Medical Device Link.

Originally Published MX May/June 2002

COVER STORY

After two decades, Abiomed president and CEO David M. Lederman looks forward to accomplishing a national mission.

Interview by Steve Halasey

Considering the competitive environment in which medical technology companies do business, it's by no means a certainty that any given company will survive long enough to reach the market with its products. Add in the challenges of advanced research, complex technologies, and high-level regulatory requirements, and you've got a recipe for almost certain company disaster.

That's what makes the achievement of Abiomed (Danvers, MA) so impressive. With all of those factors aligned against it, the company has managed to thrive for more than two decades while steadily making progress on the development of its fully implantable artificial replacement heart, called the AbioCor.

MX: Abiomed was established in 1981. Could you give us an overview of the company, how it was established, and how it has developed since it was founded?

Lederman: Abiomed's mission is to develop and deliver technology that will help redefine the endpoint of life—meaning that we don't think people should die simply because their heart stops pumping. So the focus of the company is to develop devices that can support the heart when it temporarily fails, to support the heart when it permanently fails, and to replace the heart when there is no chance of it continuing to perform its proper functions.

The AbioCor artificial replacement heart.

We focus specifically on the mechanical pumping action of the heart, not only electrical activity, even though electrical activity ultimately also affects the ability to pump blood. So we're not interested in systems like pacemakers or defibrillators; we're really interested in providing adequate circulation of blood through the body.

The company's history can be traced back to 1964, when the renowned surgeon Michael DeBakey persuaded President Johnson to start a national program to develop a replacement heart. Several steps were defined at that time, and the initial budget assigned was somewhere under $700,000. The goal of the program was to deliver a replacement heart before the end of the 1960s.

Where does Abiomed fit into this picture?

Abiomed was created in 1981 to fulfill the last step in the original mission to develop a permanent replacement heart. Even in 1981, we were aware that we could not do it in a short period of time. We didn't think it could be done in even 10 years. Even then, we thought that it would take us until reasonably close to the year 2000 before we would be able to develop something that could be used in humans.

The reason that we thought it would take that long is because we emphasized the need to provide a system that would provide an acceptable level of quality of life. This meant that the system had to be untethered, so the patient could work, be ambulatory, and carry on normal daily functions, without being permanently attached to any kind of external control system or console.

With the electronics that existed in 1981 it was not possible to implant the necessary electronic controls in the human body. Neither did the battery technology available at the time allow us to believe that we could, in a short period, develop a system that would provide a patient with ambulatory capabilities. We assumed that the necessary technology developments in fields such as those would occur, but based on the rate of their progress we knew it would take some time.

Has the government continued to support progress toward this goal?

Yes. The majority of our research efforts from 1981 until 1996 were funded by the National Institutes of Health (NIH), and that funding contribution has held up over the years. Historically, the artificial heart project is a national mission with government support. So it's important for people to understand that this program has created many technological spin-offs with clinical applications. Those technologies are being put to use in clinical devices, and they have saved millions of lives.

At the same time, people should not forget that the ultimate goal has yet to be achieved. Now, with the technology advances that have taken place over the past two decades, we believe that it is achievable.

You mentioned that, until 1996, much of the funding for the AbioCor project came from the government. What has changed this, and how?

Yes, funding from the National Institutes of Health supported the major portion of R&D activities for the artificial heart until 1996. But the growth of revenues from our first product, the BVS biventricular support system, has gradually altered this equation. By 1996, we had reached the point where we had sales exceeding $20 million annually from the BVS product.

In 1996, our technical team told me that the major technological hurdles for the AbioCor had been overcome, and that we were ready to move the product into a commercial development path. That meant that we had to begin preparing for clinical trials and eventual commercialization of the technology.

That was when we decided that we needed to start investing in its commercialization. So we raised money in the public markets. And, just to give you a sense, in one year we invested approximately $20 million in the AbioCor program—more than we had received from the government since the company was founded.

How did you manage to fund the company up to that point?

In 1981 we didn't have much money—I had about $50,000 personally. We were a small company, and it would have been presumptuous for us to think that we could take on the development of the most sophisticated medical device ever. So we needed a strategy that would enable us to build a business with resources sufficient to commercialize the artificial heart technology when it was finally proven.

Then, in 1984, Eli Lilly invested $3 million in the company. And that launched us into the development of our first product. And in 1985, we entered into an R&D limited partnership that raised about $7 million in off-balance-sheet financing. That funding essentially supported the product development and initial clinical trials of our first product through the early part of 1987.

On the strength of these successes, we were able to take the company public in 1987. We raised about $11 million in our initial public offering, and that funding was used to conduct clinical trials in the United States and launch the BVS product in Europe.

In the period since the BVS product was launched, how much of your funding has come from the government?

During the period from 1981 through 1997, the total revenues from our government contracts was about $13 million. To put this into perspective, our cumulative product revenues, from the time we went public in 1987 to about 1997, was around $35 million—three times greater than the level of funding we received from the government.

In 2000, as we prepared to go into clinical trials with the AbioCor, we raised $96 million through a secondary public offering. But from 1997 through 2001, our product revenues have approached $80 million to $85 million.

How important has it been for the company to have a product line that produces revenues?

Our efforts toward commercialization of the AbioCor require significant funding. Finances to support those efforts have come from one of two sources: either from equity offerings, or from revenues generated by our BVS product.

The BVS product line is very profitable. It occupies a small niche market where we didn't think the large medical device players would compete with us. So we knew that we would pretty much have the market to ourselves. In terms of our market strategy, the BVS is a critically important product, because all the cardiac surgeons who buy it will also be customers for the AbioCor. So the BVS has given us early access to those customers.

More importantly, commercializing the BVS enabled us to build a team that is the first and the best of its kind, devoted to marketing very sophisticated devices for patients who are very sick. The BVS made this function very important long before we had the AbioCor.

The Regulatory Picture

After the 1982 artificial heart implant, FDA imposed quite strict requirements for the clinical trials of an artificial heart. What have those consisted of? What extraordinary requirements has your regulatory team had to deal with over the years?

Back in the 1980s, some regulatory requirements that exist today were not in place. Back then, for instance, a company could conduct a clinical trial with a device that was not yet manufactured under good manufacturing practices (GMPs). And a lot of the problems that surfaced back then had to do with the fact that companies were not following procedures that are today standard requirements for all device manufacturers before they begin human trials.

Even when we introduced the BVS, after its PMA received unanimous panel approval, it took an extra year before we were in full compliance with GMPs so that we could launch the product. Today that can't happen, because you have design controls. The rules are different. You have to be fully under GMPs before you can launch a product. The AbioCor is one example of this change; it's already in full compliance with GMPs.

How does Abiomed approach regulatory submissions?

Simply stated, if the majority of the people who are making decisions about the product—those who are designing it, and those who are in charge of its quality and its manufacturing—are the same people who are in front of FDA during the entire course of the regulatory submission process, then it's going to work fine. The philosophy that we have is that all the people involved in making decisions for the development of a product, all the way through the clinicals and into commercialization, have to be the people who have the major responsibility for interaction with FDA.

In our view, FDA's Office of Device Evaluation includes very competent, hard-working individuals who are trying to do a good job to protect patients. And the company follows that philosophy. There is absolutely no way we would ever allow a confrontational situation to develop with the agency. We're on the same side as FDA.

Have you conducted briefings with agency reviewers to get them up to speed on what you're doing?

We do that as part of our standard operating procedure. They have been incredibly helpful, incredibly competent.

Frankly, I think that when companies blame FDA for delays, they're often using the agency as a scapegoat. In general, study designs are formulated by the company and then submitted to FDA for approval. The company is supposed to execute its own plan, and if it doesn't meet that plan then it's the company that didn't make it on time. But many companies blame the agency for their delays, because FDA cannot publicly defend itself.

Blaming FDA sounds like a good, valid excuse, but we have never had a delay that has been a result of the agency. Every delay we have ever had has been because we were late in meeting the expectations that we created. It has never been the other way around.

I have stated this view at many industry meetings, and I know that it doesn't get a great deal of applause from some of my peers in the medical industry. But at Abiomed there has never, ever, been a situation where we incurred a delay because the agency did not act on a timely basis, or didn't respond to something that we had agreed to, or surprised us. If we have had delays—and there have been some—they have been our own responsibility.

Launch Strategies

I understand you're getting ready to begin clinical trials of the AbioCor in Europe. How does Europe fit into the planning of your product launch strategy?

We are targeted to begin clinical trials in Europe sometime this year, and the launch strategies will necessarily follow the clinical-trial strategies.

Because it's such a significant step to remove a natural heart from a person, we must initially select patients who really have no other hope, for whom a piggyback or assist type of device won't work, and who are really almost on their last breath. This is the only way to ethically conduct a trial for a technology that is so significant.

As a result, our clinical-trial strategy is to gain a lot of initial experience with patients who have absolutely no other choice and then, as we learn how well the system performs, to gradually relax the requirements and begin using the system in patients who are somewhat less sick. In those cases, our intent is to provide the patients with longer lives and a higher quality of life.

The launch strategy is similar, in that we intend to seek approval for the first-generation device for use with the sickest patients. And we're already working on the design of the second-generation device, and beginning the testing, so that it will be ready when we start the second trial for patients who are somewhat less ill. So our strategy is that as we gain clinical experience and further increase our confidence in the device, we will select patients who are less sick, and gradually increase our goals for longer and longer periods of life-support time. We expect to follow the same pattern in the commercial introduction of the technology.

Will the European launch differ in any way from the U.S. launch?

We're already conducting trials in the United States, and Europe will follow this year. The same order will pertain to the commercial launch.

However, the Europeans may be permitted to use the technology for some indications that may be outside the scope of the initial trial in the United States. The Europeans may be able to do that, but we can't do it in the United States because we have no approval for that patient indication.

In this sense—because some of the patients enrolled in European clinical trials may be different from those supported in the United States—the progress of the device toward commercialization may start to ramp up faster in Europe than in the United States.

But our strategy is really to persuade the Europeans to follow a patient indication strategy very similar to that of the United States, because that will help us with the increased data that we need to submit to FDA to obtain premarket approval.

So in terms of a formal CE mark and European market launch, how far off is the AbioCor device?

It's reasonable to assume that CE approval would be obtained toward the end of this year.

And when do you expect to submit the premarket approval (PMA) application to FDA?

It is our expectation that we will have all the data that FDA will require from us so that we are in a position to begin commercial introduction of the product into the United States sometime in calendar 2004. I don't want to be more specific about our regulatory submission strategies.

Future Spin-Offs

How heavily is Abiomed investing in R&D for future products, including the AbioCor? Is the company's R&D funded exclusively with investment dollars, or do product revenues also play a role?

The R&D investment for our existing business line, the BVS, is at a reasonable level—perhaps a little more than 10% of revenues for that product line. So that line is sustaining its own R&D to refine and extend the capabilities of that product.

The majority of our R&D investment is currently going into further improving the AbioCor and conducting the AbioCor clinical trials. We are also investing significantly in the so-called Penn State heart, a smaller replacement device that is based on a technology developed at Pennsylvania State University that we acquired in September 2000.

We also have all the technologies that have been spun off from those efforts. The AbioCor itself is like 10 products in one, so there is a lot of development potential coming out of that product.

What kinds of technologies are included in that potential, and what kinds of products might come from it?

One example is software that makes it possible to determine with a high level of confidence what the mortality of a particular patient group is—and what group a particular patient belongs to. This is a diagnostic support tool that has applicability beyond cardiology.

We have also developed methods to transfer energy from outside the body to the inside, and to relay information from the inside to the outside, and beam it anywhere in the world, without wires.

In addition, we have developed technologies for performing virtual surgery in advance of implanting an AbioCor. Some of these also have applicability to other fields outside of cardiology.

We're looking carefully at all the technologies we have developed to determine which of them could provide a new source of revenue or income. In some cases, technologies we have developed could be appropriate for further refinement by us, or could be better advanced if licensed to another company in the appropriate business. We're looking into such options carefully.