apple regarding the threat. We will look at providing an email for this purpose.

* Will the increased emphasis on mobile products result in a decrease in traditional Mac products? First, we have decreased our app approval time from 2 to 3 weeks to one week. Our customers are buying mostly laptops, followed by iMacs, Mac Minis, and towers. We listen to our customers. We love the iMac, we think it is the best product of its type in the world.

* Apple has no retail stores in Wyoming, Montana, and North Dakota. Would like to see more theaters in stores. It is hard to do this [take Apple classes?] in smaller stores, particularly with the higher noise levels.

* Apple ads are primarily targeted at the young and hip. Yet the products have a tremendous appeal to middle aged and older people. Jobs noted that often older people like to think of themselves as young and hip!

Update: other reviews of the meeting are HERE and HERE.

John Yoo, D-Bag

For anyone out there who still supports or likes John Yoo, please, please, for the love of God and Constitution, read THIS short Atlantic article. One excerpt:

Based on the results of our investigation, we concluded that former Deputy AAG John Yoo committed intentional professional misconduct when he violated his duty to exercise independent legal judgment and render thorough, objective, and candid legal advice. [Italics added]

And you're welcome, even if I can't expect a "thank you."

EIA on Natural Gas

Natural gas seems to be hitting new lows these days. Yet, the government expects the price of natural gas to increase in 2010: 

EIA expects this year's annual average natural gas Henry Hub spot price to be $5.37 per million Btu (MMBtu), a $1.42-per-MMBtu increase over the 2009 average of $3.95. EIA projects continuing price increases in 2011, averaging $5.86 per MMBtu for the year. EIA expects working gas inventories to end the first quarter at about 1,644 billion cubic feet (Bcf) compared with 1,734 Bcf in the previous Outlook, because of colder-than-normal weather in early January. [Citation here.] 

UNG and GAZ allow traders to play natural gas prices. There are several negative potential tax issues with buying GAZ or UNG, so I trade these in a retirement account to be on the safe side. 

Also, it's true that natural gas ETFs/ETNs may not necessarily track the actual price of natural gas, but they do seem to follow the general movement of prices. If the government is saying prices are heading up, why not consider natural gas as an investment, albeit an admittedly speculative one? 

I don't know if I will hold my GAZ shares one day or one year, but I don't feel as if I am buying an overvalued commodity. As more consolidation occurs in the natural gas sector (XTO Energy, etc.), at some point, prices are likely to increase. While consolidation may not be good news for consumers, speculators may benefit from short-term volatility. 

Disclosure: I own GAZ and have owned UNG in my Roth IRA. 

Note: GAZ closed at 12.03 on February 25, 2010, the date of this posting. 

Update on March 1, 2010: MF Global’s Mike Fitzpatrick's says, "Technically, the charts are bearish." According to THIS article, he "expects $4 natural gas to be tested very soon." As of today, natural gas traded at around 4.680, so Mr. Fitzpatrick expects a 17% drop. 

Update on March 8, 2010: I averaged down by buying some GAZ at around 11.23. I am now losing around 5% on this position. The actual price of gas is $4.517/MMBtu. I hope I have the mental fortitude not to check this position until October 2010, when natural gas prices may rise much higher. 

Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.

Update on June 2020: I haven't owned GAZ, USO, or UNG for many years. It looks like GAZ actually traded lower by October 2010. I did not learn about "contango" until after I published this post, though I did warn that GAZ "may not necessarily track the actual price of natural gas." I also wrote that GAZ was "an admittedly speculative" investment. A much better post on natural gas can be found here: https://willworkforjustice.blogspot.com/2009/07/commodities-cap-and-trade-and-natural.html 

Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.

U.S. Supreme Court to Decide Important Free Speech Case

Click HERE for a transcript from the Supreme Court's oral arguments in Holder v. Humanitarian Law Project. [Click on "Full Screen" after the jump to enlarge the text.] 

The Humanitarian case might determine the breadth and scope of power the American government may exercise when it wants to control speech. Amazingly, the case and its complex issues aren't front page news everywhere. Below are some off-the-cuff comments I made after I read the transcript: 

The pro-free-speech lawyer, Cole, didn't do a great job. There was some drama: Scalia verbally smacked Sotomayor when she raised a misguided example, but Breyer played the good knight and saved her. Justice "That's Not True" Alito looked out of his range intellectually. None of the lawyers were able to really answer Ginsburg's very relevant questions. Breyer, as usual, asked the most interesting and intelligent questions. Scalia clearly wants to kick the ball down the road and uphold the statute. Unfortunately, it appears Kennedy, the swing vote, might be leaning towards Scalia's angle due to the unusual fact pattern involved, i.e., the government did not actually convict anyone for exercise of free speech (the case involves an action for declaratory relief, not an actual prosecution or conviction). Surprisingly, Roberts looked like he hadn't yet made up his mind, though towards the end, he seemed to be leaning towards Constitutional avoidance. Unsurprisingly, Thomas never asked a question. 

Actually, come to think of it, neither lawyer did well. The government's lawyer, Kagan, started off very well, but self-destructed at the end, when she suggested the government could prosecute lawyers who submit briefs on behalf of Congressionally-labeled terrorist organizations, even if the briefs relate to tsunami relief or U.N. aid requests. She should have thought harder about her audience. She's talking to a bunch of former lawyers who used to write briefs and in-house advisory opinions for sometimes-not-so-wonderful organizations. Maybe that's why former corporate attorney Roberts seems conflicted. 

After I emailed the transcript to an acquaintance, I sent him more detailed comments: 

The fact that the Justices spent most of their time discussing hypotheticals indicates that no one really knows what kind of conduct is prohibited. If the Justices can't figure out what is covered, then how is an ordinary American supposed to comply with the law? As for Scalia trying to kick the ball down the road, isn't the whole point of a request for declaratory relief precisely to avoid kicking the ball down the road and having to deal with a prosecution? 

What really bothers me is that no one answered Justice Ginsburg's perfectly valid questions. For example, everyone agrees that membership isn't proscribed, but then what? Are we supposed to just show up to a meeting and sit there to ensure we comply with the statute? Kagan seems to say anything beyond being an inactive paper member of an organization could be proscribed conduct, and it's up to the prosecutors to determine the scope of the law. Sorry, but I'd rather have a clear line than a line drawn by the Supreme Court than thousands of politically ambitious D.A.s deciding what constitutes inactive, legal membership in their own discrete jurisdictions. 

Also, I am a member of numerous legal organizations. I've attended annual meetings, communicated with board members, dispensed legal advice to schools they operate, posted on their blogs, etc. For all I know, one of these organizations might have rogue members plotting against the government. If the Court doesn't narrow the law and require a specific intent provision, then I could potentially be prosecuted merely by being an active member of the overall group, despite lacking any malicious intent. Thus, Kagan's argument boils down to this: trust the government, because we won't prosecute someone who isn't really a terrorist. I'm sorry, but if you're a Muslim in 2010, a Japanese-American in 1942, an African-American with Black Panther friends in 1965, etc, it's a little harder to trust prosecutorial discretion. 

Practically speaking, if the conservative Justices have their way, any lawyer with Muslim clients or Islamic non-profit clients must consider dropping all of them as clients. After all, who knows? If one person within an organization is supporting terrorism, then the entire organization becomes suspect, and anyone who has helped the organization, even in good faith, can be held liable for material support. Just my two cents.

Monks and Nuns in Love

Last Sunday's NYT published a beautiful love story. See HERE for more.

To all the American Newborns: You Owe a Trillion Dollars, Thanks to Mommy and Daddy

Mish has done an excellent analysis on the trillion dollar public sector benefit problem. See HERE for more. It's horrifying and edifying at the same time. Sigh.