Brain Matters 13020

COVER STORY

Driven by a growing clinical understanding of how the human brain functions and enhancements in the size and reliability of medical technologies, the field of neurology is receiving unprecedented levels of attention from physicians and industry alike.

According to The Neurotechnology Industry 2006 Report by NeuroInsights (San Francisco), neurological diseases and psychiatric illnesses represent the largest and fastest-growing unmet medical market, with conditions affecting 1.5 billion people worldwide. The report breaks the $110 billion neurotechnology industry into three sectors: neuropharmaceuticals, neurodevices, and neurodiagnostics. While the neurodevices sector's estimated annual revenue of $3.4 billion represents the smallest of the three slices, its 21% annual growth rate far exceeds those of neuropharmaceuticals and neurodiagnostics, at 7% and 11% respectively.

Such growth projections have not been ignored by medical device manufacturers. In addition to numerous start-ups and early-stage companies targeting the neurology sector, some of medtech's biggest players have recently sought entrance to the growing field. And many of these forays are already starting to pay off. In June 2004, Boston Scientific Corp. (Natick, MA) acquired implantable neurostimulation device manufacturer Advanced Bionics Corp. (Sylmar, CA) for $740 million. In Boston Scientific's most recent quarterly earnings release, the company reported that revenues for its neuromodulation division had grown 78% over the year-ago period.

Likewise, in late 2005, St. Jude Medical Inc. (St. Paul, MN) acquired Advanced Neuromodulation Systems Inc. (ANS; Plano, TX) for about $1.3 billion. In its most recent quarterly earnings release, St. Jude Medical's sales of neuromodulation products totaled $44 million, up 13% from Advanced Neuromodulation Systems' stand-alone sales in the year-ago period.

This November, the Cleveland Clinic Medical Innovation Summit will focus on new technologies, economics, and trends in the field of neurosciences. Featured speakers are expected to include Richard E. Kuntz, MD, senior vice president of Medtronic Inc. (Minneapolis) and president of the company's neurological division. With a background in interventional cardiology and cardiovascular disease clinical research, Kuntz has been guiding and growing Medtronic's industry-leading, billion-dollar neurology division for the past year.

In this excerpted interview with MX editor-in-chief Steve Halasey, Kuntz discusses the clinical and technological innovations at the heart of neurology's rise in prominence, as well as the opportunities and obstacles facing the sector's device manufacturers.

MX: The clinical need for therapies to treat neurological disorders has been apparent for many years. What factors have led to the rise of this new field now?

Richard E. Kuntz, MD: The rise has been occurring for some time, but the treatments are just now starting to gain momentum. The history of device interaction with the central nervous system started 30 to 40 years ago. The reason such devices are taking off now is because the technology has gotten small enough and reliable enough for practical use. Many neuromodulation technologies derive from pacemaker and implantable cardioverter defibrillator (ICD) platforms, taking niche applications that have been around for many years and making them more mainstream.

In addition to technology enhancements, over the past 20 years there has been a persistent evolution of our general understanding of neuroscience. This understanding has been enhanced by better imaging technologies and anatomical studies.

How influential are the advances in clinical understanding in this area relative to the technological advances? Are they even-handed contributions moving forward at similar paces or is one leading the other?

There is a classic ebb and flow between the development of improvements in electronics and technology and improvements in the understanding of diseases. There are plenty of examples throughout medicine in which technology and disease understanding develop in tandem. For example, in neuroscience, our understanding of different connected networks within the brain—particularly the deep brain—continues to evolve. We have a greater understanding of how certain centers within these networks contribute to the overall function of the body, as well as how they malfunction in a disease state. As a result, we have a theoretical understanding of how stimulation of certain areas in the brain already discovered by neuroanatomists might alter the aberrant pathways in these networks.

Testing Concepts

When conducting clinical trials, are you testing only the device or are you also testing the background research and the procedures that led you to identify the device as a potential therapy?

Every device-related therapy is a combination of the basic disease state of the patient, the operative procedure, and the device itself. It is difficult to distinguish the contributions of one from the other. When we begin testing a neuromodulation device for an application such as depression, we focus our observations on the change in the patient. We know the patient has a certain set of disease conditions, we know the patient received an operation, and we know that the patient received a device. However, especially early on in the evaluation process, it is generally not known how each of these three components contributes to the overall state of the patient. But if the overall effect is positive, we start to gain a more detailed understanding about how the device contributes. This enhanced understanding comes through controlled, randomized studies.

Medtronic's neuromodulation program includes a drug-delivery component whose core technology is an implantable pump. How do the device and drug components of Medtronic's businesses relate to one another? What is Medtronic's relationship to the drugs used in this type of therapy?

Drug delivery is a complex area. It offers targeted, more-regulated delivery of therapy, beyond simply distributing a drug through the gut. Drug delivery will likely play a significant role in Medtronic's future.

In regard to the actual development of drugs, so far as Medtronic's neurological division is concerned, we are mainly focused on the development of the machines that deliver the drugs, not the drugs themselves. Drug development is too big of a task for our division to bite off right now. There is an adequate number of biological and pharmaceutical companies already capable of developing drugs. Our division focuses on understanding how our devices can interface with such drugs and how we can develop novel ways of delivering those drugs. We think limiting the scope of our goals in such a way is appropriate.

So Medtronic is a licensee of the drugs it uses, not a developer?Licensing is one of a variety of different models that the company uses to interact with companies that develop drugs.

Small Companies, Big Companies

Cardiology powerhouses Medtronic, St. Jude Medical, and Boston Scientific are each very interested in the field of neuromodulation. Is there a reason that cardiology companies would be first to leap onto the opportunities in this field?

We view ourselves as a medical device company. It just so happens that one of the most predominant medical device categories is implantable cardiology devices: pacemakers, defibrillation devices, and coronary stents. Medtronic pioneered the neurodevice arena. In light of its success, it is not surprising that other major competitors also want to enter the market.

Most of Medtronic's efforts in the neuromodulation field have been homegrown, but other major players in the field have been active on the acquisition side. When Medtronic surveys the field of neuromodulation, does it see mostly competitors or also potential acquisition targets?

Philosophically, we see acquisitions as a way to augment our footprint in markets in which we can add value and in which we have core competencies. We don't make acquisitions simply to increase the scale of the business.

Are you active in funding small companies through venture capital?

Yes. Medtronic has minority investments in many companies. They're all listed in our 10-K. For a company the size of Medtronic, it is responsible to maintain such a position with small-cap companies.

It is often said that small companies are the engines of medtech innovation. But in this field, large companies are already moving in to take up the opportunities. In such an environment, can small companies compete and develop new technologies?

I cannot provide a blanket yes or no answer to that question. There is a lot of room in the neuroscience area for the development of clever solutions. The neuro sector is a sophisticated sector with sophisticated diseases. There are a lot of diseases out there, and they affect a lot of people.

Neuromodulation has the potential to offer a lot of solutions that have yet to be discovered, and there are opportunities for companies both big and small to develop such solutions. The barrier faced by small companies is that they may lack the horsepower needed to develop the solutions. And if they are able to overcome that hurdle, they may lack distribution capabilities once they enter the market. Companies that have greater resources and better distribution channels have a leg up.

The Clinical Opportunities

Many diseases have been identified as important targets for neuromodulation therapies, including Alzheimer's disease, depression, epilepsy, pain management, Parkinson's disease, urinary incontinence, and schizophrenia. What can you tell us about our current understanding of each area and how the medtech opportunities are gradually being revealed?

In terms of the current understanding of neuromodulation applications in the brain, we have a relatively good grasp on how to treat common diseases that fall under the classification of movement disorders. There is a consensus on the anatomical structures and their functions within the deep brain that are involved in the movement network. We've demonstrated reproducibility in how these structures respond to stimulation, and as a result, we think that neuromodulation has profound, consistent impact on diseases such as Parkinson's. Patients in advanced stages of the disease who have had complications with other forms of therapy have responded positively to neuromodulation treatment. We think neuromodulation has also shown clear-cut and straightforward results in treating essential tremor and dystonia.

Another area where neuromodulation is showing promise is in the treatment of epilepsy. There's less evidence here than there is for movement disorders, but we think this is an opportunity on the cusp. Beyond that, we think there are other areas in which there is enough preliminary evidence to raise our eyebrows to the point where we want to invest in further research. Such areas include headaches, pain, and depression.

As you've mentioned, there are a host of other applications that scientists have raised as possible areas in which neuromodulation may be effective, such as Alzheimer's disease and schizophrenia. Medtronic recognizes that such applications could be promising, but we do not think there is enough good, solid clinical evidence to make any positive statements. But the diseases are so broad and affect so many people that the company obviously has a huge interest in trying to understand whether there is an application for deep brain stimulation.

Are all of the applications you've mentioned related to deep brain stimulation?

All of these are treatments within the cranium. Medtronic has a broad interest in all applications of neurodevices within the cranium. Some applications and technologies are wholly owned and organically developed by companies such as Medtronic. Others present potential partnership opportunities, and our company is actively evaluating how we can work with outside entities to develop projects that are still in preliminary stages. And, of course, we continue to keep an eye on and communicate with companies operating in other areas in neuromodulation that are separate from Medtronic's core focus.

Have you been surprised by the directions of new research, or by the results of particular studies?

I am not so much surprised as I am amazed and hopeful. The preliminary results of treatment for depression and obsessive-compulsive disorder with neuromodulation are exciting due to the promise that's been shown.

On a more fundamental level, it's fascinating that we can use devices to treat psychiatric diseases. The gap between psychiatry and neurophysiology and anatomy--a gap that has been evident for several hundred years—is starting to close. The goal of treating psychiatric illnesses by making alterations to the anatomy of the brain or its chemical function has been a pipe dream for a couple hundred years. But during the past couple of years, most people have started recognizing that our psyches—including psychiatric illnesses and psychological thinking—are derived from the actual substance within our craniums.

Over the last 30 or 40 years, neurosurgeons have made some progress in restoring normal functions of the brain through the discreet destruction of certain brain elements. But such progress isn't fully satisfying because it requires destruction of brain tissue. So it is exciting that we are discovering that stimulation of certain pathological parts of the brain—or other parts that defeat the pathological problems—can lead to useful therapies.

How would you rank the funding available to researchers in the field relative to the opportunities? Is there enough to maintain the optimal pace?

If we had unlimited funding, we could put 100 people on each project and move the device development as quickly as possible. But that is impossible—no company can afford that. So like other companies, Medtronic constantly struggles with investing as much money as possible in developing a new technology but at the same time staying solvent. Judging by Medtronic's financial performance, I think the company achieves a very healthy balance. The company spends about 10% of its revenue on research and development, which is very high for a device company. The company is dedicated to putting a lot of its revenue back into research and development for therapies.

Looking Ahead

In what areas do you think the earliest breakthroughs are likely to develop? How long will it take to make them happen?

Deep brain stimulation is a breakthrough area, and it may also be a disruptive area. We currently have treatment options for three discrete movement disorders, and these options represent a gateway to potential new therapies in the future. I am very bullish that improvements in our technology, better navigation techniques, and a wider understanding about how the brain works will lead to a wider application of deep brain stimulation. This platform will help patients who suffer from a variety of diseases.

Another breakthrough area is in drug delivery. The use of drug delivery outside the gut and in targeted organs to deliver more-regulated drugs, proteins, and hormones is an important breakthrough therapy area in which I think we will see great advances relatively soon.

In addition, neuromodulation applications within the spine, focused on the intrathecal space and the epidural space, will continue to evolve. In the future, we will start to use better, more-target-specific therapies for patients who suffer from cerebral palsy, pain, and possibly even stroke.

You mentioned the spine area. What is the relationship between the fields of neuromodulation and orthopedics? Is your division working closely with any companies in that area?

We are developing a strong relationship with Medtronic's spine division, formerly Sofamor Danek, the largest spine company in the world. It was acquired by Medtronic about six years ago, and has been fully merged with Medtronic's broader corporate culture. As the company has become more integrated, more relationships have been forged between our business units to identify common ground. We think there is a lot of potential synergism between our division and the spine division, which provides treatments for bony spine disease.

We have very similar distribution channels with respect to our customers. In some instances, both entities offer treatments for similar conditions, such as lower back pain-- our division uses neuromodulation, the spine division uses surgery.

Do you think neuromodulation will be a larger part of Medtronic's overall business a decade from now?

I think it will be. We plan to grow our division aggressively over the next five to 10 years. Neuromodulation is going to be an application that will help a lot of patients. It's impossible to gauge what proportion neuromodulation will represent in the context of Medtronic's overall corporate structure--whether it will represent a larger or smaller proportion than it does now. Medtronic has other business units that also have huge growth potential. But I know our division is going to grow.

Copyright ©2006 MX