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Ann Thorac Surg 2001;71:S199-S201
© 2001 The Society of Thoracic Surgeons

Session 5: economics of devices

Economics of devices

Peer M. Portner, PhDa

a Department of Cardiothoracic Surgery, Stanford University School of Medicine, Stanford, California, USA

Address reprint requests to Dr Portner, Department of Cardiothoracic Surgery, Falk Cardiovascular Research Center, Stanford University School of Medicine, Stanford, CA 94305-5407

Presented at the Fifth International Conference on Circulatory Support Devices for Severe Cardiac Failure, New York, NY, Sept 15–17, 2000.

Abstract

Background. The economics of devices used for mechanical circulatory support not only involve the patient, the provider, and society as a whole, but also, importantly, the developers and manufacturers of these new technologies. The combined effects of years of development and testing with significant regulatory, reimbursement, and acceptance barriers make this a capital-intensive and high-risk endeavor. In addition, long-term circulatory support is, today, essentially limited to bridge to transplantation, a "market" of only $100 million. Competition is increasing, with new devices under development and entering clinical trials.

Conclusions. Economic health for this new industry is dependent on expanding clinical indications to definitive or destination therapy, and perhaps other applications such as bridge to recovery and assisted medical therapies.

The economic implications of emerging therapies for mechanical circulatory support (MCS) have been reviewed, not only from the patient and provider perspective [1–5], but also from the broader societal view [6–8]. The issues covered, for bridge and destination applications, ranged from costs for device, equipment, surgery and patient care, to the challenges of reimbursement, during both investigational and postregulatory periods. Early intervention and the ability to discharge recipients of wearable ventricular assist systems have been shown to confer significant economic benefit. Overall costs have been compared with those of medically treated heart failure patients and, for definitive therapy, to cardiac transplantation.

This report addresses another important aspect of the economics of MCS devices: the no-less daunting challenges faced by the developers and manufacturers of this new technology. The cumulative effects of inherently prolonged development and significant regulatory, reimbursement, and acceptance barriers, with the resulting need for substantial investment, make this a high-risk endeavor. That it has been undertaken, is a reflection of the great clinical need [9] and testimony to the persistence of the early pioneers.

The business plan for any commercial enterprise must include a satisfactory return to the shareholder, production of safe and cost-effective products, delivery of high-quality customer support, a reasonable time to market, significant market share, and profitability. The ideal business serves a large market with assured product demand, has proprietary technology and a strong competitive position, a healthy profit margin, and robust growth. Long-term mechanical circulatory support presents a number of unique challenges to this model. These include the complex technological requirements for an imperceptible, reliable, and durable (without maintenance) implantable pump with both blood and tissue interfaces; the need for extensive preclinical testing; clinical evaluation; global regulatory approvals, with differing regional requirements; high-quality, low-cost manufacturing; market development and acceptance; and last but by no means least, reimbursement by third-party payers. What is unusual about this "industry" when compared with other commercial endeavors? Life-sustaining systems, substantially more complex and expensive than accepted cardiovascular implants, the need to optimize multiple biologic interfaces and the physiologic response, with less-than-ideal animal models; the requirements for prolonged (often iterative) testing; and an unpredictable regulatory process provide multiple opportunities for delay and added cost.

The result is a major financing challenge, in the setting of a long time line with serial uncertainties and the additional barriers of market acceptance and reimbursement, especially for the missionary programs. Typically, financing for a start-up business initially involves the founders, sometimes "angel" financing, then venture capital and subsequently initial public offering or acquisition, usually by a large established corporation (ironically, the factors that led to success for the acquired organization—creativity, flexibility, responsiveness and risk-taking—are often lost after acquisition). Shareholder return is then achieved through internal growth and increasing valuation. Traditional venture capital requires a return on investment in 3 years, not generally possible for MCS systems because of the long and uncertain timeline. This has led to creative funding scenarios, particularly for the early long-term systems, which took more than 15 years to gain regulatory approval. In the US, the Artificial Heart Program of the National Heart, Lung, and Blood Institute of the National Institutes of Health (NIH) played a critical role in supporting early MCS development [10].

The Novacor history (Table 1) provides an example of such funding. For the first 10+ years, it was a part of a company (Arkon Scientific Laboratories, renamed Andros Inc, Berkeley, CA) broadly involved in instrument and device development, with primary support from NIH and venture capital. After an infusion of new venture capital, Novacor became a separate entity (Novacor Medical Corp, Oakland, CA) with support from NIH, investment funds, and subsequent partial cost-recovery during clinical trials (revenues). Financial market conditions (secondary to the highly publicized Barney Clark experience) precluded a planned public offering. Novacor was then acquired by Baxter Healthcare Corporation (Deerfield, IL), becoming a division of the CardioVascular Group (Irvine, CA) of this multinational company. Funding increased, becoming predominantly internal. Eight years later, a spin-out of the CardioVascular Group resulted in the new Edwards Lifesciences LLC, and quite recently Novacor was acquired by, and integrated into, World Heart Corporation (Ottawa, Canada).


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  		Table 1. Novacor History

 
A similar chronicle of support, over the same period, for the other most widely used technologies is shown in Table 2. The ThermoCardiosystems (Woburn, MA) program began within Thermo Electron (Waltham, MA), then spun out twice, initially to Thermedics, as majority-owned public subsidiary of the parent company. Acquisition by Thoratec Laboratories (Pleasanton, CA) was recently announced and is pending. Thoratec started life as Tecna Inc (Berkeley, CA), a small privately owned company that was acquired by Searle, then spun out as privately held Thoratec Laboratories, and subsequently went public. Manufacturer of the Jarvik artificial heart, Kolff Laboratories (Salt Lake City, UT), was renamed Symbion Inc, went public, and after protracted difficulties with the Food and Drug Administration, ceased operations. The Symbion assets were subsequently acquired by CardioWest (Tucson, AR).


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  		Table 2. Business Evolution

 
These companies have not thrived because today’s "market" is effectively limited to the bridge-to-transplant application. Approximately 25% to 30% of cardiac transplants are currently mechanically bridged, resulting in 1,000 to 1,200 implants per year, and representing about $100 million per year in revenues. Without new indications, there is little prospect for growth. The consequences of this limited market size have, unfortunately, been a growing practice of creative marketing, predatory sales tactics, overpromise, misrepresentation, and a rising potential for company failures. And there are an expanding plethora of choices (Table 3), resulting in increasing competition. Widely approved products include Novacor, HeartMate, and Thoratec (US, Europe, and rest of the world), the German (Berlin heart, Medos) and Japanese (Toyobo, Zeon) products, available in Germany and Japan, respectively, and on a limited basis, elsewhere in Europe. Then, there are a number of new devices in clinical evaluation, and an increasing number in preclinical testing.


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  		Table 3. MCS Systems: Alternative Choices

 
Why then is this still attractive from a business perspective? Congestive heart failure remains a major healthcare problem, growing at 10% to 12% a year. There are few therapeutic options for advanced heart failure. Cardiac transplantation is severely limited by donor availability. It also has a limited durability (approximately 8.5 years), making the long-term prognosis less attractive for the younger heart failure patient. Xenotransplantation has an uncertain future. The Institute of Medicine and other epidemiological studies suggest that the potential need for cardiac replacement therapies is as high as 200,000 a year, depending on age limits and on severity of disease [6, 9]. This patient population, and potential market size, is shown in Table 4 with today’s limited bridge-to-transplant "market" and an intermediate projection, using pricing assumptions based on current figures. Another factor that will influence the numbers is the aging population. This market potential, a much more attractive business enterprise, will only be achieved with expansion beyond bridge-to-transplantation into definitive or destination therapy ("permanent" implants), bridge to recovery, or mechanically assisted medical therapy, facilitating therapeutic interventions such as angiogenesis, myocyte implants, or genetic engineering of injured myocardium. While the optimal MCS system for each of these applications, their relative importance, and the time lines for implementation are as yet unknown, anecdotal experiences are encouraging.


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  		Table 4. Market Size: Long-Term MCS

 
One of the key remaining issues is market acceptance. This will require a more effective partnership with the heart failure cardiologist. The paradigm for treatment must achieve a better balance between quality of life and survival. There is a need for improved outcomes, new technologies, and responsible guidelines from the mechanical circulatory support community. There is also a need for continued societal education to establish realistic expectations and better communicate the potential for MCS therapy.

In summary, the market for long-term mechanical circulatory support is currently limited to bridge to transplantation, with increasing competition. More favorable economics for the manufacturer depend on improved outcomes, objective data, heart failure cardiologists buy-in, expanded indications, and improved reimbursement, not only for the approved therapy, but also during clinical trials. If these are achieved, there still is a very attractive business potential.

Footnotes

Dr Portner is a consultant to World Heart Inc, manufacturer of the Novacor assist system.

References

  1. Swartz M., Reedy J., Lohmann D., et al. Cost and reimbursement rates for investigational circulatory support. ASAIO Trans 1991;37:549-552.[Medline]
  2. Mehta S.M., Aufiero T.X., Pae W.E., et al. Mechanical ventricular assistance: an economical and effective means of treating end-stage heart disease. Ann Thorac Surg 1995;60:284-291.[Abstract/Free Full Text]
  3. Arabia F.A., Smith R.C., Jaffe C., et al. Cost analysis of the Novacor left ventricular assist system as an outpatient bridge to heart transplantation. ASAIO Trans 1996;42:M546-M549.
  4. Cloy M.J., Myers T.J., Stutts L.A., et al. Hospital charges for conventional therapy versus left ventricular assist system therapy in heart transplant patients. ASAIO Trans 1995;41:M535-M539.
  5. Gelijns A.C., Richards A.F., Williams D.L., et al. Evolving costs of long-term left ventricular assist device implantation. Ann Thorac Surg 1997;64:1312-1319.[Abstract/Free Full Text]
  6. Institute of Medicine Committee to Evaluate the Artificial Heart Program of the National Heart, Lung, and Blood Institute. Ethical and societal issues. In: Hogness J.R., VanAntwerp M., eds. The artificial heart: prototypes, policies, and patients. Washington, DC: National Academy Press, 1991:135-150.
  7. Buxton M. Economic evaluation of therapies for end-stage heart failure. In: Lewis T., Graham T.R., eds. Mechanical circulatory support. London: Edward Arnold Publ, 1995:357-362.
  8. Evans R.W. Left ventricular assist devices: permanent implant versus bridge to transplant—is either cost effective?. J Heart Lung Transplant 1997;16:1180-1185.[Medline]
  9. Portner PM. Permanent mechanical circulatory assistance. In: Baumgartner WA, Reitz BA, Kasper EK, Theodore J, eds. Heart and lung transplantation, 2nd ed. Philadelphia: WB Saunders Co, 2000; in press.
  10. Watson J.T. The present and future of cardiac assist devices. Artif Organs 1985;9:138-143.[Medline]




This Article
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