Biomed 2012- Companies present uniform message: world must changeJun. 12, 2012 | By JONATHAN GOLDSTEIN, Medical Device Daily Israel Editor
The Israel Biomed Conference last month included more than 60 startups presenting from fields of devices, pharma and diagnostics. However, the highlights for many of the locals and the international guests were the plenary sessions by high-quality persona within the global industry, offering their perspectives on the developments in this biomedical arena.
One of the more remarkable elements regarding the lectures from key executives from such companies as Teva Pharma (Petach Tikva, Israel), Johnson and Johnson Pharma (New Brunswick, New Jersey), Abbott (Abbott Park, Illinois), and Medtronic (Minneapolis) was the similarity of their essential messages. The implication of their comments was a concern for all members of the audience, investor or entrepreneur, startup or multi-national.
The speakers seemed to be telling the same story: the world population is aging; the western world (particularly, but not solely, the U.S.) cannot continue its healthcare spending per capita as it has done to date; conversely, the clinical and medical needs of the wider world population cannot be neglected, and will become more critical for many business; and hence the healthcare world as we know it will ¡V and must ¡V change.
Jeremy Levin PhD, the new CEO of Teva, explained that the price of healthcare would inevitably need to be reduced, and intimated that Teva was in a great position to aid (and benefit from) the situation. From a different standpoint, Joanne Waldstreicher, MD, chief medical officer of J&J Pharmaceuticals Group, explained that the majority of the ¡¥simpler¡¦ drugs had been discovered and developed in recent decades; today¡¦s uncured ailments would often be too difficult or too risky for most large pharma to tackle alone. She explained that for these projects, a collaborative effort would be essential, between academia, government and pharma companies. ¡§Risk reduction, by means of both financial risk sharing and increased intellectual power, would enable more complex projects to be tackled,¡¨ she said.
An example of where J&J had been proactive in such cross-border collaboration was in the Healthy Mind Initiative that had been set up by Janssen (a J&J unit) in neurology research, a portal to share models and approaches in neurology, in order to allow for optimizing research dollars across both government and industry.
Devices message: need to look east
Reiterating the message of the winds of change, John Capek, executive VP of Medical Devices at Abbott, and Steve Oesterle, SVP of Medicine and Technology at Medtronic, spoke along similar lines in separate sessions. Both were adamant that medium term growth would largely reside in the developing world.
Economic growth in those regions will undoubtedly lead to greater health investment. And while not reaching close to the excessive %GDP figures of the western world, the sheer size of these populations and their economic power (India and China as bloc leaders) will have a major impact on the balance of world healthcare spending; these countries¡¦ spending on healthcare will soon overtake the West. While the prediction was that the U.S. trajectory of healthcare costs would soon reach 20% of U.S. GDP, the figure in China, were it to rise slightly (probable in a developing economy), would have an equivalent impact on the world health economy. According to the World Health Organization (Geneva, Switzerland) figures of 2008, the U.S.¡¦s healthcare per capita %GDP is greater than 15%, while China¡¦s is 5%.
Teva¡¦s Levin quoted research data that stated, for example, that while in 2009, the western world represented 54% of the healthcare spending power, by 2030 this figure would drop to 21%. That requires a major change in perception of key markets.
When opportunity knocks
But do not despair, the industry leaders cried, this is a call to action, rather than to abandon the ship. Medtronic or Abbott likely see themselves as very suitable to adapt their product and business models to fi t this expected geographical reality, and their lucid approach was echoed by other device specialists.
A key element, Medtronic¡¦s Oesterle emphasized, was the issue of understanding the environment of that particular country, and designing products accordingly. A product that had a medical need in the West might well have a need in India too, but could it be delivered in an area where the clinicians are less experienced in the techniques, where sterility is compromised, and the electricity is intermittent? His own response was ¡§Yes, in the future it must be able to¡¨ and the issue would be how to eventually reach a suitably low price point to suit the market capabilities. Products developed today would be delivered tomorrow, and will survive the following decade only if such a strategy is implemented.
The experts¡¦ response to this global change was one which entrepreneurs were perhaps surprised to hear from some of the medical world¡¦s technology leaders: feature reduction, to accommodate cost reduction. The product should aim for 70% of the capabilities of the West¡¦s product, but to be sold at 30% of the end-user price in the West. This is a version of the ¡¥design to cost¡¦ approach taken in many device companies, but with a twist; and in their experience, this appeared plausible. If you can reach these prices ¡§what you lose in gross margin, you could gain in higher volumes¡¨ added Capek. This feature-reduction strategy could also create a product stratification approach (a standard and a deluxe version), ensuring no price erosion in the most lucrative markets.
Another approach was suggested by one speaker: not to consider all customers in developing countries in the same way. ¡§The current Indian middle-class population is the same size as the insured population of the U.S.,¡¨ one speaker noted. ¡§And this 200 million people segment are paying out-of-pocket for our devices at a price point higher than our U.S. price.¡¨ Market strategy in these states, the experts advised, might also involve targeting the private market initially, and maintaining price levels similar to the West, as an initial stance.
Speaking to the entrepreneur and VC audience, Oesterle emphasized: ¡§No more ¡¥if you build it they will come¡¦ approach for the genius inventors.¡¨ Israel has excelled at these high-end splendid solutions. But it must adapt to also add in a simpler, cheaper design too. Can you deliver the ¡¥good enough¡¦ product too, or at least have a strategy to get there?
When John Capek of Abbott explored this with the entrepreneur audience, a question arose: ¡§How do we, at the early stages of product development, focus on this issue of a low price target for, as an example, the Indian market?¡¨ He explained that the issue was, in part, a matter of analyzing the timing of product introductions, considering the different market dynamics and potential. ¡§When we review a project, whether an internal or external one, a window that pops up in our analysis is ¡¥is there a non-Western-World plan?¡¦¡¨ Along similar lines: ¡§We need you to consider these developing markets. Not as an afterthought, because we do not see them that way,¡¨ remarked Oesterle.
And Oesterle further advised the entrepreneurs and VCs: ¡§Go and visit these places before you start too much design work. There is no alternative. To understand the potential and the limitations cannot be from Minneapolis or Herzliyya; development can be done there afterwards, but the environment where you will be selling must be seen first-hand.¡¨
Giant collaboration: Strategic players awaken
Israeli technology companies ¡V once set in motion towards these goals ¡V are well-suited to these changes, the speakers emphasized, based on their innovative approach and their quick turnaround times.
The multi-national medical device community acknowledges Israel¡¦s presence as a force in the ecosystem. The Israeli device business ¡V and associated investors ¡V had much to be proud of regarding a burst of recent activity. Specifically, another devices giant, Covidien (Dublin, Ireland), had recently been hovering on a number of Israeli deals, and swooped onto three companies within the last six months: Oridion (Jerusalem) (capnography and other breath measurements, $346 million), superDimension (intra-operative bronchial navigation, $300 million) and PolyTouch Medical (Misgav) (hernia mesh placement technologies, undisclosed sum). While Medtronic, J&J and Edwards Lifesciences (Irvine, California) had been more frequent partners in recent years, the arrival of a new prince has got the companies singing.
The Biomed conference attracted a broader range of buyers too. Life Technologies (Grand Island, New York), a provider of clinical research tools and equipment, was actively presenting and researching potential targets. Life Technologies is already a veteran at incorporating Israeli products into its portfolio from its Invitrogen days, when it purchased Ethrog Technologies (pre-cast agarose gel systems) in 2000. ¡§The company is seeking further additions to its portfolio,¡¨ Paul Grossman, senior VP of strategy and business development, told Medical Device Daily. ¡§We have seen incredible dedication by the Israeli team, even during difficult scheduling issues. We feel that the teams here understand deadlines and urgencies in a way that we do. We continue to seek additional partnerships here.¡¨
Collaboration between/with the giants
During the plenary sessions, the issue of communication with the larger device company was also raised. When the development process becomes more complex, and the format of the product becomes more important to the potential distributor/acquirer, the device industry may glide towards the pharma model; companies may do well to share more, and earlier, their perspectives of planned product development, expected price points and clinical plans.
¡§Based on the new geographical complexities that are becoming critical to the market, we may see earlier collaboration between startups and larger companies, in order to effect risk reduction for the entrepreneur team,¡¨ added one analyst to MDD. This could be a silver lining for
the startup biomedical community, in light of the impending storms.