Al Naqvi: Thank you for joining us.Welcome to WMIS! My first question is about your background. Please tell us about your background and experience.

Alex Kleinman: I have been in the healthcare industry since late 90s. I started with the DC-area healthcare think tank The Advisory Board Company. Then, after completing my MBA from Wharton/UPenn I spent six years with McKinsey and Company in their life sciences practice. While at McKinsey, I focused on several areas within life sciences, including private equity due diligence, strategic marketing, commercial operations and health-economics/healthcare reform. I joined Bioscan in 2009. At Bioscan, I led the company’s analytic instrumentation and radiochemistry business line until it was acquired by Eckert & Ziegler Radiopharma. I am currently VP of Marketing and Business Development. In that role I am responsible for leading development and execution of global and regional plans, programs, partnerships and transactions to support achievement of revenue growth for all Bioscan products.

Al Naqvi: Please tell us about Bioscan.

Alex Kleinman: Bioscan is a leading provider of preclinical, nano-tomographic molecular imaging solutions that enable groundbreaking life sciences research. Preclinical imaging uses molecule biomarkers in animals to conduct in-vivo studies that generate more relevant, consistent biological data while reducing research cost and complexity. Bioscan’s innovative nuclear (PET & SPECT), optical, X-Ray CT and MRI imaging tools are used by more than 100 leading academic and government research institutions and life sciences companies worldwide to improve their disease, drug discovery and development research. The unique imaging performance enabled by Bioscan’s patented technologies makes it possible to translate research protocols and results directly from animal models of diseases to human clinical trials, enabling faster, more efficient development of new therapies.

At Bioscan we take special pride in “not invented here” research—most of our products emerge from partnerships with academia or other companies. For example, in 2004, we partnered with Dr. Nils Schramm of the Juelich Research Center in Germany to develop the core technology behind our flagship NanoSPECT/CT system. Our BioFLECT system is grounded in IP licensed from Florida-based Imaging Diagnostic Systems, Inc.. We continue to work with other scientists from academia to develop new and innovative products. In fact, this is our preferred model of innovation.

Al Naqvi: What are the major operational issues facing research organizations these days?

Alex Kleinman: The challenges are distinct to each segment of the biomedical research market.

In today’s rapidly changing business environment Pharma/Biotech players face 1) historically low productivity on R&D spending; 2) higher regulatory barriers to new drug approval; and 3) higher comparative effectiveness and health-economic standards as evidence-based medicine requires systematically identifying, evaluating, and applying high-quality research to make better clinical and reimbursement decisions. On the academic and government side, we observe: 1) A decline in governments’ financial support for research, except in Asia, where we are observing an increase in investment; 2) Increased pressure from a new breed of business-oriented administrators who are asking for research centers to act as profit centers. In general they are refocusing the research departments to become more astute financially. Also, the role of these administrators is becoming broader and more impactful – a natural consequence of tighter financial environment and operating constraints.

Al Naqvi: How do research organizations determine their performance? How should they?

Alex Kleinman: For most Pharma/Biotech companies research performance is measured primarily by the volume of NCEs, INDs and/or NDAs depending upon where you are located in the organization. Some more advanced organizations are beginning to incorporate financial measures such as Net Present Value, and other comparative effectiveness and health-economic measures into their performance evaluation efforts.

In academia, success is typically measured through publication and grant activity. Publications help measure the volume and quality of research work as well as overall academic reputation and are consequently a sine qua non measure for Academia. However, we see administrators increasing the emphasis on (already important) generation of grant funding and valuable intellectual property for the university. This is a reflection of the financial strain these institutions face. One emerging opportunity is the development of measures related to downstream application of research results in the clinical setting.

Al Naqvi: How does the choice of modality and the modality type (dual, multi, etc) accelerate the drug development process?

Alex Kleinman: Each in-vivo modality has strengths and weaknesses that affect utility at different phases of the drug development process. In discovery research and early preclinical development phases, optical and ultrasound are very efficient. They are comparatively inexpensive and fast, and they don’t require special permits or capabilities (e.g, radiochemistry) to operate. On the downside, these systems typically provide more qualitative information, and lack some of the translation capabilities of the other modalities. The Nuclear, X-Ray and MRI modalities are better suited for preclinical development and clinical development due to their higher quantification and translation capabilities. The coupling of nuclear imaging (PET, SPECT) and X-Ray CT has proven to be extremely fruitful in diagnosing a variety of diseases. Tissue characterization has been improved by combining the specificity of radiopharmaceuticals and the 3D imaging capabilities of modern CT scans. Magnetic Resonance Imaging coupled with PET offers interesting possibilities concerning cancer detection, e.g., breast cancer, prostate cancer and brain tumors. At Bioscan, our strategy is to provide a number of multimodality solutions so that we can support our customers across all stages of disease research and drug development.

Al Naqvi: How does molecular imaging improve the performance of research organizations?

Alex Kleinman: I believe, and data supports, that using molecular imaging researchers can:

1. Receive earlier information about the efficacy and safety of drugs, through which they can accelerate promising compounds into the clinic and kill losers earlier.

2. Lower the chances of late stage attrition. In many cases drugs that are effective in test tube or ex-vivo studies will fail in in-vivo disease models (e.g., due to unexpected toxicity, response differences due to genetic variability, etc.)

3. Lower development costs due to more efficient use of animal models and reduction in expensive pathology and ex-vivo analyses.

Al Naqvi: There are many areas in the healthcare research that can benefit from molecular imaging, however we observe very slow adoption. Why?

Alex Kleinman: I believe there are three reasons why we see slow adoption in some market segments:

First, in some cases there are vested interests – existing technology or human resource investments, internal political considerations and the like — that may actively resist transition to new technologies and approaches.

Second, FDA has yet to issue clear guidance on how in-vivo imaging data can be used in regulatory filings. I think the lack of such standards slows investment in molecular imaging because it puts at risk some of the potential benefits. I think this is a key area where the WMIS can be a helpful catalyst.

Third, I think many biologists and biochemists remain unfamiliar with the potential of in-vivo imaging to help them solve their research problems. Here, building stronger alliances and increased collaboration between imaging organizations and therapeutic area organizations, academia and big pharma can truly help standardize and therefore enhance the use of molecular imaging.

Al Naqvi: How about the impact of new agents within the molecular imaging field?

Alex Kleinman: Imaging agents, like all diagnostics, face significant market risk due to what I’ll call “clinical relevance”. By that I mean, if an imaging agent gives you information that does not enable a beneficial change in the treatment of patients, no payor will agree to reimburse it. That is why we see the focus in the pharma industry on companion diagnostics. I believe that we are now in a period where in some areas the potential of new imaging agents is running ahead of the potential of new therapeutics. This, in combination with the challenging healthcare spending environment we face accounts for the slow pace of approval and reimbursement. In this situation, I think the industry will be best served by focusing on the health economic benefit of new imaging agents in the pipeline—potentially in areas like image-guided tumor surgery where the treatment already exists and the imaging agent enables earlier and/or more effective application.

Al Naqvi: How do you see innovation in molecular imaging impacting radiology?

It is important to realize that over the past 20-30 years a lot of imaging procedure volume in the US has migrated from an inpatient setting to an outpatient setting. Since radiology departments don’t control that patient flow, this transition has often been driven by other specialties (e.g., orthopedists, cardiologists) self-referring to imaging equipment located within their own practices. This trend has dramatically reduced radiology service line profitability at many hospitals. In recent years, CMS has tried to rectify the situation by targeting outpatient imaging centers for reimbursement cuts.

Over time, the reimbursement reductions will drive increased imaging patient flows back to the inpatient setting. While this trend will likely slow the sale of imaging equipment to outpatient centers, there is a potential silver lining for academic medical centers involved in molecular imaging innovation. Potentially, academic medical centers can leverage their capability as early adopters of new agents and enhanced modalities to establish a new level of clinical impact to “returning” referring physicians and their patients, thereby increasing imaging procedure growth. Since new agents are often reimbursed fairly well at the outset, the overall impact on imaging service line economics could be substantial. That benefit could in turn justify increased investment in molecular imaging R&D and clinical infrastructure.

Al Naqvi: Should research capabilities acquired from purchasing the molecular imaging equipment determine the research direction or should it be the other way around?

Alex Kleinman: I believe that this question is more of an organizational behavioral issue. Ultimately research questions must come from insights into disease progression, drug targets, potential mechanisms of action, etc. However, in many cases medical physicists have to educate their users to understand the potential of the molecular imaging equipment. There are biologists who understand the value of molecular imaging and then there are those who need awareness building. This is an area where targeted outreach programs can be really helpful. Helping biologists and biochemists think through their research objectives and enabling them to see the value of molecular imaging can be a powerful stimulus for increasing adoption.

Al Naqvi: Do you think that research organizations are maximizing their use of capabilities offered by existing equipment choices? If not, why not?

Alex Kleinman: I don’t think that is happening today. As I mentioned earlier, the internal communications capability of molecular imaging departments need to be improved. A large segment of life sciences researchers is not familiar with the capabilities of in vivo imaging. Only through awareness building and communications can these researchers be developed into viable internal clients of molecular imaging departments. To support the awareness creation, we need to provide ample proof that in-vivo results are valid, acceptable to technical and business decision makers within the biopharma industry, to regulators, and to payors.

Al Naqvi: In this time of grant funding cuts, how can research organizations optimize their investments?

Alex Kleinman: At the institutional level, we see broadening the funding base to include commercial funders in the form of academic/pharma partnerships as a very productive strategy. This is particularly true in areas like nuclear imaging, where clinical nuclear medicine departments already have all of the capabilities in place to do this research. Also, broadening the applications focus of your imaging center to include multiple therapeutic areas may help to increase eligibility for funding.

My advice to the imaging research centers will be to start functioning like a profit center. Use a chargeback model, keep a lean staff, empower your users to operate the equipment and perform data analysis wherever possible, market aggressively to internal customers, and seek external customers if you have extra capacity. Sell tracers externally if you are producing them and have excess capacity. With a good business plan and consistent performance in place, you will be able to attract the administration’s attention and they will be more supportive of co-investment when external funding is insufficient to meet your needs.

Al Naqvi:We observe a lot of functionality and features driven sales approach for equipment. In the current business environment, do you think the focus should be on how customers can realize research benefits and positive outcomes from using the equipment?

Alex Kleinman: I think this is a generalization that is perhaps more true of the nuclear and MRI segments than other parts of the imaging equipment market. However, on the research side we certainly feel that we need to do more selling applications to biologists and biochemists. That is a major focus for Bioscan right now.

Al Naqvi:What are some of the main initiatives undertaken by your company to add value for research institutions and the molecular imaging field that goes beyond marketing products?

Alex Kleinman: At Bioscan we are involved in many areas that are helping the industry. We are actively involved in several societies – including WMIS. We actively participate in educational programs and sponsor workshops. We have made a significant investment in Ph.D.-level applications support staff who work with our customers to ensure they get value out of our products and to help them determine how to address their most challenging research questions. We foster collaboration between our customers wherever possible and we also link institutional customers with in-vivo CROs when necessary. Finally, we maintain a repository of hundreds of applications and research abstracts for use by our customers.

Al Naqvi:The rapid consolidation in the industry and grant cuts would force companies to think about increasing their value equation for their customers. How are you approaching this unique challenge?

Alex Kleinman: Bioscan understands the constraints our customers are facing and we are always cognizant of the value-cost equation. On the cost side, we continually strive to reduce our manufacturing and operating costs so that we can help our customers deal with their financial constraints. We also support our customers in generating funding applications and we provide alternative funding approaches such as leasing. On the value side, we are investing aggressively in R&D so that we can bring truly transformational products to the market, with capabilities we think will help our customers justify new investments in imaging technology.

Al Naqvi:Do you think that entry into the clinical markets offers the best way forward for companies focused on preclinical? Why or why not?

Alex Kleinman: Yes and no! While the clinical market is attractive for investors, who see the higher potential available in a significantly larger market, there are a number of additional risks, including regulatory approval, and the market readiness issue I mentioned earlier. Bioscan considers the research imaging market to be a distinctive segment with distinctive requirements and unique potential to achieve gains in human health. We are exclusively focused on exceeding the expectations of these demanding customers.

Al Naqvi: Please share with us some major developments at your company.

Alex Kleinman: Well, Bioscan is proud to announce that we recently installed our 100th in-vivo imaging system. That’s a significant milestone for us. We were also excited to learn in January that our new 360-degree tomographic optical imager, BioFLECT, was awarded 2nd place in The Scientist magazine’s Top 10 Innovations of 2011. BioFLECT uses a rotating ring of high-sensitivity photodetectors with a wide dynamic range, which permits whole body, deep tissue imaging to generate a quantitative, 3D scan of fluorescent tracers in live animals

In addition, last year we began a major R&D initiative to develop preclinical PET/MR imaging systems. Bioscan is a principal industrial partner of the IMAPPI (Integrated Magnetic resonance And Positron emission tomography in Preclinical Imaging) project, an effort funded by the French Commissariat Général à l’Investissement and led by a consortium of academic and industrial partners located in Dijon France. As the Bioscan contribution to IMAPPI, Bioscan’s French subsidiary, Bioscan Molecular Imaging France (BMIF) will develop a prototype molecular imaging devices integrating highly innovative MRI and PET technologies. We expect to commercialize new products related to this R&D activity between 2012 and 2014.

Al Naqvi: Thank you so much for adding tremendous value for our readers. This was extremely helpful.

Alex Kleinman: You are very welcome.

This test is performed using the PET (Positron Emission Tomography) modality. The imaging agent known as Amyvid lights up deposits of beta amyloid in brain scans. Beta Amyloid is the protein that is present in Alzheimer patients.

The test can be used to determine two conditions. First, the absence of beta amyloid can be used to rule out Alzheimer. Second, the presence of beta amyloid can indicate the possibility of Alzheimer. The presence of beta amyloid doesn’t always mean that the patient has Alzheimer. Hence the test can be used along with other tests to provide a data point which can lead to the diagnosis of Alzheimer.
Over 5 million Americans suffer from Alzheimer and the statistics indicate that the disease is expected to rise fast as the average age of population increases. President Obama has set a national target of preventing and treating Alzheimer by 2025.

World Molecular Imaging Society (WMIS) welcomes the new developments in the PET arena. WMIS is playing a critical role in helping patients, physicians, regulators, and researchers understand and develop a coordinated strategy for fight against Alzheimer. WMIS organized a scientific conference in Chicago in March 2012 focused on Alzheimer and beta amyloid. The society is now working with the world’s most innovative companies to accelerate the adoption of novel solutions for Alzheimer patients.

PlanClear: Thank you for joining our Expert Panel and for this interview. Please tell us about your experience in this field?

Anwer Rizvi: I founded and was President of what is now known as IBA Molecular, North America, which was one the first full-scale PET radiopharmaceutical manufacturing and distribution company. I stayed as the President of iba Molecular of North America for nearly a decade. Recently, I left iba and I am in the process of starting my next venture.

PlanClear: What are the biggest changes taking place in the industry? Why are they important?

Anwer Rizvi: GMP and the upcoming new PET drugs are the biggest changes taking place in the industry. I believe that the change is so enormous that all the existing strategic frameworks are not designed to accommodate that change.  They are important because the overall performance and viability of the industry is dependent upon how the industry responds to these opportunities.

PlanClear: Where do you think the nuclear medicine and molecular imaging market headed?

Anwer Rizvi: I see a great future for the industry. There could be some hiccups but overall I believe we will observe a tripling of the size of the market (specially PET) within this decade. The future looks really bright.

PlanClear: How big of an impact will FDA 212 have? How can companies turn 212 into an opportunity to grow and/or become more efficient?

Anwer Rizvi: Some companies view 212 as an unnecessary regulatory annoyance. I think it is a great thing that happened to the industry. Firstly, it is an indirect acknowledgment that the industry is now maturing and hence needs powerful manufacturing processes. Secondly, it operationalizes best practices and enables companies to manufacture more cost effectively. Thirdly, it sets higher standards for performance and hence creates a barrier to entry. Going forward, it will be important for companies to design their operational and strategy frameworks that take full advantage of the manufacturing practices offered by FDA 212. I believe that at this point in time most companies are approaching it as a regulatory compliance issue and not as an operational improvement opportunity.

PlanClear: Do you think that the new proprietary drug launch will have a favorable impact on the overall PET market?

Anwer Rizvi: Absolutely, but it needs to be managed well. The most important issue will be to form the right alliances and distribution agreements. The pharmaceutical companies launching the new drugs and the distributors will have to work together in a way that the incentives and interests of both are protected. Also we need to make sure that access is not denied to patients and physicians and therefore all parties involved must have access to the distribution.

PlanClear: What can stall the market success of the new PET drugs and how can companies overcome that risk?

Anwer Rizvi: As I said previously, the way distribution agreements and channel relationships are structured will be critical for the success. Secondly, the operational processes and facility designs of the existing facilities may also become a bottleneck. I read one of your recent articles and I agree with your observations.

PlanClear: To launch new drugs, should pharmaceutical companies work with the existing radiopharmaceutical companies or do you think that it would be better for them to identify new channels?

Anwer Rizvi: For the diagnostics side, I believe that the pharmaceutical companies should work with the radiopharmaceutical distributors. It would be better for them to sort out the risks involved in processing multiple compounds and to make sure that their distribution partners are capable of doing that. For the therapeutics, there is an opportunity to develop some new channels.

PlanClear: Is the industry ready to embrace the new compounds? If not, why not?

Anwer Rizvi: Industry is definitely excited but that is not enough. We need to develop best practices, capacity, and workflow processes that can enable us to produce multiple compounds simultaneously.

PlanClear: What are the major operational best practices gaps that would become worse or larger if new PET drugs are launched?

Anwer Rizvi: I think that cyclotron capacity and synthesis processes will become a major problem. New work processes need to be implemented to take advantage of the new drug launch success. I also think that sales training would be critical.

PlanClear: How can companies prepare better to embrace the new paradigm?

Anwer Rizvi: I think they need to get rid of their current plans and rethink strategy. I believe that most companies are still trapped in the old model and have not really embraced the gigantic change they are confronted with.

PlanClear: Thank you and good luck with your new projects.

PlanClear: Thank you for joining our expert panel. Please tell our subscribers about your experience in the industry.

Webner: I have been in the Nuclear Medicine industry since 1985.  I have played many roles during these years, I have been a line technologist, Radiopharmacy tech, Nuclear medicine manager, a radiology financial manager, RSO, a sales person, a product developer, and always an educator. I spent most of my early Career at Mt Sinai NY in many different roles, including successfully defending against a 2 year OIG audit. In retrospect, I have spent most of my time at the hospital doing industrial engineering, practice development and CQI programs.  Since 2000 I have worn many hats with the startup Eastern Isotopes which became IBA Molecular. I signed on not even having a job title.  I did everything from helping literally build out a Radiopharmacy from scratch, hire a local team, and develop the company’s largest region.  I went on to work on education, reimbursement, government and medical community relations, and worked on helping identify pipeline products which showed future promise for the marketplace. I am now working with Positron to develop their automation and radiopharmaceutical business.

PlanClear: You received specialized education from Harvard. How did it help you and how can other nuclear medicine executives take advantage of the program?

Webner: I took the Leading product development executive education program at HBS with Drs Christensen and Thompke.  It was a great opportunity to better understand the creative and innovative processes that occur across all industries.  I had classmates form Big Pharma companies, NASA’s JPL, P&G, Triumph Motorcycles, BMW, and others.  It helped me to better understand how the ideation process is common across industries, despite the relative complexities of the particular application.  Innovation in a vacuum inevitably fails.  When I started in the field, most products were approved using very different standards, and products were came to market and were paid for much more quickly.  Also our devices were simple, gamma cameras, probes and yes, even rectilinear scanners.  Computers were being used, it took half an hour to process a 64 step 64X64 matrix SPECT transaxial plane. Renograms took 15-20 minutes to perform.  We stored images on 8 inch floppy disks, magnetic reel tapes, and 10mb cake-box hard drives.  Today, we have hybrid imaging devices, cross licensed technologists, cross trained doctors, instantaneous processing, thousands of millimeter slices, terabytes of data, plus a usb drive with my recent MRI on it.  Our environment is no longer straight hallway with doors between modalities.  We routinely perform complementary imaging procedures.  In 2008 we spent about $250 per person in the US on Imaging.  Imaging has started to become the new stethoscope.

We work in a complex environment, we have oversight by NRC, FDA, OIG, CMS, State Health departments, JCAHO, and others. We need 3rd party certification of our practices to do what we are licensed to do. Our products need to be cleared or approved by FDA or other  regulatory agencies, and hopefully work in parallel to ensure positive reimbursement policy.

In our current environment, we have increasing fiscal and regulatory scrutiny and a very volatile political perception of healthcare in relation to the US economy.  These factors necessitate that we not only have a long view of where the Nuclear Medicine is headed, but we must also have a very broad view.  For many years, we have been able to develop products and services with tunnel vision and have lots of confidence of future success.  We live in an environment where we could spend millions of dollars developing new drugs and devices, get them FDA approved, but may never get positive coverage by CMS and private insurers. We have seen the struggles of CVCT, Virtual Colonoscopy, being approved procedures developed over many years, costing huge sums of money to develop and deploy, only not to meet changing evidence criteria for coverage, and receive weak, if any, coverage criteria.

PlanClear: Do you see a strong future for the industry? Why or why not?

Webner: When I started in the medical industry I remember seeing cancer patients diagnosed and perish in a very short time.  Open heart procedures were perilous, patients were intubated for days, in the hospital ICU for 10+ days. Convalesced for months, most couldn’t go back to work. We did many exploratory surgeries to find causes of symptoms.  Many healthy people perished, many more had disease go undetected until too late.

Now we have cancer patients with advanced disease living long productive lives with cytostatic therapies. we have developed technologies to detect cancer, heart disease, as well as other diseases much earlier.  We have also developed advanced therapies that can be applied to this early stage disease.

Within this milieu, Nuclear medicine has evolved tremendously since our first mission, detecting and treating thyroid disease.  Despite the discovery of other ways of imaging human tissue, Nuclear Medicine continues to have significant key advantages:  We can use infinitesimal amounts of proteins, peptides, small molecules and follow their metabolic journey through the human body non invasively.  We can tailor compounds to detect a disease which also has a very specific therapy.  Targeted therapies will require targeted diagnostics. This is one of Nuclear Medicine’s strengths.

We are in a bit of a rough patch right now, dwindling dollars for innovation, financial and policy pressures to do fewer procedures, practices have closed, and many are unemployed. This has definitely slowed some of the growth and innovation.  I firmly believe this will rebound.  We are a community of innovators and scientists, innovation can be slowed, but never stopped.

PlanClear: If yes to the previous question, what will be the biggest hurdles to realizing that future?

Webner: Vision to see past the current depression (yes, I said depression!). We also need to work to make government remember that small business and innovation has been the backbone of the growth of this country and of medicine.  We are no longer a manufacturing economy, we are innovators and bold thinkers, we need to realize this and promote it to ensure our future.

PlanClear: You have been involved with several automation projects. In what areas do you see a major need for automation and why?

Webner: We work in a hazardous environment. We have seen industrial Pharma, and even Detroit automate dangerous,  rote, mundane, and critical procedures to ensure quality and safety. It is the time for us to start trickling this technology down to the end user environment.

PlanClear:  Automation almost always involves change management. Would that be a major factor in automating the SPECT dispensing process? How can companies manage that transition better?

Webner: Life is change, Amazon lists over 116,000 items in their book section under the header “Change”. We become comfortable with our status quo and accept the inefficiencies that exist. As we need to become more efficient, we are often required to multi-task.  Dose preparation automation allows this type of ability. Any introduction of disruptive technology into a market or an end user takes time to proliferate.  The early adopters embrace this type of opportunity, looking for advantages afforded them by the technology, and once these initial adopters succeed, the technology will proliferate.  Change is both traumatic, and healthy. Change allows us to reexamine our processes and procedures.  The principle of continuous Quality Improvement has been lost in the dark clouds the last years.  Change affords us an opportunity to reapply the principles of CQI, and hopefully produce a better, more cost effective product.

PlanClear: PET is going through enormous change. With several new drugs in the pipeline, what are the biggest challenges you see in the industry?

Webner: In the cardiovascular PET industry we will see some challenges due to lack of expansion of strontium production infrastructure. On the Oncology side, we do around 2 million exams a year currently and most radiopharmacies are at very busy, many at 50-80% of capacity. We will see significant challenges to meet demand with new products released.  We perform 7-9 million SPECT Cardiac procedures. If 10% (conservatively) convert to the new Lantheus PET imaging agent, we will need more than  more production capacity ( Typical FDG production yields are 80+%, most of the novel products do not have as good of a production yield, so more F18 will be needed).  Let’s add Avid’s Amyloïd agent TO THE MIX.  We have about 5 million patients diagnosed with Alzheimer’s the combination of a targeted therapeutic plus a diagnostic agent could easily help to double the need for F18 production. The other challenge will be maintaining separate reimbursement for radiopharmaceuticals.  Part A bundles them into the procedure payment, since radiopharmaceuticals are technically listed as supplies by CMS (like syringes, gauze, etc).  Part A pays average sales price plus a percentage for all drugs over a threshold price of about $60.  This does not apply currently to radiopharmaceuticals.

PlanClear: In what areas do you feel the industry needs to invest money? How would that improve the overall performance?

Webner: We need to focus on showing the effectiveness of our technology.  It is difficult for us to show CMS and other payers that our technological innovations save cost as well as improve outcomes.  It is difficult to quantify the savings of a procedure that was never done due to an imaging study.  However, this is the data that insurers want to see.

PlanClear: Are sales organizations of radiopharmaceutical companies ready to embrace the new paradigm of proprietary drugs? Where are the biggest gaps?

Webner: Everyone is excited about the new products.  The challenge will be adopting the Pharma industry education model.  The newer products will be complex and highly targeted and will require education for both the readers and the referring community.  Interpreting MD training will be crucial.  Many radiologists have had minimal experience in physiologic imaging and interpretation, manufacturers will need to support the training necessary for the appropriate ordering and accurate interpretation and reporting of these new procedures.

PlanClear:  In radiopharmaceutical sales, what are the biggest value drivers for customers? How would they change as new drugs are launched? 

Webner: Value drivers for clinicians are products that they can use with their existing technology, products that will have clinical impact for the referring physicians, and products that they have confidence in using and interpreting. These will not change.

• Lantheus’s PET cardiology drug enters third phase, what does that mean for SPECT and Rb? Does it make sense to build a 70 MeV to alleviate Rb shortage problem? Would PET cardiology agent run into cyclotron capacity issues? Click here to read more and share your thoughts
• Are there better ways to market new drugs? Is NaF demand picking up as expected? What best practices are needed to educate better?
  Are sales teams ready to face the world of new PET drugs? Do the incentive systems require rework?
• Are operational departments ready for new PET drugs? What strategic initiatives are needed now to prepare for the change?
  Does announcing readiness for FDA 212 means you are there? Or does it imply that the entire manufacturing process should be changed? Can companies reduce overall costs while implementing 212.

Structuring the Distribution Agreements

In the past many new drugs have been victimized by the battles between pharmaceutical companies and radiopharmaceutical distributors. Due to wrong incentive structures, many new drugs failed as they were choked in the distribution bottlenecks. Pharmaceutical companies pleaded but to no avail. The distributors, and rightfully so, were motivated by the same motivation as anyone else is i.e. maximizing their return on investment. The risk of history repeating itself is too much to ignore for both parties, even though there are some differences between then and now.

Radiopharmaceutical industry has gone through consolidation. In the PET space, above 90% of the market share is held by four companies – and two of the four are large enough to be on the Fortune 500 or Global 1000 list. With highly talented leadership teams setting the direction for these companies, the distributors have recognized the importance of creating a sustainable competitive advantage. And they know that FDG is the not the answer. Hence, there is a far more receptive environment than in the past. Just as distribution companies are more receptive, pharmaceutical companies have also recognized the mistakes from the past and are trying to put together plans that are far more responsive to the needs of radiopharmaceutical partners.
Despite the recognition of reliance on each other both parties are still far away from designing a framework that can work for both. The level of trust is low and each party would try to get the most out of the deal. At this point it is important to create a win-win for all parties involved.

Capacity and Bottlenecks

In informal surveys, we asked several practitioners about the capacity and bottleneck issues in the production of the new drugs. The standard answer we received was that they are not worried about those issues. When we analyzed the total capacity of the existing cyclotron fleet in the United States and compared it with the projected number of new drug doses, the available capacity seemed to evaporate as rapidly as the argument that there is plenty of available capacity.

Working with multiple compounds under FDA 212 environment is also not easy. If you need to use multiple boxes, you would need multiple hot labs. Your employees would have to learn how to operate and follow the guidelines. And if you don’t have redundant cyclotrons in place, you will be in deep trouble when your single cyclotron suffers an outage.

You would need to design workflow that meets or exceeds the standards and also creates cost efficiencies and production flexibility.

Even a casual or cursory visit to the existing facilities will demonstrate that the readiness is nowhere close to what would be needed. Most manufacturing sites are single cyclotron operated. The fleet is coming of age and forced outages are common. The sites are not designed for multi-compound workflow and processing. The distribution systems are not configured for the sophistication needed to accomodate multiple compounds.

Clinical Education Based Sales

Enter the age of new drugs. Gone are the days of selling customers on price and delivery. Face it, the sales teams of traditional radiopharmaceutical companies are not trained to engage in clinical education based sales. FDG, a non-proprietary drug, was rapidly commoditized as the price-based competition became the norm. While the industry’s growth slowed down, the competitive dynamics that developed were driven by poaching clients from each other by giving lower price incentive. While some companies, such as Cardinal, have prior experience of clinical value and education based sales, other radiopharmaceuticals are at a disadvantage. With new PET drugs in the pipeline, the sales force would need significant retraining – first to understand the clinical value based sales process and second to develop the technical expertise.

Cross Training

Radiopharmaceutical sales teams are primarily focused on oncology. With over 90% of PET sales going to oncology, oncology has become the nucleus of PET sales activity. From relationships to contacts, oncology is the comfort zone for PET Sales professionals. The new PET drugs being launched are in Cardiology, Neurology, and other specialties. Building essential skills in those areas will not be easy. Cross training sales teams on multiple products will become harder.

Sales Organization Design and Processes

The entire sales force of the PET industry in the United States is estimated to be less than 200 people. The salespeople are burdened with supporting a large number of clients and new drug launch will not make it any easier. As new potential clients would now include neurology and cardiology clinics, the number of client relationships managed by each sales person, if teams are not expanded, will increase significantly and may become unmanageable. Hence, companies need to start restructuring their sales organizations now. Restructuring would involve detailed mapping of the emerging client base, hiring and training new team members, and designing specialty focused teams where necessary. Furthermore, the sales organizations would have to learn how to partner with the pharmaceutical sales organizations and develop joint sales best practices. This would also imply that new and advanced sales processes would need to be deployed and the sales incentive systems reconfigured to match the new realities.

Investment 

All of the above improvements require significant planning and investment. Modernizing manufacturing facilities, hiring and training sales teams, developing marketing plans, and other managerial and operational improvements would need fresh capital investment. In the current economy, getting access to capital can be hard. The cash flows generated by the existing businesses may not be sufficient to redirect the investment back into the business while meeting the return expectations of the shareholders – particularly after making recent investment in the FDA 212 compliance. This implies that careful planning would be necessary to drive new value from the upcoming drugs.

Marketing and Key Opinion Leaders

Radiopharmaceutical companies as well as pharmaceutical companies would need to put in place strong key opinion leaders programs that should be targeted towards both the referral base and the patient community. Having the board of advisors and specialists as well as the patient community representatives would be essential to ensure that the commercialization of the drug is successful and strong channels exist to create and respond to the demand.

Reimbursement and Pricing

Finally, the issues of reimbursement and pricing would remain unclear until the drugs are approved and ready for commercialization. The risks associated with reimbursement variability should be taken into account while developing strategic and business plans. This implies that planning needs to be scenario driven and each scenario needs to be fully developed and well thought out.

None of the above factors can be ignored. Once the competitive dynamics unfold, it would be too late and chaotic to focus on these issues. The time to do that is now.

Crumbling under the forces that only some could have predicted, NM/MI is an industry under seige. The industry barely recovered from the aftermath of DRA and it was hit by a plethora of unfavorable forces. The economy worsened, Moly supply conditions tightened, consolidation continued, margins declined, revenues shrunk due to pricing pressures, raw material prices continued to climb up, transportation costs peaked, and quality compliance requirements increased. As a CEO or an executive in the Nuclear Medicine and Molecular sector – you are now confronted with a new set of realities. Gone are the golden days when growth was the only problem you had to worry about. Welcome to the new competitive dynamics in the Nuclear Medicine and Molecular Imaging industry.
In spite of the toughest business challenge that the industry has ever faced, let us first celebrate a powerful achievement: the industry is here to stay and it is entering its first stage of maturity. There was a time when critics claimed that the NM/MI industry is a short-term phenomenon, a fad, and that it will dissipate with time. Well, that didn’t happen! Instead the industry flourished and the modality adoption increased. Those critics may now look at the major challenges facing the industry and claim that their predictions are coming true. But what is transpiring now is not an indication of the weakness of the industry – instead it is a sign that the industry is now maturing and its challenges are simply the “growing pains” of an industry facing its official status of maturity.

In order to validate our hypthesis that the industry is now entering a mature status, let us look at the competitive dynamics unfolding in the sector. Mergers and acquisitions leading to consolidation are on a rise. The industry is getting new capital infusion to address its unique challenges and tremendous innovation is taking place. Private equity groups are exploring new investment opportunities, regulators are preparing plans to unfold higher and better quality standards, and new business management tools are being introduced to increase productivity and grow margins. These things don’t happen in a dying industry.

Take the example of pharmacy business: larger players such as Cardinal and PETNET (Siemens) are leveraging their scale to realize greater economies, while smaller players are deploying greater efforts to capitalize on their economies of scope (driven by relationships, geography, leaner operating model). For both small and large players in the sector, no longer it is enough to own and operate a pharmacy on an operationally isolated basis. As an industry matures, it filters and culls its operational processes to identify the processes that maximize value for its customers and allocates healthy margins across its value chain. Interestingly, this is what is now happening in the NM/MI industry. A set of best practices is emerging and the implementation of these best practices is becoming the only vehicle for achieving business success in the industry.

WHAT ARE THESE BEST PRACTICES?

These business practices can be classified into five main themes: 1) Revenue Management, 2) Cost Management, 3) Capital Management, 4)  Asset Management, and 5) Human Resources Management.

Revenue Management deals with optimizing revenues while securing profitable growth and gaining market share. At a mathematical level, it is a function of pricing, volume, and mix. At an operational level though, it is driven by sales excellence, product management, reimbursement strategy, customer service, marketing and branding, and dozens of other factors. For the core modalities in the NM/MI space, the market penetration is still alarmingly low – which implies that there needs to be greater emphasis on patient and physician education. The question is who would do that and how much budget will be allocated to those efforts. Sales processes in NM/MI are still relatively primitive when compared to other industries. In marketing, the industry seems to be self-indulged in promoting itself within its own community rather than working on external demand drivers. New best practices now exist that can help companies analyze pricing for optimizing profits, sales effectiveness improvement strategies, product mix analysis, and marketing improvements.

Cost Management addresses the unique value chain of the industry which is driven by the half-life factor. From dosage preparation to delivery and administration – the productivity potential is a function of time. When compared across a large spectrum of companies, there exists a wide variability in costs. In some cases, within a given company one can notice significant variation in costs across different pharmacies. To properly manage costs, best practices are evolving to ascertain the right cost and service mix for a given volume. Additionally, many sophisticated methodologies such as Strategic Sourcing and Lean Manufacturing are now available to address the unique aspects of NM/MI. While quality compliance does remain as a significant cost driver for many companies, the new emerging model is based upon integrating operational best practices with quality management to make quality management a part of company’s culture and operating philosophy. The other major component of cost management is a company’s fixed overhead. Once again, we observe significant variability across companies in their FOHs. Since we believe that going forward, as the compeition increases in the industry, flexible pricing will become the dominant pricing model, the allocation of FOH on a per dosage basis will become a key driver of ascertaining profitability. Similarly, distribution costs are a significant component of the overall cost and we observe huge variability among various companies even when they operate on comparable distribution routes. Distribution optimization and fleet management can lead to significant reduction in costs. In addition, hedging strategies can be used to hedge against sharp increases in fuel costs.

Capital Management implies improving returns by improving capital efficiency, as well as capital allocation and investment. While proper cash management in the cash value chain of a company can improve its capital efficiency, other areas such as excellence in the procurement of capital equipment can also result in increasing the overall returns. Recently, many companies are struggling to find new capital to fix their quality issues or to make modifications to their existing facilities. We believe this an area that requires significant attention. Investments should be made strategically so that a company that is trying to comply with USP 823 and USP 797 can also qualify with upcoming FDA 212 standards with minimum incremental investment. Keep in mind that sourcing excellence can go a long way to help a company reduce its capex without cancelling its wish-list capital projects. New capital investment also implies taking into account the new and emerging technologies that are now on the horizon. With the introduction of new PET tracers, various pharmacy automation equipment, and new types of cameras supporting new modalities – the industry is getting ready for significant new capital infusion. In particular, companies should prepare themselves for processing new PET compounds and must develop capital allocation strategies that are consistent with the competitive dynamics of the sector.

Asset Management implies protecting and enhancing your existing assets. You existing assets include not just your equipment but also intangible assets such as your reputation and brand. Protecting your physical assets is a function of having the right maintenance plans in place and safeguarding the value of your assets by acquiring the proper insurances. Your intangible assets are protected by ensuring you are complying with the quality standards and protecting your business reputation and brand.

HR Management includes developing proper HR plans, establishing a great work environment, cultivating strong values, implementing a win-win culture, developing employees, enhancing retention, and facilitating conflict resolution.  Many companies focus too much on HR processes and ignore the key essence of HR management which is the culture and values of your firm. This is an area where we observe significant need for improvement. We believe that strong leaders are not just business strategy leaders – they are also great people leaders.

In summary, while still propelled by innovation, NM/MI industry is maturing and its problems and challenges are becoming more standardized. The good news is that while the sector has its own dynamics, its own momentum, and its own competitive structures - now there is enough evidence, experience and trail to identify the best practices in the industry. This blog will focus on the above mentioned five core areas. It will help the key leadership and executive teams  to produce highly powerful outcomes for patients and physicians. By claiming its rightful place in the health care sector, NM/MI industry is now ready to face the world; it has been elevated to a higher level, and we are here to help achieve that success for NM/MI leaders.