John Capek: I am going to really start off with some slides
to put into context the impact that we are seeing of
Healthcare Reform not only here in the U.S. but on the
global basis on the delivery of technologies. I will focus
predominantly on medical devices, although clearly for
Abbott, this impact is felt across our entire business
whether they are pharmaceutical, our diagnostics or medical
device businesses. Particularly, I am going to talk on the
front end regarding what major trends we see whether those
be demographics or overall globalization which are affecting
how we consider technologies as they are brought into the
market. And then I am going to spend a great deal of time on
the back-end of my presentation and how companies I see are
managing through this fairly turbulent time in a means by
which we can improve not only the predictability but the
potential successes for technologies which I think will
affect the overall delivery of health care over the next
decade.
I will be remiss to not talk about things in the context
although medical devices and prescription drugs are part of
the equation, it is far from the entire part of the
equation. And here is just shown in the United States, you
can see that prescription drugs in 2007 represented
approximately 10% of our overall spending in health care,
medical devices being particularly in hospital, a portion of
hospital care and also some portion of those devices which
are used out of hospital. And I know through the
presentations over the course of the day, today, you will
hear from various different segments and various different
segments because in order to truly address the efficiency
and effectiveness of health care systems, one needs to
consider all aspects of the pieces of these fairly large and
obviously growing expenditures for the country.
Also, put into context, what we see and it's not only the
aging of our population around the world but the relative
magnitude of patients who are entering what one could
consider the consumption of health care dollars, which is
very heavily focused on patients towards the end of their
life, particularly those in 65 to a 100. And although it's a
portion of the pie in Asia, it is absolutely a large number
of patients which are entering this portion of their life in
which health care dollars are predominantly consumed. So
globalization issues and particularly the emergence of Asia
as an important part of our global health care system is
absolutely critical to understand.
One of the drivers, and you will hear about this and I am
sure you are aware of it, is what many people may call the
epidemic, if you will, of diabetes and how diabetes not only
prevalence but incidents and the percentage of patients who
have diabetes are detected around the world. And shown on
this chart is just in high categorization how many patients
are diagnosed in India with really here 20 million people in
comparison to the 20 million patients we have here in the U.
S. but a much larger prevalence indicating that perhaps, one
of our solutions long term to addressing the impact of
diabetes has on health care systems is earlier
identification and earlier treatment of a disease which can
lead to significant comorbidities and issues for patients
over the course of time.
Another driver for what's going on in the health care
system, particularly in medical devices but across, is the
integration of really four major categories of technologies;
the integration of IT into devices, pharmaceuticals and
devices, IT into pharmaceuticals, and a growing focus on
whether we can through genetics understand the prettiest
position for a patient to respond to therapy whether that
would be a pharmacologic therapy or device-based therapy.
And with these four major integrations, one area of
technology that I am very familiar with and we see this
already impacting how therapies are being developed over
time is the field of interventional cardiology. And one can
see that although in the first 25 years of interventional
cardiology, the predominant mode of therapy was mechanical
whether that would be with balloon angioplasty or
atherectomy devices. The primary therapy being offered to
the patient was mechanical therapy.
Now, we are making the transition. We may use radiations for
a period of time, now drug-eluting stents moving forward
into the use of proteins and/or other genetic engineering
approaches to actually move into molecular cardiology. And
this is having an impact on the marketplace, it's having an
impact on a number of therapies since one looks at the
overall evolution of an industry. These are technology
integrations which are happening in the more recent decades.
I am showing here an interventional cardiology. It's been 70
years of therapy development, predominantly now approaching
four decades of interventional approaches in the coronaries.
But drug-eluting stents represent the last 10 years. And you
can see on this slide the fairly rapid adoption of
technology, and you can see the turnover and growth of
Percutaneous Coronary Interventions which occurred first
with the evolution of bare-metal stents and then the
opportunity to add a pharmacologic agent to a bare-metal
stent to reduce the incidents of restenosis and improve the
outcome for these patients over the course of time.
And that has really driven a PCI volume here in the United
States of approximately 1.1 million procedures and a fairly
rapid adoption of technology. But with that has come
challenges. Those challenges predominantly as we integrate
technologies, whether they would be drugs into devices or IT
or information systems into pharmacologic therapy, we are
putting stress on our regulatory approval system here in the
United States, what the so-called combination products
represent. And although there have been combination products
over the course of time which started out with a
pharmacologic agent and a device which will package
separately but intended to be used together. So those which
are now being fully integrated together for which the safety
and effectiveness of the product is predominantly driven by
the integration of those two therapies into one device or
one overall approach for treating the patient.
What's the implications of that? Well, clearly, as we
integrate therapies, they become more complex. Understanding
the second order effects of that integration are
increasingly challenging, requiring longer clinical trials
and more investment for companies to bring this into a
market reality. So what does that mean? And I am just going
to use by example several technologies that are part of our
business in the medical device field of Abbott and how these
integrated challenges are affecting the overall utilization.
And then I am going to summarize at the end with how
companies are trying to deal with this increasing challenge.
You look here and I mentioned Percutaneous Coronary
Interventions here in the United States, and you can focus
on the upper part of this slide where we see roughly one
billion procedures being done in our 300 million patients,
which gives us a PCI per million rate of approximately 3,
400. You can look at that utilization rate in the main
categorization of Europe where it's 1100 in India, where it'
s 106. So we have here an order of magnitude difference
between the adoption rate of PCIs per million in India
versus what we have in Europe and/or clearly less than the
United States. You can see China just approaching 200 and
Japan fairly high utilization of this therapy at 1,700.
Now Europe, although we many times talk about it as an
aggregation, one can see that even within Europe where
Percutaneous Coronary Intervention products are approved via
the CE mark that there is factors which are influencing the
adoption of technology which can change that utilization and
you can see since the average is 1.1 or 1100, that there is
a number of countries below this chart which actually have
utilization far below that average in order to have these
utilizations in Switzerland or Germany which are actually in
excess of the utilization we have here in the United States.
So it's not just technology that drives therapy adoption.
There is other factors, clearly reimbursement and the
overall approach physicians have to treating patients at
different deciles of their life. What are those factors? And
I just summarize them here on how does that impact not only
the opportunity to treat a patient with PCI but also the
adoption of technology. I showed before a fairly rapid
adoption of drug-eluting stents here in the United States as
a means of including outcome. Well, that adoption rate
across Europe is about 50%, here in the United States
currently it's about 80%. And as shown on this slide, you
can see there are many factors which influence the adoption.
These are generally the same patients with the same disease
etiology and the same demographics which are driving them
into the opportunity to be treated with not only PCI but
drug-eluting stents but clearly there are factors in our
health care system which are affecting overall utilization.
Well, what does that mean? If one looks at it on this chart,
you can see the size of the circles are representing the
numbers of PCIs which were being done. How is the year-over-
year PCI growth, Percutaneous Coronary Intervention growth
rate, one year versus the next? And what is the overall
utilization on drug-eluting stents, so the drug-eluting
stent penetration?
You can see that the two countries, large countries
obviously that are growing rapidly are India and China.
Their utilization of DES is actually quite high but their
growth rates now are far else stripping the growth rates of
PCI, in any individual country or here in the United States
or Europe as a whole. So what does this mean? Well if one
looks at these growth rates which are now almost between 15%
to 20%, that means every five years you are doubling the
number of procedures which were done. And in approximately
five years, the number of Percutaneous Coronary
Interventions done in India and China will exceed that
number that's done here in the United States, requiring
investment in the infrastructure to support the therapy,
requiring the training on physicians, requiring an overall
understanding and utilization of the technology. As you can
see, there are very different growth rates.
What does this drive in terms of looking at market
structures? We used to talk about interventional cardiology
or cardiology in general as being a 70-30 market where 70%
of the market opportunity was here in the U.S., 30% all U.S.
Well it's almost flipped 60-40 and soon with these growth
rates of the international patients, aging of those
patients, acceptance of technology, we are headed over the
next decade towards the opportunity for therapies to be
brought into the global market being 20% here, 80% outside
of the United States. It's important to understand that as
you look at global companies and how they are pursuing the
globalization of technologies.
I will just make two other points and then talk about the
strategies companies are using in other therapeutic areas.
Here is a chart which shows cataract procedures, probably
one of the oldest surgical procedures, the most common
surgical procedure done here in the United States, and you
can see given the longevity that these procedures had across
the globe. There is much more of a uniformity of how
procedures are being performed, with the exclusion here I
would say of China which is relatively underutilizing this
therapy versus the rest of the procedures per-million
calculations you will see in most other countries.
And I will show this slide for laser vision correction. How
many of you have had laser vision correction? By show of
hands, you can see here in the United States, we do this
calculation, it's 0.002 per million. So clearly a therapy
which for those who have had, it's remarkable in terms of
the clarity of vision that can be provided but a therapy
which is challenged to get its overall penetration to a
level where we see other medical procedures.
So how is this affecting innovation? And I want to focus on
really three aspects towards this. The increased risk is
driving decreased investment, that is the reality I know
that several speakers which will talk about this in the
context of investing whether it's entrepreneurial investors,
venture capital investing or even syndicated investments,
the increased risk is driving a decreased investment. How
are companies responding, companies like Abbott and other
companies to increase our return on investment because we
are in this business, we are not getting our of it, how do
we improve our return. And then finally, really an emerging
area instead of innovations being pushed into the market or
pulled into the market, I want to compare and contrast how
those two technology developments really are being invested
in by various companies.
So first, with the integration of more complex technologies,
we are seeing overall more risk, more time to develop these
technologies and by virtue of that, more money being
required to bring them through to commercial reality. What
that's driving is less predictability, lower returns, and
less investment. This is the challenge I think overall we
see within the health care environment. What are some of the
implications of that? We are seeing small company exits.
They can no longer raise the capital in order to bring their
technologies to fruition. That's a challenge because at
least in the medical device field, a great deal of the
innovation, whether it's been in cardiology, orthopedics or
even in the area of ophthalmology, a lot of that innovation
has come into the marketplace via small companies and
entrepreneurial ventures.
We are seeing fewer medical device companies pursuing PMA
products. Although 510(k)s are not easy, they are generally
shorter and more predictable than PMA products. We are
seeing increasing timelines and requirements for 510(k)s as
well and overall more OUS only technologies. When 80% of the
market, global market exists outside the United States and
the challenges of coming through are regulatory approval
process here is made more complex, companies are choosing to
not enter the U.S. which does create some challenges for
overall health care system.
You can hear these statistics. There clearly is a reduction
in number of companies submitting PMAs; the timelines for
PMAs are getting longer; the timelines for 510(k)s are
getting longer; there is a decreased level of investment
from the venture community. All of this is putting a
challenge on the overall innovations that are brought into
the health care environment.
Another factor is the consolidation. So we have seen
consolidation in interventional cardiology. Three decades
ago, there were many companies in interventional cardiology.
Now there are predominantly four. In the cardiac rhythm
management field, they are predominantly three. In
ophthalmology, there are three. And so what's becoming more
and more challenging is companies striving to be bigger and
broader and more global in order to address the overall
challenges of health care system.
So how are companies responding, and I break this up in the
slide into really four different buckets. We see internal
and external incubators, early-stage equity investments and
entrepreneurial structure, how are companies dealing to put
innovation into a cycle that can be successful on the front
end. We are using building blocks, trying to fail those
technologies early and increasing pre-clinical evaluations
in order to improve the predictability of technologies when
they hit the fairly expensive clinical regulatory phase,
which is now driven by a larger first
[inaudible] trials, trials which are set to get global
approvals and an increasing commitment to conduct post-
approval trials as a condition of approval in various
countries around the world.
And then finally, once you have a technology to improve your
return on investment, how do you take that technology global
as quickly as possible, not only to increase revenues but to
manage the overall risk of reimbursement and overall
lifecycle management. We are able to then iterate
internationally while bringing technologies in a more gated
fashion here in the United States
One of these areas, and I mentioned this before, in the
past, there were small companies pushing technology into the
market. Now we see much more companies moving in a structure
where they actually pull technologies forward. They actually
have a clinical need and they set a structure in place to
try to pull the idea from idea generation to invention to
innovation. Sometimes they are called incubators but really
it's an opportunity to identify large clinical need and then
bring it forward. One that I am very familiar with within
our legacy guiding organization, now Abbott organization is
development of a fully biodissolvable drug-eluting stent, an
idea which has been really resident for many years. We
created an entity, an entrepreneurial entity, to take this
technology from early concept development into commercial
reality in a relatively short period of time, and I say
relatively because the idea has been about as hold as one
can be in interventional cardiology where a significant
amount of progress has been made over the last seven years.
So in summary, what are those factors, what are the main
factors that I see affecting the development of technology?
We are seeing more complex technologies with more expensive
and longer development times. This is driving fewer
companies to be participating in the development of these
technologies. We are seeing fewer but bigger clinical trials
and that has an impact overall on health care systems and
academic as well as clinical institutions around the world.
We are seeing earlier clinical direction and focused
endpoints being a key to success. So starting to focus
earlier to improve the success of a technology later is
becoming more of the norm as opposed to where it had been
range finding to say in past.
And then finally, I think we are seeing fewer but bigger
product advancements. So anyone can call that stage-gating
of technology advancements but because it takes so much to
get it through the pipe, focusing on bigger technologies but
with more spacing between them. Then technology convergence
is here to stay. It's a reality. I think it has tremendous
potential to improve the outcomes for patients and as I
mentioned, that's IT services into devices, devices into
pharmaceuticals or vice versa and overall genetic
engineering into understanding the predisposition of
patients to respond to either pharmacologic or device-based
therapy.
Public policy reimbursement structures now are becoming
increasingly important in the adoption and utilization of
technology, even though those technologies may be more
broadly and more globally available. And then finally, I
think as in any case, with these challenges comes the
opportunities for those companies, who can figure out how to
navigate through those challenges to have an increasing
impact not only for their own corporate growth over the
course of time but their overall development of certain
therapeutic categories.