Ranking the best places for healthcare startups

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image via CBinsights.com

Silicon Valley is Mecca for technology companies. When it comes to ranking the best places for healthcare startups, however, the global technology hub seems to be not as dominant.

A common method for ranking the best places for startups is to quantify the number of exits and aggregate valuation in a given time period. A recent report by CB Insights, an investor service focused on early stage companies and emerging industries, says that Massachusetts and not the Bay Area has been more successful in exits for VC-backed healthcare startups.

Healthcare startup categories included medical device, biotech, and pharmaceutical companies.

The analysis also shows that other regions are competitive as well. Southern California had the next highest number of exits in the same time period, 2012-present.

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The CBinsights report looked at the startup exit data in another way that highlights differences between the regions more clearly. They defined another metric, “Value Creation”. Value Creation is the ratio of the average exit value of a company in the region to the average VC investment in a company in that region. So bigger is better.

As seen in the table, New York comes out on top in this ranking while Silicon Valley lags at little more than half of the New York number. My home state of Washington is even lower on the list. This ranking may reveal why certain regions seem to have an easier time attracting venture capital investment than others. One last and very interesting note: the Value Creation metrics for technology companies are much higher than for healthcare companies. It starts to become clear why there is a dearth of capital investment in the healthcare space. If you are a VC, would you put your money in healthcare or technology?

Takeaways: Although no single city or region in the U.S. dominates when it comes to a great location for healthcare startups, there are a few conclusions that can be drawn from the report.

The East Coast  – Massachusetts in particular but also the New York/New Jersey/Pennsylvania tri-state areas are very strong in healthcare startups. Obvious reasons include major population centers for access to a talented and experienced employee pool, large numbers of world-class research universities and medical centers, and close proximity to financial hubs.

Of course, other locations such as Minneapolis, the San Francisco Bay Area (including Silicon Valley), Southern California, and the Seattle Metro area have their drawing power as well. Some of the additional factors include lifestyle, proximity to the FDA and other government officials, and being part of an industry “cluster” (medical device in Minneapolis, biotech in the Bay Area for example).

Read more:

Silicon Valley doesn’t dominate when it comes to VC-backed healthcare exits.

Silicon Valley is Second to Massachusetts for Venture Capital-backed Healthcare Exits.

Price Increases, Not Demand, Have Caused the Massive Hike in U.S. Health Spending

image via wikipedia.org
Life expectancy compared to healthcare spending from 1970 to 2008, in the US and the next 19 most wealthy countries by total GDP (wikipedia.org)

In the USA, we continue to pay more and get less for our healthcare expenditures than any developed country on Earth. What hasn’t been clear is why that is the case in the complex American healthcare system. A paper in the latest edition of the Journal of the American Medical Association by researchers at Johns Hopkins University and elsewhere asserts that price increases and not demand have caused the massive hike in U.S. health spending over the past few decades.

The researchers used publicly available data to identify trends in health care from 1980 to 2011. They examined and analyzed the source and use of funds, patients and providers, and finally the value created by the expenditures and health outcomes.

image via blogs.wsj.com

The researchers found that US health care expenditures have doubled since 1980 as a percentage of US gross domestic product (GDP), to well over 1/6 of the total economy. Growth in healthcare spending has far outpaced that of other OECD countries. Most of the OECD countries have either some form of single payer healthcare or public option health insurance along with government-imposed price controls on healthcare components. The U.S., of course, has none of these.

The article notes that annual growth in the rate of healthcare spending has decreased since 1970, and especially since 2002. That’s typical of large entities – Google and Microsoft experienced the same effect as they grew and aged. The average healthcare spending growth rate, however, stands at 3% per year. The 3% average annual growth in spending is more than overall GDP growth and is more than the average growth in any other industry. Moreover, the share of the healthcare system funded by government increased significantly, from 31.1% in 1980 to 42.3% in 2011.

Of course, as has been noted in this blog and elsewhere, all of this spending has resulted in lower life expectancies at birth as well as lower survival rates for many chronic diseases compared to other developed countries. The conventional wisdom has been that soaring demand for healthcare and the needs of the increasing elderly population have been responsible for the increases in spending, along with “inefficiencies” and the ever popular “defensive medicine”. Not so, according to this analysis:

The findings from this analysis contradict several common assumptions. Since 2000, price (especially of hospital charges [+4.2%/y], professional services [3.6%/y], drugs and devices [+4.0%/y], and administrative costs [+5.6%/y]), not demand for services or aging of the population, produced 91% of cost increases; (2) personal out-of-pocket spending on insurance premiums and co-payments have declined from 23% to 11%; and (3) chronic illnesses account for 84% of costs overall among the entire population, not only of the elderly.

So hospital charges, physicians’ fees, drugs, medical devices, and administrative costs (medical insurance) have all risen faster over the past ten or so years than the overall rate of increase in spending for healthcare. Also note that chronic diseases among the general population, not just the elderly, account for a whopping 84% of all healthcare costs. In fact, the study found that chronic conditions in people younger than 65 account for 2/3 of all health care costs. It’s clear to me what’s driving the increases, and it’s not in keeping with conventional wisdom.

Additionally, despite what most people perceive to be ever-increasing co-pays, premiums, and deductibles, out-of-pocket spending decreased more than 50% (as a portion of total spending) over the same period. That means most people are disconnected from the economic realities of healthcare spending. No wonder we can’t decide how to fix things – we can’t even figure out exactly what’s broken!

The article also points out that three broad trends are responsible for much of the changes over the time period in the study: consolidation of providers reducing competition, an emphasis on information technology that has yet to produce tangible benefits, and empowerment of the patient that has not always produced positive outcomes (think of direct-to-consumer advertising of pharmaceuticals).

Takeaways: the authors summarized it very well: “a national conversation, guided by the best data and information, aimed at explicit understanding of choices, trade-offs, and expectations, using broader definitions of health and value, is needed.

The current controversies surrounding the Affordable Care Act are a good example. Something had to be done about health insurance reform. Obamacare is a place to start and more evolutionary than revolutionary.

Anything as massive as our healthcare system will always be highly politicized and change will be controversial. Whether we can hope to have a conversation informed by data and information remains to be seen.

Read more:

Soaring Prices, Not Demand, Behind Massive Hike in U.S. Health Spending – US News and World Report.

JAMA Network | JAMA | The Anatomy of Health Care in the United States.

The artificial hip fiasco

http://en.wikipedia.org/wiki/Hip_replacement
image via wikipedia.org

Designing medical devices is hard work. Designing artificial joints is even harder. The ongoing artificial hip fiasco in the medical device industry is proof.

Artificial joints such as hips and knees are incredible technologies. They can take people out of wheelchairs and turn them into active adults. The crippling pain and infirmity of arthritis and other degenerative diseases are banished, at least for a while.

The requirements for these high tech medical devices are challenging. They are implants, subjected to full immersion in bodily fluids and subject to all of the stresses and biochemical processes of the human body. Ideally, the implant should last the rest of the patient’s life although that seems to be one of the most challenging requirements.

Implants such as artificial joints that must move may be the most difficult of all to design and to last in the body. Materials selection is particularly challenging. Metal implants must be sufficiently hard and tough to take the loading and repetitive motion of a patient’s joint for years and years. Ceramic implants must be fracture-resistant to impact loads and shocks, say from a jump or a fall. Polymer implants must be low friction but must not break up under mechanical stress or chemical attack. And coatings must not migrate to other parts of the body. Of course, none of the materials in the implants can be toxic.

Unfortunately, there does not appear to be an ideal combination of materials for hip implants. Interestingly as well (and I’m sure of substantial frustration to device engineers), there does not appear to be a reliable in vitro or in vivo model with which to perform wear and life testing. If there were a robust model, none of these implants would have made it to market without major revisions in materials and/or design.

Implant designs have failed mechanically through fracture and friction and more insidiously, have raised the potential for cancer and autoimmune disorders through migration of metals, coatings, and polymers to other areas of the body. In many cases, patients have undergone additional implant surgeries as a result of the failures. And these are not trivial operations.

A report today in Fierce Medical Devices indicated that Johnson & Johnson has settled 7,500 lawsuits for its metal-on-metal hip implants for a whopping $4 billion. That’s an average of $300,000 per implant and is in addition to other lawsuits settled in October. Other lawsuits against J&J are still pending as well as legal exposure outside the U.S. J&J announced recently that it will exit the metal-on-metal and ceramic-on-metal implant markets in 2014. I’m guessing that the legal settlements wiped out any profits made over the years and is probably going to cost untold numbers of jobs.

J&J’s competitors have problems too. According the the Fierce Medical article, Biomet, Stryker, and others are facing similar liability situations with respect to metal-on-metal implants.

The market for these devices is large and increasing. Hip implants are one of the most frequent orthopedic surgeries. As the population of seniors in the U.S. and other developed countries continues to grow while the baby boom generation ages, demand for procedures that maintain active lifestyles will continue to increase.

Takeaways: The onus is on medical device engineers to create valid in vitro and in vivo preclinical models and to test exhaustively before releasing to manufacturing. Engineers and researchers must also identify biomaterials and designs that are truly biocompatible and able to meet the demanding requirements that these implants must satisfy.

Give the track record of implants, engineers and medical device executives can expect increased scrutiny and skepticism from regulatory agencies, investors, physicians, and patients and their families.

Of course, it also means that there is an incredible opportunity awaiting the company or engineer that can solve this intractable issue.

Read more:

Report: J&J settles most metal hip lawsuits in $4B-plus accord – FierceMedicalDevices.

More Artificial Hip Concerns – NYTimes.com.

More Disruptive Innovation? True 12 Lead ECG Heart Monitoring for Consumers

mobilECG conceptNot everyone has a need for a 12-lead ECG at home. But hey, a few years ago, no one thought they needed their own portable defibrillator, either. Now you can buy them from Amazon, Costco, and Walmart. A startup, mobilECG, is in the process of developing a device and software to provide true 12 lead ECG heart monitoring for consumers.

mobileECG is a group of young engineers in Hungary. They are developing a consumer-grade electrocardiograph that will interface with a PC, tablet, or smartphone and that will retail for “in the $300 range” in the summer of 2014 if everything goes according to plan. The device is not a toy. It will have full 12 lead capability and regulatory clearance in Europe and the U.S. when it is launched.

Other smartphone-based ECG devices like AliveCor generate single lead ECG data. That’s useful, but not nearly as useful in cardiac monitoring and diagnostics as a full 12-lead ECG. The AliveCor device retails for $199.

The mobileECG engineers say that the ambitious price target is possible for a number of reasons:

  • No separate device and cable. The ECG electronics are built inside the cable.
  • No retailers. You can buy the device directly from the manufacturer.
  • Low price margin.
  • Crowdfunding.

The company is attempting to  raise seed funding through crowdsourcing on indiegogo. Their ambitious target is to raise $230,000 by November 26. As of today, they have raised $5640. You can reserve your own mobileECG by pledging $289. This project may not be in the sweet spot for crowdsourcing but I admire their spirit!

Takeaways: Smart, ambitious people all over the world are working to solve all sorts of problems in medicine and healthcare. They are also availing themselves of the latest design, prototyping, and fundraising technologies including rapid design and prototyping, 3D printing, and crowdsourcing.

A $300 ECG may not be necessary in a U.S. medical clinic but it might be very welcome as an alternative to $3,000 ECGs in developing countries.

As with most truly disruptive technologies, mobilECG does not have all of the bells and whistles of professional electrocardiographs. They have an intriguing business model, however, and they have cloud-based communications built-in. This technology could make things very interesting in the cardiac monitoring market in the next few years!

Read more:

MobilECG Aims to Bring 12 Lead Electrocardiography to Consumers for True Heart Monitoring.

mobilECG – accessible clinical-grade electrocardiography | Indiegogo.

Mobile health news: Can this cool, cheap ECG device startup raise $230K in a month?.

Prescription drug prices increasing wildly

Mainstream media stories about prescription drug pricing are common. A simple Google search for “prescription drug price increases” yields 37.7 million results. A recent story highlighted that Americans, despite representing only 5% of the world’s population, manage to consume 50% of the world’s prescription drug supply. What’s going on?

The New York Times recently published a story about asthma inhalers. Drug companies have sharply increased prices in the U.S. for inhalers and drugs that have been on the market for years. A key driver was an EPA requirement that manufacturers reformulate their inhalers to eliminate particularly dangerous chlorofluorocarbons, even though the amounts used are quite small. Reformulation required new FDA approvals and in some cases resulted in new patents. Because the U.S., in contrast with most other developed countries, relies on market competition for price regulation, the drug companies were able to achieve massive price increases for drugs that often have no direct competition or equivalents.

In other instances, drug companies with drugs coming off patent were able to keep their products as prescription medications and avoid moving to over the counter (OTC) status by paying off generic competitors. This practice has recently been the subject of much litigation but has not been settled by the U.S. Supreme Court.

Additionally, pricing for new drugs, particularly cancer treatments, are breathtakingly high. Here’s an excerpt from an article in the Washington Post:

The average monthly price of cancer drugs has doubled over the past 10 years, from about $5,000 to more than $10,000. Of the 12 new cancer drugs approved by the Food and Drug Administration last year, 11 were priced above $100,000 annually. Yet only three were found to improve patient survival rates and, of these, two increased survival by less than two months.

The drug prices and increases are out of reach to anyone without very good medical insurance. In fact, medical bankruptcy is the most common form of bankruptcy in the U.S. The prices for the same drugs are much lower in other countries, meaning that we in the U.S. are effectively subsidizing the rest of the world’s pharmaceutical prices.

So we have reformulation of existing products with a huge price increase, avoidance of transition to generic status and price reductions by paying off generics manufacturers, and cancer drugs that cost well into six figures for a year’s worth of treatment but haven’t been proven to extend life (or extend it insignificantly). Not to mention successfully lobbying the federal government to prevent Medicare from being able to negotiate volume-based price reductions. There’s innovation here, but not much on the clinical side. The innovation is in working every angle to keep prices high and raise them even higher.

And we wonder why our healthcare costs are the highest in the world.

Read more:

The Soaring Cost of a Simple Breath | The New York Times

Chart: Cost of cancer drugs | The Incidental Economist.

The Rising Costs of Cancer Drugs | New York Magazine.

Making cancer drugs less expensive | The Washington Post

Jumper Cables for Your Brain

http://graphics8.nytimes.com/images/2013/11/03/magazine/03brain1/mag-03brain-t_CA0-articleLarge.jpgA novel therapy that improves mental performance in healthy people is being called “jumper cables for your brain.” The scientific name for the therapy is transcranial direct-current stimulation, tDCS for short.

A similar yet very different treatment, electroconvulsive therapy (ECT), formerly called electroshock therapy, doesn’t have a positive image in most peoples’ minds. Popular culture including movies and TV has convinced most of us that it’s used to treat crazy people, usually with extremely undesirable outcomes, and that the people giving the treatment are either mad scientists or evil government agents.

ECT does have a place in modern neuroscience, however. It is often the last resort therapy for patients with intractable depression and other conditions that do not respond to drug treatments.

tDCS uses very low voltage and very little current to achieve its effect, less than 1% of the enegy used in ECT. The tDCS devices being studied today use a 9 volt battery for power. tDCS researchers have been using currents in the range of 300 to 500 microamps. In contrast, ECT uses much more current, about 2000 times as much. According to an article in Wikipedia, “Typically, the electrical stimulus used in ECT is about 800 milliamps…”

 Researchers have identified a myriad of benefits for the novel therapy. From the article in The New York Times:

Scientific papers published in leading peer-reviewed journals since 2005 have shown that tDCS can improve the speed or accuracy with which people perform [a computerized] attention-switching task. Other studies have found it can improve everything from working memory to long-term memory, math calculations, reading ability, solving difficult problems, piano playing, complex verbal thought, planning, visual memory, the ability to categorize, the capacity for insight, post-stroke paralysis and aphasia, chronic pain and even depression. Effects have been shown to last for weeks or months.

“tDCS will not make you superhuman, but it may allow you to work at your maximum capacity,” said Felipe Fregni, the Brazilian physician and neurophysiologist who runs Harvard’s Laboratory of Neuromodulation at the Spaulding Rehabilitation Hospital. “It helps you achieve your personal best level of functioning. Let’s say you didn’t sleep well the night before. Or perhaps you’re depressed, or you suffered a stroke. It helps your brain reach its peak performance.”

No one is really sure why the therapy works although there are theories. The brain is essentially a very complex electrochemical computer. Applying a weak electrical field to neurons while performing a task seems to make the neurons fire easier and to remember the task for some time. Unfortunately, researchers have not yet identified the specific mechanism that is responsible for the improvements. As a result, research funding has been sparse because peer reviewers for funding agencies in the U.S. government remain skeptical.

A number of companies are pursuing commercialization of tDCS technology and are engaged with the U.S. FDA on the regulatory approval process. ECT devices are categorized as Class III or pre-market approval (PMA). It remains to be seen if the new, lower power devices also fall into the PMA category. A less restrictive FDA classification would mean a greater market potential and benefits to ordinary healthy people who are looking for a little mental advantage. I would definitely consider trying one of these devices in exchange for a few of those mental benefits!

Takeaways: There are many processes and body functions that are not fully understood or characterized. When researchers continue to investigate these promising areas despite a lack of funding, it might mean that there is an opportunity for collaboration and eventual commercialization.

Of course, something like tDCS, “brain enhancement technology” comes with risks. What might be the long term effect of the therapy on the brain? What about effects on children and adolescents?

Finally, it will be imperative to separate the new technology from the stigma of electroconvulsive therapy in order to appeal to healthy consumers.

Read more:

Jumper Cables for the Mind | New York Times Magazine

GLNT gets another patent to treat Parkinson’s for transcranial direct current stimulation during sleep.

Renal Denervation – the next big thing?

blood pressure checkIt seems like every big medical device company is working on a technology for renal denervation to treat high blood pressure.

Development and market availability of a therapy for hypertension (high blood pressure) is a big deal. Here are some facts about hypertension from the World Heart Federation:

  • Globally, nearly one billion people have high blood pressure (hypertension); of these, two-thirds are in developing countries.
  • Hypertension is one of the most important causes of premature death worldwide and the problem is growing; in 2025, an estimated 1.56 billion adults will be living with hypertension.
  • Hypertension is the leading cause of cardiovascular disease worldwide.
  • People with hypertension are more likely to develop complications of diabetes.

Some additional facts about hypertension in the USA from the Centers for Disease Control:

  • 67 million American adults (31%) have high blood pressure—that’s 1 in every 3 American adults.
  • 69% of people who have a first heart attack, 77% of people who have a first stroke, and 74% of people with chronic heart failure have high blood pressure. High blood pressure is also a major risk factor for kidney disease.
  • More than 348,000 American deaths in 2009 included high blood pressure as a primary or contributing cause.
  • High blood pressure costs the nation $47.5 billion annually in direct medical expenses and$3.5 billion each year in lost productivity.
  • About half (47%) of people with high blood pressure have their condition under control.

Hypertension is treated currently with drugs of course. According to a report from ADS Reports, the global market for antihypertensive drugs was $29.9 billion in 2010 and is projected to reach $33 billion in 2017. That’s a huge target for interventional therapy.

I wrote about Bellevue, WA-based Kona Medical a couple of weeks ago receiving a $10 million investment specifically earmarked for their market entry into China, obviously one of the biggest potential markets.

Kona recently announced interim results from two ongoing clinical trials. It reported an average systolic blood pressure reduction of 29 mmHg at 6 months in their first study and a three-month drop of 19.4 mmHg in the second study using a dosing pattern that reduced therapy time from 13 to three minutes.

Kona’s results are significant because its therapy is completely noninvasive. It uses high intensity focused ultrasound on the surface of the skin to deliver energy to ablate the renal nerves.

Other companies developing renal denervation technologies include St. Jude Medical, Boston Scientific, and Medtronic. Each has chosen a different energy modality to deliver the therapy.

MedCityNews reports that St. Jude is using a multi-electrode catheter to deliver electrical energy to the renal nerve sites. The company reported results from a clinical study: at 18 months, 77 percent of the 46 patients treated with St. Jude’s technology, the EnligHTN system, had responded to therapy. St. Jude’s system total ablation time is about four minutes, according to a company statement.

The Boston Scientific therapy uses bipolar (electrical) energy to deliver therapy. After 12 months, the company reported a “clinically-meaningful decrease in office systolic blood pressure” in 85 percent of the 139 patients treated. The Boston Scientific therapy requires a brief 30-second treatment time.

Medtronic seems to have a head start in the market. In early 2011, it finalized its purchase of Ardian, a Silicon Valley startup that was working on a novel therapy for hypertension since 2003. The Medtronic RDN system therapy uses radio frequency energy delivered via a catheter to the renal arteries/nerves. Medtronic’s Symplicity renal denervation system has a CE mark and is commercially available outside the U.S. Medtronic has a number of completed and ongoing clinical studies, all of which have resulted in conclusions that the therapy is safe and effective.

Takeaways: New markets are one area where startups can compete on a level playing field with huge, multinational companies. They can be more nimble, take more risks, and can pivot when things don’t go according to plan. In the case of renal denervation, Kona seems to have a decided advantage with its noninvasive technology and treatment. Of course, Medtronic has a years-long head start and we all know the “best” technology doesn’t always prevail, right?

Read more:

Two top medical device companies announce promising renal denervation tech results – MedCity News.

Kona notches solid results for novel renal denervation tech – FierceMedicalDevices.