Sector Spotlight: Neurotech Pipeline Fills with Emerging Companies

When compared with long-established fields of medical technology such as imaging, orthopedics, or cardiology, the field of neurotechnology is barely a toddler. Nevertheless, according to experts, this nascent area of research holds vast promise for creating a wave of new diagnostics, devices, and drugs with the power to identify and treat diseases and conditions that have often proven resistant to traditional approaches.

Worldwide, more than 500 companies are actively developing neurotechnology treatment modalities, according to The Neurotechnology Industry 2008 Report, published by NeuroInsights (San Francisco), a neurotechnology research and advisory firm. Researchers are working toward treatments for a wide range of brain disorders and nervous system illnesses, including Alzheimer's disease, addiction, anxiety, attention deficit disorder, depression, epilepsy, hearing loss, insomnia, migraine, obesity, pain, Parkinson's disease, schizophrenia, sleep disorders, stroke, traumatic brain and spinal cord injury, and many others.

This steady stream of product development initiatives has resulted in notable revenue increases for the neurotechnology sector. According to the NeuroInsights report, revenues for the sector rose 8.3% during 2007 to a total of $130.5 billion. The neuropharmaceutical segment is the largest in the sector with revenues of $109 billion, followed by neurodiagnostics at $16 billion, and neurodevices at $ 5.5 billion.

Within the neurodevice segment, the largest share of the market belongs to neuromodulation devices, which deliver electrical stimulation to designated targets in the brain or central nervous system. “Neuromodulation devices such as spinal cord stimulation systems, deep-brain stimulation systems, and vagus nerve stimulators will grow from $1.7 billion in 2008 to $4.6 billion in 2012,” says James Cavuoto, publisher of Neurotech Reports (San Francisco). Cavuoto credits the growth in neuromodulation devices to “new market opportunities for treating disorders ranging from stroke, to morbid obesity, to major depression.”

Cavuoto also sees significant growth in other neurodevice segments, including neural prostheses, neurosensing systems, and neurorehabilitation devices.

“Neurotechnology is beginning to demonstrate positive results and commercial success that is generating clinical benefits to patients and profits to investors,” says Cavuoto. “Other treatments such as drugs are not always effective, and devices often enter the treatment regimen as a kind of relief pitcher, but they are likely to become more of a primary resource as the technology advances.”

The potential for growth in this arena has not gone unnoticed by the nation's largest medtech companies, many of which have established a significant presence in neuromodulation research through organic growth, acquisitions, or investment partnerships with smaller firms. Medtronic Inc. (Minneapolis) is far and away the global leader in the sector with annual revenues from its neuromodulation business at around $1.3 billion, or 10% of all sales. Boston Scientific's neuromodulation unit generates annual revenues of around $220 million, while St. Jude Medical Inc. (St. Paul, MN) is close behind at $210 million.

But much of the focus in the neurotechnology sector is on new and emerging companies that are preparing to introduce a bevy of products designed to ameliorate patient pain and suffering across a broad spectrum of brain and central nervous system disorders (see Table I). Even a small sampling of companies working in this field illustrates the potential of the neurotechnology market. Emerging technologies in the sector offer the promise of profound treatment breakthroughs and associated financial rewards (see Table II). But, as ever, they are also subject to the perils of clinical trials gone awry and frequently struggle for funding in an often skittish investment climate for advanced technologies.

While some proponents of neurotechnology refer to the field as ‘the next cardiovascular,' others see it as ‘the next biotech'—with all the associated setbacks and need for a long-term perspective and ‘patient' capital.

“Neurotech is both,” says Zack Lynch, executive director of the Neurotechnology Industry Organization (NIO; San Francisco). “Some companies are reporting 20% growth. There's an extensive pipeline with many clinically viable products. But it will surprise no one that many of these technologies will require substantial investment and a longer-term perspective.”

Founded in 2006, NIO now has more than 70 members, including pharmaceutical, diagnostic, and device firms, national research centers, patient advocacy groups, professional associations, venture capital firms, and strategic partners.

As populations around the globe continue to age, the incidence of neurological and psychiatric diseases and disorders—and the demand for treatment—will increase substantially in the future. According to Casey Crawford Lynch, managing director of NeuroInsights, “Brain-related illnesses afflict more than 2 billion people worldwide and 100 million in North America—creating an annual economic burden of $1 trillion in the United States and twice that amount worldwide.”

Driven by those fundamentals, says Crawford Lynch, it's no surprise that the neurotechnology industry made substantial gains in 2007, which have continued into 2008. “Commercial neuroscience represents one of the fastest-growing and critically needed sectors of the healthcare industry. Interest and investment in the sector has increased more than 250% since 1999—reaching $1.77 billion in 2007.”

At the beginning of this month, NeuroInsights and NIO hosted their third annual Neurotech Industry Investing and Partnering Conference in Boston. Of the 40 companies presenting, 30% represented device firms. According to Crawford Lynch, the conference attracted a wide range of investors from angels to public companies. “In addition to looking for promising, innovative technologies, investors were particularly concerned how the presenting companies were planning for clinical trials and reimbursement. There was a great deal of interest in their navigation strategies for FDA and CMS approval.”

Mindful of investor concern regarding regulatory and reimbursement issues, last March a group of NIO members met with congressional leaders, FDA, and the Centers for Medicare and Medicaid Services (CMS; Baltimore) to discuss the opportunities and obstacles facing companies and organizations working to improve the lives of those with brain and nervous system illnesses.

The neurotech sector would receive a significant boost if Congress were to approve legislation to establish a proposed National Neurotechnology Initiative (NNTI), which would provide $200 million annually—less than 4% of the total federal neuroscience research budget—over five years to accelerate the investigation and development of treatments and cures for brain-related illnesses. “NNTI would lead to a cascade of investment, discovery, applications, and benefits that can only be imagined today,” says NIO's Lynch. “At the same time, a federal research effort can help ensure the responsible development of neurotechnology by establishing ethical guidelines and policy for research, development, and applications.”

The bill that would establish NNTI was introduced earlier this month by Senators Pete Domenici (R–NM) and Patty Murray (D–WA) and Representatives Patrick J. Kennedy (D–RI) and Ileana Ros-Lehtinen (R–FL). “With nearly one in three Americans suffering from some kind of neurological illness, disorder, or injury, I believe it is time we take a serious look at how we approach and fund research into neuroscience and neurotechnology,” Domenici said.

“With so many Americans suffering from brain-related illnesses, it is crucial for us as a society to maximize our efforts and continue learning about the many facets of the brain,” added Kennedy.

According to the bill's proponents, the NNTI would increase the speed at which discoveries reach the market, provide targeted increases in funding to improve federal research coordination, and ease the bottlenecks that inhibit the development of treatments for brain-related illnesses.

For the full text of the proposed bills and current legislative status of NNTI, go to www.govtrack.us/congress/billtext.xpd?bill=s110-2989 (for S 2989) and www.govtrack.us/congress/billtext.xpd?bill=h110-5989 (for HR5989).

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