Medical Device Link.

Originally Published MX September/October 2005

COVER STORY

Interview by Steve Halasey

In the medical technology industry, companies that expect to survive must be not only technologically adept, but also robust—able to endure even the most difficult of challenges that can befall a growing corporate entity.

One leader who knows firsthand the challenges of growing a medtech company with an emerging technology is D. Keith Grossman, who has served as president and CEO of Thoratec Corp. (Pleasanton, CA) since January 1996 and as a member of the company's board of directors since February 1996. A veteran executive with more than 15 years of experience in both medical device and pharmaceutical companies, Grossman has had a great deal to do with establishing Thoratec as the dominant player in the field of cardiac-assist devices.

Thoratec president and CEO D. Keith Grossman on the business of supporting healthcare's sickest patients

As a case in point, consider the protracted market progress of Thoratec's HeartMate left ventricular assist device (LVAD) as a long-term permanent implant—a use that the company terms destination therapy. FDA review and approval took a full year, and the Centers for Medicare and Medicaid Services (CMS; Baltimore) took twice as long, finally issuing a favorable national coverage decision for destination therapy in October 2003.

As a result of such delays, Thoratec endured some difficult moments during 2004. HeartMate's new indication was slow to get off the ground, and the company's share price took a significant hit in the middle of the year, dropping more than a quarter of its value in a single day. But under Grossman's leadership—and on the strength of improved reimbursement coding and two increases in the CMS payment rate for destination therapy—Thoratec's share price has come roaring back. Recently, shares of the company's stock were trading at their highest rate since September 2003.

In August, Grossman announced his intention to step down from his positions as president and CEO. He intends to remain active during the search for and transition to a successor, and will continue serving as a director of the company. In this interview with MX editor-in-chief Steve Halasey, Grossman discusses the elements of Thoratec's business strategy that have enabled the company to maintain its market-dominating position while continuing to develop and improve its lifesaving technology. He describes as well the company's distinctive approaches to IP protection, obtaining reimbursement coverage, and involving the clinical community.

MX: Over the years, Thoratec has had a lot of interaction with reviewers at FDA. How would you gauge the regulatory climate for cardiac-assist devices and how does it affect companies in this field, including those that are working to develop artificial hearts?

D. Keith Grossman: Well, the regulatory climate is of course tough for devices like ours. These are active blood pumps, life-supporting devices, and are very complex technologies. So you would expect a fairly rigorous regulatory environment, which is exactly what we have.

In my view, there is not much of a connection between what FDA does or doesn't do with total artificial heart devices and the world of ventricular-assist devices (VADs). An artificial heart is a very different kind of technology, and it's designed for very different kinds of patients.

How important has Thoratec's progress been for helping FDA to understand cardiac-assist technologies and to devise regulatory approaches appropriate to such devices? Is the expertise at FDA strong enough to understand this field well?

I think so. FDA has to be a jack-of-all-trades, and it is dealing with innovators and trial sponsors who are masters of their own fields. You never expect FDA to know every technology as well as the sponsor of that technology. But given the length of time that LVADs have been in clinical evaluation for uses like bridge-to-transplant and destination therapy and recovery, FDA has had quite a lot of experience looking at the data related to these devices. There are some pretty talented people there who have a lot of experience with these technologies. So I would say they have a pretty thorough understanding.

FDA investigators are becoming more comfortable with extrapolating results. When you are the first one with a new technology and a new therapy, there is no way to extrapolate from one patient to 10 and from 10 to 100, or from one indication for use to another. Once you have been at it for a while, FDA can start to understand the shorthand of that particular technology. The leap from a success in certain kinds of bridge patients to other, longer-term patients is a smaller and easier leap to make once the agency has that kind of experience.

Technology Challenges

Cardiac-assist devices have been refined quite a bit in the past decade. In terms of safety and effectiveness, what are the technological challenges in the field now?

They really have been refined. The development of VADs has been, and probably will continue to be, an interesting story.

The clinical trials for devices like these were started in the United States in the early 1980s. The hopes then were that you could support patients for days or a few weeks and try to get them to a transplant as fast as possible. I don't think many people at that time were wondering if we could support a patient for 5 or 10 years and thinking that we could send him home—have him go back to work or take a vacation and go fishing. Yet that is what patients are doing now. So the technology has come a long way. As we look forward toward what next-generation technologies could do, it really is staggering.

What are the major technological differences, as an example, between the first- and second-generation products?

What makes this technology applicable and effective for the most patients is its increased durability, its ability to support the patient for as long a period of time as possible and to do so in a way that eliminates or dramatically mitigates adverse events and gives the patient a very high quality of life.

The development goes on, and the results and the outcomes get better and better. What that means is that the technology is going to be applicable and used in a far wider range of patients.

Presumably, some of the key contributions come in the form of advanced materials, more-refined design of the pump mechanisms, significant progress toward smaller and stronger power supplies, and improved methods of distributing power to the pump. Are there other factors?

Those are all important, and there are 20 or 30 more just like them. I have never been in a medical technology segment where domain expertise is as important as this one. Time after time, we have watched new entrants try and fail to get into this space with their first pump.

IP Positioning

I would imagine that those kinds of advances leave you holding a rather large bag of intellectual properties. Do you file on all of the company's developments, or do you hold them very close? How do you handle those issues?

It really depends. Much of what we have done with our first-generation family of products has been held very close and is not necessarily captured by our patent portfolio. This really goes to the point I just made. Patents have a life of 17 to 20 years, depending on the circumstances, and, in many cases, by the time you have products on the market—at least first-generation products—IP protection is irrelevant.

If you are able to hold your fundamental intellectual properties very closely, in theory there is no limit to the protection they offer-even if they are never filed. Does that constitute a significant barrier against potential competitors?

It does. Again, there is kind of a franchise value that is greater than in any other business I have been associated with. And it comes from having hundreds of years of collective experience in this industry in our research and development department alone, people who have developed more than one pump and have seen them through to approval. The ideas that they have, and also the knowledge that we incorporate into our design but that never makes it into a patent, are absolutely priceless.

Reimbursement

Thoratec has conducted a lot of clinical research and has had success using its clinical data to obtain Medicare reimbursement coverage and expand that coverage over a period of time. Take us back to the company's initial trials: Apart from issues of safety and efficacy, what kinds of performance did you think you would need to demonstrate strictly for reimbursement purposes?

That is a good question, particularly these days in our industry. The clinical trials that we have designed have been primarily geared toward generating data that are relevant to the therapy itself. One of the things we learned when we first started working with CMS regarding destination therapy was how very important the data set that we had was to the agency's decision.

We received a positive national coverage decision for destination therapy after we went to CMS with the data from the Rematch trial. What was so important to the agency was the thoroughness of that trial, the compelling nature of the outcomes—and, obviously, hitting the end points. But we had a wealth of very pristine data, very well collected, that we were able to take to Medicare. It really made it a lot easier to talk to them.

We have made an awful lot of progress in reimbursement over the past two or three years. It is due in part to the data from the clinical trials, but it is also due to the fact that we decided early on to resource that effort very heavily, and we went to Medicare early. We have talked to them about trial design at about the same time we were talking to FDA.

We staffed that department internally instead of relying solely on external consultants, and we have worked very closely with the clinical community. In fact, when we made our submission for the national coverage decision, that submission was actually made by our investigators. We were there right next to them, but they were the petitioners for that decision. We worked very closely with our clinicians all along the way, and we have had terrific results with improved reimbursement for this therapy over the past couple years.

It's still fairly uncommon for a medical device company to go to CMS at the same time that it is beginning to talk with FDA. And it is also rare for companies to have a fully staffed in-house reimbursement function.

Yes, but it is becoming more common. When many of these early trials were started, there wasn't an appreciation of how important reimbursement would be. So, in fairness, a company that started a trial five or six years ago without a crystal ball probably didn't have the same understanding of how important it would be when they got out to the back end of the trial.

But anybody going now into a clinical trial where payers will be important—and of course that is most of them—ought to be going to Medicare very early, getting their input and understanding how they will interpret the end points of the clinical trial. Because if they have a clinical trial that gets them FDA approval but Medicare can't interpret the end points, or they don't believe the end points, or the end points aren't important to them from an economic outcome standpoint, then that company is not going to have much success.

Building Clinical Support

Beyond the support that you had from your clinical investigators, how did you build support in the general clinical community?

Actually, we worked with one of our customers to form an alliance called the Hospital Alliance for VADs, which represented most of the active VAD-implanting centers throughout the country. The alliance allowed them to be part of the process, to be kept up to speed on it, and to contribute to the approach to Medicare. Meanwhile, it offered us a unique window into how they thought and how they would feel about the way we positioned this technology with Medicare, as well as their particular needs on coding and payment, and their particular take on the way costs had been analyzed and collected in the Rematch trial, and lots of very important nuances that we frankly would have missed if we had just run into CMS all by ourselves.

Did building that community of support with an early product help you with subsequent trials and the adoption of additional products? For instance, have some of the clinicians that you discovered through the hospital alliance become investigators in subsequent trials?

They absolutely have, and part of what we think will make us successful is not just innovating and bringing to market the best products for this indication, but it is surrounding our customers with the kind of support and infrastructure they are going to need when the day comes that they don't have 10 or 20 VAD patients living at home but have 1000 living at home on VADs.

The community of professionals relevant to Thoratec's products is relatively small. Is it also international? Do you have international sites in your current trial?

We do have European sites in our current HeartMate II clinical trial. Now, the VAD business is probably about two-thirds to three-fourths in the United States; of the balance, most is in Europe. Fortunately, Thoratec enjoys about 90% of the U.S. market and probably close to 60% of the European market.

The Product Pipeline

You have mentioned the clinical trials for the HeartMate II, and that is clearly your next leap into the marketplace. What else is in the pipeline?

We actually have a HeartMate III in the product pipeline. It is currently in animal trials and is likely to be in the clinical trial environment sometime in the next year, year and a half, or so. And we just very recently introduced a newer version of our original Thoratec VAD product, an implantable version called the Thoratec IVAD. The original Thoratec VAD is worn outside the body.

Then we are also doing a lot of really interesting work in thinking about how VADs will be used as part of a larger set of therapeutic options for heart failure patients. By that I mean that VADs serve the purpose of effectively unloading the sick ventricle. There has been a lot of interesting thought and work involving using VADs with other therapies like stem cells, skeletal myocytes, and other pharmacological and biological agents, and we are beginning to participate in much of it. The rationale is that, if the VAD can unload the heart and allow the remodeling process to reverse itself, if that treatment is combined with another therapeutic agent, then there is tremendous opportunity here for adjunctive therapy between VADs and other technologies.

We are participating in some interesting work with cells and growth factors and drugs. In the long run, though, we are going to find VADs being used with lots of other therapies, and that may end up holding the largest potential yet for Thoratec down the road.

There is a lot of talk now about the use of information technologies for remote monitoring. As you have more destination therapy patients who are returning to work and so on, will advanced information technologies find a place in VADs for monitoring either the condition of the device or the condition of the patient?

Over time that will become very important. We have some of those capabilities already, in that our device does capture a fair amount of history which can be downloaded and transmitted. I do envision a day when there will be more patients and they will be in farther-flung locations. Thus, hooking into a network, or creating a network of some sort for home monitoring, will become more important. That is something we have certainly begun thinking about. Whether it involves creating our own network or participating in another one that exists remains to be seen.

Do you think that genetic or cellular therapies will always be adjunctive, or is there also potential for true combination devices, where a VAD in some way helps to deliver or enhance a drug that is being used?

That is something we have actually thought and talked a little bit about internally. Truthfully, the answer is, we don't know. Cells are very interesting. We have a long way to go, and there is an awful lot that we don't know yet. The answers to questions like that will become more evident over the next 3, 5, 10 years.

Down the Road

What is the long-term outlook for Thoratec and its market? In five years, for instance, will Thoratec still be an independent company? What will have changed in cardiac-assist technologies? What will have changed in the marketplace?

That is obviously difficult to predict. We are a public company and we offer a pretty exciting franchise in end-stage heart failure, which is a market where lots of companies want to contribute. As that franchise grows and becomes more visible, I expect there will be interest from a lot of people, including larger companies, and those are things we will deal with at the time.

I think for us the future is pretty encouraging. We are satisfied with the evolution of our first-generation products and the programs we have in place to support our customers. The reimbursement environment is already quite favorable for the therapy, and will become even more favorable on October 1, when CMS will put into effect 26 new Healthcare Common Procedure Coding System (HCPCS) outpatient reimbursement codes for VAD supplies and accessories. And we are encouraged by the progress of our next-generation technologies.

We think the future is one in which patients will be treated for very long periods of time with VADs, with a very high quality of life outside of the hospital. They will number well into the thousands, and there will come a day, we believe, when they are counted in the tens of thousands. That is a market in which we intend to continue to lead.

Copyright ©2005 MX