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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowIndianapolis Business Journal gathered leaders in the state's life sciences industry for a Power Breakfast panel discussion April 24.
Panel members included Wayne C. Burris, senior vice president and chief financial officer of Roche Diagnostics Corp.; Elizabeth Hagerman, vice president of Rose-Hulman Ventures; Kristin Jones, president and CEO, Indiana Health Industry Forum; Oscar Morales, managing director of VisionTech Partners 1 and VisionTech Angels; and Joe Muldoon, CEO of FAST BioMedical.
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The discussion was led by IBJ reporter J.K. Wall.
The following is an unedited transcript of the discussion.
WALL: I'm going to start with an observation
and a comparison, a comparison that I hope is
somewhat provocative to get everybody talking. It's
often said that Indiana has great life sciences
assets with companies like Roche, Lilly, Cook, Zimmer
and Biomet, IU and Purdue, but it has some
disadvantages on the entrepreneurial part of life
sciences, particularly compared with the coasts, it
doesn't have oceans or mountains or decades of kind
of risk-taking entrepreneurial clusters in life
sciences, and that's probably true. What's
interesting or puzzling to me is that by some
measures, like amount of capital raised, Indiana even
lags some of its midwestern peers even on a per-
person basis in the number of deals and dollars, so
I'm curious since other midwestern states have the
same disadvantages that Indiana does, lack of oceans
or mountains, what is it that the state doesn't have
or isn't doing or is doing that it should stop doing
that even just midwestern peers seem to be doing a
bit better? I'm going to throw that out to Oscar
Moralez first and get things started.
MORALEZ: So why do I get picked on first?
WALL: Because you're a good sport.
MORALEZ: Well, that's a good question. You
?
know, I think there's a lot of answers and we could
probably spend 30 minutes and I've already been told
that you won't let me do that.
WALL: You can pass the torch and then jump
back in later.
MORALEZ: I think, briefly, the big issues
that I think are related to the fact that we don't
see the funding in Indiana that we do in the other
midwest states, in particular Ohio and Michigan, I
think for a long time they've had these really nice
technology clusters around the Cleveland area, for
example, in Minneapolis-St. Paul, and those clusters
are areas where innovation occurs. Quite frankly, I
don't think that we in Indiana have had something
similar. But it's exciting. As Wayne mentioned
earlier, this Indiana Bioscience Research Institute
and the project and the objectives of that initiative
I think are going to continue to pull together and
build this cluster of technology that hopefully will
lead to more innovation, better innovation and
following that would be the capital dollars that we
all want to see.
WALL: Who else has thoughts on this,
Kristin?
JONES: Yeah, I think there's absolutely a
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question of economies of scale in those cases, too.
You look at some of the other states around us, the
Illinois and Ohio, you mentioned those, the size of
the industry clusters in those areas are much larger
than what we have here in Indiana, so while we have a
very sizable group here, a lot of it's happening in
those areas, just from the state scale perspective
it's a little different. We shouldn't sell ourselves
short, I think we have a lot of assets here that
certainly make Indiana just as much of an attractive
place as either of the coasts and certainly the cost
of doing business in the midwest is one that is very
hard to compete with for groups in either of those
areas. I think that one of the perceptions that we
also have to struggle with is the state investment in
this. Ohio's an interesting case right now because
the state which has historically contributed a lot to
the life sciences and supporting the life science
industry across the state of Ohio, that's in fact
what they've been doing over there, and you're
starting to see some of the effects of some of those
technology clusters that have been receiving a lot of
state funding that are having to cut back on
programming and cut back on what they're doing, and
what the impacts of that are going to be 10 years out
?
on the innovation support that they've been used to
getting is going to be very different. I think that
we have a perception issue of the state support for
life sciences in Indiana and I think that we're
starting to grapple with the same kind of pullback
issues that maybe that they've already or they're
just starting to.
WALL: Does anyone else have thoughts on
this?
MULDOON: I'd agree with Kristin, I mean
money talks, and when you look at what some of the
other regions have done, there's opportunities in
Indiana yet. Cleveland Clinic I think realized that
they're in a position to see where there are
significant unmet medical needs and actually play a
role from a capital standpoint and from an
identification standpoint of which technologies might
succeed and filling those needs, so that might be an
opportunity for us. Also, I think there's cultural
issues. Sometimes in life your strength is your
weakness and as Hoosiers maybe we need to take it
down a couple notches on the humility level and take
it up a couple notches on the risk tolerance level.
WALL: Anyone else want to jump in here?
BURRIS: I think it's the reason IBRI was put
?
together, though, right, because even though we're
pretty strong I think in terms of technologies and
even scientific talent, we're not as good when it
comes to the commercialization side, but I think over
time money will follow the results.
WALL: So you mean if there are success
stories, and certainly there have been, but as there
are more, then there will be more money to follow?
MORALEZ: And I think, too, to Joe's point,
in these clusters like Cleveland Clinic you are
having I think a more cohesive alignment of all the
partners or the stakeholders that should be involved
in that ecosystem, so you have the medical
institutions who are the ones that recognize the
issues on the medical side and you have them
partnering with industry to really help understand
kind of that commercialization path and provide the
resources and in some cases maybe even funding to
help get to that endpoint, so those are the clusters
I think that we may not have as well developed, but
certainly over the last five years I personally have
seen a lot of that kind of coming together in a more
cohesive way.
JONES: I think Indiana has done a really
good job of benchmarking against places that do have
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a lot of infrastructure and do provide a lot of
support and figuring out kind of where the gaps are,
where we can start to fill those, and the programming
is coming together around that, absolutely.
WALL: Oscar, Kristin, can you offer a more
concrete example of what you were just saying, I mean
things that are exciting or encouraging to you that
are happening?
JONES: Yeah, one of the examples I'm
thinking of, one of the programs that we've been
looking at quite a bit is a group out of Akron, it's
the Akron Biomedical Innovation something, A, ABIA.
Basically it is a group of hospitals that have come
together around medical device product development
and they have put together from an idea-mining
perspective within the hospital networks to a
prototype development, to a testing, to a clinical
research, to a spin-out process that is really
comprehensive, really interesting from a how do we
maybe replicate that or how do we work with that here
in Indiana perspective and I think it's something I
think that we could look at, adapt and very easily
bring to fruition with a little bit of coordination
and some support for it. I think there are lots of
opportunities for modelling things that have already
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been created out there without having to reinvent the
wheel every single time ourselves.
MORALEZ: I think from the angel perspective
some of the things that we've seen and that we're
trying to, to take Kristin's comment, benchmark
against is, you know, some of the other angel groups
in the midwest who are finding success in different
ways besides capital invested, we've only been around
for five years, so we've spent a lot of time looking
around to see who else is successful and why they're
successful and what we need to be doing as an angel
network to be successful as well. So I'll use Hyde
Park Angels as an example of a group up in Chicago, a
group of angel investors up in Chicago who have
really taken a pretty significant leap in terms of
their recognition and their visibility in the
country, across the country. They do some things
that are really unique that we try to model against
and in doing that it enables us to come closer
together with them, look at deals and cosyndicating
investment opportunities, looking at some of the best
practices that they have, and so from the investor
side there are things that we're doing to try to
improve and see what else is working across the
midwest.
?
WALL: Go ahead, Joe.
MULDOON: J.K., I can give you another
example, it might be a little bit further outside of
the area we're focused on, but if the question is
what's working while here, you've got a great example
sitting at this table in Rose-Hulman Ventures. For a
company like ours your challenge is to make progress
in the right direction as capital efficient as you
can. To have a resource like Rose-Hulman Ventures
that can do the lion's share of the device component
of the development work that they've done for us,
they've done it for Suros, they've done it for NICO,
with global expertise on a very capital efficient
basis with a group that's easy to work with, it's
huge, it's a huge advantage.
HAGERMAN: Thank you.
WALL: Elizabeth, would you like to talk
briefly about what you do and what your approach is
there?
HAGERMAN: Sure. So we operate within Rose-
Hulman Institute of Technology as an engineering
consulting firm, so the way we work is we have
external clients like FAST BioMedical, like Suros,
like NICO, who come to us with a very specific
technical challenge in their product development
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cycle, so they are looking to commercialize a
product, they need that technical, some people think
of it as R&D, some people think of it as product
development, they need that piece solved for them and
that's what we do, we do the design work, we do the
development, we deliver that product to them, they
take it to the next steps of commercialization. Some
of the advantages that we offer is that we can work
very quickly, very iteratively. One of the things
that makes us successful, though, is when we have a
great client as a partner who really sees where
they're going from a business perspective, so I think
some of what we'll talk about in the rest of the
discussions is some of the challenges associated with
health care and there are some maybe extra difficult
business hurdles in this field and to have a client
who sees that strategy, knows where they want to go,
to help direct the technical development is a huge
help to someone who is working on that technological
product development.
WALL: Oscar, I'm going to go back to you,
you mentioned your work developing networks of angel
investors in the last five years and there has been
what seems to me a real kind of flowering of angel
investment in life sciences that has helped fill some
?
of the gap created by other sources, particularly for
early-stage companies. Can you describe what's
happened there in the last few years, how that's
changed the funding landscape for particularly early
life sciences companies?
MORALEZ: Yeah, it's funny because Kristin
and I were talking about that over breakfast. So
this is my perspective, I think the life sciences
companies, and Joe will probably attest to this, are
finding it more difficult to find capital I think for
a number of reasons. I think there's been a huge
shift, of course, and everybody knows about the shift
in Series A capital, you know, it's to create this
bigger void of institutional or next stage capital
that especially life sciences companies really,
really rely on. I mean angel capital for a med
device company or a biotech company can only get you
so far and it's not very far at all, so this big void
that exists has continued to create a lot of pressure
on life sciences companies to find those capital
dollars that they need to continue their development.
What's happened is you've heard angels and angel
groups coming together, more and more angel groups
co-investing together trying to pull these capital
dollars together to make bigger raises and leverage
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the size of those investments and that'll continue to
happen, but something that's also started to happen
is angel groups themselves starting to kind of take
on more of a venture capital role, so you see more
and more angel groups starting to raise smaller
funds, more committed funds, pooled capital funds to
start to fill that void a little bit, and then you're
also seeing some angel groups raise more significant
size funds, 20 to 30 million dollar funds, again in
an effort to try to fill that void. So I think those
are some of the trends that are happening, they're
going to take awhile to kind of develop, and until
then I think the life sciences companies are going to
continue to struggle and have a hard time finding
capital. The other thing that I'll mention real
quick is that the other pressure I think that's
really weighing heavily on life sciences companies is
just the deal flow. I think a function of groups, of
angels that come together, is the ability for those
groups to look at other sectors outside of life
sciences, for example, and our group is a perfect
example, now we're starting to look, as we bring on
new members that have different areas of domain
experience, we're starting to look at deals outside
of life sciences, quite frankly, that are less
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capital intensive, potentially earlier to exit, the
dollars that the companies need are significantly
less and so it's kind of an opportunity cost in some
cases, so I think those are some of the dynamics that
are making it quite challenging.
WALL: Joe, do you have anything to add?
You're an entrepreneur who's been swimming in this
environment. What does it look like from your
vantage point?
MULDOON: To no surprise to you, I do have
something to add. The increase in angel activity for
FAST BioMedical has been transformative, it's really
filled the gap, and the early-stage life sciences
community in Indianapolis is pretty small, so we all
know each other, and I can tell you there are several
other companies that feel the same way. There is a
gap between seed and Series B and angels have stepped
up to fill that gap, along with BioCrossroads, Rose-
Hulman Ventures, 21st Century Fund, Elevate Ventures.
The vast majority of our 17 million has come from
high net worth angels and as we go into due diligence
with venture funds what they are surprised to learn
is our angel investments haven't been $5000 from "my
Uncle Harry that thinks I'm a nice kid and, you know,
good luck," it's a quarter million up from usually
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entrepreneurs, many of them created their wealth in
life sciences either as executives in large companies
or as entrepreneurs themselves, many of them
management has had somewhere between a 10 and 20 year
relationship with personally so they know whose
throat to come choke if things go off, and it's
really been transformative. We've seen the
sophistication level continue to increase, we've seen
groups like VisionTech form that take you through a
pretty robust and a pretty sophisticated due
diligence process, and I've got to tip my hat to the
state on something that they've done incredibly well
is the Venture Capital Tax Credit Program, that 20
percent tax credit that you can offer angel investors
has really been a difference-maker.
WALL: That's interesting. Anyone else have
thoughts on how the environment's changed with angel
investors? All right, well, one of the things that I
would like to get into is this whole discussion, of
course, is happening in the midst of a lot of change
in just the broader health care sector and life
sciences companies are usually trying to solve some
sort of problem in health care. I'm going to throw
this out to Wayne Burris first, but can you talk
about how or give some examples of how life sciences
?
companies trying to develop new technologies are
either helped or threatened by the changes that are
flowing from the Affordable Care Act either directly
from the law or just some of the attendant changes
that are coming with it?
BURRIS: Yes. So first I think we put too
much responsibility or change on the Affordable Care
Act because I think health care was reforming before
that, but what we see happening is kind of a
reluctancy to fund innovation, to really pay for
innovation, and so a lot of the kind of marginal
improvements in products that historically companies
got rewarded for, they're kind of discontinuing those
kind of activities and focusing more on, I mean which
is in a good way, more innovation, frankly, to
address more unmet needs, which is higher risk and
takes longer to do, is definitely more challenging.
Reimbursement is a huge challenge I think impacting
life science, and as we were talking earlier, people
tend to associate, and because it's near and dear to
us, we think of diabetes care, we think, God, you
know, they got a 70 percent hair cut in reimbursement
a couple of years ago, that's it, but reimbursement
changes are happening across all the segments of
diagnostics testing and even impacting drugs as well,
?
and so it's forcing companies for the most part to
really rethink what they're investing. So if you
look in the US, for example, absolute dollars spent
in R&D in the pharma industry is actually down and
it's down because they are trying to manage short-
term profits, they are rethinking what's the best way
to be successful on the innovation side and, frankly,
they're collaborating more and taking more R&D
outside of their traditional internal structures and
yet if you look now at where they're spending their
money at, a lot of them are getting into more of a I
call it the high-risk areas in terms of where they're
investing because they see the returns, so you don't
see as many companies chasing the next cholesterol-
lowering drug, I mean they are really migrating
toward more higher return, high-risk areas to get
rewarded for innovation that they won't get if they
continue to focus on kind of modest improvements to
what already exists today.
HAGERMAN: I can add to that from a product
development standpoint. We see, and this goes back a
bit to some of my Baxter experience, but it used to
be that you could walk into a hospital and sell to
your end user, the physician or the surgeon, whatever
your product was aimed towards, and tell them about
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the newest improvement, maybe it's incremental,
"Here's the new color, here's the new way that you
hold it in your hand" and that's all you had to do.
Very quickly that has gone to now you walk in and you
sell to the hospital purchasing committee, they have
an oversight of what the hospital will buy and
they're not looking at the same kind of data "It's
easier to use, it's flashier, it is the next best
thing," they want to see if there's pharmacoeconomic
data that goes with that product, so patient data is
not enough, they also need to see how that patient
data impacted the economics of the hospital. That
data takes longer to collect, you spend more money
collecting it, it's a much more involved process. So
it kind of goes back to my earlier statement, it's
not just about creating the next best technological
thing in your device or your drug, you really have to
see the path forward that fits into this hospital
purchasing system. In some ways, like Wayne was
saying, you can think that large companies are taking
those bigger leaps towards bigger innovation but it
is going to take longer. We're probably missing out
on those incremental changes that lead to overall
change because a hospital will no longer pay a
premium for a small change from the last iteration of
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the device, so it's interesting from say the Rose-
Hulman Ventures or the product development
perspective is that it's very easy to develop
whatever technology the customer is asking for but
now what the customer is asking for is a much bigger
problem than just what we can build that day.
WALL: So that has lengthened timelines and
raised risk and probably call for more capital to
develop those solutions. Is there a way, someone
from the audience asked this, to create what they
call an efficient market for discovering
opportunities and making advances in basic research
and development and then translating them into
products in the life sciences? This happens, of
course, I think the emphasis on it is on efficient
market in this question, that would require
conversations and relationships that currently don't
happen on a broad scale. Can the panelists talk
about to what extent that kind of market does exist
here in Indiana and ways in which it could be more
efficient or more vibrant?
MORALEZ: I can mention a little bit about
some models that we've looked at that I think create
some of that efficiency and it all goes back to
bringing in the right stakeholders at the right time,
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so, for example, accelerators and incubators and some
of these terms that you all have heard are really
kind of a way to bring some technologies in to kind
of a cordoned-off environment and help develop those
technologies or those products. I think what's kind
of been missing in the past that folks have kind of
gravitated or continued to gravitate towards is,
again, bringing the industry partners, so instead of
developing a technology or a product and then hoping
on the back-end that there's a market for it, bring
the strategics, the industry partners as early on as
possible to validate that there is a need in the
market for something like that. So I think to
Elizabeth's comments about these devices not being
able to very easily get into the hospital systems,
well, the fact is Dan Evans, if you've heard him talk
about thousands and thousands and thousands of
devices and products that they have to review every
year, I mean there's so much noise in there and
having industry partners kind of help you filter
through that noise and select those technologies that
you want to put your resources behind and your
capital behind I think is a great way to make it more
efficient and I think that we're starting to see some
of that. We're certainly seeing it in other areas
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and other pockets, RTP is one that's done I think a
very good job of some of that, on the ag side
especially, but, again, I think some of these
initiatives like IBRI are going to kind of pull all
of that together and make it hopefully more
efficient.
HAGERMAN: We see that routinely in all
business arenas that we play in is that the quicker
you can get the customer feedback the faster your
product development cycle will be, and I think what
Oscar is describing is exactly that, the quicker you
can get the end users and the hospitals to be engaged
in that product development cycle probably you will
get lots of good results from end products that are
faster to market and it helps the entrepreneurs as
well.
MORALEZ: But you also see that on the
venture capital or on the institutional side, you
know, whereas in the past they would be kind of the
hand-off person once this angel capital phase, once
you got through that and you were ready for
institutional capital, you had a situation where VC
was ready to then write the check for the next round.
Well, now VC wants to see industry partnerships,
strategic partnerships that have validated the
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product and the technology and also validated the
market and the acceptance, and so there's a lot — I
think there's a lot of new hurdles that companies
have to kind of jump through and get through, and
even angel groups are starting to — part of the
value-add they are starting to bring to the table is
some of those relationships with those industry
partners and bringing in those industry partners as
early as possible to help them select the right
technologies.
BURRIS: Joe and I were talking about this
earlier before we came on the panel, but I think now
it's really incumbent that you collaborate earlier,
that, you know, your technology, the business model
for where you think your product is going to go, it's
validated earlier than it used to be because if not,
you know, I think money is less a way to gamble on
kind of the hope for a product that the market is
looking for, they're looking for world confirmation
that you have confirmed that there really is an
opportunity for that product much earlier in the
process.
JONES: I'm just back from a meeting with all
of my counterparts from around the country and we get
together a couple times a year and we talk about best
?
practices and what programs are really working and
you see the things people are really talking about
right now is how do you engage your industry members,
again, earlier in the process, exactly what you were
saying, but also bring academia into that
conversation and make sure that what they're doing is
tailored to the needs that are going to be needed in
the market, just getting it there earlier is really
the key, getting that first fast-to-fail decision,
you know, don't invest millions of dollars in it if
it's not going to go anywhere, make that quick
decision earlier in the process.
WALL: This is really helpful. Joe, I have
to have you come in here because in your own company
you did some of this and I think it paid off in not
only validating what you were working on but in fact
opening up a new area you didn't know about. Talk
about that for bit.
MULDOON: I will. We believe in the
efficiency of markets, so there have been a lot of
changes and those changes present somewhere between
medium size and enormous challenges for us, but I
think a lot of these things are happening for a
reason and some of the reasons are pretty good, so
maybe historically it was too easy to sell a device
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into a hospital and that might have been for the
collective good not a benefit. It's arguable that
the bar might be dysfunctionally high now but if
there's a trade-off it's also more specific, so
technologies have to prove that they are clinically
actionable, that because that technology exists it
gives a clinician information or a tool to do
something different to drive a demonstrable outcome,
and the challenge is really to build the health
economics case and build it earlier. The tough part
of that is there's nothing that builds a health
economics case like human data and human data is
really expensive to create, so prior to lots of human
data, it's hypothesis, it's talking with key opinion
leaders in the space, it's talking with hospital
administrators in the space, and what's hard is it's
really hard to get access to them, they're all under
incredible pressure on their own and everybody is
trying to talk to them about their technology. We've
been very fortunate, we've been at it awhile, to get
access to some of those folks, and in doing that we
determined that one of the metrics we're producing
with our technology, plasma volume, actually had a
significant role in being a clinically-actionable
metric in its own right. Now, the reason we were
?
calculating plasma volume was so we could put it into
the formula and have a quicker test on measuring
kidney function and then because we did broad enough
and deep enough market research with different
clinicians, some of them were stopping us at plasma
volume, they said "You can measure plasma volume?"
We're like "Yeah, but that's not important" and they
go "Yeah, it's really important," and so we've kind
of pivoted a little bit and we lead more with the
plasma volume measurement than we do the renal
function measurement because the health economics
case is a bit more straightforward and it's easier to
build.
MORALEZ: I think, too, though, there's a
fine balance between trying to get all the answers
and validate technologies and make sure that you have
all the answers and I think the reality is you're not
going to have all the answers, so there's still some
level of risk that investors have to be willing to
take, and I think kind of the missing piece there is
that really, really helps to kind of cement that or
to bridge that, rather, the relationship that you
have with the team and the confidence that you have
in that team, so sometimes you don't have all the
answers on the validation side and on the commercial
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acceptance side, but that team really does make that
difference in making it possible to get comfortable
with the investment.
WALL: I'll move on to the next question, but
this has been a helpful discussion. Does anyone else
have anything to add to what we were just talking
about? Well, we have a relatively diagnostic heavy
panel and I think that's good, sometimes we've had
more of a pharma-leaning panel. I'm curious, five
years ago Clayton Christensen wrote a book called the
"Innovator's Prescription" and one of his predictions
in there was that diagnostics would become more
valuable, actually, than probably therapeutics over
time and had various reasons for that prediction, and
that hasn't happened in five years. I don't know
that he thought that it would in five years. But,
Wayne Burris, I'd like to have you talk about do you
believe that prediction that's where things are going
and why hasn't it happened now and what would need to
happen to make that come about?
BURRIS: Yes, somebody once told me a
forecast is always accurate as long as you're able to
put a time limit on it, but I think diagnostics and
pharma, you know, we've invested a lot in the
strategy of companion diagnostics where you marry a
?
diagnostics and a pharmaceutical drug together and,
you know, you can stratify a population, you can
really make sure that the drug is targeted toward a
person where the therapy's actually going to work,
but if you really look back over the last hundred
years, right, I mean there's been hundreds and
millions of dollars spent in both the diagnostics and
pharmaceutical side and realistically what have we
really cured? You know, two or three diseases over
that hundred years, and really the biggest
improvement in both the length and quality of life
has come through a combination of early detection and
early intervention on the drug side and even when you
combine the two of those, right, they're like 17
percent of total health care spending, though they
tend to get a lot of focus. I think they both will
remain important separately and have more value
coming together as well, but that combination of
coming together as well is probably more valuable
from the patient side, frankly, than it will be for
the pure economic side, for example, for the
diagnostics company because if you think about a
companion diagnostics drug, I only need to use it
once to diagnose you and then after that that
business model of revenue for the diagnostics company
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no longer exists. I think they will both continue to
be important going forward. Diagnostic tests are
involved in 70 percent plus of every therapeutic
decision made from the physician side, so that just
kind of tells you you need it, right, and we'll
continue to invest in it, but it exceeding pharma in
terms of importance, I think they're both equally
important for different reasons.
WALL: What can you talk about Roche and its
business, certain parts of it, and you mentioned this
earlier, frequently dealing with reimbursement
challenges, many of those come from Medicare, many
from commercial payers. Talk about some of what
you've seen recently and whether that's good, bad or
indifferent.
BURRIS: And again our conversation of the
reimbursement discussion was focused on diabetes, but
we see reimbursement across, frankly, almost every
part of diagnostics being challenged. I'll give an
example of coming into 2014 tissue diagnostics,
certain codes within this diagnostics test were
reduced by 20 percent and if you think about what's
near and dear to most of the population in the US is
cancer and yet you've got kind of a leading part of
diagnosing cancer being cut with respect to
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reimbursement and even being challenged with respect
to protocol of which tests are ran because it's one
thing to just have a reimbursement cut, it's another
one to say "I'm not going to pay for all of these
tests on the panel," the result is still the same,
it's a decline in revenue, and I see that's going to
continue, I mean there's already scheduled cuts for
'15 and '16 already in the system. Now, you know,
the industry is really lobbying to try to control
that, but I think the diagnostics industry in
particular we should take the responsibility that
some of that's our own fault because I don't think
we've done a very good job of really selling the
value that diagnostics brings to overall health care,
and so until we do a better job of that I think we
will be under the threat of future reimbursement
cuts. I mean it's still a big market and it's highly
profitable, but it will be a challenge for the
diagnostics industry.
WALL: Joe, you are in both of these, you've
got what is regulated as a drug and a test. What do
you think about Clayton Christensen's prediction, why
hasn't it come true and what do you see coming
forward?
MULDOON: I'm a fan of the book. I'm trying
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to recall the overall framework he put it in, but I
think his point was there's overcapacity in the
system, especially on the therapy procedure side, and
that part of the answer is consolidating that
infrastructure so that if you need to get your knee
scoped, you go to the place that does 200 of them a
day, it's the highest throughput, it's the lowest
cost, it's the best outcomes, but before you can do
that the diagnosis has to be done correctly and so
value needs to flow into the diagnosis. I think he
was speaking of the clinicians that do it as well as
the tools that do it. We see some of it on the
companion diagnostics side, so we fish for capital in
a couple pools, one of them is big pharma, a lot of
big pharma companies have now created venture funds
that they invest out of and we've seen an awareness
and a value assigned to if you have a technology that
can help you bring a therapeutic to market because it
better targets those patients that are most likely to
respond to that therapeutic, which we might have in
renal disease, both for chronic and acute kidney
failure, that there's real value to that. We've even
seen that they apply value on the clinical trial side
because in the renal area the tools they have are so
poor that it's even harder to figure out who you
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should put in your clinical trial to show that the
drug might work. After you get out of that pool
there's not a lot of value we're seeing being
assigned to diagnostics. When we talk to traditional
financial venture funds, there is not a lot of money
in diagnostics and there's not even that much money
in devices. The majority of it is focused on the
pharmaceutical side.
BURRIS: And I think one of the shifts you're
seeing in that model for the companion diagnostics is
pharma is having to fund even the diagnostics test
development because there's not a huge incentive for
the diagnostics company to do it, particularly when
you think of the high failure rate of the drugs
getting through the process, so even pharma now is
starting to fund that diagnostics in those particular
examples.
WALL: Does anyone else have thoughts on this
topic? Well, I'll ask a question about pharma, this
comes from the audience as well. How will big data
and digital health technologies influence drug
development? Who wants to tackle that one?
BURRIS: The real answer is who knows, right?
I mean everybody is on the big data wagon right now
and investing in it and trying to understand what it
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means. I don't know what it means. I think early on
what it might do is it may allow you to eliminate
certain compounds of consideration very early in the
process. It might even, in fact, allow you to kind
of simulate the development of a compound without
actually doing development to kind of increase your
chances for success, and then down the road I think
it will allow you to better stratify which patients
will lend themselves to responding to certain drugs,
but it's wide open in terms of what I think what the
impact will be on the industry.
WALL: If anyone wants to broaden this out to
device development or just other parts of life
sciences, feel free to do that, how you think big
data might affect them.
JONES: Well, it's all getting down to the
data at this point, whether it's comparative
effectiveness, whether it is post-market
surveillance, whether it is patient information from
your clinical research, it is all about the data, it
is all about what can you demonstrate and prove, what
do the numbers show about how effective your product
is, whether device or therapeutic, there is obviously
a big and growing role for digital health information
and applications for interpreting it, using it,
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whatever the case.
MULDOON: And the data is so expensive to
create —
BURRIS: Exactly.
MULDOON: — at a time where there is
incredible pressure on capital efficiency. The more
it can be shared as opposed to siloed, the better the
system operates, but I think the key question is so
does every individual participant in the system feel
they're going to benefit enough to share it.
WALL: That's a big question. Well, I'll
throw a question back at you, Kristin. We've talked
about a variety of things, but one of the efforts
that's been underway for very many years in Indiana
is just to get more life sciences companies launched.
The universities obviously play a big role in that.
What would you say is the biggest barrier to
launching more life sciences companies here?
JONES: Aside from the money part, or have we
beat a dead horse enough already?
WALL: These conversations usually come back
to money.
JONES: Money is always good, the more the
better. With that being said, we have great
technologies, we have good people, we have a caring
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and supportive community. I think there are always
opportunities to pull out more mentor-leaders into
those conversations to get people more engaged and
congregated around these businesses. You know, we
said the earlier the better for engagement from
everybody and that's bringing industry to the table,
whether that is bringing past entrepreneurs who are
able to bring their experiences and their capital and
just all of their personal network to bear on folks
who are going through it for the first or maybe
second time. We've been at this awhile now, we're
starting to see that second crop of entrepreneurs
kind of come to the surface. There are people who
have gone out there and done it and are coming back
to try it again. We need to be very supportive of
these folks for having the willingness to stick it
out here and give back to their community, so I think
building that leadership, building that community I
think is really important. We're on a good track for
it. I think there's always more we can do to help
bring those people together earlier around it. That
being said, I would also add facilities to that. As
a resident of the IU Emerging Technology Center or
Innovation Center in Indianapolis right now I'm
really concerned about the disposition of that
?
building. If we lose the lab space that's in there,
that's going to be a big blow to our life sciences
community, where are those folks going to go and what
are we going to replace that wet lab research space
that's out there, so facilities are also a concern.
HAGERMAN: I can also add to that. We in our
product development capacity always have, I'll say
physicians, but people in the life science
communities coming to us with ideas and typically
they're the end users and they're always extremely
stimulating conversations, it's always exciting, I
was just in one last week and you can see the
passion, you can see where this would affect a
patient, you can see why everyone would want it, and
unfortunately so often the conversation stops there
because that person who had the idea who sees the
need and would be the end user doesn't have the
ability to gather the right business strategist,
gather the right funding, all of those things, so
it's hard to pull all of those pieces together
currently that would be able to successfully launch
that idea into a business or a product, and so I
think if there is a way to help and where we see the
gap often is the business strategy piece of it, no
one's lacking the passion, no one's lacking the
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ability to even create that technology, it's figuring
out the best way to get that to the market, so if
there is a way to tap into that resource wherever it
is, that would be a huge help from our standpoint.
WALL: Who else has thoughts on this?
MULDOON: I think there's a real opportunity
to try and take all the efforts from the universities
to take discoveries and turn them into businesses and
mix them with some entrepreneurial business talent or
perspective earlier and I don't really see an effort
underway to do that, it's more "Well, let's take the
scientists and teach them business stuff." In my
mind what a horrible waste of a scientist's time
because business guys like me will never have a
scientific discovery, so we ought to keep them
focused on the next discovery and try and mix them
with the business and entrepreneurial talent.
MORALEZ: I think you're starting to see some
of that coming together, though, with the
universities matching mentors and folks that are
experienced and who've done this with technologies.
It's not happening fast enough, unfortunately, but it
is I think starting to occur. And even, for example,
for VisionTech Angels we see a lot of really great
technologies, but it's clearly a lack of experience
?
and business savvy that cause us to shy away from
particular deals, so one of the things that we're
looking at currently is a program where we would
match an angel that is a good potential match with a
specific technology or company to see if there's an
opportunity for us to get somebody who wants to be
involved, wants to be active and wants to help a
company move along that way along some path that
leads to a higher probability or potential for
funding. It may be a situation that the company is
not ready for angel funding, but with a little bit of
work and a little bit of hand-holding they can get
there and that's hopefully one of our goals because
there are some pretty neat ideas out there, it's just
they need somebody to help move that along.
WALL: We were talking about big data and the
expense of collecting it. Indiana does have an
unusual resource in the Indiana Network for Patient
Care, this clinical data that's been collected for
decades in some cases by local hospitals. Why isn't
that being used more for life sciences research, or
maybe it is and you can cite some examples, can
anyone comment on that?
MULDOON: No.
WALL: "No." All right.
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HAGERMAN: I think it's hard to make the
connection sometimes, so, for instance, I am aware of
that wealth of data that is out there and you could
use it to solve problem A, B or C and once you've
chosen A, B or C, now you have to choose all the
people around that certain field, and so just drawing
all of those connections seems to me to take a lot of
time and it's hard to get the right people in the
right place and then they can take advantage of that
data and solve the next problem. I know someone gave
the example of monitoring the infection rate for
central line placement, so that's a current problem
in health care and that's something they want to
study and now it's up to them to find all the big
data to support what procedures could change or what
they can come up with to solve that problem using the
data that exists, so gathering the people interested,
gathering the data that supports answers to that
problem and then gathering people who can implement
the change is quite a task, I think.
MORALEZ: I think there is, obviously, a ton
of data out there but it's a challenge for companies
to figure out how to use that data and how to make
money out of that data, especially for investors to
get a return, so when you're talking about funding
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life sciences companies, clearly from an investor
standpoint there's got to be a business model that
surrounds that and I think when you're talking about
these data companies, I mean there's so many of them
and some of the really, really large ones have some
very deep resources, very deep pockets, and so
carving out a niche in big data is I think pretty
challenging in terms of developing a viable
commercial model, and that's something that we've
seen numerous times, and people try to plug in a data
aspect or a data piece or a component to a device or
something that's a little bit more tangible and
that's a challenge as well, but if they can figure it
out and convince the investors that there's really a
business there, then I think they will find some
capital.
MULDOON: I think another challenge is some
clinical data has the shelf-life of lettuce. By the
time you spend enough time to collect it it's so old
it doesn't matter anymore because the standard of
care in some areas is rapidly changing, so you can't
apply a hypothesis to data that's even three years
old and happen to be credible.
WALL: That's interesting.
BURRIS: I think also you're forced into kind
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of investing in multiple databases because from a
regulatory standpoint when you go to file for
approval of your product, very rarely, for example,
will Europe just take US data, so you're kind of
forced to supplement it with local data, so you have
to invest in multiple databases.
WALL: Okay, so it's never free no matter
which way you go. Since we've been talking about
research here recently, I'd be interested to hear the
panel's opinion on whether you just think Indiana has
a large enough research base to create a meaningful
number of start-ups. Some people point out to me
that the state of Ohio has six or seven medical
schools and Indiana had until just recently one. Is
there a gap there or do you think, no, we've got
plenty of research going on, it's just more this
translation of getting the science connected with
entrepreneurs and getting it developed and
commercialized?
JONES: Nobody else is jumping forward on
this, I see. Discovery is coming from all sorts of
places, not just out of the IU School of Medicine,
although they are a fabulous generator of that
technology. We look at the universities like Rose-
Hulman, Notre Dame, Purdue, we have really great
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research institutions that are churning out a lot of
interesting new things, and it's the coordinated
effort between all of those institutions I think that
we need to be looking at more critically and being
more supportive of those cases. Innovation out of
industry, what's going to be coming out of Roche,
what's coming out of Cook, what's coming out of Lilly
and Elanco and all of our major players in those
cases, that's a huge driver of innovation as well.
Our service network here in Indiana that is
supporting a lot of this, it is doing a lot of the
contract research work, a lot of the contract
discovery work that's going on out there as well.
Innovation is in a lot of places and in a lot of
pockets across the state, we should not sell
ourselves short on that or look at a number or metric
of medical schools as a measurement for that.
BURRIS: I mean I think the Patel (phonetic)
study confirmed I think we have a sufficient base to
be successful, I mean to your point, it's bigger than
just what happens at IU. I mean look at Covance, I
mean they're one of the world leaders in terms of
clinical trials and all the information that comes
out of that, so I personally feel if we harvest
what's available in our total base I feel we have
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enough.
JONES: A lot of places out there would love
to have what we have, a lot of places are making due
with, you know, and I look at some of our counter-
parts from around the midwest, you know, they have
maybe one mid-size ag-biotech company and a
university and that's the base of their life science
initiative, so we have a wealth of resources and a
wealth of companies that other places would kill to
have.
MULDOON: I think the focus ought to be on
improving the rate of what we have first and I go
back to capital, again, we need more capital
availability, it needs to be deployed more quickly
and on terms that make sense that are not so onerous
you're not going to be able to do a round after that,
and so this is a high mortality business and it's
always going to be. A lot of these companies are
going to fail. We want to create an environment
where they fail fast, so the worst thing I think that
can happen for the ecosystem is this idea that seems
like it might be good that kind of gets a little bit
of funding that trudges on for four years before it
fails because nobody really needed the product in the
market. We need to have an ecosystem and a capital
?
base that takes interesting ideas and if they're
going to fail helps them fail fast.
WALL: Well, we're getting near the end of
our time. Perhaps as a conclusion I would be curious
to see if anyone has any thoughts on the Zimmer-
Biomet deal, whether that's good, bad or indifferent,
or the orthopedics cluster?
MORALEZ: I think Joe said all of a sudden I
should have some more angels up there in Warsaw.
WALL: Yeah, you might.
MORALEZ: I have to go to Warsaw right after
this.
JONES: We all do.
MORALEZ: Yeah. I don't know, it's going to
be interesting. That's shocking, I didn't really see
that coming. We just had our investor meeting in
Warsaw a couple nights ago. None of the Zimmer folks
or Biomet folks gave us a heads-up.
MULDOON: That's good and bad. I mean, deals
are good, right, it's activity, somebody's seeing
value, probably some wealth is going to be created
which might create some angels, it might motivate
people to jump off and advance another idea. The
downside of it is there's a lot of consolidation that
continues to go on in the industry and if you're
?
growing a life sciences technology company you
ultimately have to figure out who you're going to
exit it to, who you're going to sell that business
to, and the people you talk to keeps going down
because of the consolidation, there's fewer people to
talk to about their interest in the asset.
MORALEZ: The orthopedic market in general is
relatively flat or just growing very, very modestly,
so this could be a way for one, the acquired, to take
out some of the products and make it less
competitive, I guess, out there and grow some of the
market share, by market share, I guess. It'll be
interesting.
HAGERMAN: That's exactly my take on it, too,
the orthopedic industry is one of those where it
really was in many cases to the point where you
change the color of a screw and sell it as a new
product and it was harder and harder and harder to
differentiate yourself in the market. I was involved
in bone graft substitutes and I think there were 125
on the market and we were pointing to the slimmest
margins of data and so I think you're exactly right,
this is an attempt to sort of narrow the field.
BURRIS: The track record for giant
companies, though, merging is not very good, I mean
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in terms of really inking out the value of the two
companies combined, but yet if you look in the ortho
industry I think it's rapidly moving towards
standardization, so I think rationalization of
products across the two companies will happen.
WALL: And, Oscar, Elizabeth, if you have any
insight on this, are the structures, culture in place
there that as people come out of this combined
company that may get turned into new companies or new
innovations that are around orthopedics?
MORALEZ: Yeah, well, I think Warsaw
because — you know, so we've been there for four
years now as an angel, one of our chapters, and it's
a very dynamic group, and despite being a part of a
large company, they think pretty innovative, and
we've actually invested in one company in particular
that came out of Zimmer executives, so I think
they're a pretty entrepreneurial group and I think
that we could very well see some new technologies.
Clearly, orthopedics needs kind of some new stuff
because it's been kind of boring for a while.
WALL: All right, well, I think we'll end it
there.
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