Business Concept
The Obesity and Diabetes Research Institute (ODRI) will be the leading treatment and research hospital for obesity and diabetes in the world, and become the dominant source of intellectual property in this field. Uniquely, the facility will offer surgical weight loss procedures, a medical weight loss clinic, and a research center dedicated to original research in obesity, weight loss, and diabetes. Moreover, it will be a for-profit research hospital with hotel and conference facilities. It will be strategically located to attract a world class research faculty and yet remain easily accessible to prospective patients.
The center is planned for 50 beds and will be specifically designed from the ground up as a surgical hospital and research facility, uniquely built for the requirements of the morbidly obese population. It will offer a campus-like atmosphere where patients will feel comfortable, and have the optimal environment in which to recover from surgery. Two hotels are planned to be located on the site and will allow patients and their family to stay close to the hospital after their surgery.
The research effort will be focused on the problem and treatment of obesity. The research staff will draw on the abundant clinical resources in the hospital and will receive seed funding to start off projects. They will work out of a purpose built state of the art laboratory that has automated specimen handling and tracking systems as well as the following facilities: tissue culture, genomics, proteomics, synthetic chemistry and medical engineering among others. The research group will be supported by high performance computing facilities. The objective is to take advantage of the clinical resources to generate seminal contributions to our understanding of obesity and diabetes, create intellectual property and become a robust research and development pipeline to the pharmaceutical and life science industries.
The hotel and conference facilities will support the clinical work of the hospital and further provide a venue for medical and life science related conferences and seminars, further enhancing the profile of the institution.
Vision
ODRI will become the global destination place for the surgical treatment of obese patients not only in the surrounding Counties, but also in other States and internationally. ODRI will become the leading center for research into obesity and diabetes and a dominant supplier of intellectual property to industry.
Mission
The mission of ODRI is threefold: 1) to become the premier surgical hospital for the treatment of obesity and diabetes; and 2) make original and seminal contributions to our understanding and treatment of obesity and diabetes. 3) Develop and commercialize cutting edge medical technologies and intellectual property related to the field of obesity, its complications and treatments.
Why For-Profit?
We believe that having a for-profit hospital will create a more disciplined approach to medical care, and to conducting quality research. Moreover, as our goal is technology transfer and the creation of cutting-edge solutions to the problems of obesity and diabetes, a commercial organization will be motivated to transfer its knowledge to the marketplace for profitable gain. We liken ODRI to Edison’s Bell Labs in Menlo Park, California. Bell Labs were a for-profit research effort, funded by venturing investors. As we know, from this effort the light bulb was created, and this invention changed the world as it was known at the time.
Brief Primer on Obesity and its Treatment
The obesity epidemic has created a huge physical, psychological, social and economic drain on the Nation. Not surprisingly, it has become the focus of major initiatives from both the Government and the private sector. Recognizing the burdens of this growing trend, the US Government has urged a concerted effort to deal with what is now perceived as a strategic threat to the long-term prosperity of the Country.
Actuarial data from Life Insurance companies show that an individual of a particular height and frame has an ideal body weight that is associated with the lowest risk of premature death. Such an ideal weight table was published by the Metropolitan Life Insurance Company and has come to be known as the Metropolitan Life Table.
The terms overweight and obesity are labels that describe weights that are greater than this ideal weight. Because the body’s muscle and bone mass tend to remain constant, increases in weight for most individuals is caused by an increase in fat mass. There are several indices measuring the severity of obesity with Body Mass Index being the most commonly used.
Economic Consequences of Obesity
The economic costs of obesity on the U.S. health care system (USDHHS, 2001) and the National GDP are significant. The direct medical costs of obesity (Wolf and Colditz, 1998; Wolf, 1998) include preventive, diagnostic, and treatment services for obesity. Indirect costs are the value of income lost from decreased productivity, restricted activity, absenteeism, and bed days as well as the projected value of future income lost by premature death.
Direct medical costs of overweight and obesity amounted to 9.1 percent of total U.S. medical expenditures in 1998 and may have reached as high as $78.5 billion ($62.6 billion in 2002 Dollars) (Finkelstein, Fiebelkorn, and Wang, 2003). Total cost: $117 billion , Direct cost: $61 billion,* Indirect cost: $56 billion (comparable to the economic costs of cigarette smoking).
(Source: National Institute of Health, http://www.niddk.nih.gov/health/nutrit/pubs/statobes.htm#econ )
Health Consequences of Obesity
Being overweight or obese is complicated by a number of medical conditions that results in disabilities, deterioration in quality of life and an estimated 25% reduction in life span. Obesity is second only to smoking in terms of preventable deaths (+300,000 deaths/year) in the United States and is expected to surpass smoking in this manner within a few years.
These medical conditions include: Diabetes, sleep apnea, painful joints, raised cholesterol and triglycerides, hypertension, coronary heart disease, stroke and some cancers (uterus, breast, and colon). These obesity associated medical conditions lead to various disabilities and a risk of early death that is proportional to the degree of obesity.
The incidence of type 2 Diabetes in the United States has paralleled the obesity epidemic and is now the most common cause of blindness and amputations and the most common reason for kidney failure and kidney transplantation.
Treatment Options for Morbid Obesity
While most overweight or obese persons will seek to reduce their weight by various means, those with a BMI of 35 and above are only likely to achieve durable weight loss and resolution of associated medical conditions through a surgical weight loss procedure. The National Institute of Health has set criteria for weight loss surgery: BMI between 35 to 39.9 plus one or more obesity associated medical conditions; Or a BMI of 40 or greater with or without an associated medical condition.
The most common surgery for weight loss in the United States is the Gastric Bypass operation, but performed laparoscopically (‘key-hole’) by about 50% of surgeons.
The most common weight loss surgery in Europe and Australia, and gaining popularity in the United States, is the Laparoscopic Adjustable Gastric Band.
The laparoscopic approach to weight loss surgery causes smaller scars and earlier recovery of patients compared to the open approach. There is also a clear patient preference for the laparoscopic approach.
However, laparoscopic surgery requires a very high level of training and specialization by the surgeon and is a skill in short supply nationally. There are significant initial capital outlay requirements for a minimally invasive surgery operating room suite and instrumentation.
Market For Weight Loss Surgery
The obesity epidemic has created a huge physical, psychological, social and economic drain on the Nation. Not surprisingly, it has become the focus of major initiatives from both the Government and the private sector.
Trends in Prevalence of Obesity
In 2005, approximately 67% of all Americans were overweight, and in 1999, 61%, up from 44% in 1962. The Census Bureau estimates that 26 million men and 32 million adult women are obese, using 1991 census data. As of 2000, approximately 38 million Americans, or approximately 20 percent of the adult population is considered obese, which is defined as having a BMI over 30. This prevalence rate represents a 61 percent increase in the number of obese Americans since 1991.
The subset of the obese population that constitute the primary market of this hospital are those with a BMI of 35 and over and constitutes about 5% of the US population. This segment has in fact the highest growth rate in terms of prevalence. As of 2000, there were approximately 4.8 million morbidly obese adults in the United States, a figure that has grown consistently since 1990 and is projected to be approximately 23 million in 2005 and will continue to rise over the next decade.
Those in the BMI range of 25-34.9 and diabetic will constitute a secondary business of the hospital.
The Size of the Market
An estimated 5% of the US adult population is morbidly obese, amounting to about 30,000 potential surgical candidates per million of the population. These comprise patients who meet the National Institute of Health’s guidelines for weight loss surgery. Between 13-16 million Americans are morbidly obese and potential candidates for weight loss surgery. This figure is growing at 10-12% per year, and projected to be 23 million in 2005.
Trends in the Supply and Demand for Bariatric Surgery
Following the obesity trend has been the demand for bariatric surgery which has sharply increased in the past 15 years. There were 63,100 weight loss procedures performed nationally in 2002 (ASBS). Stein, reporting in the New England Journal of Medicine, states that there were over 100,000 bariatric surgeries in 2003, and 144,000 in 2004, establishing a 50% growth in the market year-over-year[1]. About 98% of weight loss surgery needs are currently unmet. One reason for this is capacity: there is about a one to two year waiting period to see a surgeon currently. There are an estimated 13,000 potential surgery candidates for every surgeon performing bariatric surgery today.
Costs, Reimbursements and Profits from Weight Loss Surgery
Bariatric surgeries range in price from $18,000 to $45,000. The “profit” or net contribution per surgery is over $5000, and calculates to approximately $1250 per day. Currently 90% of all surgeries are paid for by a health plan.
Obesity surgeries are priced, on average, at $20,000 to $35,000 each; should complications in the surgery occur, prices may rise to between $100,000 and $200,000. [2] Total spending is approaching $3 billion per year, as of 2003. In addition to the initial surgery costs, lifelong follow-up care, including check-ups and counseling, is estimated to be in the range of $25,000 to $100,000. The Barix Clinics currently price at about $25,000 per surgery.
For the average surgical procedure, the “profit” or contribution margin is approximately $5000. The average patient will stay in the hospital for 4 days at current. This figure is expected to fall by industry experts, especially with advances in surgery procedures. However, for purposes of this business plan, we have assumed an average length of stay of 4 days, since the research function will encourage patients to stay longer and participate in trials.
Market for Obesity and Diabetes Related Intellectual Property
In the early (0-10 years) of this research hospital, the core business will be the provision of clinical services related to the treatment of obesity and its complications. However, because of a strong commitment to research and development in the field of obesity, it is anticipated that this activity will lead to the generation of significant intellectual property.
The principal intellectual property generated will broadly consist of:
- Licensed patent rights
- Gene and protein expression databases related to obesity. These will be made available to the research community through a licensing system.
- New Medical Devices – these will be marketed either through spin off companies or by licensing them to other companies with well established market presence and distribution network.
The present market for potential intellectual property of this kind is large. Broadly, this consists of:
Pharmaceuticals: Spending on drug treatment of obesity
Because of the size of the potential market, there is a massive amount of research and development activity to identify safe and effective therapies for obesity and its complications. Currently, revenues in the marketplace in the US alone for drug treatment of obesity total $30 billion. This figure is expected to rise markedly with more effective and durable pharmacologic therapies.
Life Science Research Community
Life science researchers in commercial institutions will be a potential market for gene and protein expression databases generated by our institution.
Market for Medical Devices
Currently, the market for medical devices used in bariatric surgery is greater that $30 billion and growing. As more techniques are developed, more doctors are trained, and more patients demand surgeries, this figure will grow at a steeper rate than the surgeries themselves.
Our Services and Products
The Obesity and Diabetes Research Institute will focus exclusively on the treatment and study of obesity and metabolic complications, the most significant of which is type 2 diabetes mellitus.
There are three broad categories of services or products that enhance each other in a synergistic fashion.
- Clinical services for the treatment of obesity and its complications
- Research output in the form of intellectual property
- Hotel and conference center that enhance and complement the clinical and research services.
A fourth component is a strong commitment to developing new medical and business talents through an education program. While not considered a major revenue stream, it is envisioned that such activities will contribute to the intellectual vibrancy of the institution and in an indirect manner contribute to its prosperity.
Clinical Services
The hospital will offer a comprehensive weight loss program, underpinned by safe and effective weight loss surgery in a multi-disciplinary program. The principal weight loss operations offered at present consist of laparoscopic adjustable gastric banding and laparoscopic Roux-en-Y gastric bypass
The surgical staff recruited will all be fellowship-level trained in minimally invasive bariatric surgery and will be beyond the recognized learning curve for these procedures.
For patients who are not candidates for surgery or do not wish to have surgery, the medical weight loss section will provide dietary, pharmacological and behavioral approaches to weight loss. Many insurance companies require 6 months of supervised, non-surgical weight loss. ODRI’s non-medical solutions will be physician-supervised. This section will be actively involved in research related to medical weight loss therapies.
Research Services
The goal of research will be the development of intellectual property and the advancement of clinical and basic science related to obesity. Intellectual property will belong to ODRI, and will be licensed or sold (“commercialized”) thus comprising an additional revenue stream. The strategy will be to position ourselves, by levering our combined clinical and research resources, to become a major research and development pipeline which will be sought after by the pharmaceutical, life sciences and medical devices industries.
Research will be driven and directed by the research interests of the various research groups. A technology transfer office (TTO) will be located in the hospital, and staffed with a director and development staff and whose objective will be to assess the commercial potential of research efforts and to process patent and licensing of intellectual property.
Research will be focused on ultimately creating breakthrough technologies to serve the bariatric and diabetes marketplace for medical devices, drugs and treatment therapies. Research will be funded in the early stages by the free cash flow from the clinical activities of the hospital. In addition, grant money through working in collaboration with non-profit and university bodies is expected.
Example of Potential Research Areas
These areas could result in the creation of intellectual property of value that be commercialized.
- New medical device for endoscopically deployed weight loss procedure – lead time ~ 10 years to market
- Improvement of existing adjustable gastric band to reduce its complication rates
- Improved suture technology ~ 5 – 8 years to market
- Pharmacologic methods for appetite regulation ~ 10-15 years to market
- Licensable genomic and proteomic databases relating to obesity
Minimally invasive techniques for weight loss surgery are still in evolution, with a lot of on-going pre-clinical activity in establishing endoscopic approaches to weight loss. This will be one important potential medium source of IP for medical devices. The other area of activity is in understanding the mechanisms of appetite regulation and attempts to pharmacologically regulate these using drugs, currently prescribed and taken orally. This we believe will eventually replace surgical approaches to weight loss. The general lead time for bringing 'a pill' to the market with FDA approval is about 10 to 15 years.
Hotel and Conference Services
The integrated on-site branded hotel and conference center will be primarily utilized by patients’ families, conference and seminar attendees. It is also open to the general public. The integrated hotel model has previously been shown to be a very successful model at the Cleveland Clinic, Ohio. It is anticipated that the hospital will host 3 to 4 international conferences annually and at least monthly National events. The scale and scope of our hotel and conference facilities will be determined after a formal hotel survey.
Educational Services: Internship program
Medical Research and Training Internships
ODRI will offer internships to medical students, residents and fellows interested in both research and hands-on surgery learning. Partnerships with leading medical schools such as the University of Pittsburgh, Cornell University, the University of Edinburgh, Syracuse University, Stanford University, the University of California – San Francisco, and the University of California – San Diego, will be forged. In the future, ODRI plans to develop joint Ph.D. or M.D. programs with one or more of these universities, where students would spend a portion of their education within the center.
Medical Market Research and Business Internships
In addition, ODRI will offer market research internships to MBA students interested in the healthcare marketplace, specifically, in the growing problem areas of obesity and diabetes. Partnerships with leading MBA programs such as Cornell University – Johnson Graduate School of Management, Northwestern University – Kelllogg, Stanford University – Graduate School of Business, Carnegie Mellon University - Tepper School of Management, Harvard University – Harvard Business School , Massachusettes Institute of Technology – Sloan School of Management , Dartmouth University – Tuck, the University of California-Berkeley – Haas School , the University of San Diego California – (just launching). These student interns will be managed by the Director of Market Research.
The results of this market research will be discussed and disseminated to the research directors and staff in order to influence future research directions that will result in the creation of new technologies that will have real commercial opportunities. In addition, some of these MBA interns, it is hoped, will later pursue entrepreneurial opportunities with the markets and technological solutions uncovered and developed by the ODRI. To facilitate such, the center will offer three courses to its interns: The first on medical devices entrepreneurship; the second on biotechnology entrepreneurship, and the third on the health care industry, especially the segments of obesity and diabetes.
Business Model
The Hospital will be organized as a “for-profit organization”. The legal structure is a “C” Corporation and has been incorporated in the State of Delaware.
The venture will have a dual business model, with three revenue streams. First, the surgical operation will realize revenues through 1) in-patient clinical procedures performed in the 50 bed hospital and 2) outpatient pre-operation services. The free cash flow from these hospital operations will then fund research and development activities that will lead to licensable intellectual property. The hotel and conference facilities will work synergistically with the clinical and research divisions and generate revenue.
Research will be conducted for the purpose of discovering new procedures, pharmaceuticals and devices. Patents will be filed with US and other governmental patent offices.
This intellectual property will then be licensed or sold to third parties. We also expect that some discoveries will make their way out of the walls of the research labs as new ventures. Revenues will include:
- License Intellectual Property: Royalty stream / Gains through equity sales
- Sell Intellectual Property: Sales / Gains through equity sales
- New Venture Creation: Gains through equity sales / Dividends
From our experience, patients will volunteer for research to help the hospital and future treatments for morbidly obese patients. Thus the venture will have a low-cost source of subjects. The integration of clinical service and research program under one institution brings about a synergy in generation of intellectual property. Access to patients for clinical trials of new inventions will also be more readily available.
The consequence of this tight intra-mural collaboration between clinical and research activity is an unprecedented opportunity to become a research and development pipeline which industry could tap into to the advantage of patients, the hospital and industry.
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