Investing in a Changing Sector: The Cost and Impacts of Overtreatment

22 May

By Jack Fuller, Research Manager, LSN

We often hear the mantra from life science companies that they have a “patient-centric approach” to developing their latest and greatest technology or therapeutic. However, in the past, we have more often than not seen early stage investors focusing on product innovation and market potential; if a company is developing a technology or therapeutic which is both innovative and has significant market potential, it is likely they will see the term sheet.

That has been changing – and will continue to change – given that regulatory bodies are putting more emphasis on patient outcome as the determining factor for approval and reimbursement. Two areas that are getting attention are the overtreatment of disease, and overpaying for marginal improvements to patient outcome. In this article, we’ll look a few examples and outline the potential impacts on early stage investing in the life sciences.

Overtreatment is the treatment of a “pseudo-disease,” where a person unnecessarily becomes a patient even though they have an extremely low likelihood of developing symptoms. This is most often a result of the trend to over-test and over-diagnose, which also takes a financial toll on the healthcare system.

The most recently publicized example of overtreatment is the high number of low-risk prostate cancer patients who undergo excessive treatment. Individuals with low-risk prostate cancer have between 0-3 % chance of dying from the disease, and most guidelines recommend active surveillance as the preferred action. A recent study led by Dr. Ayal Aizer, MD, resident physician at the Harvard radiation oncology program in Boston, has shown that 67% of men with low-risk prostate cancer received treatment as either radiotherapy or prostatectomy.  This resulted in a dramatic decrease in the quality of life, with side-effects including long-term urinary problems, erectile dysfunction, and bowel problems. In addition, the total financial cost to the healthcare system for this form of overtreatment is $32 million per year.

The importance of clinical outcomes and cost of treatment can be seen if we look at two types of cancer treatment called Neutron and Proton Therapy. These cutting edge therapies were proposed in the 1950s, with clinical trials being carried out in the 1990s that indicated some clinical advantages, including the treatment of radioresistant tumors and targeting tumors with higher precision.
The problem with this treatment is that the cost is disproportionate to the patient quality of life.  To build a modern proton or neutron therapy center costs upwards of $150 million in the first year of operation. In order to make any kind of financial return, the therapy needs to have upwards of a 75 % pricing premium per patient over standard radiation therapy. The clinical evidence just isn’t there to justify that much of an increase in treatment cost.

The financial and regulatory impacts of over treating and disproportionate pricing on treatments is being felt throughout the industry from the largest pharmaceutical companies down to pre-seed ventures looking for their first funding. Pre-revenue investors are not willing to touch innovation if there is no clear path to reimbursement or the cost is inconsistent with the proposed impact. They recognize the impact these factors have on a company’s future value. When this happens, the burden of proving clinical efficacy shifts to even earlier stage programs. This is bad for inventors and entrepreneurs who are focused more on the science of developing their latest and greatest product.

We all know that a brilliant scientist does not a good CEO make, and I think a similar mantra must be taken when dealing these evolving patient and regulatory affairs. Let the lab scientists develop the product, and bring in a dedicated team member (in-house or third party) with patient and regulatory knowledge at an earlier stage. With all the regulatory changes to our healthcare system starting to roll out in the next few years, early stage companies are going to need to be smarter and more prepared than ever if they want to survive.

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