Substantial Equivalence: The FDA, CMS, and Patents

11 min reading time

Substantial Equivalence: The FDA, CMS, and Patents

Reading Time: 11 minutes


This 19-minute compilation from 2014’s 10x Medical Device Conference features Ed Black, Tom KraMer, Pat Kullmann, Doug Limbach, and Bruce MacFarlane on the tricky path for device innovation.

On one hand, you want to be THE SAME.

  • If you’re substantially equivalent to an existing device, you get to save on clinical trials.
  • And you likely shorten the time for FDA clearance. On the other hand, you want to be DIFFERENT.
  • If you’re materially the same as an existing device, why should CMS give you a reimbursement code?
  • If you’re materially the same, do you deserve a patent?

Ed Black: A couple of things about reimbursement fundamentals as you go through your own planning. We always talk about kind of the three essential barriers you have to figure out.

There’s coding, whether or not there’s a healthcare kind of procedure code that really describes a service or the manner in which physicians would use it.

Coverage is that question of whether or not Medicare and third-party payors will cover procedures your devices permit and if so under clinical circumstances.

And on payment, are physicians and hospitals going to be paid enough to encourage product adoption without being too expensive, thereby discouraging government and private insurers from covering it?

And in a reimbursement assessment, I think anyone will say these are the three baselines you really need to account for in your planning.

It was the chief medical officer from UnitedHealth Group headquartered here in Minneapolis speaking to our LifeScience Alley Annual Meeting and Expo three years ago, but he got up in front of 1500 med tech executives who are kind of used to getting this nice rah-rah speech for an opening comment at their big annual meeting.

He came up there and he told these people, “You can’t be seduced by all the wonderful technology, toys and other stuff, because every idea ain’t good. And at the end of the day you have to ask yourself, does the technology work? Will it improve quality, help manage costs, be good for the consumer, and meet a real need?”

He kind of stunned the whole audience of 1500 of people who just love their technology, have invested hundreds of thousands if not millions of dollars in it, and all of a sudden were kind of hit with this like, “Yeah, you’ve got all this stuff but we don’t need them, we don’t want all of it, and you’re going to have to figure out how you’re going to sell it to me so we covered for our multimillion dollars worth of members.

And don’t bring me technology that is comparable to what exists out there today and expect me and my staff to go through all this policy review time, figure out whether we should cover this new technology, which is so similar to everything else that’s out there in the marketplace and doesn’t meet a real consumer need, doesn’t help me manage cost because you said your big problem in this country is managing healthcare cost.

Don’t bring me new technology that just fits in here somewhere but doesn’t help me manage cost. I don’t have the time for it.” And it was just a real awakening experience for these people. But it’s kind of the environment that we’re facing right now.

Think about this. We’re dealing with the left arm and the right arm of the federal government, and med tech entrepreneurs have been dealing with the FDA for products clearance for many years.

Understand it’s a big challenge, but you’re getting to sort of understand how it works. And when you work with the FDA…when you go through to clear your product, you do all these clinical studies among homogenous group of patients who have the same disease, you isolate the fact this is the only condition they have, you take your clinical experiments and you take them to the best universities and the best surgeons in the country to prove that your device is exactly what it’s supposed to do, so you really isolate that treatment effect that you can demonstrate to the FDA that this product really is safe and effective.

But then why in the world then won’t Medicare and third-party payors just automatically cover it? I guess I would pose that as an open question.

I mean, think of it.

The clinical trials happen at the best universities and medical centers and surgeons in the country, but you companies don’t market to just those people.

You market to every doctor and every surgeon, anybody who’s going to buy the product, and they don’t all get the same clinical outcomes that the best university centers in the country do. And health plans know this, medical directors know this.

The variation in the real world is much more dramatic than in a controlled clinical environment. You have a clinically diverse group; you have doctors at all different levels of skill; you have physicians who even though you can’t tell them that you can take this product and use it for off-label purposes, these are smart people, they know they can.

So they’ll take device clearance for one indication and use it for another because they think they can in their practice, they think the art of medicine as well as a science, and these are things that health plan and medical directors have to think through all the time when they’re trying to figure out if they’re going to cover a new procedure or technology. So there are all of these reasons why you’ve got two different sides of the coin. You need to figure them out really at the same time.

Joe Hage: A question for Ed. You showed us the two triangles, one up and one inverted, and there’s the FDA animal and there’s the CMS animal, and you talked briefly about how do we as manufacturers get our code, use more or have the third-party payers be more receptive to it? Maybe you could talk a little bit about that.

Ed Black: I put that under the heading of Marketing to Payers, but you have to get in the mindset of what a health client medical director worries about when a new technology comes out in the market. It is like taking that advice that the product that Elizabeth was talking about, shooting for the world to have this applied to everyone with a related diagnosis. Or Ted mentioned the type 2 diabetes market is huge, and if you think you could treat that whole market with your one new gadget and suggest something to a third party payer, that’s a real fast way to get it denied because there is no device that works well for everybody.

You have to think incrementally. You have to think about explaining and encouraging to physicians the most appropriate use for that technology and suggest that you’re going to work with the clinicians on the uses of your product to continue to use it within its defining clinical indication and not stray too far. Be clear and talk about how it replaces other technologies or other therapies, does not add to the cost, add to the treatment continuum. There are all kinds of things that people worry about.

And in certain market areas, if you take the Blue Cross system, these are plans that are pretty state-specific. And these medical policy directors, they know how physicians in their state practice. You may come out with a great new spinal fusion device, but if it’s in a marketplace or a health plan, medical director knows they’ve got a lot of egress with neurosurgeons and the rate of doing spine fusion surgeries is twice the national average.

They aren’t going to let any new product out of the marketplace until they get a better handle on how physicians are using the device already. So it’s being really sensitive about some of the local issues and trying to get an alliance of creating realistic expectations about the populations that these technologies could serve.

Joe Hage: What is an answer that is, “Yes I have a predicate, but I deserve more reimbursement because…” Is there a reasonable route to go to achieve higher reimbursement if you’re not starting with PMA?

Tom KraMer: That may be more of an Ed question than mine because it’s the idea of, do we go out and fight for a new code or do we not? So that example that I gave of that surgical tool using the RF energy, they decided that it was going to be much less burdensome to redesign or re-engineer the device to use it than it was to go and fight for a new code, and I’ve just seen that it takes a lot of effort and a lot of years.

We’ve got another customer who’s fighting for a new code
for a device that they’re trying to put out, and I think they’ve been fighting for that code now for four years, I believe, and they haven’t…I don’t know if there’s light at the end of the tunnel yet. So, from my standpoint as a design engineer, I said, “What can we do to overcome that hurdle? Maybe it’s we design it so we still get the therapeutic benefit we’re looking for and there’s a unique way to design and engineer that so it fits under the old code.” And that’s my challenge. So I take that on as a design challenge to try to do that, but I don’t know. Ed, maybe you want to comment on that?

Ed Black: In referral to codes, I think you’re talking about CPT codes or the codes that physicians use to describe the procedures they do, and there are three…the three components of the new code, the relative value units. It’s:

• the work expense and the manner in which the technology is used,

• the capital expense associated with the device or the technology,

• and the malpractice exposure.

So if any of those are significantly different, then you’ve got an opportunity to make a case. This is not currently covered or anticipated in how they define this particular CPT code.

So this is…dealing with a client right now. They have an enhanced technology for doing colposcopy examinations.

It’s still a colposcopy but it provides digital imaging and mapping systems that provide for more clear and accurate diagnosis and biopsy.

So we’re making the case that, yes, it’s more expensive, there’s a lot more capital expense associated with it, it’s worthy of additional payment because there’s more time required of the physician and there’s more capital expense.

And oh, by the way, we can demonstrate long-term cost-effectiveness by more accurate biopsies and/or fewer biopsies so, yeah, it’s worthy of being covered incrementally, but then we have to get in this case an add-on code for it because it’s something done in addition to standard colposcopy examination.

It gets pretty technical sometimes, but if the approach is different but the technology behind it is different and you can substantiate through clinical evidence that it does what it’s supposed to do, then you have an opportunity.

And if physicians in a medical specialty like it, make it available to those physicians who practice in that specialty, you get their support.

You have to really get them to become your advocates because they’re the ones who carry the weight in talking to the AMA, which controls issuance of these CPT codes, which is why we’re going to Chicago on Thursday and Friday of this week to talk to some of the medical societies on behalf of a couple of clients just so they know what’s coming out of this technology and think about whether they would support elevating this to a category 1 code so it can get paid.

Pat Kullmann: : I’d like to just maybe make a couple of quick comments about your question…I think are important.

I think that in the early-stage medical technology company understanding what your motives and your clients are, not only from an investor’s perspective but from a management or a board’s perspective, are you developing the technology with an exit, some kind of liquidity point to sell the company, get going public?

What are your motives?

Because depending on what your motives are will help to drive you in an ideal or targeted regulatory reimbursement and marketing client to achieve an early objective in milestones that you can arrive at that liquidity point in the timeframe that you want.

So, for instance, in that type of a scenario where—and I think Elizabeth was working with some venture capitalists, and venture capitalists are hungry people who want to see results. They want a 30x return for their money. That’s what they’re in there for, make money, that’s it.

In cases like that when you have a product and let’s say you’re following your 510(k) pathway, the game is to look like the predicate.

When you want to use an existing code, the game is to look like the standard.

When you go to the market, you don’t want to look like the predicate because now you got to go compete against the predicate and the other benchmark for CMS.

So it’s kind of like wearing the two-sided face of a human, you know what I’m saying? The smiley and the sad. At different times you’re going to wear a different face, depending on what your objectives are. Does that make sense?

Doug Limbach: I’ll just follow up on that on the patent perspective, this notion of wanting to be just like a predicate device. It runs in the problems when you’re trying to get a patent on something, you’re telling the patent office, “We’re nothing like that predicate device. We’re completely different.”

And then you got the regulatory folks saying, “Oh, we’re completely like this predicate device.”

There’s a duty of disclosure that patent applicants have to the patent office to make them aware of all of the closest prior art that you’re aware of. And so it’s very important for you regulatory folks to be talking to your patent folks because you’ve got one side talking to one federal agency, the FDA, saying, “Oh, we’re just like this device,” and another side of your company talking to another federal agency, the patent office saying, “Oh, we’re nothing like that.”

That’s probably more than a few companies where you’ve reached your duty of disclosure. If you’re a patent guy, just talk to your FDA person and knew what was being said and make sure consistent things were being said at the patent office. It would have violated the duty of disclosure, which invalidates the patent if you’re not coming completely clean with the patent office.

Bruce MacFarlane: That’s great, man.

Ed Black: And then you tell CMS you want to be paid a third way. You tell the patent office it’s X, you tell the FDA it’s Y, you tell CMS it’s Z.

Pat Kullmann: : Welcome to your government.

Bruce MacFarlane: We thought this might be a follow up question to you, actually. I mean, in the FDA regulatory world, in terms of determining substantial equivalents. When you say it’s similar, you’re saying it’s substantially equivalent.

Well, I’ve had an FDA category that was defined as a plastics-based tissue patch, a surgical patch. The definition was plastic and I got a bovine material that was brought into the market.

Under the category, it was defined as plastic patch, and cows ain’t plastic yet. They’re not plastic yet.

And so my point is that the concept of substantial equivalence that drives how regulatory people say this is similar to that, it has some leeway.

So I guess the question is, does that help us…? If we can say that non-plastic is plastic, does that help you being able to say in a patent, “Aha, I’m like any other patch of animal, so we’re patenting animal-based patch.”

So I don’t know if you have any other comments you’re going to have. I haven’t actually dealt with bumping into this with patents, but I just know that there’s a substantial equivalence, can be very broad, and other times the slightest difference the FDA will say it’s not substantially equivalent.

Doug Limbach: Well, I used to be able to be when citing prior references to the patent office, you know, explain all the differences and the similarities and talk about it.

Now we just keep the record clean, just cite them.

“Here, you need to be aware of this predicate device or maybe even statements or maybe the FDA need to be aware of it. Really it
’s a case-by-case basis of what you do there, but from the patent side of things it’s just the standard is materiality.

Is this predicate device material to the patentability of the claims you’re going after in the script patent application? If you’re anywhere close, it seems material, you just cite it to the patent office and you don’t have to make much of distinction.

Bruce MacFarlane: The other thing about FDA’s regulatory standpoint is you need to be substantially equivalent, which could be interpreted narrowly or broadly by the agency, and then any differences do not raise new questions of safety and effectiveness that you haven’t addressed, you know, the potential problems with testing.

So you can be different and you can even be better as long as you’re not raising new kinds of safety and effectiveness questions. So I’m just again talking here about how that might still, you know, you can still be different in regulatory, support different in a patent and not have the agency immediately reject your product.

And then the other thing though is you can…because there’s De Novo. So you can have absolutely brand new technology. I mean, it can be made out of brand new materials, brand new intended use, everything could be different, and you can still be a De Novo 510(k).

So in some ways I think the issue has dissipated, because obviously with the PMA you can be as different as you want because FDA is brand new, but now with the De Novo 510(k) I suppose the point is it doesn’t matter how different you are as long as you can be a Class I, Class II in risk level.

So maybe to some extent, since the De Novo has come out, maybe this issue…the only reason the issue wouldn’t dissipate is sometimes you can still be very different and still be within the traditional 510(k) where you’re still doing the dance of “we’re the same.”

But again, I think there are ways maybe to give an interpretation of the substantial equivalence from the regulatory standpoint in terms of the impact, in terms of how you’re different and do you raise new questions of safety and effectiveness.

Well, if you do, you’ve got to put them to rest, in which case you’re still different but you’re saying the differences don’t create a problem from the agency’s standpoint.

And again, I haven’t bumped into this in my own practice where I’ve had patent people interacting with me, but it just seems like there could be a way that you can be different for the patents and still not be so different that you get in trouble with the agency.

FDA on Cybersecurity

22 min reading time

FDA on Cybersecurity

Reading Time: 22 minutes


Suzanne Schwartz CDRH FDA

FDA’s Suzanne Schwartz, MD, MBA, the Director of Emergency Preparedness/Operations and Medical Countermeasures in the Center for Devices and Radiological Health (CDRH), discussed medical device cybersecurity at the 2015 10x Medical Device Conference in San Diego.

Cybersecurity is a subject about which the medical device community needs to become much more vigilant, she contends.

Suzanne took questions from the audience. Below is the video replay.

Suzanne Schwartz: I’m going to frame this morning’s talk from the perspective of my role here at the Center for Devices and Radiological Health as the Center’s Emergency Operations Coordinator. And I’m going to tell you about our journey that has taken us from what was a very reactive stance to a much more proactive posture.

Last month, April, marks two years since CDRH became fully immersed if you will in medical device cybersecurity efforts.

In April of 2013, we were faced with a large packet of medical device vulnerabilities that were brought to our attention by a prominent cybersecurity researcher. This package span his spectrum from very low-risk medical devices to much higher risk one and involved many medical device manufacturers.

And we were essentially catapulted into response. Our FDA narrative on medical device cybersecurity at that time, [inaudible 01:21] was most keenly seen through the lens of incident or emergency response. Critical of course but really rather unidimensional. And yet, in the past 24 months, this story has really transformed to one of far greater [inaudible 01:41] and depth as a result of the multiple efforts that we have underway at CDRH to recognize the challenges for what they truly are. Panning the total product life cycle and across the entire spectrum of healthcare.

And so if you were to ask me today, May 5th, 2015 how I would characterize our medical device ecosystem within the context of cybersecurity of course, these are some of the descriptors that come to mind.

So these are some of the descriptors that come to mind. Complex, evolving, highly diverse players and stakeholders, many with competing needs and conflicting areas of tension, volatile, unpredictable and uncertain. There is nothing, absolutely nothing that is static about this space.

In fact, there are multiple moving parts. And we have to keep in mind that there are areas well outside of the medical device ecosystem in the broader universe, well beyond our control that are continuously shifting and these exert further influence or impact on the medical device ecosystem.

And so while our immersion has taught us an awful lot, we’re constantly uncovering war of the unknown [inaudible 03:38] incorporated in our thinking as we formulate that strategic approach for medical device cybersecurity.

A strategy that knits together the capabilities that FDA holds within its toolbox including policy through guidance, education, increasing awareness by outreach and communication.

So now that I have characterized the ecosystem, who are the players within it?

Well, we have obviously this audience, the medical device manufacturers with whom we at FDA have regulatory authority. And then there are the owners or operators and end-users of medical devices who we do not regulate.

As shown here, there are many players and many parties with a stake in this space. Whether it’s our patients, professional societies, industry, researchers, healthcare providers, venture capitalists. Within the bubble of healthcare facilities alone, we can further peel that back where we have hospital administrators, IT personnel, bio-med engineers, clinicians. We need not deliver the point then that vary and often competing needs among these stakeholders presents a significant challenge.

It would appear that a fundamental step would be to identify the coming interests that folks are able to rally around towards a shared purpose. The takeaway here though is that no one organization, no single government agency, no sole stakeholder, manufacturer, healthcare facility, provider, information security firm is going to be able to solve these issues on their own.

This requires what we consider a “whole of community” approach. Note that I didn’t say a “whole of government” approach because this is far more expansive than government alone. And so understanding the challenges, the hurdles and the opportunities to build creative solutions requires the ability to mobilize the community, the entire medical device ecosystem.

So for the remainder of my talk this morning, we’ll follow this roadmap. First, it’s about understanding the current landscape. What are the recognized challenges for enhancing security of critical infrastructure within the healthcare and public health sector?

Secondly, it’ll be about informing you about our medical device cybersecurity program.

And third, we’ll provide that glimpse into the vision ahead.

So let’s start with understanding the current landscape. We can ask ourselves what really is the scope of this issue within our nation’s health security. What is the exposure of medical devices to our healthcare critical infrastructure?

These CDC estimates speak volumes and I need not enumerate the actual numbers on the slide. Bottomline is that the majority of these encounters to date will likely include a networked medical device.

So let’s drill down a little bit into the considerations and challenges faced with regard to medical device cybersecurity. For simplicity, there are really two components to think about here. First, there are the characteristic of the devices themselves, these are more or less the intrinsic elements such as the fact that they contain configurable embedded computer systems. They are increasingly interconnected. Wirelessly connected. And then we have the entire challenge today of legacy device.

And then, there’s the use environment in which devices reside today. These are the extrinsic factors for which medical device manufacturers themselves really don’t have control. And some of the features that we are aware of and that we’ve come to observe and to learn further about within the use environment include the fact that there are varied responsibilities for procurement of devices, their installation and maintenance. Often these are silo-ed efforts within any one healthcare delivery organization and they vary from organization to organization as well.

Similarly, variable control over what is actually placed on the network and importantly, training and education with respect to security risks is rather inconsistent when you go from one Center or one healthcare facility to the next.

When we talk about vulnerabilities, the first thing to note and perhaps one of the most important things to kind of remember is that these are ubiquitous. One cannot entirely eliminate vulnerabilities. Yet, we can educate and we can increase awareness and vigilance among our stakeholder so that everyone understands what the common vulnerabilities are and what they can be doing to introduce protective measures.

We have in fact included the examples here on this slide in the safety communication that was issued back in June of 2013. And some examples are network connected devices infected or disabled by malware, uncontrolled distribution of passwords, a failure to provide timely security software updates and patches.

In our present landscape, there have been known incidents reported in the news and these are incidents related to malware. I want to be careful about making sure that the audience is aware that FDA has no knowledge of there ever having been an intentional exploit that was carried out that resulted in patient harm.

And so all of the references that I’m providing here with respect to exploits were done within a research environment. But with regard to incidents, the VA Cath Lab in 2010, there was a temporary closure due to malware infecting computers that are used for interventional cardiac procedures.

With regard to researcher demonstrated exploits, J. Radcliffe in 2011 demonstrated the capability of hacking an implantable insulin pump and as I referenced at the very beginning of my talk, in 2013, two security researchers, two prominent researchers, Billy Rios and McCorkle provided CDRH with a very very significant package
of vulnerabilities involving medical devices that had to do with hardcoded passwords.

And over the past 12 months, there have been other researchers who have presented to us additional device vulnerabilities. These really become too numerous to list. Bottomline here is that vulnerabilities exist and the key is in developing the appropriate measures to assess the risk and manage the risk and to do so by adopting the appropriate tools, standards and best practices.

So with this, I’m actually concluding the background landscape of my talk and in the remaining time, I’m going to share with you some of the diverse and cross-cutting activities in which we have been involved at CDRH as we have looked to build out a much more formal and strategic medical device cybersecurity program over the past year and a half.

So what are our overarching goals?

Well number one, it’s to raise awareness with respect to cybersecurity in healthcare. And we do that through education, through outreach. We also importantly leverage knowledge from other industry sectors through their experiences. Whether it’s best practices or whether it’s experiences that they’ve learned from that we can translate to our sector.

Secondly, it’s about promoting the safety and security of medical devices in a forward-thinking way through the design of these devices by clear regulatory expectation.

Third, it’s about promoting proactive vulnerability management. And just to take a second here, I think that also what [inaudible 13:09] comes across within the theme of this talk is the dynamic and continuous nature, the total product life cycle approach with respect to medical device cybersecurity.

It doesn’t stop with the design. It doesn’t stop with the deployment of the device. It’s something that will require vigilance on a continuum.

Minimizing reactive approaches and then again that overarching thread that runs throughout all of these goals is that ability of fostering a “whole of community” approach.

Our cybersecurity program has included multiple efforts in parallel. We continue to articulate our current thinking for cybersecurity expectations through guidance documents. Our final guidance for content of premarket submissions for management of cybersecurity in medical devices was issued on October 2nd, 2014.

I’ll spend a little bit more time on that guidance a little bit later.

So in 2013, we recognized 25 standards. These standards included both cybersecurity as well as interoperability.

We’ve issued public communication on the importance of shared responsibility in this space back in 2009 and more recently, that safety communication to all of our stakeholders in 2013 which included industry, hospital administrators, IT support, clinicians and bio-med engineers.

And organizationally, we established a Cybersecurity Working Group within the center of subject matter experts as well as having stood up a Cyber Incident Response Team under my program the Emergency Medical Countermeasures Program.

A few words about our CSWG that I’m very proud of, members of our CSWG had been involved in outreach, building awareness. Whether it’s through speaking engagements, the entire healthcare sector. The CSWG itself has also become increasingly educated and informed by our bringing in security firms and other experts who have presented their approaches, their perspectives and potential solutions to some of the challenges that we all face in this arena.

Importantly, the CSWG is tasked with evolving the agency’s thinking with respect to policy and guidance for the entire medical device product life cycle with respect to cybersecurity.

And therefore, over the past year, we have been working very intently on the agency’s approach to post-market expectations and considerations for strengthening cybersecurity of medical devices that are in the field.

And so as one might imagine, these devices that are in current use present the greatest challenges for manufacturers and healthcare delivery organization with respect to vulnerability mitigation or mediation.

And this is in fact an illustration of where the complexity of the issue demands a multi-faceted approach.

To address medical device cybersecurity, we’ve engaged in a fair amount of collaboration and partnering activities with several of our federal partners. To highlight a few, as you can see here, we’ve built a relationship with DHS, the Department of Homeland Security. Specifically, their office of cybersecurity and communications.

And within that, what’s called the ICS-CERT team. The Industrial Control Systems Cyber Emergency Response Team with whom we engaged in incident response back in 2013 upon receipt of that package of vulnerabilities and with whom we continue to maintain very close coordination and communication at present. Having regular, actually weekly conference calls that allow both of our groups to maintain situational awareness on newly reported medical device vulnerabilities, potential threats and exploits.

We’ve also partnered, I want to draw your attention to the MOU, the Memorandum of Understanding with the NH-ISAC, the National Healthcare Information Sharing Analysis Center. That was executed back in August of 2014.

And the intent of that MOU is to develop a trusted environment for information sharing on medical device vulnerability.

Our collaboration with the NH-ISAC also aims to undertake adopting the NIST framework for improving critical infrastructure cybersecurity to medical devices. And therefore it would also include Cyber Incident Response Planning, Recovery and Resilience.

In the past few months, we’ve had the great privilege of seeing some of the early fruits of work born out of NH-ISAC collaborating with a group known as MDISS which stands for the Medical Device Innovation Safety and Security Consortium. This is a collective of medical device manufacturers, hospital [inaudible 19:05], bio-med engineers, security research firms and vulnerability researchers as well. As they begin to setup a feasibility small-scale pilot for medical device vulnerability identification, assessment or analysis and information-sharing in a trusted space.

We are very excited about the prospects of this effort. And this is actually the perfect segue way to discuss work that we have ongoing with MITRE, our federally-funded research center with whom we have collaborated.

Our work with MITRE began in the fall of 2014. Again, MITRE is what’s called an FFRDC and they’re tasked with helping us at FDA advance the CDRH medical device security vision. They’ll do so by evolving a medical device vulnerability ecosystem that will share device vulnerability and other relevant cybersecurity information effectively and efficiently among both government as well as private sector stakeholders.

How are we doing this? Well to start with, through stakeholder engagement and in-depth interviews across the country, developing a roadmap for implementing the medical device vulnerability ecosystem that will reflect agreed upon shareholder roles and responsibilities and ultimately, where this gets to is that developing and designing a “trusted environment” for collecting, analyzing and sharing medical device vulnerability and security information.

So I’ve covered a fair share of FDA’s activities in medical device cybersecurity the past year leading what was arguably a significant inflection point for the ecosystem for last. Namely, the public workshop that FDA hosted in October 2014. This workshop that we convened was also co-sponsored with the Department HHS and Department of Homeland Security. We were beyond amazed by the number of participants within this workshop that included both on-site as well as remote participation globally that amounted to 1,300 attendees with a broad range of stakeholders.

The three overarching goals of this workshop were number one, to catalyze collaboration among all healthcare public health stakeholders. Secondly, to identify barriers that impede efforts towards promoting cybersecurity. And third, to advance that discussion on what are the innovative approaches for building securable medical devices.

The focus sessions of the workshop included increasing situational awareness, understanding what the gaps and challenges are and I’m highlighting here legacy devices as one of the key areas that presents a great challenge for us today. Exploring tools and standards, leveraging expertise and that expertise can be from well within this sector as well as expertise that comes from learnings and experiences of other critical infrastructure sectors. Whether it’s the financial sector or the energy sector or the IT sector. And establishing a collaborative model for information sharing and shared risk-assessment framework.

We took what we heard and what we learned at this workshop and we split it really into two big bins. What we’re calling systemic challenges in one bin and parenthetically it’s important to recognize that most of these themes in the systemic challenges, they’re not unique to healthcare and public health. They’re really universal to all sectors of critical infrastructure.

And then the second bin are the stakeholder challenges. Those that we would describe to the unique culture and entrenched behaviors of the community of healthcare and public health and its members.

So these are some of the things that we heard starting with the systemic challenges at the workshop. The cyber threat is growing. Cybersecurity may not be and is most likely not on the radar of the C-suite whether it’s for the manufacturers or whether it’s for the healthcare delivery organizations that remains a prevalent type of statement that we have heard.

There’s no safe space at present for information-sharing. There’s absence of a common taxonomy if you will or a lexicon by which to talk about vulnerabilities. There is something called the CDSS, the Common Vulnerability Scoring System and yet its applicability to date with medical devices has certain key entries that are lacking from it. And so this is an area of actually opportunity.

Lack standards for device integration and maintenance. There is no one-size fits all solution. We have large firms. We have small firms. We have the same thing to say about healthcare organizations as well.

And importantly, cybersecurity isn’t just a design issue. It’s not just at the time that the product is launched. It’s a life cycle issue. This requires a change in mindset.

Other factors that impose additional systemic challenge include what we observed and what we heard at the workshop about disjointed efforts across federal government. I suppose that that’s sort of a no-surprise but it’s an area that demands further work.

And healthcare and public health as a sector has been described as lagging behind by as much 10 years behind some of the other sectors with respect to advancing or improving, strengthening cybersecurity.

Though we are optimistic having seen some early signs that at least the level of awareness and understanding has increased in the past 6-9 months. With regard to stakeholder challenges, what emerged from the workshop were these findings. There’s a lack of trust, many stakeholders address cybersecurity in silos. Some don’t even understand really what the clinical environment is all about. And so cybersecurity may be viewed within a vacuum and it does not take into account the context in which the device needs to operate.

Cybersecurity researchers bring disruption to the community and I want to make a point of saying that that is a neutral statement. Disruption is as much a good thing as it can be a negative thing and we see the enormous value and benefit that vulnerability researchers can provide to the medical device ecosystem.

But it is a shift in paradigm from how we thought about medical devices and their development and design and maintenance from where we were years ago. A lot of smaller organizations simply don’t have the resources or the expertise in order to be able to step up to the plate of medical device cybersecurity as some of the larger firms. This was another issue or another concern that was raised.

Stakeholders aren’t really sure how they’re supposed to prioritize vulnerability. They may not know all the present standards and tools that do exist. What are some of the good hygiene practices that could be employed that don’t require anything quite sophisticated?

And then very importantly, what is that value proposition for the C-suite in terms of making early on that investment, that careful intentional effort to make sure that our devices that are serving our patients have better cybersecurity?

One of the most compelling and unanimous sentiments that were expressed at the workshop by the close of day two was this desire to continue this important conversation. To take them to the next level. To use them as springboards for formulating tangible next steps.

And it was very important for us at FDA to commit to our stakeholders and to all the participants at the workshop that this one would be different. That this would not merely be a matter of people gathering for two days and then everyone’s going to return to their organizations and business would go on as usual.

There was a powerful energy in that room and we wanted to tap it and everyone wanted to be that energy sustained. So we knew we had to build on that event and we indicated at the workshop that we would find a way to create a space for continuing these important conversations. Recognizing that again, collaboration is at the core here of building that “whole of community” approach.

And so we therefore introduce the Handshake Virtual Collaboration Tool this past December, December 2014. The Handshake Virtual Collaboration Tool is administered by MITRE and it has been an enabling platform for ongoing discussion on topics covered during the workshop. Plus new issues that people have brought forward and that can continue to be brought forward by anyone who is signed on the site.

And so this is our plug. First of all, we’re very interested in growing the number of participants on Handshake. This is the community’s site and it’s an opportunity to really provide perspective, provide concern and develop a means of collaborating towards developing solutions.

One can easily join by writing through cybermed.org or askmedcyberworkshop@FDA.hhs.org and request to be added.

Now, I can provide that information to Joe after the meeting so that anyone who would like to come on board with Handshake, we would be very happy to have you join the site.

Some of the recent topic areas which we have enjoyed really good discourse include cybersecurity of mobile medical devices, the Executive Order 13691 that was just recently issued on information-sharing and analysis organizations or ISAO’s as they’re called. Cyber Storm 5 which in its planning phases right now for February of next year 2016 and for those who may not be aware, Cyber Storm 5 is going to have a focus on the healthcare public health sector specifically looking towards scenarios that involve exploit of a medical device or other network systems.

And so we encourage the private sector to participate in these exercises as a means that will help further inform the types of measures and mitigations and preparedness that we need to be putting in place.

Legacy device is another topic that’s also been discussed on Handshake.

So I’d like to now pivot for just a few moments to underscore a few key principles of a final guidance that we issued on October 2nd, 2014. The title of that guidance is Content of Pre-Market Submissions for
Management of Cybersecurity Medical Devices.

Again, FDA recognizes that medical device security, a shared responsibility between stakeholders. That includes healthcare facilities, patients, providers and medical device manufacturers.

Cybersecurity should be addressed during design and development. Again, the very concept of let’s bake cybersecurity in not bolt it on which is a problem that we actually face today with many of the legacy devices.

Design inputs related to cybersecurity should be established for devices. Similarly, cybersecurity vulnerability and management approach needs to be part of the software validation and analysis. And that’s required by 21 CFR 820.30(g).

This is part of design controls of the quality system regulation. The guidance aligns with the NIST Cybersecurity Framework 5 core functions. We discreetly call out these functions as identify, protect, detect, respond and recover and we encourage medical device manufacturers as they look to their development to adapt these five core functions as well.

It’s important for manufacturers to carefully consider the balance between cybersecurity safeguards and the usability of the device in its intended environment of use.

I can’t underscore this enough. This is to ensure that the security controls are appropriate for the intended users. No one, I’ll say it again. No one wants an outcome where the security controls hinder access to a device that is intended for use during the patient emergency.

So we have to be smart about these things.

And then the last bullet which is bolded very loudly and in another color to draw attention is one where we often are asked about whether additional submissions, new submissions are needed by medical device manufacturers in order to introduce changes, software changes for cybersecurity.

And so this is to once again debunk that [inaudible 34:46]. As is stated in the guidance and as is stated in prior guidance and many rare communications, FDA typically will not need to review or approve medical device software changes made solely to strengthen cybersecurity.

And now, wrapping up with this last slide which is ‘What’s our Forward Looking Vision?’ And this is a perfect note to end on because it not only provides a perspective for the future but it underscores that vision as being highly contingent, highly dependent upon the engagement and the collaboration of you, of our stakeholders, of the device industry, healthcare organizations, federal partners, subject matter experts, researchers.

As you can see, this is a continuous cycle. As I said earlier, nothing’s static at all about it. But that we hope and that we expect that through these collaborations, that will enable a platform for maintaining awareness of what are unintentional threats as well as those that could be intentional. It also informs or drives for us that regulatory clarity.

What are the pre-market expectations as well as the post-market ones? And it will further drive or fuel the post-market surveillance mentioned.

So with this, I would like to end the formal presentation and I think we have some time. I welcome the opportunity for some questions. Thank you.

Joe Hage: We sure do. Thank you. Let’s hear it.

[Applause]

Joe Hage: Now, in this unusual situation where it’s polite to put my back to you and talk to Suzanne, if you have a question in this case alone, I’ll ask you to come up here and talk to my computer so she can see you.

I’m going to ask the first question. Actually more of a statement.

First, thank you very very much. I know how busy you are and what we had to go through to get you to join us today. So thank you.

Suzanne Schwartz: My pleasure.

Joe Hage: First, next year, I’ve already began planning next year’s presentations and Mark Goodman the author of ‘Future Crimes’ agreed to speak with us and reading that book and seeing how incredibly vulnerable we are as a society is frightening. And he made a point that really stuck with me. He said that it’s financially equivalent to being ten to twenty times worse to have your medical records stolen than your credit card stolen.

Still, I find in my group and you pointed this out in the presentation a degree of not apathy but confusion/that’s-not-really … you talked about silos, who’s really responsible for this?

I guess my question is a really broad one and that is, education programs like this one, I’m going to share this with the worldwide group, what do you think it will take for the structural change to come about that entire organizations approach cybersecurity as part of the life cycle program?

Suzanne Schwartz: So I think that it’s not all that bleak. We’re starting to see organizations get together and self-organize amongst each other to establish networks that by coalescing or recognizing that we need to sit up, sit straight and take this very very seriously. Especially in the context of the breaches that have occurred, the very serious breaches within the healthcare sector this past year.

Breaches that have just increased in magnitude from the first one to the second one to the third one.

So the reality, the harsh reality is hitting while we obviously want to avoid, I know this isn’t really much of an answer but we certainly want to be in a prepared state and for it not to take the equivalent of a Cyber 9/11 to really mobilize people into action.

I think that we’ve seen enough sensible signs and as we continue to engage in these kinds of conversations, that helps to raise the awareness. It also helps to bring the stakeholders from again, the different parts of the ecosystem to sit together in the same room and to understand each other’s [inaudible 39:55].

So that instead of finger-pointing at each other and blaming for absence of cybersecurity or for the allowance of breaches, there’s a recognition of, we all have this problem. It is one of shared ownership and shared responsibility. Here’s what my limitations are. Here’s what your limitations are. Here’s what we could possibly work through together. And that’s something that we’re starting to see now.

And I think that that happening on both the private sector side as well as engaging public private. The various government entities working with the private sector in establishing a different model towards improving what cybersecurity needs to look like in 12 months from now and in 24 months from now.

It’s obviously not going to happen overnight. We’re taking this incrementally but I think that this past year has demonstrated for people again a rather rude awakening that this is for real, this is not just for shock value. And that we need to take heed and put even the simplest practices, the very fundamental ones in place.

Joe Hage: Thank you. Carolyn has a question for you.

Carolyn Malestic: Good morning. Yes. That was a good segue way when you were talking about the private sector. Could you speak a little bit more about any kind of collaboration that is going on with the tech sector, with the Mandiants, the RSA’s, the FireEye’s and any of the tech companies, private sector tech companies? Is there a collaboration that’s going on with institutions and agencies like yours? Like the FDA?

Suzanne Schwartz: So we hear about a lot of efforts that are again, I would call them nascent with respect to the different security firms working either directly with medical device manufacturers as well as bringing on board healthcare delivery organizations so that you have nearly all of the appropriate parties at the table and when I talk about them sort of self-organizing, we’re starting to see different effo
rts become more visible.

What will be very helpful is if as these efforts continue to grow that either they continue to coalesce or potentially recognize what the niche areas may be so that there is a coordinated approach identifying and therefore working on specific gap areas.

My wish would be rather than seeing a lot of duplication and redundancy among efforts that we have a coordinated way forward and that expertise that might reside within different elements of private sector can actually partner up or link up with other parts of this sector or with the government through various grant and solicitations and announcements towards working in a more uniform manner to the end of again improving cybersecurity.

Joe Hage: Me again, I have another question. I know that one HIPPA violation is really expensive and that when an organization gets hit, it’s a potentially crippling, bankrupting amount of money in fines.

So I personally am not aware of any company that’s gone out of business because of it. I think of Primera that just had I don’t remember how many million records compromised. What really happens in those situations?

Suzanne Schwartz: Joe, not really sure I understand the question. Can you repeat that?

Joe Hage: Yes. My question is, with each HIPPA violation being such a burden on a company in terms of cost, are we seeing that in the real world where someone like the breach that we saw at Primera, Blue Cross that that kind of tax being levied on the offending or the hacked company? Is that a reality? What happens next?

Suzanne Schwartz: So I think that’s a little bit tough for me to answer. It’s not within my scope because as you know, FDA does not really … is not involved on the HIPPA, breach of privacy violation side and to the extent that it would be a little unfair for me to comment on the question that you’re asking there.

With respect to medical devices, we are attempting to monitor that through intelligence and other means carefully with regard to any potential threats and what that cost could potentially be like for the public or the public health is obviously not merely a monetary cost but a cost to patients’ lives. That is primarily the area where we at FDA and specifically the Center for Devices is sharply focused.

Joe Hage: Thank you. Rendell has a question.

Rendell: Morning Suzanne. I’m Rendell Swart with Arxan Technologies and we’re one of those private sector security firms that focuses on application security mostly within medical devices specifically on mobile devices and allowing large medical device companies to bring forward their solutions on a BYOD basis.

So allowing them to not just bring forward a blackbox but allowing their users to download and install class 3 medical device software on IOS or Android. And we’re working with some very large entities to help do that and we’re actually working with one right now on a pre-submission.

So it was interesting to read the latest guidance and there was guidance around mobile security put out a couple of years ago as well. I guess I’d like your feedback on how best for a small security company like us to interact with the FDA and to get more exposure on how we can help the industry secure those medical devices as we are an ex-NSA/DOD company and are doing this and many other industry sectors as you pointed out indeed the medical device industry on a whole is certainly lagging insofar as adoption of some of these advanced software security techniques.

Thank you.

Suzanne Schwartz: And so I would welcome the opportunity for you to interact with first of all with us the Cybersecurity Working Group at CDRH directly. I think that that’s an important opportunity for us as well as for you to first of all for our being educated on the technology and the work that you’re doing and for our being able to also help guide the direction that you are seeking.

So absolutely first of all, the pre-submission process is always a way to go and I encourage you to do that but at the same time, in parallel or in advance of that, you can certainly reach out to me directly and we can set up an opportunity for you to brief our Cybersecurity Working Group on the technology and again the efforts that you have in place and how they interface with different medical devices.

Joe Hage: Thank you. It’s good to make that connection. I’ll be sure to put him in touch with you. Gary has a question.

Gary: Morning Suzanne. Gary Cohen formerly of Medtronic Diabetes. So I’m actually quite familiar with the Radcliffe issue that happened several years ago and also with what’s been happening recently with companies like Nightscout and I wonder what’s your view on how to work with basically the tech world out there that’s not really private sector, not really industry but those that are … I don’t want to call them hackers because they’re actually doing good things but those who are trying to advance technology but aren’t under any regulations. How does the FDA look at them and how are they going to move forward in your view?

Suzanne Schwartz: Well you ask a multi-million dollar question there in terms of how FDA looks at things. So I would tell you that the FDA in our thinking about groups that are presenting information open source, doing work like Nightscout, we welcome the opportunity to engage with them and to have those types of discussions that will help all of us understand the various pathways forward. What might be the options? How we might think about those options going forward from a benefit-risk standpoint to the public health to the individuations.

This is … when you talk about the ecosystem here being evolving and complex and uncertain, that’s exactly what we’re talking about. Newer technologies and newer ways of patients being able to monitor their health as well as family members being able to monitor their health in a manner in which no one ever conceived of years ago.

And so we want to be able to encourage that kind of advancement in technology. FDA of course does not want to be an obstacle or a hindrance to that. That thinking is an evolution in thinking and I don’t have an answer for you. I wish I did. Only to say that we would welcome as we have done those companies or those groups as they aren’t necessarily companies. But those entities, researchers to work with us to come forward and to request time to meet with us and to ideate on what might be some of the ways forward.

Joe Hage: Suzanne I know you have a hard stump, Neyha has her last question.

Suzanne Schwartz: Okay.

Neyha: Hi! Thank you for your presentation. I’m Neyha with the Healthcare Incubator and Accelerator called RedSky. I have a question, are we ever going to get … there’s so much data everywhere and are we ever going to get to the point where the data evolves to develop an algorithm where we wouldn’t need security?

Suzanne Schwartz: Repeat the question? Was it the data evolves to a point where we don’t need security? Was that the question?

Joe Hage: Is the data going to become so smart that it develops its own algorithm that it doesn’t need to have security?

Suzanne Schwartz: Well that’s not a question for me. That’s a question for you all in the audience. I think that the developers are in a better position as subject matter experts and entrepreneurs and innovators to do that. The sky is the limit.

Joe Hage: I think that’s a fitting way for us to close. Suzanne, I’m very grateful. Thank you.

Suzanne Schwartz: Thank you.

Medical Device Conference as Potluck

< 1 min reading time

Medical Device Conference as Potluck

Reading Time: < 1


conference potluck

A perfect analogy for the 10x Medical Device Conference came when my mother asked, “Who was on stage?”

I answered, “I have formal speakers, but everyone is ‘on stage’ because everyone brings their own ‘dish’ to the ‘potluck.’ They bring their skills and expertise. My guests can sample everything.”

If you read alumni reviews, you’ll see how much we emphasize building long-lasting relationships with the kind of folks with whom you’d want to build relationships.

Thought-provoking speakers too. (See reviews.)

Join us next year if that sounds good for you.

DARPA and Your Medical Devices

34 min reading time

DARPA and Your Medical Devices

Reading Time: 34 minutes


medical device conference richard satava md

Rick Satava, Professor Emeritus of Surgery at the University of Washington, is in high demand.

He served in three combat missions during his 23 years as a combat surgeon in the military and spent 14 years at DARPA, the Defense Advanced Research Projects Agency.

His speech last year was among the best received at the 10x Conference. See it here.

Rick Satava: My background is I am a surgeon. I spent 23 years as a combat surgeon in the military, three combat missions that I served on, and in 1992 I went to DARPA. How many know DARPA? Great. Alright. So I’m not going to have to explain that. And this is kind of entrepreneurial at its core. Many people look at us and say, “There’s the government’s venture capitalists,” and to a certain extent that’s very true. We’re not vulture capitalists because we use your tax money. We’re simply venture capitalists.

But what I’d like you to do today is to tell you a little bit about the government’s approach, the Department of Defense’s approach, to entrepreneurship and what the process looks like for acquisition, if you will, and then go into a number of the technologies that were developed, some of which I developed and others had done that as well, and a little bit about what I’ve been referred to, which is called the technology harvester and why that has some relevance.

To begin with, a test. How many of you know what this is? This is a biological molecule. It’s an information system and it’s an energy system. Does anybody recognize this one? Alright, well, let me rotate this 90 degrees. And so anybody recognize this? Sure. DNA. It’s about a completely different perspective, and I think that’s where we need to be going. Clayton Christensen said, right, about disruptive visions, if you will. Yogi Berra framed it differently and he said the future was not what it used to be, and that’s profound in the sense that what he was saying that the things that we have learned, the things that we have integrated into our daily thinking, are outdated and probably false. We’re in the Information Age, but most of us were educated in the Industrial Age and there’s a whole different set of perceptions and interpretations that we carry along with our baggage. And our younger generation, of course, gets it. They’re digital natives. I’m a digital immigrant, more or less, and then some people are just digitally dumb.

So the problem that we have is transitioning and beginning to think in the information space. We define that slightly different. You are probably digital immigrants because you really kind of get what information science is all about, but unfortunately, and to my interpretation, most of what the people in medicine and healthcare look at as Information Age is translating what we used to do from a typewriter to a computer or from a written database to an electronic database, and the Information Age is much more profound than that.

So what is a disruptive vision? An example here of course is Henry Ford, and I love the quote that he gave. He said, “If I asked people what they wanted, they would have said a faster horse,” and that is true today. It’s about understanding what the fundamental question is and what they’re really asking for. They weren’t asking for a faster horse. They want to get from point A to point B quicker, and the only way that they knew was to go ahead and speed up the horse. But if we look at, what is the evolution of point A to point B? If you had a book and you would want to take it from point A to point B, you would walk it, and then we got to a point where we could ride animals and get there faster. Then we had carts and vehicles and we could hold a bunch of them and move them even quicker with multiple animals, then we got mechanical vehicles, and then a disruptive vision hit – the ebook. We can have everything that you want from a book on your Kindle or on your iPad without physically sending the information that’s key to what you want to know from point A to point B. Simply download it in 30 to 60 seconds and you have it available. And this entire chain that we have built up over thousands of years of taking physical objects from this place and taking to that place is completely revolutionized. So this is an example, if you will, of the power of the Information Age and really looking at the fundamental principles, how it is different.

So in my role as a technology harvester, [00:04:48] horizon scanning, I have the opportunity, because of the 12 years I spent at DARPA and the four years at medical research [00:04:56] come in, to get into many communities. I’m a trusted source in the sense that, as you well know because we were responsible for classified material, people would trust us with their information, we are walking NDA and we have access to the broad spectrum. Whether it be from academic, federal labs, FFRDCs, businesses or various large industries, we have access to, and the opportunity there is to share information, particularly information or new ideas and concepts or technologies that most people don’t have the opportunity to do. And these are a number of the things that we use for that, not only literally visiting place to place or going to conferences such as this one to get a broad perspective, but also the opportunity to go ahead and have access to the wide variety of databases that are there, and quite frankly many people continue to send information to us hoping that will stimulate new ideas and so forth.

One of the things that I learned about at DARPA was when you come up with a new idea, one of the first things that you want to do is, so what is the standard that we have today? The standard is basically the best of breed is a 360-degree view. Look at it from all different perspectives, the users and the manufacturers and the company and so forth. But I think that one thing that I was talking about at DARPA is we need to take the 180-degree view, which is what? You look at what the current standard is and assume that’s exactly the thing that you do not want to do. You want to start a new business with exactly the opposite.

And this came out of Clayton Christensen’s book, although he never really spoke about it. But if you read from his book what he used as examples like large [00:06:51] to small [00:06:52], crane operators to backhoes, steel industry to micro steel industry that went to Japan, all of these took what is the standard that we use today, what is the way that our customers tell us we want and this is how we want to do things and look at it from entirely different perspective, which is why I showed you DNA in the beginning. So this is a methodology that you can use. Can I do exactly the opposite of what’s available today and get a better product out of it?

So it’s about rethinking the status quo, and this is what I think our greatest entrepreneur of this era, Steve Jobs, was, and his quotes I think are also very telling. So time is limited. Don’t waste it living someone else’s life, something that’s already been accepted and everybody believes in. Don’t be trapped in dogma, which is living with the result of other people’s thinking. Be innovative, be creative. So this is the direction that we need to go, I do believe.

So in healthcare, what do we want? There are expectations out there by our patients. I remember a year or so ago sitting down with a patient that had a hernia and they wanted to start off by showing me the other children’s pictures and their vacation they went on, and finally I got them to say, “And why are you here?” “Oh yes, I’m here because…”

And then when we decided what it was, she said, “Okay, what do we do now?” I said, “Well, I need to do a final diagnosis.” And so she said, “Oh, we need lab test taken right now.” And I said, “Well, I have an ultrasound and I can look at it.” So I, “Oh, you’ve got an ultrasound and you do have a hernia there.” And she says, “Great. What happens?”

And I said, “Well, this is going to need surgery.” She said, “Well, can we do it now?” And I said, “Well, this one we’re going to have to schedule. I can’t do it right now, although maybe in the future I’ll show you high-intensity focused ultrasound that may eliminate the need for actually doing surgery on it. But I can’t do it in my office now.”

She said, “Okay. And it’s not going to cause any pain, is it?” And I said, “No.” “And when I leave I’m going to be cured, right? I won’t have to come back and ever see you again, will I?” And I said, “Probably not.” And then she said, “Okay. And could you hurry up? I’ve got to go pick up my child from a soccer game today.”

So this is what we want, and I think this is what everybody wants. Why did I go through this here little story? And the reason being is that this is a benchmark that we want to see how close we can come to
with a product.

We want to meet our patient…or our users’ expectations, and the closer that we can get to their expectations; the easier the sell for the product is going to be. But our expectations are high, but now our challenges are getting even bigger. There are significant changes in the population as a whole and some of the approaches in the past are no longer as applicable as they used to be.

So let me tell you a little bit about understanding research as part of the entrepreneurial enterprise and show you where we go on that in terms of new technologies.

In the military, they call it the acquisition process. It begins with, say, a soldier who says, “I need a new helmet that’s laser-resistant.” “Well, I don’t have one of those.” So we have to begin with R&D. Research and development begins the acquisition process, and then you go through all the various steps as we go along, what is called life cycle management, and using descriptions such as the technology readiness levels. And then when you finally finish it and you get your FDA approval, your marketing and so forth, then you finally have to dispose of it.

So what does that process look like? And I’ve seen the complexity that you’ve talked about particularly when we’re relating to FDA and those types of regulations. This is the Department of Defense, NASA, and NIH’s roadmap for developing a new product, and so this is what you go through whether you know it or not.

And the incredible part about this is when you start talking to researchers and you want to start a new product, they think, “Well, I have this new idea and I want 50 or 75% of the royalties.” What they don’t realize is they’ve done less than 10% of the work and the investments in it. So R&D is really down at the very beginning. When you finally get here with your prototype, then you have to go through the FDA, which we’ve been struggling through with today, and finally you get it approved, but then you’ve got to manufacture, commercial, marketing, and eventually it has to disposed safely, and that’s the responsibility in the business.

I only put this out to recognize how hard your job is. Even if you’ve got a great idea in your new product and you want to move forward, this is just the beginning of an extraordinary, long, difficult, and expensive journey particularly in healthcare.

One of the things that will help you are technology readiness levels. How many people know them and use them? It’s a language, if you will. You can find it on Wikipedia, which is a very nice, simplified version of it.

But if you want money, particularly if you want it from the Federal government and any of them, if you can go ahead and tell them using the terminology in the levels here, it will be greatly to your advantage because what you’ll be able to do is submit a proposal in a language that the program managers understand, because they get money depending upon the level of readiness of your technology. It will do you no good to submit a proposal to DARPA to do a clinical trial because by law they are not allowed to do it, so why bother submitting? No matter how revolutionary you may think, we have to go to medical research commands and so forth in order to get that color of money.

So I just want to put this out that there are ways if you learn the language to increase your likelihood of being funded. And we know the role of the scientists in the development of a new product and of the different people that are involved in there, and there are a couple of chasms in there. There’s the Valley of Death, which I’ll show you in a moment, and then there’s another one, a second chasm with after you got your product the expectations frequently are higher than what you can actually match. It’s been overhyped by the media and so forth, and that’s another area that’s very difficult that very few people pay attention to.

So this is what the Valley of Death looks like. The government will help or outside people will people help you with funding, but then you get to a point in time where the government says, “Well, this is far enough along. You need to create a business or you need to find an exit strategy.” But on the other hand, those who are investing in you want it further funded. They don’t want to take the risk that’s in here and we end up with what we call the Valley of Death. And so this is very common. People have known about these for decades.

What most people haven’t paid attention to is the second valley, which is the second chasm, and that is you’ve got everything you’ve got, your FDA approval, you’re ready to go, and you go out marketing, you find out nobody really wants it after all. It’s kind of been overhyped, if you will. You can’t meet the expectations. And it was Gartner who brought that to our attention, if you will, which is Hype Cycle and the sense that you start with the new technology and people see it and they have these great expectations on what’s going to happen, and then you don’t meet those expectations and then it begins falling down. You have to do the hard job of the research to validate that in addition to getting the product out, and finally it actually gets out in there. So these are some of the issues that I see as challenges and barriers to actually getting what would appear to be a simple, new innovative product actually out in the marketplace.

So enough with the boring stuff, let’s have some new toys. And so what I’d like to look at as a different way of technologies that you might want to look at as something that you can take advantage of, something that may leapfrog you and put you out of business. There are technologies out there that I think that are coming most people aren’t aware of, and they’re either complimentary to and you should see how you can integrate with them, or they’re going to be competitive to you. Few of them will be completely irrelevant to where you’re going.

One of them, and my area of interest, is robotics and robotic surgery. Here is the system here. I would commend to you that you think of this not as a medical device. This is an information system. It happens to have arms and legs and so on and so forth, but in the paradigm of the Information Age. What’s really important about the robot are not the parts but it’s the software that controls it. Without the software, it’s safety factors, the redundancy, failsafe, graceful degradation, and so forth, that robot is truly useless. So it’s a combination not only of the physical device you’re doing but the information system that controls it.

But the beauty of that is that this is an information system and it’s one that nobody’s taking advantage of. I’ve seen a lot of talk about approval processes and so forth. I haven’t heard a lot about sharing information back and forth across the electronic medical record. The electronic medical record has been talked about, but this is a device as an information system that generates information.

The first time I operated on a patient without ever looking at them was when I did laparoscopic surgery. I never saw my patient. I looked at a video image, which is information about what’s going on inside. The first time I operated with a robot is the first time that I not only saw my patient but I never touched them. I moved my hand, the electronic signal information went and it cut, sewed or whatever I told it to do. So I became an information manager, if you will.

And if you look at other devices today, your CT scanner, that’s not a digital imaging device, that’s an electronic information eye, if you will. And if you look at the things that you’re doing from the perspective of an information system, these are things that you cannot physically integrate but you can if you use the information systems that control them.

The interesting thing about a robot is that it’s bought by an enterprise, usually a hospital of some sort, but it’s used by their physicia
ns. There is an enormous amount of data.

Big data is generated during every single operation and not a single piece of that is used. Why is it that every time I do an operation and I’m finished, I have to go out and dictate an operative note? The robot knows more about what I did than I actually can remember. We should be able to collect and automatically print out an operative report.

We have to change instruments. The da Vinci is only allowed to have five uses, and then you have to throw it away. And it automatically can communicate, although it doesn’t directly with your central supply for just-in-time inventory and so forth. Very, very few healthcare use the systems that have been set up in other areas as well. So this is just to emphasize that there is an enormous opportunity from the devices that we have and the communication back and forth between them.

We decided that we were going to go ahead and not only build the robot but see if we can build an operating room based on manufacturing principles in which we got rid of everybody in the OR except for the patient.

And when you think about it, what does my scrub nurse do? Well, she changes my instruments. Well, we have tool changers for that in industry. And what about my scrub nurse? Well, she gets new supplies and so forth. Well, we have supply dispensers, automatic. So we built an operating room with no people using the currently available robotic system but it’s generic and it can be used with some other systems as well.

And so I would say, “2-0 chromic catgut,” it would go to the dispenser, bring out the suture material and hand it to me if I were ready. If I wanted to change my instrument, I’d say, “Scalpel for the right hand,” it would grab the scalpel, wait until I held out my hand, removed the clamp, and replaced it with a scalpel. It can do this in 11 seconds and it can do it with 99.96% accuracy, almost as good as my scrub nurse.

So we have systems that are available there and they’re trackable, but so far we haven’t moved forward in them. So why would the government spend 30 to 50 million dollars building systems like this? Well, one of the problems that we have is the “far forward battlefield.” We don’t have a bunch of doctors and nurses there but we do have a few medics. So here is the concept video that resulted in developing robotic surgery and the operating room of the future until we go to the next generation. The scenario is what would happen when a soldier is wounded out on the battlefield away from medical facilities? Well, we have a robotic extraction vehicle that you see here, we have two prototypes of that, and we put our robotic operating system with telemedicine into an armored vehicle, a Bradley 557A. Then we began what would conceptually be robotic surgery for damage control on the battlefield. You scan the individual to see where the damage is and send that information back to your surgeon, and then the surgeon can begin operating. If you need to change tools as I showed you, we have the tool changers, and if you needed new supplies—and this represents fibrin glue to stop hemorrhage—we would have those available as well. Not only are we using mechanical instruments but we’re going to more and more towards energy-based systems, things such as lasers and ultrasound, plasma and so forth, which I’ll be talking about shortly. And then when everything was completed, you automatically evacuate the patient into an unmanned air vehicle to the closest MASH hospital.

When we developed this concept video in 1995, everything that you see in that video was available to us in industry. We did not have to invent a single thing. It was a matter of systems integration. And so we did not have the opportunity to complete this because we demonstrated it can be done, and they said at DARPA, alright, our job is over. We invented something new and we proved it could work, and we moved it out into medical research command. The budget came, R&D got slashed, and so now this is on the shelf collecting dust. But the concept is valid, and whether or not we do it no longer is a technical issue but it’s rather one of, “Do we want to really do this? Is this going to be cost-effective? Are we going to have a market?” and so forth.

So, many of the things that we have out there we have been working on for a generation or more. For example, we funded UC Berkeley and Robert Fuller’s lab and Eric [00:21:54] working there on a cockroach. I mean, I hate cockroaches, but anyhow, it is the most efficient motion machine on this planet. And the concept was, if we can learn how this could be so efficient, perhaps we could run our robots better. One night, students snuck back into the laboratory, they disconnected the recording wires from the probes in its brain, connected them directly to a joystick, and began driving the cockroach around the laboratory. Three-and-a-half million of your dollars to drive a cockroach around a laboratory.

But imagine—look at your cell phone, you’ve got that tiny little camera—imagine if we would have put those on, say, a thousand of these little cockroaches and sent them into the World Trade Center, into Haiti during the earthquake, to the tsunami. I mean, these can go places that people or even dogs can’t go. They probably could have found many, many people that were trapped under there perhaps, saved hundreds if not thousands of lives. So maybe it wasn’t so stupid after all. But that was the beginning, if you will, of the biomimicry and the bioinspiration efforts at DARPA.

Here is another one right now that is being developed at the University of Washington, [00:23:05] Daniels laboratory. This is a moth, a sphinx moth, but when it’s in the pupa stage they open it up and implant a transceiver, a receiver and transmitter. When it grows up, it grows in around the neural crest and it actually embeds it in there. And so these little moths now, they’re not very little, they’re about this big, when they grow up and they emerge from their pupa, you can actually fly them around remotely like you would find an airplane, but it happens to be within a living system. So we’re beginning to integrate, if you would like, the capabilities of biological living systems and the mechanical systems that support them.

And you saw earlier the given capsule – this is what used to be an endoscope. I see some of you [00:23:54] squirreling around, you know. You’ve had your colonoscopies and you know how hard it was. Well, now we broke the tip off of it, embedded everything into the tip, and you swallow this pill, and as it goes through every 30 seconds it sends a picture to your belt-worn computer. And about 18 hours later it’s passed, you take the video, give it to your gastroenterologist, and he will be able to go ahead and make your diagnosis. So we’re moving biomimicry, if you will, away from large devices that we use to smaller devices that mimic some of the functions that are biological [00:24:29].

And here was the next generation “the ability to control these,” if you will, a couple of large EU projects running around five to 10 million dollars per year, multinational ones, and these are some of the devices they began building. This is one that kind of crawls around inside the abdomen or chest, has manipulators, and it’s actually able to operate on things. Whereas this one would be in a fluid-filled cavity like the bladder somewhere, and so you can’t walk around, you kind of propel yourself around. And this might be for inside one of the lumens like in the colon somewhere and it’ll wiggle its way through. So they’re looking at different ways and they can make [00:25:05] them extraordinarily small like this tiny one that you can actually put into blood vessels and allow it to swim upstream and so forth. So we are looking at how far can we get smaller devices into the body and be able to do therapeutics with them.

Femtosecond lasers. Who knows what a femtosecond laser is? Yeah. Who cares what a femtose
cond laser is? Yeah, I care. And why do I care? Well, a femtosecond laser is you shine on laser light and when you pulse it really fast, a femtosecond per pulse, which is 1 x 10-15 seconds, if you take this pulsed light and you put it on an individual cell, you can make an incision and open it up and begin operating on the individual parts inside of the cell, mitochondria and so forth. At the University of Dundee in Scotland, they’ve actually gone ahead and gotten into the nucleus, removed bad genes, and replaced them with good genes, giving a new definition to what is genetic engineering. You can do that today and many biologists have been doing this for well over a decade by using some of the computer-controlled systems that we’ve got available to give them micron-level proficiency. However, we have that because the current robotic system that we have, it’s accuracy is 10 microns, which is enough to allow us to operate on individual cells if we would choose to do that. No one’s explored that area. They’re very busy from a business standpoint increasing the revenue and getting enough robots out there at this point in time. But this is an unexplored potential that we may be able to use because the precision of the robot will allow us to do something we have never been able to do before.

And here is an example from Dundee. This bright spot is a gene that has just been replaced and these other genes here are other genes that are defective that can be replaced as well. Where most of this activity occurs is at the cell membrane. And this is an ion channel, and this shows you that we can actually stimulate the ion channel to open up and we could put individual proteins, transcription factors and markers one by one into the cells that we would choose.

So when we start looking at these and we start using things such as femtosecond lasers and radiology with the precision of tenths of a millimeter, is this now surgery or is this radiology, or what is it? Is the future surgeon going to be somebody who sits behind an x-ray screen and use this, for example, something like the CyberKnife that allows them to get an accuracy of 0.1 millimeter on tumors and so forth? You can couple those with markers, individual markers for individual cells, so that only the cells that are marked are the ones that are going to be damaged.

And so we’re looking at developing hybrid operating rooms that are a combination of imaging suites as well as surgical suites, and we’re seeing the beginning of the appearance of these. These are extraordinarily expensive because you’ve got the big expensive CT or MRI in addition to the expensive operating room. So rather than spending four to five million dollars, we’re pushing the limits up to seven, eight and 10 million dollars just for the basic operating room that’s a hybrid operating room. We’re not sure where it’s going but it looks like there is a pathway to the future, which I’ll be talking about in a moment.

But I’d like to just finish with robots because I love them so much. They’re so cool. DARPA has a new program, the rescue robot, if you will, and [00:28:52] this, it’s anthropomorphic. It looks like a human. We don’t need a robot to do that, and besides, we can’t build one. And then a friend of mine, Mark Raibert for Boston Dynamics, built Petman. This is probably one of the most sophisticated. His next generation is called Atlas and it’s being used. But this is a [00:29:13] program that is not programmed. This robot has modules called subsumptive architecture in them that communicate with each other. You give it a high-level instruction, go from point A to point B and pick this up, and come back. And it navigates its own way. It’s able to go over different obstacles, if you will. If it’s bad, [00:29:34] it has to do it’s pushups, if you say here. But it’s truly the next generation. It’s got about 10,000 sensors on it, it’s got [00:29:41] a brace that’s a good AI program that helps control it, and you saw the next generation of robots, where we’re going.

So these are the things that we have there, things that are going to be coming out. We don’t have to invent them. They’re already there, and the question is, how can we implement them? Can you integrate this in your overall plan for what you would want to do? Can you build things that would supplement this and be part of them rather than be replaced by them?

So our current trends today in intervention have started with open surgery and luminal surgery, then minimally invasive like laparoscopy, multi-invasive, which was robotic, and where we really want to go is to noninvasive. And we’ve had our instrument development on there and if you look toward the end there, now that we’re robotic, what comes after robots? The next generation, I believe, is something called directed energy surgery, and this is significantly different because it allows us to do it noninvasively. I’ve showed you one or two of the opportunities that we have, say, like with the CyberKnife. That’s noninvasive surgery. Kill the tumors, kill the things without having to make an incision. The patients love this because there’s no pain involved. They come and then they go out as an outpatient and so forth.

So we have to rethink how we’re going to do therapeutics or interventions, if you will, and I believe it’s the flow of information that controls energy and that’s going to guide the future of most of our procedures. The fundamental change is going to go from physical objects, if you will, [00:31:14] tissue with instruments, the tangible things that you feel inside you, the devices will go to intangibles like information and energy and the interaction of the two of them. So it’s about exploiting the energy spectrum and the information space, and I think that’s a new definition for what is the Information Age. This interaction is key.

The electromagnetic spectrum is out there. I mean, we’re surrounded by all forms of energy. It’s this big. Industry is using this much of energy in x-ray, ultrasound and so forth. Medicine is using about this much. The opportunities are huge if we can control the energy with the information, and that’s the direction that we would need to go. This is about all we’re using at this point in time of this massive amount of energy that’s out there and how we can exploit it.

So I think the time has come, and the reason I think the time has come is because I saw this video is because I saw this video by the Navy. Instead of sending their destroyer out with 80 people about 120 million dollars in cruise missiles, they send them out with eight people and one laser, and then they challenge them with 20 different unmanned air vehicles, and from two miles away they were able to destroy within three seconds each of those that were coming towards the ship. They weren’t even within range of their missiles that they carried. So the point being is that we’ve got the systems, particularly the control systems that I mentioned, that are so important. If I can control a device to focus on approximately one square foot and follow that and track that for three to five seconds, certainly I can have a desktop device that will look down at the micron level. So we have the capabilities to do that. We’ve been testing them in the biological field, in cell biology with genetic engineering. Why this is important is when you put the two together, the device that you’ve developed and software to control it, you can develop a single instrument that performs diagnosis and therapy in real time at the point of care in a handheld, portable and low-power instrument that eventually could be autonomous if you put closed-loop feedback into it, and eventually it may end up as a home consumer product.

So let’s digress for a moment why this is important, what the implications are. For about 2000 years since Protagoras made the statement, “Man is the measure of all things,” we have used man as the measure for all things. How many feet did you walk to get into this room? How far is a yard or a m
eter? Well, actually in 1453 it was defined the distance between the nose and the tip of your finger by the silk industry, and what they would do is they put the bolt of silk up and they grab it, and they’d go one, two, three. Those were the measures. And when you look at it, until just recently, everything has been on the macro scale, but in science we’re down on the micro and all the way down to the nano scale. We have a new way of perceiving the world, one that we never had before. Sure we had microscopes and we had telescopes to increase our view of the world, but that was only for a few very, very special people, but now in the future we have the opportunity to move to a totally different scale.

And Richard Feynman was right in 1959. He said, “The future is in the world of the small.” That’s where we’re going, and for the first time we have the capability not only of diagnosing or looking at this but actually manipulating at that level. What makes it possible, it’s a combination of information and energy that results in an intelligent system. So for engineers that are out there, if you send some form of energy into anything that’s living system, you perturb the system. For example, if I shine a light onto a cell, it either absorbs or transmits it, and the difference between what I send in and what comes back is going to be my diagnosis because each living system is totally unique. So I can make a diagnosis by shining a light, shining an ultrasound, shining a terahertz millimeter wave, any one of these spectrum of energies that are out there, and then I could make a diagnosis from it. But if I take that information and immediately feed it into a device for turning on and turning off, say, a therapeutic modality like laser in order to cut and coagulate high-intensity focused ultrasound for ablation and so forth, then we end up with a closed loop. So I can send in a test to find out what my cellular diagnosis would be, and then I can ablate that particular one or I can enhance it, I can give it an extra energy to change the level that it’s moving at. This closed loop is a very profound change because this now makes my instrument intelligent. It will know exactly what the configuration of every single cell is as it queries each one.

So with this, we can do a closed loop in 50 milliseconds, but what does that mean? As a surgeon, that means I can do 20 complete operations in one second or in a minute I can do 1200 complete surgical procedures. I can’t even do 1200 in a year, and here now I’m telling you I can do within one minute 1200 operations, but it’s at the cellular level. The reason that that’s important is that we can identify cell by cell whether it be cancer, whether it be inflammatory bowel disease, whether it be wound healing, to either destroy, apoptosis or ablation, or to stimulate, angiogenesis or VEGF or some of these others that we know that turn healing mechanisms on, and we can do it cell by cell just by sliding our instrument over it, if you will. So it gives us the opportunity to use energy to control the biological processes for either destruction of tissue or for healing of tissue.

So here are some examples of what we have available. High-intensity focused ultrasound. That yellow dot went on. Let’s see if I can run this again. And when the yellow dot goes on, the ultrasound coagulates the tissue inside of the lens without causing damage to the outside. It’s called an acoustic window. You are able to focus it to a point so that the only damage occurs exactly where you would like to have it, and you could measure that, you can modulate your energy to the frequency, the power settings and so forth, to the exact depth and precise point that you would like to.

[00:38:18] is very interested in that. Using their hemorrhagic model, which is to lacerate the internal iliac vein inside the abdomen of a pig, every one of the pigs that you would lacerate, you would cut this vein, they would bleed to death in 15 minutes, 100% mortality. So here you see the Doppler image of that vein being cut, the artery being cut, and now it’s bleeding to death. But we had the high-intensity focused ultrasound, so they pressed the button and they looked, couldn’t see…oh, there’s a little bit [00:38:50], so they went ahead and pressed the button again, and what ended up happening is when they checked it there was no more bleeding. Normally, this would be about a one- to two-hour operation, and they were able to do it in less than a minute without causing any incision whatsoever.

Imagine if someone’s out on the highway and they’re injured, they’ve got blunt trauma, they’ve got a tear in their liver or their kidney, a medic runs up and goes, “Hmm, well, I see where the bleeding is,” and presses the button and stops the bleeding and the patient is cured. Star Trek, anyone? No? It’s a new technology that we’ve been developing based on the premises that I’ve told you about information and energy, and we could move further in other directions as well.

An area that is a great excitement to me that’s brand new, it was approximately six years ago something called cold plasma was discovered by the physicist. Normally, plasma means, what happens when lightning strikes? It energizes [00:39:53] all the air and it converts it to its more elemental forms of energy. So it destroys the product but it creates energy in its place. And so someone just recently discovered how you can do that with low power without all the fancy other equipment like vacuum and noble gases and so forth, but simply by pressing the button you can create this plasma. Why this is important is that we now have enormous amount of free energy that’s there that you can begin manipulating biological systems.

In the cloud that we create [00:40:27] from, it’s a little purplish-colored cloud, you can see it right there, we have charged particles and free electrons. We’ve got reactive species, nitrogen and oxygen. These are responsible for our most basic biological principles. These are the things that turn on and turn off most of the mechanisms that we see that are used in medicine. We use drugs to carry various types of drugs into the body, and what do they do when they get there? They react and cause these electrons to move or the reactive nitrogen species to interact with the systems. We also have UV light. We have high temperature, electromagnetic pulse which is responsible for disrupting adhesions between cells. So there’s this energy that’s in there and we’re beginning to realize that our biological process of life at the molecular level has to do with moving around electrons or other forms of energy, and we now for the very first time have instruments that not only can detect what’s going on but we could add or subtract energy from it and actually turn on and turn off specific molecules. This is a revolutionary concept. Right now plasma is limited to the surface. We’re using it for things like sterilization and wound healing, and we’re looking at other areas. We can selectively turn it on and turn off. These are the things that we’ve been able to turn on and turn off like angiogenesis for healing. We can also incite apoptosis.

An interesting thing is that high-energy plasma in the past had been used for sterilization, but it was too difficult to use. You had to have monster instruments and so on and so forth. We’ve discovered that cold plasma does the same thing that hot plasma does, and why is that exciting? There is no known biological agent that is resistant to 30 seconds of exposure to plasma. Can I repeat that? No known biological agent that is resistant to 30 seconds of cold plasma. We’ve investigated it. We took blood samples from our soldiers that died in the battle [00:42:36] from overwhelming antibiotic-resistant bacteria, subjected them to these, and it killed every one of them within 30 seconds, and we would repeatedly take the few that weren’t killed, [00:42:53] them, and through multiple generations, at least six generations we have data on that they cannot develop
resistance. And this plasma does not injure cells. The going hypothesis on that right now is because our DNA is controlled inside of a nuclear membrane, which has a number of important chemicals in there like [00:43:14], which destroys nitric oxide and prevents it from damaging. But all other known biological agents don’t protect our DNA or RNA, and therefore they get totally disrupted by this process. We have to learn more about this. This is only six years old. It didn’t exist six years ago, so the opportunity now is enormous to be able to move forward.

So these are some of the things that we’re already looking at and investigating for clinical applications, if you will. Am I getting close? Ooh, I got to hurry up here. The University of Tennessee just discovered that they could put a marker on a brain tumor and then they would shine a specific wavelength of light into the skull, activate the markers, and kill the brain tumors. So now we know how to kill brain tumors cell by cell that are individually marked without even doing surgery, without giving you terrible poisons like the ones that we use in chemotherapy or immunotherapy simply by marking them and giving them the right light. This has been going on for a long time.

Here is food processing, to give you example of what’s out there. The chickens go past for inspection. Before, they used to have one check in every hundred. You would swab it, in two days literally you’d find it. Now as each one of these chickens go by, they rotate around and they do two-and-a-half chickens per second. They laser-scan them, not too different from this laser scan that you got in the grocery, match it to a database and determine whether or not any one of a hundred different pathogens are on there, and they go through this. So we should be able to in healthcare leverage off of this. And they also have coupled it for automatic milkers and so forth. So I think what the future is looking at is a combination of image guidance and intelligence systems with energy to take us to a noninvasive form of therapy, which we’re calling directed energy surgery.

So I have a few more…how much time do I have? I’m getting close.

Alright. [00:45:39]. These are probes that we put into the brain of monkeys, and these monkeys, what we would do is we would teach them if they would move the red dot to touch the green dot, a robotic arm would come and feed them. It takes about six weeks to process the signal, pretty much like we did with the cockroaches, but then what we did is exactly the same thing that happened with the cockroaches. You take it away from the recorder, you hook it directly to the robotic arm. It took the monkeys about two weeks to realize they didn’t have to move their hand in order to get fed. They just had to think about eating and the robotic arm automatically fed them.

So this was translated into an IRB-approved protocol in a quadriplegic that you see here, Mark, at the Rhode Island VA. He has the probe in his brain, he’d had it for three months, and Mark drew a circle, and so you see he’s trying to draw a circle with his thoughts. They made a little program so he doesn’t have to call the nurse every time he wants to turn the television on or off or to change the channel, and so here is Mark turning and turning off the television, changing the channels and the volume and so forth.

One of the students ran down to the prosthetic lab—this wasn’t planned as part of the research—and hooked up the prosthetic hand, and said, “Mark, can you open and close this hand just by thinking?” It took him about 15 minutes but as you see now in this raw data, the first time that a human ever opened and closed a prosthetic hand simply by thinking. So DARPA began its next-generation intelligent upper arm prosthesis and it’s in progress at this time and it will eventually be able to be connected directly to the brain. But perhaps we’ll be able to provide a device that sends the signals without putting probes into the brain. Now, this is going to be extraordinarily hard. The signal-to-noise ratio is so low. But perhaps five, 10, 50 years from now we’ll actually be able to have a device you could pick up the individual thoughts and be able to control devices with them.

And we may be even sooner than we thought. This is a very interesting experiment out of USC. This mouse has a tiny little 50-micron fiber optic probe in its brain, and with that they were able to look at the cells, see which ones were firing off, and they discovered that there was a pattern: Every time he turned left, they had these specific neurons that were activated. So what they did was very similar to what was done in the monkey. They focused it on each of those neurons and he was walking around at random, and then they started stimulating the neurons and the mouse started [00:48:13] turning these left-hand circles exactly as he had thought. So they said, “Wait, that’s really cool. I could make him do what I want to do.”

But the next thing that they did was even cooler, and what they did is they sensed when he was going to turn left, took that and sent it over to the second mouse. And so every time that this turned left, he made this one turn left. He sent his thoughts from one mouse to the other. What would we call this? Mental telepathy, anyone, sending a thought from one person to another? We may be on the threshold of some new way of discovering information and transmitting it. So don’t invest too heavily in your cell phone companies. We may have something else coming forward.

We’re replacing body parts, if you know, and we’re growing new organs. We’ve had clinical trials that demonstrate if you harvest the patient’s stem cells, you grow the new organ and you take out the bad one and put the new one in, they do not reject it. They now have an organ without having to go through chemotherapy, immunotherapy and so forth. This is truly profound.

As a surgeon, I know 23 operations to operate on your stomach. What am I going to do in the future with this technology? One operation for your stomach and only one. No matter what’s wrong with your stomach, I’m going to take it out and give you a new one, one of your own that you won’t reject and you don’t need chemotherapy for. And all other industries except healthcare do this. They take your car in, they don’t fix anything anymore. They find the bad part, throw it away, and give you a new one. Time for healthcare to catch up.

And we’re looking at printing these organs with 3D printers, and 3D printers are going to be a revolution beyond just healthcare and we need to be part of that. For example, in our fundamentals of robotic surgery, we had to develop a new system and a new device in order to test how well people trained in robotic surgery. We built it with a CAD/CAM and then we printed it out, and now the people can have in their training center not only the device but they can print new parts. They don’t have to go out and order any because all they have to do is reprint them from them.

So [phone rings]…don’t you just hate that? I thought that was off.

So I think the 3D printing is going to be a huge step in the future, and it has applications already that are just beginning to surface in healthcare, replaceable parts that are printed out that are patient-specific as you see here. And as Dan showed you, we can print not only biological parts but electronic parts together as a single device as in the lower right-hand corner. It may be more important than the Internet. But think about this: If we can do things like create organs and dispose [00:51:07] and patient amenities, if you will, right in the hospital, we don’t have to have people manufacture them for us and ship them all over the place. There’s no delivery, minimal inventory, it’s just in time, custom-made, and you can recycle it locally as I’ll mention here in a moment.

So here are some things that…how much do these cost? Probably cost pennies to manufacture an
d they cost us about 125 dollars for them. If we print them locally, we have them when we want them, don’t have them standing around, we can sterilize them with plasma or some other form and use them immediately. So we have an opportunity now to get the relatively straightforward, low-cost 3D printers, make them available, and create the things that we need when we need them.

This is very interesting. There is a company out there called Filabot, and what it does is it takes old materials that were used to print things, reprocess them into the filaments, and allows us to go ahead and use that to print something new. It’s kind of like the ultimate recycler, if you will. If you don’t like the piece of equipment you have, you put this through the Filabot, you reduce it to its basic chemical processes, and then you feed it back in. Talk about something that’s going to revolutionize the way things go. There are certain products like milk bottles and so forth that you an reprocess, use them into the Filabot, and create things that you would want or need. And so I think that that’s going to be one of the huge advantages in the not too distant future.

I’d just like to mention suspended animation because I think this may be the opportunity to replace, if you will, anesthesia. Brian Barnes in Alaska discovered that the Alaskan ground squirrel does not hibernate because it’s cold, it hibernates because he turns himself off. We don’t know what the signal is that turns him on and off; however, it activates the hypothalamus to send out a chemical that goes to every cell in the body and basically turns him off.

And Mark Roth discovered a way to do that with hydrogen sulfide, and I watched him one day in the laboratory when he put a mouse underneath the ground and gave him some hydrogen sulfide gas, and he was dead in three minutes. I said, “Mark, dead.” He says, “Yeah, I know.” And I said, “Well, what do we do now?” He said, “Go for lunch.” Alright. So we went out for lunch, saw a couple more experiments, came back about four, five hours later, “Mark, it’s still dead.” And he said, “Patience.” He takes the top off of it, he whips it up, gives it a little bit of oxygen, and the mouse wakes up, looks around—he hadn’t had lunch—finds the maze, runs through the maze, and starts feeding himself. So we think that he was completely intellectually intact.

So what does this mean? I said, “Mark, what’s going on here?” And he asked a question. He said, “What would you do in your life that takes the most energy?” I know what you’re thinking. No, it’s not sex. It’s dying. Because we have something called the agonal gasp. At the very end, you shut everything down, you’re basically auto-digesting your body in order to create energy to save your heart, your brain, and your kidneys. And so according to Mark death is an auto-digestion, but he said, “If I block all the enzymes that are needed to begin the auto-digestion, you can’t die. You’re not alive because nothing’s moving, but you can’t die either.” And he said, “The only thing I can give as an explanation for this is this is a form of suspended animation.” So far he’s had it up to two weeks in small animals like rats, and he’s beginning his large animal trials as well. And he’s converted it from a gas into a liquid form that he could actually give IV. So this is going to be an exciting area to look for, and I’m excited because if I can use that I won’t have to worry about my patient moving, my patient won’t bleed while I operate, and certainly it will numb the brain to a point that he can’t remember anything. And when surgery’s over, we’ll reboot the system.

So, do I have two minutes or do I need to stop? Okay. Because the most important…oops, sorry, that wasn’t [00:55:20]. I keep on putting that one in. Is that we have to make sure we do the research so that we don’t have some unknown, unintended consequences. But this is raising the issue. The technologies I’ve showed you are raising the bar on the moral and ethical issues. We human cloning, we said we can’t do any of it. That’s not the answer. We now have genetically engineered children. And so the question is…if you have a child with an abnormality, the government’s going to ask you to have another child, to harvest the cells from that one and give it to the genetically deformed, disabled person so they can have a normal life. The question is, what happens if the family doesn’t want to have another child? Is the government going to be responsible for taking care of this poor, disabled child for what few years they have left in their miserable condition at hundreds of thousand dollars a year rather than giving them a short 30,000- or 40,000-dollar procedure and giving them a normal life? Who’s going to make that decision?

We know at least three ways to extend the life of a mouse –apoptosis, anti-telomerase. What happens if I do? I could give it to your granddaughter. Now, she is going to live three times, 210 years. What is that going to mean? We heard from Eric Rasmussen about the problems that we have with increasing population. What’s going to happen when people can live for 200 years? Who’s going to get this technology, everybody or just limited to certain persons? It’s here. Should we use it?

I said we can grow any part and I said but except for the brain, but in Vienna we got people even trying to grow the brain. So I can replace any part of your body, but the question is if I do, are you still human? What is it that makes you human, this flesh and blood that you were born with that I can now replace or is it something more?

So I would like to close—and thank you for your tolerance—with probably the most profound question that our technologies raise today, and it comes from Francis Fukuyama’s report to the biomedical commission from the president and he turned into a book called Our Posthuman Future. And this is what he thinks is the most profound question, and it’s for the first time in history that it walks on this planet, a species so powerful that it can control its own evolution to its own time and own choosing. That species is Homo sapiens.

That’s not a patient species.

We’re not going to wait 500,000 or a million years to evolve into something new. So I ask you, “What are you going to make as the next species on this planet to follow man? Because that decision is up to you.”

Why FDA Rejected Nearly 60% of All 510(k) Submissions in 2013

28 min reading time

Why FDA Rejected Nearly 60% of All 510(k) Submissions in 2013

Reading Time: 28 minutes


jorge ochoa exponent

Jorge Ochoa, Principal Engineer at Exponent, asked the 10x Conference crowd last year,

“What’s the #1 complaint about FDA?” and answered, “That it takes too long, right?”

So in December 2012, FDA finalized guidance on its Refuse To Accept (RTA) Policy, a draconian measure used to shorten FDA response times.

Exponent’s Carrie Kuehn explained if there is a mistake on your submission – any mistake – your 510(k) can get kicked back to you within 15 days without further consideration. The clock stops and FDA gets to say, “You asked for a quick turnaround and you got one!”

Carrie Kuehn: So, what is FDA’s refuse to accept policy? So, FDA developed some criteria for assessing whether or not our 510(k)’s are good enough to even get in the front door. They issued the final guidance in December of 2012 and we’ve now had a year to see how this works, the idea being that better-quality 510(k)’s coming in would lead to faster review times, etc., and all of us have read a report or a blog or an article or two about FDA complaining that the 510(k)’s they get are not of good quality and woe is FDA because they just can’t do our reviews any faster and get us our devices cleared because our submissions are just so bad. So they came up with the refuse to accept policy. The idea at FDA was they want to focus their resources on reviewing really good submissions, not crummy ones, enhance the consistency of their acceptance criteria, and they reported this policy to be about assessing the completeness of our submissions, not the quality of the submission, so…and then they would get back to us in 15 days.

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What have we seen so far? So, there should be a difference, right, between an administrative and a substantive review? RTA is intended to be an administrative review. So is it a device? They have some preliminary questions, you can go to their website and there’s a laundry list of them, but they’re going to look at it and say, “Well, is your widget, even a device, does it belong here? Did you pay your fees? Is the 510(k) [00:01:50] ready for submission? Maybe you don’t need a 510(k) or maybe you should have a PMA. Are you even in the right space?” And then their presence or absence are required components, right? There should be a checklist. Do they have their user fee documentation? Do they have their DCs? Do they have their device subscription, etc.? Resulting in a refuse to accept or a move on to substantive review. It should be pretty straightforward.

Substantive review, we expect it’s going to be our review of the 510(k)’s. It’s the quality of your components, whether or not you have substantial equivalence, going to the AI request and response, the cycle and process that we’re all used to with the review of 510(k)’s, and this should result in a binding determination of substantial equivalence or a failure of that and you move on from there. Marjorie Shulman actually said that, “There will be no evaluation of the adequacy of contents or rationale as part of RTA.” So, what did we get?

So, here’s the RTA checklist, I don’t know if any of you have seen this. It is enormous, it has multipart questions, there are separate sections for different pieces, and it is anything but administrative. If you look through it, there is definitely a blurred line between that administrative or substantive review, and so we’re going to talk a little bit about what happened when this was implemented by FDA over this past year.

So in 2013 FDA received 2965 510(k)’s. They accepted through RTA. This is not substantial equivalence determination. This is just getting past RTA, only 1197 of them. Fifty-eight percent of the 510(k)’s that showed up at FDA’s door were turned back under the RTA guidance based on the checklist that they have. So, what happened? Some of the anecdotes that we’ve seen, there are blogs, you can Google this, FDA Law Blog had a fantastic review kind of looking back, if you will, and there were any number of reasons that kind of baffle the imagination with regard to why these were turned away including failure to indicate whether a vinyl glove had software and had passed the electrical safety standards. There were substantive questions too regarding shelf life. They also turned them away for misprints, pagination problems. I think one of the anecdotes I heard was there were two page 17s and so they turned it away. “It wasn’t good enough, go back, send it to us again.” Failure to state whether a condom was patient contacting. So, just little things like this that kind of baffle us in terms of is this really what RTA should be about?

Real quick, I’m going to actually turn it over to Rob, who’s going to share with you some anecdotes based on his experience filing submissions, and then Jorge is going to talk to you a little about what this failure of RTA, if you will, means for your new product development cycle, and then Rob has some really great suggestions for getting through it. So, Rob, do you want to tell us some of your worst stories in this regard?

Rob Packard: Yes, thank you. I work with several different clients right now, I’m working on some 510(k)’s for those clients, and when you put together a submission for the client and they’re reviewing the records before it gets submitted I get these kinds of questions. They can’t believe that we need to be this detailed, and oftentimes they’ve done a 510(k) submission themselves before and they’re looking at my submission versus the one that they prepared before on the predicate device and they’re saying, “Why do we have so much more detail? We didn’t have to do this before. Why do we need this?” Or I’m asking for information for a certain section and they say, “Well, why? I didn’t need to provide this information before,” and it’s simply because that’s the level of detail that this RTA checklist is requiring. That’s the level of detail that the FDA is scrutinizing submissions. They’re not asking questions about safety and efficacy. They’re asking you to dot your i’s, cross your t’s, and then do it 10 more times, and then it’ll be almost good enough to be rejected.

So, it’s a ridiculous hurdle that they’re asking companies to go through and it’s not meant to be, “Is your submission complete?” This is not an administrative process. This is clearly blurring the ones between an administrative review and a substantive review. But that doesn’t mean you’re going to stop submitting 510(k)’s because you’re not going to stop making new product innovations. And some of these submissions that companies are submitting are special 510(k)’s case, which is just a catch-up saying, “You know, we’ve made these minor modifications over time, we want to catch up,” or the FDA is telling you, “You shall catch up and tell us what changes you’ve made since the last 510(k).” And so it should be shorter, it should only tell you what the differences are, yet we’re still getting really tough questions about things that make no sense, things that shouldn’t even be applicable but they want us to connect the dots anyway.

So when I get these kinds of questions, you need to understand, the FDA 510(k) submission process is nothing like it was in 2003, 2004, even up through 2007. You might be able to figure out what political trigger might have caused all this, but I’m not sure a change the other direction will make it any better. I think the new FDA’s 510(k) process is here to stay and it’s only going to get worse, not better, because the FDA really doesn’t like the 510(k) process. Back to you.

Carrie Kuehn: Jorge?

Jorge Ochoa: Okay, while we turn this on, sorry to be the buzzkill of the day, but who here has been involved with the RTA process in the last year? Okay, who here is in direct charge or participation in new product development? Okay, so I want to talk a little bit about resources.

Carrie Kuehn: I could make that work…

Jorge Ochoa: Okey-dokey.

Carrie Kuehn: There you g
o.

Jorge Ochoa: So everybody should be familiar with this particular…at least this is my version, [00:08:54] version in the new product development [00:08:56], and the reason I brought his up is because we’re always thinking about people, process and product, and the standard of reasonableness went a little bit out the window with RTA, and we’ll talk a little bit about why aside from the politics.

So, Ms. Shulman…Dr. Shulman talked about this to the FDLI at the FDLI conference last year and this is what the FDA saw. So, politics aside, this is the data the FDA saw. They looked back in industry for about 10 years and what they saw is there was an increase in the average number of review cycles, that as far as they were concerned industry was getting worse and worse because they had to intervene more and more in these review cycles. Number two, our reaction time slowed down. So if we got 180 days and 179.5 days, we would come back. So, obviously, it was industry’s fault that innovation was slowed down. The third is that over 80% of the AI letters, when the FDA called up and said or sent you a letter saying, “We need more information. There were inconsistencies in the submission or they were missing some of the admin requirements.” So that’s a pretty big number and it was leveraged to justify this initiative.

And the last thing is there was actually an old RTA checklist. Did anybody know that? Did anybody know it existed, anybody in this room? That’s what I thought. Nobody ever used it. So, we took the baby, the bathwater, threw it out, and started on this process, and it’s actually unfair to put it all on the FDA because we are partially responsible as industry. What is the number one bitching point about the FDA? It takes forever, right? Well, we asked for it. Within 15 days, we’re going to tell you whether we’re going to look at your 510(k) or not. So that’s like your mom when you come in and you tell a lie, “Okay, this is what I’m going to do to you.” So, we participated in that and this is what we got.

So, the reason that the FDA gave is they wanted to reduce a number of review cycles and the total time before devices were cleared. What it means to us in industry is you get one shot at it. Once it gets rejected, clock starts again and you have to come back and there’s another 15 days. The new checklist, this was the criteria, and I’m going to tell you what I think it means to us in industry. It was meant to be a compilation of regulations, of statuses, statutes, guidance, review, everything under the sun, and what ended up happening, instead of finding the efficient intersection of all that data that needs to be put in for an initial review, what we ended up was that slide that Carrie gave us with multipage, multi-question, multipart questions, compound questions that are actually, if you remember logic from your senior year in high school, it was a union not an intersection. So that’s where we landed, and it’s much easier to form a union logically than an intersection. To do an intersection, you actually have to do a little discerning work.

They wanted to create an objective tool to understand the components and if you have a complete 510(k). Couple of things here. What they’re saying with this in my thought process, it’s important to us so it better be important to you. The danger here is who defines what objective is. Is it objective? Who gets to define it? And the FDA does. So there’s very little wiggle room. The last thing, as we stated before, is they’re supposed to be only evaluating the presence of an item, not the adequacy, in principle, so mostly administrative.

The last thing the FDA stated is, “We want to make efficient use of our resources,” which the semi-cynical view that I have is it’s more work on our part. If we do more work, they could become more efficient. So it’s a shifting of the resources, especially early on. It’s much high risk, much shorter time. When you have lesser resources at the FDA, efficiency, looking at a boatload of data with a short amount of time upfront, very high risk, we need to put that into our new product commercialization process. That’s the bottom line.

Is this making sense to everybody? It’s not a free ride. This can have a true impact in how you get your products to market. So how is your new product development process and your projects affected? Well, number one, timing, schedule, budget, resources. If you get rejected, if you get the RTA ding, clock resets to zero and you start again. At the bottom where I said the effect could be cumulative, that’s what I’m talking about. Number two, it’s not an interactive process. What we bought ourselves in those first 15 days is we send our stuff in, stuff comes out, done, we don’t get a chance. So because we were yapping off about, “Oh, we want quick, we want upfront, we want decisions,” that’s part of what we got. No interaction. There’s no limit of the number of RTA cycles, and that to me I think is one of the most dangerous things. It hasn’t come to fruition, we just need to monitor it, but 15 days at a time plus the time in between to react can add up pretty quickly, if you are on a very short timeframe as far as your product development cycle, if you are in hips, knees, spine, where new products, really significant products get launched every five to 10 years, not as big a deal, three- or four-year projects. If you’re doing stents, if you’re doing pacemakers where the technology changes every six months, two or three cycles, it’s 20% of your product development cycle. So it is significant.

Next one is the concept of substantive interaction and the MDD decision. These are actually pretty cool and I wanted to put them in here to show that it’s actually not just a one-way street, is there is now a decision point where the FDA will tell you if this is going to require [00:15:06] exercise with your submissions and require more interaction than usual, and in principle they’re open to actually reversing the first 15 days where there’s no interaction and really getting into the weeds with you, which I think potentially is a favorable thing.

The last one is—and I think they actually did hear us—remember after 90 days they’d stopped the clock and didn’t come into a decision, kicked it out and then you have to start all over again? There’s actually a tool now, the MDUFA decision where if they don’t think they’re going to come to a decision in the 90 days, they tell you and you can continue to work on it without restarting the clock, which I think that actually is a silver lining in this whole process.

The last couple of things I’m going to talk about or the last thing is, even though there’s not a lot of interaction at the beginning, we can create the interaction by talking to the reviewer because now there’s a very specific point where the lead reviewer is going to be identified and then sent to you and be part of the process. So, especially in the tail end, if they’re substantial, is there going to be substantial interaction or you’re going to pass the 90-day and there’s going to be a lot of back and forth with the FDA, and I think this has the potential to be very good, is please make your 510(k) an integral part of your new product realization, new product commercialization, new product introduction process. Anybody here that can give me a sense on whether, when you’re looking at your design control, new product commercialization, PMO office, is 510(k) part of it and is it consistent throughout? Is it addressed at all your design reviews and is it addressed by the team? Because it’s important for the whole team to be involved now because the FDA is looking at all the elements early now.

Anybody here have that inside their companies? Okay, cool. We should. Just a little thought.

Second one: Make sure, and this is something that is…this could be a very useful unintended consequenc
e of this change, is in the traditional model, even in cross-disciplinary teams, people take care of their own element and there are very few things that everybody participates in, and I think that are two elements that are highly underrated by not having participation of multiple experts in multiple fields. One is regulatory submission and number two is intellectual property protection. Those are two areas that are multi-disciplinary, nobody in any company could be an expert on everything that goes into those two areas, and those are the two areas that are most, in my experience, securely guarded by the 510s.

Patents, legal, and regulatory. Train everybody to understand that we work in a regulated environment, how important it is to participate, and that what everybody does especially now in the first 15 days, it’s critical to success, [00:18:09] dimension of success. And the last one is, even more important now, make sure that you train the people that interact with the FDA directly—and that doesn’t just mean your regulatory person on the team, but it means anybody because there will be questions especially when there’s a lot of interaction towards the end of the project—make sure that everybody speaks the language and make sure that people have great communications skills. In my opinion, you don’t only have to be very good technically and know the regulations, but the people that are great communicators are the people that are most successful dealing with the FDA. And I don’t think that all of us have 20 years of time to weed out who the best people are to do that. I think this should be a proactive…it’s a cost on your resources but it’s important.

So, just a little view from the industrial perspective, where this could go. It can affect your resources, it can affect your schedules, it can affect your effectiveness, but it doesn’t mean that’s it all doom and gloom. Rob?

Rob Packard: So, for those of you that aren’t intimately familiar with the 510(k) requirements, there are 20 sections to the contents of a 510(k). They even provide a guidance document that lists the 20 sections and explains what’s supposed to be in each section. So, we’ve provided a graph here and Carrie has done the bulk of the work; I just gave them numbers and rankings. But the top of the list there in the red, they are the two sections that are most likely to result in an RTA. We don’t have the FDA data to back this up. That would be nice to have, but they won’t give us everybody’s 510(k). I don’t know why. And then the second category is sort of the medium risk. These are the areas where you might get an RTA for something in those sections. And then the green section is unlikely, and primarily it’s because the green section consists of forms that you’re going to fill out and it’s much more administrative, so there’s not subjectivity in the eyes of the reviewer or in how you fill things out or provide information. But in the top section in particular, the FDA is asking for a lot more detail than they have in the past. But if your company hasn’t done a 510(k) in a while or you have somebody that doesn’t have a lot of experience, those yellow areas can be problems, and the next slide is a good example of that.

Volume nine, declaration of conformity. Here is a section that’s at the bottom I think of the first page or close to it of the RTA checklist, and they’re just asking you, “Have you completed the FDA Form 3654?” Well, as the name of the form would suggest, it’s kind of boring. All it is is a form where you explain, did you comply with a standard the FDA recognizes or did you deviate from it and if you did, explain how. Well, it’s a long form. You have to submit a separate form for every single standard the FDA recognizes, and just like I was saying earlier, the FDA surprises us with how much detail they want. If somebody submitted a lab report for testing and they referenced one of those standards, so it’s only a single mention buried in page 47 of a 200-page report. If you don’t fill out that form, you’re going to get an RTA letter. That’s how easy it is to get an RTA letter. Somebody else’s test report that you didn’t go through with a fine-tooth comb has a reference to a recognized standard so you need to include this form filled out for the FDA.

Another example of a real RTA letter that a client of mine got back, they filled out this form for a whole bunch of different standards but they didn’t fill it out for the ones that were obviously not applicable. So, for instance, if you have a list of standards and some of them are for, let’s say, a wheelchair that is for somebody that can move the wheelchair themselves and another standard is for a wheelchair that is electrically powered, they want to know why you didn’t apply the one that’s for the manual wheelchair for the powered wheelchair submission.

This sort of goes back to the same kind of comments we saw earlier for the condoms that they want to know whether it’s patient contacting. It’s silly obvious questions. We think it’s obvious; the FDA says “No, you need to specify.” They are also saying, “You need to fill up this form.” So here’s a lot of labor that you’re going to put into something that’s absolutely pointless and adds no value, but the FDA says you shall, so you will.

The next slide. Volume 12, the substantial equivalence. This is one of those red items at the top of the pyramid. This is probably the most technically challenging part of a 510(k) submission and it’s the whole reason why the 510(k) process exists. If you are going to submit a 510(k), you have to explain how it’s equivalent to some other device that’s already on the market under a 510(k) or something that existed prior to the FDA amendment. So, it’s a pre-amendment device. It’s something that’s been around a long time, really safe, great track record.

Well, let’s see. If I have a knee implant that was made out of wood back in the seventies or sixties and I have something made out of a titanium alloy now that has all kinds of coatings and special vitamin E added to it, those are exactly the same, right? Everybody wants that same 1970s technology in their knee. So, you can’t even keep a straight face when you say these are absolutely the same. I like to use the explanation of, “Here is the marketing department over here saying how this clinical data shows how everything is totally different from the competitor’s product and the regulatory person of the same company saying how this product is totally identical to the existing product on the market.” Now, if this seems a little bit bipolar for a company, it is, but the FDA says, “Please provide us a tabular document that explains point by point how it’s equivalent or not worse than the predicate device.”

Next slide. So, identifying a predicate, this is probably the first thing that every company ought to be doing. And you might think, “Well, of course I’m going to pick the last device I submitted because we just made a minor change to it.” Let’s say the previous version was hydraulically powered and this new one is going to be electrically powered. So all I did is change the power and, well, I added on a couple of extra features, so I guess I need to do a 510(k) submission. I can’t just do a letter to file saying, “You know, it doesn’t require a 510(k),” but in fact, when you do the analysis of what it’s going to look like on substantial equivalence table, you may realize that your competitor’s product that already is electrically powered is the better choice for predicate. So there’s a lot of strategy that’s involved in selecting your predicate device and you have to be intimately familiar with all the competitor products and how they establish their device was acceptable from a risk and safety and efficacy standpoint, and then you have to make that argument in a tabular form that some FDA administrative clerk that ha
s been there three months is going to understand. So, just picking your existing predicate device may not be your best strategy.

Next one. In volume 11, this is the one that’s going to look about 10 times thicker than you’ve ever seen before. Each of these slides, I have like part B on here, this is part B of the RTA checklist and it’s fairly lengthy. They’re asking for a lot more detail in what will be the device description than you’ve ever seen before, and things that you didn’t think were important they want to know about.

Next slide. And here is the other parts of the RTA checklist, and as we said before it’s a fairly long document. It has parts A through K. And I’ve indicated a couple of points here that might jump out and grab you, like, “Is your labeling device specific? Is there a guidance document that the FDA has for that type of device?” That’s important because they may say, “You shall have a label that includes the following information.” The newer guidance documents that the FDA is issuing now actually do. If you have sterilization, you may think, “Well, I’m going to reference the gamma sterilization or the EO sterilization standard.” Well, if you do anything that’s a little bit out of the ordinary, you could dump yourself into a third guidance document that’s out there or a standard for nontraditional sterilization validation. So the FDA is getting tougher and tougher all the time. Every single time somebody has a recall, the FDA looks for what more regulations can we throw at them. So it won’t get easier, there’s no good hope in sight, but the best thing you can do is try to learn this process really, really well and, as Jorge indicated, train your whole organization because one person cannot possibly do it all. It’s a team effort to get one of these across the finish line. I think that’s it.

Carrie Kuehn: Yeah, I think that’s it. So just to wrap up, I think that the message here is that RTA is not going anywhere, so we need to find a way to, within our processes, within our organizations, accommodate it, cope with it, and try and work our way through it. The hope would be that that acceptance rate goes up, but I think that remains to be seen and, clearly, the line between an administrative refuse to accept review and a substantive review has not been drawn very clearly at FDA, and so it behooves us to do our best to make sure that our submissions are going in.

I think the anecdotes indicate that our submissions aren’t as bad as maybe the failure rate would indicate. It’s that the decisions being made are not necessarily logical or meaningful. One anecdote that recently I read about was that the submission went in, they got an RTA, worked with the reviewer, got the concerns that the reviewer had brought up addressed, sent it back in and got another RTA because the first reviewer was now gone and they got a new reviewer and all the questions had changed. So, I think there are still a lot of challenges I’m hearing. We’d love to hear your stories and answer your questions. Thank you.

Joe Hage: I have to laugh. Jorge in the middle of the presentation said, “I hate to be a buzzkill.” The whole damn presentation was a buzzkill.

Carrie Kuehn: [Laughs] There is hope.

Jorge Ochoa: Drinks at six, man.

Joe Hage: It’s drinks at six. That’s why they sponsored.

Carrie Kuehn: That’s right. That’s why we gave you the drink tickets.

Joe Hage: Okay, our first question is from Brian.

Brian Blachly: Hello. We import blood pressure monitors and they’ve all been complied with by FDA except for one part of our hospital monitor, which is SpO2. We sent that in 6 months ago, we’ve heard nothing. Is that good or bad?

Carrie Kuehn: Sent in your 510(k) six months ago?

Brian Blachly: 510(k), yes.

Carrie Kuehn: So you got past RTA, it went for substantive review, and you have not heard back or…?

Brian Blachly: We’ve heard nothing. We thought we’d have an answer a month ago.

Carrie Kuehn: I would call your reviewer as soon as possible.

Jorge Ochoa: They’re supposed to get back to you within 15 days.

Brian Blachly: Thank you.

Carrie Kuehn: Yeah, so do you know for sure they got it? Because that would be my first question is, did they indicate that they actually received it? Because you should get a letter that says that they got it.

Brian Blachly: That’s not my department. That’s my partner’s department.

Jorge Ochoa: Everybody needs to be trained.

Carrie Kuehn: So, about the training…

Joe Hage: You were saying something about the entire organization, right?

Carrie Kuehn: Let us know if we can help you though.

Rob Packard: The same comments apply to not just 510(k)’s but any interaction with a regulatory body. It doesn’t matter who it is. Do not wait for them to call you. Do not wait for them to email you. If you think they’re going to call you on Thursday, call them on Wednesday. Be polite about it, be professional about it, but don’t wait for them because they are administrative. They have a very heavy workload and they will forget, things get lost, and it’s your fault.

Carrie Kuehn: Yeah, one of the things I would say just to respond to that as well is a lot of the folks that I talk to are actually afraid to call FDA. I can assure you there are some really nice people there. They’re a hardworking people but they don’t always make good decisions as we’ve seen, but you should never be afraid to give them a call and say, “Hey, what’s going on?” They’re not going to show up and inspect you the next day just because you called and said, “Hi, I’m over here,” which I have actually heard people afraid to call FDA because they’re afraid that means they’ll get inspected.

Rob Packard: That’s the IRS. [Laughs]

Carrie Kuehn: So, as Rob said and as he said, that goes with any agency. Don’t be afraid to pick up the phone or get someone like Rob or me or whoever to call them for you and find out what’s going on on your behalf.

Ross Bundy: Hi, we just started our submissions and actually we haven’t done…we will do a 510(k) but right now we just submitted for our pre-submission meeting, and so how useful is that meeting in terms of passing something like RTA and are the folks there that we’ll talk to? Are they well-versed in RTA issues and maybe give some advice in terms of how to pass it?

Rob Packard: The quick answer is it depends. If it is a device that has a predicate that’s obvious and there’s a very similar product on the market, it’s a waste of your time and money. To give you an example, if you go through the 513(g) submission process, which I gave a link for up there, you’re going to wait 60 days for an answer, you’re going to pay a few grand for it, it’s going to be nonbinding, and it’ll probably be wrong. That’s the good news. [Laughs] However, if you have a device that’s totally different and you’re having a lot of trouble identifying a predicate device, and when you call up a consultant they scratch their head several times, you probably need the pre-submission process. I don’t think the 513(g) process is going to be much good to you, but you probably need to still talk to the FDA because you may be headed down the road of a De Novo submission and you’re trying to avoid a PMA,
and you probably don’t want to do this without a lot of coaching and preparation in advance.

Carrie Kuehn: Yeah, I would agree with that. I would follow up with you can still interact with the FDA without going through the pre-submission process. So you can talk to a reviewer in your reviewing branch and get some questions answered, and then you don’t have to go through that. That may answer your questions.

Ross Bundy: They actually advised that we go through [00:34:15].

Carrie Kuehn: If they advise you to do it, then I would do it, yeah. Yeah. Whether or not that’s going to help you with RTA I think is questionable. I don’t think we know the answer to that yet. I think it depends on whether or not the reviewer that would be handling your RTA and your submission is going to be in your pre-submission meeting and I don’t think there’s any guarantee that that’s the case.

Jorge Ochoa: That’s the good and the bad of it. The RTA is much more dependent on the lead reviewer or the individual reviewer. The 513 process is really good for more overall, put your finger in the pool, see what the temperature is. That’s really good for you. If you need that, if you’re in that kind of gray space of technology, then it’s worth something.

Carrie Kuehn: I would also remember what Rob said, and that is that anything in those pre-submission meetings is nonbinding. So don’t be surprised if they come back and say, “Oh, you know what, actually, we’d like to get this additional information.” One of the ways you can avoid that kind of ambiguity is to go into your pre-submission meeting highly prepared with a very specific list of questions. What I usually tell clients is don’t ask FDA how to do it. Tell them how you’re going to do it and see if that’s okay. It’s usually going to be more beneficial and productive that way.

Jorge Ochoa: It’s like going to Vegas. [Laughs]

Joe Hage: Our next question comes from my friend Debbie Black. She’s flown all the way here from Australia.

Carrie Kuehn: Can I fly back with you?

Jorge Ochoa: Drinks at six. Yes.

Joe Hage: I don’t know what her question is yet but give her a nice answer, would you please.

Debbie Black: Okay. I’m from Bionic Products and we manufacture a negative ionizer of oxygen which we export globally, 50-year-old company, and we’ve had TGA approval in Australia for quite a few years. I’m just about to go down the process of the De Novo 510(k) that I learned about yesterday with the FDA and I actually have an appointment with you, Robert, next week, but you probably don’t know that yet. [Laughs]

Carrie Kuehn: Yes, they know.

Debbie Black: But what my question relates to is our particular medical device, we had to fight in the Supreme Court for eight years to prove that we can make the medical claims that we are making in Australia, and it got us to the point where we are the only one registered in Australia and TGA has told us they will not register anybody else, plus we have global patents protecting our science anyway. But, from my discussions so far with the FDA, my intended purposes that I’m allowed to say in Australia I would not be allowed to say in the United States. Well, that actually presents a huge problem because with my websites and international websites, how can we communicate to the consumer in a language that they can understand what our device can do if we have to try and fit within different jurisdictions globally when the Internet goes across so many different regions? I don’t know how to fix this issue.

Carrie Kuehn: Rob will give you some really good advice next week, but it’s a huge labeling problem. And so the key is I think going to be to work with the FDA to generate a web presence that is US-specific. I mean, other companies have had this concern. There are indications overseas, for example, in hips, for example, [00:37:59] resurfacing, it’s cleared overseas and it’s not cleared in the US, things like that. So I think it’s a matter of working with…it’s a labeling and marketing issue that you’re going to have to create one that’s very specific to the US, and then on your other OUS web presence it’s going to need to be very clear that the indications that you’re describing are not cleared in the US. And so it’s a challenge. It’s certainly very complex. Rob, you want to…?

Rob Packard: The only thing I would really add to that without getting into specifics that we don’t have time for would be that your distributors also need to follow you. So, one of the ways to irritate the FDA severely is to sign up a bunch of distributors that create their own websites and do their own thing because you’re the legal manufacturer that’s on the label and you’re the one that’s going to get in trouble with the FDA, not the guy that’s just shipping it.

Joe Hage: Our next question comes from Dick DeRisio. He is with notified body TUV SUD, also one our sponsors, and I’m interested to hear what you have to say.

Dick DeRisio: My comment comes from many years of living the dream doing 510(k)’s and PMAs, and just to reinforce something that Jorge said about getting the right people with the right expertise, since a lot of people here are involved with new product development, often what would happen is the R&D group would keep regulatory out of it until the very end, until they started throwing all the reports to them, and I ran QARA for many years in companies. The fact is they miss the sizzle of going to clinical advisory boards, meeting with the key opinion leaders who are talking about the new technologies, and they never had a chance to get excited and find out why they could support the indications and claims. So whether it’s a quality engineer or a regulatory manager or specialist, having them involved at the earliest stages really gets them excited and makes them much more conversant with FDA in terms of the values of that device.

Carrie Kuehn: Yeah, actually, one of the things we wanted to do at 10x and there just wasn’t enough warm bodies to do it but it’s still something that we want to promote, and that is what we call kind of your blue-collar regulatory—it’s kind of our term for it—and that is training your operations and manufacturing and quality people to understand their role in the regulatory process whether it’s submissions or compliance. We’re not trying to train everybody to be a regulatory specialist. Not everyone likes to read the CFRs at bedtime like Rob does, and I wouldn’t know anything about. But having a basic understanding of their role in the quality system, in their role of generating those reports for your submissions so that you can get past RTA, just having a general sense of it, can change how they think about the work that they do and lead to better overall compliance both from a quality system perspective but also lead to greater efficiency. So I think it’s a really good point, is that regulatory shouldn’t be relegated to the regulatory space only, it should be pervasive throughout your organization.

Jorge Ochoa: If you have a guy or a lady at the end writing a 510(k), RTA City, absolutely.

Rob Packard: I wanted to add one more point. I like your comments about getting regulatory involved early, but I actually started out in R&D, so the last thing I did in my career was quality and regulatory and I think that’s benefitted me tremendously because I can walk into design meetings and I speak their language, I think their way, I’ve done their job, and I can help t
hem do what they’re doing as well as teach them what I do. But I know that regulatory pathways and regulatory strategy is not all that exciting to the R&D team, but when I can give them a list step-by-step of “these are the tasks that you’re going to have to do for verification and validation, and I can guarantee you it’s 100% of the list, I won’t add on more later,” that’s really helpful to them. It’s their yellow brick road. All they got to do is stay the path and do those tasks, and if I can give it to them before they’ve decided what the design solution’s going to be, whether it’s going to be battery-powered or line-powered into the wall, that’s extremely valuable to them because they can say, “Well, which solution will be easier to pass that test?” because I already told them the tasks. And so I’ve actually had several R&D people say, “This is fantastic. I’ve never had one this good before.” Well, that’s because you asked for it a week before you want to submit. It’s not a checkbox in your technical file or your DHF. It’s something that’s supposed to help you plan your whole entire design project, so if you don’t do it early enough it doesn’t have much value.

Joe Hage: The good news for all of you and those of you watching is Rob is really good at what he does. He leads our QARA subgroup, which in my view is our best subgroup for the entire group. He pours himself into it every week and writes something really, really meaningful, so all that goodness means he’s really really busy. The bad news is I don’t get to hang out with my friend on Skype so often anymore. So, Vizma, you had a question.

Vizma Carver: Sure. Hi, and I just spent a year inside FDA as an industry expert as part of their entrepreneur and residence program, and yes those challenges are there. There’s also an interesting dynamic of when we were starting to just pitch some of the ideas in the [00:43:47] pre- and post re-balance, which was one of the cohorts I lead, and it was interesting to see how much pushback came from industry to not change it, because they use FDA as their legal buffer of once it’s approved by FDA we have less legal cases against us. So just to put a little bit of one of the reasons FDA keeps having all of those “more data, more data” is that they’re the ones that are dragged down in front of congress, not everyone behind the scenes, and industry then wants to continue to use them. So just giving that perspective as they’re making these regulatory changes and these guidances that are coming out as part of that strategic plan that we helped them make for this year – that’s also behind the scenes.

Carrie Kuehn: Yeah, I think when it comes to doing a 510(k) versus a PMA we’d all prefer the 510(k), please, because you don’t have time to clinical trial. I will say as someone who works with clients in adversarial situations where they’re either being sued or they’re in other adversarial situations that getting your device cleared by FDA does not really give you a whole lot of buffer against liability or litigation. PMAs, you get to deal with the…you get a little more protection under preemption, but with the 510(k), getting your device cleared, it rarely provides much of a speed bump. So, I think while that might be some motivation for industry pushback, I think that the greater motivation, and this is just my personal opinion, is given the choice of doing a clinical trial and spending that time and money and burn rate versus a 510(k), the 510(k) as much of a pain as it is and as much of RTA is a speed bump now, again, it’s still a more timely and more efficient pathway to market. So, I think there are a number of reasons for that pushback.

Joe Hage: Rob, you told the story about how the bipolar organization has a marketer saying, “Brand new, fantastic,” and regulatory saying, “It’s completely like the other thing.” Ed Black is, as you know, on our medical devices group advisory board and he’s my go-to for matters relating to reimbursement and health economics. And he participated in a workshop yesterday where he showed two triangles, one of them pointing up, one of them pointing down, and he was making a comparison of the things you need for FDA and the things you need for CMS, and I wondered if I could ask Ed to comment on the presentation and what challenges and what possible solutions. You know, finish us off here with some good news. [Laughs]

Ed Black: The fun of my job is telling entrepreneurs their new technology won’t get paid. That’s what people like I get paid to do sometimes. The comment I made, and Doug Limbach was here, it came up I think in the course of talking about the difference between patent protection, working with a patent office, working with the FDA, and working with the CMS, is that there are predicate devices that help you get through FDA clearance. That can hurt you when you try to get intellectual property patents that get even more confusing when you describe them differently to CMS, and you have to be careful when you talk to three federal agencies who all don’t necessarily talk to you until you leave an audit trail that could come back to bite you.

And the other thought was that regarding the triangles I show is that the FDA and all the work that you do to get a product clinically approved is focused on isolating all the other variables outside of an equation to demonstrate that your technology does exactly what it’s designed to do so you can meet that requirement for being safe and effective. But, when you take that technology into the real world and health plan medical directors look at that and try to figure out what that’s going to mean to the populations they cover, they look at this from a completely different perspective, and they know that when you take your clinical trials to the best university medical centers and the best surgeons and others, they aren’t the ones who are going to be using the equipment once they approve for coverage within their service areas. So there’s a completely different view of the world when it comes to covering something because not everything that is safe and effective, which is the mantra of FDA, is reasonable and necessary for treating any particular medical condition, which is the harbinger of Medicare and third-party payor coverage. They’re the left and the right arms of the federal government. They just look at the world much differently.

Carrie Kuehn: Yes, great points.

Joe Hage: Anything to add to that? Doug, did you want to add a comment? Okay. Well, in that case, I have some good news for everybody. It’s lunch time. And before we go, I’d like to thank my friends Jorge Ochoa, Carry Kuehn, and Rob Packard. Thank you.

The "So What" of Wearable Health

24 min reading time

The “So What” of Wearable Health

Reading Time: 24 minutes


Stephen D Pierce IBM

IBM’s Global Medical Device Business Development Leader Stephen D. Pierce joined us during the May 2014 10x Medical Device Conference with his unique perspectives on wireless innovation’s impact on healthcare.

“Wearables are not new,” Pierce says. Today’s hype comes from the “‘the three I’s – interconnection, insights, and integration’ with data from discrete devices, being aggregated across multiple data sources to provide a more complete picture of the patient.”

The fitness market is already being commoditized and just providing a smartphone app or providing analytics associated with patient data silo isn’t necessarily a significant value to the patient or the provider.

On the other hand, he says, “Chronic disease management is the primary opportunity that we see as far as driving healthcare transformation… As you look at the majority of spend on healthcare… the focus on reducing cost by taking action earlier in the process, during the earlier intervention stage or even the healthy stage, is critical.”

Click here to discover who’s speaking at our 2015 event in San Diego.

Stephen D. Pierce: So, a brief introduction of myself. I’m Stephen Pierce. I drive our business development activities with our global medical device clients, and so as Joe mentioned I have been spending quite a bit of time recently in Asia. So to our Japanese participant, [00:00:28]. That’s—I know a little bit of Japanese—welcome to America, and hopefully together we’ll gain some insights into the future of wearable tech in healthcare.

Speaking of which, how many of us are involved in the wearable tech space. [00:00:47] A raise of hands. Okay, a few of us. And as you’ve seen from recent trade shows like CES, wearable tech and healthcare applications of wearable tech were a key theme of major trade shows. However, if you think about wearable technology in healthcare, it’s been around for quite a bit of time, and if I can get this thing to work, here we go, wearable tech, at CES a lot of the discussion was around fitness bands – Jawbone, Nike FuelBand, Fitbit, etc. And I must admit—complete disclosure—I am not just a participant in this space, I’m actually a user. I have a Basis [00:01:36], which is fantastic, as well as Garmin Vivofit. I have the Misfit. I have the Fitbit. Jawbone UP as well. So I’ve used many of these devices, and as you can see by my posture, I fit well within John’s definition of a Homo geekus. I try to avoid the fastfooderus subspecies, but based upon an extreme travel schedule and also high-stress with the job, I will be a future user of many of your implantable devices, I’m sure, as well. Hopefully, not a hackable pacemaker.

But to that end, IBM is doing quite a bit of work with medical device companies in the healthcare space, and we’re also engaged heavily with healthcare providers and payers as well in defining how wearable technology can be leveraged to drive what we call smarter care. So I’ll talk a little bit about that, about areas where we view medical opportunities to be for wearable technology as well as some of the challenges and opportunities in realizing that future.

So just a little bit of a perspective on IBM. When you think of healthcare, you probably don’t think of IBM as one of the key companies, but we actually have quite a bit of involvement in the healthcare space. We have a number of professionals and clinicians who are part of our global healthcare team. We also have a self-pay model, so we are involved in setting policies related to the care of our employees. And we are investing significantly in healthcare technologies, as I believe Dr. Marty Kohn explained a little bit about yesterday. Watson [00:03:32] in healthcare would be one example of some of the investments that are being made, and not just in healthcare space but in adjacent spaces. We have an initiative around the Internet of Things and around taking data from not just medical devices but from other devices that can be connected to the Internet around them in the patient’s environment whether they be a television, a camera, an air-conditioning unit, energy-based devices, etc. to get a more holistic view of the patient, not just their clinical vitals but also their activity levels, dietary levels, social components as well, because those are key to realizing this vision of smarter care, which is heavily focused not just on acute care but also on early interpretation and even preventative care.

So as I mentioned before, wearable med tech isn’t new. As was mentioned in the previous presentation, you’ve had implantable pacemakers, for example. I think the first one was developed in the 1950s by Siemens, I believe. So you have—and that’s an image of that first implantable pacemaker. You’ve had of course vital monitoring suits used in military applications since the forties and fifties, so wearable tech has been around a while.

So what’s new? Why thy hype? Well, a lot of it is around, well, what I call the three I’s, we call them in IBM, the Smarter Planet three I’s – interconnection, insights, and integration, really taking the data from discrete devices, aggregating it not just along a single data silo but across multiple data sources that would include multiple wearable devices, diagnostic imaging, the EMR, etc. to provide a more complete picture of the patient, and then using that to drive analytics, to drive insights on what is the patient’s condition, how does that patient’s condition compare to tens or hundreds of thousands of other patients to identify similar cohorts or cohorts of patients with similar conditions, and then to use that to drive a coordinated care plan that spans organizational walls, that extends beyond the hospital to homecare, transitional care, etc.

See the 2015 speakers and agenda

See the 2015 speakers and agenda

So those are some of the recent changes where wearable tech has a significant opportunity. Of course, there are challenges to this. If you look at the fitness market, it’s already being commoditized. Most of the technologies from these types of devices are based upon accelerometer-based technology, so my colleagues would like to joke, if I’m short on my steps at the end of the day, I just wave my arm a few times and I achieve my goal. Whereas, for example, the Garmin Vivofit, I have a heart rate monitor that actually tracks heart rate patterns. The Basis also as well has a wrist-based heart rate monitor. So we’re starting to move into a direction of having more data of clinical value, but still it’s a long road and the current devices don’t necessarily have the clinical value nor…and they’re being commoditized quickly as you’ve seen from the recent announcement from Nike and their discontinuation of the FuelBand. There are questions as to whether a device itself can really capture financial value for the technology provider, so definitely issues around device commoditization and the business model. So selling devices in and of themselves won’t necessarily be a road to success. Also, just providing a smartphone app or providing a silo of data or analytics associated with that data silo would not necessarily be of significant value to the patient or the provider as well. So even this Garmin Vivofit has a great smartphone app, it tracks sleep patterns as well as activity levels, but it doesn’t necessarily help me to improve my health. So I think those are some of the challenges that we’re seeing in our discussions with wearable tech clients.

This is probably a “so what” slide here. I think we all agree that chronic disease management is the primary opportunity that we see as far as driving healthcare transformation. As you look at the majority of spend on healthcare, not just in the US but even in emerging markets that are developing developed economy types of diseases, like India that has tremendous growth in cardiac disease, the focus on reducing cost by taking action earlier in the process, during the earlier intervention stage or even the healthy stage, is critical. I’m a great example of that genetic predisposition towards heart disease – not very good activity levels, 200,000-plus miles of business-related travel each year. So my cardiologist should be taking me I need to take certain actions, and wearable devices will enable me to monitor my patterns and potentially drive benefits if done correctly or drive positive action on my part.

As you see from some of the quotes on the bottom, this isn’t just kind of pie in the sky type of discussions but there are significant growth potential in these markets on the order of estimated 20 billion dollars in the next couple of years and significant value from a healthcare cost reduction standpoint. McKinsey has estimated 10 to 20% reduction or savings in chronic disease management, which could be huge from an overall societal perspective.

So how do we take action on where the market opportunities in this space? We feel strongly remote patient monitoring, not just focusing on inpatient monitoring but outpatient is the huge opportunity. Interestingly enough, when we talk with most traditional medical device companies whose customer sets are the provider or the hospital CIO or CMIO, they still think within that traditional customer set. So they want to do interesting things when it comes to wearable technology but is still having the traditional customer and maybe providing consultative services on discharge procedures, for example for a CHF patient, and how to optimize that to reduce patient readmissions. It definitely has a potentially benefit to ACOs around the reduction of 30-day patient readmits. But I think they’re focusing a little bit on this narrow slice and on the short-term, but forgetting this long-term opportunity.

I think as you mentioned, I didn’t catch your name, but Medtronic is trying to transition from just a technology provider to a heart disease management company. So they’re trying to own the disease. Even they are still silo because as you consider that most patients with heart disease have multiple comorbidities, then how do they extend beyond just heart disease into other diseases? And I think Medtronic, of all the companies, is probably in the best position because they also have diabetes and other associated diseases, so they have the potential to grow and they are investing in acquisition such as Cardiocom to really transition from a discrete product or technology provider into a solutions company. So I think they’re making strides. That’s one thing that I would suggest to you as you look at the wearable tech spaces going from just providing a very interesting technology to providing a disease management solution, but I’ll get into more of that later.

There’s also an issue around or implications to product development and sales as you transition outside of the acute care environment. Many of my clients love investing in high-end, high-quality, very expensive technologies, diagnostic and therapeutic technologies that are focused on the acute care environment. But as you move into areas like residential care, assisted living, nursing homes, and even homecare, price becomes a critical issue, and so being able to balance between investment in superior hardware technology and good-enough hardware technology with the primary value being provided in software and services becomes more of a balance that a COO and VP of R&D needs to consider. So we’re talking with companies around doing data analytics in the cloud environment and then of course providing the data back to the provider or to the patient in a mobile type of format. So telehealth is a key example of this transition between the hardware/software services balance in the solution.

This also applies to the emerging market. As you look at China and India, the ability of emerging market providers and payers to pay for these high-end solutions is much more constrained, so being able to provide a lower-cost solution or lower-capex solution with some type of subscription model that enables you to capture value but is more of an operating expense or aligns their revenue and their cost becomes a much more important play. I think one kind of morbid example of some of the issues in emerging markets is that there is an established recyclable market for implantable devices in emerging markets. So you may see an internal cardioverter defibrillator that is actually recycled postmortem and used in emerging markets. Still, because it’s so high-quality, it can be recycled and recertified, but the price point would be such that an emerging market can afford them.

So wearables of course will enable a transition from morbid traditional care delivery process to a process that is more integrated where you’ll have data that’s being captured in the hospital, integrated with an overall care plan, that telehealth and telemedicine type of offerings would also integrate those sources of data with the care plan, and that there will be advanced analytics, cognitive analytics which will support the provider whether it be the specialist, the primary care provider, the care coordinator, etc. to get additional insights into what the patient is dealing with, and then dynamically modify the care plan based upon those insights. And you’ll see a number of devices that go from cardiac rhythm monitoring devices to cell-phone-based devices that Dr. Topol has used before when he diagnosed a patient suffering from a heart arrhythmia on a plane via a [00:15:07] case that connect to a cell phone to the Pancreum artificial pancreas that monitors glucose levels and can act as an insulin pump [00:15:20] kind of one integrated device. So, a number of interesting technologies that are being developed.

I think the one in the middle, we talked about Google Glass, well, we’re going one level further. Google is investing in contact lens technology. There are other companies that are also investing in this kind of technology to drive not just presentation of patient data but also therapeutic value and diagnostic value to assess the…do retinal scans of patients to identify predisposition towards diabetes or even identify diabetic retinopathy. So there are very interesting technologies that are being applied not just in the traditional wrist space but across the body. So the opportunities to med tech companies are that you can get outside of the traditional market of dealing with the cardiologist, the imaging specialist, the emergency room physician, etc. into new spaces, into the home, into accountable care organizations and again, into early chronic and healthier or wellness type of solutions.

That said, there are also challenges. There are new competitors that are coming up. When I go to Asia, almost every company that I talk to in the electronics industry, not just in the med device space, whether they be in consumer electronics, industrial automation, networking, telcos, etc., all want to talk about healthcare. They see it as a great opportunity and they are providing or coming at it from a unique perspective. Their primary relationships aren’t necessarily with clinicians but they have an understanding in consumer usage patterns. And so ease of use or developing something that has a high tendency to be used is something that they tend to be a little bit better at than traditional medical device companies. Also, they may have an additional presence in the home. They can embed a camera in their flat panel display that can then monitor a geriatric patient as they go about their daily routine. They can also provide rehabilitative services through that camera where they can do image recognition to identify is a patient doing their exercise appropriately, and then integrate that back into the care plan to say, “Okay, they did do their daily exercise.” If they didn’t, send a message to their son or daughter, say, “Hey, you may want to go check on them or give them a call to encourage them to take action or to do their exercise.” So they have a unique perspective in the healthcare ecosystem, which I think we can learn from, and also there’s the opportunity to partner together with them.

So based upon our insight and experience and discussions with a number of players in the healthcare ecosystem, we have this vision we call Smarter Care, part of our overall Smarter Planet and Internet of Things initiative, and that’s really to drive healthcare transformation at three levels, the first of which of course is the connectivity level – gather data not just from a single medical device but from multiple medical devices; gather environmental data; gather activity type of data; gather data from a smarter refrigerator on dietary consumption; gather information from retailers, retailer loyalty programs to say, “What is this? Is Stephen purchasing lucky charms or is he purchasing lettuce and vegetables?” So, gathering that type of information. The challenge of c
ourse is integrating that data and having a consistent 360-degree view of the patient.

Also, even just within the medical device space, developing what we call a longitudinal patient record, which is being able to filter the terabytes of data and to provide insights to the clinician [00:19:30] and the provider and the patient at the right time, that is meaningful. We’ve had discussions around image analytics with a number of radiologists, and the typical radiologist will not look at most of the data related to an angiography because there are just so many images. What is it, about 30 to 40% of clinicians take significant or make significant use of an EMR, so relatively low adoption patterns. Even though EMRs are out there, the effective usage of EMR is still limited because there’s just so much data and a clinician does not have the time to get meaningful insight from that data. So being able to filter the data, put it through a sieve as it were, and then drive analytics based upon that.

And Marty talked I believe a little bit about Watson, applying cognitive capabilities to provide advisory support to the clinician, so what are the potential issues with the patient and what is the source data associated with those so that the clinician can make effective decisions. Again, Watson isn’t a doctor. It’s not making the decisions for the clinician but it’s an adviser that will provide the clinician a few options and help them to be more efficient. And then of course, tying that to a care plan, being able to coordinate care based upon the patient’s condition is absolutely essential, and it’s not just within the clinical environment but it’s in the social environment. It’s within the community. It’s factoring in lifestyle issues and relationships that the patient has.

So those are the key components of what we call Smarter Care, and you can see some examples at the top. There’s a new kind of design that will be particularly applicable in the Chinese market where I think you’re going to have over a hundred million COPD patients over the next couple of years primarily based upon environmental factors. So an example of Smarter Care would be to understand the patient’s predisposition towards certain types of pollutants in the air based upon clinical data, being able to based upon environmental data predict the presence of certain pollutants in the skies over Xinjiang and then being able to integrate that with suggestions back to the patient or the provider to take action, to wear a mask or to not go outside, and then potentially link that back to employers to say, “These employees will not be able to come in to work. You need to adjust your plans or your capacity or your [00:22:12] restaffing based upon these particular issues. Has anybody spent much time in China? So you probably know the air quality is just crazy. Exactly, exactly, Beijing. And I’m going to Xinjiang, which is I think almost as, yeah, yeah, almost as bad as Beijing in two weeks. And so these types of solutions will have not just individual benefits but tremendous societal benefits and economic benefits to businesses.

So wearable devices, where do these fit? As you can see, if you’re talking just about a diagnostic technology, it’s kind of just a piece of the picture. The real value comes from the data, from the insights, and from the coordination. Of course, wearable devices can also fit in the user interface assuming that you’re going beyond just providing something in an iPhone or iPad type of interface, or Google Glass or the Google contact lens, etc. But the key thing that companies investing in the wearable tech space is, how do they solve those middle pieces? Do you invest in developing that capability yourself, potentially? Or you can also partner with other companies or acquire new companies that may have capabilities in those spaces. Typically, the way that IBM goes to market is we partner. We don’t manufacture medical devices. So we may provide some of those middle pieces and engage with an ecosystem of data sources. And then also, the owners of the data, IBM doesn’t own patient data, of course, so we’ll partner with providers, with payers, and with communities to capture that type of data, and we’ll provide some services or technologies to them to enable that.

So these are just some of the components of IBM’s Smarter Care. As I talked about, it’s really the foundational components. That blue piece is around remote patient monitoring. That’s where wearables can fit. And then it’s integrating that into a longitudinal patient record, using some analytics to first filter out the data, to focus only on the data that’s relevant to the patient’s condition, to drive analytics both at an individual level, at a population level, and then to use that to drive personalized care to the patient. And IBM is investing in these kind of capabilities, but…oh, I think I’m talking too much. I’m not very far in my presentation, so okay. [Laughs]

So we’re not just providing a complete solution around this, but again, we partner together with companies to do this. Watson is one example. We have something called the Watson Developer Cloud, which allows some of our strategic partners to access the Watson tool and do analytics using data they provide and even build applications on top of that platform. Bluemix is another more recent announcement around developing and providing a cloud platform and development environment that can enable companies to develop new applications, leveraging the infrastructure that’s there.

So there are different opportunities as we look at partnering, as I look at some of our clients in an area where I’ve been spending quite a bit of time in Asia. Many of them are interested in investing in neat new technologies. One CTO recently told me, “I want to be like Olympus who has, what, 70, 80% market share of the diagnostic endoscopy market? I want to invest and develop that new sustainable technology, but this other piece around what happens with the data, I don’t know what to do with that. So let’s talk about how we can build those pieces together.” Also, if any of you are interested in providing or selling your technology to companies, every Asian company that I talked to has an active acquisition strategy around acquiring new healthcare technologies, so I’d be happy to talk with you more about that.

So Watson is just one example. I think Marty already talked about this. Unless you have questions, I’ll kind of skip over this piece for the sake of time. But just to let you know, Watson is…our pilots is being used not just in a kind of analytics or diagnostic support role but also in training, in identifying or evaluating different care protocols for…chemotherapy protocols, for example. So there are a number of different applications of cognitive type of capability.

So as you can see, IBM is investing quite a bit in this space. What do we see our clients doing? Some of them as they look at this transformation in healthcare are sticking to their knitting. They’re saying, “We have great technology and we may use connectivity and we may use these analytics pieces to enhance our own products but still within a [00:27:35] very narrow band.” So even though we’re told that healthcare or medical device companies are not supposed to capture de-identified data, I don’t know of many who are not. But they’re using that to enhance their products, to say, “Okay, what features are being used? How can we improve the diagnostic value of our particular products?” So it’s tightly involved in R&D and POM process.

But there are other companies that are saying, “Okay, we recognize that the value is not in the technology necessarily. Well, there’s value in the technology but there’s an increasing value in the data. Right now we have terabytes of data that are just sitting around. Let’s do something meaningful with that to provide, for example, population analytics, to provide consulting services back to providers on how they, again, discharge patients
and instruct them to look for these pre-symptoms towards readmission.” So they’re looking to expand their services. Still, the primary data source is their products.

And then there are other companies, Medtronic for example is looking to expand into disease management solutions. And you could even see potentially, and I’ve actually talked with an entrepreneur around a very low-end endoscopy device that is based upon off-the-shelf components that plugs into a PC via USB port that is targeted at clinicians in Africa. I’m not sure if you saw CNBC yesterday, but our CEO, Ginni Rometty, was on, conducted an interview, and one of the things she said was, “Africa offers tremendous growth in the future,” and this would just be one example of that. A clinician or a general practice practitioner in Tanzania may not have specific experience around OB-GYN procedures or oncology but, due to capacity issues, he may have to play that role. So this company is looking to provide kind of good enough hardware technology but provide educational and training services via the cloud. So they’ll provide instructions and say, “Okay, for this type of procedure, here’s what you do,” and then capture the data and via teleimaging services or teleradiology services provide some feedback to say, “Here are some warning areas you need to look for.” So that’s an example of a very low-cost hardware technology solution, high-value to the particular practitioner that is using this. By the way, that’s subscription model. Because the device is relatively low-cost, they rent it for a few hundred dollars a month. There are ultrasound devices as well that are being used in a similar fashion.

So as we look at the approach to wearable medical solutions, these are just some of the key findings and I’d love to talk about this more with you. Of course, it’s important to have clinical assets or defined clinical value to the technologies that you develop. What we’re talking about is not just providing generic technologies, but really focusing on specific disease states like diabetes, oncology, cardiology, etc. and specifically around helping to manage the disease before it ever becomes acute.

Radical simplification of the user experience is absolutely essential. Even something like this, which is relatively simple, and for Homo geekus like me I forget to press the button that puts it into sleep monitoring mode, so something that is just… And if you look at many of the telehealth pilots, many of them require the patients to step on a scale, look at the information, insert it, or actually have them set up the Bluetooth or WiFi connectivity between their Withings scale and their PC, and then that transmits the information to a provider, and then how the provider gets that and integrates that, that’s still a relatively manual process. So radical simplification, and also partnerships to drive integration of that data so you have a more complete picture of the patient, and then also you’re providing more value to your customer.

Again, the leverage analytics for extreme personalization, driving insight at the point of care. So as I use these devices, for example, and again they’re not clinical devices, but providing feedback to me when I can take action, is critical, or to the provider. Dr. Topol likes to say that in the future there will be a heart attack app that will tell you, “Okay, in the next three days you’re going to have a heart attack,” which I think is great, but even that, to say within 30 days you may have a heart attack, it’s you need to take action now because you’re suffering an arrhythmia and you need to either take medication or sit down or automatically call an ambulance to take care of you. So that’s the kind of integration and extreme personalization that we’re talking about, and inside at the point of care. Partnering is absolutely essential, focus on value, as I’m sure you will know.

Looking to new customer sets, looking at emerging markets is a great opportunity because they’re willing to invest…they may not have the Balkanization of governance that is evident in the US. And so there are great opportunities in the Middle East. I think the Singapore Ministry of Health, for example, is running a study around telehealth for aging-in-place patients so that they don’t have to visit their doctor but can get information on their state of health and then appropriate action taken if necessary.

And then also, you could have new customers even in developed markets. Walgreens, CVS, Walmart – they are investing in healthcare services and they’re still trying to figure it out, but to the degree that you can provide new [00:33:59] technology around the insights to them, that opens up a huge new customer segment for you around, for example, remote triage. Geriatric patients tend to visit Walgreens quite a bit, so going in and having a device that will capture data from a wearable device have enabled a patient to scan their insurance card, maybe do some diagnostics right there whether it be a quick blood test or a scan of their retina, which would suggest different types of disease states or predisposition towards diseases, and then integration back with the nurse behind the pharmacy counter or even to the nearest urgent care facility to say, “This patient needs to come and visit,” scheduling an appointment for that patient.

Those are the types of opportunities as you look at wearable technology that will expand beyond just your traditional customer segment. And then of course, to do all this, the traditional product development process that is very hardware-focused—investing for years in technology, going through clinical trials and then doing pilots with providers, and then bringing it to market—that’s going to change a bit where you’re going to need solutions, delivery capability and sales capability, partnering capability, together with a multitude of different types of partners will be absolutely essential.

So those are just some of the things that we’re discussing with our clients, both medical device/medical equipment to life sciences and healthcare peers and providers. So that’s just a quick overview of where we see the wearable tech market going in healthcare and some of the activities that we’re doing. Are there any questions? Joe, did I come in in time?

Joe Hage: Yes.

Stephen D. Pierce: Okay, great, great.

Rick Stockton: In the video game industry, I’m seeing an interesting trend where rather than highly centralized games we have…there’s a real market for games, devices and physical things which are really just single-person-centric. In other words, they can operate them without a high degree of interoperability with a larger system. Do you see a lot of that especially with application to the Middle East and remote areas with medical devices?

Stephen D. Pierce: I’m not sure if I fully understood your question, so please correct me if I’m going off on a tangent. Gamification, the social aspect of care…oh, not that, just the individualization.

Rick Stockton: Mm-hmm. Right.

Stephen D. Pierce: In other words, you would sell somebody an instrument of therapy which would not require being linked in with a central control network. I think certainly there’s the opportunity to do that. The discussions we’ve had with many of our clients are around trying to drive or use large sets of data, big data, to really drive personalization. So at some point there would need to be some linkage, but is that a persistent linkage? Not necessarily? So you could say, “Okay, let’s do some population-level analytics and then drive that to the particular patient’s care at a single point,” or it could be on a continuous or persistent basis?

But one other comment that I did mention is socialization. Gamification of healthcare is absolutely essential. As you can see from these de
vices, these devices aren’t necessarily having the desired effect. One reason is…

Joe Hage: We don’t know how big you were last week, though.

Stephen D. Pierce: [Laughs] I gained 30 pounds over the last year, primarily due to IBM’s hectic travel schedule. But if this data were being provided to my wife or to my friends and if we were conducting a game on who can lose the most weight, then the effectiveness of efficacy of the particular solution would be heightened.

Joe Hage: I have a question. Who is going to pay for all this? So there’s just terabytes of data, I understand, that could be generated every hour per person, and ultimately wouldn’t it be great if all this went to our health record and the telemedicine provider called you and told you you’re running low, have a shot of orange juice and all this stuff? But there are so many players between “I’m wearing my Fitbit” and “I got a call from my telemedicine provider, who by the way is not compensating my position, who’s not so on board with telemed…” How, who, what are you finding, what are the obstacles to IBM closing business as a result of this?

Stephen D. Pierce: Right. Well, oh, one of the reasons that many med device companies are focused on transitional care is because to a certain degree there is a defined business model and customer. ACOs will look to use remote patient monitoring in a transitional care environment to avoid cost of readmission.

So that’s one example, but in the larger sense around chronic disease management, that is a question. That’s it. There are cities that are starting to develop private partnerships around population-level health to drive certain initiatives around wellness and prevention of chronic disease. You’ll see in Europe, for example, ministries of health that are investing in these initiatives as well, and then also on the other side capitating services that providers can provide. So one example that I’m involved in is outside of the wearable space, but diagnostic imaging, imaging centers in the UK, for example, have a certain capacity level and they are not supposed to exceed that, so radiologists are starting to be consulted as part of the process for determining whether or not a certain imaging study needs to occur. So there, and I think both carrot and stick components out there in the market, in the US market, it’s I think much more challenging, and that’s why one of the things we discuss with our clients is to identify a potential emerging market where some of these use cases can be evaluated and developed, and you have a more streamlined government structure when it comes to investing in these types of initiatives.

Joe Hage: I have another question, but let me defer to the crowd, if you have something.

Question: So you talked about what medical device companies are doing in terms of providing some sort of solutions to help hospitals manage their patients a little bit better. Given that there are so many new entrants in the space, Apple, Google, what is the real danger from device companies to ignore the consumer?

Stephen D. Pierce: Say, in the near term? In the US, there is limited risk. The providers and the payers still make the decisions [00:41:27] in order to define the reimbursement model. In the future, however…are you familiar with Clay Christensen’s Innovator’s Dilemma?

Joe Hage: Yes.

Stephen D. Pierce: Yes. So an old professor of mine—great guy, by the way—he wrote a book called The Innovator’s Dilemma also, a book around how his model applies to healthcare. But he’s basically saying that there are companies that invest in great technologies and on a high degree of innovation, but then they get stuck on that innovation, and then there are companies on the low end that start to come from an adjacent space or another space and then slowly build their presence using their capabilities, and that the high-innovation companies will say, “Well, we don’t want that low end, that’s low-margin products, so we’ll just invest in this high-quality space because we have defined differentiation there.” And what happens is they increasingly become a niche player in a market.

So you’ll see this in the consumer electronics base quite a bit, but in the medical device space that’s happening as well. In the imaging space, GE, Siemens, Philips continue to dominate the market, but a Chinese company called [00:42:45] in Xinjiang has basically developed a strong position in the Chinese market and is now competing with them effectively in the development markets as well, so using good enough technology and then going to that space. So consumer electronics companies, for example, other players, they don’t have the assets and the technologies and the insights and the relationships that you have, but that’s something that they can start to acquire, and then also as you see this somewhat delayed trend towards patient-centric healthcare that their presence and their understanding of the patient will play a greater role, and so I think that that’ll be important to watch over the next few years.

Joe Hage: For me it’s easy to imagine 50 years from now surely everyone will, and then go down the list of everything that will have worked itself out. In the near term, however, with a lot of devices entering the marketplace and who’s going to pay for it and adoption and doctor acceptance and the like, in your view and perhaps IBM’s view, what do you think will be the catalyst, the thing that is firmly rooted…? Now, given that the device or given that the information or given that doctors have now come to accept, what do you think is going to be the thing that pivots and has, “Okay, now this is obvious, we absolutely have to get on board with this?”

Stephen D. Pierce: Now, there continue to be a lot of obstacles, whether it be defined value of some of the data that’s coming from wearable devices, what’s the clinical value, what’s meaningful use, what are the issues around security and data and patient privacy, etc., I would say the inflection point is as you look at—and I focus more on emerging markets—the growth in, for example, India around diabetes and congestive heart failure, there is just a fundamental train wreck happening where the capacity, the available number of beds per patient…or per capita will demand that something be done, that care be extended into the home and they use technology to drive this. So I could see that the emerging markets will really drive this transition and the inflection point will be this issue between supply and demand.

Joe Hage: We’ll take our last question.

Neyha Seghal: Hi, Neyha Seghal with a healthcare technology incubator in El Paso called RedSky. Why haven’t the superpowers that be—IBM, Google, HP is up there as well, Microsoft—come together and come up with a one-stop shop solution instead of separate different initiatives? I mean, I’m seeing even the mobile companies, AT&T, [00:45:47] and things like that, why hasn’t this…is it happening or is it going to happen?

Stephen D. Pierce: Yeah, there are always attempts to do some of that. A number of tech companies are involved in a wearable and connected device healthcare interface called Continue and IBM has contributed a certain transmission protocol, made it open source as part of that. So I think there are a number of initiatives that are going on, but to be honest, technology providers and even medical device manufacturers can’t drive this. We’re like the tail wagging the dog. It’s the providers, particularly payer providers like Kaiser that are really in the strongest position to drive this change, and as you see this confluence in the ecosystem around recognizing the need t
o change, then I think that’s when it’ll happen. So we’re active participants in it. We’re trying to drive transformation, but even a number of high tech…Google, IBM, Microsoft, Apple… we can’t do it alone. It’s really the clinicians, patients, and payers that will drive this change.

The Future of Global Health

23 min reading time

The Future of Global Health

Reading Time: 23 minutes


Rasmussen-Rodriguez-Navarro-Mandel

Enjoy these two important recaps from the 2014 10x Medical Device Conference.

The first is from CEO of Infinitum Humanitarian Systems Eric Rasmussen, MD, MDM, FACP who helped the Medical Devices Group understand the depth of the challenges to global health.

You really have to watch his talk (some of the images will take your breath away) for the full impact of the presentation and please share it on social media and with your colleagues.

Click to see: Who’s speaking at our 2015 event in San Diego?

In the second, Terry Mandel and Alberto Rodriguez-Navarro shared their stories of designing, selling, procuring, and using medical devices in low-resources settings around the world. Eric Rasmussen joined the panel to answer questions.

This talk begins with an overview of the enormous market, the cost of unaddressed needs, the stark challenges, and the abundant opportunities to grow bottom lines while improving health access for billions of under-served patients.

I’ve included the transcript to Eric’s presentation to read here, if you prefer.

Eric Rasmussen: The opportunity to be here is very nice, thank you. And just in case nothing else I have to tell you is of any value whatever, Parlan published that. And I’m going to show a couple of books and pamphlets today, and there is one, and if we stop right there you would have something that would probably give you a little bit of value, and so my day is complete.

And by the way, we didn’t talk much about it but I am a physician, Internal Medicine, Critical Care, used to be director of an ICU, used to be chairman of a Department of Medicine and all that stuff, and do other things now, like look at research like this.

This is the other bit of information that I hope you’ll take away with you. We’re talking a lot about smartphones and how we’re going to use their apps and so forth and so on. University of Surrey did an immersion of the cellphones that were in their students’ pockets into car keys and a couple of other kinds of things, and then just let it grow. So that’s what’s currently sitting on your cellphones. Yippee.

Okay, so we’re going to talk a lot about infectious disease, but not quite yet. We’re going to talk about this first. Is that not a gorgeous image? There are so many reasons for going into space, I agree with Elon Musk, but that is super typhoon Haiyan which, when Daniel and I last saw each other back in November, was approaching Palau.

It leveled the Island of Palau and continued in. And while Palau was uncommunicative because they were trying to pick themselves up out of the sand, it hit the Philippines and, of course, that got global attention.

So nobody paid much attention to Palau, which was every bit as badly hit as Leyte Gulf. It was a spectacular storm with consequences that look like that. It was the fourth strongest storm ever measured on planet Earth. It was the strongest storm ever measured at landfall and it had consequences, of course.

See the 2015 speakers and agenda

See the 2015 speakers and agenda

I took a team in to Manila staging, then down to Cebu City, and from there through the blessings of the Royal Australian Air Force into Tacloban, and from there down the Leyte Gulf on the Western Shore, and the place was very, very broken.

Out of that came some decisions with the Roddenberry Foundation—those are the Star Trek people, the Star Trek franchise, Gene Roddenberry was the creator of Star Trek—to put together a disaster response team on a permanent basis to do some particular things that I’ll talk to you about in a minute, but first you need a little bit of context.

Because while we are sitting here being medical device people, and I did spend the nine years at DARPA as a principal investigator and did have a lot to do with medical devices and had huge fun, many things where I play these days have nothing digital within them. I took that photograph. That is Banda Aceh, and there are on the order of 35,000 bodies between us and those hills in the background.

So, many, many, many things did not work. We’re going to go on and talk about them a little bit because the vulnerabilities related to that are something that I think, in your designs, you need to keep in mind.

By the way, I’m a big fan of digital art, digital abstract art, so you’ll see a little. Otherwise, people would commit suicide after my talks.

[Laughter]

Eric Rasmussen: So, if you take a good look at China, India, Southeast Asia, you have more people in that little circle than on the rest of the planet. That means that there hasn’t been much opportunity for infrastructure to be built to take care of those people when that’s required, and in fact, it really is required. Say the last seven years or so, we have been mostly city, less urban, less rural, for the first time in human history, and because there has been such a migration into cities, very little infrastructure has been built. People who live within those communities are highly vulnerable and they’re going to get more so because this is where we’re going. The 9 billion people that you’re hearing about in 2050 is probably a pretty good estimate. That’s [00:06:43] human habitat in 2010, the best one we probably have, but 95% of the 2 billion that are going to appear over the next 30 years or so are going to be in the developing world, mostly in the cities of the developing world, mostly in the slums of the cities of the developing world. You’ll notice that Europe and Canada and the US and Japan are actually dropping in absolute numbers. Everything else is going into these cities, in places that we don’t yet know very well.

The consequences look like this. You heard Daniel mention earlier today that William Gibson, famously back in his MPR interview in 1993, said, “The future is already here, it’s just unevenly distributed,” and we in this room often think that it’s going to go from the big beautiful buildings and flow into the shacks and that’s probably not true. At least for historical precedent, there’s nothing to say it goes that way very fast. In fact, the inequality, as you’re well aware, is becoming more striking every year. So a lot of what’s happening over there on the left side of the screen is likely to be encroaching our way if we want to use it [00:07:55] as an hour.

And here’s the first of a couple of eye-watering charts but it’s important that you get the point here. These are the top 20 population centers on the globe as of about a year and a half ago, probably still true, and over here on my side where it says annual growth is how much it’s increasing annually in each one of those population centers. And because all of us have forgotten the rule of seven days, I’ve been kind enough to put it over on the right-hand side so that you’ll understand what a doubling time is for a given annual growth rate. You’ll be able to use this in your portfolios. So what you have there is the recognition that every place with a black check mark, which you might consider in the developing world that’s a little soft, um, is substantial, right? That’s an awful lot of population centers in the developing world.

The big numbers with the red circles show that between about 15- and 30-year doubling times, places like Karachi at number 13 is going to be larger than Tokyo, is now if not checked in some fashion, and there are an awful lot of ways that population growth in Karachi could be checked, most of them extremely unpleasant. So just a heads-up there.

The green arrows, you’ll know, they’re the developing world, and they show the fact that there’s a leveling and probably an absolute reduction in population in those countries. Certainly, that’s true for Moscow at number 18. The reason there’s any growth in Moscow at all is because there’s migration from the rural to the city. Russia is depopulating in a fairly impressive way. That’s what we’re talking about some other time because there are going to be consequences to that that we’re watching right this week.

Infant mortality. Just since we’re docs in great part here, for those who have not kept track of how we’re doing, the Millennium Development Goals have actually done okay in a couple of places. You may not be familiar with the term, we won’t get into it much here, but if you look over on the left side you’ll see that Monaco is doing wonderfully. If you want to ensure that your child lives, be Monacan, and if you want to think that your child has a one in five chance of dying, Afghanistan is your place.

Interestingly, I’m going to show you some stats in just a second about what’s really happening in Afghanista
n to that mortality, but you’ll notice that Afghanistan is almost twice as bad as the next nation for infant mortality. It’s stunningly bad, and there are a couple of interesting reasons.

And speaking of Nigeria and the capture of schoolgirls, I made this side a little bit smaller than the far side because I wanted to capture Nigeria down there at the bottom, because right now about one child in 14 dies in Nigeria, and if you don’t think that is leading into some of the emotion around the Boko Haram abductions, you might be overlooking an important social point. And by the way, we’re 47th. Don’t get me started.

So, MDGs, Millennium Development Goals. Now, that’s intended to be impossible to read except for the people in the front row that have their glasses on, but what it really says is that for all of those green arrows over on the right, since 1950 and roughly 65 years or so, they have managed to cut their infant mortality rate in half. Even these incredibly horrible places have managed to cut their infant mortality rate in half. That’s more reduction in infant mortality rate in the last 60 years than in the previous 1500, so not so bad.

You’ll also note that for the ones with the red circles, they’ve had wars. They have still managed to reduce their infant mortality. However, you’ll notice that during their wars, their infant mortality rate goes up. Really clear correlation. I didn’t want to make the chart. I wanted to just see that you see the raw numbers, but they’re cool. War is bad for children and we knew that. It is possible to take a truly horrible place and make things a little bit better over time. We kind of knew that.

And Afghanistan, although admittedly horrible for their infant mortality rate, is a hell of a lot better than they used to be and there has been a consistent reduction every decade. So, these things are achievable. This is stuff that is worth doing because good stuff happens and we are a nice example of that.

Take a moment to let this sink in. If you were a white male born in 1900, your life expectancy was 47. By the time it was the turn of the millennium, if you were born a white male, you had a life expectancy about 60% longer. Again, that’s more than we achieved in 2000 years. If you were a black male in 1900, you had a futile life span. Your life expectancy was 33. Now, mind you, much of that was skewed by the infant mortality rate in the black population, no surprise there, but still, amazing figure and look what happened. One hundred years later, we have doubled the life span of black males in the United States. That has got to be worth at least comment. It is possible to make social changes, to make public health changes, to make fairness and justice changes and have a real impact. Congratulations, everybody involved.

Disasters is kind of what I do for a living. I work in slums. I work in natural disasters, industrial disasters. I have shifted out of clinical medicine into kind of upstream stuff. Those things have happened just in the past three-odd years. Super typhoon Haiyan you heard a little bit about.

The Russian heat wave. How many people died in the Russian heat wave between 15 June and 15 August 2010? How many people? Give me an order of magnitude. Oh, you people, I’m never feeding you before my talks again.

So, 55,000 died in the Russian heat wave in basically two months. As many people as the United States lost in the entire Vietnam war died in a heat wave in Russia. By the way, the wheat fires that are right above that – also obviously a part of this cause. They lost about one-third of the Russian wheat crop, which spiked prices all over the globe and sparked eventually food riots.

These are very complex systems that are worth studying and not many people do, but some do. Queensland floods were also complicated. The Pakistan floods, how many people were displaced in the 2010 Pakistan floods? I’m almost deaf, by the way, so I’m going to need you to yell at me, what?

Woman: One million.

Woman 2: Five thousand.

Eric Rasmussen: [Laughs] Twenty million, almost the population of California, was displaced from their homes for an extended period of time. So, clearly things are getting a little rough out there.

This is a paper that was published—it actually was an abstract in nature, it originally came out of Ecology and Society from the Stockholm Resilience Institute and they did a beautiful job with this—and they decided that climate change was just too politicizing a term, even though it’s absolute truth in any important fashion except if you can’t do math cause you skipped fourth grade. Climate change they did list as one of the nine planetary boundaries because the planetary boundaries are for our survival. The earth is going to continue, obviously, but if we intend to be a part of it actively, ticking along normally as we do, we are testing a number of systems that we need to fuss with.

For example, the nitrogen cycle has already been exceeded in any reasonable boundary. Biodiversity loss is as you know the Sixth Mass Extinction, you guys all know that. But down there in the corner, global freshwater use, you’ll notice that yellow is not too far out there. However, there’s worry. Some of that worry we saw last Tuesday with the publication of this, right?

This is the US Government’s official study. This is the thing that president Obama was talking about last Tuesday. It is well worth reading and I recommend it to you because as medical device people this is going to affect you a little bit in all kinds of interesting systemic ways.

Here’s one that may not affect you directly but you got to know about because, especially if you want DoD contracts or HHS contracts or DHS contracts, national security is going to be affected by water security, and the CIA wrote about that in a 2003 report that said water wars 2015, and I think they probably nailed it beautifully.

The Syrian War that is going on right now has some interesting root cause analysis that says it started with a drought, an unprecedented Syrian drought that caused farmers to lose their herds, lose their crops, move to the cities, get no care, get angry, and the spiral begins. That is a gross oversimplification, I grant that, but it is a component that is not often recognized. Drought helped spark the Syrian War.

And that’s really unfortunate because for those of us who need to work with these populations, there are a million people that weren’t in Lebanon before that are there now that have lost everything. Lebanon is not capable of managing that number of people, has gone to UNHCR. UNHCR, United Nations High Commissioner for Refugees, has said, “We’re a little tiny organization. We were originally designed for much, much less than what we’re being asked to do. We have 15 million to take care of around the world. We can’t help you very much.”

So, the consequences are a health spiral into the abyss in the camps that are in Lebanon, in the camps that are in Turkey, and in the camps that are inside Iraq, of all places. There are a lot of Syrians that went into Iraq, just a heads-up, not many people know that. And one of the reasons we don’t know it is because we can’t track public health very well anymore.

Laurie Garrett with the Council on Foreign Relations, Pulitzer-Prize-winning journalist several times over, wrote a great book that is about the size of my pathology textbook at Stanford that is called Betrayal of Trust, and it’s a careful documentation of the decline of global public health in part for disease-specific reasons, in part for financial reasons as people began to concentrate on other things, and probably that’s a pennywise, pound-foolish decision over time.

I took that photograph of the woman who worked for Grameen Kalyan in Bangladesh, and she taught me quite a bit about how things w
ork in Bangladesh. She is the only community health worker for five villages. She visits every one of those five villages every single day of the year. She is profoundly dedicated to her job. She’s very good at her job and her resources are almost zero. She’s on a bicycle and she’s got a 2G phone.

So what she’s dealing with is different to what we’re dealing with. We’ve been very successful. Lots of things that used to be disturbing for us have gone out of our public consciousness, even to the point of people deciding not to vaccinate because it’s more natural to be natural. Again, arithmetic, but those successes which are worth celebrating in so many ways are not echoed outside of our borders. So I could’ve put a number of things on this slide and chose these. The ones in purple are in the news today as of yesterday. We’re all talking about MERS. We have the second US case.

We’re looking at the Ebola outbreak that MSF says is unprecedented and a new strain and has moved into areas where Ebola has never been seen before. And of course, we’re very familiar with totally drug-resistant TB. Started with a cluster of 12 cases in South Africa, is now in nine countries, I’ve forgotten, but it’s very, very bad news. And NDM-1, the New Delhi metalloproteinase that is the plasmid-mediated resistance factor that is doing all kinds of very bad things to ensure that nobody can never use antibiotics again. Okay, that’s a little hyperbole as well, I’m sorry.

Zoonotic diseases, 75% agriculture and livestock pathogens. An awful lot of people—I took this photograph too, this is in Cambodia—an awful lot of people don’t recognize the dependence of that massive population in Southeast Asia, India, and China on livestock, home livestock, the stuff that is underneath the house. So here we have H5N1, H1N1, and normal influenza all kind of clustered around the garden, right? The pigs and the chickens live one level up with the woman and her husband and her two children. She’s a very nice lady. She is raising them for food, not for market, because she has lost her husband. He is now off somewhere in Dubai doing remittance labor and she hasn’t actually heard from him for a year or two, so he may well be dead. But this is what we’re talking about when we look into infectious diseases and their transmissibility from a zoonotic cause. There is an awful lot of mixing going on day-to-day.

And then there are the people who make it extremely difficult to recognize that they are from the same planet. This is a terrific group of people that have been agricultural and pastoralists, very light agriculture and pastoralists across Somalia to Kenya to Sudan to Somalia and they travel with the seasons. They travel with the herds.

They speak no language that any one of us was able to communicate within, and I have no idea what’s going on in their head as I tried to approach them for micronutrient deficiencies, for generalized malnutrition, for dehydration. It’s very difficult to communicate. That’s not a tiny fraction of the world. You could find these populations in Papua, New Guinea. You can find them in Bolivia. You can find them in Southern Brazil. Just a heads-up when you’re looking at devices that are trying to treat people that are not quite like you.

And here, a bunch of people who are very much like you, they just happen to live in Rio de Janeiro. This is [00:23:29], one of the Favelas, bless you Daniel, and it’s tough to live in that region. And when you look at medical devices and where they need to work, there are hundreds of thousands of people living in places like this in individual cities around the world and delivering care is tough, but you need to deliver that care because on any given day, at least according to Grameen Kalyan in Dhaka, a place I’ve spent quite a bit of time now, one person in three has something diagnostically wrong. It could be parasites, it could be diarrhea from a waterborne illness, it could be any number of things, but one person in three is sick if you listen to the Grameen Kalyan, which is the medical group for Grameen stats.

So you do have people who are not far away. I took this photograph not 15 miles from that last one. You do have people who are smart, eager, very willing to help, completely professional, dedicated to the task, and again, zero resource. So when you’re talking about medical devices and what you’re going to do for this population that is burgeoning and will be your market, please keep people like that in mind.

Unfortunately, Thailand, which has been a poster child for success in Southeast Asia, is on the edge of collapse. I don’t know if you are tracking what’s happening down there but I worked a lot in Bangkok, and a lot of people that we all know work in Southeast Asia, and Thailand is kind of the stable place where you go, until now. A judge has just removed the prime minister. There is fighting in the streets. There will soon, I think, be blood in the streets. And when you don’t have a functioning state, public health is one of the first things to go. That includes down to the clinic level in the villages that don’t get resupplied, and none of them have power because fuel doesn’t move. So, a heads-up on medical devices.

And then, sometimes if you’re lucky, you manage to gather everybody who needs care together in one place. This is Dadaab. Dadaab is a Somali camp and as a consequence of that camp, the lensed aquifer, the water supply for that camp is dropping a meter a year. It was intended to house about 30,000 to 35,000 people and two years ago it became the third largest city in Kenya, something like 750,000 people, nobody is quite sure. The Kenyan Government did not allow us to put Dadaab where we needed to put it, nearer fresh water source. They said, “No, our people need that.”

And by the way, we hear this all over the world, “Your people can have this piece of shit place that nobody cares about and you guys make it work.” And that’s exactly what happened with Dadaab.

And because it’s a lensed aquifer, a non-recharging body of water underneath the ground, the little rainfall that does fall does not refill that aquifer, and we’re trucking. And trucking for a camp like that is a lot of water, a lot of fuel, a lot of expense, and people are not willing to keep that expense.

But if you send those people back to where they came from in Somalia, which is a nonfunctioning very dangerous place, that’s called refoulement, and it’s against the law, International Humanitarian Law. You can’t do that. So they’re staying but they will not be allowed elsewhere in Kenya because Somalis and Kenyans don’t get along. So the Kenyan Government has no intention of letting 800,000 Somalis kind of wander about. Understandable, but this is the choice that was made and I’m looking for solutions by the way.

So we call these things these days “compound crises” where you have each of those things that are either physical or they’re behavioral or they’re circumstantial or they’re demographic and the result in many cases is emerging infections. Tajikistan has a remittance population that goes up into Russia. The males 15 to 35, 15 to 40, go up into Russia. They work day labor jobs, then they come back down again in the wintertime. In the meantime, they’ve made enough money. When oil prices were 130 and above in Russia, there were lots of construction going on, plenty of day labor, lots of remittances. When oil prices crashed for Gazprom and not at Rosneft and the rest, the day labor stopped, the construction jobs stopped, petty theft began, people got thrown into local jails and then deported. In the jails, they picked up IV drug abuse, HIV, and multi-drug-resistant TB. When they returned to Tajikistan, because Tajikistan used to be a Soviet State and is now kind of semi-independent, they can support the center, Dushanbe, for medical care, the big medical centers. They ca
n support the tiny rural clinics. They can’t do anything in between. So where the care used to be given for long-term chronic diseases and acute infectious diseases, that later is gone, which means the multi-drug-resistant TB is getting partial treatment at the clinics, they kind of get referred, they kind of go back and forth, and is becoming totally drug resistant. Food for thought.

So my teams put together some thoughts on what a Maslow’s hierarchy might look like for this kind of thing and we got that kind of [00:29:08] butter bottom, water, energy, food, and it kind of builds to something like political stability, because if you don’t have political stability, even if it’s a lousy government, you cannot get systems to work very well. Now, somebody in the room is going to say, “Well, actually, Somalia works fine.” You’re right, Somalia is the exception that proves the rule. They have been traders for 3000 years and they know how to make stuff work without a central authority. Not many other places do, and you get stopped at the border of customs, there are checks, you bribe everybody, there’s violence, you can’t count on things from point to point, and there is often a gender bias in these locations that make it very difficult for women to work effectively. Women are a large portion, of course, of the humanitarian response community, and so you wind up with exceptional problems.

In looking at how to approach those kinds of decisions, we go to data. And by the way, I just had to share that photograph with you because I thought it was spectacular, but it’s not spectacular unless you know what it is. That’s a candle that’s just been blown out. So that’s the smoke from a candle and the particulates with their birefringence. I just thought that was gorgeous. So, we’ve talked a lot about big data. We will talk about it a little bit for just a moment or two here. We use OpenStreetMap quite a bit, and because that wasn’t enough—we had all of those other 18 categories you saw in the Olympic rings—we needed to do something different. So we formed this thing called the World-Wide Human Geography Data Working Group. Odd acronym, very awkward, I would much rather we had something with a vowel in it, but that’s what we have. So, we call it wigwig, my wife calls it the pollywogs, and we’re not going to get into that. It’s a long marriage.

So we have with that group the ability to put together some tools that allow us to collect some data so that we are ready to respond in the various places that look like they’re at high risk. We have created something called a human security taxonomy, and I need help with that because it is 897 data elements that we as professional disaster responders have determined we need at the site of a disaster. So if the minister of the interior were to meet my plane on the tarmac and take out this 64-gig thumb drive I have in my pocket and say, “This is what the place looked like before it got broken. Here’s your transportation, your communications, your water supply, your ISPs, your Internet dropdown spots, your fiber optics, your fuel depots, your food storage,” that’s what the human security taxonomy is.

So we have iterated about nine times on that and we’ve got it pretty stable right now and I’m looking about…looking to visualize it out of the database design that is being worked on at the moment by the University of California at San Diego. AntZ’s visualization tool done by Dr. Dave Warner, some of you in the room may know him, MD, PhD, Neuroscientist, and there is value in everything that you see there but it’s tough and we could use some help.

Here’s another effort that is going on in big data. This is called Global Pulse in the Office of the Secretary General for the United Nations run by a guy named Robert Kirkpatrick. They are watching around the world for things before they get acute so that we can have relief prepositioning and intervention capabilities put in place to see if we can stop things from getting as bad as they might otherwise. We don’t know how to do this very well yet and we welcome some help.

And for those people that don’t keep track of what bad things are going on in the world, people are doing this for you. There is one. This is out of the National Academy of Sciences in Japan. BioCaster is the best I know of, although there are a number of others including some here in the US that are excellent, like HealthMappers and ProMED, but in that case you can dial all the way down into the reports and get quite a bit of information. It’s updated very frequently.

The last thing I want to talk about is some of the basics associated with the supplies and what we need to do to ensure that what we need can be delivered. The Government of Qatar has decided that they want to become food-secure for their nation. At the moment, they import 97% of their calories for their nation. They want to become food-secure, all of those calories from internal by 2030. So they’re going in this direction, and if anybody wants to know more about how they intend to do it, it’s a five-step process. It’s very cool. It requires lots of sensors that have not yet been invented and I’d be interested to hear anybody with ideas. I talk with them fairly frequently.

And the other thing I wanted to show you was water. I took that photograph. I was the joint task surgeon for Katrina, for the US Navy, and we had a lot of logistic support getting response in New Orleans. That’s what water looks like. That broke down in Tacloban in super typhoon Haiyan and my team wound up running out of water. And UNICEF, those would be the water people, also ran out of water and they shared the last third of a 5-gallon Jerrycan between their team and ours for the 12 hours before the flights got in. So, we decided that it would be really good since we had lots and lots of water onsite that was, of course, completely undrinkable as you can see—that man is carrying very bad water indeed—to fix this. So the Roddenberry Foundation that I mentioned earlier and this technology, although there are a number of them – we happened to choose this one for several interesting reasons mostly related to power consumption in addition to the fact that they’re just efficacious. That’s a 3-liter bag. There’s a mesh nanomaterial. It’s very, very cool stuff. And we said, “Can you do any better than that?” because that is 3 liters every four hours. Three liters every four hours. They built this, which is 500 gallons a day, because it turns out that the sunlight had frequencies that were appropriate for the nanomaterial photocatalytic mesh, and if you tune the LEDs inside you can get a consistent very low-power-consumption intensification of the water purification process with some microfluidics coming down across the mesh. We thought that looked reasonably rugged and I love the little glowing blue light. And unlike reverse osmosis, the usual thing we have to do in the field, this has zero water waste. Reverse osmosis through a [00:37:06] membrane loses 30% or so of water and it is very low-maintenance with very, very low consumables, altogether a significant, in fact, exponential, Daniel, improvement on the purification of water in the developing world.

That’s the first time the system has ever been used in the field. It was on the Mount Hood watershed east of Portland, Oregon about 48 hours ago. You’ll notice that’s last weekend’s date. And that’s the team from Johns Hopkins, Stanford, Harvard, University of Chicago and wherever I…Tec de Monterrey. And we have the river in front of us. We took contaminated water, ran it through the system, put it in the clean water, tested the clean water, and it’s beautiful. We also filmed underwater. You’ll notice my little GoPro label here. We filmed underwater in the river to show just how bad the water was and it was truly terrible. So…and yet I’m standing here.

So, on the list of things that we can’t do…t
his is for you guys, okay? I don’t do the invention stuff anymore. I spent a lot of time at DARPA, we built some very cool stuff, but I don’t do this stuff anymore. I’m a user, I’m upstream, I’m the guy in the field that’s hoping you’re doing this well. I need that. Some of that, I know, is being done to a field level of capability. Others, not so much. The clean water, the analysis that you see – number two there, the one here in yellow is water canary. That was a TED Talk from Sonaar Luthra two years ago at TEDGlobal in Edinburgh. I was impressed. I was just with Sonaar a couple of weeks ago and there is a little tiny mass spectrometer inside that yellow case, down to the size of a chip. It’s pretty impressive technology. He’s working with Clay Shirky out of NYU who a number of us in the room will probably know.

And there’s a place where a lot of this stuff is coming together. The Buckminster Fuller Institute is one of those locations – the design challenge they hold every year. Another is this, which is LAUNCH. LAUNCH is the most interesting public-private partnership I know about, although Daniel knows a lot more about public-private partnerships than I do. But this is, as you see up there, Nike, USAID, the State Department, and NASA. How cool is that for a pairing? The opportunity to solve problems through LAUNCH looks encouraging. And because it is a federally-funded public-private partnership, everything they discover has to be open sourced, has to be given away, and that’s…I’m on the board now and that’s turning out to be true. It’s what we’re doing. So, heads-up.

So the last thing I wanted to give you…wow, I’m going to be right on time, that’s so cool. The last thing I wanted to give you is some books that I’m finding influential. There’s one. Al Gore takes all kinds of grief for all kinds of reasons. I’m personally a little puzzled about that. He’s very, very smart, very experienced and quite hardworking, working on good stuff as far as I can tell. That’s his most recent book and he did it on mind maps of all things. I would bet a large fraction of us have at some time or another used mind maps. That entire book is filled with mind maps and how each of these problems ramify into something else. It’s quite cool. And I found the sixth that he chose—the Six Drivers of Global Change—to be completely consistent with what we see at Singularity, what we see at Exponential Medicine. This is consistent, and that’s not surprising because he’s on…he’s on…what board is he on? Right down the street…

Man: Kleiner Perkins.

Eric Rasmussen: Kleiner Perkins, right, right, right. So his visibility on new technology and problems that are unfolding is substantial. These are two others that are much less well-known. One is by the man who may become the president of Afghanistan in the next 30 days, Ashraf Ghani. Ashraf used to be an economist at the World Bank. I knew him as he shifted from there out to become the finance minister under Karzai after the fall of the Taliban in 2002. He’s been out there and back and forth. He formed something called the Institute for State Effectiveness based on this book, which was published by the Rockefeller Brothers Foundation. And his partner, Clare Lockhart, was a barrister, originally a little village girl out of Northern Scotland who managed to get to Oxford and then to Cambridge and then to the Temple Bar in London, then became a development economist for the World Bank, and then she turned 28, right? It’s that kind of human. Absolutely superb people who wrote this book about what it takes to get a citizenry to trust a central authority. It’s a terrific book and has great relevance for national security, something that I care quite a bit about after 25 years in uniform, but also for development aid. USAID is a 20-billion-dollar agency and it is an instrument of US foreign policy. I’d like it to be done well. I’d like it to not be wasted. They’ve done a nice job explaining how it could not…could be done well.

The other one, the Polak and Warwick book I gave away as Christmas gifts last year which was published in August – Business Solution to Poverty. It’s entirely possible to make a very great deal of money very fairly by taking care of the populations that are coming up in these places that are extremely dense and rather poor. You can help them get better in very affordable ways and make yourself an adequate amount of money as well, the whole concept of the social business, which is where I’ll end.

If we look at human security, those Olympic rings as a desirable goal, then one of those clearly was related to health and all of them in some ways are related to health, and it’s good business to take your medical devices out into those populations and make them work well. It’s beautiful engineering, science, art, and design—ask Apple, they’re succeeding—and it’s a market of systems, which means anything you touch is likely to have great waves elsewhere. Muhammad Yunus in his 2006 Nobel Peace Prize speech described the concept of a social business: “If you wanted to carve out whatever business you are currently in into a social business, you’ll find that there are tax benefits, there are regulatory benefits, there are financial benefits or complexity benefits, and you’ll have more fun.” I wish you all a lot of that. Thanks very much.

[Applause]

Joe Hage: Thank you, Eric.

2013’s Klobuchar, Paulsen on Medical Device Tax at 10x

28 min reading time

2013’s Klobuchar, Paulsen on Medical Device Tax at 10x

Reading Time: 28 minutes


Click for transcript. »

2013’s Creative Funding in a Difficult Medical Device Environment

36 min reading time

2013’s Creative Funding in a Difficult Medical Device Environment

Reading Time: 36 minutes


medical device company financing

Do you know what DARPA is? They have billions of dollars for R&D each year.

If the timeline to introduce a medical device is years, how much can an incubator help you?

If, as a sector, we’ve had negative returns over the last 10 years, a mediocre IPO market, increased time for return on investments, significant concern regarding FDA process, and payment issues, how can we attract funding?

Here for the answers, watch the “Creative Funding in a Difficult Medical Device Environment” video replay.

Amy Butler: Thank you Joe and it’s a pleasure to be here this morning. As Joe said my name is Amy Butler and I’m with Oakland University; that is the Oakland University in Michigan not in California.

I run a business incubator and Smart Zone Accelerator there. We focus in IT and energy and medical device because there’s an underlying connection between all three. I work very close with the school of engineering and computer science as well.

Michigan has a framework of incubator accelerators called Smart Zones and we work interactively together in order to help startup and grow businesses to be successful and to move along the continuum of growth.

Healthcare has become a very, very large portion of our industry sector in Michigan particularly in Oakland County. When we did an assessment just recently, we found that we had over 100,000 people employed in the healthcare industry in Oakland County alone.

We had to pay attention to that. We realized that this is a sector … we’ve always been known as the automotive belt of the world, but the innovations we were experiencing through the automotive industry were becoming readily adaptable in finding solutions for the healthcare industry.

With the aging population and challenges that we had, we had to find solutions. So this has become a very large focus for Michigan and I’m very pleased to be able to be here and talk about this particular subject of financing.

We have a diverse panel here with us today to give us several different perspectives on how does it mean? How do you get financing? What is financing?

Everyone that walks in the door of an incubator says, “I need money.”

But I haven’t found anyone yet that’s actually been ready to get the money that they think that they need at that time.

So it’s really being able to assess where are they in their continuum? Where are they strategically in their business plan and in their development? What is the right funding for them at the right time and how does this strategically (the finance strategy for them) work to get them to success in the market?

So we’re going to talk a little bit about that today. We’re going to have each panelist provide a few comments and then we’ll open up for questions.

We’re going to start with Jim. We’ve got four different panelists today: Jim Stauner, Steve Anderson, Allan Daisley and Joe Bjorklund. Hope I got that right.

Jim is an Operating Partner from RoundTable in medical device activities. Steve Anderson is CEO of Preceptis Medical, Allan Daisley is Executive Director of the Memphis Bioworks Foundation and then Joe Bjorklund is the CEO of Institutative.

Joe Bjorklund: Insituvue. (Chuckles)

Amy Butler: Say it again.

Joe Bjorklund: Insituvue.

Amy Butler: Oh well, sorry I’m going to have to practice that one. So we’re going to start a little bit with Jim and have him talk about the various types of financing tools that are out there. Then our other panelists are going to talk about what their experiences are.

Because it’s not just about everybody needs a bunch of capitalists. It’s not everybody needs an angel. It’s not everybody can walk in the door and get the $20 million they need right now. It’s how do you layer the tools that are out there in order to achieve your ultimate goal. How do you put that strategy together?

So with that opening, Jim, would you like to start us off?

Jim Stauner: Sure Amy thanks. Delighted to be here everyone.

What I thought I would do is start with the basics and then we can work through. I’ve got down six different scenarios of funding possibilities. There might be others that folks out there have and as a part of this dialogue, as Joe pointed out earlier this morning; I think it’s all about folks benefiting from others’ experiences.

So we’ll talk a little bit about that as a panel and then others in the room may have had specific experiences that would be very beneficial to share as well.

The first place I would start is folks come to us a lot as a private equity firm with great ideas. We’re positioned a little bit differently than other private equity firms in the space. So I’ll talk about that just so folks have an understanding.

Not everybody is into startups; some folks have different agendas relative to the commitments they’ve made to their limited partners as a part of the firm. No question from what we saw this morning, the first two sessions a very tough environment today versus even a few years ago.

You look at the reimbursement landscape, regulatory pathways, comparative effectiveness if you’re talking about new products, really difficult for a new startup or a new product to get into the market. However, I would tell you there are funds available for good solid products with a good business plan.

And that’s a cornerstone that I think all of us will come back to is you have to have a solid business plan.

You need to know where your product fits into the market landscape, who are the competitors in that landscape, how does a strategic (partner) potentially have interest in what you’re all about. Things of that sort.

And the other important thing is to really make sure you’ve got your business plan laid out into what I’ll call milestone events. Amy had said folks come in the door and saying, “Well I need $15 million.” Well guess what, we don’t have $15 million to give you.

But if you can break that down, “Hey, if I have a million-and-a-half or $2 million, I can get to this particular milestone.” Maybe it’s proof of concept. Maybe it’s getting to a certain clinical trial, a quality measure indicator.

Something that somebody can say, “Well I can hang my head on that because I know if you get there I can probably get you to that next level.”

So really make sure as you’re looking through your business plan, you’ve got it very detailed and concise around the dollars involved, what does it take for you to get to a particular milestone event. The chances of success will be a lot greater if you get into that granular of detail.

If you don’t have the expertise because I’m sure folks will say, “Well, I’m not exactly sure what it’s going to take or what I need to do to get to a particular milestone.” You need to probably work with an expert.

So sometimes that will take some upfront investment on your behalf to find somebody and maybe through networking in this room or other audiences you can find those individuals to really make sure they’re helping you lay that landscape out.

“We can probably get to this point with this level of investment, once we get there then maybe we can talk to people about adding on capital.” So on and so forth.

So I really want to make sure that one thing you’re hearing from me is that make sure that upfront before you go talk to anybody about money, have a good solid business plan that’s well-thought out, concise and it’s got a level of detail to it that you can stand behind.

And again from a competitive standpoint or folks that might be interested, I’m going to talk a little bit later about corporate venture funds and the like. Don’t be afraid to say, “Hey, maybe a Medtronic or a Covidien maybe they’re not a bad partner. Maybe they would work with my particular product area.

Not every company needs to go from say zero to “Well I’m going to be at 20 million ($) or 50 million ($) in three to five years.” Maybe that’s not the case, that’s okay. It might be a great opportunity for you to be doing something on a licensing deal with one of those corporate entities and the like.

So funding options that I’ve listed out here, I’ll go through them and then I’ll come back to each one.

Non-dilutive those will be like grants and loans by organizations maybe incubators that you hear a little bit about.

Angel investors their role, VCs and private equity, corporate venture funds,
and what I’ll call corporate healthcare managed care funds. Those would be people like Kaiser Pamanente and Humana and I’ll talk about that in a little bit more detail.

First, non-dilutive financing. I ask people this a lot because if you’re looking for startups, these are great opportunities to get startup capital where you can get to one of those milestone events and maintain your own intellectual property rights.

Working with the government, people like DARPA. I don’t know how many folks out there have worked with the Defense Advanced Research Project Agency. But it’s a great organization in the medical device world to get started.

They have billions of dollars that they allocate towards R&D every year not as a total, every year. And they’re looking for new innovative technologies that would support what they need accomplished from a defense standpoint.

Now they first off most folks have, “My product is not oriented towards trauma in the battlefield.” It doesn’t have to be. That definitely is a sweet spot that they have. But think about the VA system. They’re taking care of all those veterans that out there in that environment. There is a whole host of different products and services that could benefit the VAs.

Or you’ll look at the service individual’s family they’re also interested in how that family could be protected because they always believe a good family support system in the military helps to make a happier more efficient warrior out in the battlefield.

So keep that in mind, it doesn’t have to be something that’s just trauma-related if you’re going to be working with the government. If you haven’t thought about that you can go online Google “D-A-R-P-A,” it’ll show you exactly what you need to do. Great place to start, no guarantees but they’ve put funding.

I’m aware of companies that I’ve tried to work with where they’ve got into in the teams to $20 million plus in R&D to get to those milestone events. Where then they’ve been able to take that and go out. And the government is not looking for anything in exchange outside of hopefully that product gets to the market and can help the government from the standpoint of the things that I’ve mentioned earlier.

So that’s a great one to keep in mind. And they’re a good clinical resource as well. They’ve got folks that have a lot of knowledge so when we talk about some of these quality measure indicators, credentialing they can help along those pathways as well.

Again a good opportunity if you’re in the startup situation. I think we’ve got other panelists here who will talk a little bit more about the incubators and some of that but those are all good non-dilutive ways to approach things.

Angel investors. Angels used to only do things in that quarter of a million, $500,000 range. Sometimes that was good depending on where you think you need to go but again going back to my earlier comment about know what that financial plan needs to look like to get to a milestone event.

Angels now are doing more like what VCs have done historically and that’s syndications. So maybe three or four angels will get together to make an investment in something where you could get $2 million from an angel group.

Once you do that then maybe those $2 million get you to a point where, “Okay, now we’re ready to go talk to a big person to get some add on capital or go talk to a strategic because that’s maybe a good exit strategy at that point in time.”

If you’re not familiar with angels a good place to start is there’s a website. It’s angelcapitalassociation. I don’t know if folks have tapped into that but you can go on there and it’s basically set up regionally around the country.

It doesn’t have to be, but usually if you’re working with an angel if you’re here in Midwest there are angel groups in the Midwest it’s probably best to work with one of those folks because they’re going to want to have some oversight maybe a spot on the board, things of that nature. So just keep that in mind as you’re looking at potentially working with angel folks.

Venture capital and private equity, ventures they’ll typically work across any level of funding. It could be through startups it might be growth capital down the road.

One thing that I point out to people is that most states major metro markets will have venture capital and private equity associations. You can go online you can check those groups out.

They have meetings like this that are great for networking opportunities because let’s face it most of what you do in this space is really about networking and getting to know people.

You can join those groups and they’ll basically have little booklets put together around the different partners that they have within that association and spell out well what is the level of interest that that particular VC or private equity group has.

What’s the range of investment profile, risk assessments that they do, risk tolerance, things of that sort? I’m in a private equity group that does growth capital for businesses that are already commercialized and now looking from going from say 20 million ($) to 50 to 100 million ($).

Totally different from a startup where you need that early money to get going. So if you get in, you can learn what those VCs and private equity groups do. They’ve all made commitments to their limited partners, and that’s something I want to point out here too because we get this question asked a lot.

We see a lot of neat companies, a lot of neat products that are truly startups. That’s not what we’ve committed to do with our limited partners. We’re a growth capital firm that’s oriented downstream.

It doesn’t make the product, it doesn’t make the business, a bad thing, it’s just something you need to know as you’re talking to folks around who invests and what type of company or product at what stage, so you have a good understanding to that.

Again you can go to associations and learn a lot more about who is who in a particular marketplace.

Corporate venture funds. These are the folks like Covidien, Medtronic, J&J, GE Healthcare, Novartis. They’ve got all their own venture groups that are looking to put money into some startup situations.

It gives them early market intelligence, visibility to maybe some innovative technologies. Quite honestly in the back of their mind if it really takes off they’re looking for maybe discount on a potential deal. But that may be okay and maybe that’s a good play for you and your particular product or your company as it relates to where you need to go in the marketplace.

As we’ve talked about time and time again this morning, it’s a tough landscape and environment out there. Maybe working with a strategic at some point makes a lot of sense because they’ll have the horsepower and the wherewithal to maybe take that product to the market.

So maybe you end up with a licensing or you end up with that partner who’s got a majority control but at least you know your product’s getting in the market and you benefit from that downstream. So keep that in mind.

Then the other one on a similar vein, is these healthcare funds as I mentioned Kaiser Pamanente has got one. They’ll typically invest anywhere from five to seven million (dollars) or Humana they’re a little bit smaller, one to two (million dollars).

They’re looking again for visibility into some new innovative technologies. Things that could benefit their caregivers downstream as well.

And with that they’ve got obviously a lot of clinical expertise. So all these things like helping with quality measures, outcomes performance things of that sort, those types of groups can be very good and beneficial helping you get some of that put behind so you’ve got those credentials as you go forward in your strategy.

Okay, so I turn it back over to you Amy.

Amy Butler: Yeah, Steve, would you like to go next and give us a little bit of background on, you talked a little bit about angel
s and some of your experiences.

Steve Anderson: Absolutely. My name is Steve Anderson I am the CEO of Preceptis Medical. We are a startup company located in Minneapolis. Extremely small by purpose, trying to keep things frugal and trying to limit the amount of capital we need to raise which kind of ties to the stories we’re hearing today.

We have come up with solutions so the ear tube surgery for kids can be done without the risk of general anesthetic and without the need for an OR thereby significantly reducing cost.

So there is out pitch right there, our one-two is way safer, way cheaper. Luckily for us we don’t need different codes. The codes and the coding and the payment are already out there. So the question we had before about CPT really doesn’t apply for us.

We can go out right to the doctors and say we have a significantly safer therapy and to the providers and to the insurers we can say we have the significantly less costly opportunity.

So to a certain degree there’s one way you get started … trying to figure out how to raise money. You have to figure out an idea that fits into the sweet spot of where people are looking. So we’ve all heard don’t follow a level of technology and look for a market. That couldn’t more true today. You’ve got to figure out where this is going to go.

There is some really interesting stuff. I don’t know if people read the Money Tree Report but the numbers all came out over the last couple of days so this is put out by PriceWaterhouse and also in the NBCA.

Nationally funding fell 6.4 percent in first quarter. Funding for devices for VC funding declined 20 percent in first quarter nationally and the Dow Jones had the overall funding down 11.8 percent. “The Minnesota,” VC funding dropped 58 percent in first quarter compared to last year.

Nine deals, 37.5 million ($) none of them received capital. But the good news is of the nine deals, five were devices and equipment.

[Holera] [0:16:32] raised 10 million ($) but they had a pretty illustrious group of current investors at Morgan Taylor’s, [Split Rock, Versent]. [Celeration] raised 6.4 they are in [indiscernible], and Functional MR they raised 4.3. [Neocore] is also an MR they raised three and Mooncare Technologies raised 1.2.

These are the types of deals that are being done locally here.

So my thoughts on this are, we talked about limited partners, but they have been, why is VC funding for devices going down?

The limited partners are very bearish and you can’t blame them.

We’ve had negative returns over the last 10 years, a mediocre IPO market, increased time for return on investments, significant concern regarding FDA process. And then as we’ve talked about the big one, which hasn’t even really hit us as yet, which is payment and how this is all going to fit together.

So the results of Bearish LPs in the device sector, less VCs investing in devices, VCs that have been in device specifically are having a hard time raising funds.

Sometimes these funds may not, even if you think they’re good, your fund may not be able to make their cash call and you’ll be their last to know it. They’re not going to tell you until the last second.

There’s a lot of large funds that are still following the classic model. These are the big names these are the NEAs and the Orbits and they’re out there. But they have a lot of ideas to pick from right now.

What the other funds are looking at different opportunities. I mean they are looking at secondary and direct deals. A lot of them have moved to what they call Late Stage Investing they’re trying to reduce their risks.

Now five years ago late stage used to be you’re near a clearance, you’re near a PMA approval. Nowadays late-stage means that you are already generating maybe a significant amount of revenue traction. So things have really changed. So let me talk about a couple of alternatives.

One thing that’s come up and we’ve had a lot about as “crowd-funding.”

I just don’t see how that works in devices. I can’t, for the life of me, come up with one way that that’s going to work in the field we’re in. I actually had somebody from the Gray Sheet call me a couple of months ago and they’re all excited and they were going to write an article. By the time I got done talking to them I think I killed their article.

(Laughter)

So I mean it’s great in other areas, consumer electronics, I mean you can give people something. What are we going to give people? A medical device? A prescription device?

Try to get strategics to come in early. There’s been a lot of discussion on this but the evidence isn’t really very clear that they’re doing this. Now there’s going to be more discussion on this at this meeting but it’s not easy. They’re not used to coming in extremely early.

You’ve got angel groups out there and angel groups can be good to work with, they can also be difficult to work with. They have a lot of cooks and you don’t have any direct staff and it makes it a little bit harder. Quite frankly they’re so worried about dilution in the upcoming rounds when the VCs come in that they’ll put together in the early rounds that would be considered onerous by anybody.

And then you have angels which can, you know, that’s where a lot of companies are turning to angels and as you talked about non-dilutive financing for grants. That can be a really good way to go, get that grant application in early because it’s going to take a while to get. First you’ve got to get through your phase one and then your phase two.

So a couple of suggestions that I have. For the Minnesota companies, how many people here have used the Minnesota Angel Tax Credit? One.

That’s actually not really a good thing because it is really a wonderful incentive. Now you’re going to have a hard time getting a deal done strictly because of the credit. But it’s a very nice sweetener on a deal.

The investors can get up to within certain terms of the deal. A 25 percent rebate. You don’t have to be within the State of Minnesota and it’s not immediate rebate, it’s on the next year’s tax returns. So if you’re in Minnesota it will reduce your tax burden by that amount, if you have no tax burden it is an immediate rebate.

So I would advise people to look very carefully into that. The popularity of this program is really increasing. A couple of years ago the money ran out in November, last year it ran out in June. This year they’re looking at kind of a May-June timeframe. In Minnesota they have 12 million ($) dedicated towards this.

Look for smaller funds that they’re doing early stage. There’s a few out there. Michigan actually has a number of nice little small funds that are willing to go early stage and they’re starting to show up at some of the meetings here locally. Medtech Investment Conference, which is on May 8th coming up. That’s a good idea.

Again, obviously I said this before, the idea is geared towards reduction of cost. You want something obviously that you can go right to peers and talk to him about reduction of cost. You want strategics to be hovering over that space.

You need to be frugal with your use of capital. We talked about this already. You need to be willing to go without a safety net the days, again 25 million ($), and just thinking, you know, if you have a few hiccups you’ll work through it. Those days are done, you’re going to have to take the minimal amount of capital you need, get to a milestone and then do it again.

Network with other entrepreneurs, be at the meetings. You’ve got to talk to the people that are out there. And then finally I would say make sure your pitching idea works.

I mean, I swear every pitch that I’ve ever had no matter how many times I look at it; I’m always constantly trying to improve it. Had experts look at it, have other people look at it. Make certain that what you’re saying, that your value proposition rings true to the people that you’re trying to talk to.

And then I do want to just remind everybody we had the Representative Paulsen and Senator Klobuchar. The problems that they’re dealing with may not impact you today but they will impact you in the future. Work with them on the repeal of the excise tax. Using an excise tax as a tax apparatus is a horribly bad idea and also improve efficiency of the FDA process.

Thank you.

Amy Butler: Thank you, Steve. Now Steve mentioned a couple of things and so did our first speaker about making sure you get a strategy and looking at those different components.

And one of the ways that you can get those resources is working with an incubator or working with an organization that helps those companies walk through their steps, look the milestones, help you figure out some of the different tools and financing strategies that can be used.

Allan, you want to talk a little bit about your role now, and how you play into that kind of a strategy?

Allan Daisley: Yeah, sure, I’ll be happy to.

So I’ve worked at the Memphis Bioworks Foundation which is a local 501(c)3 non-profit, as you probably guessed, based in Memphis, Tennessee. Our focus, we were formed back in 2001 with a mission to promote economic development through the biosciences.

Specifically we look at trying to attract and retain talent in the Memphis area, trying to grow businesses. What we’ve done is we’ve sort of taken our focus on look at the areas where we have strength and basically double down on those.

You know Memphis we have a good core base of medical device activity. There is Wright Medical’s headquartered there, there is Smith & Nephew, Medtronic, there’s a lot of orthopedic and spine activity going on in the area. And then you also have St. Jude’s Children Research Hospital, Lebonheur, Methodist Baptist. There’s a whole medical center and activity there.

This has been an area of core strength for us so we’ve been looking to build infrastructure and specifically my responsibility is on the entrepreneurship side to really build those businesses that we think have a chance of changing the landscape of this city going into the future.

So on the entrepreneurship side what we found is that there are lots of issues and specifically as the device which is near and dear to my heart we looked at companies that were trying to take root. And obviously financing has been a huge issue. You all know it, it’s in your town and it’s in mine.

So we just thought, well what can we do to try and change that whole landscape? We set up a business incubator which we’ve been running for several years. It’s one very effective way for companies to come in in the early stages, go through the initial formulation of your business plan, growing your business.

It’s a friendly environment where you can come in and sort of be nurtured through the process of getting your pitch straight, getting your business plan straight. Even we have services where we can help you in terms of guidance through the FDA process as well as hiring and building your team, connections in the community.

So what we found is that that’s a good option for companies that are in their very nascent stages because it’s a really tough out there if you’ve ever done this before. The FDA process trying to get your approvals or clearances, trying to do your product development all at the same time trying to build your team. Manufacturing, where should I start? Should I start here or abroad?

There are all these questions that an incubator environment can really surround you with the experts who know and can help you through that process.

Lately what we’ve done and we’re in the second year is we decided that we would look at a different model which is… now there’s a very popular model the accelerator model that’s popular in the IT and internet space where they bring you in and they sort of take you through a three-month high intensity bootcamp-style program. There is some famous ones like Y Combinator, Tech Stars and so on.

What they’ve done is they’ve managed to kind of combine the investment and the training all in one. So it’s a way to sort of turn out in a rapid fashion, high-potential high-growth companies.

The premises that you invest a little money in them and that will help take them through the early stages, help them to do the things that you would normally take about a year to do, cram it into three months, put it on steroids if you will.

And then at the end with a heavy focus on mentorship you have a company that’s much more ready to be invested in. And by the way you have investors actually waiting on the backend to look at that.

So we thought that was a really good model except that it’s really really hard to accelerate devices. I mean devices take five, seven, 10 years and about a gazillion dollars to get to market so how could you accelerate something like that?

So what we decided to do what we really like that model but let’s see what we can do. Is there any sort of way that you can accelerate part of this process? So we focused in on the 510K and the 510K if you’re really good about them you can get significant milestones to happen in about a year.

Of course you have to pick technologies that are not going to take you two years to prove out and things like that. And so what we’ve done is we’ve put together an accelerator program for medical devices as far as I know it’s the first one and only one that’s out there.

What we do is we bring up to six teams in and we take them through. It’s a three-month process.

We would work on their entrepreneurship skills; we surround them with some classroom activity so we bring in experts in FDA, regulatory, reimbursement, compliance. The basic business building things like marketing, finance, accounting, insurance, all these sorts of things.

So we put together a curriculum of pretty high intense activity as well as we get a group of mentors that’s experts in all of these areas and specifically we look for mentors who have done it before, who have been there, done that, and can really help get them through the pitfalls of this business building experience.

And then the sort of icing on top of the cake is that we provide up to $150,000 in seed funding. And this is as a couple of the other panelists have said before; it’s tough money to get. Matter of fact, the seed money is tough to get, the follow on is tough to get, but really who is going to help you get that startup funding?

There are a lot of VCs we deal with as well and as Steve rightly noticed is that late sort of growth stage has now become, “What’s your revenue?” And at this point when you just have an idea or a first prototype, there is no revenue.

So we feel like we fill a good niche and we do it from a pre-revenue stage and it’s a really early stage. What we do is we structure it such that you’ve got $50,000 on entry. We go through that first three-month period. And then we have another phase, phase two, where you’ve got to pitch to us, and then there’s another $100,000 that’s in it for you at that point.

We find this as a good way … $50,000 is nothing in device, but at the same time it might be what you need to get your act together, get a plan. It’s really hard to get any kind of funding without having a regulatory path for example, how are you going to take this to clearance?

Typically nobody is going to put any money into you if you don’t at least have that. Well we actually help you get that.

So we do some pretty intensive evaluation of the companies before we bring them into the program. And then when they come in we walk them through we set milestones. At the end of the first phase your pitch to us is what have I done with my milestones and what would I do with another $100,000?

We also have the flexibility to say, “Well, if $100,000 is not going to help you really?” Last year we did a two-and-a-half million Series A and that’s one of the things that we have the
flexibility to do is invest as it makes sense.

Now the way we structured it is I have two local VCs that I work with. One’s actually under our umbrella. This is one of the things we realized a couple of years back was there is no really good seed funding so we created a fund. It’s a long story but we actually ended up creating a fund.

And so we actually do invest in a number of early stage companies and that we sort of palled into a relationship with another local VC. This VCs also invest a lot with angels. As a matter for every dollar we invest, there are about $3 that we bring in off of the sidelines through angels.

Angels they’re here and they’re there and they’re everywhere, you just have to find them. Angels they tend to invest in what they know and so you really need to be in that sweet spot a lot of the times and having that network that you can call on if you have an orthopedic device or if you have a catheter or something. You need to find those VCs, those angels who are in that space, and that’s what’s going to be really important as you go forward.

Anyway, so we managed to bring all this money on the table and as we go forward those two VCs are the ones that make the investments.

After that first phase of the program then we have another phase which is more, not so much a time-bound phase but a milestone-bound phase. You’ll hear me hopping on milestones, milestones, milestones all the time because it’s one of the things that you really have to look at. I mean Jim mentioned this earlier as well.

If your product is going to take you $10 million to get to market, that’s a tough ask at the beginning so you may want to look at breaking that down into phases that you can put funding together based on milestones. And VCs like to have the little trapdoors that they can exit if you don’t meet the milestones.

So it’s a sort of sharing of the risk with you and we strongly believe in that. So we traunch the funding. You’ve got $50,000 first you pitch to us for another hundred or whatever it might be and then we can set you up on a new set of milestones that will be… it might be that you proved the concept, it might be that that 510K is a milestone.

It just depends every device is different but we strongly believe that one of the best ways that you can really approach this is by looking at it from a milestone basis, an approach that makes sense for both you and for who’s funding you.

So that’s all of the program in a nutshell and we believe that this really fills a niche in the market that is really needed. Not everybody is going to be able to take a product from beginning to end on their own.

And sometimes a little help is what you need and whether that’s in an accelerated format or whether it’s sitting in a business incubator where you sort of take your time and do it over the course of a year or two, there’s a really big role that institutions and programs like this have to play in the development of medical device companies.

Thank you.

Amy Butler: And Joe, as President and CEO of Insituvue, and recently being involved in a recent sale of a major company, what can you add to the strategy that we’ve talked about so far that you think would help people in understanding how to put together a financing strategy that would get them to their goals?

Joe Bjorklund: Yeah, I think it starts … just there’s a lot to piggyback on here that has been talked about and I’ll give you hopefully some real life examples of what you can utilize.

First of all, this is the exercise of trial and error.

Anyone who claims they’re an expert at funding I want to talk to that person for a long time because I come out of the imaging world, the ultrasound world.

Insituvue makes a device that is particularly geared towards vascular access but is living in an existing paradigm of ultrasound that brings up all kinds of expectations and connotations in people’s minds.

To piggyback on one thing said earlier on DARPA grant. Actually that is a good avenue there is a company I was involved in in 2000 called Sonosite that you may have heard of and all of the initial R&D for that product was done on a DARPA grant. I believe they got 12 to 14 million dollars.

Was spun off from ATL which his now Philips Ultrasound, that company just sold to Fujifilm last year for $995 million so that’s certainly a success story on that.

The other thing is that there’s a lot of talk in the room today about how government gets in our way. The government can help you, remember that too.

Insituvue got a quarter million dollar grant under the Federal Stimulus program that we got simply because we were paying attention.

We were able to show, when you talk about milestones, we were able to show very very clearly what that money was going to be used for.

And so you’ve got to be really careful about, “Give me $10 million and I’ll rule the world.” It’s, “If you were to give us this, this is exactly what we would do with it. If you were to give us that, this is exactly what we would do with it.”

And be prepared to be flexible as entrepreneurs too. No one in our company has drawn a salary for six months. And part of the reason we do that is not because we like it, but because we think it’s such a good example to potential investors.

So that sort of goes to the think ahead.

Another example I’ll give you is be willing to listen to anybody. We can get very jaded, I’m part of that world too where you say, “Well, here’s someone inquiring about our product and jeez, we’re not even FDA-approved yet,” which we’re not. And actually that’s our next milestone.

But I got a call from a gentleman who was a resident in a military hospital. And my first impression be, “This guy doesn’t have any money. I mean he’s a resident. He wants to use our device for a study blah blah.” I took his phone call and we talked for about an hour.

As it turned out, he is closely tied to the Colonel who runs all the Special Forces for the US Army. And we’re in active discussions now with Special Forces about could we do some validation with our device pre-510K. Obviously not on patients, it would be cadavers and phantoms and so forth.

But because we believe that, as I thought about it more, I think we want to go down this route because if we can prove we’re definably the best at something, without question, that goes outside the existing paradigm, then the doors, we believe, open up a little bit.

That even if it’s a five to 10 million dollar limited market, if you can dominate that space, everyone knows it’s going to flourish from there. It can be applied to other applications.

So we’re very focused on what can we dominate and not getting too hung up on the how big a market is in but show investors a definable pathway of how to get there.

Let’s see, what are the mistakes have I made that you can learn from? (Laughs)

Oh, have comparative examples. One comparative example, one of the interesting things is I came out of the ultrasound industry and when I was first hired as CEO, the Founder saying, “I’ve got this industry guy. He’s going to come in and tell us all about the ultrasound world.”

My first recommendation to them was to tell them, “You’re not an ultrasound company.” And they said, “What are you talking about? We utilize ultrasound technology,” I said, “That’s the technology you utilize. Don’t get too hung up in technology but the moment you say the word ‘ultrasound’ it conjures up all kinds of expectations of an existing paradigm.”

And so what I felt was we need to find concrete examples not so much of what we are, but what we’re not and how that changes the paradigm. And so without getting into a big technology discussion about it … and then give comparative examples as to why are certain comparative companies getting huge investments?

One of the spaces that you hear a lot about the vein illuminators these days. They basically use inf
rared to illuminate veins so you know where they are.

A company called [AccuVein] got $23 million in venture funding, in what to me, is a crazy idea. It’s cool technology but we feel we can be extremely disruptive to that technology if we don’t market ourselves as an ultrasound company.

And so I think that helps us in terms of when we’re talking to potential investors to say a technology that we can clearly cannibalize just got $23 million dollars … and that can help your argument.

But I think my big take from what all gentlemen said here is it’s all about milestones. You’ve got to be very, very clear on what you’re going to be able to accomplish with various levels of funding.

The final thing I’ll say is that in my mind as we navigate this tricky road, I’ve become much more open to; we’re sort of a tweener in that we’re looking for about $2 million of series A funding right now with an option of series B for $2 million more. And we believe that gets us through all the milestones we need to get through to start looking for an exit.

That leaves us in kind of in-between; I actually wasted a fair amount of time talking to venture capital companies. We just don’t need enough money from them, to be honest. If we’re not looking for 10, 12, 15 million (dollars), it’s really not worth the administrative cost of them doing the deal with us.

And so I’m looking to increasing I think where a lot of the money is going to come from going forward is from collaborative companies. Where, even, I have a friend who is actually in town talking to a major medical manufacturer here in Minneapolis today about the startup they’re trying to work a deal where they make an investment in the company, the existing expertise gets it to certain milestones, and then there’s a predetermined exit price, once they reach those milestones.

So again that just leaves it, and there’s a lot of collaborative companies out there that are looking to diversify because one of the things that was said in the meeting on payors and so forth is they are looking for standardization.

Well getting someone to standardize on your little corner-of-the-world product is going to be very difficult. If you can tie to an existing product line that has clout with all the group purchasing organizations and all the regulatory bodies and all those types of things and slide into their portfolio, you’re going to have a much faster path.

You’re going to have to give up some control but I think in the environment we’re in it’s something you have to be open to.

Amy Butler: You have a question?

Joe Hage: I do.

Amy Butler: Okay. I was going to give the panelists one opportunity to add anything now that they’ve heard from each other if there’s anything that you want to add and then we would open it up to questions.

Steve Anderson: Again think about incubators as you talked about, you’re in a spot where you’re too small. I mean you can’t move their needle on their fund. So you either have to figure out a way to get into one of their incubators or you have to figure out how to get with a smaller fan.

But the incubators is a good option. I know some of the larger VCs have done a nice job with setting those up and I think Versent, in effect, has a new office here in Minneapolis with the express goal of trying to get more Minnesotan investment.

Amy Butler: Michigan also has put together, we do have a growth capital symposium that’s in May where all of our venture capitalists actually come together and you can compete, you can look at opportunities to pitch.

We also have a major international medical conference in the fall called Innovations. Last year was the first year we did it. We had over 400 people but we had over 40,000 live streaming in from across the world.

We get a lot of venture capitalists there and angels there. We talk about a number of different things so it would be a good follow-up to this.

One of the things that Joe has talked about is the networking and the opportunity to really get to know each other.

So look outside your state, look outside your region. Michigan has a whole set of tools that have been layered together that look at the milestones along the way. And one of the things the investors look at is have you taken advantage of some of those tools? Did you apply for that initially business accelerator fund? Did you apply for an SBIR?

The state has a matching fund for SBIRs. We also have an incubator that has a DAPRA grant. So there’s a number of different tools. Then when you get to the angels there’s a matching capital grant for angels and then there’s a matching capital grant for ventures.

So there’s a number of these small incentives that they’ve built along the way to encourage you and take you through some of those stops.

So with that let’s open it up for questions.

Joe Hage: Actually I want to build on what you just said. I’m curious personally to know for Amy and for Allan. I don’t remember what your state you’re based out of, Joe.

Joe Bjorklund: Insituvue was developed at the University of Pittsburgh, in our corporate offices in Pittsburgh.

Joe Hage: Okay. So you represent Michigan and you’re in Memphis. Does Joe have a chance working with you or is it very state-specific? He’s based out of Pennsylvania. Should he overlook anything by Pennsylvania or are you are you open for him?

Amy Butler: There are some tools that are Michigan-specific that we’ll be looking for if they’re offered through the state that they will be looking for you to set up office in Michigan. But our investors are not specific to just Michigan so being involved in the Innovations conference or the Growth Capital Symposium are great opportunities.

I am an international incubator. I have three companies. I do IT, medical device, and energy. So I actually have companies that are coming from other countries and getting established.

So there are some tools as outside of Michigan, there are some tools you’ll be able to take advantage of and there are some that won’t. But you can still be associated with an incubator; you can still look at some of those tools and use them as access to get to know some of the investors in the network.

And as I said there is a huge medical device and healthcare network being established over Michigan because of the amount of demand and the amount of employment that we’re finding.

Joe Hage: Allan, anything to add?

Allan Daisley: Likewise we have companies here and everywhere. Our investors more look at the technology and we’re early stage so there’s no geographic boundary. There are a couple of little kinks, one is depending on the bucket of funds they invest, you may just have to register to do business in the state because some of it is from the state but that’s a small hurdle I mean it’s just the registration.

Joe Hage: I don’t like to play favorites but I will admit that I am partial to Joe’s company Insituvue. I was speaking with Gary, a member of your team and we wrote a post a few months back called “Medical Device Dead Zone” which is this little area of two to four million (dollars) which is too small for these guys and too big for these guys.

Wouldn’t it be a dream if collectively we could find a way to help this guy?

(Laughter)

But you have clinical trials, you have vast demand every time you go to a trade show, you’re clogged with interest and it’s been 18 months and you’ve been close and then it fell apart and then you almost … and then it’s like, “Urgh!”

You represent a lot of people in our group who are in a similar situation that have a technology that solves real problems, you may even have clinical trials, and you’re still not funded.

Give us, in TV land, who are watching this later, say, “Hey
, I’m in a situation with you. Here’s what … I tried don’t bother this. This was a grand waste of my time.” You indicated earlier if you shoot too high they’re not interested.

Are there some things that, “Boy if I had known 18 months ago what I know now…” And I’ll leave that with you Joe.

Joe Bjorklund: Yeah, boy there’s a whole bunch.

(Laughter)

I think it really is, think everything through. We tend to have… I came out of the business development and sales world so really coming into the company, my strength was going to be taking this product to market. And the bottom line is until we get 510K there is no product to take to market.

And so it’s been a crash course in understanding my own limitations. And so I think our tendency as startups is any chance at money we tend to jump at it without really understanding the landscape.

I’ll give you a good example of, we’ll spare the guilty here, but there was a venture firm that was all hot to talk to us, “Hey, we’re on this thing.”

And we didn’t do our due diligence on where all the connections. Well this connection had come to us through an industry person and we didn’t put two and two together that these two are related.

So we got our two founders, myself, everyone’s on a plane … keeping in mind no one’s drawing a salary here. So we all buy our plane tickets and we head out there.

And the long and short of it is what this meeting was all about is the brother of the venture firm executive runs a big distribution outfit and wanted some say and access to our product line. He was helping out his brother, is what it amounted to.

And we caught onto this very early in the meeting. And so it’s easy to get mad at, but shame on us … where you’ve really got to look forward not … we’re so ingrained in the world of selling things that what are the customer’s needs … that especially in the world of investors you’ve got to understand what is their business?

What is this investor’s business ultimately and do we fit into that? Do we fit that paradigm at all?

And I guess that would be my best advice is there’s been wasted time in meetings and so forth chasing things that really weren’t there. So that’s probably the best advice I can give. And then missing opportunities of things that might have actually been there that we just didn’t prioritize appropriately.

Amy Butler: And on behalf of Alan and myself I’m going to add that’s one of the… every state has different kinds of incubators and accelerators. And one of their jobs is to understand the investment landscape and understand the tools that are in the region.

And that’s why making that connection with them can sometimes help you look at that issue upfront and understand that business of that investor. For example, I might have a client looking in energy I’m not going to send them to an investor that I already know focuses on medical device. But if I have a medical device I have some investors that really have no interest in that, their model is more in IT.

So as an incubator accelerator that’s something that I have to stay on top of. It’s difficult sometimes but we do the best we can but it’s just one step, it’s one more additional resources. It’s one more additional person that helps you understand the local landscape that may save you some time in the long run.

Joe Bjorklund: And I think that one other thing occurred to me in Joe’s question that is one thing to always be clear on is the bottom line is you don’t definably change the economics of healthcare your product, if you don’t neither do that or you don’t definably how healthcare is delivered nobody is going to care.

They don’t care how cool your technology is. Coolness doesn’t sell anymore, I’m sorry, unless you’re selling apps to … (chuckles) which is where all the investment money is going.

It’s really a matter of locking in, “How are we going to do that?” And that’s where you can really take a lot from the earlier presentations on the landscape of how are these hospitals under healthcare…? Again this is using the government to your favor.

Under healthcare reform what’s going to be punitive to the market if they don’t certain things and where can we slot into that and help the cause? Because you’re changing the course structure of how care is delivered, you are. If you’re saving them money you don’t have to be necessarily driving revenue you can be saving them money too.

And so it’s really, focus on those two things. We tend to get too wrapped up in our own technology too for technology sake. And if you can’t change the landscape of care. it’s not going to matter.

Allan Daisley: It’s a really good point. I’d also suggest as you take a look at your business just think about a couple of things. There’s enough scarcity of money but also look at yourself, I mean if you show up to a presentation and you don’t have your business plan in order, then that’s a problem. If you show up and…

(Laughter)

…You don’t have a path to get anywhere. I talked about the regulatory path there’s other things too. You customer acquisition path, there’s all of these things. A lot of business plans really are just unrealistic right now.

And so really check yourself and have somebody else check that as well just to make sure that when you show up you really are able to put your best foot forward.

Terry Mandel: Thank you. This was a great overview thank you so much. I’m really curious about to what extent any of you incubators or any of you innovators are looking at emerging markets.

And how much you think, whether it’s frugal innovation, I mean I’m talking perhaps about really end of the distribution chain not necessarily the biggest hospital in Ethiopia.

I’m just really curious about how you are seeing the investment landscape responding to a huge trend, an explosion really, in innovation in that space.

Steve Anderson: Well I can go first. We’re actually not, we’re in an unusual situation we have a very reg bar. So we don’t need to accelerate our activities by going outside of the US and we have an extremely large market with, as I said before, coverage coordinate payment already in place.

So a unique situation for us we haven’t had to do that. We’ve thought a lot of about it, we feel like we should be doing it but there’s really no impetus for it.

Jim Stauner: I was just going to say as a private equity firm our last couple of investments there’s more business for both of those outside of the US than within the US. So kind of plays it a little bit different angle.

But yes, we look at things where we think they’re applicable to today’s marketplace globally, so we’ll get those investments differently than maybe we did a few years ago.

The other thing we’re looking at partnering with private equity firms who have a similar strategic vision as we do in certain markets i.e. like in Brazil so we’ll work with partners to say, okay, maybe there’s a syndication or a co-op opportunity … something that they’re very knowledgeable about in the local market that we think we can bring somebody from an operating perspective.

Joe Bjorklund: Yeah, we actually have generated a large amount of interest in the international market. We get regular inquiries from distribution all over the world. We’ve mainly focused in the US out of the gate as well. The main reason for that is healthcare reform because we have a device that very directly we believe can impact the infection rate.

So we’re sort of following that path because it’s really the one that’s got momentum right now and we feel we can change outcomes in that space. And then usually what happens, now if that wasn’t the case we probably would be looking more immediately internationally.

But what we anticipate will happen is if we can get adoption based on the drivers under he
althcare reform here the outfits like NICE which is kind of like the CDC of Europe, they will usually adopt similar things if outcomes are proven to be favorable.

So we’re saying all the momentums in the United States if we can prove concept here it will translate. But it’s a good question because we keep our ears open to that. Good example is the company I came from was called Ultrasonics we just sold to Analogic, you’d be amazed where your pockets of success are.

When you look at a map where they sold the systems sometimes it was all the strength of distribution and what that particular healthcare environment they’d sell 18 systems in Vietnam and five in Mexico. (Chuckles) So a lot of it is just keeping your ears open.

Amy Butler: This is going to be our last question because we’ve got to conclude the panel.

Carl Rosner: You’ve done a great job to summarize all of the sources for funding. I’ve been actually looking for funding for the past several years and have been unsuccessful in the US. Because we are looking for something in the 25 to 50 million-dollar range after already having spent 30 million ($) in developing a really disruptive technology in cardiac diseases.

What we’re finding because of the timeline it takes to get that into the market, US investors are reluctant to provide funding even though I find it interesting. But we’re in the process of doing right is to finding a lead investor who will put up five million (dollars). That’s what everybody else is looking for as well.

Lead investors are, “Have somebody else do all the work then we’ll come in,” and we actually have promises for the rest of the money if we can find this lead investor.

The interesting part is this story has now got to China. We have actually had a Chinese investment company visit us because we’d already sold two systems to China and they’re excited about the noninvasive technology that we have focused on can save literally tens of billions of dollars in healthcare cost.

In fact, addressing an earlier speaker, we can avoid the limitation of reimbursement on hospitals because our technology addresses early detection of heart disease and the statistics are such that people with chest pains arrive at hospitals and 70 percent of them don’t have heart disease. And yet they get taken into hospitals and then causing this reimbursement problems.

With our technology in 15 minutes can decide whether the chest pain originates from heart disease or chest pain or indigestion or something else so they don’t have to be admitted.

So anyway, it’s an interesting story, but keep in mind larger types of funding needs as well as the readiness of foreign investors to come in now and take over the technology.

Joe Hage: Was there a question there?

Amy Butler: I think it was more of, it was an additional experience and what he is finding that he was sharing with all of us which is something that we were asking the audience to do is share what those real life examples are.

Agreed, sometimes the United States investors aren’t willing to go there and sometimes it is offshore investors that help bring in. Sometimes it is going to be your first sale is in another country.

So I think that the message there is keeping a very open and flexible mind and understanding that you might have to change your pathway in order to get to market the first time.

Would you please join me in thanking our panel and they’ll be around so they can answer some questions if you have them.

(Applause)

2013’s How We Grew Exponentially

30 min reading time

2013’s How We Grew Exponentially

Reading Time: 30 minutes


A full transcript accompanies the video.

Medical Device companies growth

A lot of really salient points about growing your medical device company, from the 10x Medical Device Conference panel “How We Grew Exponentially.”

Our speakers included Tom McCall, Chief Marketing Officer, ICU Medical; Jim Buck, President & CEO, Mardil Medical; Steve Ogilvie, VP of Corporate Development, NuVasive; Michael Dale, President & CEO, Helical Solutions. MedCity News’ Chris Seper moderated the session.

Click for transcript. »