BB&T and BB&T Staff Reports

Money invested in med-tech firms isn't as much as it once was. One can look no further than BioEnterpise's (Cleveland) most recent venture investment study to see that venture capital financings aren't at the levels they used to be. The BioEnterprise Midwest HealthCare Venture Investment Report shows that while funding for the number of med-tech companies is high, the total dollars invested are down as compared to recent years. This is also resulting in the rise of angel funding for many of these companies.

The report covers the first half of 2011 and reveals that healthcare start-ups reported $315 million in total investments across 86 companies. “In the Midwest in particular you have a bias toward device and software companies during these economic times,“ Baiju Shah, President/CEO of BioEnterprise told BB&T . “Those companies tend to raise fewer dollars than biotech companies. And you're probably seeing more angel-led financings than venture-led financings.“

Shah said that many venture capital firms are moving toward funding companies that are further along in the development path. “The number of companies and entrepreneurs remain strong,“ he said. “I think the sources of capital have diversified because there are fewer venture firms that have investment capital available for early stage opportunities. So these entrepreneurs are seeking capital where they can find it. Angels are increasingly stepping into that void where venture used to tread,“ Shah said.

Shah said also that companies in the development spectrum are turning to angels and federal grant sources to help migrate their development to the point where venture capital companies become interested. Shah's observations about angel funding don't just apply to the Midwest area. In an interview with BB&T , Michael Riedlinger, director of the Rochester BioCenter (Rochester, New York), echoed similar statements regarding the availability of venture capital for these early stage companies.

“About five or six years ago venture capital was much more prevalent if you were talking to an early stage medical device inventor,“ Riedlinger said. “They really thought they could capture millions of dollars through a traditional VC investment in their business.“ Riedlinger said companies are now singing a different tune. “They are not thinking of venture capital as the first source of funding for what they are doing,“ he said.

A tougher regulatory process has in some cases made it difficult for companies to rely on venture capital. Speaking specifically about the Rochester area, Riedlinger said “because the FDA process has looked less clear and there has been exactly less clarity around what is going to be required; and how long the process was going to take,“ new med-tech companies are having a difficult time.

“That's not to say folks don't want to go through with the process,“ he said. “But having clarity around it helps them build plans and helps them understand what they need to raise capital, and that's become a big challenge. There are some companies that have adopted a model and said there are other things we can do with this technology to raise funds that don't necessarily require regulatory approval.“

Shah said the very structure of angel investors is changing and becoming more complex and organized. “Angels are also becoming more sophisticated in their organization,“ he said. “So we've seen over the last three to four years a real growth in angel capital funds – not just angel investors as individuals. They are banding together to form official funds and they are looking at deals not only as an individual fund but as syndicates.“

Last year, Midwest healthcare start-ups attracted $737 million in new investments across 159 companies according to the 2010 Midwest Health Care Venture Investment Report from BioEnterprise. While the total numbers of investments are comparable to 2008 and 2009, the total dollars invested are down 5% from the prior year.

Since BioEnterprise began reporting on investment numbers across the region's healthcare sectors, a few years stood out as particularly good. In 2007, Shah called 2006 the “breakout year“ for the Midwest as a whole as $792 million was raised across 135 companies, a 25% increase over 2005. That year was also highlighted by a number of public offerings and several significant exits through acquisitions.

But that was nothing compared the following year when Midwest healthcare start-ups attracted a record $1.2 billion in new investments in 2007, representing a 55% increase over 2006 and still outpacing the national venture industry growth. The numbers from 2008 were also pretty good for the region, but didn't quite break the previous year's record. That year Midwest healthcare companies attracted $1.1 billion in new investments across 166 companies.

“The total dollars per company are down and the total dollars invested are down relative to last year,“ Shah said. “When we've gone back and analyzed our data, there isn't any pattern that we can discern that would allow for us to predict where we would end up at by the end of 2011. Of course with the events of the last couple of weeks with the global financial market – that also cascades down into the venture world.“

FDA looks at provider training in clinical trial draft

FDA has issued a draft guidance for diagnostic and medical device clinical trials and takes on a few bones of contention with industry along the way, including the meaning of the phrase “least burdensome.“ However, the agency also indicates that it is unfriendly toward a sponsor's training of doctors and other providers participating in those clinical trials unless the sponsor is willing to do the same for doctors in routine practice. This, the guidance indicates, applies even to studies engaged prior to the pivotal clinical trial.

FDA offers an interesting caveat early in the guidance, stating that “even with a well-planned design, the study may not yield the results expected or necessary to demonstrate safety and effectiveness,“ adding that a sponsor may have to “re-assess their goals . . . and conduct additional studies“ to demonstrate safety and efficacy. Whether that's intended as a signal that the stand-alone pivotal trial will become a less common species is difficult to parse, but industry might be inclined to read it as such, given that even though much of the emphasis at the agency's Center for Devices and Radiological Health has been on the 510(k) channel, observers have awaited some signal about a formal toughening of the PMA mechanism.

The draft also states that a trial should account for variability in “the performance of the device when used by practitioners of varying expertise.“ Later in the guidance, however, FDA states that if the sponsor intends to offer no training to practitioners in real-world use, providers engaging in the trial “should not be specifically trained in the use of the device“ as a means of ensuring “that the study reflects real-world conditions.“

A substantial portion of the 56-page guidance deals with implantable devices, including a passage addressing exploratory studies. FDA states that it may require “continued animal testing of implanted devices at six months, two years and three years after implant“ even as the pivotal trial is underway.

One of the more interesting aspects of the guidance is that it reintroduces the boilerplate pertaining to the standard of “least burdensome,“ a bit of phrasing that had been omitted from a number of documents issued by the agency over the past year and a half. The guidance goes into some detail about the precise meaning of the phrase, however. FDA states that the principal of “least burdensome“ is described as “a successful means of addressing a pre-market issue that involves the most appropriate investment of time, effort and resources on the part of industry and the FDA.“

The draft guidance notes that it applies to both therapeutic and diagnostic devices as well as those dealing with purely “aesthetic“ considerations. However, the guidance does not apply to humanitarian device exemption studies or to companion diagnostics, which were the subject of a separate draft guidance published in July.

On the subject of site selection, the guidance states that a sponsor of a clinical trial should “consider diversity of sites in terms of investigator or operator experience,“ stating that surgeons at tertiary care sites “may have more specialized experience than those at a community hospital.“ FDA states that selecting only referral sites for a study “could lead to a biased assessment of device performance.“

FDA took on a topic of considerable interest to industry in addressing clinical study endpoints, and although this was not the primary point to be made in this portion of the guidance, it may jump out more at device makers than other features of this section of the guidance, even though the topic is not unexplored. The draft guidance states that if a trial is underway “when the understanding of science or medicine changes . . . the relevance of particular endpoints, outcomes or measurements may change,“ in which case the sponsor is advised to consult with the agency as to “the best possible course of action.“

In the portion of the guidance that deals specifically with diagnostics, the draft indicates a long-standing concern about the “variability in the performance of persons interacting with the device,“ which the agency states can create a need to conduct additional studies to remedy. Another source of bias might be the effects of sequential readings, which has been a matter of concern for reviewers at the radiological devices branch for some time. One potential fix for the sequential problem is, as might be expected, a wash-out period during which a reviewer has time to forget what he or she saw from that patient's other scans.

The draft guidance is open for comment for 90 days from the Aug. 15 date of publication.

Selective DES saves millions of healthcare dollars

Limiting the use of drug-eluting stents to a selected group of patients is cost efficient and did not increase risk of death or heart attack within a year, according to an analysis published recently in Circulation: Journal of the American Heart Association. The researchers said the selective use of drug-eluting stents, which began in 2007, is saving the U.S. healthcare system about $400 million a year.

In this analysis, researchers compared the use of drug-eluting stents in 2004 through 2006 to their use in 2007, using data from the Evaluation of Drug-Eluting Stents and Ischemic Events registry. This U.S.-based registry of percutaneous coronary interventions included more than 10,000 patients undergoing angioplasty at 55 medical centers. The use of drug-eluting stents decreased from 92% in 2004 through 2006 to 68% in 2007. At the same time, rates of death and heart attack remained virtually unchanged, while procedures to re-treat a blockage at the same coronary artery site increased slightly, from 4. 1% to 5. 1%.

“The bottom-line was that using drug-eluting stents in a relatively unselected way was only resulting in marginal improvement compared to more selective use,“ said David Cohen, MD, senior author and director of cardiovascular research at Saint Luke's Mid America Heart and Vascular Institute (Kansas City, Missouri).

In the earlier years of broader use, “we were putting a lot more drug-eluting stents in and we benefited very few additional patients,“ he said. Several studies in late 2006 reported a higher risk of clotting, heart attacks and deaths in patients with drug-eluting stents compared to bare-metal stents. That year, at the World Congress of Cardiology (WCC; Sophia, Antipolis, France) annual meeting in Barcelona, Spain, researchers issued reports indicating that drug-eluting stent (DES) devices may increase the risk of potentially fatal blood clots.

At that time, nearly 6 million patients worldwide had received a DES since the devices were first launched in 2002, creating a $5-billion-a-year business for then market leaders Boston Scientific (Natick, Massachusetts) and Johnson & Johnson (J&J; New Brunswick, New Jersey), the two companies at that time that sold the devices in the U.S.

At that meeting, Salim Yusuf, MD, of McMaster University (Hamilton, Ontario), called the findings disconcerting. “Now that we are having this concern, I would urge limited use,“ he said. “As clinicians we seem to have lost our clinical judgment, let alone our ability to view data and evidence. We therefore need a thoughtful and selective approach to PCI, complementing full medical therapy . . . the whole field of angioplasty has been led astray by a preoccupation with restenosis, for which study after study has shown has no prognostic value.“

Soon after that WCC meeting, an editorial published on the website of the American College of Cardiology (ACC; Washington) added fuel to that fire, charging that 2,000 patients were dying needlessly each year as a result of DES use. Written by Sanjay Kaul, MD, and George Diamond, MD, of Cedars-Sinai Medical Center (Los Angeles), the guest editorial, “Drug-eluting stents: An Ounce of Prevention for a Pound of Flesh,“ said patients face a lower risk if treated with older, less costly, bare-metal stents (BMS) that might work just as well.

“I think the debate here is not the drug-eluting stent vs. the bare metal stent,“ Kaul told BB&T in 2006. “There's a bigger debate here, and that is our obsession with revascularization as the primary therapy for treating stable angina.“ He said that drug therapy should be the first avenue for treating chronic stable angina “and only in those who don't respond to [drug] therapy should revascularization therapy – whether stenting, angioplasty or bypass surgery – be offered.“ He said that in a “quick fix society,“ patients demand that approach, and “we are too eager to please them.“

With more than one million Americans annually receiving the stents at that time, and at least 80% of them getting DES devices, this works out to an additional 2, 160 deaths each year, the doctors calculated. The figure assumed that 45% of the people who suffered such clots had died.

Kaul also said during that time that DES is the proper application for many patients, but that the devices were used far too often in cases where clinical data suggested that BMS use or long-term drug therapy was safer. Only about 20% of DES devices were being inserted in patients who have the kinds of conditions studied in the clinical trials that led federal regulators to approve them, he said.

The 2006 studies led to the FDA examining the issue later that year. “These concerns led to a stair-step reduction in the use of drug-eluting stents, which had expanded rapidly since their introduction in 2003,“ said Cohen, also a professor of cardiovascular research at the University of Missouri-Kansas City. “Because of the safety concerns, we were able to verify what many of us had suspected – that using drug-eluting stents in virtually all patients is not that efficient.“

While Cohen believes the FDA concern was appropriate at the time, newer evidence with longer follow-up and more data has indicated that drug-eluting stents are safe. “Our current understanding is there is no real excess risk,“ he said. Later risk of dangerous clots might be balanced by earlier benefits.

Researchers found that when use of drug-eluting stents declined in 2007, the stents were more likely to be placed in patients who were at highest risk of re-blockage – including younger patients with smaller vessels or with longer problem areas in the vessels being treated. “Because we were selectively targeting the highest-risk patients, we were able to use far fewer drug-eluting stents while preserving the clinical benefit,“ Cohen said. Researchers estimated that when compared with less selective use of drug-eluting stents in 2004-2006, more selective use in 2007 reduced healthcare costs by an average of $401 per patient. Per-patient cost is magnified into hundreds of millions of dollars each year, given the nearly one million angioplasty procedures performed in the U.S., the authors noted.

Patent reform may prompt more filings

The U.S. Senate passed H.R. 1249, the version of the America Invents Act passed by the House of Representatives earlier this year, and the bill was signed very shortly thereafter by President Obama. However, opinions diverge as to the value of the legislation for med-tech firms in the U.S.

On the one hand, Tony Shaw, counsel at the law firm of Arent Fox (Washington), and an adjunct professor of law at the Georgetown University Law Center (Washington), told BB&T in an interview that once all the provisions of the law goes into effect in 18 months, inventors may conclude they “have to file preemptively even if [they] haven't quite perfected the invention“ because of the imposition of the first-to-file (FTF) paradigm embodied in the bill. Shaw also remarked that inventors in other nations are more savvy about the FTF approach and hence “we sort of put ourselves at a competitive disadvantage by adopting their system.“

On the other hand, JC Scott, senior executive VP for government affairs at the Advanced Medical Technology Association (AdvaMed; Washington), said in a statement e-mailed to BB&T that modernizing the patent process “is an important element of making sure that America's medical device companies continue to be the world leaders.“ Scott made note of the transition to FTF – or first-inventor-to-file, as some refer to it – which he said “will promote international harmonization and create efficiencies throughout the system.“

Scott also made note of a provision in the bill to deal with false markings, “which discourages deceptive patent markings and would help eliminate frivolous lawsuits“ as well. Scott concluded the statement by noting that the association is “glad the Congress has passed this bill and look[s] forward to the President signing it.“

Not all the associations are as optimistic, however. Tom Novelli, VP for government affairs at the Medical Device Manufacturers Association (MDMA; Washington) said in a statement e-mailed to BB&T that MDMA “appreciates the progress made by Congress to improve the patent reform bill from earlier versions.“ He said the bill “while not perfect, is a positive step towards updating the current patent system,“ although Novelli expressed concern that the establishment “of a new post-grant review process may overburden PTO and provide a potential vehicle for abuse by some parties.“ He finished the statement by stating, “we look forward to working with the PTO as it seeks guidance on implementation of the new law.“

The debate over the America Invents Act covered several amendments addressing issues such as business method patents, but the most important amendment in terms of the U.S. Patent and Trademark Office's operations was offered by Sen. Tom Coburn (R-Oklahoma). Coburn's amendment would have removed any vestige of patent fee diversion into the general treasury, but the Senate voted by the razor-thin margin of 50-48 to table the vote, which quashed any further discussion.

Sen. Pat Leahy (D-Vermont), chairman of the Senate Judiciary Committee, said “acceptance of [Coburn's] amendment will effectively kill the bill. The leadership of the House has told me“ it would gain no traction in the House under such circumstances, but Coburn would hear nothing of it. He replied that such threats are “how bullies operate,“ adding that the way “you break a bully is you challenge the bully.“

Coburn remarked at one point that such failures on Congress's part are “why we have a 12% approval rating,“ and he asserted further, “there are 750,000 patents pending right now, and there should be only about 100,000.“ Coburn also made the case that Congress “can change the amount of fees [PTO collects] if they're not doing a good job.“

Shaw hinted that he did not see false marking as a huge issue, although he noted that it can prove somewhat expensive when it does arise. He also said that FTF will change minds about when and what information to file. “I think now a lot of companies take their time“ about filing, waiting “until they've perfected“ or further refined the invention. “They won't file when they're not sure what the commercial value is“ in a first-to-invent world, either, he said. “Now you'll probably have to file pre-emptively even if you haven't quite perfected the invention,“ he said.

The switch to FTF “is probably going to result in a lot more filings for more incremental changes“ as well, Shaw predicted. He also said that the bill's provision for inter partes review “creates a nine-month window for people to come in and try to reverse the decision to grant the patent,“ a feature he confirmed might push applicants to describe more of the prior art in their filings “so you can inoculate your application to some extent.“

Shaw also echoed some of the widespread skepticism regarding Congress's ability to keep its hands out of PTO's cookie jar. “I don't think anyone thinks Congress will behave itself“ on this score, he said. “I think everyone recognizes the need to stop fee diversion and it didn't happen,“ he shrugged.

Regarding the pendency/patent backlog problem, Shaw remarked, “you see articles by people who think throwing more money at PTO won't solve the problem,“ but he noted that the Board of Patent Appeals and Interferences at PTO is also working under a backlog. “There's nothing in this legislation that's going to address that,“ he said.