Future of CV Innovation: The World is Flattening
Money drainIn a February testimony before the U.S. House Energy and Commerce Subcommittee on Health, Ross Jaffe, MD, spoke to the “frustrating paradox” in the state of medical device innovation in 21st century America. “Our understanding of human physiology and disease grows almost daily,” he said. “With the aging of the population and increasing pressure for healthcare reform, new and better technologies are critical to reduce the costs and improve the quality of healthcare. The potential for innovation in medical technology has never been greater.”
Yet, in his role as a venture capitalist (VC) with Versant Ventures, he is “forced to turn down investing in too many promising medical innovations—technologies that you and I would want access to in order to help our loved ones if they needed them—because it is difficult to predict how long and how much capital it will take to get a particular innovation approved by the FDA and into patient care.”
Jaffe isn’t the only investor getting cold feet in this market. In 2007, 116 early-stage medical device companies raised approximately $720 million in initial venture capital, according to the MoneyTree report by PriceWaterhouseCoopers and the National Venture Capital Association (NCVA), based on data from Thomson Reuters. In 2011, by contrast, 55 companies raised $200 million. Since that time, early-stage device companies have seen more than a 60 percent decline in initial venture capital investment and more than a 70 percent decline in the amount of capital invested—with only 55 new companies raising just under $200 million in 2011.
“Capital investment is an integral part of the process to provide better, innovative care to American patients,” says Peter J. Fitzgerald, MD, PhD, co-director of the Center for Research in Cardiovascular Interventions at Stanford University School of Medicine in Stanford, Calif.
“Progress in [medical] technology usually results less from individual genius and more from collective effort and social, political and economic forces that come together to create an ecosystem which fosters innovation,” adds Martin B. Leon, MD, director of the Center for Interventional Vascular Therapy at Columbia University Medical Center/New York-Presbyterian Hospital in New York City.
Specific to interventional cardiology, investors may in part be responding to a declining in the number of cardiovascular intervention procedures in the U.S., coupled by an increase sensitivity to costs, which results in decreased prices for approved devices, explains Leon.
This lack of funding for medical device innovation may create a chasm between scientific discovery and the doctor’s office. In other words, if investors stop doling out funds to smaller companies, there may be a dearth of new technologies available to treat U.S. cardiac patients, and thus, the country may fall behind in providing the best possible care for an aging population.
Most experts agree alterations to the current regulatory process are the only way to halt this downward trend in investment.
Regulatory barriersAmong all the impediments to progress in cardiovascular medical innovation, Leon says “the highest on the list would be the regulatory speed bumps and hurdles that delay approval and create a disincentive for industry to become involved either at early or even late stage.”
The FDA, unlike most regulatory agencies in the world, is under a congressional mandate to ensure approved drugs and devices demonstrate clinically significant efficacy, in addition to safety where the probable benefits outweigh the probable risks. To gain approval in the European Union, devices simply need to prove they are safe. “In Europe, devices do not need to demonstrate that they clinically help a patient,” says William H. Maisel, MD, MPH, chief scientist and deputy center director for science at the FDA’s Center for Devices and Radiological Health. The added requirement prolongs approval in the U.S.
For example, in late 2011, the U.S. became the 43rd country in the world to approve the Sapien heart valve (Edwards Lifesciences) for transcatheter aortic valve replacement procedures for inoperable patients with severe aortic stenosis, which Leon defined as “a very restricted indication.”
However, defenders of the FDA policy, such as editorialists in a recent New England Journal of Medicine perspective, noted that “differences in timing are related to the need in the U.S. to conduct clinical trials for high-risk devices. Although EU patients may have earlier access to some devices, they also face the risk that subsequent studies will show no benefit to the new device or reveal important harms from adverse events that did not emerge from the premarket review” (2012;366:848-855).
Likewise, a March Consumers Reports’ poll found that 82 percent of Americans believe that preventing safety problems is more important than limiting safety testing to prevent delays.
As a result, medical device startups, which have been a hotbed of angel and VC investments, are now struggling to find financial backing. “Because investors don’t have a clear goal post for the return on investment—which has been impaired by the inconsistencies in the regulatory arena—they are moving to other spaces,” says Fred Khosravi, MS, co-founder and managing partner at Incept, a health sciences and medical development firm. Traditionally, the U.S. has been the leader in medical device innovation, but “we may be losing that distinction,” he says.
Also, this new ecosystem allows larger medical device companies to take advantage of the VC reticence and invest in early-stage medical device start-ups, Khosravi says. “Small start-ups still represent a large chunk of U.S. innovation, because they often exist in an entrepreneurial milieu with a singular mission of executing on a specific innovation, so they have a better shot at executing more efficiently than larger companies with more diversified product portfolios.”
A 2012 NVCA survey of 156 firms verifies his observations. Forty-two percent of healthcare investors were decreasing their funding to medical device companies because of the increased time to regulatory approval, while 61 percent of respondents noted that regulatory challenges with the FDA were the primary factor driving their investment decisions. The survey respondents accounted for $10 billion of VC investment in healthcare firms from 2008 to 2010.
“It’s hard to throw money at time constraints that have a burn rate per month to an unpredictable endpoint,” says Fitzgerald, who has consulted with the FDA for 15 years and commends the agency’s discipline.
One of the concerns is the amount of time that it takes to bring a new device to market. For instance, 510(k) applications took three months to be brought to clearance/approval between 2003 and 2007, and that timeline is now 45 percent longer at five months in 2010, according to Leon. Also, the premarket application (PMA) timelines have increased 100 percent in the same time span—from 15 months to 30 months.
During a TCT.11 presentation, Leon explained that it costs $31 million on average to bring a 510(k) product from concept through clearance, with $24 million spent on FDA-dependent or related aspects. Also, it costs $94 million on average to bring a PMA product from concept through approval, with $75 million spent on FDA-dependent or related aspects. None of these costs include reimbursement approval or sales/marketing costs.
How does this impact cardiovascular devices, specifically? Cypher (Cordis, a Johnson & Johnson company), which was the first drug-eluting stent to be approved by the FDA in 2003, took 1.2 years to come to market, while the Endeavor Resolute (Medtronic) took five years to come to market in 2008. TAVR took six years to get approved for U.S. patients with severe aortic stenosis.
Also, Leon estimates that the investment burden to bring balloons to U.S. cardiovascular patients totaled approximately $100,000 in the 1980s, bare-metal stents totaled about $10 million in 1990s and drug-eluting stents totaled approximately $500 million in the 2000s. Based on the rising costs, he predicts it may total approximately $1 billion to bring bioabsorbable stents to the U.S. market.
FDA attempts makeoverDue to the concerns from industry and caregivers, the FDA has been “actively engaging key stakeholders” through numerous town hall meetings over the past two years, says Maisel.
“We have met with early startup companies, medical device innovators and the VC committee to understand better their perspective, what they are working for and how they go about making their decisions,” Maisel adds. “One of the challenges clearly relates to the importance of early clinical trials for medical devices. They need to have the capability to investigate the devices early in their product development.”
Recognizing the challenges, in November 2011, the FDA produced draft guidance documents on early feasibility and first-in-human studies, and issued a guidance document on investigational device exemptions. The agency also started the ongoing Early Feasibility Pilot Program.
With these draft guidance documents, two major changes have occurred. First, for early feasibility studies (including some first-in-human studies), the FDA may approve an IDE based on less nonclinical data than expected for a larger study that is evaluating a more mature technology. Second, the Early Feasibility Study guidance outlines new policies to facilitate a greater number of device iterations during the early trials. “When you talk to entrepreneurs, investigators and device engineers, those first device implants are incredibly informative and that allows them to modify their device early on,” explains Maisel. “These guidance documents are the parameters by which devices could be modified without having to come back to the FDA for approval with each device modification.”
Now that trial sponsors are able to modify devices in a timely fashion within an ongoing early feasibility study, “we would hope to reduce the time needed to arrive at a finalized device design that can then be evaluated in larger number of patients, ultimately resulting in a shorter total duration of regulatory review and approval,” says Andrew Farb, MD, medical officer and senior reviewer at the Office of Device Evaluation at the FDA's Division of Cardiovascular Devices.
“While we are trying to promote early clinical use of devices through these measures,” Maisel acknowledges that conducting a small study in the U.S. is more costly than in Europe, which he attributes partly to “the negotiations and contracts that have to be put in place with individual research organizations or academic medical centers.”
Regarding the first-in-human option, Fitzgerald says that this may be “an ill-advised approach” because lawyers at U.S. hospitals fear litigation that could arise from conducting these procedures. In addition to the legal concerns, he says that conducting first-in-human studies in the U.S. is three times more expensive than in other countries. Thus, he recommends that the FDA accept those data from other countries with state-of-the-art medical facilities, such as Brazil, Taiwan and South Korea.
Leon concurs that the U.S. regulatory agency should adopt a more global strategy. “Right now, the FDA allows international studies to be the basis for device approval, but it’s not widely embraced and there are opportunities to create a more global environment to assist with device approval.”
Fitzgerald takes the point one step further. “The world is flat; it is truly global with respect to innovation. To foster this, we should ensure international CROs [clinical research organizations] are up to a standard that the FDA accepts, while also conducting thorough post-marketing studies in the U.S. Therefore, we are not decreasing the threshold on the front end; we are broadening the footprint for the whole process, which will ultimately bring technology to market that’s not only safer but more efficacious for patients. We need to use more eclectic, geographically diverse data to obtain approvals.”
Yet, there is a limit to what the FDA can do under its current restraints, as Leon suggests, the agency is overworked, understaffed and under tremendous political pressure.
In terms of garnering capital, it is not just the length of time to bring a device to market that is scaring off investors; it is also the uncertainty surrounding reimbursement. However, the FDA cannot consider cost or cost-effectiveness, says Farb, because “we are congressionally mandated to scientifically evaluate products and assess whether those products hold benefits for patients.”
Although reimbursement is outside of the agency’s purview, the FDA has begun reaching out to the Centers for Medicare & Medicaid Services (CMS) to directly communicate the importance of a particular device, “just so there is no confusion on the part of those making reimbursement decisions,” explains Maisel.
Also, the FDA and CMS recently have created a pilot program, where their separate review processes can be conducted in parallel rather than in sequence. “This voluntary program allows companies to get earlier feedback from CMS during the pre-market stage to streamline regulatory review by both agencies,” says Farb.
Finally, Maisel touts the new Innovation Pathway, created in collaboration with medical device entrepreneurs, as “a sort of test bed for product evaluation to try new approaches.” Through all these efforts, the FDA “has been actively working with the device community in an attempt to develop new models and new methods for evaluating products,” he points out.
Khosravi and others are working with the FDA and the White House on these considerations. He is optimistic that these efforts are going to foster greater innovation in the startup space, but admits “we haven’t seen the impact yet.”
Fitzgerald, on the other hand, has witnessed more progress of late, stating that three recent 510(k) applications on which he’s been involved over a three-month span have cleared “flawlessly.”
While Jaff acknowledged these recent FDA strides in his House testimony, he concluded by saying, “If the U.S. is to maintain our global leadership in medical technology innovation and our patients are to have timely access to the safest and most effective therapies available, Congress, FDA, industry and the medical community must work together on meaningful reforms to restore predictability, reasonableness and transparency to the premarket review process.”
Better overseas?Regulatory changes aren’t having the intended impact quickly enough, as the U.S. cardiovascular innovation market has already taken a hit. Given the more lax regulatory environment overseas, the market drain may be impacting the U.S. most severely. Case in point, the NVCA survey found that 31 percent of VCs expected to decrease healthcare investment in the U.S., while 44 and 36 percent expected to increase investments in Asia and Europe, respectively.
In 2000, approximately 50 percent of all CV interventional dollars were spent in the U.S., explains Leon. By 2007, that number was estimated to be 34 percent, and by 2016, it is expected to be 25 percent. “When only one in four interventional dollars is revenue produced in the U.S., then that becomes a very significant disincentive for industry to focus entirely on the U.S. market. Many industry strategies have become global, particularly because of quicker regulatory pathways and more robust reimbursement.”
Khosravi says the governmental attitude is different outside the U.S., as a number of countries such as Israel and Singapore see medical device opportunities as a growth area. These countries continue to put incentives in place for innovative U.S. startups to re-establish themselves outside of the U.S. (OUS).
Once these companies invest heavily and create the infrastructure to position themselves with a dominant OUS strategy, the likelihood is that the pendulum won’t swing back, Leon adds.
What will this mean for U.S. cardiovascular patients? Fitzgerald admits that he’s already sending many of his CV patients to France for procedures that aren’t available in the U.S. Leon adds, “It is a complete reversal of what we witnessed a decade ago. U.S. patients will travel outside the U.S. to receive better medical care.”
These sentiments bring to reality Thomas L. Friedman’s words from the 2010 New York Times column, titled Do Believe the Hype: “What if —for all the hype about China, India and globalization—they’re actually underhyped? What if these sleeping giants are just finishing a 20-year process of getting the basis technological and educational infrastructure in place to become innovation hubs and that we haven’t seen anything yet?”
However, Leon and Fitzgerald don’t see this as a reason to panic; instead it presents an opportunity for the U.S. medical establishment to adapt and evolve.
Embrace the evolution“Accept the fact that the innovation ecosystem in the U.S. has changed forever, and embrace a more ‘adapt and evolve’ strategic approach,” Leon said during TCT.11. “The physician scientist community must reorganize emphasizing multidisciplinary (nonterritorial) activities, better communication and increased society leadership, recognizing that sometimes, the enemy is us.”
The challenges lies in the ability for physician researchers to accept these changes. “The responsibility lies with thought leaders in life sciences, as well as the regulatory agencies and the government. We have to go on and create,” says Fitzgerald, who is working with a large CRO in Shanghai. The CRO’s data collection capabilities are superior to methods used in the U.S., he says.
“Here is a discipline that’s evolving with innovation outside the U.S., which could help collect data in a very favorable way for the FDA,” he says. “I always inform the FDA when conducting an OUS trial. When the agency begins to engage and comment on what we should be collecting, the whole process suddenly gets better. Come to the FDA early and come to them often with international clinical work.”
Due to extensive experience with large-scale clinical trials conducted in the U.S., American researchers can serve as educators for their international peers, while also being exposed to new methods of care. “Most other nations still lack crucial elements of the innovation ecosystem, such as cultures of entrepreneurialism and commercialization, coherent reimbursement systems, intellectual property protection, trained management or a comprehensive network of reliable suppliers and distributors,” says Leon.
While U.S. investment dollars are “admittedly scarce,” Khosravi says that American innovators haven’t stopped producing new technologies to treat patients, and he sees great potential in early-stage devices for the cardiovascular, neurovascular and oncology spaces. “Eighty percent of medical device startups have fewer than 50 employees, and that engine of innovation will continue to grow the industry,” he adds.
More specifically, promising areas for growth in interventional cardiology include interventional hypertension devices (expected to grow to $9 billion global market by 2020), adult congenital closure devices (expected to grow to $6 billion global market by 2020), left atrial appendage occlusion devices (expected to grow to $6 billion global market by 2020) and transcatheter mitral valve devices (expected to grow to $4 billion global market by 2020). These statistics were reported at TCT.11.
From the startup perspective, Khosravi continues to see entrepreneurs innovating in the U.S. “Innovators are adjusting to these challenges; the ecosystem is readjusting itself a little bit. We have a new class of better, more robust entrepreneurs that are growing out of this environment. The culture of U.S. innovation will continue.”
|MT Meets IT|
The next wave of innovation is MT (medical technology) meets IT, specifically driven by the technological opportunity with smartphones and the push toward prevention.
For example, smartphones are now approved to obtain an ECG through a person’s clothes. Fitzgerald says that companies like Apple, Qualcomm, Intel and Google are investing in IT to manage information for the three Ps: payers, providers and physicians.
“We are going to see an explosion of MT meets IT, not just related to medical records, but related to communication from insurance companies to employees. Employers are going to be the next spokes of innovation,” says Fitzgerald. “Preventive care will be facilitated through early communication and the use of handheld communication devices in a provocative way to prevent hospitalizations, prevent inpatient complications, and most importantly, to decrease the current 26 percent rate of rehospitalization for Medicare patients after 30 days.”
Of course, once a smartphone or an application (app) of that phone becomes a medical device, the FDA is mandated to regulate them. “There are some mHealth products that do meet the definition of a medical device, such as an app that serves as a glucose meter,” says William H. Maisel, MD, MPH, chief scientist and deputy center director for science at the FDA’s Center for Devices and Radiological Health. “That being said, we are trying to be very rational and strategic in the areas.”
The FDA's draft guidance states it will only regulate mobile apps that turn smartphones into medical devices, but will not regulate the smartphone itself. “We recognize how important innovation is in these areas, and we are focusing on those areas that have significant implications for patient safety,” Maisel says.
The market is responding, as the global mHealth app market is expected to grow from $230 million in 2010 to $392 million in 2015, reports market research firm Frost & Sullivan.
“The cost to develop some of these MT meets IT solutions is significantly less than a heart valve, for example,” says Fitzgerald. “In the U.S., it’s not going to be plugging holes with devices once you have the disease, it’s going to be avoiding the conditions ahead of time through IT methods.”