Numerous companies are attempting to develop wearable sensors capable of monitoring vital signs in the ambulatory setting with the same quality and consistency as in a clinical setting. San Diego-based Advanced Brain Monitoring (ABM) is one such company developing wearable sensors for capturing electroencephalogram (EEG) data using the lightest, and least invasive technology possible.

I previously wrote in a post last fall about ABM’s products, which caught the attention of Rob Rubio, ABM’s director of business development. He asked me if we could connect so he could clarify some details about the company’s products I had gotten wrong in my profile (see the first question of the dialogue below). I was happy to oblige and even more interested when Rob suggested we schedule an interview with ABM founder and CEO Chris Berka. Read below to learn about ABM leveraged business innovation, instead of depending solely on venture funding, and how they see the market evolving for mobile brain monitoring.

The most impressive thing about ABM, at least in my opinion, is not necessarily their products but rather the strategy the company has employed to finance the R&D of those products. By adeptly understanding and exploiting federal small business grants, ABM has been able to walk away from bad deals offered by venture funds — deals other companies may have reluctantly accepted for lack of understanding there are other options available to companies developing digital health technologies.

Very few technology entrepreneurs appreciate the potential value of applying for small business grants, specifically Small Business Innovation Research (SBIR) grants, when seeking funding to develop new products. Not only do these grants provide recipients with free capital of up to approximately $2 million, they also create intimate relationships between companies and federal agencies and research institutes which could become potential licensees of the technologies being developed.

Hopefully the SBIR program, which includes funding provided by 13 different federal agencies, will survive the current toxic budget crunch in Washington DC, which has led to recent speculation that the program may not survive its current mandate through 2012.

Please see the transcript of my conversation with Chris Berka below and continue the discussion at the iMedicalApps Forum.

BTE: So first of all, I apologize for misclassifying the FDA 510k status of your products in my previous post, in which I falsely asserted your B-Alert wearable EEG sensors had been granted FDA 510k approval. Would you mind clarifying the status of your products for the record?

Chris Berka: The only FDA approval we have today is for our Ares technology, which is an at home sleep study device distributed by Watermark Medical. On the B-Alert side of the business, we do not currently have FDA approval for any of our products but that is something which is coming down the pipeline. All of our products are CE Mark approved and have been thoroughly tested for safety and reliability. We were just never certain about the viability of the medical market for our EEG products so the monetary investment in the FDA approval process was never really warranted. I think we have been convinced with some certainty recently though, that (with the epilepsy market specifically) there is definitely a business opportunity worth pursuing.

BTE: So you guys are starting to head toward applying the EEG technology to patients in an ambulatory setting for real-time monitoring?

Chris Berka: Exactly. One of our design goals has always been to  design a wearable monitoring system that is comfortable and practical. We have significant experience now in the at home sleep study space, but we are looking to take the step now into multi-channel EEG because we believe we can minimize our electronics substantially. We have everything down to under three ounces now, and we believe we can take it down another ounce in short order.

BTE: So do you plan to submit the B-Alert for FDA 510k approval in the near future?

Chris Berka: Yes, we are beginning with our X4 product because it already has several medical applications which will be the basis for the medical applications of our X10 and X24. We plan to have all of those done in 2012.

BTE: Where do you see the major business opportunities and applications for such an ambulatory EEG platform? 

Chris Berka: We have already seen the demand for these technologies in the sleep apnea community with our Ares product, but now we are shifting our focus to new opportunities. We have recently started to look hard at insomnia and PTSD. We have a couple different interventions we are exploring for the treatment of insomnia and PTSD. We have also taken our EEG assessment software and developed an iPad app which captures data wireless from the headset and sends data to us. We have a growing database of EEG data for approximately 5,000 patients to assess the impact of sleeping disorders and insomnia on an individual’s neuro-cognitive performance as measured by performance and EEG data. We have been working on that for some time now.

Perhaps the biggest opportunity from a dollar perspective is in clinical trials for pharmaceutical companies who are trying to assess the impact of a new drug on neuro-cognitive states. Also, we see opportunity in diagnostic support systems for neurological clinicians.  The last thing–which actually might happen to be the first thing–is in the real-time monitoring of epileptics. We are working on two different products in collaboration with the Epilepsy Therapy Foundation which came to us and asked us to build. All of these are opportunities which require FDA approved solutions.

BTE: Sounds like you have a lot in the pipeline. Do you plan to raise money to support the development of these products or will you continue to fund your research and development primarily with grants? 

Chris Berka: Both. For the epilepsy monitoring we are considering taking in some outside money, but we are also looking at grants and we currently have grants which fund our operations from NIH, one for neuro-cognitive profiling and another for PTSD analysis.

BTE: I think the SBIR program is great, certainly an under-appreciated resource available to entrepreneurs, and I was really impressed by how well you guys have been able to take advantage of the program to fund your R&D and growth. Can you share how you feel about these programs as a company with significant experience navigating the SBIR process? Do you think these are programs the government should make a long-term commitment to supporting?

Chris Berka: Oh my YES! We are the definition of an SBIR success story. All of the funding for our FDA approved Ares sleep apnea device was from SBIR grants. There are some downsides to the SBIR program in the way it is currently structured, particularly the Phase I feasibility requirements. For $100K you need to produce something feasible within six months and the bar continues to get higher and higher in what they expect you to accomplish in those six months. So I would say the SBIR is definitely worth it for a startup, but I would advise that they already have the work done and not count on using the initial Phase I funding to finance the actual R&D because it is simply not enough.

However, if everything goes well in Phase I and you are approved for a Phase II follow-on award, you can receive as much as $750-1.5 million over a multi-year time frame and you can really accomplish quite a bit with that type of money. We built the B-Alert with approximately $3.5 million in SBIR funding, and we built the Ares with an additional $3.5 million in NIH SBIR funding. We did raise, though, a little bit of outside money following regulatory approval of Ares to take the final step to market.

One challenge we have encountered was overcoming barriers to reimbursement for the Ares product. Though we were FDA approved and on the market in 2006, it took until 2008 before we were able to receive reimbursement from Medicare. Of course, at that point everything changed and reimbursement dollars seemed to dry up, but up to that point we saw our product widely covered. Once you get beyond the R&D stage, SBIR funding is not helpful in an meaningful way, it doesn’t help solve issues with reimbursement. I am a major supporter of the SBIR program though, and I have seen others achieve similar success to use through SBIR funding.