“Are you ready to listen about the demise of our industry?” one med tech executive asked another at today’s LifeScience Alley luncheon.
“Yes, I’m morbidly interested,” the other joked back.
Such gallows humor pervades the medical device industry these days. And not without good reason. For months, I’ve heard panelist after panelist, expert after expert, executive after executive, warn about the lack of venture capital, reimbursement problems, the demise of the 510(k) program.
But there was something different about Dr. Josh Makower, the luncheon’s keynote speaker. And that something is what I like to call success. You remember that word, don’t you? Not success 10 years ago, when things looked a lot better for med tech companies. But success as in recent success. Success as in hundreds of millions of dollars of success.
Makower’s resume is impressive enough: M.D. from NYU, MBA from Columbia, Stanford professor, Pfizer executive, venture partner with New Enterprise Associates, CEO and founder of ExploraMed Development, a medical device incubator. But here’s where Makower really stands out: Last December, Johnson & Johnson acquired Acclarent Inc., an ENT firm he co-founded to treat sinusitis, for $785 million.
Seven hundred eighty five million dollars? Holy crap! Make this man medical device executive of the year! Hell, make him run for president! You want real hope and change? Then listen to the man who made an absolute killing in one of the worst environments ever facing med tech companies.
Of course, Acclarent is a big exception to today’s rule. But let me tell you something, I need hope. People need some hope. It’s one thing for a bunch of med tech folks to get together and complain about how great things used to be, or how they would be a great success if it wasn’t for the Food and Drug Administration, venture capitalists, etc. But for someone to accomplish something big in spite of those problems is downright impressive.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
That’s not to say Makower’s success insulates him from the industry’s problems. Quite the opposite. Makower is probably more sensitive to those problems because Acclarent’s big payday is such a rarity. In fact, being successful gives Makower more leeway to speak his mind. Rather than repeat the same talking points the industry has recited over the past few months, Makower had some pretty honest observations.
Reimbursement: Yes, yes, we know how Medicare and private payers are getting stingy with coverage. But Makower calls out one specific insurance company: WellPoint.
WellPoint has too “powerful grip on what’s gets paid for,” throwing up “amazing hurdles” to winning reimbursement, he said. “They don’t want to listen to industry or physicians.”
Bashing insurance companies by name? President Obama would be proud.
Medical device tax: We know the industry doesn’t like the $20 billion tax in the current health reform legislation. Which industry would? But Makower notes the government wants to tax revenue, not profits. That means a company would have to pay a fee even if it doesn’t make a penny. Medtronic Inc. can afford to pay it. But start-ups would somehow have to convince investors to pay Uncle Sam millions of dollars even if its technology might never see the light of day, Makower said.
Lack of venture capital: We know that venture capitalists are not making new investments because they’re focused on providing “life support” to their current portfolios. But even that money has limits, which means we’ll see a lot of failures this year, Makower said. Just look at Minnesota: Transoma, Leptos Biomedical, Disc Dynamics have all shutdown since December.
“That lifeline is going to run out,” he said. “I’m scared about that.”
FDA and the 510(k): Much has been made of how possible changes to the popular medical device approval program would undermine innovation. But Makower takes a different, refreshingly honest tack. No matter what it does, the FDA can’t guarantee that devices won’t screw up. Even existing therapies, if unchanged, can still lead to recalls, he said. But that’s what innovation is all about, a process that constantly dips and weaves.
“For every problem we solve, we create a new one,” Makower said.
Try hearing that from someone at Medtronic.
Doctor/Industry payments: Other than the boilerplate talking point about companies needing to collaborate with physicians, the industry has done a lousy job pushing back against its critics. Disclosures are fine, but let’s not carried away, Makower said.
“Does a dinner make a doctor forget what’s right?” he said. “Fifty dollars is not going to influence anything.”
Makower said people are focusing too much on money when they’re plenty, “more powerful” conflicts of interests: political power, academic prestige, self-righteousness. The panels that advise the FDA are full of scientists with all sorts of conflicts of interests.
“Money is not the biggest driver of behavior,” he said.
Not sure if I agree with that but points well taken.
The global value of the American medical device industry: There are only two American industries running a trade surplus: medical devices and airplanes. Given the acute political sensitivities surrounding China selling more of their cheap stuff to us than the other way around, this seems like a fertile area to explore.
And speaking of China, the country will surpass the United States in medical devices if we don’t do anything, Makower said. The Chinese may lack the technological know-how but they will use their chief weapons: capacity and a cheaper, educated workforce. Once the patents expire on American technology, China will have the pieces in place to seize the advantage, he said.
Of course, dear reader, you may already know all of this. But then again, how many of us just sold a company for $785 million?
