Monday, September 28, 2015

Uncertain Health in an Insecure World - 58



"Device-ive"



The emergence of big health data has experts scrambling for ways to handle its immensity and uncertain predictive value. Data-generating technology abounds, including medical robots, wearable wellness technology, nano-scale drug delivery systems and cognitive machines that learn from the scientific literature.

Market influencers seek to broadly connect these recent advances to meaningful use in post-modern public and private healthcare systems.


Implantable medical devices (above) are not as exciting as digital health gadgets and biotech blockbusters, until you need a new joint, heart valve, cardiac defibrillator, cyber radio-surgery or whole body scan (below). The digital technology being built into hospitals is also amazing, as is the massive amount of structured & unstructured data it generates. Self-sensing 'smart' devices are programmed to know when to shock an arrhythmia or deliver insulin to a patient, averting deadly medical crises.


There are some 7,000 U.S.-based medical device companies, with annual sales of >US$110 billion.  Many of these manufacturers are located California, Massachusetts, New York and Minnesota. In the U.S., this sector employs >400,000 and has a global net trade surplus.


Justifications for high device costs to consumers include the belief that breakthrough technologies (like Medtronic's trans-catheter heart valve, below) will someday trickle down to the deserving poor in developed countries, or somehow raise the boats of the under-served in the less developed world.


Such statements have the smell of snake oil.

In publicly funded fully accessible healthcare systems like Canada’s, the socialized medicine presumption of fairness and the “no line jumping” maxim apply… in theory. Unofficially, Canada’s two-tiered healthcare system allows those who can pay a premium earlier easier access to care, lowering barriers to high technology.

In  healthcare quasi-markets like the U.S., public & private healthcare systems alike participate in the clinical trial validation of novel medical technologies. Resulting approvals permit med-tech industry sales to public healthcare systems for the care of government-insured beneficiaries. It is the promise of such technology market introduction & dissemination at ‘par’ public pricing that assuages the FDA approvers and the Center for Medicare & Medicaid Services (CMS) reimbursers of expensive device use. The uncovered cost of prior med-tech industry R&D and business development has long been shifted to privately insured and self-pay patients.


In 2013, Obamacare imposed a 2.3% excise tax on medical device manufacturers to partially account for these tilted market forces, recouping some of the bald profits being collected from the public healthcare sector by private companies. Ernst & Young reported that in response to the new tax, venture capital investment in medical devices fell 17% in 2013.


This medical device tax, assessed on gross sales revenues, could top US$28 billion over a decade. A similar tax was applied in the state of Massachusetts where Obamacare was originally road-tested; then Senator John Kerry negotiated a reduction in the excise tax from 4.6% to 2.3%.



In 2014, the U.S. Congressional Research Service reported that the tax's impact on medical device company profits would be negligible, based on  the overall steady growth of healthcare demand for devices and numerous over-the-counter direct-to-patient sales "exemptions" (i.e., hearing aids, contact lenses, eyeglasses, wheelchairs, etc.). It is unclear whether wearable tech and other digital health tools will also be exempted, or feel the weight of this new levy.

Let the political games begin.


The Republican-held U.S. Congress is threatening to repeal this part of Obamacare in 2015, to the glee of profit-besieged (?) med-tech giants like St. Jude, Globus and Medtronic. One U.S.  Congressman from the medical device manufacturing state of Minnesota, Erik Paulsen, said "Utilization of medical devices is heavily tipped towards America's aging population... Medicare beneficiaries, both elderly and disabled." Paulsen's Protect Medical Innovation Act passed in the U.S. House of Representatives in June, the first step towards possible repeal.

And what Philistine is against innovation? Too clever...

The White House has threatened to veto any bill repealing the device tax. Washington med-tech lobbyists are working overtime!

If and when this repeal happens, it will make MORE care using standard medical devices and new digital health gizmos LESS affordable for most.

We in the Square can faintly hear the sound of corporate beneficence trickling down upon the device-less masses.

Game, set, match?

Wednesday, September 23, 2015

Uncertain Health in an Insecure World – 57



“Cave Dwellers”



When early man emerged from a cave, and used one bone to break another bone, that was new information. But innovation didn’t occur until the prior information gap (i.e., what bone-on-bone could do) was made available to every cave dweller.


The word entrepreneur is derived from the French word for adventurer. New adventurers emerge from their caves in Berkeley and Palo Alto every day.



“Making an investment is like throwing darts in the dark.” – Naval Ravikant, AngelList co-founder.

In early seed and angel venture capital (VC) investing rounds, before gaining market access, by and through their vision & passion, “rock star” entrepreneurs retain great power. In subsequent cycles of market penetration and dissemination, on the pathway to an idea’s mass distribution (i.e., reaching every cave), entrepreneur power is diminished and often financially diluted.


The atmospherics surrounding VC treatment of entrepreneurs matter. Some factors are cosmetic – the reputations of those investing in the fund, both general and limited partners. Other are geographic – the concentration of key elements in an innovation cluster.

In truth, VC’s exploit (i.e., enable the success of) entrepreneurs’ insights, in order to make cold hard cash.


In the 1970’ and 1980’s, the Russ Building on Montgomery Street in San Francisco (above left) was the Sand Hill Road (above right) for VC wealth creators and private equity agglomerators. Kleiner Perkins Caufield & Byers (KPCB) and Sequoia Capital (both established in 1972) represent the founding royalty of VC firms. They have been at the epicenter of the Silicon Valley innovation cluster since the first tremor, backing the “dent makers” through the close scrapes and dark times when bubbles burst and markets crash. 

  
At the time of idea inception, market receptiveness matters.

In the Silicon Valley, more so than perhaps anywhere else in the world, innovation is often a technological insight that becomes a useful guess as to what is possible. In creating new possibilities, market dislocators move something that works in cave A to cave B. Disruptive innovators (per Harvard Business School’s Clayton Christensen) create a new paradigm in cave A … let’s call it A*. Disruptive innovators are often in conflict with incumbents, who are undercut by bone breaking.

Participants in the VC process often fundamentally change the way that a business is done. This change can be foreseen, or unintended. EBAY ended the classified ad business, and in doing so, destroyed most local community newspapers.


Along this VC trail of new ideas, in fact from its outset, the structure of how one gets paid (the “deal”) influences the behaviors that product the final outcomes (the “exit”).

VC fund down cycles are inevitable. Down cycles attract “road warriors”, the experienced true angels who are unique to the Silicon Valley innovation cluster. Veteran early phase investors have this shared survival experience.

Overvalued tech is the darling of Wall Street.


The impact of stock market malaise in the early to mid-round VC world is worsened by betting on over-valued tech stocks. Recall that average VC fund life is now 11-14 years. Apple (AAPL) is a mature stock with a Sept. 15, 2015 P/E ratio of 13.42. This P/E ratio means that it will take 13.42 years of company operating profits (i.e. earnings) to pay back the present day per share purchase price.

The average current P/E ratio across the tech sector is 20.47!
   
Most Silicon Valley experts quietly concede that there is a tech stock bubble.


When publicly traded stock markets crash, the window for Newco initial public offerings (IPO’s) slams shut. The critical alignment between entrepreneurial activity & private equity towards cycles of liquidity quickly breaks down. When Wall Street gets the flu, the private equity market goes into the ICU. Why is that?

Wall Street now controls much of private equity VC.
 
The massing of investment in the existing innovation ecosystem has become concentrated in the corporate VC funds of 20-25 big companies.  IPO valuations have increased dramatically between 2005 and 2015, largely due to the influx of corporate VC from global companies with hefty balance sheets (i.e., General Electric, Siemans, Intel, J&J, Merck, Novartis, etc.). These funds often invest in later VC rounds (series C, D, funds of funds), where “growth" companies are scaling up their commercial products for the mass marketplace. Corporate VC now exceeds private equity VC money in the tech space.


The way of an industrial process is a cultural process.

As the number of emerging cave dwellers grows, the controlling interests in The Valley are fewer, and much BIGGER.

In the Square, we worry that such market concentration is disruptive in all the wrong ways.

Monday, September 14, 2015

Uncertain Health in an Insecure World – 56


“Like a Refugee”


Experienced seafarers believe in O’Toole’s Corollary of Finagle’s Law…“The perversity of the universe tends towards the maximum.” Out on the open water, in a small boat, is a place where things can really go wrong fast… a chain reaction of little things that provoke bigger problems, and then other bad things.

One loose wire can lead to a helicopter rescue at sea… or worse.

Other than a lack of boating experience and inadequate bilge pumping capacity, the main reason for small boats sinking in open water is the relationship of wave size to boat size. The average 22-24’ small boat is vulnerable to the typical summer Atlantic chop… a two foot wave that is no threat to a 30’ boat. A 22’ boat hull holds 1,320 gallons of water. When they take on water, boats founder, and roll over.


People go into the water when the boat capsizes. People not wearing life jackets drown.


And now the world has seen the dead body of 3 year old Aylan Kurdi (above), washed up on a Turkish beach.

Why then did 350,000 people so far this year attempt the dangerous Mediterranean Sea crossing, a trip that has killed 2,498 migrants? In 2014, 3,419 of 207,000 people attempting it died on the same open sea crossing.


What is worse than a small boat trip with a 1-2% mortality rate?

With over 330,000 Syrians dead since 2011, and the U.N. High Commission for Refugees (UNHCR) reporting 11 million internally displaced or fleeing the country (including >1 million in 2015), the region is facing a refugee crisis unparalleled since the end of World War II. Those not in foundering small boats are “living” in refugee camps where they lack food, health assistance, clothing, shelter and hygiene items.

Clean water and sanitation facilities are scarce.


Approximately half of those displaced are children.


Children in refugee camps are the most susceptible – to malnutrition, diarrheal diseases and dehydration. According to UNICEF, they are missing schooling, and vulnerable to sexual abuse & exploitation. Families fearful of their daughters being preyed upon are arranging marriage at ages as young as 13 years. The 2015 U.S. State Department report on human trafficking exposes the warring parties’ use of children as fighters and human shields.


Hundreds of relief agencies are providing assistance, but the need remains overwhelming. As recently noted by UNHCR high commissioner, António Guterres, “This worst humanitarian crisis of our era should be galvanizing a global outcry of support, but instead help is dwindling.


These agencies have no experience responding to something of this scale and scope.

So, countries have been called upon to help. Only thirty or so have responded so far.


Those usually known for having strong positions on humanitarian issues, like Canada and the U.S., have accepted 2,374 and 1,584 Syrian refugees to date, respectively. Former Canadian Prime Minister Jean Chrétien (above) recently wrote of his embarrassment in an op-ed piece. “When I am going around the world, they always ask me, ‘What happened to Canada?’” In an election season, Prime Minister Stephen Harper’s and President Barack Obama’s governments were finally shamed into committing to bring 10,000 refugees into each country… but only over the next one to four years!

Germany, the historical cause of the last great refugee displacement, expects to take in 40,000 Syrian refugees this week alone.


Only when every country in the world accepts and assists refugees will too many stop living in conditions unfit for human beings. Only when this happens will thousands stop being tempted to undertake perilous-to-deadly border crossings.

What’s missing is true leadership. Sometimes, it seems that past leaders are all we have.

Until such leadership emerges, the unyielding rules of the open sea apply. Until that occurs, the water will continue to pour in.

In the Square, we know that “When civilization ends, it ends fast.”

Perversely, most countries of the world continue to fear the walking dead.
   

Wednesday, September 9, 2015

Uncertain Health in an Insecure World – 55


“Distributive Justice”


In this, the emerging era of precision medicine, while much is promised to many, often less is delivered to a privileged few. Distributive justice apportions privileges and goods in consonance with the merits of the individual and the best interests of society. 


For decades, neuroscientists have known that different sensory, motor, reflexive and cognitive functions home in the deep and superficial brain. A miniature human, the Homunculus, first described in 1656 (above, left), represents neuro-cortical functions along the sensori-motor brain strip (above, right). Such precise localization (confirmed by functional magnetic resonance imaging, below) gives neurologists and neurosurgeons therapeutic targets. The excision of an arterio-venous malformation can cure epilepsy. The radio-ablation of a tumor can restore eyesight.


Nowhere else in the body can doctors successfully play such high stakes medical whack-a-mole.


In a 2013 TED talk, University of Toronto neurosurgeon Andres Lozano (above) described deep brain stimulation (DBS) on conscious patients. During what’s called functional neurosurgery, precisely placed probes carry minute doses of electrical impulse to carefully characterized deep brain sites. In his talk, Lozano described one patient’s sensation of the weight of chronic depression being suddenly lifted from his chest by a brief jolt to Brodmann area 25 (subgenual cingulate Cg25, below) in the medial forebrain (a.k.a. the ‘human rewards system’). With a little more juice to this area, the same patient reported seeing himself walking in a sunny field with a former girlfriend, feeling the echoed joy of moments some thirty years earlier.


Each time the electron flow stopped, the good vibrations ebbed.


DBS for depression, initiated in 2005 by Lozano and Emory neurologist Helen Mayberg (above), was widely reported and highly touted as a breakthrough in the treatment of intractable depression. This concept aligned well with the NIH Brain Initiative, the neuro-science moonshot announced by President Obama in 2013 (below). That year, NIH National Institute of Mental Health Director Tom Insel blogged, “… if mental disorders are brain circuit disorders, then successful treatments need to tune circuits with precision. Chemicals (drugs) may be less precise than electrical or cognitive interventions that target specific circuits.


But in January 2014, the BROADEN clinical trial of this approach (sponsored by St. Jude Medical Inc.) was suspended by the FDA due to unexpectedly poor results. Separate reports of the surgical risks of this costly procedure (i.e., cerebral hemorrhage) and of psychiatric complications (i.e., suicide risk, hypomania) have emerged.


After a long decade, the jury is still out on the efficacy and safely of DBS for treatment-resistent depression (TRD).

Cosmetic neurosurgery is a term loosely describing the potential of such expensive functional procedures to 'fix' unsightly but non-lethal tremors or tics. Akin to a plastic surgery chin implant or breast augmentation, could the placement of a deep brain probe do more than improve the bodily dysfunction of dystonia or Parkinson’s disease? Could it also lift sad moods, and literally lighten the psychological burden of TRD patients?

What could possibly be wrong with doctors using all this newly re-imagined high technology?

  
As Dr. Lozano pointed out in a recent TED Radio interview, limiting access to medical care by wealth or societal position creates a potential distributive justice problem. This issue sits in the core of ethical concerns about medical tourism – the wealthy shopping the world for transplant organs or more timely elective cardiac surgery. Assuming someone had accumulated a fortune before entering a deep, chronic depression, that person could potentially pay for a rapid DBS return to full functioning, if only for a time. 
 
Such market-driven access to precision medical miracles and cures is patently unjust.

In the Square, in the painless recesses of our brains, we are saddened by the slow pace of progress and uneven distribution of results.

It’s depressing, but of course, there’s a device for that!