Panel: Robust growth in health care bodes well for ophthalmic industry

OSN convened a panel of industry leaders to discuss the trends in the industry and the overall health of the pharmaceutical and device pipeline.

A note from the editors:

Ocular Surgery News convened a panel of five industry leaders at the OSN Section Editor Summit earlier this year. Moderated by OSN Chief Medical Editor Richard L. Lindstrom, MD, the panel consisted of Russ Trenary, president, cataract refractive surgery group, of Advanced Medical Optics, David E.I. Pyott, chairman of the board, president and CEO of Allergan, Vicente Anido Jr., PhD, president and CEO of Ista Pharmaceuticals, Stuart Raetzman, vice president of sales and marketing for the surgical cataract group of Alcon and Gary M. Phillips, MD, MBA, corporate vice president and president, U.S. surgical and pharmaceuticals at Bausch & Lomb. OSN Practice Management Section Editor John B. Pinto also joined in the discussion.

Round Table Participants Vicente Anido Richard L. Lindstrom Gary M. Phillips John B. Pinto David E.I. Pyott Stuart Raetzman Russ Trenary

Healthy economic indicators

Richard L. Lindstrom, MD: Health care spending is growing at a rate of around 7.2%, from $2.05 trillion in 2006 to a projected $4.1 trillion in 2016.

Worldwide, pharmaceutical and device sectors are both growing at around 12%, according to reliable sources. The gross domestic product is up 3%, health care spending is up 7%, pharmaceutical and device spending is up 12%, and I have heard there is as much as $1.2 trillion to $2 trillion of funding on the sidelines from investors looking for opportunities. This would appear to be, overall, a healthy environment for industry.

But how well is the eye care industry competing with other specialties, such as orthopedics and cardiology, for resources and dollars? What factors make you feel good about our industry?

Russ Trenary: The demographics are certainly working in our favor. The largest population group in history, baby boomers, is coming of age now and getting ready for cataract surgery. And younger age groups who might be more appropriate for elective procedures are also growing. We have fantastic technologies that are now available for that population.

Also, the money is right now for both doctors and companies. The most opportunistic yet dangerous time in our history was 20 years ago when cataract surgery was 100% paid for by the government. The nice thing was government pay jump-started cataract surgery and made it available to virtually anybody who needed it of Medicare age in the United States. But once cataract surgery became the No. 1 Medicare-reimbursed procedure in the country, the weight of the federal deficit and capitation bore down on the industry in a big way and brought a swift decline in growth in the late ’80s to early ’90s.

What makes the situation better now is that the government pays a base level, and patients can take dollars they would have been using for something else to pay for cataract procedures that come with advanced IOLs.

Dr. Lindstrom: Let’s turn to the pharmaceutical side of the industry.

David E.I. Pyott: Everybody knows about the problems of large pharma, and that weighs down a lot on Wall Street’s perspective. There is only so much of a premium you can have, and then you start getting dragged down by the problems of the big guys.

Dr. Lindstrom: So you think these numbers are optimistic?

Mr. Pyott: Regarding ophthalmic pharmaceuticals, I think we are going to see 10% to 12% growth over the next few years, and that is a great number. Considerable investments in ophthalmic pharmaceuticals research and development are what will likely fuel that growth.

I think the retina market is where we are going to see an explosion of new products coming along. If you think back 20 years ago about how few choices existed for treating glaucoma, retina is not much beyond that today.

Another big market to come is dry eye. The awareness of this disease is rapidly growing compared to where we were a few years ago.

Dr. Lindstrom: Stuart, are these realistic numbers?

Stuart Raetzman: Yes, I think those numbers are consistent with what we have seen both on the pharmaceutical side and in our surgical business.

I believe that aging patients who are financially stable are about to fuel market expansion. They value their health. They value their vision. They have demonstrated this by paying for procedures out of their own pocket. I really believe that Centers for Medicare and Medicaid Services got it right. Allowing cataract patients to pay for presbyopia correction and pre-existing astigmatism is a good way to let everybody win — to let the patient win and have access to this new technology and to let the payors’ budget stay neutral. And I think it is a tremendous opportunity for the physicians to grow their practice and increase revenue.

If you think about the number of cataract patients in the future who may opt for either an IOL to correct pre-existing astigmatism or presbyopia, it is going to be a fairly sizeable percentage of patients choosing one of those technologies.

And then you have phakic IOL technologies, which are another option. These products provide a benefit to industry. But there is an opportunity here for physicians to seize on this and learn how to do these procedures.

So overall, I think it is an exciting time for our industry because the environment is positive for the government, physicians and patients.

Dr. Lindstrom: Today we are seeing the beginning of a defined contribution plan for Medicare in patient-shared billing for presbyopia-correcting and toric IOLs. Rather than a defined benefit plan, where the government will decide the total payment for a procedure, in a defined contribution plan, a third-party payor will contribute something toward the patient’s cataract operation and let the practitioner decide what they will charge. Ophthalmology is leading in this approach now with the deluxe IOLs.

Gary M. Phillips, MD, MBA: It is amazing how a patient who chooses not to pay anything additional has a remarkable set of technologies available to them. They have aspheric IOLs from a variety of manufacturers and a safe, wonderful procedure. If they want the additional benefits, I think they are going to be willing to pay for those things.

Growing a global market

Dr. Lindstrom: How important is growing a global market? Is it becoming more of a focus of Western countries?

Dr. Phillips: The United States is still the biggest, most important market, and it continues to drive global growth. Yet if I look at the way our business has been growing, particularly in pharmaceuticals and to a certain extent on the device side, certain hotbeds for growth become obvious.

We now look to China in particular as a potential growth driver. We recently bought a business in China that was growing 20% to 30% per year for years. In addition, there is now the expectation of an emergence of a private pay system on the device side, as well.

For example, you see private pay refractive centers arising. You see a lot of capitalism emerging out of what had been a state-paid system.

Eastern Europe is another area where I have seen a lot of growth. Products that are particularly innovative but are merely satisfactory will really have uptake in the emerging economies. Japan is obviously a huge market, as well.

Dr. Lindstrom: What about Western Europe?

Dr. Phillips: For pharmaceuticals in particular, the regulatory hurdles are high in Western Europe, and the reimbursement in most of the markets is low. Many Western European companies are not thriving as they did in the past.

Vicente Anido Jr., PhD: I agree with the growth rate scenarios here. It looks incredibly prosperous for the industry. Our company focuses only on the pharmaceutical side and not on the device side, and on the pharmaceutical side we are seeing 12% to 13% growth.

Investors continue to increase their investments in ophthalmology, both for pharmaceuticals and devices. The quality of the money is much different today. In the past, you had to deal with people who were all from within the health care sector and who could take weeks to do their due diligence before putting any money down.

Now you have hedge funds that do most of their analysis off U.S. Securities and Exchange Commission documents. We are seeing a large number of companies out there – all startups – that are chasing various diseases in ophthalmology, and they have no trouble raising money.

Age, procedures and price

Dr. Lindstrom: We have all heard about the 78 million-plus baby boomers, whose average age is 50, and about their dry eye, glaucoma, macular degeneration and cataracts. What about their children, the so-called “echo boomers” or the “millennium generation?” What opportunities do you see there?

Mr. Trenary: This comes up for us all the time. Philosophically, we are trying to provide technology options for patients from age 9 to 90. We believe the children of baby boomers represent an important segment. I think the young athletes get into refractive surgery a little sooner than the others. They hardly know a world where they relied on just spectacles. My daughter just started wearing glasses after she had been wearing contacts for 4 years. She started wearing glasses to school so that she was not in her contacts 15 hours a day, every day, year after year. So she is kind of going backwards in technology. Her assumption is when she stops growing she will have a laser refractive procedure and not have to worry about it anymore.

Dr. Lindstrom: The baby boomers, on average, have refractive surgery at 39 or 40. Are people going to come in earlier now?

Mr. Trenary: Yes, although I think the younger kids will wait until they are at least in their early 20s.

Mr. Raetzman: The children of baby boomers are more likely to have refractive surgery earlier. If a baby boomer had refractive surgery at 40 and their child has seen the remarkable impact it had on their parent’s quality of life, I think that it is safe to assume that the child will be highly motivated to have the procedure as soon as possible.

Dr. Phillips: Our core customer is actually the younger patient, given the fact that half of the company sales come from contact lenses and solutions.

Collision course or partnership

Dr. Lindstrom: I have seen industry and ophthalmologists on a little bit of a collision course in some respects. Let’s say that the defined benefit of cataract surgery was going to be fixed at $1,600. And industry wanted to get more of that, and the third-party payor wanted to average $1,600. And in the middle of this was the ophthalmologist. Most ophthalmologists are not seeing 12% per year growth in their revenues. And they are basically getting squeezed, which at some level makes ophthalmologists less of a partner and more of an adversary with industry sometimes. So let me get your comments on this: If the ophthalmologist takes advantage of all these opportunities, can they do as well in our field as industry is doing?

John B. Pinto: It is going to be a bit of a zero-sum game because there is going to be that fraction of practices and practitioners that will pull ahead smartly because they both anticipated the opportunities and moved forward with them. It is the same cohort of people who have always moved ahead in any industry. The thing that is going to be different is that the folks who are sort of the middle majority of the ophthalmic providers in the practices are going to find it a tougher world to stay in that middle if they do not get a little more on the vanguard. That is true across the subspecialty range and it is true geographically.

Mr. Raetzman: First of all, the technology has to be there to allow a surgeon to participate in these fee-for-service and retail procedures, including precise lasers, effective phakic lenses, advanced presbyopia-correcting lenses and stable toric lenses. This requires industry to work with ophthalmologists to help figure out how to make those products better. Then, there has to be a collaborative relationship between industry and organized ophthalmology groups to create positive reimbursement situations that allow all of us to move forward.

We feel an obligation to help not only the vanguard group but every surgeon who wants to participate in the emerging fee-for-service market. We need to understand what factors are preventing some surgeons from participating. Industry can provide great value by educating practitioners about how to modify their practices to get in the fee-for-service game.

The answer to your question is yes, physicians can grow their businesses if they take advantage of the new technologies and reimbursement policies that are available to them. Perhaps there was a collision course, but today I do not think we can prosper without each other.

Dr. Lindstrom: Where else are we going to see a premium channel developing?

Dr. Anido: I think we are going to start to see this in the prevention mode. Let’s say someone comes up with a drop that prevents cataracts or prevents age-related macular degeneration. It may be those are private pay. Or, maybe there will be a level at which the patient may have to pay until their condition worsens, at which point they would qualify to get into the system for reimbursement. So I see retina might come there once we start looking at the early treatments of dry AMD.

Dr. Phillips: If I imagine a product like that, it is sort of the AREDS (Age-Related Eye Disease Study) formula for the reduction in progression of dry to wet AMD. We have explored whether there may be a reimbursable benefit to patients in the U.S. health care system, but none of the private payors is willing to pay. The only health care organization we have found that would consider it would be the VA medical system.

Mr. Pinto: Think about it as a surfing analogy. There was a convergence of the science and the technology and the regulatory work that led to an accommodating IOL that was paid for out of pocket. What can we learn from that momentum or wave that we are on right now? What is the next wave or two or five to ride? That will be the nexus for both the companies and the providers.

Regulatory issues

Dr. Lindstrom: What are the weaknesses of and threats to the industry right now?

Dr. Anido: One has to do with the fight between Lucentis (ranibizumab, Genentech) and Avastin (bevacizumab, Genentech) in terms of reimbursement. We are spending a lot of time watching that one right now because you have a situation where the patient could actually pay less for having an Avastin treatment than for his co-pay for Lucentis. And the retinal guys are saying, “We think Avastin is a better drug, but it is off-label.” This is going to be a huge battle, and however this plays out is going to be pretty indicative of how the biggest payor that we have, the government, is going to switch to private pay. Most of the retina specialists I talk to say if they are going to inject one of their family members, it will be with Avastin.

Dr. Lindstrom: So there is the threat to industry that something cheaper and just as effective will come along. What other threats do you see? Do you see a threat that the United States will go to a single payor system? Will that be a negative or a positive?

Mr. Trenary: I am a free enterprise guy. I think the CMS decision to allow the patients to pay extra for presbyopia-correcting IOLs was a hallmark for us. We would like to see that be a global phenomenon. Somebody in the government, not politicians, but people that are in the agencies who do not have as much political pressures on them have the opportunity to look across all of the medical device categories and say, “Where else can we get patients to help us out and reach into their pocket?”

People spend a lot on leisure and yet we put so much responsibility on a large government to take care of some basic health care needs. The pendulum needs to swing the other way and at least allow people to pay for some of their own health care.

In addition, I feel like the U.S. Food and Drug Administration right now in our segment is kind of swinging back to where it was after the big Orcolon (polyacrylamide gel, Optical Radiation Corporation) scandal. The combined aftermath from Vioxx (rofecoxib, Merck) to the Fusarium outbreak seems to have the agency feeling more conservative. It tends to get more conservative on the approval side and, simultaneously, more robust on the enforcement side. It feels pressure from Congress to prove everyone is crossing their Ts.

Then they spend more money enforcing and less time looking at the science and making these great drugs and devices available more quickly to American patients. Right now, if there is a brand-new technology or some brand-new therapy that could help you, you may have to go outside of the United States.

Mr. Pyott: It is particularly on the device side that the United States is late in the cycle. Europe is usually first. Whereas on the drug side, at least in ophthalmology, it is normally the United States first because, believe it or not, the FDA is quicker than the European agencies.

Dr. Lindstrom: How do you all feel about the role of direct marketing to the patient? Does this bypass the authority of the doctor?

Mr. Raetzman: I think the way you framed the question is interesting, bypassing the doctor vs. helping the doctor educate the patient. In certain circumstances, doctors want their patients to come in more educated. So direct-to-consumer communication or direct-to-patient communication is valuable to everybody in the chain.

Consider the environment that we are in today with premium IOLs. If a patient comes into a practice and the surgeon says, “Yes, you have cataracts and, by the way, here are all of these lens choices,” it can be overwhelming. Now consider the patient coming in educated about lens options and their overall benefits. In this case, I think physicians are interested in having a more educated patient population that understands the IOL options available. In other cases, that may not be the physician’s view. Regardless, industry needs to view the situation as a partnership with surgeons and ask, “Are you comfortable that we are going direct to consumer with our message?”

Mr. Pyott: I think one good example of a direct-to-consumer campaign is Restasis (cyclosporine ophthalmic emulsion, Allergan). Until this came out, we were all selling artificial tears. So Restasis is the first therapeutic, and through the campaign, patients understood there was a new modality. This fosters a good collaboration with the ophthalmologists. When somebody comes in and says, “I think I have dry eye. Am I a candidate for this drug?” the ophthalmologist, as the gatekeeper, decides whether it’s appropriate or inappropriate.

Dr. Lindstrom: On behalf of OSN, thank you all for your participation and your insights.

For more information:

• Vicente Anido Jr., PhD, is president and CEO of Ista Pharmaceuticals. He can be reached at 15295 Alton Parkway, Irvine, CA 92618; 949-788-5311; fax: 949-789-7740; e-mail: vanido@istavision.com.
• Richard L. Lindstrom, MD, is the Chief Medical Editor of Ocular Surgery News. He is in private practice at Minnesota Eye Consultants, 9801 DuPont Ave. South, Suite 200, Bloomington, MN 55431; 612-813-3600; fax: 612-813-3660; e-mail: rllindstrom@mneye.com.
• Gary M. Phillips, MD, MBA, is corporate vice president and president, U.S. surgical and pharmaceuticals, at Bausch & Lomb. He can be reached at One Bausch & Lomb Place, Rochester, NY 14604-2701; e-mail: gary.phillips@bausch.com.
• John B. Pinto, OSN Practice Management Section Editor, can be reached at J. Pinto & Associates, 1576 Willow St., San Diego, CA 92106;619-223-2233; e-mail: pintoinc@aol.com.
• David E.I. Pyott is chairman of the board, president and CEO of Allergan. He can be reached at 2525 Dupont Drive, Irvine, CA 92612-1599; 714-246-5134; fax: 714-246-5918; e-mail: pyott_david@allergan.com.
• Stuart Raetzman is vice president and general manager, cataract surgical, at Alcon. He can be reached at 6201 South Freeway, Fort Worth, TX 76134-2099; 817-551-8667; e-mail: stuart.raetzman@alconlabs.com.
• Russ Trenary is president, cataract refractive surgery group, at Advanced Medical Optics. He can be reached at 1700 E. St. Andrew Place, Santa Ana, CA 92705-4933; 714-246-4947; fax: 714-246-5888; e-mail: russ.trenary@amo-inc.com.