The New Wave in Gastroenterology

Gastroenterology, once a market comprised of large, reusable pieces of equipment like endoscopes, ushers in a new era of minimally invasive surgical disposables. Indeed, minimally invasive procedures make it possible for surgical devices to encroach upon drug franchises in several multi-billion dollar markets, including gastroesophageal reflux disease and obesity.

Devices and Drugs Gut it Out

Unlike the twists and turns of the gastrointestinal tract that its device navigates, the market trajectory of Given Imaging Ltd. has been smooth and straight. Founded just four years ago, Given already boasts a public market cap of $260.3 million, the company launched a medical device in the US market, and it just beat analysts' revenue expectations for its second quarter of sales, for which it reported $5 million. Given Imaging has developed a disposable, miniature video camera that a patient swallows and excretes without discomfort. The camera yields 50,000 images during a seven-hour test that takes place as the patient goes about his or her daily routine. Not only is the device far more comfortable for patients than having a six-foot long enteroscope pushed all the way down the throat to the intestines, but it can also take pictures of regions of the small intestines that can't even be accessed by endoscopes. Given Imaging's success raises the profile of the gastroenterology sector, which won't hurt a new generation of start-ups inventing new ways of treating some prevalent diseases of the digestive tract.

Indeed, the field of gastroenterology offers unique benefits to start-ups. It spans several multi-billion dollar categories (See Exhibit 1) controlled by a relatively small number of practitioners, which means small companies can access the market with a modest sales force. In the US, there are 9,000 gastroenterologists, 3,000 surgeons, and 4,000 hospital endoscopy suites. Gastroenterologists are also unique in being equally comfortable in dispensing drugs or performing procedures. Finally, exit and partnering opportunities exist, as evidenced by the deal activity of several large companies with gastroenterology franchises. Last year Medtronic Inc. swallowed up Endonetics Inc., [See Deal], a small company which developed a couple of new technologies for the diagnosis and treatment of gastroesophageal reflux disorder (GERD). Endonetics created a less invasive and more effective device for conducting Ph monitoring, a tool for diagnosing GERD. It also developed an endoscopic GERD treatment system, the Gatekeeper Reflux Repair system. Boston Scientific Corp. has also been active on the gastrointestinal front; it made an equity investment in private firm Enteric Medical Technologies Inc. , developer of a liquid polymer for the endoscopic treatment of GERD. [See Deal]

If there is a lesson to be learned from the success of Given Imaging and those small companies that have attracted large company sponsors, it is that gastroenterology, once a market comprised of large, reusable pieces of equipment like endoscopes, is ushering in a new era of minimally invasive surgical disposables. The GERD market is most advanced in this respect, and has attracted several new companies.

GERD sufferers experience uncomfortable heartburn because a faulty one-way valve lets erosive acid back up from the stomach to the esophagus. The condition is responsible for the $5 billion in sales of the world's largest drug, AstraZeneca PLC 's Prilosec (omeprazole). Prilosec, and other proton pump inhibitors don't stop acid from refluxing, but they instead neutralize its harmful effects. Over the years, surgeries have been making incursions upon this population of chronic drug takers. Last year in the US surgeons performed 70,000 fundoplications, in which part of the stomach is wrapped around the outside of the esophagus to decrease its diameter and restore the competency of the faulty valve. The growing popularity of GERD surgery has created a receptive environment for two new minimally invasive GERD treatments—the endoscopic Stretta radiofrequency system of Curon Medical Inc. and EndoCinch, the endoscopic suturing system of CR Bard Inc. , both of which received FDA approval in 2000. Now, MediGus Ltd. wants to make the fundoplication into a minimally invasive procedure, with an endoscopic stapler and ultrasonic sighting device that permits surgeons to perform a partial fundoplication procedure from within the esophagus. By making surgery least invasive, these companies have a chance of moving in on the $11 billion drug market for GERD. They provide an alternative to a lifetime of drug therapy, one that attempts to correct the problem of acid reflux rather than simply addressing its symptoms. This may become increasingly important; there appears to be some association, for unknown reasons, between the long-term use of proton pump inhibitors and esophageal cancer, of which the incidence is on the rise. Semorex Inc. , a pharmaceutical company, has a completely different solution to this problem. Using its molecularly imprinted polymer technology, it aims to create molecules that can remove from the gastrointestinal tract specific bile acids that have been implicated in GERD and inflammation of the esophagus.

Obesity is another area where devices are beginning to vie with drugs for turf. Stomach reduction or bariatric surgery has typically been reserved for the morbidly obese, patients in whom obesity causes other health complications. But the advent of minimally invasive devices could expand the treatment population to the somewhat less obese, presenting a huge market to device companies. In the US, 61% of the adult population is severely overweight. IntraPace Inc. , a start-up founded by Mir Imran, the entrepreneur behind PercuSurge Inc., Cardiac Pathways Corp., Physiometrix Inc., and a handful of other successful medical device companies, is developing a gastric pacemaker that uses electrical stimulation to influence the contractions of the gut. In obesity, it could delay stomach emptying, causing patients to reduce consumption. But obesity is a tough indication for a small company to get its arms around—it requires large and long clinical trials. So, for the most rapid route to FDA approval, IntraPace will initially target gastroparesis, a small market indication in which Medtronic has already paved the clinical and regulatory pathway. Gastroparesis is a terrible condition without therapeutic options, in which patients experience pain and nausea after eating. Some patients vomit as much as 48 times per week, and eventually require enteral nutrition. Medtronic's Enterra electrical stimulation device received FDA approval for gastroparesis under a humanitarian device exemption, and IntraPace hopes to do the same. IntraPace believes its device will be able to address other motility disorders as well, that is, diseases having to do with the movement of food from one end of the gastrointestinal tract to the other. It may have a role to play in irritable bowel syndrome, an area where drugs have had little success. The market eagerly anticipated the arrival of two new drugs for irritable bowel, GlaxoSmithKline PLC 's Lotronex (alosetron) and Novartis AG 's Zelmac (tegaserod). Unfortunately, Lotronex was withdrawn from the market due to side effects, and US FDA approval has been delayed for Zelmac, although it is approved in other countries. Market research firm Datamonitor estimates that this disorder affects 10-20% of the world population.

Finally, start-up companies are beginning to target hepatology, a gastroenterology sub-specialty that is beginning to look to device options where drugs are ineffective. First Circle Medical Inc. is in clinical trials with a hyperthermia device to treat patients with hepatitis C, a population of 4 million in the US. (See, "The Heat is on for First Circle Medical," START-UP, February 2002 [A#2002900021.) Liver failure, a market fueled by the large number of hepatitis patients, represents another multibillion dollar opportunity without therapeutic options. Device approaches have struggled here for the past twenty years, but newcomer Algenix Inc. hopes to succeed where others have failed, with an extracorporeal device that puts liver cells to work in performing the metabolic and other functions of the liver.

These therapeutic companies probably won't enjoy the overnight success of Given Imaging, which is offering a diagnostic device. As with any new therapies, it will take time to get FDA approval, and then some more time after that to gather the efficacy data to support reimbursement and win over physicians. Still, the success of Given gives these companies the hope that one swallow does a summer make, or at least a hot market.