Biomedical Business & Technology National Editor

BB&T at the 19th annual Piper Jaffray Healthcare Conference

NEW YORK – Like many other investment houses, Piper Jaffray (Minneapolis) tries to ease the eye-blurring and mind-numbing flow of numbers from the half-hour corporate dog-and-pony shows that are staples of healthcare investing conferences with panel discussions on topics that are – or should be – of interest to their attendees. At the latest edition – the 19^th – of the Piper Jaffray Healthcare Conference at the Pierre Hotel here in late November, the planners included several such panels.

One of the more interesting involved a panel of four prominent practitioners in the prostate cancer space. The panel drew what appeared to be the largest audience of any session held in the Grand Ballroom of the Pierre Hotel during the two-day conference program, the panelists reflecting a wide range of treatment approaches, from robotic prostatectomy to various forms of radiation treatments, including the implanting of brachytherapy seeds.

Piper senior analyst Thom Gunderson did some stage-setting by noting that cancer "has become a more interesting investment forum over the past two years." Nearly an hour's worth of sometimes-fevered discussion built off an opening scenario set by Gunderson and fellow Piper analyst Mark Arnold for the four physician panelists:

Here's a 63-year-old man who has just been diagnosed with prostate cancer – how do you treat him?

Streamlining – and 'what works best'

Ash Tewari, MD, director of robotic prostatectomy and prostate cancer-urologic outcomes at the Brady Urology Institute (New York), advocated "streamlining what we are trying to achieve" as physicians. The first goal, he said, "is to remove the cancer in the way that works best for the patient."

Irving Kaplan, MD, assistant professor at the Joint Center for Radiation Oncology at Harvard Medical School (Boston) and a radiation oncologist at Beth Israel Deaconess Medical Center (Boston), said, "I always tell the patient that there is no definitive right answer," although the longer quality-of-life studies that have been conducted to date "demonstrate that any form of radiation therapy is superior to radical prostatectomy." Referring to one of the most common clinical approaches, he said, "I absolutely don't endorse watchful waiting."

Jeffrey Forman, MD, medical director for seven Michigan clinics in the nationwide chain, 21st Century Oncology (Fort Myers, Florida), said his response would be built on the organization's breadth and depth of clinical experience. "We would get multiple opinions from the different types of physicians in our practice."

Forman said one of the shortcomings of clinical services in the prostate cancer space is the lack of long-term data on the many new treatment regimens and technologies that have evolved over the past several years. "Unlike women and breast cancer," he said, "studies for men and prostate cancer have been done in extremely limited ways. That's a problem for the average patient, and especially for the intelligent patient – in looking on the Internet, they don't get definitive answers."

Noting that clinicians "don't have the data to say what the best treatment is," Forman said that the treatments used for prostate cancer 20 years ago "weren't at all like those today." Since the treatments that are gaining favor are so relatively new, he said, "we don't have data that's older, say, than 10 years." And, in fact, even data of that length isn't especially useful. "The technology that has evolved today is totally different from what we did even five to 10 years ago," Forman said.

Further to the question of how he would approach and manage this hypothetical patient, he said that 21st Century Oncology treats about 800 patients a day nationwide, with many different types of treatment approaches. "We don't say, 'This is the way to treat it' in any singular form," Forman said.

Frank Critz, MD, founder and medical director of Radiotherapy Clinics of Georgia (RCOG; Atlanta), has personally treated more than 8,000 men over a 25-year career, using a treatment method developed at RCOG called ProstRcision, which means excision of both normal and cancerous prostate cells.

Focus: outcomes and other opinions

What I would tell [this patient]," Critz said, "is 'forget about the treatment form – what you want to focus on is outcomes.'" He said he would go to RCOG's database of 25,000 treated patients, "and give him statistics that would apply regarding urinary incontinence, sexual activity, etc."

Critz said he encourages patients to seek out multiple opinions. "Go to other doctors, ask about their outcomes, and use those doctors if their outcomes look good to you."

As for himself, he said, "You have to know your own data – I can't over-emphasize that."

Kaplan noted that any discussion of new treatment technologies must include the factor of reimbursement for that treatment – and that is keyed to outcomes. "Payers want to see data before they approve new technologies for reimbursement."

He noted that the costs of treatment "may force some patients to different treatments." A new CyberKnife system from Accuray (Sunnyvale, California) runs in the $4 million to $5 million range and then is reflected in a significant charge to the patient.

Kaplan said his organization is "doing the trials, gathering the data for CyberKnife."

Demonstrating the give-and-take of panel members, Critz interjected: "I wouldn't recommend CyberKnife because of the lack of data."

Terwari, who is focused on robotic surgical treatments, said that, "for now, we see that patients who undergo prostectomies are likely to live longer and get sexual function back, [and] 97% of them are free of urine leakage problems." By way of reference, he said he treats 300 to 400 patients a year.

In Forman's view, the "broadly divergent" clinical literature on relatively new treatments "makes interpreting the data very complicated." He said that "unless there is an amazing breakthrough, something showing that this is the best approach, over the next 10 years we're going to have many patients select radiation and just as many select surgery."

Forman noted how patients "want the latest, best model [of new technology]. After I did a CNN news item last year, we received 2,000 calls in 24 hours…. New technology appears to be better, but we need the supporting data, [because] patients are more and more sophisticated."

Among the new technology he cited is imaging technology from Calypso Medical Technology (Seattle), featuring GPS "beacons" that are injected into tumors. "It's really cool technology," he said, "and very expensive."

Expensive or not, 21st Century Oncology bought not one, but two of the new 4-D localization systems, which serves as an illustrative point to the discussion about the growth of new technologies in the prostate cancer sector.

Infections – in the hospital

Another Piper panel focused on hospital-acquired infections, which are in the news like never before. The topic drew a considerable crowd to the Grand Ballroom, and the panelists, who came at the topic from three distinctly different roles, forcefully emphasized the magnitude of the problem

Elizabeth McCaughey, PhD, was the most high-profile member of the panel. A widely-known health policy expert, she is a former lieutenant governor of the state of New York and about a year-and-a-half ago founded the Committee to Reduce Infection Deaths.

McCaughey, who also serves as chair of that committee, set a statistical foundation for the discussion, noting that it is estimated that one out of every 20 hospital patients in the U.S. acquires an infection, totaling some 20 million a year, with about two-thirds of those infections being drug-resistant. Of those 20 million, as many as 100,000 who die each year.

As daunting as those statistics appear, the news may be even worse. "A new study reported in the Journal of the American Medical Association in October suggests that it [the volume of such infections] could be much larger," she said. "The JAMA study said that MRSA [methicillin-resistant Staphylococcus aureus] probably is twice as prevalent as previously reported … [perhaps] even larger."

With even the lower previous estimates being mind-boggling, the realization that the incidence of such infections may be underestimated by a factor of two, or even more, was enough to make many in the audience to lean forward in their chairs, as if determined not to miss any of the dialogue emanating from the panelists.

Another panelist, Janet Haas, RN, DNSc, is associate director of infection prevention and control at New York University Medical Center. She noted that one of the reasons for what now are seen as under-stated earlier estimates is that it is "very labor- and time-intensive to gather infection data in hospitals."

In what amounted to a plea to an audience of investors who might in turn help influence the directions taken by firms into which they put their money, she said: "We need help from our IT partners in including epidemiological information on electronic patient records."

Who's colonizing?

Panelist Sandra Finley, VP of marketing at diagnostics firm Cepheid (Sunnyvale, California), said that when it comes to surveillance of MRSA, "we need to know who is colonizing it."

As for how to approach the problem, McCaughey said "the evidence is quite compelling that screening incoming patients for MRSA is essential if we hope to deal with the problem. You cannot control the spread of these bacteria unless you know the source." She said the "vast majority" of hospitals take what she characterized as "the tip-of-the-iceberg" approach, "which ignores the vectors of MRSA." Because those hospitals don't screen patients, things like stethoscopes and blood pressure cuffs become vectors," or carriers, of MRSA.

As an example of succeeding in the battle against such infections, McCaughey cited a community hospital in New Haven, Connecticut, that put a program in place for screening patients who were coming into the surgical department, putting strategies in place that reduced the number of hospital-acquired infections by two-thirds.

As another, she said implementation of a patient-screening program for intensive-care units at Brigham & Women's Hospital (Boston) cut infection rates by 75%.

After Finley cited new Centers for Medicare & Medicaid Services rules for hospital reimbursement that include requirements for dealing with the infections issue, McCaughey gave CMS high marks for "a positive first step," especially given "Medicaid's historic indifference to quality."

She fought – unsuccessfully – to keep the sarcasm from being too obvious in saying that it appears that "most infections will be excluded from the new rule."

Adding that she was "glad the market is realizing it," McCaughey said infection identification and resolution efforts "are being legislated and litigated into existence."

In fact, she forecast that hospital infections "is the next asbestos," an area of attorney involvement that put thousands of them behind the wheels of new Mercedes. Haas said, "My job is to prevent infection, and we need to attack it. The goal is to prevent [all] infections, not one bug at a time" – a reference to the appearance that MRSA seems to be getting almost all the attention.

Pick the 'low-hanging fruit'

The problem, she said, "is that we have to put the limited resources we have to the most effective use." That means "we have to pick the low-hanging fruit, as in MRSA screening."

Of most importance as hospitals turn greater attention – and hopefully more resources – to dealing with such infections, Haas said, "is that we screen for the infections important to our own institutions."

Touching on the focus-on-MRSA question, Finley noted that in the U.S., "C. difficile is a [considerable] problem." Clostridium difficile, whose most outward sign is in symptoms such as diarrhea, is a pathogen that has plagued a number of U.S. hospitals with severe outbreaks.

Both Finley and Haas, representing a diagnostic test maker and someone who mans a frontline battle station against infections, respectively, argued the case for rapid tests for screening and routine testing purposes.

"Molecular tests take 12 to 24 hours," Finley said. "That's why rapid tests are so important." Noting that "we'll see more and more pathogens," she said, "So we need more and more tests that can be easily given."

It has a lot to do with human behavior, she said. "If we can tell someone, 'We can tell you within 50 minutes' whether they have an infection, their eyes light up." She added: "Having to call patients back in [the hear test results] is always difficult, so rapid tests are important."

One point that particularly energized McCaughey was the oft-heard concern by administrators that infection control is a cost center for institutions. "It's not a cost center," she said. "It's a profit center." By that she meant that "all hospitals are losing their shirts on infection. Patients who contract infections have five times the length of stay, and are twice as likely to die."

Dealing with infections aggressively can make infection control a matter of profit, McCaughey said. "Many hospitals have experienced a 10:1 payback on their investments in infection control." Finley added: "Some hospitals are testing everyone coming in – it's good community PR."

Investing in China

Another panel at the Piper conference provided some of the answers to the questions would-be investors in healthcare in China might – and did – ask. The session, dubbed "A Glimpse into China's Healthcare Industry," drew a diversified panel and an audience anxious for insight both into broad philosophical issues and more down-to-earth how-to questions.

Panelist Charles Hsu, PhD, a veteran life sciences executive and a co-founding investor in Asia Renal Care, a pioneering Asian venture-backed firm, characterized the Chinese market as "still looking outward from China to global markets," rather than inward. Hsu, founder and chairman of Eureka Pharmaceuticals, said that "most of the interesting opportunities are ones that you can view as global, rather than just in China." But he acknowledged that, with China, "there's always the risk of being too conservative" in forecasts.

Piper Jaffray research analyst Hongbo Lu, co-moderator of the panel discussion, asked Hsu why Asia Renal Care, hailed as a notable success story when it became Asia's largest independent kidney dialysis provider, never began operating in China.

Hsu offered some insight into barriers to success in that country.

"Healthcare is a privileged industry in China," he said, "so the government has been very conservative in granting licenses" to operate in the world's most populous country. "The license fee was $2.3 million per facility," he added, "and they were pretty unyielding on that licensing fee." At the $2.3 million-per-facility rate, this was "a financially unviable opportunity" for a company that was successfully operating in seven other Asian countries when it was sold by Hsu and his fellow investors early this year.

Thus, one key tip for investing in or doing business in China: "You must be sensitive to political feelings," Hsu said. He acknowledged that the government "might feel somewhat differently about such licenses today."

David Chen, MD, of 3S Bio (Shenyang, China) — whose responsibilities include fashioning external alliances and partnerships — said of China: "The demand for better healthcare services is there, but the question is, who is going to pay for it?" He said that as healthcare spending continues to grow, "the issue is how much the government will pay. We think future growth will come from those who pay for their insurance out of pocket, as well as from increased government spending."

Trained in U.S., then back to homeland

Fellow panelist Alice Young, partner and chair of the Asia Pacific practice at Kaye Scholer, an international law firm, predicted "a lot of innovation will be coming out of China," spurred both by investments in domestic companies and by the rapidly growing trend of Chinese scientists who have been working in the West returning to their homeland.

Young has extensive experience in the Asian markets, serving as lead advisor to firms on projects in China, Japan, Hong Kong, Singapore, Indonesia and the Philippines, as well as in the emerging potential mega-market of India. She added that because of that flow of innovation, "The Chinese government has been very concerned about local innovation, so [companies] will have to register their patents in China."

China uses the first-to-register approach on trademarks, Young said, so it's of even greater importance than usual to protect brand names on a timely basis. As to the larger issue of China's historic indifference to international patent-protection rights, Young said, "The Chinese people have decided that IP protection is good for them — which is good."

The panel also discussed the push to grow Western-style healthcare and the status of traditional Chinese medicine, or TCM.

"The Chinese government is putting a lot of effort and money into TCM," said Hsu.

Panelist Wilfred Chow, senior VP of finance at American Oriental Engineering and a former holder of senior positions at global accounting/consulting giants PriceWaterhouseCoopers and Deloitte & Touche, warned his audience not to make assumptions about Western medicine leading to a decline in the practice of Asia's traditional medicines. The growth rates of TCM and Western medicine, Chow said, "have been very much alike."

One of the factors impacting the growth of Western-style healthcare is the distribution system for such products.

Responding to an attendee question, Hsu said "an estimated 6,000 companies sell to hospitals in China," many of them more "Mom-and-Pop" businesses rather than the kind of substantive, full-featured distributors found in many other parts of the world.

'Opportunities … for solutions' seen

Lois Quam wasn't part of this panel. But she has an idea or two — more likely a few hundred of them – about the future direction of U.S. healthcare. What she didn't have until very recently was a particular platform for the investment side of healthcare.

Quam clearly had just such a platform — and a keynote speaker's spot on the agenda — as the Piper conference got under way. Her presentation came in her fourth week as managing director of alternative investments at Piper, a newly created post that is centered on the development of new business opportunities in healthcare and renewable energy.

She joined Piper after an 18-year career at UnitedHealth Group (Minneapolis), the national healthcare insurance giant that has earned a reputation for forward thinking when it comes to the future of the industry. During her talk, Quam touched on business, political and social perspectives of healthcare policy moving forward.

For those viewing the question from a purely business perspective, as might be the case with both companies and investors involved in the med-tech arena, she had encouraging news: "Healthcare is an arena of outstanding business opportunities." In some cases, she added, "the opportunities will be dramatically different." Yes, there are what she characterized as "continuing challenges," but those challenges are, she said, "opportunities looking for solutions."

Citing the importance of healthcare in the current consciousness of the nation, Quam said that only the war in Iraq occupies a higher rung on the ladder of concerns Americans have as the usually simmering political caldron heats up and the approaching presidential election year.

"Healthcare reform is returning forcefully to the national environment," she said. The new president will face what Quam said are the twin challenges: "a lack of consistent consensus" and "the burdensome historical legacy of whether the government is better [as a provider of solutions], or are the markets better?"

Her opinion is "that businesses will do better with action, rather than inaction, on healthcare reform." She added: "Given the salience of this issue, the new president clearly will have to address it."

She said that in working with the government, "you need to deliver solutions that are of value to both the government and the consumer." In order to succeed in such an environment, she said healthcare-oriented companies must, one, be adaptive; two, be diversified; and three, be responsive.