As COVID-19 Emergency Becomes Chronic, CEOs of ResMed and SI-BONE Pivot

As the United States and rest of the world re-opens following pandemic lockdowns, each industry is banking on driving a recovery based on metrics specific to the nature of their business.

For medical device companies, these include resumption of elective surgeries, movement of more procedures to hospital outpatient and ambulatory surgical center settings, and, increasingly important to building momentum for the above, motivating patients to overcome safety concerns about returning to doctors’ offices (See Figure 1).)

A big uncertainty is the rate at which elective surgeries will resume. Another is how the vendor-provider relationships will change, and the extent to which digital health strategies utilized during the lockdown will become more ingrained in providing health care. Underlying less visible and longer-term worries revolve around supply chain resiliency and the appearance of a second wave of infections next fall or winter.

As of mid-May, hospitals across the country, including those in hard hit areas in the Northeast, are slowly resuming elective procedures with new, complicated protocols in place for infection control. How hospitals and industry manage each others’ relationships through the transition will determine each stakeholder’s healthy recovery.

Figure 1

Consumer Sentiment Toward Surgical Procedures*

Surgical procedures account for up to 50% of hospital revenues by some estimates and an even greater percentage of hospital profits. Those procedure volumes dropped to a fraction of normal conditions in most parts of the country, as different regions implemented lockdowns in late March and most of April. At the same time, hospitals that admitted many COVID-19 patients assumed substantial costs of labor, personal protective equipment (PPE), and other care. 

During the peak of the COVID-19 shutdown, hospitals were generally devoting only 10% of care to non-COVID-19 patients. Now, even with best-practice protocols in place, the conversion to a better-balanced case load is fraught with complexities, as hospitals implement new safety protocols, strain to improve efficiencies amid gaping budget deficits, and limit outsider access.

“Caring for COVID-19 patients has created an enormous drain on the healthcare system,” says Harold Mondschein, CEO and co-founder of Medtel.com, which provides software-enabled workflow management and predictive analytics services for surgical suites.

Also likely, some changes in the vendor-provider relationship implemented during the COVID-19 shut down will become permanent—but how exactly which ones and how much is uncertain. This includes more digital and fewer face-to-face interactions across training, marketing, and distribution. New anti-contamination protocols will mean less freedom of movement for device reps covering cases and used to addressing preferences of individual surgeons on short notice. Hospitals may limit rep access to their facilities and staff. Even if they allow vendors on their premises, behavior that accounts for human dimension is likely to be curtailed. Under normal conditions, for example, hospitals in competitive markets tolerate vendors’ rush to service surgeons on demand and have been reluctant to set limits for fear of losing surgeons to other healthcare systems, but that may change, says Mondschein.

New anti-contamination protocols will mean less freedom of movement for device reps covering cases.

As hospital budgets crater, manufacturers too will feel the brunt of cost efficiencies and allegiances to specific vendors may weaken, experts say. Capital equipment expenditures are likely to slow.

Furthermore, when possible, procedures are likely to shift to free-standing ambulatory surgery centers (ASCs), run by the hospitals or independent businesses, with a priority to move more profitable cases faster. Logistics planning for these priorities is increasingly sophisticated and driven by data science, which should address some of the pressure to become more efficient. 

While the pent-up delays provide opportunity, any pickup may be hard to forecast as procedures are often the ultimate step in a long journey that began with a diagnostic workup, followed by conservative care and medical management, says Brian Chapman, a principal at ZS and head of its medical device practice. “When we talk about recovery, it is easy to think about people with conditions who delay surgeries and wait and at some point get it. But the more tortuous the patient journey, the longer it will take to come back.” (See “Inpatient and Outpatient Visits Wither in the Face of COVID-19,” this issue.)

Smart medtech companies realize that the patient lever will be important in resuming many procedures, he continues. Nothing has happened to the prevalence of conditions that need intervention, but companies need to “be more concerned about the referral pathway and help patients and doctors be aware of the latest information and options. They may need to prime the pump more to get back to normal.”

MedTech Strategist spoke with the heads of two public device companies that are innovation leaders in their sectors and affected very differently: Mick Farrell, CEO of ResMed Inc., which has had to pivot to address the ventilator shortages, and Jeffrey Dunn, Chair and CEO of SI-BONE Inc., which makes an innovative spinal implant, as part of an ongoing series of articles on how industry is responding to the COVID-19 crisis and planning for recovery. (See “Navigating Beyond COVID-19: What Device Companies Can Do to Survive and Thrive; A Conversation with Glenn Snyder, Deloitte Consulting,” MedTech Strategist, May 1, 2020.)

ResMed Emphasis on Respiratory Care, Digital Solutions                                                                               

ResMed is better positioned than many medtech companies to manage the tsunami of COVID-19, given its expertise in both in-hospital and home-based treatment of respiratory diseases and its early integration of digital health technologies into patient care. (See “ResMed: Using Digital Health to Fuel a Medtech Growth Strategy,” MedTech Strategist, June 8, 2018.)

After cutting its teeth in the early 1990s with innovative technology for sleep apnea, the company expanded into home-based oxygen therapies and non-invasive ventilators for COPD and neurodegenerative diseases. In 2005, it bought Saime, a French manufacturer of invasive ventilators, giving it a small stake in the acute care market.

The COVID-19 epidemic has led to increased global demand for the company’s ventilator portfolio, as well as for ventilator masks and circuits. While ResMed is a top-five global producer of hospital-to-home ventilators and one of the leading producers of non-invasive systems, including bilevel devices, however, it has not previously been a major global supplier of invasive ventilators, which have been so important in treatment of COVID-19. Nor are ventilators one of the largest businesses for ResMed, which derives up to 80% of its revenues from sleep apnea products.

As the pandemic unfolded, production ramped rapidly, including a $32 million contract awarded by FEMA, announced April 13, for 2,550 invasive ventilators. The company was one of six to win such awards, and its contract came in at the highest price per unit.

Overall, respiratory care, including ventilators, constituted less than 10% of the company’s total sales of $2.6 billion for the fiscal year ended June 30, 2019. ResMed doesn’t break down quarterly sales by product line, but says in the third-quarter ended March 30, 2020, it saw in excess of $35 million in incremental new COVID-19-related demand for ventilators, masks and circuits, or 4.5% of the company’s total sales for the quarter of $769.5 million. The company plans to continue tripling yearly output of ventilators and bilevel devices, plus increase ventilation mask production tenfold, through the cycle of surges and flattenings, until demand returns to normal, says Mick Farrell.

Predicting how the pandemic will affect the company’s overall financial performance going forward is impossible, however, given the complex variables. Even as the respiratory care business prospers, the company’s much larger core sleep apnea business is experiencing a double-digit slowdown, due in part to a drop-off in new patient starts that will take time to stabilize.

For ResMed, the experience is changing how it operates in both transitory and permanent ways. The company is working on optimizing digital health and remote monitoring tools for caregivers, patients, and employees. “We believe fundamentally through this crisis even more so that the future of healthcare is outside the hospital,” Farrell told investors on an April 30 earnings call to discuss the third quarter ended March 30, 2020. Some 80% to 90% of the company’s product line addresses treatment in the home setting, and that, combined with its roster of cloud-based software services and analytics minimizes unneeded person-to-person interaction in the ways that address safety and cost in a COVID-19 world. Examples of this include remote monitoring of ventilation devices, telehealth solutions, and virtual patient population management.

AirView, a cloud-based patient management system for online patient monitoring, is one of several digital ResMed products that could become more important as the pandemic drones on. It connects wirelessly to the company’s leading devices, including its ventilators, enabling providers to quickly access patient information.

These types of digital health and remote monitoring models can scale and also reduce the need for recovered COVID-19 patients to return to their providers for follow up in an outpatient setting, which the company believes will save money and improve efficiency and safety for providers and patients.

Its cloud-enabled connectivity, advanced data science capabilities, and access to large internal and external databases are enabling ResMed to monitor global and regional disease curves and rapidly develop predictive analytics that anticipate clinical and operational needs in advance of surges. The company has access to six billion nights of sleep and respiratory care data collected from more than 13 million devices by AirView. This, combined with datasets from governments of more than 100 countries and thousands of customers, can be aggregated to ensure ventilator production is optimized and inventory is managed efficiently and fairly across countries in response to demand, Farrell says. To date, the company has stayed ahead of demand in most countries, with exception of northern Italy and southern Switzerland, which caught people by surprise, he says.

ResMed has also used pre-existing relationships with governments globally, honed as it built its core businesses, to win contracts for its COVID-19 related products.

In France for example, it benefits from relationships it cultivated previously as it built the continuous airway pressure (CPAP) and auto-adjusting positive airway pressure (APAP) businesses. “We showed the French Social Security System how it could save money by driving sleep apnea adherence rates up significantly from a low 50%,” using digital health technologies, and that work led to relationships that are helpful in the current crisis, Farrell continues.

About 65% of ResMed employees have been working at home, with consistent productivity, even as the business is shifting in new and uncertain ways, says Farrell. Lessons learned during this period will drive future innovation, particularly in the field of digital health technology. The experience has forced adoption of virtual and other practices that “will change ResMed forever,” he says.

Increasing understanding of the clinical course of disease and best medical care practices has also influenced ResMed’s strategy. While initially COVID-19 patients were treated according to well-established protocols for Acute Respiratory Distress Syndrome (ARDS), the conditions are clearly different. Low oxygen saturation in COVID-19 patients presents similarly to ARDS, but the lungs of COVID-19 patients are more delicate and mucous-filled, so they need gentler ventilation earlier in the cycle of acuity. The big finding is noninvasive ventilation can help protect lungs from damage,” Farrell says.

ResMed’s portfolio could be used to tailor treatment more precisely to patients at different stages of disease, which would likely yield better patient outcomes. Conceptually, patients could start oxygen supplementation with bi-level, noninvasive positive pressure ventilation before moving to more aggressive noninvasive ventilators, and finally, as needed, to intubation.(See “Bilevel Respiratory Devices for COVID-19: Making the Case,” Market Pathways, April 23, 2020.) In addition, early scientific research on the disease shows that post-acute COVID-19 patients may also benefit from non-invasive ventilation. 

These findings would  normally take years to study and evolve into clinical practice but are now being adopted in real-time through rapid publications and white papers on best practices for ventilator utilization.

These findings would normally take years to study and evolve into clinical practice but are now being adopted in real-time through rapid publications and white papers on best practices for ventilator utilization. Protocols from the UK’s National Health Service (NHS) on use of supplemental oxygen, moving to bilevel therapy and upgrading to more aggressive bi-level non-invasive ventilation, and the higher levels of non-invasive ventilation and ultimately full intubation through invasive mechanical ventilation are being implemented in different parts of the world.

Meanwhile, ResMed’s workplace safety protocols, which are in use at its production facilities in Asia and the US, as well as its distribution center in The Netherlands, are now being rolled out in its offices in Europe as they gradually re-open. ResMed is issuing PPEs for all employees at its manufacturing plants and subjecting them to daily non-contact temperature checks and physical distancing, marked by tape on the floors, including where to stand while waiting for elevators. At the manufacturing sites, the workforces have been organized into shifts so that if any group gets contaminated, everyone in it can be quarantined for 14 days, then re-tested before re-entry to the site. There are separate bathrooms and entrances for each of the shifts.

So far, the company has not experienced significant hot spots or business interruptions, although it has quarantined some shifts on sites where people have tested positive, Farrell says. Still, he adds, “What we have learned in the past 90 or so days is that this is workable. We can open economies up and get back to work safely.”

Keeping SI-BONE’s Commercial Team Intact

Jeff Dunn and most of SI-BONE’s 250 employees have been working remotely since March 15, when San Francisco issued lockdown orders. They are communicating via video-conferencing and weekly virtual town halls to discuss business performance, operations, and product development, even as they prepare for re-opening.

The company, a pioneer in minimally invasive sacropelvic surgery, has been hit hard by halts to elective surgical procedures, which constitute its entire product line. The iFUSE Implant System it sells for treatment of lower back pain caused by sacroiliac joint dysfunction has been on the market since 2009, and recently received FDA clearance for expanded indications in use for treating adulty deformity and trauma.

In the last two weeks of March, 300 scheduled cases using iFUSE were canceled and in April, cases booked dropped dramatically by 80% compared to April 2019. As a result, revenue growth for the quarter ended March 30 was 12% year on year. However, if the 300 cases had not cancelled because of COVID-19, growth would have come in at 29%. Dunn is optimistic about the longer term, noting to analysts on a first-quarter 2020 earnings call on May 4 that robust procedure volume prior to the pandemic “shows the value of the procedure,” and he is confident that most cancelled cases are deferrals that will return.

Although he cannot predict the timing, there are “pockets of optimism and improved activity regionally, and teams remain positive and aim to prioritize the safety of patients, providers, and procedures.” The biggest risk going forward is a resurgence of COVID-19 cases in the fall if people are not compliant with social distancing and other safety measures, he adds.

Given the uncertainty, the company is planning multiple scenarios based on three priorities: the health and safety of employees, customers, and patients; conservation of capital; and sustaining investment across the organization in order to be well positioned for the inevitable recovery.

While SI-BONE has cut variable costs and management salaries and implemented a hiring freeze, it has, importantly, maintained headcount, including its temporarily side-lined commercial team. By luck or planning, the company completed a $63.4 million follow-on offering in January. This gives it a $146 million cushion of cash and short-term liquid assets for at least the next 12 months, should the crisis and recovery drag out.

Leaving the commercial team intact was a major decision. The company’s IPO in October 2018 aimed at raising money to support expansion of the commercial infrastructure. The headcount for that team is now 62 direct reps in the US and 52 clinical support specialists, including many reps who were hired in the aftermath of the IPO and several who were hired earlier this year. “We have the people in place who have relations with surgeons to get cases going again and the support staff to drive sales,” says Dunn, noting that the goal of this strategy is to keep the team intact so that the company can emerge from the crisis rapidly; its strong pre-pandemic financial performance makes the leadership team confident of a recovery.

To that end, SI-BONE is carefully watching the status of elective surgeries and new safety protocols. As of May 4, 25 states representing 70% of historical volume for sacropelvic procedures are restarting elective surgeries. The numbers are much lower in the Northeast, where the pandemic has hit hardest, but that region represents a minority of iFUSE volume, as it is dominated by academic medical centers that are slower to embrace new technology, Dunn says. SI-BONE tracks cases booked at the beginning of each month as part of its business forecasts, and as of May 1, those numbers were roughly 80% of May 2019, an encouraging sign under the circumstances, although down 40% to 60% from the 20% growth targets Wall Street analysts set for this year.

When the pandemic started in California, the company pushed out inventory to the field to fill demand quickly. Critical suppliers are functioning without disruptions, Dunn says. Employees working on site follow specific safety protocols.

A bigger uncertainty has been rep access to providers in the hospital setting in areas that do open, given that SI-BONE reps generally attend surgical procedures involving the company’s implants to support the operating team. The reps add value as some of surgeons do only a few procedures each quarter, Dunn pointed out to analysts on the earnings call.

While it is early in the recovery, most hospitals are letting reps inside, sometimes with limits on their access to the OR, he continues.

Meanwhile, this summer, the company is accelerating what it calls its “virtual reality-in-a-suitcase” regional training system. This software and hardware driven system has been in development in-house for two years, independent of the pandemic, which pushed forward timelines for its launch. Demand for this approach to training will expand, as surgeons are wary of flying and eager to catch up on lost case volumes, Dunn believes.

In addition, the company has rolled out a 12-course online educational series that is running through the end of May, which has been well received, Dunn says. A webinar on iFuse Bedrock, the company’s new deformity system for greater SI joint stabilization in long fusion procedures was attended by more than 100 surgeons and led by David Polly Jr, MD, chief of spine surgery and a professor at the University of Minnesota Medical School, who is a leading researcher on patient outcomes and biomechanics in orthopedics. (See “SI-BONE’s Data-Driven Strategy to Dominate MIS SI Joint Fusion,” MedTech Strategist, December 18, 2014 and “Moving Beyond IN-Fuse: SI-BONE’s Step Into Data Sharing,” MedTech Strategist, July 29, 2016.) The virtual outreach can also help SI-BONE with promotional efforts to expand its active surgeon base, re-activate inactive providers, and to grow KOL support for iFUSE.

Reimbursement advances in the first quarter and FDA clearance of expanded indications for the use of iFuse will also benefit the company’s recovery, says Dunn.

The strategy and timing of new product launches as the company moves into trauma and deformity have not been affected by the shutdown, given the huge unmet need and innovative nature of the company’s sacropelvic-focused product lines, he continues. The iFuse Bedrock received FDA 510(k) regulatory clearance in April 2019, while iFuse Trauma was cleared in late March 2020.

Prior to San Francisco’s shutdown, SI-BONE did a test run of its remote capabilities, so it was at work immediately on March 15. It has set up task forces focused on different parts of the business to manage the crisis. There are clear, specific guidelines for re-entry. Each Monday morning at 8:15, there is a virtual town hall for all employees to discuss every aspect of the business. “We have assembled a world-class team and believe the key is communication and problem solving and making sure the team feels its health is more important than the company,” says Dunn.

*End of article*