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Health Economics/Outcomes

Mitraclip – an Overnight Success 20 Years in the Making

This morning’s New York Times article on the astonishingly successful MitraClip trial results, read at 4:30am before my flight to The MedTech Conference, sent me digging for some history. Hadn’t we been talking to cardiologists about MitraClip for years? I recalled clinicians telling us how challenging it is to place correctly. Why the news now? Wait, didn’t Abbott acquire that technology ages ago?

To save you some work, here’s the whole timeline (VC-backed friends, you may want to stop reading at this point):

  • 1999: Evalve (inventor of MitraClip) founded

  • 2008: MitraClip receives CE Mark  - “first commercially available device which enables a non-surgical option for patients suffering from the effects of mitral regurgitation (MR).” Also in 2008 – MitraClip receives priority FDA review because there are few options for patients with degenerative mitral regurgitation (MR) who can’t withstand surgery.

  • 2009: Evalve acquired by Abbott for $410 million – this deal was one of four in 2009/10 of pre-IDE structural heart companies, two purchased by Medtronic (CoreValve for $825M, Ventor for $325M), and one by Boston (Sadra for $386M). It was a heady time for structural heart deals.

  • 2012: COAPT trial initiated - randomized, open label, 610 patient efficacy trial in symptomatic heart failure patients to measure 2 year impact on mortality, hospitalizations and quality of life in patients with moderate-severe functional MR (60-80% of MR patients).

  • 2013: First FDA PMA approval for MitraClip with a limited indication to the non-surgical candidates, based on a mixed bag of trials and results.

  • July 2018 – FDA approval of next gen MitraClip device that makes it easier to precisely place and use in difficult anatomies; other issues are also addressed

  • August 2018 – French trial MITRA-FR failed to show efficacy in severe functional MR patients. Not great for Abbott (this was supposed to be for reimbursement in France).

  • September 2018: Surprise! COAPT’s fabulous results presented at TCT. Trial was larger than MITRA-FR, patients were less sick, and endpoints were different. In COAPT, clinicians had to actually demonstrate their skill in inserting MitraClip (for MITRA-FR they had to have performed 5 prior procedures).

S2N’s take – what we can learn from the MitraClip journey is that can take a long time from invention to broad commercial adoption, especially for novel therapeutic devices. Factors that contribute to the 20-year, overnight success scenario:

  • The first generation of any complex product is likely to be kludgy; in med tech there is often a push to get “something” on market asap, mainly because we can (e.g. in Europe). While this is a great opportunity to learn with real-world use, be prepared to iterate the technology based on this critical feedback

  • Early users of a new device often “niche” it because they want to minimize safety risk and get comfortable with how and where to deploy it, especially when there are alternative clinical approaches. As in the MitraClip case, the FDA may also restrict labeling based on the population studied and trial results.

  • These new devices are expensive (MitraClip is ~$30K), and usually require new reimbursement codes. Payers can more or less demand as much data as they want before agreeing to cover a new technology.

  • Trials don’t always work out the way we planned, and many factors can contribute to the failure of a trial. Abbott learned along the way and adapted patient selection, endpoints and operator training. With more upfront work and modeling, some of these risks might be mitigated sooner.

On a positive note, analysts are now super bullish about MitraClip taking off based on the COAPT data, and the market opportunity with expanded labeling and use in heart failure will be well into the US$ billions. If the technology helps keep heart failure patients out of the hospital, the one-time $30K price tag could seem like a bargain, especially when compared to any number of drug therapies.

Why the Pursuit of Value in Health Care is Important – Especially for Innovators

Why the Pursuit of Value in Health Care is Important – Especially for Innovators

A change in the US leadership, especially one as significant as we will experience this month, naturally generates uncertainty about the future of health care policy and finance.  A few things are certain, though (and this is not fake news):

·      The US devotes nearly 18% of its GDP to healthcare, spending >$9,000 per capitamore than any other country in the world

·      US healthcare costs are expected to grow another 6.5% next year, far outpacing inflation, and these cost increases will hit providers, insurers, and consumers

·      By pretty much any metric (except cancer survival), the US is the least healthy of the major developed countries, despite spending so much of our money on health care

This economic predicament has energized a drive toward value-based vs. volume-based payment for health care, led by the US government, which carries ~42% of US health care costs, mostly through Medicare. Other healthcare stakeholders such as commercial insurers, hospital systems, and patient advocacy groups also support value-based payment in the hopes of improving quality while containing costs.  Medical device companies have certainly gotten the value imperative memo from their health system customers, who are increasingly on the hook for delivering outcomes and at risk of losing revenue if they don’t. In medical technology purchase decisions, Value Analysis Committees have been gaining power over physician preferences for several years now, helped by the rapid growth of employed physician models

It seems like simple logic to allocate more resources to services, products, and providers that deliver the most bang for the health care buck, right?  Unfortunately, value-based healthcare is not simple at all. There are three big, highly complex questions that must be answered to build a system that rewards outcomes vs. activities:

1.     What does value mean?

2.     How is value assessed?

3.     Who determines value?

What Value Means

The business guru Michael Porter defines value in health care simply as “outcomes achieved per dollar spent.”  Outcomes can mean many different things, though.  Historically, the gold standard measurement of outcomes was survival – whether the patient lived or died, and how long they lived.  Even in the context of terminal illness, though, the definition of outcomes has expanded to include more consumer-oriented metrics such as quality of life and patient satisfaction, and to factor these metrics into CMS reimbursement calculations. We recently spoke with an administrator of a large academic health system who described the ideal measure of healthcare value as “Appropriateness*(Quality + Patient Experience)/Cost” to contextualize the cost-benefit equation for each patient's situation. For example, the surgical approach to hip fracture might be different in a relatively younger, active patient vs. an older, more frail one if remaining life span, ability to rehab and functional goals are taken into account. For medical device innovators, the need to demonstrate not just performance but also value raises the bar overall, but the broader definition of value also presents opportunities to make a case beyond traditional clinical outcomes.

How Value is Assessed

In order to know which technologies and services deliver value, and how much value they deliver, there has to be a clear understanding of both the cost and benefits during some measurable period of time. Historically, purchasers and payers of innovative medical devices have relied on randomized, controlled trials and published studies for evidence of clinical and health economic impact, particularly when the new technology comes with a high price tag. With the definition of value expanding both in terms of metrics and timeframe, new approaches to assessing “real world” value are emerging. Electronic health records, combined with the integration of provider networks, are enabling more sophisticated and powered evaluation of clinical and economic benefits of health interventions in actual patients. The cleverer med tech innovators are taking advantage of these new data collection possibilities and are collaborating with health systems in novel risk-sharing arrangements to build evidence of a positive cost-benefit balance.

Who Determines Value

In the good old days of health care, the main arbiter of value for a health care product or service was the physician.  Patients listened, hospitals complied (and made money, too), and payers paid. When health care expenditures inevitably spiraled out of control, the value decision shifted to payers under the banner of managed care, assisted by gatekeeper primary care physicians who were supposed to control access to expensive specialists, advanced diagnostics, and procedures. Now hospitals and health systems are being drawn into the value determination as they take increasing financial risk for patients in and outside of the hospital, such as under CMS’s Comprehensive Joint Replacement bundled reimbursement model. Even though access to data for basing these decisions has improved, there are still huge gaps and silos, and few areas of consensus on what constitutes the best care. Hospitals are grappling with these decisions to stay solvent while balancing the competitive demands of the marketplace for patients and providers seeking all the latest and greatest technology.  Medical technology innovators are learning how to partner with health systems to create solutions that help hospitals manage their payment risks and keep their customers happy, too.

The message to our new US government leadership is this: We haven’t yet cracked the code on this value-based health care thing, but we are finally asking the right questions. As the biggest funder of health care, and therefore the keeper of the most comprehensive data set on health care spending and outcomes in the country, please continue to support data collection and access so we can advance our understanding of value and make informed choices as insurers, providers, and consumers (all of us taxpayers, too). And while I have your attention, some more funding for early stage medical technology innovation would be nice, too…  

A Consumer’s Perspective on Medical Devices: Why We Need Each Other

A Consumer’s Perspective on Medical Devices: Why We Need Each Other

Recently, S2N mentored some med tech start-ups preparing for competitions, helping them refine their pitches before taking the podium (and doing our part for the innovation ecosystem). Among this crop of companies, several have technologies with “high consumer touch,” meaning that consumers are the primary users of the devices for self-care or dependent care. At the same time, though, these entrepreneurs seemed to shy away from directly engaging consumers, instead preferring to rely on physician marketing channels, at least initially, as the safer, less costly bet. 

Certainly, for the vast majority of FDA-regulated devices, clinicians have a firm place along the pathway to revenue – for establishing credibility, generating data, and ultimately writing a prescription, although this landscape is changing. With the device-consumer relationship becoming ever more intimate, practically and financially, our industry is slowly getting religion on the need for direct consumer engagement, and not just in the traditional sense of stimulating demand (e.g. “ask your doctor” campaigns). 

There are several reasons why device companies need to establish direct relationships with the end-users of their technologies. To articulate these consumer imperatives, we spoke with a woman (let’s call her Kate since that’s her name) who has bilateral cochlear implants. Kate and her cochlear implants help demonstrate the power of, and need for, direct consumer engagement:

  • Consumers Increasingly Control Purchase Decisions: A perfect storm of increased patient cost-sharing and access to information is requiring consumers to be front and center in any medical device marketing strategy.

I chose my implant brand based on the company’s customer service. It remains very impressive more than 15 years after my initial decision. For someone with a cochlear implant, downtime can be devastating. A breakdown for a month or two means that people lose speech, not to mention their ability to go to work or school and participate in everyday social interactions.” - Kate

  • Patients Eventually Need Other Stuff: A lot of patients with long-term medical devices go on to need other devices or ancillary services. Kate started with one cochlear implant and then received a second one several years later, choosing to go with the same brand. Companies are now offering a variety of self-pay accessories to their patients, such as waterproof cases that allow recipients to keep their cochlear implant processors on while they swim as well as assistive listening devices, and Kate’s implant company would like her to buy these things from them.

Recently the company emailed me to invite me to a user’s group for patients to talk and ask questions. I was pleasantly surprised. At the user’s group, they told us about their assistive listening devices which could be really helpful to me.” - Kate

  • Patient Communities Foster Clinical Success: Demonstrating the benefit of a medical technology often relies on consumers doing their part, whether simply using a device correctly or creating the conditions for successful outcomes (e.g. engaging in rehab following total joint replacement). The responsibility landing on patients’ shoulders can be substantial, and they need support to stick with the plan. Kate, for example, has joined Facebook groups to connect with other cochlear implant users.

“These communities are especially helpful to less tech savvy people, maybe older people, who are managing their devices, but it’s also really nice to be able to connect and share ideas with others who know the experience first hand. It’s fine if these forums are created by the device companies, as long as they aren’t too commercialized. It’s important that people can express their thoughts openly. Mostly the Facebook pages are positive – people are grateful to be able to hear.” - Kate

Not all of Kate’s experiences with her cochlear implant company have been positive, though.  Ironically, the company initially declined her request for CART (Communication Access Realtime Translation) at the users' group meeting; CART is a very helpful accommodation for people with hearing impairments trying to listen and understand in a large group setting. With this experience in mind, Kate has a suggestion for medical device companies:

“It was obvious to me that the very company making my cochlear implants was pretty clueless about the needs of the community they intend to serve. I would encourage companies to hire people who use their devices, if possible.  There is no one better than an actual user to provide real feedback and answer customer questions!” - Kate

Abbott + St. Jude: What Does it Mean for Med Tech Innovators?

Abbott + St. Jude: What Does it Mean for Med Tech Innovators?

We awoke yesterday to news of yet another med tech mega-merger, with acquisitive Abbott ponying up $25B for St. Jude Medical, even before the ink is dry on Abbott’s $6B takeover of Alere (though that deal may be on the rocks). Fair to say that consolidation in med tech is firmly a trend, with this deal following a string of other big fat $1B+ global weddings:

Deal Area Deal Value Year
Medtronic+Covidien Various $50B 2015
Abbott+St. Jude Cardiovascular $25B 2016
Zimmer+Biomet Orthopedics $13B 2014
BD+CareFusion Patient Care $12.2B 2014
St. Jude+Thoratec Cardiovascular $3.4B 2015
Wright-Tournier Orthopedics $3.3B 2014
Stryker+Sage Products Patient Care $2.8B 2016
Hill-Rom+Welch Allyn Patient Care $2.0B 2015
Cardinal+Cordis (JNJ) Cardiovascular $1.9B 2015
Smith & Nephew+Arthrocare Orthopedics $1.7B 2014
Boston Scientific+AMS Urology $1.6B 2015

The rationale behind these mergers is well understood; med tech is under intense price pressure from health system all over the world, and increased scale helps both the sides of these companies’ ledgers by lowering operating costs and enhancing negotiation leverage with customers.  Then of course there are other incentives like tax inversions, though that window may be closing (see failed “Pfizergan” deal). 

In the press releases announcing these deals, there is often lip service paid to the positive impact on innovation, the story being that greater scale and efficiencies equal more money to spend on internally and externally developed new technologies. "The combined business will have a powerful pipeline ready to deliver next-generation medical technologies,” says Abbott CEO Miles White.  Omar Ishrak, Medtronic’s CEO, made a similar statement back in 2014: "Medtronic has consistently been the leading innovator and investor in U.S. medtech, and this combination will allow us to accelerate those investments.”

It is too soon to evaluate Medtronic’s follow-through on this promise; they have made a few notable early stage investments since the Covidien acquisition including Lazarus EffectTwelve and Medina Medical. The legitimate concern of emerging med tech executives, though, is the loss of one more potential acquirer out there, which lessens the chance of an earlier and/or richer competitive deal, and therefore makes the fundraising road even rougher than it already is.  In addition, these big acquisitions tend to distract organizations and slow down active discussions for several months or longer as a result of personnel changes, shifting business development strategies, and general chaos. 

While a good number of the large M&A deals have been concentrated in the cardiovascular and orthopedic segments, which have been plagued by large, heavily mature product categories, we should expect to see more consolidation generally given the forces at work in the healthcare market.  Looking across the industry, the number of now seemingly small-ish $1B+ revenue companies is striking (see below chart). In an “eat or be eaten” world, these smaller market players may be hungry for deals to enhance their own valuations; emerging med tech companies should consider casting a wider net in the search for strategic partners.  Ultimately, the established medical device companies cannot merge and synergize their way to top line growth, and will continue to look externally for innovation. 

*Most recent annual filings  Sources: company financial filings,  MDDI Top 100 Medical Device Companies of 2015

*Most recent annual filings

Sources: company financial filings, MDDI Top 100 Medical Device Companies of 2015

 

The Drug Pricing Backlash – Should Med Tech Pay Attention?

The Drug Pricing Backlash – Should Med Tech Pay Attention?

Admittedly, the biotech boom of the past few years has left some of us in med tech feeling a bit inferior, maybe even jealous.  Those huge funding rounds, heady IPOs and rich pre-revenue M&A deals can be hard to swallow, especially when investors keep asking you why you can’t be more biotech-y.  Even though the Turing Pharmaceuticals debacle tarnished all healthcare stocks a bit, it's hard not to feel a little Schadenfreude for the high-flying biotech sector.  Maybe now cooler heads will prevail and med tech won’t look so dismal by comparison.

In mulling the actual substance of the Turing debacle, though, it would be unwise for med tech to believe itself immune to pharma's recent pricing struggles.  The Turing CEO made a very logical business move based on supply and demand for a niche drug - a decision any of us might have made given the apparent facts on the ground.  What Shkreli greatly misjudged was the power of the consumer and, in this situation, the energized AIDS advocates that represent them.  In retrospect, this response should have been foreseen by Shkreli, given that these same activists have pressured big Pharma before and won.  Which raises the question - how well do any of us in med tech really know the end-consumer of our devices and understand their points of pain, financial or otherwise?  We spend so much time, effort and money courting doctors, hospitals and payers that we, too, may have major blind spots for our patient customers and what we might do to send them grabbing for torches and pitchforks.

This elevated position of healthcare consumers should come as no surprise; the myriad micro changes to US healthcare financing have given rise to a macro trend of healthcare consumers asserting their influence in purchase decisions.  Patients are being asked to pay more out of pocket for all but a handful of preventative services, and the many earnest efforts to induce consumer rationality are resulting in unprecedented public availability of data about the cost, quality and benefits of prescribed care.  Add viral media to the mix, and you've got all the basic ingredients for a consumer flash mob in the face of perceived price gouging.

This populist force, now an official “thing” thanks to copays, deductibles, data, and Shkreli, could well be unleashed on the med tech industry, but may take a different form. The pressure is largely hitting our hospital and physician intermediaries, who are under increasing scrutiny for over-charging and over-providing care to the detriment of patients' pocketbooks. Websites such as New Choice Health and Castlight Health are arming consumers to comparison shop procedures and save on out-of-pocket expenses, and consumers advocates are advising their constituents to question the need for certain healthcare services (check out AARP’s advice on “10 Medical Tests to Avoid”). You can bet that these trends are driving tougher price negotiations between hospital purchasing and med tech companies.  

Increasing consumer engagement in healthcare purchase decisions also creates new opportunities for medical devices that perform comparable functions at a lower price.  AliveCor has gained traction with its smartphone ECG device by pricing it to compete with the cost of copays for traditional ambulatory cardiac monitoring.  Companies like NovaSom have transitioned sleep apnea testing to the home, saving payers money and sparing consumers large copays and a night in a strange bed.  Telemedicine and apps have the potential to displace expensive skilled providers and office visits by enabling patient self-directed care in areas such physical therapy and mental health counseling.

It is within the device industry's power to be part of the solution for cash-strapped healthcare consumers, and in our own long-term interest to do so. A successful, consumer-oriented strategy requires that we know our customers, collaborate with our intermediaries to encourage good business practices, and pursue new technologies that enable lower cost care alternatives. In the short term there may be disruption, but the white-hot spotlight of public shaming is pretty disruptive, too.

IPO or Bust for Emerging Med Techs

IPO or Bust for Emerging Med Techs

The recent receptivity of public equity markets to early stage biotech has encouraged more than a few emerging med tech companies to consider IPOs. The allure of the IPO, if successful, is obvious. More capital can potentially be raised on better terms from public investors than private ones to fund expensive commercialization efforts. More to the point, though, tired venture investors and management teams can achieve liquidity and returns sooner than waiting for an attractive M&A exit, which in med tech may require years of slogging it out on market for a multiple of sales deal.

A glance at the five emerging med tech companies to go public in the last 6 months reveals reasonable success in raising money with their dazzling stories of large and growing market opportunities. Notably, all of the companies have a product on the US market, or within sniffing distance of it; contrast this with biotech where promising pipelines alone can drive successful IPOs and high market caps. Also notable is that fundraising expectations were a bit more bullish than the IPO market reality, with all five companies pricing below or at the low end of their target ranges.

If tapping the public markets is something you are considering for that next round of capital, certainly the first step is determining whether public investors are likely to come to the table. Do you have, or are you close to, US revenues? Check. Is your product chasing large markets with big growth potential? Check. Are your VC investors tired and cranky? Check!

An IPO, however, is not just about the day you get listed on the NASDAQ and pocket the cash. As a wise sage told me when I was pregnant with my first child, “Don’t worry about childbirth, worry about everything that comes after.” To gain some perspective on life as a public emerging medical device company, I spoke with Nassib Chamoun, former President, CEO and Founder of Aspect Medical Systems (ASPM), a brain monitoring company that went public in 2000, raising $52M in the IPO that funded the company to >$100M in sales, profitability and acquisition by Covidien in 2009.

According to Nassib, being a public med tech company has certain advantages. “You are a somewhat more legitimate entity, especially when dealing with corporate partners,” says Nassib. Having that ticker next to your company name also raises your prestige with current and potential employees (I’m nominating T2 for the cutest ticker of 2014, by the way). Nassib also recalls fondly many of his interactions with sell-side and buy-side analysts. “They were like an outside Board – I often got more from them than they got from me.”

The leadership of the IPO-ing emerging med tech company needs to prepare for some of new unique challenges, though, that come with being a publicly traded entity. Here are a few you can expect to encounter:

1. The distraction factor: As we all know, being a CXO of a start-up med tech company equates to two full time jobs at a minimum. Add an IPO to the mix and you are now 300% employed. This burden repeats itself, albeit on a smaller scale, at least every quarter once you are public. Employee fixation on the company share price also adds to the distraction factor, especially when there are big swings (a common situation for emerging med techs – see point 4).

2. The cost: According to a PWC survey, in addition to underwriting fees paid to the bank(s) taking you public, which can total as much as 5-7% of gross proceeds, companies spend an average of ~$1 million on IPO-related legal, accounting and other one-time costs, and ~$1.5M in annual recurring costs for extra staffing, legal, HR, technology and the like. These sums may not seem like much for larger companies, but for small med techs these additional expenses can have a real impact.

3. The Full Monty every quarter: If you ever listen to a JNJ earnings call, you soon realize that you are learning absolutely nothing. Contrast that with the single product med tech company, where basically every aspect of your business, from your COGS to your installed base to your clinical trial progress, is discussed in intimate detail for the analysts plugging assumptions into their 1,000 line models so they can decide what box to put you in. You might as well send your competitors and every employee in your company your weekly management report. “One of our early competitors was also public and we knew everything about each other – it was a running joke,” said Nassib.

4. The rollercoaster ride: Most public emerging med techs are thinly traded, which makes dramatic share price swings more likely. These swings may have little to do with your company’s results, though plenty of unanticipated things happen in early commercialization that can affect your share price. “The highs are higher and the low are lower,” recalls Nassib. “The volatility brought our organization closer together as we celebrated the successes and managed through the failures.” Small public companies are also more vulnerable to activist investors since it is easier to acquire a controlling share. “You can be forced to liquidate and give up significant future value for much smaller short-term gains,” warned Nassib.

When I asked Nassib about Aspect’s decision to IPO, he emphasized that going public is rarely a choice. “With the amount of money and time required to develop and commercialize a novel medical device, you exhaust your angels, your VCs, your Mezzanine investors, and you still aren’t done. The exhausted investors, and employees, want some liquidity, and an IPO becomes your only option.” If it had been a choice, Aspect might have stayed a private company, though “going public is on the evolutionary path toward becoming a successful company – so live it up and enjoy the journey,” advised Nassib.

MDT + COV - Good or Bad for Medtech Innovation?

MDT + COV - Good or Bad for Medtech Innovation?

Let’s be honest – the headlining acquisition of Covidien by Medtronic may go down as the most boring deal of 2014, unless of course you are an international tax accountant. The swirling buzzwords are inversion, offshore cash, G&A, and hospital contracts. Please wake me up when it’s over. Yet it may be the unintended consequences of this deal that are the real story, in particular the implications for med tech innovators. The real story won’t really be known for months or even years, despite Omar Ishrak’s reassuring pronouncements that the merger will “accelerate” investments in R&D.

We at S2N decided an old-fashioned pro-con debate was in order. Question: Is the big fat marriage of MDT and COV good for Innovation? Tim took the Con position and Amy the Pro stance. Here’s blow by blow:

Cash for innovation or cash for shareholders?

Amy: You need a lot of cash to invest in disruptive innovation, and the combined “Medvidien” will be swimming in it. It’s a perfect match for gaining efficiencies in mature product categories to free up cash for real technological advances.

Tim: This deal is a perfect example of how the big companies are throwing in the towel on innovation and focusing on the bottom line. The extra cash will all go back to shareholders, which is great for them but I’m not sure how that helps innovation.

Temporary deal disruption or big investment hiatus?

Tim: Good luck getting anything done with any division of MDT or COV for the next 3 years while management is completely focused on realizing those promised “synergies”. They will have a good, long run of earnings growth that will take pressure off top-line growth for a while.

Amy: Really Tim, do you think they can afford to turn off the growth-oriented deal flow for that long? Sure, there might be a short-term disruption to early stage investments from the distraction of the merger, but pretty quickly they are going to have to put that cash to work to grow sales. Can’t cost cut your way to success forever!

Spawning of new start-ups or lifestyles of the rich and famous?

Amy: Think of all the med-tech superstars who will make big coin on the deal and then be released to the wild. Some of that money and expertise will start finding it’s way back into the emerging med-tech ecosystem.

Tim: Wishful thinking, Amy. Med-tech veterans don’t have a rich history of aggressive angel funding. Mostly likely the deal will help the yacht and island markets more than med tech start-ups.

One less acquirer in the pool or just fatter acquirers?

Tim: The number of big-time med tech acquirers is pretty small as it is, and it just got one smaller. Negotiations with the new entity will be tougher, too, because there will be less deal competition.

Amy: There is so little overlap in the business units of the two companies, except for endovascular, that it really doesn’t change the picture for most emerging med techs. The acquirer just got a bigger wallet.

Helpful scale or focus elsewhere?

Tim: After tax minimization, the other main drivers of this deal are negotiating power with hospitals and scale to sell in emerging markets. That’s where they see their growth coming from in the next couple of years. Innovation is on the back burner.

Amy: Those more effective hospital and emerging markets sales channels will benefit innovative technologies, not just mature ones, and they will need more products to pull through those channels.

It's not that Symple! The Rise (and Fall?) of Renal Denervation

It's not that Symple! The Rise (and Fall?) of Renal Denervation

When we founded S2N in 2011, the emerging medtech world was still awed, no dazzled by the uber-generous 2010 acquisition of Ardian by Medtronic for more than $800M. Last week, Medtronic unceremoniously announced the failure of Symplicity, Ardian’s renal nerve denervation technology for severe hypertension, in the US pivotal trial. The wreckage is still smoking, and the damage extends beyond Medtronic and the other device behemoths like Boston Scientific and St. Jude that joined the RDN gold rush. Emerging med tech companies will feel the ripple effects, too.

First, a little history:

  • Before the take out by Medtronic, Ardian had raised about $65M in equity (including some from MDT in Series C). By my sophisticated calculations, that’s a >10X return on capital for the VC’s. Sweet.

  • Ardian turned that $65M into a successful pilot study, CE Mark, and initiation of the randomized, controlled, multicenter HTN-2 trial with 52 patients in the active treatment arm.

  • On November 17, 2010, Ardian published 6-month data from HTN-2 in the Lancet showing that 84% of treated patients (vs. 35% of control patients) achieved a 10 mm Hg or greater drop in blood pressure. Five days later, the acquisition was announced.

  • MDT initiated the 530-subject HTN-3 US pivotal trial in 2011 and completed enrollment in May 2013.

  • Symplicity is available commercially in Europe, Asia, Africa and Australia and has been used in more than 5000 patients.

Before the Symplicity failure, the rich Ardian deal served as a big, juicy comp for med tech start-ups of all stripes defending the value of their novel gizmos. The deal also emboldened emerging med tech companies (and S2N) to point to CE mark as a critical risk-reducing milestone for potential acquirers.

Now, in the shadow of Symplicity’s demise, there will likely be some pencil sharpening on pre-FDA valuations, as well scrutiny on timelines and total investment required until exit. European regulators, left to sort out the on-market implications of the study failure, will no doubt reference the situation in support of tightening data requirements for new products.

Well before last week’s announcement, though, the Ardian acquisition was starting to qualify as an anomaly, not replicated by any company at that same stage, with structured deals and risk-sharing becoming more the norm. Symplicity’s downfall serves to remind us all that early stage technologies are just that – early. There is still significant technical risk and some products will fail when put to a scaled or real world test, regardless of whether that test is carried out by the small company or the big strategic that buys them. Safety does not equal efficacy, and efficacy is what matters in the end. Investor success is not the end of the journey (though it is for the investors!).

On the positive side, we don’t have to hear anymore “why can’t I get a deal like Ardian?” Envy isn’t generally a helpful business motivator, and every company has to carve its own path.

Medtech heads to Africa and so does S2N

Medtech heads to Africa and so does S2N

The large medtech companies seem to talk endlessly about emerging markets delivering their top-line growth targets, and they are not just talking about BRICcountries anymore. During his recent visit to Africa, President Obama stumped for increased trade with “the world’s youngest continent”, and companies like Covidien are seeing the promise of Africa, too. Selling in Africa seems like a natural step for some of the industry giants, but what about the little guys? Can emerging med tech companies turn the large African populations, improving healthcare infrastructure, and growing middle class into valuable markets?

Not to be outdone by Obama, last month I traveled to sub-Saharan Africa for an S2N client seeking to understand regional customer requirements for a novel medical technology. This medical technology is funded in part by a foundation grant, hence the African twist. While there, I visited several health centers and was able to get a sense of how care is delivered and by whom in this part of the world. These observations, admittedly from one country (Ethiopia), underscore both the potential and challenges of African markets for healthcare technologies.

The key customers are governments.

Government sponsored clinics and hospitals serve the majority of people in Africa, often providing care at no charge or for a nominal fee. However, private health clinics do exist for those who can afford a fairly modest fee for services. While in Africa, I visited a brand new private health center with 40 inpatient beds and 2 ORs. This center was well supplied, exceptionally clean and had its own IT department. This private center was actually funded in part by the local government because the public one was struggling to keep up with patient demand. Indeed, the public clinics were busy and waiting areas were full. In many African countries, the government may be your first call point, and official buy-in will be important when introducing any new technology more broadly. The government not only influences purchasing but also practice, care delivery and technology use.

Unlikely healthcare workers perform procedures.

Because of a shortage of trained MDs, it is healthcare workers, with widely varying skill levels, who are the primary providers of patient care. One of the public clinics I visited had throughput of ~300 patients per day, managed by a staff of 14 healthcare workers; the one MD on staff had been on medical leave for several weeks. In both the public and private clinics I visited, the workers were clinically knowledgeable, keenly interested in learning about new technologies, and articulate in describing their needs and capabilities as care providers. Many healthcare workers with 2 – 4 year degrees could deliver babies and perform small surgical procedures (e.g. wound closure and episiotomies). Most of the healthcare workers I encountered in the urban and peri-urban clinics spoke English, although I was grateful for our counterpart who spoke the local language.

Preventative care is challenging, and cell phones may help.

In Africa, patients often go years without seeing a doctor or other healthcare worker. The concept of a general check-up, especially if you are healthy, is almost non-existent. For patients who do make it to the clinic, healthcare workers commented that follow-up appointment cards may be given for 3-5 years out, but there aren’t really appointments – long lines are the norm. Many patients also travel great distances to the nearest health clinic, so governments and NGOs are focused on ways to bring care closer to the patient. Ethiopia is a pioneer in training health extension workers to provide basic care, for example vaccinations and family planning counseling, in the more rural areas. With mobile phones nearly ubiquitous, even in remote villages, m-health solutions are also receiving attention and funding for preventative care and treatment in Africa.

While a single experience in one African country does not tell the whole story, I hope and expect to be traveling to the emerging markets more frequently for my emerging medtech clients, particularly for those medical device cost-disrupters who can meet the low price points demanded in Africa. Certainly getting into the field to visualize the environment and talk to the people who may someday be using your technology is an invaluable first step in the right direction.

S2N Whitepaper - Marketing for Emerging Medtech: A Stage by Stage Guide

S2N Whitepaper - Marketing for Emerging Medtech: A Stage by Stage Guide

Early stage medtech companies have a need for marketing well before having a first product on market. This S2N Whitepaper identifies the critical marketing needs at each stage of progress to lay the groundwork for a successful product launch:

  • Concept Stage – Defining the product, the market and the business case

  • Development Stage – Understanding your customer and building relationships

  • Pre-Commercial – Preparing for launch and gaining early adopter feedback

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