Obesity Back To Basics 2011

Obesity 2011: Back To Basics In Bariatrics
(A#2011400052)

Written By Anne Staylor
Issue: MTI Aug. 2011
Section: Cover Story (Long Article)
Article Type: Technology Survey
Industry Supplies, Equipment and Devices
Segment:
Therapeutic Metabolic Disorders; Metabolic Disorders/Obesity
Categories:
Companies: Aetna Inc.; Allergan Inc.; Apollo Endosurgery Inc.; Arena
Pharmaceuticals Inc.; BaroSense Inc.; Blue Cross Blue Shield; Cigna
Health Care Inc.; Cleveland Clinic; Covidien Ltd.; Dartmouth
College; EndoGastric Solutions Inc.; EnteroMedics Inc.; George
Washington University; Geriatric & Medical Cos. Inc./United Health
Care Services Inc.; GI Dynamics Inc.; HCA Inc.; HCA Inc./United
Healthcare Services Inc.; Intuitive Surgical Inc.; Johnson & Johnson;
Johnson & Johnson/Ethicon Endo-Surgery Inc.; Massachusetts
General Hospital; Northwestern University; Ohio State University;
Orexigen Therapeutics Inc.; ReShape Medical Inc.; Stanford
University; TransEnterix Inc.; University of Cincinnati; University of
Iowa; USGI Medical Inc.; ValenTx Inc.; Vivus Inc.
Summary: The market for obesity products has blockbuster potential, but it s
proven an elusive target for the medical device industry. The
challenging regulatory environment, weak economy, and skittish
investors have slowed the number of product launches in recent
years, and there have been some high-profile setbacks for several
potential weight loss therapies. But now, a "back to basics"
movement, focused on understanding the physiological triggers
behind obesity rather than simply restricting food intake, hopes to
spur development of more effective minimally invasive weight loss
solutions.
Further Title Magazine Issue Article ID
Analysis: Obesity Devices And The FDA Medtech Aug. 2011 2011400053
Review Process: An Interview Insight
With Lee Kaplan, MD
Proving Device Incubation IN VIVO Apr. 2011 2011800060
Works: An Interview with The
Foundry
ASMBS Highlights New Medtech Aug. 2010 2010400061
Developments in Bariatric Insight
Surgery
New Developments in Obesity Medtech Oct. 2009 2009400079
Intervention Insight

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Obesity 2011: Back To Basics In Bariatrics (c) 2011 Windhover Information Inc., Norwalk, CT

Obesity 2011: Back To Basics In Bariatrics
by Anne Staylor

With its blockbuster potential, the market for obesity products has been an attractive yet somewhat elusive
market for the drug and medical device communities. A significant amount of venture capital has been
invested in this space and there has been a great deal of interest in finding a drug or minimally invasive
solution for the treatment of primary obesity. However, in the last few years, a challenging regulatory
environment, a weak economy, and a skittish investment community have slowed the number of devices and
drugs hitting the market and there have been some high-profile setbacks for several potential weight loss
therapies.

On the drug side, three would be weight-loss drug manufacturers (Vivus Inc., OrexigenTherapeutics Inc.,
and Arena Pharmaceuticals Inc.) recently met with rejection in the final stages of the FDA review process.
And on the device side, some notable start-ups have gone under (eg, Satiety Inc.) or have moved offshore (eg,
USGI Medical Inc.) to gain commercial traction outside the US. ( See "FDA Rethinking Weight Loss
Standards: A Test Case for Patient-Focused Drug Development," "The Pink Sheet" DAILY, June 6, 2011
[A#14110606003]; "Proving Device Incubation Works: An Interview with The Foundry," IN VIVO , April
2011 [A#2011800060].)

In the wake of these events, there has been a movement to go "back to basics" to find a better and more
effective minimally invasive weight loss solution. At the 28th annual meeting of the American Society for
Metabolic and Bariatric Surgery (ASMBS), held in Orlando in June, it was clear that the paradigm for obesity
is changing. Researchers and medical device manufacturers alike are now striving for a broader definition of
obesity and are making a bigger push toward understanding the underlying mechanisms behind obesity and
how bariatric surgery leads to weight loss, improves outcomes, and impacts chronic disease.

For the last 30 years, surgical procedures and devices have been developed under the assumption that bariatric
surgery achieves weight loss primarily through food restriction and malabsorption. However, this mechanical
model is giving way to a new physiological model that postulates bariatric surgery achieves weight loss and
improves other chronic diseases through complex neurohormonal signaling between the gut, the brain, the
pancreas, the liver, and other tissues. Today, experts say restriction and malabsorption are responsible for less
than 10% of the weight loss that occurs following bariatric surgery and 90% of weight loss is due to
alterations in neurohormonal signaling.

Looking to the future, academia and industry alike hope to use this improved understanding to identify ways
to make surgery more effective, to develop new, less risky alternatives to surgery, and to predict which
patients would benefit most from surgery and which ones are not likely to benefit. In the meantime, device
manufacturers are developing less invasive technologies for bariatrics with this new paradigm in mind, in
hopes of overcoming some of the current economic and regulatory hurdles to bringing new products to market
in this arena.

Obesity Market Trends

The economy and high unemployment have strained market growth in bariatrics over the last few years,
especially in the cash market, keeping the number of US bariatric surgical procedures relatively flat in 2009
and 2010. However, the US market for minimally invasive bariatric devices is expected to see moderate
growth over the next five years. Valued at close to $345 million in 2010, this market is projected to increase at
a compound annual rate of 6.6%, reaching sales of more than $500 million in 2016, according to Medtech
Insight's recently published market and technology report, "US Market for Minimally Invasive Bariatric
Surgical Devices." ( See Exhibit 1.) Market growth will be driven by several factors, including continued
growth in the obese population, expanding indications for bariatric surgical procedures, and an increasing
Obesity 2011: Back To Basics In Bariatrics 1


demand for minimally invasive, less costly, and safer weight loss treatments. The market will also be driven
by continued utilization of laparoscopic adjustable gastric banding (LAGB), new minimally invasive devices
and procedures, and emerging bariatric technologies.

Considering the huge unmet clinical need and the market potential for obesity products, it seems unlikely that
market growth in bariatrics would have slowed at all in the last few years. Obesity continues to be a
significant and growing health problem in the US and throughout the rest of the world. ( See Exhibit 2.) In the
US alone, approximately 200 million adults (or a staggering 68% of the adult population) are categorized as
overweight or obese, according to the Obesity Society. Of these, more than 72 million are considered obese
(more than one-third of the adult population) and more than 15 million are morbidly obese, according to the
ASMBS. Obesity is a leading cause of diabetes, disability, heart disease, morbidity, and mortality, resulting in
nearly 112,000 deaths in the US every year. It is also responsible for rising health care utilization and costs in
the US. According to the federal government, the total estimated annual health care costs for treating obese
adults in 2008 amounted to nearly $150 billion, with annual spending projected to reach $344 billion by 2018.

Obesity Market Trends 2


Current treatment options for obesity include exercise and dieting, prescription drugs, and bariatric surgery.
But to date, these treatments have had only limited success in stemming the tide of this disease. Diet and
exercise alone have proven unsuccessful in 80% to 85% of patients at one year. The drug alternatives
currently available for treating obesity can be effective for some, but drugs often result in only moderate
weight loss (typically no more than 10% of body weight). For people who are obese and morbidly obese,
conventional weight loss methods are largely ineffective, leaving bariatric surgery as the primary treatment
option for this population.

Bariatric Surgery Trends

During the prerecession years, the number of bariatric surgery procedures had been steadily growing due to
several factors, including the advancement of laparoscopic technologies and techniques and an increasing
demand for the less invasive, less expensive, and reversible gastric banding procedure, which was approved in
the US in 2001. Over the last few years, rising unemployment and economic uncertainty has caused many
patients to postpone bariatric surgery, particularly given the high out-of-pocket costs usually associated with
these procedures, causing bariatric procedure volumes to flatten or decline in 2009 and 2010. However,
despite the current economic conditions, Medtech Insight estimates that 311,100 open and laparoscopic
bariatric surgical procedures will be performed in the US in 2011, growing to 433,200 by 2016. ( See Exhibit
3.)

Bariatric Surgery Trends 3


Bariatric procedures include Roux-en-Y gastric bypass (RYGB), adjustable gastric banding, biliopancreatic
bypass, biliopancreatic bypass with duodenal switch, horizontal gastroplasty, jejunoileal bypass, and sleeve
gastrectomy. Today, gastric bypass (typically laparoscopic RYGB) remains the most commonly performed
operation for weight loss in the US and is considered by many to be the gold standard for weight loss surgery.
But the case mix for bariatrics is changing as new evidence emerges regarding the safety, efficacy, and
durability of various new procedures and as the indications for bariatric surgery continue to expand.

Laparoscopic Sleeve Gastrectomy

One relatively new bariatric procedure that is beginning to change the case mix is the laparoscopic sleeve
gastrectomy (LSG), a procedure in which the stomach is surgically reduced to a thin, vertical sleeve that is
about 15% of the stomach's original size. Also called vertical gastrectomy, greater curvature gastrectomy,
parietal gastrectomy, and vertical gastroplasty, sleeve gastrectomy has historically been used as the restrictive
portion of the technically difficult biliopancreatic diversion with duodenal switch procedure, serving as the
first stage of a two-staged approach designed to lower the risk of surgery for the super obese. More recently,
physicians have been performing LSG without the duodenal switch and the current scientific literature
supports the use of LSG as a primary bariatric procedure.

With five years of data now available on primary LSG, the number of these procedures has been steadily
increasing. Although the actual number of sleeve gastrectomies performed to date is difficult to quantify,
executives from Allergan Inc., manufacturer of the LAP-BAND, told analysts in August 2011 that within
bariatrics, sleeve gastrectomy increased its procedure share from 8% in May 2010 to 20% in May 2011. The
majority of that increase came at the expense of gastric bypass surgery, but Allergan also saw a three
share-point decrease in bands.

Physicians have been increasingly converting to the sleeve gastrectomy procedure because many view it as a
happy medium between gastric bypass surgery and laparoscopic adjustable gastric banding (LAGB). Most
surgeons find sleeve gastrectomy technically less difficult than the RYGB and research to date suggests
outcomes at one year following LSG, in terms of excess weight loss and diabetes resolution, lie midway
between those for laparoscopic RYGB and LAGB. Some physicians have also been migrating to sleeve
gastrectomy from the LAGB as it does not require as much follow-up in terms of postoperative band
adjustments.

In 2010, the American Medical Association assigned a Current Procedural Terminology (CPT) code to LSG
(CPT 43775), giving the procedure a boost in the eyes of payors. Soon afterward, several major insurers,

Laparoscopic Sleeve Gastrectomy 4


including Cigna Healthcare Inc., Aetna Inc., and United Healthcare Services Inc./HCA Inc., changed
their policies to offer LSG; however, several othersstill deem it investigational, including Medicare and in
some states Blue Cross Blue Shield, and many small insurers still do not provide any insurance coverage for
LSG. According to Jaime Ponce, MD, president-elect of ASMBS and chair of the ASMBS Insurance
Committee, the ASMBS is collecting more data on LSG and plans to submit the data to Medicare in hopes of
obtaining a coverage decision in the next few years. As insurance coverage improves and as more data
supports the long-term efficacy of the procedure, Ponce predicts LSG could potentially increase its share of
the market to 30% of all bariatric procedures by 2016.

Laparoscopic Greater Curvature Plication

Another bariatric procedure that has emerged in the last few years is laparoscopic greater curvature plication
(LGCP). Also known as laparoscopic gastric plication, this investigational procedure does not require gastric
resection, intestinal bypass, or placement of a foreign body and is theoretically reversible, although a reversal
is reportedly difficult to do. LGCP reduces the stomach volume by restricting the gastric outlet along the
greater curvature of the stomach in a manner similar to the dissection for a sleeve gastrectomy, but rather than
resecting the stomach, the stomach is folded inward and sutured or clipped to achieve gastric restriction. Like
the sleeve, LGCP also requires dissection of the greater omentum and short gastric vessels. In theory, the
procedure appears safer than the sleeve gastrectomy as it does not involve resecting the stomach and there is
less potential for gastric suture line leaks. However, without resection of the stomach, critics say the
procedure is less likely to alter the neurohormonal regulation of ghrelin, a hormone responsible for appetite,
which could ultimately affect hunger, weight loss, and other outcomes for this procedure.

LGCP procedures are on the rise, and to date, about 1,500 gastric plications have been reported in
peer-reviewed literature, according to Robin Blackstone, MD, president of the ASMBS. Studies in the US
have only published preliminary results with the largest reported population of LGCP patients treated by a
surgeon from Iran, Mohammed Talebpour, MD, who started performing gastric plications in humans in 2001.
Currently, the procedure is in clinical trials in the US at the Cleveland Clinic and at Ohio State University
Medical Center , and is being studied in conjunction with researchers in Brazil and the Czech Republic. The
clinical trial, sponsored by Ethicon Endo-Surgery Inc. (EES; a Johnson & Johnson company), is
evaluating the procedure using a laparoscopic gastric plication device being developed by EES that is not yet
FDA cleared in the US.

In March 2011, after receiving inquiries from patients and payors regarding the procedure, the ASMBS
released a policy statement on gastric plication, deeming it investigational at this point,. According to the
ASMBS, the quantity and quality of data regarding LGCP is currently insufficient to determine the safety and
efficacy of the procedure, but research is ongoing. To date, only four papers involving less than 300 patients
have been published on laparoscopic gastric plications and yet the procedure is currently being marketed as a
new option for surgical weight loss by some providers.

Access To Care

Access to care has been, and continues to be, a key limiting factor in the market growth of bariatric surgery.
Although bariatric surgery has proven to be highly successful in achieving weight loss, only 1% to 2% of the
eligible obese population currently undergoes bariatric surgery. Studies have shown insurance denial and
unattainable coverage are the two most common reasons why patients do not undergo laparoscopic gastric
bypass surgery. Other reasons include the high cost of the procedures, the risk of complications associated
with the procedures, social stigma, and patients' fear of permanently altering their digestive tracts.

According to HealthGrades' 2011 Bariatric Surgery Trends in American Hospitals, the payor mix for bariatric
surgery in the US is currently 74.37% commercial insurance, 20.27% government insurance, and 5.2%
self-pay. New data suggests a trend toward increasing insurance coverage for bariatric surgery in

Laparoscopic Greater Curvature Plication 5


employer-sponsored health plans. In fact, despite the current economic environment, bariatric surgery
insurance coverage continued to grow among all employers between 2006 and 2010, according to Mercer's
2010 US National Survey of Employer-Sponsored Health Plans, with small employer coverage growing faster
than large employer coverage. Among all employers, bariatric surgery coverage expanded 13% between 2007
and 2010, according to the survey, which included more than 2,800 US employers that offer health insurance
and have 10 or more employees. ( See Exhibit 4.)

Although expanding insurance coverage offers hope to those patients who cannot afford to pay cash for
bariatric surgery, many bariatric surgeons say access to care, even among the insured, is still a huge problem,
as having insurance coverage does not necessarily translate into actual access and availability in practice.
According to the ASMBS, about 25% of patients considering bariatric surgery are denied insurance coverage
three times before getting insurance approval, and about 60% report worsening health during this waiting
period.

Many insurance companies require a large copay for bariatric surgery, which is still cost prohibitive for many
patients, or they have strict guidelines that require patients to jump through several hoops before they will
approve bariatric surgery. Most commonly, patients must spend six to 18 months completing a medically
managed weight loss program and/or lose 10% of their body weight, even though they have been on multiple
diets over their lifetime without success. These requirements can limit access or delay treatment for these
patients, as many payors do not pay for dietary treatments and carriers often penalize patients who miss a
single monthly visit by forcing them to re-initiate the entire process. In March 2011, the ASMBS released a
position statement on preoperative supervised weight loss requirements, saying that although surgeon
recommended preop weight loss may improve surgical risk in certain patients, there are no Class I studies or
other evidence to support this widespread practice and such policies can delay, impede, or interfere with
life-saving treatment.

Access To Care 6


Access to care is also being impacted by the 2010 update to the Milliman Care Guidelines for Inpatient Care,
which recommended shortening the length of stay (LOS) for laparoscopic gastric bypass to 23 hours in order
to cut costs and improve resource utilization. These guidelines are used by many hospitals and health plans to
determine care and LOS. The ASMBS is challenging these guidelines, as an ASMBS membership survey
found that 20% of respondents had experienced more than five denials in one month when seeking insurance
authorizations for bariatric surgeries with a medically indicated LOS of more than 24 hours.

At this year's ASMBS meeting, Stanford University researchers presented a new study of outpatient bariatric
surgery that could spark more debate on these guidelines. The study included data on 52,000 patients from the
Surgical Review Corp.'s Bariatric Outcomes Longitudinal Database, a clinical database of bariatric surgery
patient outcomes with data on patients treated at Bariatric Surgery Centers of Excellence. The study found
gastric bypass patients discharged on the same day of surgery were 13 times more likely to die (risk adjusted)
and 12 times more likely to have serious complications (1.9% vs 0.16%) than patients who were discharged
after two days. The overall 30-day mortality rate was 0.1% for patients who stayed in the hospital for two or
more days, and about 0.8% for those who were discharged on the same day of surgery. According to the
ASMBS, the society continues to work with the insurance industry on this and other coverage issues to
improve access to care.

Impact Of Social Media

Although difficult to quantify, social media is another factor that many believe is significantly impacting
whether or not patients choose to have bariatric surgery and/or what surgery they decide to have. There is an
increasing number of blogs and social media forums dedicated to bariatric surgery where patients and
potential patients seek answers to questions, discuss current and emerging treatment options and procedures,
and share their personal stories of success or failure with various surgical procedures. The role of social media
in decision-making for potential bariatric surgery patients is growing, and experts say the "buzz" on the
internet, particularly chat rooms and blogs that are not very positive, can have a real impact on patients and
procedures. According to Robin Blackstone, the ASMBS has traditionally focused on the education of its
membership, but is starting to reach out to educate the public through Web sites and other media campaigns
that explain the different procedures and the "medicalization" of obesity—to help the public understand that
obesity is a disease itself and not just a cosmetic issue.

Obesity: Beyond The BMI

In addition to improving access to care for bariatric surgery patients, future procedure growth will likely come
from the expanding definition of who could benefit from this type of surgery and from an increasing role for
bariatric surgery in chronic disease management. Although insurance companies have typically used body
mass index (BMI) as a cut off to determine who qualifies for bariatric surgery, in practice BMI is not
necessarily the best measure for defining obesity, identifying who is obese, and determining who would most
benefit from bariatric surgery. At this year's ASMBS meeting, researchers discussed the need to redefine
obesity and to look at expanding the selection criteria for bariatric surgical patients to include other factors
beyond BMI.

Expanding Role In Less Obese Patients

In spite of the weak economy, growth in bariatrics will be positively impacted by the expanding role of
bariatrics in less obese patients. In February 2011, the US Food & Drug Administration (FDA) approved the
expanded use of Allergan's LAP-BAND Adjustable Gastric Banding System, an inflatable and adjustable
silicone ring that is surgically implanted around the upper part of the stomach to limit the amount of food that
can be eaten at once. The decision expanded the approved indications for LAP-BAND to include obese
individuals with a BMI of 30 to 34 who also have an existing condition related to their obesity, such as type 2
diabetes mellitus (T2DM) and high blood pressure. (Previously, the device was indicated for use in adults

Impact Of Social Media 7


with a BMI of at least 40 or a BMI of 35 and higher with at least one obesity-related medical condition.)

Although this represents a narrower indication than originally sought by Allergan, as the company had also
proposed to expand the indication to include people with a BMI of 35 to 39 and no obesity-related condition,
the expanded indication opens a large, previously untapped market for the LAP-BAND. With this expanded
indication, Allergan estimates that approximately 37 million obese adults who have a BMI of 30-40 and at
least one comorbid condition now qualify for the LAP-BAND when all other conservative weight-loss
therapies have failed. Allergan is also in clinical trials to determine the potential safety and effectiveness of
the LAP-BAND system in morbidly obese adolescents (ages 14-17) with at least one obesity-related health
condition. The company filed a supplemental premarket application (PMA) with the FDA in Q3 2009 for use
of the LAP-BAND in morbidly obese adolescents. To date, about 650,000 people worldwide have received a
LAP-BAND.

During Allergan' s Q2 2011 earnings call, David E. I. Pyott, the company's chairman, president, and CEO,
reported that year-to-date sales revenues for the firm's obesity intervention line were down 13.5% in the
quarter. In the US, which accounts for the bulk of global sales, Pyott said the overall number of bariatric
procedures performed was down 8%–a trend the company attributes to high unemployment rates and access to
care issues. To address the downturn, the company plans to leverage its recent FDA approval for the lower
BMI indication with payors and is dedicating special resources at the management and field levels to address
the access to care and insurance issues. According to the company, the LAP-BAND accounted for about 48%
of the total market in Q1 2011, and LAP-BAND's share within the band category increased from 74% in May
2010 to 82% in May 2011. The company reported weak sales in the second quarter in both Australia and
Canada, which was offset by strong sales growth in Latin America.

In addition to the LAP-BAND, gastric bypass surgery may also have an expanding role in treating less obese
patients with T2DM, according to new research presented at ASMBS. Researchers from Stanford University
analyzed data from 980 gastric bypass patients and found that patients whose presurgery BMIs were below 35
(n = 12) had 100% resolution of their T2DM in the year following surgery, compared to just 75% resolution
in patients with a BMI of 35 or more. At one year, patients at the lower BMI not only saw improved outcomes
in terms of diabetes, but also had better weight loss relative to their presurgery weight and shorter operating
times than patients with higher BMIs.

According to John Morton, MD, associate professor of surgery and director of bariatric surgery at Stanford
Hospital and Clinics at Stanford University, one of the co-authors of the study, this initial study suggests
patients should be getting to surgery sooner rather than later before their weight gets too high and surgery
becomes less effective. He also believes gastric bypass surgery should be reevaluated for use in lower BMI
patients. "This study suggests that BMI should not be the only indicator for bariatric surgery, particularly if
lower BMI patients can see these kinds of results," said Dr. Morton. "It may be time for a reevaluation, as has
been done with LAGB patients with a BMI of 30 to 35."

This and dozens of other studies have evaluated bariatric surgery's impact on T2DM, and research shows that
diabetes symptoms can improve or resolve within a few days of having bariatric surgery, even before
significant weight loss occurs. One of the most cited studies to date investigating bariatric surgery's impact on
T2DM was published by Henry Buchwald, MD, PhD and colleagues in March 2009 in the American Journal
of Medicine. This study demonstrated that bariatric surgery can effectively improve (78.1%) or resolve
(86.6%) T2DM in people with morbid obesity. ( See "New Developments in Obesity Intervention," Medtech
Insight , October 2009 [A#2009400079].)

Bariatrics And T2DM: Expanding The Market

As the evidence continues to mount, the movement toward using bariatric surgery as a potential primary
treatment for T2DM is gaining momentum, and leading the way toward this goal are some prominent diabetes

Expanding Role In Less Obese Patients 8


societies.

One of the most exciting developments discussed at this year's ASMBS, was the position statement released in
April by the International Diabetes Federation (IDF). The statement, which recommends bariatric surgery as
an appropriate treatment option for certain people with T2DM and obesity, marks the first time any major
international organization has issued recommendations on the use of bariatric surgery as a therapy for T2DM.
The IDF statement follows a 2009 update to the American Diabetes Association clinical practice guidelines,
which now include a recommendation that bariatric surgery be considered for adults with a BMI of 35 or
greater and T2DM, especially if diabetes is difficult to control with lifestyle and pharmacologic therapy.

According to the IDF position statement, "Surgery should be an accepted option in people who have T2DM
and a BMI of 35 or more and should be considered an alternative treatment option in patients with a BMI of
30 to 35 when the disease cannot be adequately controlled by a medical regimen, especially with other major
cardiovascular disease risk factors." ( See Exhibit 5.) The IDF's conclusion is that current approaches
including lifestyle modifications and medical methods often fail to adequately manage T2DM in many
patients and that surgical intervention should be considered complementary to medical therapies in the
treatment of T2DM and not reserved as only a last resort option. The IDF position statement did not
recommend any bariatric procedure over another, although it did limit the recommendation to currently
accepted procedures, including RYGP, LAGB, biliopancreatic diversion (BPD), BPD with duodenal switch,
and sleeve gastrectomy. IDF did, however, note that the RYGP, BPD with duodenal switch, and sleeve
gastrectomy address diabetes in unique ways compared to LAGB.

Although much more work is needed before bariatric surgery, in practice, becomes a primary treatment for
T2DM, the IDF's position statement could potentially have huge ramifications for the device industry,
particularly in terms of new product development and market potential. The IDF that there are 285 million
people with T2DM worldwide, a number that is expected to increase to 438 million by 2030, with another half
billion people at risk. ( Editor's Note: For a more in-depth look at metabolic surgery and how the IDF
position statement will impact bariatric surgery and the medical device industry, look for our interview with
Francisco Rubino, MD, in the September 2011 issue of Medtech Insight) .

Bariatrics And T2DM: Expanding The Market 9

Expanding Role In Other Chronic Diseases

In addition to treating T2DM, bariatric surgery could also have an expanding role in the management of other
chronic diseases, including heart disease, stroke, cancer, high blood pressure, sleep apnea, high cholesterol,
infertility, and migraines. For example, obesity has long been known to increase the risk of heart attack and
stroke, the number one and number three leading causes of death in the US, and new research shows bariatric
surgery can cut the incidence of heart attack, stroke, or death by as much as 50%. In a study presented at this
year's ASMBS, researchers from Greenville Hospital System University Medical Center analyzed data
from 9,140 morbidly obese patients in South Carolina ages 40 to 79 treated with bariatric, orthopedic, or
gastrointestinal (GI) surgery between 1996 and 2008. The orthopedic (joint replacement) and GI (hernia or
gallbladder) surgery patients served as the control groups for the study because of their similar health and risk
profiles. Data for the study were obtained from the South Carolina Office of Research and Statistics (SCORS)
database, and included 4,747 bariatric surgery patients, 3,066 orthopedic surgery patients, and 1,327 GI
surgical patients.

All patients had similar health status before surgery and no medical history of heart attack or stroke. Five
years after bariatric surgery, the estimated incidence of heart attack was about 50% less and the incidence of
stroke was 30% to 50% less when compared to the control groups. An estimated 85% of the bariatric surgery
patients were living heart attack– and stroke-free fiveyears after surgery, compared to 73% in the orthopedic
group and 66% in the GI group. These findings further validate previous studies that compared bariatric
surgery patients to nonsurgical patients in terms of risk reduction from heart attack, stroke, or death. In March,
the American Heart Association (AHA) issued its first statement on bariatric surgery, further validating
bariatrics' impact on heart disease. The AHA statement concluded that "Bariatric surgery can result in
long-term weight loss and significant reductions in cardiac and other risk factors for some severely obese
adults."

Two new studies presented at ASMBS also suggest bariatric surgery impacts morbidly obese patients with
migraines and infertility. In one study, researchers at the University of Iowa's University of Iowa Hospitals
and Clinics found bariatric surgery can lead to total or partial alleviation of migraine headaches in nearly 90%
of morbidly obese patients diagnosed with migraines. In another study, University of Iowa researchers found
that among morbidly obese patients who had polycystic ovarian syndrome (PCOS) and PCOS-related
infertility, 100% were able to get pregnant within three years following gastric bypass surgery.

A Tough But Potentially Lucrative Road Ahead

The potential market for a safe and effective weight loss surgical treatment is substantial–estimated at almost
$500 million in annual revenues in the US alone–and bariatric surgical device companies are dedicating
significant research and development, sales and marketing/advertising, and surgeon training efforts toward
advancing revenues. Despite the current economic conditions, this lucrative market holds promise for treating
a patient population in dire need of safe and effective weight-loss solutions. And although larger, randomized
clinical trials (RCTs) evaluating existing and emerging bariatric surgical technologies and procedures are still
needed to determine safety and feasibility, this area holds much promise in providing weight-loss alternatives
to millions of obese people in the US and worldwide.

Much of the market growth in bariatric surgery will be driven by expanding indications for bariatric surgery,
new minimally invasive bariatric surgical technologies, and emerging transoral incisionless weight loss
devices, which are expected to grow in acceptance and utilization over the next decade. These include
implantable gastric stimulation/vagal blocking systems, intragastric balloon systems, minimally invasive
bariatric surgical instruments, LAGB systems, and emerging transoral incisionless weight-loss devices. ( See
Exhibit 6.) Companies with current and emerging minimally invasive devices for bariatric surgery include
Covidien Ltd., Ethicon Endo-Surgery, Apollo Endosurgery Inc., Intuitive Surgical Inc., ReShape Medical
Inc., BaroSense Inc., EndoGastric Solutions Inc., GI Dynamics Inc., ValenTx Inc., Obalon Therapeutics

Expanding Role In Other Chronic Diseases 10


Inc., Allergan, TransEnterix Inc., and EnteroMedics Inc., among others.

Start-Ups: Where's The Innovation?

At the same time, some of this growth depends on new technologies getting to market, and it's clear start-ups
ride a tough road these days. At this year's ASMBS meeting, there were only a handful of device start-ups in
the exhibit hall. In an interview with Medtech Insight, the CEO of one of these companies, Dennis
McWilliams of Apollo EndoSurgery, discussed some of the challenges that start-ups currently face in
sustaining innovation and bringing products to market in the US and provided insights on how to persevere in
this market.

"The obvious challenge is in finding the capital to build the clinical data that will prove efficacy and achieve
regulatory clearance," says McWilliams. "We know we need robust clinical data for the FDA as well as for
adoption in the surgical community. But it's challenging and even risky to raise capital for expensive, large,
multicenter trials. Even if the product is successful, there is no reasonable certainty of FDA clearance in
today's environment. There's not a lot of money available for that type of risk. It's a challenge we have to
manage as an industry. We have to continually refine the innovation model so that new technologies have
room to grow and risk can be mitigated. That will help with financing and allow companies to collect the
necessary clinical data."

As an example, McWilliams pointed to the recent conundrum faced by Satiety. After the company's PMA
trial, investors were in a challenging situation, he says. They had a great device and compelling data, but were
faced with the expense of another PMA study. The alternative was to gain market approval in Europe, but
then the company would be investing significant capital to drive margin out of that product and build
commercial infrastructure, McWilliams explained. "Couple this with a moribund IPO market and uncertain
acquisition prospects, and Satiety and its investors wondered whether they could achieve a sensible return
profile."

It's this kind of scenario that had everyone at ASMBS wondering how, in the face of such limitations, US
start-ups can afford to innovate. Will innovation be relegated to markets outside the US, such as Europe,

A Tough But Potentially Lucrative Road Ahead 11


South America, or Asia? It appears the FDA has realized this is a problem in bariatrics and the agency is
currently soliciting input on how it can work with the medical community and industry to find better methods
for bringing technologies to the market and provide better predictability to the investment community.

Challenging The Traditional Venture Model

Since its inception, Apollo's focus has been to improve surgery fundamentals broadly versus niche clinical
applications. It's a strategy that McWilliams says is serving Apollo Endosurgery, its customers, and its
investors well in the current market. "The traditional venture model has been focused on building one specific
tool for one specific clinical application. That's contrary to how surgical procedures evolve. Surgeons use
tools, and these tools allow them to safely resect and manipulate tissue. If you look at Covidien and Ethicon
Endo-Surgery, their empires were built by developing the best tools for tissue apposition, tissue cutting,
surgical access, and hemostasis, and by allowing surgeons to apply these tools to existing procedures or for
new procedure development. We are following the same strategy, but instead of disposable rigid tools, we are
making disposable flexible tools that fit on existing capital equipment in the OR [operating room]," he says.

"Additionally, typical venture companies, particularly in bariatrics, have focused on building for an early
exit–reaching a clinical or regulatory milestone–and then turning over the project to the acquirer for broader
commercialization. Little focus has been put on business-building essentials, including product margin,
commercial footprint, training, reimbursement, and supply chains. For acquisitions today, you have to be
accretive to the bottom line quickly. You've got to build products that can fit into sales forces. It's important to
be agile when you see an opportunity or good fit. That's how we approach things at Apollo."

Apollo's endolumenal surgical tools include the OverStitch Endoscopic Suturing System and the FlexShears
Endoscopic Scissors. Since Q4 2010, the company has been in a market pilot with its first-generation
OverStitch and has been building its registry of more than 200 patients to date to gain clinical experience with
the device and to understand its applicability. Apollo is planning a broader market launch in Q4 2011 of the
second-generation OverStitch with an improved user interface. Apollo secured $11.5 million in Series A
financing in 2007 and is looking to close a new financing in the next several months for the second-generation
launch. [W#200730734]

Despite the current investment climate, McWilliams believes the firm will not have trouble securing
financing. "We're confident in our ability to gain funding. We have FDA cleared products that are being used
by physicians for a variety of clinical procedures with large market potential. Data from our recent clinical
progress is generating venture and strategic interest. Like most companies, we walked through the deserts of
the financial crisis. We survived and are stronger for it."

In addition to Satiety, another start-up that has faced its challenges in coming to market is St. Paul, MN-based
EnteroMedics, manufacturer of the Maestro System. This neuromodulation device is surgically implanted in
the abdomen and delivers intermittent high-frequency, low-energy electrical impulses that block signals from
the vagus nerve (VBLOC Therapy) to the stomach and pancreas, affecting feelings of hunger, fullness, and
satisfaction. In 2010, the company's EMPOWER trial of almost 300 patients did not meet its primary end
points–at 12 months there was virtually no difference in excess weight loss between those who used the
Maestro device and the control group–and the company did not receive FDA PMA approval. However, the
FDA encouraged EnteroMedics to conduct another clinical trial that addresses some of the issues encountered
during EMPOWER. The company's poststudy analysis of EMPOWER suggests the control subjects actually
received a form of therapy during the system's electrical impedance, safety, and diagnostic checks, which
might have contributed to weight loss in the control group. Researchers also noted that weight loss was
linearly related to hours of device use, with greater excess weight loss among those who used the device more
than nine hours per day.

Start-Ups: Where's The Innovation? 12


In May 2011 the company started the RECHARGE trial, a randomized, double-blind, parallel-group, pivotal
multicenter study that is expected to enroll 234 patients at up to 12 sites in the US and Australia. Although the
treatment group will also be compared to a sham group in this new study, there are some important
differences between the EMPOWER and RECHARGE trials. In the RECHARGE study, patients will be
implanted with the company's second-generation Maestro RC2 System, which, unlike the first-generation
device, has a battery on board that only requires patients to wear the device 30 minutes a day and to charge it
20 minutes a day. In the EMPOWER trial, the first-generation Maestro device required patients to charge the
device continuously and wear it 10 to 12 hours a day—a requirement that led to some patient compliance
issues with the device. Also, the RECHARGE trial will use a functional but nonactive sham device that does
not have electrodes attached to the vagus nerve, which means the control group will not inadvertently receive
any VBLOC therapy during the impedance and safety checks. By the end of 2012, the company hopes to have
all patients in the RECHARGE trial fully implanted and followed for 12 months in a state of blind, with plans
to do another PMA submission after that. In addition to the RECHARGE trial, EnteroMedics also has an
ongoing trial called the VBLOC DM2 ENABLE, a feasibility trial to test the RC2 device in people with
obesity and T2DM.

In terms of its finances, EnteroMedics raised $30 million in December 2010 and has a burn rate of about $1
million a month, not including the cost of the clinical trials, which will add about $8 million over the next 12
months, according to the company. [W#201030559] In markets OUS, the company is making progress to
commercialize the Maestro System in Australia, where the company plans to file an application for approval
and listing with the Australian Therapeutic Goods Administration, and is exploring potential
commercialization in select markets in Europe. EnteroMedics reported $27.4 million in cash and investments
at end of Q2 2011 and hopes to start international commercial sales by year's end.

Regulatory Challenges

For many obesity start-ups, the road to market has been challenging, and there have been increasing concerns
among both industry and academia regarding the current FDA review process. Some say the FDA has raised
the bar on science, and on obesity devices in particular, since the PMA approval of Ethicon Endo-Surgery's
REALIZE band and Allergan's LAP-BAND, and there is an increasing focus on sham-controlled, RCTs. The
FDA required both Satiety and EnteroMedics to undergo sham-controlled RCTs, which experts say is very
difficult to do in the field of bariatrics. Shams are notoriously inaccurate, they contend, saying the bariatric
sham is never a true sham because all patients get medical management, usually diet, exercise, and
counseling. Critics also say it is unclear what delta (percent difference between the control arm versus the
treatment arm) the FDA is requiring for obesity devices and drugs that will suffice in order to achieve FDA
approval. Because the FDA balances the potential risk of a new therapy with the benefits, many say obesity
drugs and devices are being held to a higher standard than, say, therapies for cancer or Parkinson's disease,
because the perception is that the risk of the disease obesity is often not sufficiently high to merit the risk of
the therapy. At the same time, many perceive an inconsistency in how the FDA balances risk and applies these
standards.

For investors, the biggest challenge right now in funding a device is the inconsistent and unpredictable
regulatory process, which can translate into higher costs, longer time to market, and slower and lower returns
on investment. Given this environment, many start-ups are first going OUS to bring their devices to market
before attempting market approval in the US, or are going offshore to seek commercial traction in other
countries.

In May 2011, researchers at Northwestern University released the results of an opinion survey that sought to
identify opportunities for improving the FDA 510(k) clearance process. The study, entitled "A Comprehensive
Analysis of the FDA 510(k) Process: Industry Practice and Implications for Reform," involved 356
respondents who participate in the 510(k) process, including entrepreneurs, academic physician-inventors, and
federal regulators. In the study, 49% of respondents (n = 201) said the major reason their company chose to

Challenging The Traditional Venture Model 13


bring a product to market OUS first was because of unpredictable 510(k) requirements. Other reasons cited
for bringing a device OUS first include the cost of clinical trials (22%), quicker process (9%), and easier
process (5%). ( See Exhibit 7.) Survey respondents also perceived a significant difference between the FDA's
guidance documents and FDA review, with 87% (n = 216) saying that the FDA asked for information beyond
that required by the guidance. ( See Exhibits 8 and 9.) Other complaints about the FDA centered on
inconsistent implementation, unclear regulatory guidelines, and the rapid turnover of reviewers assessing a
new medical device.

Regulatory Challenges 14


The FDA process has been frustrating to many, making the agency an easy target in a market where regulation
is only one of many factors that have been straining market growth in bariatrics. Indeed, the long-awaited
review by the Institute of Medicine recommends that the entire 510(k) review process be revised. ( See
"Institute of Medicine on 510(k) Review Program: Dump It," Washington Roundup, this issue
[A#2011400056].)

There is certainly no lack of opinions in this regard, and many are still blaming the FDA for a dearth of
innovation right now. According to Robin Blackstone, "In terms of devices, I think the FDA has some direct
responsibility for the lack of innovation in medical technology, because nobody wants to invest this kind of
money to be shot down over what is arguably a process that results in a seemingly random and arbitrary
decision. It takes so much time and money to bring medications and new devices to market, and the FDA
barrier as it is currently structured is huge."

Blackstone says the government does not appear to be coordinating its efforts in the area of obesity, with
Medicare on one hand paying for morbid obesity (National Coverage Decision 2006, expanded to include
diabetes as an indication in 2009), while other agencies put up what some call "insurmountable" barriers to
innovation. But Blackstone also points out the government has a vested interest in supporting innovation in
bariatric surgery. "We've got a whole baby boomer generation that is going to be lost to obesity if we don't
act. The treatment of obesity in this generation is prevention for obesity in the next. There needs to be a very
strong and clear signal from the government in the essential health benefits language that obesity should be
treated."

To the FDA's credit, the agency is aware of the issues and has been working with academia and industry to
identify best practices in how to do clinical trials and how to assess the effectiveness of drugs and devices in a
more standardized and predictable way. In March 2011, representatives from The Obesity Society, the
ASMBS, and the American Dietetic Association met with the FDA's Center for Drug Evaluation and
Research, to discuss ways to provide safe and effective medical therapy for the disease of obesity. According
to the ASMBS, the meeting sought to establish the importance of treating Class 1 obesity as a serious medical
problem and to shift the risk/benefit ratio in favor of including the benefit on comorbid disease in addition to
that of weight loss in the pharmaceutical treatment of obesity. Specific issues addressed included concerns
regarding the lack of obesity experts in review panels, concerns over misinterpretation of the Guidance for
Obesity Drug Review and Approach, and the stifling effect of the drug discovery process for obesity. In
follow-up to the meeting, the group is planning to develop a white paper regarding pharmaceutical
development in obesity, led by the Department of Health Policy at the George Washington University

Regulatory Challenges 15


School of Public Health and Health Services.

On the device side, representatives of the ASMBS and the American Society for Gastrointestinal Endoscopy
also met with the FDA and presented a white paper outlining recommendations from these two societies. In
follow up to that, the FDA is working with these groups to develop a white paper regarding best practices and
is putting together a public meeting and workshop in October, sponsored by the FDA, Massachusetts
General Hospital (MGH), and Dartmouth College, which will focus on clinical trials and bariatrics—a
meeting that many device manufacturers are eagerly anticipating. ( For more on this topic, see sidebar,
"Obesity Devices and the FDA Review Process: An Interview with Lee Kaplan, MD," in this issue.
[A#2011400053].)

Innovation Through Basic Science

One company committed to driving innovation in bariatrics through an improved understanding of obesity
and bariatric surgery is Ethicon Endo-Surgery. The company has invested more than $30 million to support
fundamental research into obesity and other metabolic disorders through its Metabolic Applied Research
Strategy (MARS). According to the company, the goal of the MARS program is to help deconstruct,
understand, and reinvent bariatric procedures at the tissue, cellular, molecular, and genetic levels. To this end,
the company established a MARS scientific advisory board in 2007 and has been collaborating with the
Metabolic Diseases Institute at the University of Cincinnati and the GI Metabolism Laboratory and Weight
Center at MGH.

With improved understanding, EES hopes to develop novel therapies that increase procedure effectiveness
and decrease risks and costs, and identify patient populations who will most benefit from them. The company
also hopes to use this knowledge to develop less invasive, less risky, and/or less costly approaches that
reproduce some or all of the therapeutic mechanisms of bariatric procedures without the need for surgery. To
date, MARS research has focused on the activity of various peripheral hormones in the central nervous system
that regulate food intake and body weight and on the mechanisms of action in RYGB and the means of
reproducing those mechanisms.

The Role Of Genetics

In an interview at ASMBS, Duane Linenkugel, EES's director of worldwide franchise development, told
Medtech Insight that although much of the MARS research is still in the discovery phase, researchers have
made great strides in certain areas, especially in understanding the role genetics plays in obesity and
predicting success of bariatric surgery.

"Some of the work we're doing in genotyping is to really understand what specific genes are either
overexpressed or underexpressed in certain patients and to be able to map that to predictive models," says
Linenkugel. "So when we compare patient A's genotyping to that in our database of known results, we could
say with a reasonable degree of confidence that patient will or won't respond to metabolic surgery. There are
many patients out there that have a BMI of 40 or 50 or 60 that have undergone these procedures, and they're
not losing weight. So we believe it's no longer about lifestyle. We don't think it's about caloric intake. We
think it's based on genetics. And we've got some data that would substantiate that. It's our interim, if not
conclusive, belief that genetics plays a strong role, which was previously not understood."

In the future, the company hopes to go beyond binary predictions of who will and won't respond to bariatric
surgery, to reach a state of therapy personalization eventually enabling predictions of which patient would
benefit most from an LAGB, which would benefit most from an RYGB, which would benefit most from
gastric plication, etc.

Innovation Through Basic Science 16


"Our research tells us patients don't want implants, so they don't necessarily like the band. They don't want to
see half their stomach excised, so maybe they don't like the sleeve. And they don't want to see their bowel or
their GI tract permanently rerouted. So our goal is to try to figure out what are more patient-centric solutions
that they would actually accept. We hope to personalize it such that we could predict with a certain family
history, comorbidities, and with a saliva-based DNA test, that not only would a patient benefit from this
operation, but we can accurately predict if that patient will lose 40% of excess weight, 30% of excess weight,
etc."

Alternative Approaches To Surgery

According to Lee Kaplan, MD, PhD, the primary investigator for the MARS program at MGH, in addition to
identifying predictive markers, MARS researchers have made enormous progress in understanding how
different obesity surgeries work, the hormones that they elaborate, the neural changes that occur, as well as a
whole variety of physiological changes that occur in the brain, liver, pancreas, and in the fat itself. Armed
with this information, researchers have already begun to develop novel therapies that capitalize on these
newly understood mechanisms that are in the early phases of evaluation and testing.

For example, one area of MARS research is in T2DM resolution. Researchers have been studying ileal
transposition in animals and evaluating the role of the distal ileum and bile acids in resolving T2DM.
Currently during ileal transposition, surgeons take the last 10 cm of the terminal ileum and move it proximally
and see almost immediate glucose regulation after surgery. But MARS researchers are moving the terminal
ileum more distally in hopes of having a similar effect but perhaps with fewer comorbidities and mortality.
According to Linenkugel, "In animals, when you move the terminal ileum distally, they drop fat but don't drop
lean mass. So it has something to do with the way we absorb fats. That last 10 centimeters of the terminal
ileum really does a lot to absorb the bile acids, and we believe bile acids mediate some of the response to
surgery."

Linenkugel says EES is interested in seeing how the MARS program progresses because it might serve as a
new model for understanding other disease states as well. Regardless, providing funding for such basic
science research is unprecedented for a surgical device company. "We're not trying to say 'prove that our
stapler is better than somebody else's stapler.' We're saying 'help us understand.' But it's amazingly exciting
because what it causes us to do is question the traditional paradigm that it's just not about restriction and
malabsorption anymore. And that's kind of the 'aha' moment for us. Now what do we do with that information
and how do we further refine that to get to logical devices or logical solutions?"

Anne Staylor is Senior Editor for Medtech Insight (E-mail: A.Staylor@Elsevier.com).

The Role Of Genetics 17

Obesity Back To Basics 2011

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