Finding “Big Ideas” in Ophthalmic Innovation
Venture capitalists will back potentia “game-changers.”
By Jerry Helzner, Senior Editor
Ophthalmologists are wellknown for coming up with original ideas for devices and instruments that allow them to treat patients in a more efficient and cost-effective manner. But if you're thinking of bringing your concept to an ophthalmic company or well-respected venture capital firm, it had better offer more than an incremental improvement over what's currently available in the marketplace.
“There are two kinds of concepts that are usually brought to venture capitalists, says Gil Kliman, MD, managing partner of InterWest Partners. “A potential product that provides an incremental improvement to current technology is comparable to a vitamin pill. In other, words, it's a little bit of a boost,” he says. “A product that has the potential to fulfill an unmet medical need and that can have an impact on the way physicians practice is comparable to a pain pill. It's something that makes a real difference and that's what we want.”
Mark S. Blumenkranz, MD, MMS, chairman of the Department of Ophthalmology at Stanford University, is an ophthalmic entrepreneur who has been involved in a series of successful innovations, including the Pascal photocoagulator, the Ozurdex implant and the PEAK Plasma Blade cutting device.
He is also looking for the next “big idea” in ophthalmology. For example, he would much prefer to back a potential cure for macular degeneration as opposed to concepts that continue to look at AMD as a chronic disease requiring regular lifetime treatment.
In the area of diagnostic instruments, by far the most outstanding innovation of recent years that has greatly transformed the way ophthalmologists practice is optical coherence technology (OCT). The development of OCT is chronicled in an accompanying article by Eric A. Swanson, entrepreneur, editor of OCTNews.com and an OCT pioneer.
Attracting Venture Capital
Experienced and successful venture capitalists use an array of specific criteria in evaluating the potential of any product or concept that is brought to them. These criteria encompass several critical factors, though venture capitalists will almost certainly be more receptive to an idea if they have had a previous successful experience with an innovator or group of innovators.
As an example, Dr. Kliman notes that one major reason that InterWest provided significant backing to the LenSx femto-phaco initiative (since purchased by Alcon) was because InterWest had been involved with the same people in helping to commercialize the highly successful IntraLase femtosecond laser for creating LASIK flaps and other uses.
Absent any previous successful relationship with a specific group of innovators, venture capitalists will evaluate an idea that is brought to them based on asking, at a minimum, the following key questions:
► What's the potential market for this product? Could it affect hundreds of thousands of patients, or if the potential market is smaller (such as an orphan drug), is there a path to profitability that can be discerned?
► Will the product solve a major problem? Achieving incremental improvement is not the goal of venture capitalists asked to provide large sums of money to back a concept.
► Is this a novel technology? If not, other instruments and devices could achieve the same — or better — results. “We are looking for an elegant solution to a problem, something that cannot easily be surpassed,” says Dr. Kliman. “Sometimes we will go out and look for a an innovation that addresses a specific need that we have identified. That's how we found ReVision Optics (developer of the PresbyLens corneal inlay to correct presbyopia). We were looking to partner with a company that had a new way to treat presbyopia.”
► Who is the inventor and the innovation team? Do they have acknowledged industry expertise and a proven track record?
“Ideas can come from many sources,” says Dr. Kliman. “Individuals, academics, private practices. But what InterWest sees most often is a concept that is being developed by a start-up business.
“You need to have more than an idea to attract venture capital,” says Dr. Kliman. “What we like to look for in dealing with a start-up is an enthusiastic founder, a small team and a track record of business experience. That is a good combination for potential success.”
► Can the innovators demonstrate a prototype product? Have they protected the intellectual property that is the foundation of the product? Is their concept patentable?
“With people I haven't worked with before, I like to see what they have of a non-confidential nature,” asserts Dr. Blumenkranz. “Do they have IP protection, such as a provisional patent, and some real structure? There has to be at least a proof of principle.”
Advice to innovators: Don't invite potential competition by giving away too much information to potential investors who may not have your best interests at heart. Make sure any potential investors have no conflicts of interest.
► What's the pathway to profitability? Will the FDA require extensive clinical trials that are expensive and take years to complete? What type of reimbursement can be expected? Is there already an existing code that would apply to the new product and make it easier to obtain payment? If reimbursement is not anticipated, what is the business model for private pay?
“We usually prefer to back devices and instruments that can go through the 510k clearance route to approval,” says Dr. Blumenkranz. “Devices that go through the PMA (pre-market approval) route require extensive clinical trials and that is a harder road to approval.”
► What level of investment is needed to commercialize this product? How long will it take to get this product to market? Five to seven years is usually considered an acceptable time-to-market.
Even with all these criteria that venture capitalists use to assess a potential innovation, they will also consult with practicing ophthalmologists who could be potential customers and users of a specific innovation. “We do talk to knowledge leaders and potential users to get real-world feedback on a potential new product,” says Dr. Blumenkranz.
The Evolution of Diagnostic Instruments
There is little argument that ever-improving OCT has by far proven to be the most valuable and versatile technology added to the ophthalmologist's diagnostic arsenal in recent years. In addition to the jump from early time-domain OCT to more sophisticated spectral-domain OCT, we have recently heard from German ophthalmologists who have had great success using OCT intraoperatively to improve visualization in procedures such as corneal transplants. Though OCT has been the shining star of recent advances in diagnostic instrumentation, it should not be forgotten that there have also been significant advances in specular microscopy and intraoperative wavefront aberrometry, to name two important areas of innovation.
More recently, the FDA-approved Navilas system from the German/American company OD-OS has combined focal/panretinal photocoagulation with the diagnostic imaging necessary to plan and execute treatment of such disorders as diabetic macular edema, retinal vein occlusions and proliferative diabetic retinopathy.
“I'm not that familiar with the Navilas,” says Dr. Blumenkranz, “but as surgical instruments get more sophisticated, they will certainly have more of a diagnostic component than we have seen previously. It's essential to obtain diagnostic information from the system to make the procedure safe.”
However, Dr. Blumenkranz notes that obtaining reimbursement for combined diagnostic/surgical instruments may be more problematic than for instruments with a specialized function.
“Without singling out the Navilas, getting reimbursed for the diagnostic element of the procedure generally might be more difficult,” says Dr. Blumenkranz.
One example of where a company that introduced a highly praised diagnostic instrument and then changed its financial model is the ORange intraoperative wavefront aberrometer from WaveTec. The ORange has drawn good reviews for bringing precision to cataract surgery intraoperatively but the original idea of charging surgeons a per-procedure fee has been walked back and now WaveTec charges a flat monthly fee for the ORange regardless of how many procedures are performed using it.
Avoid the Temporary “Fix”
Ask venture capitalists where they would — or would not — invest their own or their firm's money and the first caveat is to stay away from those concepts that only provide temporary solutions.
The often-cited examples of short-term fixes are the Sunrise holmium laser for the temporary treatment of hyperopia, Refractec's Conductive Keratoplasty (CK) for the temporary treatment of presbyopia and the use of Intacs corneal implants for correcting mild myopia (though Intacs are being used successfully to flatten the cornea in less-severe cases of keratoconus).
“Companies that come up with incremental improvements are not the ultimate winners,” notes Dr. Blumenkranz. “Fast-followers can build upon the principles of the first mover and do better. By taking the time to produce definitive rather than incremental progress, they will win in the marketplace because ophthalmologists have shown that they are willing to pay for the best. If you look at recent history, VISX followed Summit in the LASIK market and proved to be the winner. Lucentis came after Macugen in anti-VEGF and took over that market.”
Paths to Profitability
Given the fact that the FDA has been much slower in recent years to grant drug, device and instrument approvals than international regulatory bodies, venture capitalists say they are becoming more willing to chart a path that encompasses initial international approvals, followed by a later FDA okay.
“This is a consideration that's been emerging in the past few years,” notes Dr. Blumenkranz. “You have to evaluate whether the European market is enough to get some revenue flowing until you get approval for the US market. If human studies are involved, you might need to do studies outside of the US.”
As for the issue of the FDA being slower than other countries in granting approvals, Dr. Blumenkranz is philosophical about it.
“The FDA believes that products that reach the market must be safe and they want to be vigilant in that regard,” he says. “The pendulum oscillates back and forth between faster approvals and the need for safety. Sometimes the pendulum can over-swing in one direction or another. The secret is getting it right and finding the balance.”
Innovation at the Company Level
While venture capitalists tend to look primarily for the big new idea, companies that already have a range of products in the marketplace can enhance their existing products, adding new features and capabilities.
|The Development Process Behind OCT|
Q. and A. with Eric A. Swanson
|In terms of diagnostic instruments used in ophthalmology, no technology has had a bigger impact in more areas of practice in recent years than Optical Coherence Tomography (OCT). Following is a Q. and A. with Eric A. Swanson, one of the original developers of this transformative technology that has greatly benefited patients and practitioners alike.|
Q. Clearly, the development of OCT was a huge milestone in terms of diagnostic instruments. How big an impact has OCT had?
A. I think OCT is one of the most important developments in diagnostic ophthalmic imaging in the history of ophthalmology, ranking up there with the invention of the ophthalmoscope in the 1800s.
OCT has become a standard of care in ophthalmology and has helped diagnose various eye conditions for millions of people worldwide and proven to be a major sight-saver. In addition to OCT functioning as a unique, high-resolution, general-purpose ophthalmic diagnostic tool, OCT has played an important role in the development of new pharmaceuticals as well as the management of various macular diseases, glaucoma and corneal disease.
One very important impact of OCT is that it enables nonspecialists, such as comprehensive ophthalmologists or optometrists, to detect early disease at a level approaching retinal or glaucoma specialists. OCT generated more than $1 billion of reimbursement worldwide in 2010 alone, has imaged ~100 million people over the past decade and generated over a billion of dollars in capital equipment revenue. Ophthalmic OCT technology and applications continue to develop at a rapid clip and the future looks very bright for continued impact on improved patient care.
Q. Could you describe the process through which OCT was developed?
A. The development process for a highly successful technology like OCT is complex and multifaceted. It is not easy to capture, with many views from different people and organizations.
Some things are quite clear. For example, the term “Optical Coherence Tomography” was coined by Dr. David Huang and first published in the journal Science in 1991. At that time, Dr. Huang was a MD/PhD student working for Dr. James Fujimoto at MIT. Dr. Fujimoto and his clinical collaborators have had a huge impact on discovery, development, and commercialization of OCT technology in ophthalmology and many other medical fields. In the late 1980s and early 1990s, I was fortunate to begin developing this new field with Drs. Fujimoto and Huang along with Professor Fujimoto's student, Dr. Michael Hee, and his postdoc, Dr. Joseph Izatt, along with the critical clinical collaborators at Harvard Medical School, Dr. Carmen Puliafito and Dr. Joel Schuman. This highly collaborative team played a big role in developing OCT.
In 1992, the world's first OCT company called Advanced Ophthalmic Devices (AOD) was founded by myself, Dr. James Fujimoto, and Dr. Carmen Puliafito. AOD was acquired in 1994 by Zeiss and formed the basis of Zeiss's highly successful OCT product line.
Over the next 20+ years, these investigators continued to work with Zeiss and other research and commercial entities to continue to push both the research and commercialization frontier of OCT. Zeiss dedicated considerable resources to bring several generations of OCT equipment to market. There have been, and currently are, many other exceptional research groups and commercial companies in the field of OCT that have played critical roles in advancing the field.
Q. What did the developers initially foresee as the ways that OCT could be used in ophthalmology?
A. I think, early on, it was very clear to this collaborative team that OCT could be used for general purpose in-vivo high-resolution biometry and imaging of almost all parts of the eye in ways that existing technology such as SLOs, ultrasound and fundus cameras were not capable of, and that further, there was a widespread critical clinical need for such technology. The first baby steps were things like measuring corneal thickness, anterior chamber depth and producing the world's first in vivo human OCT images of the cornea, macula and optic nerve head. But quickly thereafter, OCT imaging of all regions of the eye were seen as novel and important. The retinal applications took off fastest, I think because of the dearth of other solutions to obtaining in-vivo high-resolution images of morphological retinal structure.
Q. Did they ever envision that OCT would become the major diagnostic tool it has become?
A. I can recall the first ever in-vivo human OCT image. It was in the 1991-1992 timeframe and MIT had constructed an OCT system and connected it to a modified slit-lamp with an X-Y galvanometer scanner to perform both anterior imaging and, via a Volk relay lens, retinal imaging.
We had done all the mathematical calculations about what was a safe laser power for intraocular viewing, consulted experts in the industry on laser ocular safety standards, and gotten institute approval for beginning human studies.
Dr. Fujimoto and I and some of his students were sitting in a small office next to Dr. Fujimoto's office with the OCT prototype equipment wondering who would go first and the unspoken thought in the back of all our minds was “did we do the laser safety calculations correctly?” I found it very brave that Dr. Fujimoto took off his glasses and rested his chin in the slit-lamp and set “let's go.” Out came a beautiful retinal image. Then Dr. Fujimoto left to teach a class and the rest of us spent the afternoon obtaining OCT images. Not long after that we were in the clinic at the New England Eye Center (NEEC) and to all it seemed clear OCT had a very promising future to make a major impact in ophthalmology. However, while early on it was clear OCT would make a permanent impact in ophthalmology (and other medical markets), I think what was a little less clear at the time was that by 2010 over 100 million people would be scanned, there would be more than 10 ophthalmic OCT companies shipping over $250 million a year in systems, reimbursement would exceed $1 billion in a single year and that OCT would become the standard of care it has become.
Eric A. Swanson is one of the original developers of OCT technology and is currently the editor of www.octnews.org, a Web site devoted to information and discussion of the many uses of OCT.
“Our Ocular Response Analyzer (ORA) was a completely home-grown and revolutionary device that we introduced in 2005,” says Dave Taylor, product manager, advanced diagnostic devices, Reichert Technology. “In April, we launched the next-generation ORA, which has a built-in computer and numerous new features that makes the device better and much easier to use.”
Mr. Taylor says doctors, researchers and universities constantly bring ideas to Reichert.
“It may be something simple like they want us to add another lens to our phoropter, or it could be something completely new,” he notes. “We welcome ideas but the majority of our revenue comes from our internal R&D effort.”
Like the venture capitalists, Reichert likes to see that a concept brought to the company from outside has patent protection and possibly a prototype to evaluate.
“Occasionally, but not often, venture capitalists will come to us with a product that is at a certain stage and they would like us to complete the development,” says Mr. Taylor. “Or, if we see that there is a gap in the market, we will develop a new product internally. We also look at potential acquisitions that would be a good fit for Reichert.”
Mr. Taylor says that Reichert's process for screening new ideas is stringent.
“We have a structured process for evaluating potential innovations,” he notes. “We employ a strategic filter that is mainly a list of criteria that must be met for us to pursue the concept. We try to not get seduced by concepts that might at first look like great opportunities.”
The Future of Ophthalmic Innovation
Despite the great number of ophthalmic devices and instruments that have come into the marketplace in recent years, Dr. Kliman asserts that ophthalmics is still “an unlimited field for innovation.” With the vanguard of the baby boomer generation now over 65 years old, investors recognize that there will be a huge demand for eye care over the next 30 years or more, as many of the most common eye diseases and conditions are closely associated with aging. Venture capitalists and ophthalmic device companies are likely to be quite receptive to concepts that promise transformational advances in the diagnosis and treatment of eye disease. OM