By DON LONG
BBI
and HOLLAND JOHNSON
BBI Associate

Adding emphasis to the inexorable growth of the orthopedics space within the medical technology sector, both the JP Morgan Healthcare Conference in San Francisco in early January and the Piper Jaffray Health Care Conference later in the month in New York, featured presentations on aspects of that branch of medicine. While minimally invasive surgery (MIS) is here to stay insofar as orthopedic procedures are concerned, other advances in the field are coming a bit more slowly. More important in orthopedic repair are the changing patterns of what is happening to our hips and knees, both old and young. These were very much the consensus views during a hospital-oriented panel titled "Current and Future Trends in Orthopedics" at the Piper Jaffray conference at the Pierre Hotel.

Generally establishing these parameters during the panel was Richard Laskin, co-chief of the Knee Service at the Hospital for Special Surgery (New York) and professor of orthopedic surgery at the Weill Medical College of Cornell University (also New York). Early on, Laskin did a bit of balloon puncturing, calling "minimally invasive" the "wrong term." Rather, he said MIS should be described as offering surgical incisions "smaller than what we used to do last year [or] years ago."

He granted that the incisions in hip and knee surgeries "are generally smaller, some really small, some medium-small we're all trying to do less tissue damage. All our incisions are smaller." While saying that this equates to less trauma to bone and soft tissue, he also pointed to a range of undocumented variables, including differences in patient sizes and lengths of their hospitalizations. While it is assumed that MIS shortens hospital stays, and Laskin said this is probably true, he added: "nobody has proven that."

Rich Seldes, MD, an orthopedic surgeon and director of orthopedics at North Shore University Hospital (Forest Hills, New York), emphasized that the physician's judgment trumps the incision size since doing the procedure correctly is the main goal, not procedural elegance. While agreeing with Laskin that MIS may be a "misnomer," he said that "in terms of results, [MIS] patients do require less pain medication and they do rehab a little quicker."

Seldes said "Smaller and smaller incisions [are] here to stay as the techniques continue to evolve and operations are even less invasive." But he added a qualification: "Bottom line, it is still a major operation, no matter how small the incision, no matter how you [reduce disruption of] the small tissues."

Laskin and Seldes were equally cautious concerning any projected rapid uptake of robotically assisted orthopedic hip and knee replacement, citing long learning curves, increased procedural times and the resultant reduced patient throughput in the operating room. But, Seldes acknowledged, "Computer-assisted technology will help with MIS, and that's where orthopedics is going."

Maryellen Keenan, the third panelist and an operating room business manager at the Hospital for Special Surgery, said that the best approach was for a "champion" to lead a hospital's efforts in pursuing this technology.

Another trend that the panelists clearly had issues with is the increasing number of direct-to-consumer advertisements pushing orthopedic procedures. Patients, Laskin said, are going to orthopedic surgeons and saying, "I want that total hip that Arnold Palmer has, or I saw a patient going up and down a hill in San Francisco that's the total knee I want."

He said, "I don't like the idea, but companies love it. It gets them much more bang for the buck with the public." But he charged that TV advertising was too susceptible to being "pseudo-scientific." Not disagreeing, Keenan said that orthopedic firms apparently would continue the direct-to-consumer approach for one simple reason: "it's working."

Besides expressing their concerns about some of the much-bannered trends in orthopedics, the panelists agreed that new technologies need to be adopted according to cost-control guidelines carefully set by their hospitals and thus perhaps limiting adoption. Another control, cited by Keenan, is physician peer pressure. Laskin emphasized also that while new technologies might be promoted as superior, hospitals would not find small improvements easily rationalized by large pricing increases.

Overall, and perhaps most importantly, the panelists were very much in agreement that hip, knee and other orthopedic reconstructions are likely to grow and keep on growing. Seldes described his center, North Shore University Hospital, as seeing orthopedics as "an area of growth that we're currently trying to develop. We're developing certain pathways in terms of making surgeries efficient, every step of the way planned [with] specialized staff and instrumentation, coordination of a lot of different disciplines." A key incentive, he acknowledged, is that "reimbursements are generally higher for joint replacement than other procedures."

Laskin described a "steady increase in the number of implants" at his center at the rate of 15% to 20% per year, with knee replacements growing faster than hip replacements.

While the panelists pointed to the oft-repeated and well-recognized fact of aging demographics as a key driver for this trend, they noted various other factors related to damaged hips and knees.

"We have a large cadre of people who have done something to their knees in their 20s and 30s," Laskin said, "and in their 50s their knees start going. From age 65 to 100, we have garden-variety arthritis, but now [also] a younger group with post-traumatic arthritis." Besides this growth on the "younger side," he pointed to seeing "an older side super-old people, 85 and up. Both of these groups are adding on at a tremendous rate."

Still another growth area noted by Laskin is revision surgeries "a lot of implants [used] in the 1980s wearing out" and making up about 20% of total procedures. "As patients live longer, the chance of patients outlasting the implant is greater and greater," he said, "and if you want to do more, you can do even more."

"It is a market that will continue to grow," said Keenan. "It's trending more towards knees than hips, but both are growing. As baby boomers age, there's a high demand for these types of procedures." She too saw the target populations expanding with "younger and older patients that we haven't been doing before, whole areas never captured before. We're doing hip replacements in 40-year-old patients, with ceramic-on-ceramic hips. A lot of times that patient wasn't even touched 10 years ago."

Is there a limit? Not really, the panelists agreed. "Topping off depends on the number of beds you have," Laskin said, noting that his hospital is putting in more beds to meet demand, even building more operating rooms. "The limiting number is nothing but capacity of hospital to take care of these people." Seldes echoed that point, commenting that if hospitals cannot expand rapidly enough, specialty hospitals will absorb the further growth that will surely come.

Another panel at the Piper Jaffray gathering specifically focusing on the artificial disc, the very newest product in the orthopedics arena.

Introducing the panel, titled "Acceptance of New Spine Technologies from the Perspective of Third-Party Payers," was Piper Jaffray's Gunderson, who asked the panel if the uptake of this very groundbreaking technology is "a zero-sum game, going to the moon, or a 2% ramp-up?" The answer would seem to be the last of these, according to the panel, with Thomas Errico, MD, of the Orthopaedic Institute at New York University Medical Center's Hospital for Joint Diseases (New York), an inventor and orthopedic surgeon, summing up a very key problem: "How to pay for these devices" while dividing up "the healthcare pie in general."

That's not particularly good news for the Charit , the artificial replacement disc from Johnson & Johnson, whose DePuy Spine (Raynham, Massachusetts) unit last year won the first commercial approval in the U.S. Tom Sherman, MD, a spine surgeon practicing in Minneapolis-St. Paul, noted that use of an artificial disc is "an interesting concept for allowing motion preservation [of the spine] safely and effectively." But while Sherman said that he had been trained in the use of the Charit disc and had "some [patients] in the pipeline," he had performed no implantations of the disc as yet.

Asked why not, Sherman expressed concerns about "potential big hurdles and challenges" on the clinical side. These concerns included questions about the company's clinical trials a comparison with spine cage devices rather than with spinal fusion, he said and the risks of mortality, this latter the result of an anterior surgical approach that requires a tricky negotiation around the aorta and vena cava.

Sherman said he had additional reservations concerning the training for use of the device, saying it was done on "cat spines rather than cadavers" and that the procedure requires a high level of technical demands. "You need more technical skill. You have to completely mobilize that disc space and get [the disc] in the right position. If you're off by 3 mm, the results are not as good."

He also said that, to his knowledge, reimbursement had been "uniformly denied so far."

Errico, the panelist most supportive of the artificial disc technology, reported his facility doing many implantations of the Charit successfully, calling it "ideal," and that the procedure, done minimally invasively, allowed the patient to stand "the next day." He added: "There's no recuperation, you sort of get your instant gratification and maintain the motion of that segment" as dramatically compared to the long recuperation periods of spine surgery. And he predicted that the disc replacement procedure would reach 20% of available spine surgery cases "in the next 10 years."

Both Errico and Sherman said that a key issue was patient selection in treating spinal problems. Patients may come with a variety of complaints about "other stuff that goes along" with back pain, Errico said, and that the surgeon must "sort out the wheat from the chaff. Patient selection is overwhelmingly the biggest challenge for spine surgeons in applying any of these technologies. It definitely requires more than looking at an MRI scan and deciding." The artificial disc offers "no panacea," he said.

Still another barrier cited by Sherman was resistance to the technology by neurosurgeons who, he said, "do half the spine surgeries. They're very, very slow in accepting and adopting the artificial lumbar disc and jumping on that bandwagon."

Better chances were given by the panel to the proposed uses of artificial discs in the cervical region and artificial nucleus replacement technologies. Sherman noted that such artificial discs in the cervical area would be much easier to implant. "The approach [for cervical disc implantation] is identical to decompression of nerves and cervical fusion . . . Some of those hurdles resistant to acceptance [of an artificial disc] in the low back just don't exist in the neck," he said. And Sherman supported the use of nucleus replacement as requiring a simpler, traditional procedure for the surgeon. "Also, it doesn't burn bridges. In those patients in whom it does not work, it's very easily revisable much more easily than an artificial disc."

Addressing the issue of reimbursement once again, panelist Terry Corbin, MD, said the advantage of the artificial disc for payers is getting "back to work faster, so why wouldn't you want to pay?" But he added that the process of regulatory approval hadn't answered "all the questions that physicians and insurance companies need to have answered."

Corbin cited the principle of evidence-based medicine to prove "that your new therapy has to provide good value compared to the next best alternative. It's not real clear what the next best alternative is." He added that comparing the Charit to fusion cage devices had not equaled a comparison to current state of the art and so "that doesn't exactly answer the question."

Given the various hurdles to be crossed, Errico said, "traditional fusion surgery is not in danger, but [the artificial disc] is going to make steady inroads," and eventually "cannibalize" other sectors of the spine repair market. Besides projecting artificial discs eventually penetrating 10% to 15% of the traditional fusion market, he offered the view that "spine surgery will continue to grow."

Someone who sees what's happening in the spine sector as nothing short of a "revolution" is Scott Blumenthal, MD, who served as a luncheon speaker during the JP Morgan conference. An orthopedic surgeon specializing in the spine, Blumenthal also is president of the Texas Back Institute (TBI; Plano, Texas) as well as the director for Center for Spinal Arthroplasty at TBI.

Despite his protestations to the contrary, Blumenthal is uniquely qualified to speak on the topic, having been involved in such prominent clinical trials as that for the Charit artificial disc, in which he was the principal investigator.

Blumenthal said that the last decade has seen the rapid emergence of potentially useful new products and procedures. And minimally invasive surgery (MIS) has entered the field in a particularly big way over the past 10 years, he said. The decade also saw the first trials for the artificial discs and total disc replacement. And he pointed to biologics as really showing advancement over the same period, culminating in the development of bone morphogenic protein.

A lot of companies, both small and large, are delving into the MIS game, Blumenthal said. Farther out in the future or what he termed "the view from 10,000 feet" he said the spine space "looks like it's going to be in miniaturization; genetics, image-guidance and robotics seems to be something we're working toward." Added to that, he listed the areas of biologics, including cell regeneration, disc regeneration and a range of other biomaterials.

Getting back down to the "ground level," he said the spine market is still a "large, fast-growing, exciting med-tech sector." While characterizing the sector's potential as virtually "limitless," Blumenthal noted that there are projections that the market could be worth more than $10 billion by 2014 at the latest. "There are multiple aggressive spine companies, there are new entrants to the field, it's the highest-growth segment of orthopedics," he said. "There are significant product opportunities and a very favorable market for the technology."

While the potential for the market is there, Blumenthal put the spine segment as still somewhat lagging behind other areas of orthopedics. "We still conduct pretty invasive surgery, we still do fusions and it's a very complicated market," he said, adding that there are roughly 78 dysfunctions of the spine, with many of these very difficult to diagnose.

He said the dynamics are such that MIS has a huge growth opportunity, with the other "biggies" being arthroplasty and biologics.

Another advantage to spine ranked by Blumental as the highest-growth sector in the orthopedics space is that this market growth enables non-fusion technology without really cannibalizing spinal fusion, the current "gold standard" of spine treatment. However, as these non-fusion technologies evolve, he said the total fusion numbers will go down.

Total disc replacement meaning use of an artificial disc is just one form of spinal arthroplasty, and potentially the most lucrative. But other technologies, Blumenthal said, also fit the definition of arthroplasty, which is essentially motion preservation technology of the spine. Other technologies within that arena include nucleus replacement or partial disc replacement and posterior dynamic stabilization.

While he said all of these are certainly important, he characterized total disc replacement as promising to be the most significant, likening it to the frequency of total hip and knee replacements. While everyone may not agree on what version of this new technology is the best, "everyone agrees that total disc replacement is revolutionary. Why? because it's the first time that we're able to relieve pain and preserve the motion," he said, and that's something not achievable with good old-fashioned fusion.

Moving on to nucleus replacement, Blumenthal said that this technology has the potential to be a spectrum treatment "expander" and could possibly be an adjunctive therapy to the most common lumbar spine operation, the laminectomy. One of the primary challenges to adoption of the new artificial disc replacement technology, he said, is the "incredibly slow" adoption for reimbursement by third-party payers. "That has been our biggest challenge post-FDA approval." Blumenthal said that this list includes all the big health insurance companies.

He also noted that the technology has been covered under a lesser DRG reimbursement code than is necessary to cover the cost of the procedure, being lumped together with a decompression or lumbar laminectomy instead of the higher-paying spine fusion code, for which it is actually a substitution, a possible hindrance to physician adoption. Blumenthal said he believes that the device will see off-label use to treat multi-level disc replacements. "Off label use . . . is pretty much standard-of-care in appropriately selected patients," he noted. That being said, he tells physicians that he trains in the technique to stick to the standard protocols, including single-level fusions only at least through the first 50 cases. "After that, you've achieved pretty much the apex of the secondary learning curve." Blumenthal noted that being able to perform these multi-level procedures is not going to help just a few patients. Rather, "you're going to be able to help a lot of patients."

Successful IPOs help drive firms

Last year saw a blooming, or rather re-blooming, of initial public offering (IPO) opportunities in healthcare, and two of the med-tech success stories in the marketplace were Kinetic Concepts (San Antonio), focused on wound care, and Animas (West Chester, Pennsylvania), developing insulin pump technology. Kinetic Concepts, already robustly profitable, tested those waters early in 2004 and garnered about $620 million, while Animas, still moving into a profit mode, pulled in more than $63 million several weeks later.

Introducing Kinetic Concepts CEO Dennert Ware, Piper Jaffray's Gunderson said that the firm's IPO was "one of the best-performing of recent memory," adding that the company "transforms the image of what a wound care company can do." Kinetic Concepts, said Ware, operates "as a billion-dollar company with two business platforms" its V.A.C. (vacuum-assisted closure) wound care technology and "therapeutic surfaces," meaning specialty beds for the handling of difficult-to-care-for patients, such as the extremely obese. The V.A.C. technology produces 70% of the company's revenue, Ware reported, growing in its most recent fiscal year by 45%. He reported V.A.C. sales of $699 million for the year, with a market opportunity "in excess of $3 billion" in the U.S. Terming the V.A.C. technology "the No. 1 brand in advanced wound care," he said its primary focus is on "complicated wounds" that, otherwise, may result in extended healing time, amputations, "even death."

The system consists of a pump and self-contained canister for collecting exudates from the wound, plus tubing and dressing. "V.A.C. removes interstitial fluid from a wound by applying vaccuum through a sponge, through an occlusive dressing. It removes harmful materials by using intermittent mechanical force to adjacent tissue, promoting self-proliferation," Ware explained. The company's VAC Freedom enables patients to be ambulatory and heal while at home. The target for the systems is tough wounds such as chronic pressure ulcers, abdominal compartment syndrome, and vein graft wounds associated with coronary bypass procedures, with Ware providing highly graphic examples of such wounds and subsequent healing.

Ware said the system "works better than any other treatment modality" to promote healing in these cases and that Kinetic Concepts has little equivalent competition "the way we do it," though it is pursuing a patent action against one firm and "proceeding in an orderly pattern on that." The company is eyeing up to 1.4 million difficult wounds annually, according to a consultant's estimate, "that should be V.A.C.-ed," he noted. Specific markets are the acute care, extended care and home care segments.

A plethora of studies are supporting the use of V.A.C. in terms of its healing ability and overall savings, Ware said. "We can't say it has standard-of-care recognition everywhere, but more and more physicians and [medical] societies are recognizing the value of treating with V.A.C." Reimbursement initiatives, he added, have resulted "in more than 200 million lives covered" and the company is showing insurers "the kind of value they're actually receiving."

The company's therapeutic surfaces business produced $294 million in sales during its last fiscal year, with Ware calling that business "relatively stable, but we expect it to grow in the low- to mid-single digits over the next several years." The main growth area for this unit is the company's newly introduced Roto Prone bed, providing a "very high-end therapy," he said. "It's a good clinical sale, an important sale. We have had good clinical results and we will continue to build more time in our sales force for the Roto Prone to make that sale occur."

Eschewing the multiple unit/ product line model, Animas puts its efforts entirely on the insulin pump market, with CEO Katherine Crothall outlining at both the JP Morgan and Piper Jaffray gatherings the company's plans for growth and also helping to reverse the under-penetration of the sector. Crothall bannered the company's IR 1250 pump, about to be rolled out, as "the smallest, slickest and most technologically advanced pump," describing it as "like cool cellphones, with three metallic colors and music tunes for alerts."

She emphasized the importance of "cool" in a disease area where patients, especially teens, may be embarrassed to use pump devices and where ease of use is critical to self-management 24/7. Thus, "Patients often choose [a pump] on the basis of aesthetics, coolness," Cothrall said. The device also features "more lines of display, a huge database, the easiest user interface," enabling the patient do a variety of functions such as "look up foods, adjust portion sizes and automatically calculate the number of cards and required bolus size."

On the patient side, key barriers are "ignorance of the therapy" and the concept of 24/7 management, combined with "technophobia." For prescribers, she pointed to the eight to 20 hours required to get a patient "up and running" on a pump, heavy paperwork and clinician feeling that patients are "too stupid or lazy to benefit from the therapy." She emphasized close company contact with patients, saying that in this sector "service is of paramount importance."

Animas has recently expanded its R&D pipeline with two additions of technology. It acquired exclusive worldwide license rights to micropump and microneedle technology from Debiotech (Lausanne, Switzerland) for $12 million and 400,000 restricted shares, and Cothrall predicted the launch of the first "micropump" sometime in 2007. That pump, she said, will by about 25% smaller than its current smallest pump while still providing "high precision, high accuracy and inexpensive enough to be sold as a disposable product." The company late last year agreed to purchase the intellectual property and assets of Cygnus (Redwood City, California), primarily its GlucoWatch and its related electrochemical sensor tech.

The overall goal is expansion of the company's share point, which she said is now second to Medtronic MiniMed (Northridge, California). No small task, since Art Collins, CEO of Medtronic, had promised in his Piper Jaffray presentation a day earlier a continuous rollout of new pump products and movement toward an integrated sensor/ pump system.

Cothrall estimated pump sales for 2005 of between $82 million and $84 million and producing "our first truly profitable year." She said the company's emphasis over the next two to three years "will be vertical growth by getting prescribers to do more pumps per year as opposed to [marketing to] additional prescribers." Most, she said, prescribe fewer than 15 pumps per year. "Theoretically, they can do 50 pumps per year, so there are significant growth opportunities."

Diagnosis: Growth for testing products firms

Those who stuck around for the last day of the JPMorgan conference still had a bevy of interesting companies to hear from, many of them involved in the diagnostic space, including such notables as Dade Behring Holdings (Deerfield, Illinois) and Qiagen (Venlo, the Netherlands).

Dade Behring is a provider of in vitro diagnostics (IVD) products and services to clinical laboratories. The company manufactures a range of IVD products and services that include medical diagnostic instruments, reagents and consumables and maintenance services. "We are the largest company in the world that is totally focused on clinical diagnostics," said company CFO John Duffey during his presentation. That is important, he said, "Because we don't have a bioscience or a pharma business that detracts from our focus on the central lab business."

That focus, he noted, has translated into a company with in excess of $1.4 billion in revenue operating in 43 countries, with more than 6,000 employees and an installed base of more than 34,000 diagnostic instruments. According to Duffey, diagnostics is a $23 billion industry, and central laboratories those in hospitals and reference labs comprise roughly $15 billion to $16 billion. "We focus on $12 billion segments within that overall central lab market the immunochemistry segment, microbiology and hemostasis."

He said the central lab sector is a "very stable space" to be in, with a recurring long-term revenue stream. The company's large installed diagnostic instrument base purchases reagents and tests from Dade Behring, representing a classic razor-razor blade business model. In fact, Duffey pointed out that more than 80% of the testing systems on the market are closed, meaning that only one company's tests can run on their testing instruments, ensuring a captive audience at least while a customer is under one of the long-term contracts that the company sets up (roughly five years in length).

Roughly 89% of Dade Behring's revenue comes from this "ongoing revenue" source of reagents or the services associated with a customer's long-term contracts. One of the company's strong suits is its Dimension workstation consolidation franchise. "We pioneered workstation consolidation with the launch of our Dimension RxL in 1998," Duffey said.

Workstation consolidation allows labs to eliminate the numerous instruments that they would normally have in that setting and consolidate them into one system. The Dimension RxL systems are geared toward the mid-volume segment of the market, which Duffey said represents about a $4 billion opportunity out of the total $11 billion the immunochemistry market is currently valued at.

The company also has products in the low-volume market, including the Dimension Xpand, launched in 2001 and the Xpand Plus, which was just launched in 4Q04. The low-volume market represents a roughly $2 billion opportunity, Duffey said.

The Dimension franchise has been wildly successful for the company, with an average 20% growth rate since its launch. It also represents a revenue stream worth in excess of $600 million, "which to our knowledge is the second-largest franchise in the history of diagnostics," he said.

Importantly, Duffey noted that only 35% of the U.S. market has converted over to an integrated system, "so there remains a tremendous opportunity for us here in the U.S."

Dade Behring still has not tapped into the $5 billion high-volume segment of the consolidation market, but has plans to launch a system for such labs by the second half of 2006.

Also presenting at the JP Morgan conference was Qiagen, which describes itself as the world's leading provider of enabling technologies and products for the separation, purification and handling of nucleic acids (DNA and RNA). It currently enjoys an 85% market share worldwide.

The company has developed an extensive portfolio of more than 320 proprietary, consumable products for nucleic acid separation, purification and handling, nucleic acid amplification, as well as automated instrumentation, synthetic nucleic acid products and related services.

Cumulatively, said CEO Peer Schatz, these products enable life science research and gene-based drug discovery in academic and commercial biopharmaceutical end-markets as well as emerging areas such as nucleic acid-based molecular diagnostics.

"We're not a company selling 50,000 or 100,000 products," he said. "Our average sales per product are $1 million. Most other life science supply companies have an average sale price per product of $30,000, so there's something different about Qiagen."

Schatz said that the company has more than 1,000 intellectual property platforms. He said the reason so many platforms are needed is due to the extremely complex nature of the samples it is working with. "There's no one-trick pony, samples are extremely different. If you talk about a blood or tissue sample they will behave very, very differently."

Qiagen earlier in the week launched what Schatz called a "substantial new product offering" dubbed the QProteome product line.

The company believes that this new product line represents one of the broadest, most comprehensive and technologically most advanced solution portfolios for the fractionation of proteins and will allow rapid conversion of today's applied methods, which are mainly based on home-brew protocols.

Fractionation and depletion of proteins are among the most widely used methodologies in pre-analytical sample preparation of proteins and allow scientists to create subclasses of proteins required for subsequent analysis. Protein fractionation and depletion protocols are increasingly used in parallel to and in combination with nucleic acid sample preparation and analysis products.

The quality of the fractionation is critical to the sensitivity and reliability of analysis technologies such as PAGE (protein analysis gel electrophoresis) and mass spectrometry, enabling scientists to identify and validate diagnostic markers or drug targets in academics, biopharmaceutical and biomedical fields.

That market is still relatively new, Schatz said, with a value of roughly $35 million. "There's a large unconverted market out there that's still using home-brew," he said.

Importantly, Schatz noted that Qiagen's growth is based on internal development. "We're not a company that is growing based on acquisition; we're a company that is growing based on innovation and organic growth."

Also in the diagnostics sector, molecular testing also known as genetic testing was in the spotlight at the Piper Jaffray conference. While it is the hot new thing in the diagnostics market, don't expect molecular testing to elbow aside the broad array of standard tests already out there or at least not very soon. Besides the maze-like clinical, regulatory and reimbursement paths to be negotiated for this expanding sector, genetic testing is likely to complement rather than supplant other testing modalities, according to a panel of experts discussing the role of molecular testing at the Pierre Hotel.

Doug Harrington, MD, CEO of Specialty Laboratories (Santa Monica, California), noted that among the "evolutions and revolutions" in diagnostics, new technologies "always appear to come slower than the hype would lead to believe. There's a lot of technology well proven that physicians are using on a daily basis, but the burden of proof [for their wide adoption] is to show clinical validity."

As an example, he cited oncoming assays for autoimmune diseases. There is an "intense need to get more specific intensity" for such tests and that they are "moving into the clinical lab," he said. But he noted the "burden of proof" on manufacturers to demonstrate that they actually bring additional value and expand on what is already available. That being said, he projected that the opportunities for such tests would develop "fairly rapidly over the next five years, though not to the degree that the manufacturers would hope."

Ron McGlennen, MD, president of Access Genetics (Eden Prairie, Minnesota), said his company is focused on "helping hospitals to bring molecular diagnostic testing into their facilities" and that a critical tipping point is "how to get [hospital laboratorians] to think differently to include DNA and RNA" materials to test. He added that this has been "a challenge around for eight or 10 years."

Still another gatekeeper in determining uptake is the physician, according to Gail Page, president of Ciphergen Diagnostics (Fremont, California), which focuses on proteomics, the study of the proteins produced by genetic variations.

"Physician education is a critical component [for adoption]," she emphasized. "If they don't understand [a test] and don't order it, it won't become standard of care."

As a corollary to this, she suggested that rather than starting with a test and then developing an application for it, a manufacturer would do better to focus on an unmet clinical need "and direct [your] research to produce assays" meeting that need as a clearer pathway to adoption and reimbursement.

Thomas White, chief scientific officer for Celera Genomics (Alameda, California), also emphasized that new genetic tests must provide information that "goes beyond" that provided by standard tests in order to "trigger" their general acceptance.

White projected that one area of growth where this will happen is in assays for pharmaceutical firms that provide "expression profiles to predict the efficacy of their drugs. The pharma industry is becoming more proactive about getting that information to the FDA and looking for diagnostic partners in the service and manufacturing industry."

Validation comes with "replication, replication, replication," he said, and with research done in more than "a single population."

Population-based studies, White noted, "have the advantage of showing how genetic tests can be performed relative to standard tests or against standard methods of biochemical testing." Then must come "peer-reviewed articles and multiple peer-reviewed articles."

McGlennen noted that many funding agencies are looking for "pan-ethnic, transnational sorts of studies of thousands of patients to establish statistical strength."

According to Harrington, validation studies also need to come in three flavors: "analytical, clinical and economic."

Harrington noted that Specialty Pharmaceuticals is in the business helping new genetic tests move "closer to the patient" via the hospital market. "We partner with hospitals to provide full services [for a test] until there is enough volume or expertise. We support that and than replace it with a new test."

And he projected that over the next two years diagnostics will see "a rate of change equal to the last 100 years," thus creating "a huge opportunity" for Specialty and other firms in the sector.

McGlennen described the pathway for molecular diagnostics acceptance as "no different than other areas of clinical lab tests in an earlier era namely, that relatively new tests reside principally in specialized labs and then are evolving into the hospital and smaller laboratories, to [then] the private pathologist and point of care."

Overall, Page also saw greater centralization of these procedures and that "not one will dominate the market." Rather, genetic tests, she predicted, will complement proteomics and current standard test methodologies. "There is room for all of these technologies. It just depends upon staging of the patient and characterization of each individual's test," she said.

As with most discussions of new technologies, the panel concluded by focusing on the importance of reimbursement.

Harrington called winning reimbursement "a challenging sport."

McGlennen called it "absurd" and a "combat."

Ratcheting those descriptors up a bit, Page said of reimbursement: "It's a war."

The reasons for delays in reimbursement, according to Harrington, are that "Payers lag behind clinicians who lag behind research scientists who, in some cases, lag behind companies doing these things." The crux of achieving reimbursement coding, he said and undoubtedly coming as no surprise to anyone in the industry is "a lot of lobbying and effort."

While noting the adversarial nature of the mechanics of reimbursement, Page conceded "a lot of progress" in this area as compared to seven or eight years ago.

And she suggested that the lobbying effort should be broad-based.

"Advocacy groups and associations can be very helpful and can make a difference. They will be very willing to lobby with you and work side by side. There's a mechanistic way to go direct to consumer to influence the Hill and influence the payers."

Aesthetics putting a new face on sector

The aesthetics market is one that some med-tech purists might turn their noses up at. However, the smell of success emanating from this promising sector might cause them to salivate once they realize how lucrative the space can be. Making their pitches at the JP Morgan conference were established aesthetics player Inamed (Santa Barbara, California) and promising privately held newcomer Thermage (Hayward, California)

Inamed, a global healthcare company with more than 25 years of experience, develops breast implants for aesthetic augmentation and for reconstructive surgery; a range of dermal products to treat facial wrinkles; and minimally invasive devices for obesity intervention, including the Lap-Band system for morbid obesity.

According to President and CEO Nick Teti, Inamed will have several exciting new milestones to look forward to this year. He said the company's Captique dermal filler would be launched in the U.S. in a matter of weeks. Based on Genzyme's (Cambridge, Massachusetts) non-animal stabilized hyaluronic acid technology, Captique was granted U.S. marketing clearance in late November. It is indicated for the correction of moderate-to-severe facial wrinkles and is manufactured by Genzyme. Inamed is Genzyme's exclusive U.S. marketing and distribution partner for the product.

The company also reported that it filed a premarket approval application (PMA) with the FDA for its Bio-Dimensional Cohesive Gel Matrix breast implants. These next-generation breast implants are designed for memory and shape retention and are now in the third year of patient follow-up in the U.S.

Another key event disclosed in December is a meeting with the FDA's Plastic Surgery Devices Advisory Panel, tentatively scheduled for April. Inamed's silicone gel-filled breast implants PMA was reviewed and recommended for approval by that same panel in October 2003. However, in January 2004, the FDA issued a "not approvable" letter to the company requesting additional information and also revised the guidance for the information to be included in PMAs for breast implants.

The company also said it will launch a direct-to-consumer advertising campaign for the Lap-Band system, as well as continue to seek a national coverage decision for the product from the Centers for Medicare & Medicaid Services (Baltimore). The band is inflatable and connected to an access port placed close to the skin that allows surgeons to adjust the system to meet individual patient needs. The procedure is reversible and does not require cutting or stapling of the stomach, or gastrointestinal re-routing to bypass normal digestion. Patient benefits include reduced surgical trauma, complications, pain, and scarring and shorter hospitalization and recovery time compared to more invasive obesity surgeries.

Looking at specific franchises, Teti said that Inamed really likes the market potential for the obesity market, particularly in the U.S. "There are 6 million people in the U.S. who are already morbidly obese; if you add co-morbidities to that you're in the 10-plus million number [of patients]. This is a major growth driver and will be a major factor to our business over the next several years." The company also is investigating the use of an endoscopically delivered saline-filled sphere for temporary weight loss. The sphere is placed in the stomach, where it remains from four to six months causing a sensation of fullness. The device is then removed endoscopically.

Then-president and CEO Robert Byrnes made the presentation for Thermage, a promising company that is developing aesthetic devices deploying radio frequency (RF) technologies for use in non-invasive skin tightening and contouring. Byrnes in early February said he was leaving his executive positions to attend to family health concerns, but remains a member of the company's board. He has been replaced as president and CEO by Stephen Fanning, who previously held the same posts at Ocular Sciences (Concord, California).

The system, called the ThermaCool, is a unique monopolar RF device. The differentiating factor between the ThermaCool system and other RF devices, Byrnes said, is a capacitive coupling electrode, one of the company's core patents. Through capacitive coupling, the company said deep, uniform and volumetric heating is deployed to tighten and contour both the skin and underlying tissue, while concurrently applying cryogen cooling to protect the epidermis.

During the procedure, the dermal layer heats up to above 60 degrees C, which tightens the collagen underneath while the skin layer is protected by cooling. New collagen fibers are created, helping firm skin and smooth wrinkles. "The ThermaCool system can produce results in a single treatment that laser-based systems take four or more procedures to achieve," Byrnes said.

He said the system includes five major components: the RF generator, a handpiece, the ThermaTip delivery device, a cooling module and consumable products. The generator produces a 6 Mhz RF signal that can be directed to targeted tissue. The generator, which costs around $40,000, is regulated by a compact, Pentium-based, on-board computer capable of rapidly processing a high volume of treatment feedback from the handpiece assembly, including temperature, treatment application force, tissue contact, and information on the RF interaction with tissue.

The handpiece contains an advanced computer logic board that processes information about skin temperature and contact, treatment force against the skin, cooling system function and other important data. A precision control valve within the handpiece meters the delivery of cryogen, which cools and protects the epidermal surface. The ThermaTip delivery device contains the patented technology components that transform radiofrequency energy into a controlled, volumetric tissue-heating source with simultaneous surface cooling.

The single-patient-use ThermaTip device is available in several configurations of firings, size and depth for efficient implementation of optimal treatment guidelines. These disposable products range in price from around $150 to $700, depending, Byrnes said, upon the application. While the company has primarily focused on the face and neck, he said Thermage would increasingly be turning its attention to other areas of the body, including the arms, legs, knees and elbows and the abdomen.

Byrnes noted that an initial public offering was being considered, expected to occur sometime during the coming year.