This service is primarily available to the following industry sectors:
“Life sciences” is defined by Life Sciences BC as follows: “Life sciences is comprised of scientific fields that involve the scientific study of living organisms.”
This is broad in some respects, including in-vitro diagnostic devices, biotechnology and the research sector in healthcare, but it is also narrow in that excludes the medical device industry.
Wikipedia defines it as: “Life sciences comprises the branches of science that involve the scientific study of life …for example, the mind – neuroscience. Life sciences discoveries are helpful in improving the quality and standard of life, and have applications in health, agriculture, medicine, and the pharmaceutical and food science industries.”
Health Canada defines it as follows: “Industry players include small and medium-sized companies developing diagnostics, biopharmaceuticals, pharmaceuticals and medical devices, as well as global companies with research, development and manufacturing operations in Canada, serving both domestic and international markets.”
To me this is the most appropriate definition and the one we will use in the context of our initial target market for this Program.
Historically, the life science industry is characterized by the following key parameters:
Regulated – the industry is heavily regulated, by international, federal, provincial or state, county or district, and health region authorities. For technologies to be cleared for human use, they must demonstrate safety and efficacy. The threshold for these two criteria is the risk level. For example, a band-aid is a class 1 low risk medical device and therefore subject to the lowest level of regulatory controls. In contrast an implantable heart valve is a class 3 device in the US and EU and class 4 in Canada. This means it is high-risk and subject to the highest level of regulatory controls. In the middle is a broad range of products, including for example ultrasound, a class 2 diagnostic device. Risk classification is usually driven by the intended use. For example, if a speciality ultrasound device claimed to be able to improve the safety and efficacy of heart valve placement, then it would be considered a high-risk class 3 or 4 device. For developers and manufacturers, these regulatory burdens are costly and increase time to market. Therefore, these companies need to understand their regulatory pathway and budget accordingly. In the context of the Market Validation Program, this would be one of their key go to market hypothesis that needs to validated early on their path to market.
Reimbursed – drugs and devices are expensive, which creates a heavy financial burden on reimbursement agencies. Therefore, they require compelling clinical evidence of clinical utility and financial payback. The extent of this evidence may exceed that of the highest risk products, even if the responsible regulator deems it low to medium risk. An example of this is a low-risk male urinary incontinence product that is affordable but over time would exceed the cost of diapers. In Canada, each province needs to make a decision on whether to pay for this. In the US, the Center for Medicare and Medicaid Services (CMMS) will decide. In Europe, each country in the EU will decide. Regardless of who the payor is, they will want to see compelling clinical and health economic outcomes that demonstrate this new expenditure is eclipsed by the savings generated. In this example, the new product may be shown to reduce urinary tract infections, a common complication of diapers. If his can be adequately demonstrated in a double-blinded controlled clinical trial, then the payors may decide to fund this. However, the process with bureaucracies like CMMS can take years or even decades. Once again, companies entering these markets need to plan for this.
Manufacturing – drugs, devices and related life sciences products are not simple or cheap to manufacturer. They are regulated and must meet certain standards. For example, medical device manufacturing must be fully compliant with ISO13485 in Canada, the EU, Australia and many other countries. In the US, they must be fully compliant with the FDA Code of Federal Regulations’ Quality System Requirements (21 CFR Part 820). As well, there are many other standards that need to be met. To comply with these requirements again takes time and money, so companies must anticipate this. They also need to forecast what their Non-Recurring Engineering (NRE) costs will be – for molds, jigs, production equipment, Quality Systems, etc. Finally, they need to project their Cost of Goods (COGs). NREs can be expected to be at least $10,000, often in the hundreds of thousands of dollars, and for high-risk medical devices or pharmaceuticals, millions of dollars. COGs, or unit costs, need to be understood early in the development process, because this determines the price that the company can go to market. If the COGs is not competitive, then neither will the sales price be competitive, and the chance of success is greatly reduced. Time, money, planning and utilizing the Market Validation Program tools are all essential considerations.
Distribution – unlike consumer goods, especially electronics, the distribution channels for life sciences products have traditionally been risk-averse and slow to pick up new products. This is at least in part due to the constraints #1 – 3 summarized above. On a continuum from direct sales (expensive but highly controllable by company executives) through exclusive or non-exclusive licensing, agency and general distribution arrangements (less expensive but harder to control), there are no easy answers. What works for one product likely does not work for another product. Market type changes everything, including which channels are most likely to be effective. The stage of market entry makes a huge difference – upon early entry, direct sale is usually required. Over time, if successful, this typically needs to evolve in to some sort of third-party sales arrangement, or often a shared responsibility – with manufacturer and distributor sales representatives. Finally, in the 21st century, there also needs to be a strong, well thought out and well financed, digital marketing strategy. Again, the Program can help here.
The life sciences industry has been somewhat moribund and is now faced with a fast-changing future, much of which it will have little control over. Some key trends driving this are as follows:
Strains on the public purse – the average expenditure on healthcare in the OECD countries is about 10% of GDP and increasing disproportionally to GDP. In the US, the highest of any OECD country, this percentage is closer to 15% of GDP and increasing at a faster rate. Ironically, the US has what the OECD reports is the second worst healthcare delivery system in the OECD, second only to Mexico – the only other system that is not primarily funded from the public purse. The US, although they make much about their private healthcare system, pays 55% of all healthcare costs through CMMS and another 15% or so through the Veterans Administration, for a total of 70%. This is completely comparable to Canada, where about 70% is paid through provincial medical service plans, which fund hospitals, primary care, most diagnostics, but not drugs or dental. In Europe, where many countries include drugs and dental, the public expenditures may be 90+%. However, regardless of jurisdiction, every country struggles with how they will continue to pay for so much publicly, as the burden increases at a rate that exceeds GDP.
Aging populations – throughout the developed world, baby boomers are aging and expected to live longer than their parents, thanks to improvements in healthcare, wellness, diet and lifestyles. The impact on healthcare expenditures will be profound, especially in countries like Canada, where we are over-invested in acute care hospitals and under-invested in extended care or palliative care facilities. The harsh reality is that with drugs and devices we can now extend life by not just years but decades. What we have not been so good at is making the tough bio-ethical considerations about when to withhold these interventions. Does it really make sense to perform open-heart surgery on someone in their nineties, just to extend their life a few years? These operations cost over $100,000 and are now done routinely, because the pre-operative, operative and post-operative care has improved so much that the risk of mortality in these procedures is really low. So, we do it because we can, but should we?
Chronic disease explosion – diabetes, obesity, cardiovascular disease, some cancers, dementia and other chronic diseases have become a sort of combined contagion that costs our healthcare delivery systems vast amounts of money. In the US, obesity now affects 1 out of 3 adults, and soon diabetes will too. Advancements in cardiovascular and cancer disease care have greatly extended lifespans for people living with these diseases. As people’s bodies are propped up and drugged up to live longer, their brains ultimately begin to fade, with dementia, Alzheimer’s and other cognitive impairments increasing daily.
21st technology convergence – the convergence of wireless communications, big data and the power of decentralized super-computing has put powerful medical devices in the hands of the consumer. This will lead to the democratization of healthcare for millions of people, including millennials in the developed world, who expect to do everything on their smart phone, and people of all ages in the developing world, who cannot afford legacy medical devices but can easily access 21st century solutions. For example, a Holter monitor – sold for tens of thousands of dollars today and used for decades by cardiologists to check on patients cardiovascular health while at home and going about their daily routine, has now been effectively replaced by a $100 gadget a patient can buy at their local drug store and produce hospital-grade EKG tracings, using an application on their smart phone.
First, we need to define what biotechnology is. According to Wikipedia: “Biotechnology is a broad area of biology, involving the use of living systems and organisms to develop or make products. Depending on the tools and applications, it often overlaps with related scientific fields. In the late 20th and early 21st centuries, biotechnology has expanded to include new and diverse sciences, such as genomics, recombinant gene techniques, applied immunology, and development of pharmaceutical therapies and diagnostic tests. The term “Biotechnology” was first used by “Karl Ereky” in 1919, meaning the production of products from raw materials with the aid of living organisms.”
Although most people think of biotechnology as something new, one of the earliest applications was brewing beer, which requires the fermentation of yeast. This is an example of biotechnology dating back thousands of years. In the more recent biotechnology revolution of the seventies and eighties, scientists began to unravel nucleotide sequences and ultimately the entire human genome. Since this was first done, at a cost of $2 billion, competitive prices on the Internet are now as low as $1 thousand. There are also applications in agriculture and clean-tech, such as biodegradable plastics, or use of biological controls in place of insecticides. In the life sciences industry, two of the biggest applications are pharmaceutical therapies – so called large molecule drugs, because biologics are bigger molecules than chemicals; and in-vitro diagnostic tests, which rely on biological reagents and controls. Because biotechnology is a subset of the life sciences industry, all of what has been said in the earliest section of this submission also applies.
According to IBIS World 2020 Biotech Industry in the US – Market Research Report Update: “IBISWorld’s analysts constantly monitor the industry impacts of current events in real-time – here is an update of how this industry is likely to be impacted as a result of the global COVID-19 pandemic: The COVID-19 (coronavirus) pandemic has resulted in increased investor uncertainty, which is likely to limit industry revenue in 2020. Biopharmaceuticals are likely to grow as a share of revenue over the five years to 2025, as this segment will be least impacted by declining investment levels in 2020. Several major companies, including AbbVie and Gilead have tested drugs for their potential to treat coronavirus.”
In a related open-market report by Deloitte Insights “2020 Global Life Sciences Outlook”, they describe the “Leading biotech IPOs of 2019” as follows: 10x Genomics $390M, BridgeBio Pharma $349M, Gossamer Bio $317M, Turning Point Therapeutics $191M, SpringWorks Therapeutics $186M and Alector $176M, for a total of $1.6 billion, suggesting a robust US investment market in the US in 2019. They go on to detail “Biotech’s blockbuster flotations in US markets” with 12 companies posting a “market cap at float” with a combined value in 2019 of $43 billion, again suggesting a very robust biotechnology market.
In my opinion, there is no doubt that COVID has had, and will continue to have, a very significant impact on the life sciences industry, including biotechnology. However, it seems that the very strong 2019 and the comments quoted above, suggest that the market will rebound in 2021. What I have seen with my life science clients, only one of whom is in biotechnology (Genome BC) is that they have had a short-term revenue and financing shortfall, because anything short of a diagnostic, therapeutic or vaccine for COVID is currently of no interest to healthcare practitioners and their institutions. This will pass as these COVID pharmaceutical solutions are discovered, tested for safety, proven for clinical efficacy, approved by regulators and marketed world-wide.
According to Grandview Research: COVID caveat: “Biopharmaceutical innovators are at the forefront of the human response to the coronavirus pandemic. A significant number of major biotech firms are in the midst of a race to investigate the Sars-Cov-2 genome and prepare a viable vaccine for the same. As compared to the speed of response to SARS/MERs, the biotech entities are investigating SARs-Cov-2 at an unprecedented rate and a considerable amount of funds are being put into the R&D. With multiple candidates in trial, the public and private sectors are anticipated to work in unison for the foreseeable period, until a vaccine is developed for Covid-19. The report will account for Covid19 as a key market contributor.”
“The global biotechnology market size is expected to reach USD 727.1 billion by 2025, at a CAGR of 7.4% according to a new report by Grand View Research, Inc. The emergence of certain key themes in the market is expected to drive growth in this industry to a lucrative extent.
This kind of takes my breath away, because it represents about three times the growth rate for medical devices and any industry projected to reach three-quarters of a trillion USD in just five years is an industry we all want to participate in. The Report describes four major growth areas: regenerative medicine, genetics in diagnostics, synthetic biology and the application of artificial intelligence in the R & D process. These areas are beyond the scope of my knowledge and that of this submission.
My local biotech client, Genome BC, offers the following synopsis:
“Genomics hold the promise to improve our quality of life while providing opportunities for economic development and environmental improvement for the benefit of society. Every living thing has a genome which holds the secret code of life within. From the food we eat, to the medicine and cures we seek, to the environmental sustainability of natural resources we depend upon, genomics is the heart of life sciences in British Columbia. Genomics is at the core of the cutting-edge science and technologies that are driving growth, productivity, commercialization and global competitiveness. Genome BC’s investments into genomics research is powering BC’s bioeconomy by generating jobs, creating and advancing new companies and attracting national and international investments to help address challenges facing BC’s key economic sectors — forestry, energy and mining, agri-food, fisheries and aquaculture, and health.”
What I have learned is that the genome holds the key to personalized healthcare, which delivers the right drug at the right time to the right target, substantially improving the quality of clinical care and doing so at a greatly reduced cost. For example, some chemotherapeutics for cancer are now known to only work on certain genomes – about 50% of the population. By limiting treatment to these people, vast amounts of money are saved, since many of these drugs cost in the order of millions of dollars per year per patient, and vastly improves the quality of care. In retrospect, delivering debilating drugs to people who have no chance to benefit seems inhumane.
Much of what has already been documented in this submission for the life sciences and biotechnology industries holds for the healthcare industry. Again, it is helpful to start with a definition: “The healthcare sector consists of businesses that provide medical services, manufacture medical equipment or drugs, provide medical insurance, or otherwise facilitate the provision of healthcare to patients.” Investopedia.
“The healthcare industry (also called the medical industry or health economy) is an aggregation and integration of sectors within the economic system that provides goods and services to treat patients with curative, preventive, rehabilitative, and palliative care. It includes the generation and commercialization of goods and services lending themselves to maintaining and re-establishing health. The modern healthcare industry includes three essential branches which are services, products, and finance and may be divided into many sectors and categories and depends on the interdisciplinary teams of trained professionals and paraprofessionals to meet health needs of individuals and populations. The healthcare industry is one of the world’s largest and fastest-growing industries. Consuming over 10 percent of gross domestic product (GDP) of most developed nations, health care can form an enormous part of a country’s economy.” Wikipedia.
To clarify, biotechnology is a subset of the life sciences industry and the life sciences industry is a subset of the healthcare industry. The portion of the healthcare industry not covered in the previous two sections of this submission is the actual delivery of care. In other words, literally, the health care, deploying life science, biotechnology and other tools. In Canada for example, we have 14 public healthcare delivery organizations – one for each province and territory and one for the federal government for care of indigenous communities. In addition to this we have broad private care coverage, including dentists, alternative care providers, extended care homes, home nursing services, pharmacies and some private surgical day-care centers. Hospitals and physician services are paid for out of the public purse and account for close to 70% of all healthcare expenditures. Dentists and drugs are about another 20% and the remaining 10% would be everyone else. Therefore, the focus on this section will be on hospital and physician care.
By way of background, it may be helpful to outline the basic principles of the Canadian healthcare system and how that applies to reimbursement for medical procedures and devices, which is a key driver of the industry. The foundation of the Canadian system is Medicare, the unofficial name for Canada’s publicly funded universal health insurance system. The formal terminology for the insurance system is provided by the Canada Health Act and the health insurance legislation of the individual provinces and territories.
Under the terms of the Canada Health Act, all “insured persons” (basically, legal residents of Canada, including permanent residents) are entitled to receive “insured services” without copayment. Such services are defined as medically necessary services if provided in hospital, or by ‘practitioners’ (usually physicians). Approximately 70% of Canadian health expenditures come from public sources, with the rest paid privately (both through private insurance and through out-of-pocket payments). The extent of public financing varies considerably across services. For example, approximately 99% of physician services, and 90% of hospital care, are paid by publicly funded sources, whereas almost all dental care is paid for privately. Most doctors are self-employed private practitioners.
Provincial Responsibility for Delivery of Health Services
Under the Canada Health Act, each province and territory is responsible for delivery of health services, consistent with the Act. In BC, the Medical Services Plan (MSP) administers Medicare. The BC Ministry of Health, Medical Services Commission provides a Physician Payment Schedule, effective April 1, 2010 which captures various surgical procedures, including for example under the section 36 heading of “Urology”. See Appendix A – Canadian Physician Payment Codes – BC and Ontario.
In BC, as is the case across Canada, these fees are professional fees only, since hospitals are not reimbursed by procedure, but have global budgets for surgical procedures. In the Preamble to this Payment Schedule, “Section 8. Appliances, Prosthesis and Orthotics”, they state: “The cost of prostheses, orthotics and other appliances are not covered under MSP. Such devices, where insertion in hospital is medically/surgically required and where the devices are embedded entirely within tissue, may be covered under an institutional budget.”
This makes Canada somewhat unique, in that hospital budgets are “global” – based on prior year expenditures and subject to provincial ministry of health budgeting, and this creates considerable pressure on expenditures, since the hospitals have been under-funded for many years. To quote one Chief Medical Officer at a leading Canadian teaching hospital: “We operate at about 105% of capacity with funding at 92.5%, ensuring an on-going structural shortfall of about 12-13%.”
Other publicly-funded jurisdictions like the EU use some type of activity-based costing, which funds hospital based on actual patient and case load. This is also how the US fundamentally functions, albeit in a much more complex array of public and private funding mechanisms. To summarize for the EU:
Medical Reimbursement and Procurement in the UK and Europe
The UK represents a $200 billion healthcare market with 81% of this directly funded through the National Health Service, 80% of this is funded through taxation and 75% of the NHS budget goes to Primary Care Trusts who are responsible for delivering health care services within a local area, which are grouped in to Strategic Health Authorities. The UK has a “Drug Tariff” that lists all drugs and devices approved by the Secretary of State that must be supplied and reimbursed throughout the NHS. In the Drug Tariff, there is for example a section Part IVB – Incontinence Appliances, which is referenced in Appendix B – UK NHS Drug (& Device) Tariff, beginning with its home page.
Compared to Canada, which does not directly fund specific devices, the UK has a device listing. To get new devices listed, the NHS created NICE – National Institute for Health and Clinical Excellence in 1999 to promote clinical excellence by reducing variation in the uptake of new technologies (Newdick, 2005). It provides guidance on technology appraisals, clinical guidelines and interventional procedures. Since January of 2005, if NICE guidance supports that a particular technology be made available by the NHS to a certain patient group(s), then health care organizations are obligated to do so within three months from the date the guidance is issued (Mason and Smith, 2005). NICE is the body responsible for Health Technology Assessment (HTA) in the UK and serves as a model for other HTA systems across Europe and abroad (Sorenson, C. and Kanavos, P.; 2009; London School of Economics, Health and Political Science; “Financing Medical Devices in France and the UK”; European Health Technology Institute on Socio-economic Research.
In the UK, much like Canada and any publicly funded healthcare delivery system, the challenge for suppliers is to convince surgeons, buyers and administrators that the incremental cost per procedure will be more than offset by the savings in reduced length of stay and/or readmissions, thereby demonstrating a positive return-on-investment, which typically must be seen within the same fiscal year.
Caveat – The scope of this submission limits our ability to investigate other European jurisdictions. Given that NICE is recognized as the European leader in new technology assessment and that in the UK and Canada there appears to be no reimbursement for the particular medical device in this example (male incontinence appliance), it may be reasonable to conclude that this will also be the case in other major European countries, although this may be reviewed later if time and budget allows.
The US healthcare market is much more complex, driven primarily by the complexity of their reimbursement quagmire, as summarized below by Princeton Group, a sub-contractor on our market assessment projects:
Reimbursement Policy Review
The key elements of reimbursement policy are coverage, coding, and payment. All three of these elements are essential if adequate reimbursement is to be achieved for medical procedures and devices in the United States.
Coverage refers to the process and criteria used to determine whether a product, service, or procedure falls within a defined benefit category and is ultimately reimbursed. The most powerful and influential entity in the coverage process is Medicare. Given the size and scope of Medicare, this coverage process is often critical to the survival of a new technology. The importance of Medicare coverage policies influences the private-sector insurance market. Private payers follow Medicare’s lead in applying cost control policies. In many cases, if Medicare does not cover a new technology, the likelihood of its being covered by other payers is remote.
Underlying payment and coverage decisions for medical technology is the process of coding. Codes are systems of number and descriptors that identify procedures and products. Developed through the efforts of such organizations as the American Medical Association (AMA), the American Hospital Association (AHA), and the Centers for Medicare & Medicaid Services (CMS), codes can be important for technology manufacturers and providers because they enable an insurer to recognize and process claims involving the use of a product. Thus, a code can contribute to product coverage and payment.
Once products or procedures have a defined benefit category and are covered, they are eligible for payment. This introduces a new set of methodologies to determine the exact payment amount, as well as a new set of incentives that influence the use and development of medical technologies. These payment methods depend on where the technology is used, by whom, and the kind of treatment service that is provided.
The health insurance industry is comprised of thousands of third-party payers, each with its own policies, rules and regulations. The benefits available to groups or individuals vary and the definitions for medical exclusions, coverage policy for investigational devices and pre-existing conditions are almost certain to differ among comparable policies. This variability makes it difficult to predict coverage policy for new procedures, or new medical devices. However, most insurance carriers, including Medicare, use common criteria to determine whether a device or procedure is