Medical Sorcery

Modern healthcare is akin to "witchcraft", according to Vinod Khosla, co-founder of Sun Microsystems and former Kleiner Perkins venture capitalist who recently started his own VC firm (Khosla Ventures). According to Khosla, in Do We Need Doctors or Algorithms, technology will replace 80% of physicians. Machines, which can assimilate large sets of data, can do much of the work of physicians, he argues. Khosla also believes that major disruptions in the health care industry will come from individuals outside the industry. He cites the example of Square, a revolutionary wireless payment system that allows anyone to accept credit cards. How did Square do to the payments industry what many had tried and failed to do? According to Khosla, the background of Square employees made this disruption possible: only 5% of Square's 250 employees worked in the industry.

In the last 3 years, I have worked with dermatologists, oncologists, interventional cardiologists, pain anesthesiologists, and neurosurgeons. I wonder how the roles of these physicians have changed over time, and how they will change in an era where technology plays a larger role in 1) determining therapies and 2) the therapy itself.

As expected, Khsola's 2011 comments drew wide spread discussion and criticism from the medical community.  Many felt that a doctor's intuition and therapuetic touch can not be replaced. In addition, decision support software is less likely to impact the work of surgeons and other procedure-oriented physicians. The work of surgeons has already been aided by the robotic surgery industry (i.e. Intuitive Surgical's Da Vinci robot), but it's unlikely that robots will ever be able to completely replace surgeons (at least not in the next 50 years).

Khosla is not saying anything new. Health care is already becoming more data-driven, and his comments are designed to put more focus into this area. Certain biotech drugs (like Genentech's Herceptin) are based on genetic tests to determine what type of cancer a patient has. In this case, Herceptin is prescribed for patients with Her II+ breast cancer. This type of product would probably satisfy Khosla's desire for "data-driven medicine". Herceptin is just one of many examples of drugs prescribed based on genetic testst.

While I'm confident that we can develop the algorithms to help physicians make the right diagnosis and prescribe the right treatment, the challenge will be gathering the inputs to the algorithm. The inputs will come from potentially numerous tests that patients must endure to ensure adequate information for the treatment algorithm. If some of the data is missing, the output of the algorithm will be less trustworthy and the physician will likely "go with his gut" for the diagnosis and treatment (defeating the purose of the decision support algorithm). So, the question becomes how can we make it easier / cheaper to perform these tests on the patient.  Once the data is acquired, it needs to be stored in a central location which the doctor can access to decide what to do next. The data can even be transmitted back to an implanted devices that change their treatment process based on this information (closed loop feedback).

Khosla's firm has invested in several diagnostic company focused on making data capture easier. For example, AliveCor sells a portable heart monitor that can be snapped onto your iPhone. This monitor records ECGs (Electrocardiograms) and transmits them to your doctor. Currently, AliveCor's product does not provide a diagnosis. However, in time, the device could do this as well. If it does, a significant portion of cardiologists' value would be eliminated. If it does, reimbursement for cardiologist office vists would need to be reduced drastically. In fact, there may be fewer visits to the cardiologist period. Mid-level practioners (who don't diagnosis but who are involved with the therapy) may see an increase in business or expanded roles. Even now, AliveCor's product is bad news for medical device manufacturers of in-office ECGs and for physicians who can bill for performing the ECG.

Making health care more data driven will empower patients as well. As a medical device marketing professional, I'm amazed at how little some patients know about what is happening to them and what is being implanted in them. The advice of the physician is often trusted blindly. Unfortunately, physicians themselves are not always well-educated on therapies, and may make their decisions based on a relationship with a particular manufacturer more than what is best for the patient. Patients, on the other hand, have no other incentive than to choose the therapy that makes them feel better. If patients are given more information on their condition, they may also be more motivated to follow through on the therapy as they get more quantitative feedback on key metrics.

Khosla is right. We should strive for data-driven health care diagnoses and treatments. However, just as auto mechanics have a variety of tests that can be run on cars to diagnosis the problem, the conclusions of the tests are not a substitute for hearing from the mechanic himself. And, for problems with the human body, human interaction is even more craved. Still, when more data is available, patients can play a greater role in their own health.

Health Care at the Crossroads

Once the darling of investors, the future of the health care industry is in question. A recent report from the Wall Street Journal on venture capital trends showed that investment in the health care industry is on the decline.

http://online.wsj.com/article/SB10000872396390444772804577623422593171382.html#project%3DNBT092012%26articleTabs%3Darticle

In fact, Castlight, which placed #1 on the Wall Street Journal's list last year, is nowhere to be found in the top 25 this year.

So what gives?

The article states that the decline in health care investment is due to the difficulties health care startups face in "exiting" their venture investment. Exits happen when investors sell their equity in the company: usually through an IPO (Initial Public Offering) or through an acquisition. However, these exits are becoming harder to come by for venture backed companies. Underlying this problem is the uncertainty that companies face with respect to obtaining regulatory approval for their products in the US. The FDA may say yes, no, or maybe (let me see more data) to health care companies. Increasingly, the FDA's answer is no or maybe. If the answer is maybe, investors must inject more money into the company to keep things going until the next FDA decision. Each injection of new funds dilutes ownership in the company while keeping the company's value unchanged. Because of the FDA's vacillation, investors are wondering if their money is best spent elsewhere.

However, Castlight believes that while investment in high capital sects of health care like medical devies and biotech are declining, health IT remains a hot space. Is this true? Well, there have been few to no successes in the health technology industry. Health care technology could very well be a bubble like the dot com. Afterall, the value proposition of product compnies like drug and device companies is well understood and accepted, but health IT requires a leap of faith. Often, regardless of industry, IT investments don't achieve the efficiency benefits that they claim to achieve (take it from an ex-SAP employee).

What do other reports say?

http://medcitynews.com/2012/01/rumors-of-healthcare-venture-capitals-death-have-been-greatly-exaggerated/

This report from June of 2012 points out that "medical device companies (38 percent) were the focus of the highest number of deals, followed by biotechnology (20 percent) and pharmaceuticals (13 percent)." The only issue of concern was a "Series B crunch" for health care companies in which Series B investments were more difficult to come by.

Despite this report, the majority of reports are less bullish on health care investing. Take this report:

http://www.reuters.com/article/2012/10/02/us-medtech-investing-idUSBRE89104D20121002
This report seconds the prevailing opinion that greater pricing pricing pressures, increased regulatory scrutiny, and slower economic growth are stifling the industry. In addition, the article states that new technologies must show greater outcomes and reduce payer costs for reimbursement.

Finally, this report highlights the strength of Healthcare IT:

http://www.healthcarefinancenews.com/news/healthcare-it-venture-capital-and-ma-hold-strong-q3-2012

This report cites Health IT's ability to "touch everybody" as one of the main driver's of the sector's attractiveness.The report also highlights investments in companies like Connecture, Doximity, and Clinipace.

In conclusion, while there are conflicting reports about the state of early stage health care investing, I believe that traditional health care investing is on the decline. The question is does Health Care IT investing show continued momentum in the quarters and years to come. And, will there be solid successes in Health IT to show that this sector is for real? We shall see.

Health Care Reform Takes Shape

A few weeks ago, the Supreme Court examined various aspects of health care reform to determine the constitutionality of the Patient Protection and Affordable Care Act that President Obama drove through congress in 2010.  Now that the Supreme Court has ruled, some uncertainty has been removed. In addition, the 2.3% tax on medical devices was repealed with large bi-partisan support in congress. Let's recap the ruling and tax repeal and then talk about industry and providers are likely to respond.

1) The Supreme Court upheld the individual mandate. That is, the government can require individuals to purchase health insurance or face a fine. The Supreme Court saw the individual mandate as a constitutional exercise of Congress's power to levy taxes.

2) The Supreme Court struck down the expansion of Medicaid. The Court ruled that the federal government could not coerce states into expanding Medicaid on penalty of losing all Medicaid funding from the federal government.

3) Congress repealed the 2.3% tax on medical devices. Initially, the medical device industry was taxed to support the increase in government spending because the industry would ultimately benefit from having more insured patients that they could sell to. However, congress eventually decided that the tax would harm innovation and repealed the tax. 

As a result, more patients will be brought into the system as they get health insurance. However, many states are now able to opt out of the Medicare expansion, which will limit the ability of more indigent patients to own quality and effective insurance. Some patients in these states will have to get their insurance another way if not through Medicaid. Else, they will pay a fine.

The PPACA is still not completely secure. If Mitt Romney becomes President, the act is likely to be repealed (so long as Republicans still control the House and Senate).

Industry & Provider Reaction

Industry is helped by the upholding of the Individual Mandate and is hurt by striking down of Medicaid expansion. More non-indigent patients will have insurance and will therefore by able to avoid pharma and medical device products through their new insurance coverage. Thus they will increasingly utilize products and physician services. However, by the limited expansion of Medicaid, poorer patients will likely not be able to afford these services.

Industry players may increase funding of their own indigent patient programs and increase funding to non-profit organizations who subsidize the cost of medications.Or, they might just ignore this segment of the population - companies will decided this on an individual basis.

The medical device industry is undoubtedly ecstatic regarding the repeal of the medical device tax. This should spur increased R&D investment.

(Rampant) Prosecution for Off-Label Promotion

Recently, there have been several high profile cases of government prosecution of off-label usage of medication. Is the government and the FDA in the best position to decide what the labeling should be for medication? Let's take a look at a few cases:

1) J&J is being prosecuted for off-label promotion of Risperdal to elderly patients with dementia. In April, an Arkansas judge ordered J&J to pay $1.1B in damages for J&J's illegal promotion of the drug.

2) Abbott Labs was ordered to pay $1.6B for off-label promotion of Depakote for agitation and aggression in patients with elderly dementia and to treat schizophrenia. The FDA did not approve either use.

3) The government engaged in a four-year investigation of Medtronic to determine if Medtronic promoted off-label uses of the drug. Recently the government found no evidence of wrongdoing. 

All of the news articles paint the defendant companies in a negative light. But, lack of FDA approval of for certain indication does not mean that a particular drug / device cannot be effective for that situation. There are two important things to note:

1) Other countries' regulatory bodies may approve that use. 

2) Approval / labeling for a product is heavily dependent on the process and individuals involved in this process. 

The FDA has been notorious for employing people in the review process who have little knowledge of the product / therapeutic area in question. Secondly, data from a clinical trial can be interpreted in several ways - while some would view the trial as effective, others would not. 

Because of these reasons, doctors and other medical professionals are free to use products however they wish as long as it is in the best interests of patients. So, when government prosecutors accuse companies of "putting profits before patients," don't be too quick to buy into this statement and vilify companies.

I believe that health care data on product safety and effectiveness should be open and easily accessible to the public. This data is already available (see sites like clinicaltrials.gov) - but perhaps it could be portrayed more simply for the masses to understand. Ultimately, health care providers, and more importantly, patients, should determine which products to use. 

Government prosecutors would love to paint health care companies as greedy entities out to mislead and gouge patients. However, my perspective as an insider is quite different. The companies I have worked for are extremely cautious about not promoting off-label uses. Our hands are tied. The products we make are likely applicable in many more situations than they are approved for. However, clinical trials are too costly to be undertaken to get those additional indications. While government prosecutors could accuse companies of profiteering, the public could accuse these same prosecutors of filing frivolous lawsuits as a means of raising money for their departments and the US government.

So where does this rampant prosecution of off-label promotion leave the health care industry and the US?

US health care companies do not feel supported by their own government. They feel that their hands are tied at every step. Contrast the exorbitant costs of commercializing a product in the US to the relative ease of commercializing the same product in Australia. Product application in Australia is many years ahead of the US. Suffice it to say that health care companies wish that all countries could be like Australia.

Innovation through Analytics

Below is a guest post from Aroon Krishnan. Aroon has consulted for a variety of health care organizations on issues such as strategy and forecasting. He is currently a Director of Global Insights for J&J.

Levitra (GSK) launched (in 2005) as a third to market drug in the ED (Erectile Dysfunction) space ( Viagra launched in 1998 and Cialis in 2003). At its peak, Levitra had about 5% market share. The ED Market remains a duopoly with Cialis and Viagra each with about 45-48% share. Why didn’t Levitra ever reach the level of traction with patients and prescribers that Cialis and Viagra received?

Analyst and GSK expected the drug to be a revolutionary billion dollar drug.

Levitra was an “entry ticket” drug:

• It offered no significant clinical benefit over Cialis (Effects of Cialis lasted for 30 hours)
• It lasted longer than Viagra (5 hours vs. 4 hours)
• It was thought to have fewer side effects than Cialis or Viagra

In the eyes of the customer, these side effects were rarely significant enough to invoke a change in brand. The marginal benefit of Levitra to Viagra was undistinguishable to patients. Thus, Levitra lost the clinical battle and never achieved widespread adoption.

The lesson from this case study is that new products can fail when their less important benefits are emphasized to patients and physicians. These benefits fail to trigger an actionable response. Being able to distinguish which benefits matter and the level of improvement desired in these benefits is the greatest challenge drug / device companies face today. In essence, innovation must focus on identifying and delivering on the unmet needs in the marketplace.

Most current approaches used to identify innovation opportunities focus on current behavior. Unfortunately, catering to current behavior does not generate breakthrough products. The typical approach involves asking KOLs, sales reps, and marketing how to improve current offerings. The results are typically incremental improvements and rarely game changing products (i.e. Levitra). GSK must have felt that they had a great product that lasted an extra hour – unfortunately, the market didn’t see it that way.

Alternatively, KOLs, sales reps and marketing say that they want “everything” which creates the ubiquitous innovator’s dilemma.

So how has this process improved in the last 10 years? Analytic organizations in medical device and pharmaceutical companies are using rigorous analytics to understand the relative importance of a laundry list of benefits of a particular device/drug/product to their customers. They have developed new metrics for quantifying the level of unmet need of these product benefits. They have then performed rigorous quadrant analysis to provide R&D with the ‘components’ of a product that must be improved and the “game-changing potential” of that improvement.

In this example below for a new COPD product, R&D is clearly able to prioritize their focus based on product strategy. The upper left quadrant shows the bare minimum a product must deliver. If the strategy is to develop a game-changer: what they must improve in is clearly highlighted. Also, focus areas which are clearly not important to their customers are highlighted. Finally, R&D can focus on high value improvement and stay away from low ROI improvements.

Edwards Tiptoes into the Market

Edwards Lifesciences, a medical device manufacturer of trans-catheter heart valves, has traditionally been known for its innovative thinking and aggressive marketing. Edwards is set to receive FDA approval for Sapien, a trans-catheter aortic valve for patients with aortic valve disease. Sapien is the first aortic valve in the US market with Medtronic and several other medical device companies at least 1-2 years behind.

However, as these articles points out (1, 2), Edwards has decided not to aggressively enter the US market, the largest market for this product. Rather, Edwards is slowly onboarding key centers like Robert Wood Johnson. Conventional wisdom suggests that first-to-market players should capitalize on their early entry to the market but trying to capture as many customers as possible and trying to build loyalty early. So why then has Edwards chosen a conservative launch strategy for the US market?

Here are some potential reasons:

• The FDA has mandated a more careful roll out of Sapien.
• Assure early success of the device to convince skeptical physicians.
• Inadequate reimbursement
• Carefully select patients to reduce the risk of stroke, an adverse event associated with trans-catheter aortic valve implantations

The slower roll out will make patient access to TAVI more difficult in the US. However, the strategy may pay off in the long run as failed or improper implantations could lead to death and recalls. This would open the door for competitors like Medtronic to gain share.

All industries, but especially the medical device industry, have numerous examples of first-to-market players. Cordis, a J&J company, was first-to-market with stents but was forced to exit the market several years later due to heated competition.

Having worked on Medtronic’s trans-catheter pulmonary valve last summer, I will be eagerly watching the battle for the TAVI market.

Geron's Gambit

Three years ago, I decided to switch careers and enter the health care industry. It was around this time that I blogged about Geron receiving approval to begin a clinical trial to test its stem cell therapy for patients with spinal chord injuries. It was an exciting time for the Biotech industry and people like me who were entering it – stem cells, once pure science fiction, were about to become reality.

Then, in November 2011, Geron announced that it was jettisoning its stem cell business. Citing difficulty in recruiting patients into its trial and the general cost of its stem cell program, Geron decided to focus on its two cancer drugs: Imetelstat (telomerase inhibitor) and GRN1005 (LRP peptide-drug conjugate). This decision was certainly difficult for all Geron stakeholders: patients, employees, management, and investors. Geron was founded as a stem-cell company and emerged as the standard-bearer of this industry.

However, with limited cash and reluctant to frequently go to the equity markets to raise money, Geron (and its new CEO) decided to cut its losses and focus on its cancer drugs. When Geron made this announcement, its stock fell from $2.5 to $1.5 per share.

Clearly, the decision to abandon stem cell research was a difficult one. Geron gave up a potential blockbuster drug and monopoly in the spinal chord injury market. In addition, Geron laid off almost all its workforce related to the stem cell program. In fact, it may have even lost its CEO and CFO in this decision.

However, in recent months, the stock has crept back up to pre-announcement levels. I believe that Geron made the right decision. If running the stem cell program was bankrupting the company and preventing it from funding its promising cancer drugs, then the stem cell program needed to go. It is unfortunate that Geron lost a lot of great researchers in the process. I only hope that another company can pick up Geron’s trial where it left off; even if not, Geron has paved the way for other companies to enter the stem cell business. Geron was one of the first companies to work with the FDA on establishing protocols for stem cell trials.

And who knows, if Geron’s cancer drugs become blockbusters, Geron could get back into the stem cell game. It’s important to remember that Geron exited the stem cell business for financial reasons, not because of the ineffectiveness of its stem cell therapy.

The Future of Medicine

Welcome to Pivotal Trial, a blog that discusses various health care topics. Having written a few blogs on my own experiences (Rickety Rickshaw and Letter of Marque), I've decided to shed some light and express my opinion on current health care topics. I invite you to follow this blog and share your opinions in the comments section.

A few months ago, Steve Jobs passed away after a long and undesirably public battle with pancreatic cancer. Shortly after his death, a biography on Jobs written by Walter Isaacson was released. I read this amazing biography in a week. One of the most fascinating sections was a discussion of Jobs' life with pancreatic cancer. Although pancreatic cancer is one of the deadliest cancers, Jobs managed to live for 7 years with the disease before it ultimately killed him (2004 - 2011). Yet, the life expectancy of someone who is recently diagnosed with pancreatic cancer is only 5-8 months.

So how did Jobs manage to live so long with this fearsome cancer?

I believe the answer is the experimental approach that doctors used to treat his disease. In fact, Jobs may have beaten the disease completely had he not refused surgery during the first 9 months after its diagnosis. Jobs initially employed natural remedies to combat this cancer. While I am somewhat of a believer in the benefits of natural products, something as complicated as cancer needs the best that modern medicine has to offer. Eventually, after Jobs was convinced by his doctors and family to undergo surgery and mainstream treatment, his health improved dramatically.

Jobs was one of the few people to have his entire genome sequenced. Thus, doctors were able to select the right medicines to address his particular brand of cancer. Chemotherapeutics (drugs that kill cancer cells) are notorious for initially working against a cancer only to have the cancer 'adapt' to the drug and eventually build a tolerance to it. When this happens, doctors frantically (and randomly) try a cocktail of new chemotherapy drugs in the hopes that one or more of this drugs will hit. In the case of Jobs, doctors were able to hand pick the right drugs to address his cancer thanks to a complete understanding of his genome.

This form of treatment, a direct application of the widely touted 'personalized medicine' philosophy, is experimental and not available to the masses. A patient needs to be wealthy and have access to the best doctors who know what to do with this genetic information after it is discovered.

Personalized medicine comes in many forms: stem cells, gene therapy, etc. Seattle-based Dendreon (DNDN) applies personalized medicine by training the body's immune system to identify and kill prostate cancer cells. However, the company has fallen on hard times due to a key mistake in its business strategy - namely marketing their therapy for all prostate cancers instead of particular prostate cancers in which it is most effective. This mistake, combined with the outrageous price for the treatment, makes the data on therapy effectiveness vs. price look worse than it actually is. Thus, many oncologists have abandoned this otherwise excellent treatment.

Nevertheless, personalized medicine will live up to the hype and allow people to live longer and fuller lives. Start thinking about what you want to do in your 90s and 100s because with personalized medicine you just might get there.