Insuring Innovation: Life Sciences and the P&C Insurance Industry

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A laptop appears with a title on its screen: Wednesdays with Woodward (registered trademark) Webinar Series. To the right of the laptop, a red mug features a Travelers umbrella logo. 

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JOAN WOODWARD: Good afternoon, everyone. Happy New Year. Thanks so much for joining us. I'm Joan Woodward, President of the Travelers Institute, which, as you all know, the public policy division and educational arm of Travelers. Welcome to 2024 Wednesdays with Woodward, a series where you all know we started during the pandemic and continue because the demand is high for thought leadership, interesting people, experts and sharing expertise that we found interesting in our daily lives.

So, I just want to remind everyone, you may have gotten an email from me today. We are launching a podcast. And so watch the chat. We're going to have a podcast link for you to subscribe. But we're very excited about our podcast as I heard from many of you saying, I can't sit down and watch the webinars on my computer screen, but I'd love to watch it while I'm shoveling snow or gardening. And so we listened. And now, we have a podcast. So that's exciting.

Before we start today's program, I'd like to share our disclaimer about the webinar.

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Text: About Travelers Institute (registered trademark) Webinars. The Wednesdays with Woodward (registered trademark) educational webinar series is presented by the Travelers Institute, the public policy division of Travelers. This program is offered for informational and educational purposes only. You should consult with your financial, legal, insurance or other advisors about any practices suggested by this program. Please note that this session is being recorded and may be used as Travelers deems appropriate. Wednesdays with Woodward (registered trademark) Webinar Series. Insuring Innovation: Life Sciences and the P&C Insurance Industry. Logos: Travelers Institute (registered trademark), Connecticut Business & Industry Association, MetroHartford Alliance, Insurance Association of Connecticut, American Property Casualty Insurance Association (service mark), Master's in Financial Technology (FinTech) Program at the University of Connecticut School of Business, Risk and Uncertainty Management Center at the University of South Carolina's Darla Moore School of Business.

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Also, I would like to thank our tremendous partners who have been with us for many years-- the Connecticut Business and Industry Association, the Risk and Uncertainty Management Center at the University of South Carolina's School of Business, the Master's in FinTech Program at UConn, the University of Connecticut Master's in FinTech Program, the Insurance Association of Connecticut, and the MetroHartford Alliance. 

So, thank you all for your terrific engagement over the years. And we're excited about 2024. Today, our focus is on the life sciences industry. As you know, life sciences companies research, develop, and manufacture and sell all sorts of medical devices, pharmaceuticals and digital health, such as the health apps, cancer drugs, cellular therapies and personalized medicine in the news are in. Every day, we are hearing about all of these products.

So given this, life sciences companies often have complex operations requiring unique risk management solutions, including handling products with liability litigation. So that's where the P&C insurance industry comes into play-- underwriting everything from surgical scalpels and low-hazard devices to vastly more complex devices and life-saving tools like heart valves, brain implants, ventilators, even personalized medicine.

The P&C industry today helps the life sciences industry have the confidence to innovate, thus, contributing to a broader public health improvement outcome.

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Text: Speakers. Joan Woodward, Executive Vice President, Public Policy, President, Travelers Institute, Travelers. Jenn Ampulski, A.V.P. and Life Sciences Practice Lead, Technology & Life Sciences, Travelers. Marcus Schabacker, M.D., Ph.D., President and C.E.O., ECRI

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Today, we are joined by two experts to walk us through the process of bringing pharmaceuticals and medical devices to the market, the risk facing companies that develop these products, where the P&C insurance industry sits in the value chain today and what's trending for 2024. 

With us today is Dr. Marcus Schabacker, President and CEO of ECRI, the global nonprofit independent authority on health care technology and safety. He's a national and international thought leader on patient safety, medical technology and health equity issues. Dr. Schabacker became the President and CEO in January 2018.

He's a board-certified anesthesiologist and intensive care specialist with more than 35 years of health care experience in complex global environments. He has more than 20 years of senior leadership responsibilities serving the medical device and pharmaceutical industries across the health care value chain.

Also joining us today is Travelers Life Sciences Practice Lead, an AVP for Technology and Life Sciences, Jennifer Ampulski. Jenn is responsible for profitability, growth and the strategic direction of life sciences underwriting here at Travelers. Previously, Jenn was in the leadership position in Travelers life sciences and business tort claims. So she's seen it all, folks.

Before entering the insurance industry, Jennifer was a trial lawyer, handling complex civil litigation, including mass torts. We're going to have more webinars on mass torts later this year, by the way, folks. This involved lots of product liability, catastrophic loss and commercial matters.

So, we've got the dream team with us today as we usually do when it comes to discussing this important topic of life sciences and the P&C industry. So, we're going to start out with Jenn, who will level set for us on the industry and the P&C roles industry expertise today. Then we're going to hear from Marcus, who will tell us more about his work and walk us through the process of bringing pharmaceuticals and devices to market. So Jenn, welcome. And the virtual floor is now yours.

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In photos, a doctor video chats with a person who holds a tablet, a monitor tracks a patient's vitals and two technicians prepare a microscope slide. Text: Life sciences: Digital health, Medical technology, Pharmaceuticals. 

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JENNIFER AMPULSKI: Thank you so much, Joan. And thank you so much for having this interesting topic. Anybody who knows me knows that I could talk for hours about life sciences. It's something I'm very passionate about. 

So, I wanted to start by explaining to this audience what I mean when I'm talking about life sciences.

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Text: What is life sciences? Medical technology: Medical, surgical, dental and diagnostic instrument manufacturers. Implant manufacturers. Monitoring equipment manufacturers. Contract research organizations/research institutes. Pharmaceuticals: Brand name, generics, and over-the-counter. Biopharma entities. Companies in clinical trials. Digital health: Electronic medical records software developers. Healthcare and medical software developers. Healthcare IT organizations. Telemedicine companies. Medical app developers. On the right, a representation of a brain scan. 

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What is life sciences? I like to think of it as it being in three general buckets. One of them is medical technology. The other is pharmaceuticals. And the third is digital health. 

Examples of medical technology. These are the kinds of things that we all see on the doctor shows we watch on network television or when you're in the doctor office itself and you're looking around or you're visiting somebody who's in the hospital, and all the machines that go bing and boop in the universe of the hospital, those are medical devices.

They include things like implants. So that could be orthopedic implants, spine implants. It could be anything that's put into your body with the intention of it staying there. It also includes monitoring equipment manufacturers and contract research organizations and research institutes, which actually can also span pharmaceuticals. So these are companies that are working for research and research and development.

When I'm talking about pharmaceuticals, I'm talking about brand name pharmaceuticals. These are generics. These are also over-the-counter pharmaceuticals, biopharma entities as well. Biopharma, in particular-- most pharmaceuticals, when you're just talking about regular pharmaceutical are made with small molecules. And biopharmaceuticals are complex medicines made from living cells or organisms.

We also are talking about companies that are in clinical trials. While there are certainly clinical trials for medical devices as well, pharmaceutical companies tend to do more clinical trials.

And from a digital health perspective, we're talking about everything that you see and hear about that's exciting in terms of technology, whether it's the medical records software when you are in the office and you see your doctor typing into the notes. Or it's software developers, health care IT organizations, telemedicine companies and any sort of medical app developers. The key for digital health is the connectivity and the connectivity both to the internet but also to within clinics and within doctors and within patients and doctors and how they're communicating information with one another.

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Text: Life sciences companies face unique risks. Pharmaceuticals. Product safety: Errors in formulation, or contamination during production, can lead to big issues. Clinical trials: Risks borne out of clinical trials can be significant. Manufacturing: Supply chain, product safety, hygiene and other considerations. Medical technology. Device security: Connected devices are exposed devices. Supply chain: Interruptions can lead to product delays. Global exposures: Operating internationally creates new risks and hazards. Digital health. Connectivity: Service interruptions are business interruptions. Data security: Patient data creates new exposures. Virtual clinical trials: Unique exposures and data security concerns. In photos, two technicians prepare a microscope slide, a monitor tracks a patient's vitals and a doctor video chats with a person who holds a tablet. 

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So what is specific about life sciences? All of these things can specifically affect a patient's health and safety. While a bad chip in a cell phone can cause an inconvenience to a user, a bad chip in a medical device can cause patient injury or harm. 

So in the pharmaceuticals arena, we're looking at things like product safety. And so therefore, if you have an error in your formulation or you have manufacturing contamination, all of that can lead to losses for the life sciences companies. Clinical trials as well, you could have issues with not only the drug itself, but side effects that the patients are experiencing and being able to keep track of all of that information. And then when you're talking about manufacturing, this can be supply chain, product safety, industrial hygiene and all sorts of other considerations.

In medical technology, we're concerned about things like device security because connected devices are exposed devices. So devices that are connected through the internet of things. Supply chain, getting materials for the devices to where they need to be.

Global exposures. This is a global industry with many companies starting their trials overseas. So outside of the United States because the regulatory environment is different there than it is under the FDA here.

And then when you're talking about digital health, things to keep in mind as risks are, like I said, connectivity, data security. So patient data, but also patient safety in terms of whether their device is working the way it is supposed to be. And virtual clinical trials, that is something that has been a real boon since the pandemic. And we have allowed a fair amount of advancement in that area as well.

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Text: Life sciences companies need broad coverage options. Innovation doesn't stop with each new idea. This is where the P&C industry comes in to help life sciences companies manage risk in innovation. Products liability, including clinical trials, errors & omissions, cyber coverage (first and third-party), product recall, worldwide coverage/global, business auto, workers compensation, property, umbrella. In a photo, a technician holds a vial near a microscope. 

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So when I think about what it is that a products-- or excuse me, a life sciences company really needs to think about and what their-- is usually forefront in their mind, we're talking about the products liability and the errors and omissions. Those two types of coverages are what protects the thing that the life sciences company has. It's the widget. It's the software. It's the drug itself. 

And products liability will cover bodily injury or property damage that might come out of a patient using the product. And that would include clinical trials, as I have on the slide here. And errors and omissions, those are more the financial contract dispute types of claims that can come out of when something goes wrong, a protocol is not written properly, or you have an insured who can't deliver the supplies that are intended to be part of the production.

But everything else goes into the life sciences company as well. And so that includes cyber coverage. If we're talking about the interconnectivity as I mentioned earlier, cyber first- and third-party coverage is very important to life sciences companies and has unique risks. Product recall can be another type of claim--or excuse me, type of coverage that you want to make sure that your insureds are looking at buying.

Having something that is worldwide and global, as I mentioned, when we have companies that are starting trials perhaps overseas and then bringing it back here or they're doing some of their production overseas, having worldwide and global coverage is important. And then there's also the business auto, workers compensation, property and umbrella. Those risks are-- those coverages are also unique to life sciences risks and are important for those companies to have.

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Text: Life sciences companies need products liability coverage. Life sciences companies want life sciences products liability coverages that span the product development life cycle, from research and clinical trials to product production and distribution. Worldwide coverage. Admitted in most states. No scheduling clinical trials. No built-in exclusion for unapproved goods or products. Additional insured coverage and waiver of subrogation when required by written contract. N.I. status for up to 180 days for certain newly-acquired or formed entities. In a photo, a stethoscope bends into the shape of a check mark. 

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So life sciences companies need that products liability coverage, as I mentioned. So, thinking about the kinds of things that you want that product liability coverage to have, worldwide coverage, that it would be admitted in most states. Typically speaking, because you may have a clinical trial, your insured may have a clinical trial that is starting this year, and then they pivot and want to add another clinical trial partway through the year, having coverage that covers the clinical trials without them being specifically scheduled so that you don't have to keep up with constantly adding new clinical trials to the policy, that's usually a benefit. 

And because unapproved goods or products, that's something we're going to talk about here as well in terms of off-label use, those kinds of things are important to make sure that you have in your coverage because of the fact that those kinds of claims happen and are unique to life sciences companies.

So, I am going to turn this over to Marcus Schabacker, who is going to talk a little bit more about ECRI.

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Logo: ECRI, The Most Trusted Voice in Healthcare. Innovation and Risk: Bringing new drugs and devices to market. Wednesdays with Woodward Webinar Series, Hosted by the Travelers Institute, January 17, 2024. 

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MARCUS SCHABAKER: Thank you, Jennifer. Thank you, Joan, for having ECRI and me here with you. Welcome to all the listeners and viewers. Good morning, good afternoon, good evening, wherever you join us. 

So as I said, it's a pleasure to be here. And Jennifer, thank you for giving this comprehensive overview. And I think even for someone who has spent 35 years in health care, it is a complex environment. And what we're trying to do today is trying to help you making a little bit more sense about it and how do you risk manage it because it is a high-risk industry. And we have, hopefully, some chance to discuss that a little later on.

But who is ECRI, and what is ECRI? 

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ECRI, Global Impact & Influence. Evidence-based guidance for healthcare leaders across the globe. Tens of thousands of members: hospitals, health systems, government agencies, payers and insurers. ECRI and Institute for Safe Medication Practices (I.S.M.P.) Patient Safety Organization among largest PSOs in U.S. -- Affiliate I.S.M.P. supports medication safety through error reporting programs, risk assessments, incident response and human factors testing. On a globe, dots mark the ECRI headquarters in Plymouth Meeting, Pennsylvania and offices in Abu Dhabi, Malaysia, the Netherlands and the United Kingdom. Copyright 2024 ECRI, www.E.C.R.I.org. 

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ECRI, most importantly, is an independent organization. It is a non-for-profit organization, which just means we don't have a shareholder. We don't have an owner who we are reporting to or needing to get profits for. 

But at the same time, we are also not someone who has a big endowment sitting somewhere. We need to earn our living. And we do this through providing value to our members. We are a membership-based organization. We provide consulting services and memberships.

And we have been around for 60 years. And we're fiercely independent, so independent that none of us is allowed, for example, to have any stock or interest in any pharmaceutical or medical device companies. And we're proud of that because what we want to do as ECRI is helping providers, helping health care organizations, helping governments, ministries of health to make sense of it through fact-based independent evaluation of technology, of therapies, evaluating risk, and providing guidance on best practices, both from a clinical perspective as well as from a technology perspective.

And as you can see, we're a global organization. We have offices around the world-- in the United States, in Europe, Middle East, as well as in Asia-Pacific. And we operate independent laboratories. Think of us as Consumer Reports for medical devices.

So we can test post-market, meaning when the product is on the market, and evaluate those devices on their performances comparatively. And we'll talk a little bit about-- more about this in a minute. We are partnering-- we have an affiliation with the Institute for Safe Medication Practice, which is focused on preventing medication errors and has a tight network around the world as well to report potential issues. We give guidance to industry on labeling and instructions for use and so on.

And so that's really the core of what we do. And I'll go in a little bit more into specifics. Think about us--

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Text: ECRI, Our Focus & Impact. Empower healthcare organizations to improve outcomes. Evidence-Based Intelligence & Smart Analytics: 1 of 9 federally designated Evidence-based Practice Centers by U.S. A.H.R.Q. -- Horizon scanning for U.S. government and consortium of European governments. Comprehensive Clinical Data & Analysis. The largest patient safety reporting and learning system in North America. Leader in medication safety, accident investigation and infection prevention. Independent Testing & Supply Chain Solutions. Only independent medical device testing laboratory in the U.S. -- Nation's largest G.P.O.-agnostic price benchmarking database. 

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We're about 550 people around the world. A lot of scientists, a lot of engineers, physicians, clinicians who help us to evaluate the health care environment. And we are singularly focused on our mission is to advance evidence-based and effective health care globally. 

So that's our interest. That's our only interest we have. And we're doing this through a number of different ways. So, we analyze and provide statistics and analytics to our members and clients of medical research.

So we have a whole team, 70 to 80 people who do nothing else than looking at the medical research which is public, trying to make sense of, evaluate it because not every clinical research is made the same. There's a case report on the one hand. And then there is a large pre-designed, randomly prospectively designed clinical trial who is trying to evaluate potential benefits and side effects of a new medication or a new device.

So there's a broad spectrum there, which we're trying to interpret and making sense and giving guidance on, what is good evidence and where is the evidence not that strong. We also have, as I mentioned, our individual labs in-- both in Kuala Lumpur as well as in the United States to investigate medical devices, which give you some numbers here.

Over the last two years, we've evaluated about 170 different products in 55 categories. And we found in roughly 50% that there was something wrong with the device. And that has led to voluntary improvements, not forced by any agency, but voluntary improvements through the manufacturer.

We're working closely with, but not for, the manufacturer in trying to involve them in the process so that we avoid some confrontational issues. We rather have them understand what the issue is and proactively correct it. And so as I mentioned, in about a third of the cases, when we do an investigation, we actually find something wrong with a product that is already on the market and causing potential harm.

We also provide analytics from a cost perspective. And we do some prospective work, which I'm going to cover in a second. We're trying to identify future medical therapies and their impact on the health care environment.

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From left to right on a chart titled F.D.A. Regulatory Process for Medical Devices, column headers read: Classification Based on Risk and Indication for Use, General Controls, Clinical Trials, Lab Testing Report, F.D.A. Submission, Periodic Reports to F.D.A., Safety Reports to F.D.A., User Safety Reports to ECRI and ECRI Lab Testing. Under Classification Based on Risk and Indication for Use, classifications from top to bottom include: Not classified as medical device, Class 1 Lowest Risk, Class 2 Moderate to High Risk, Class 3 High Risk Life Sustaining No Predicate, De Novo Class 3 device granted exemption and Humanitarian Use Device. Check marks indicate a requirement and x's indicate a lack of requirement. All classifications require general controls except for products not classified as medical device. Devices classified as Class 3 High Risk Life Sustaining No Predicate require clinical trials; all other classifications do not. Devices not classified as medical device or classified as Class 1 Lowest risk do not require a lab testing report or F.D.A. submission; all other classifications do. Devices classified as Class 3 High Risk Life Sustaining No Predicate and Humanitarian Use Devices require periodic reports to F.D.A.; all other classifications do not. Devices not classified as medical devices do not require safety reports to the F.D.A.; all other classifications do. All classifications require user safety reports to ECRI and ECRI lab testing. 

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Briefly, really briefly elaborate on the complex world of regulatory in medicine. And I'm using the FDA as the food and drug authorization group here in the United States because they're probably the most sophisticated. And as you can see, there's different qualifications of devices which are from nonclassified to class 1, class 2, class 3, de novo, and humanitarian use devices. 

And I won't have the time to go into detail. But just to say there is from very little, meaning nonclassified medical devices. Those are things probably a disinfectant, for example, or things you can buy in the pharmacy or at CVS or Walmarts over the counter.

You have class 1, which have the lowest risk. And as you can see, they don't require a lot. They just have some general controls. But if there's some safety issue, the FDA needs to be informed. 

So those would be, for example, things which don't come into-- don't have too much impact on the patient-- sterile gloves, disposable gloves, bandages, that kind of thing. We have the-- and that's probably the vast majority. But because it doesn't need to be getting any sort of approval, we don't know exactly how many of those every year come to the market.

The next one, we have a better idea because that requires some registration with the FDA. It's called the 510(k) process. But as you can see, it still does not require clinical trials. So it's a paper exercise. And the most important thing to remember about the 510(k) process, it requires a predicate device, meaning there's a device already on the market who does the same or something similar. 

And in your documentation, which you provide to the FDA as a medical device company, you have to prove that your device is essentially doing the same. And the FDA, based on your documentation, which is purely paper-- there's no clinical trials; it's all lab testing-- then evaluates the effectiveness and the safety of that device based on your paper documentation.

Now, to give you a number, there's about 3,000 devices every year who get approved through this process. And that doesn't mean it's 3,000 new devices. Because if you make significant changes to your device, you then have to file a new 510(k). But again, that process was initially thought to be the exception but has become pretty much the standard.

Those are devices who have a little bit higher risk. Those are things which coming in closer contact with the patient. Could be monitoring devices. Could be ventilation devices and so on.

The highest class is then those of class 3, which does-- which do require a clinical trial. And those can be pretty extensive. And so companies try to avoid to have to go the route of prior approval, prior market approval.

And interestingly enough, it is up to the company to decide which route they want to take. At the end of the day, they have to convince the FDA that that is relevant. And if they can find a predicate device, then it is the much easier route because that route is supposed to take 90 days.

But in reality, because every time when the FDA has a question to the company, the clock stops-- and in reality, we did some statistics on this. It takes about-- 5% would take longer than a year and about 35% longer than six months. The rest are below that. Very few get really done within 90 days. But that's the target.

PMA can take years, years. So there's an interest for a company to avoid the PMA process. But it also increases the barriers for others. Because if you have a PMA approval, it gives you some additional protection from a costing perspective and so on.

There's a couple smaller pathways or less frequently used pathways, which is de novo, which you say, essentially, there's something similar on the market but not quite, and ours is better, and it's new. But it doesn't really require clinical trials. And again, you have to convince as a company the FDA. And if they follow your argument, you can go through an abbreviated process similar to the 510(k) process.

And then there's the last one, which is a humanitarian use device. And that is, if there's an expected usage of below than 8,000 patients per year, it would be very-- but it's a new device and a new therapy, it would be very difficult to make a meaningful clinical trial. Just imagine if you-- 1 in 10,000 events as a risk, you would have to essentially treat patients for a very long time to get to anywhere statistical relevance.

So there's a process you work through with the FDA. But it's very closely controlled. And not many devices get that. As you can see, at the end of-- on the very right side of this slide is ECRI's labs evaluates all of those products and provides guidance to our clients and members.

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Text: Device Evaluations. Understand and compare medical devices based on lab testing, ratings, specification recommendations. Choose the technologies that meet your needs and budget, free of vendor bias. Uncover hidden dangers with annual Top 10 Health Technology Hazards publication. "The country's most respected independent laboratory for testing medical products." The New York Times. 

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So when you think about these device evaluations-- and we covered most of this-- what we're really trying to understand is how these work. We create use cases, real use cases-- that's why we have a lot of clinicians in our testing group-- and then provide ratings or give it stars and specifications and recommendations on how to use, what protocols to put in place. And our members use that frequently for buying decisions. 

We are free of vendor bias. As you can imagine, when you're a vendor, you're trying to design your trials the way that it's favorable for you. And I've spent more than 20 years in the medical device and pharmaceutical industry and was responsible for designing clinical trials. And I can tell you, that's a real thing. We're thinking about how do we-- what test methodology do we use, what is the comparator we're going to use so we get the most favorable outcome for our particular product.

And so ECRI doesn't do that. They look at it very independently. And we're trying to identify dangers. And as I mentioned to you, in about a third of the devices we evaluate, we find something which is correctable and worth of correcting and hopefully preventing future risk to patients, so.

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Drug Development Process. From left to right, sections of an arrow pointing right read: Discovery & Development: Molecule identified based on target and mechanism of action. Preclinical Research: Assess safety and efficacy in laboratory and animals. Clinical Research: Investigational new drug application to evaluate safety and efficacy in humans (Phase 1 to 3). F.D.A. Review: F.D.A. review new drug application/biologic license application and make decision on approval. F.D.A. Post Marketing Safety Monitoring: Monitors safety and efficacy after approval (Phase 4). Below, an arrow pointing left reads "Developmental Phase" and spans the Discovery & Development and Preclinical Research phases. An arrow pointing right reads "Production & Pre-Commercial Phase" and spans the Clinical Research, F.D.A. Review and F.D.A. Post Marketing Safety Monitoring phases. 

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The drug pharmaceutical--the drug development world is even more complicated. And it takes way longer. So if you think from discovery, meaning you have a brand new molecule, you think could have a potential effect on a particular disease. To the product being in the market and ready to be used widely is a process that takes between 10 to 15 years generally, 10 to 15 years. And the costs are astronomical. 

So, we did a-- on average, over the past 20 years, a new drug which was brought from discovery to market, the cost of those were in excess of $6 billion. So that's a huge number. And there's massive risk involved, obviously. And in each of these phases, the risk, you would think, is-- becomes less. To a certain extent, that's true. But the impact if that risk manifests becomes bigger.

So let me explain. When you have-- in discovery, you start with thousands of molecules. And AI plays a role in this today in helping for identifying most likely successful molecules. Then you go-- when you have those molecules, you go to-- into your preclinical research, which is then saying, so now, I boiled this down to 10, 20 molecules.

I'm going to further investigate. Now do my animal studies. I do cell culture studies. I do formulation studies. Can I make this into a pill? Can I make this into something, which I then can give to my patient in a way?

And when-- and you increasingly increase the complexity of those tests. So you start with cell cultures, mice, rats. Then you go to more complex animals, more complex testing. You're making sure that there's no unwanted side effects.

If you pass all that, you usually wiggle down your potential candidates to maybe one, most likely one, maybe a second one in reserve in case your first one runs into problems. You then start clinical research. And again, that is in phases.

You start with healthy volunteers, small numbers. You just give them the drug and see if there's any unwanted side effects, If there are any risks associated with this drug, if it has an effect, which you're looking for, but it's in healthy individual. And those were volunteers, of course.

Then you go to the phase II clinical trial, which is usually a dose-finding trial. So you're trying to now find what is the optimal dose between benefit and side effects because every drug is potentially poisonous, you just-- if you give the high enough dose. So you're trying to find what's the maximum effect I can get with the least side effects.

That's in your phase II clinical trial. When you have done those dose-finding studies, you, of course, continue to look for side effects. Then you go to a broader population, the so-called phase III trials, which are then your-- those are the double-blind, controlled, prospective, randomized clinical trials in sick patients which have the targeted indication. And you see what the outcomes are.

And so those are the most longest trials. They are the most complicated. They're the most expensive. Those trials cost millions of dollars in-- as I said, now, you have your one lead candidate who has gone through this for the past 10, 12 years. And if something fails now, it's catastrophic, so to speak, for you because all that previous work was for naught.

And so the risk is dramatically increasing towards the end of those clinical studies. Then you get to the FDA review. And the FDA then often says, yeah, we like that, but how about this particular issue? And if you haven't covered this-- and this is a very involved process.

So if you're smart about this, you have a clear regulatory strategy. And you’ve talked to the FDA a lot in this process to make sure that you cover what potential concerns they have. But they never tell you exactly, do this. They always say, we would like an answer to this problem. But how you get there, that's up to you.

And then when the FDA review is successful, then you still have to go and get coverage through CMS in the United States. But that's a whole different process. And then you are allowed to market. And then you often have to do post-market reviews.

So you now try to broaden your indication. For example, that's additional clinical trials. Sometimes the FDA is asking you to provide additional data once the product is on the market. You have to then collect data. So there's continuous cost involved there.

So that's the process there. That, as I said, take 10 to 15 years, billions of dollars. And so high risk, but high reward. Because if you have a new drug, those are billions waiting for you in revenue globally.

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Text: Identifying Future Trends in Healthcare. Logo: P.C.O.R.I., Patient-Centered Outcomes Research Institute. Text: Health Care Horizon Scanning. Early detection system identifying disruptive new health care innovations expected to be available in U.S. within three years. Helps P.C.O.R.I. make decisions about future research investments. Focus Areas: Alzheimer's Disease and Dementias, Cancer, Cardiovascular Diseases, Infectious Diseases (including COVID-19), Mental and Behavioral Health, Rare Diseases. Logo: I.H.S.I. -- Text: International Horizon Scanning Initiative. Nonprofit association pooling resources into large-scale collection of data on upcoming pharmaceuticals in a Joint International Horizon Scanning Database. Cornerstone for future collaboration between countries on strategic planning for medicines and technologies. Pricing and reimbursement, appropriate use, and preparation for healthcare systems. Prioritization tool allowing the early identification and evaluation of promising medicines. 

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So where we-- in this particular realm, where we're trying to come in is we're doing a little bit of tea leaf reading. We're looking into the crystal ball and analyzing available data in clinical research as well as in other sources and trying to predict which medical therapies are going to shape the future and how do they compare into existing therapies, and most importantly, what's the cost situation. Because, unfortunately, most times, if not always, when we introduce something new, it becomes more expensive. I have not seen anything getting better in health care but less expensive. 

So, we're trying to help-- and this is targeted for governments and public agencies-- is trying to predict the future. We have two teams who exclusively do this. And it's been highly regarded by our clients, PCORI here in the United States and IC in Europe. And this is, as I said, really trying to make sense of the future and what is going to come.

So that's what ECRI is doing. So thank you. Took a little bit longer than my allotted time, Joan. So I hope I'm not messing the schedule up too much. But thank you very much for giving me the chance.

JOAN WOODWARD: No worries. No worries. It's so complex. And you boiled it down so nicely for us who are not in the industry. So thank you for that. We definitely want to talk about insurance and underwriting. So Jenn, we're going to pull you back in. 

But first, let me ask the audience just very quickly this one polling question. This is for our agents and brokers on the line. So if you're an agent or broker, how much of your work is in the life science industry? We'd like to get a sense of who's joined us today, whether we're slightly in this industry or we're all in.

So thank you for answering the question to my agent and broker friends, who can't wait to see in 2024. I'm going to be out in the field a lot. So I hope to see a lot of you. 

OK, we have about-- oh, this is interesting. OK, 12% say the majority of their work is in life sciences. And then another 11% say about half of the work is in life sciences. So I'm so pleased to see this. And then we have about 70% or so saying a small portion. But we have a lot of very sophisticated agent and brokers in the space of life sciences.

So I'm really glad to see that outcome. And thank you, again, for answering it. So we're going to dig a little deeper in the grass and get into the more of the weeds here.

But smart drugs, super genetics, digital wearables, all these things, the innovations that are happening so fast right now. But they're saving lives and making quality of life better. So I'm going to ask Marcus first to talk about, have you seen patients-- how have you seen patient safety evolve in this time of rapid innovation?

What is ECRI's data telling you right now? Where are the biggest vulnerabilities for consumers and patients? So what are you worried about in the current rapid innovation space that we're seeing right now?

MARCUS SCHABAKER: And Joan, this is a really fascinating question. And there's actually some very recent research on our efforts in making-- the effectiveness in our efforts to make health care safer. So in the 1990s, there was a milestone study, which was called To Err Is Human. It was initiated by the White House at the time.

And it showed that at the time, there was about an estimated 75,000 to 100,000 people each year die-- each year die of preventable medical errors. So those are not weird things which happen. But those are preventable medical errors.

And in the wake of that, the Patient Quality and Care Act in the early 2000s happened. The patient safety organizations were established. We made a lot of progress in certain areas-- wrong side surgery, for example, fall prevention, infection prevention.

But, but recently, Dr. Bates and his team did exactly the same study with the same parameters. And what they found is basically that we're still at the same level. A fourth of the people who go to a hospital are going to experience an adverse event. And a fourth of that is preventable. And we still think that we have tens of thousands of unnecessary deaths associated with the health care.

Now, let me try to put this into perspective for you. What that would mean if you translate that to other high-risk industries like aviation is that every day, a 737 would fall out of the sky. And we had 200 to 300 casualties every single day.

Now, you all heard what happened when the door blew out of the Alaska Airlines fuselage. Within an hour, Alaska Airlines grounded all planes. And within 24 hours, the FAA grounded all planes which were potentially affected.

When have you heard last about a medical device being taken off the market? I would say-- I would dare to say never because it doesn't happen. And so the question is, why have we, as a society, been accepting that something we use on a daily basis, our loved ones use on a daily basis has such a high risk associated?

Why can we use, adopt methodologies, practices which have been proven to be highly successful in other high-risk industries-- military, nuclear power, aviation? Why are we not more advanced? And so that is a question which puzzles me personally and which made me actually go to ECRI. Because I said, I want to help in really making a dent into this. And so one of our key strategic goals is to measurable reduce preventable errors over the next five years.

And so it has bubbled up to the surface. It has become more attention. It has gotten more attention but not enough. We're still too complacent. And we understand some of the mechanisms behind it but not all. But it starts with that we need to take a very, very different approach.

And I'll close with this, early-- in the early 2000s, aviation industry leaders came together-- FAA, the airline industry, the manufacturers-- and said, we are going to aim for zero casualties. That was-- we want zero casualties. Since 2009, we had zero casualties in the commercial airline industry in the United States.

So it's possible. So I don't-- the argument I always get, health care is way more complicated than the aviation. Maybe. But can we learn something from other here? Absolutely. But are we doing it? Not so much.

JOAN WOODWARD: OK, well, we're glad you're in the seat you are, for sure, today. Let me get to Jenn. So in all the things that you look at across the board in life sciences, how have the risks faced by this industry evolved over the last decade or so? What are you seeing? What are you worried about? How is the underwriting process maybe changed or adjusted to these innovations?

JENNIFER AMPULSKI: Well, keeping in mind that just even in the last 25 years, we've had significant advancements in medicine-- I mean, we've mapped the human genome in that time. We've created and refined minimally invasive surgeries. We've got CRISPR technology for gene editing and other cell therapies. All of those things have been developing.

So on the one hand, it's the pace of the change of the medicine itself and how patients are being treated and whether they have the safety and the efficacy of those particular products to help move them in the right direction. Then we have things like social inflation. And everybody's a doctor because everybody has Google. And so everybody can look at things.

And what you wind up experiencing are members of the jury that are viewing themselves as experts as well as plaintiffs and other folks who are getting more information and are making more claims as a result and driving up the value of claims with the exception of personalized medicine from an underwriting perspective, things like connectivity and the Internet of Things. Folks have been talking for a long time about the possibility and the risk of somebody being able to hack into their blood glucose monitor or maybe a pacemaker and injure somebody as a result of that.

None of that has actually come to pass in the actual litigation space. But now that hospitals are needing to keep and hold onto these capital-invested equipment for longer and longer, it's resulting in patches not working as well, software not working as well, which can result in more injuries to patients. But it also can result in cybercrimes as well as patient data information.

Medicare fraud has always been a very lucrative business for fraudsters. And so anything that is going to be able to get that kind of information and that connectivity, and if it's in an aging system, that's also a problem and something that we're looking at.

JOAN WOODWARD: OK, Jenn, I want to stay with you for a moment. I want to go to pharmaceuticals and drugs here. Can you talk about the challenges you've seen pharma businesses face today as they go from maybe the clinical trials to the commercialization while trying to bring new drugs to the market that are safe? What are those challenges that you've seen, and have they evolved?

JENNIFER AMPULSKI: Well, as Marcus pointed out-- I mean, it takes 10 to 15 years to get a drug to the point where you can have it marketed. So you put in many, many, many hours, a lot of money to develop and do the clinical trials and so on and so forth.

And when you're shifting from clinical trials to commercialization, you have to think about ramping up production, for example. That’s something-- and especially if you wind up hitting with a drug that has a lot of market appeal as well, you wind up needing to make sure that you're shoring up your supply chains, making sure that contractual risk transfer is in place, and making sure that you have backup plans and other options for yourself should the system go down. And one of those things is certainly having the insurance coverage that can help when you have a problem with a vendor or that sort of thing.

One of the other things that we talked about is off-label use. So that's when a drug is being used by or prescribed by physicians for a way that it is not actually labeled for, the labeling that comes with it and what the clearances have allowed for through the clinical trials.

If you start having a lot of off-label use-- Ozempic is a great example of that, where you had a drug that was cleared for diabetes management and is now being used for weight loss. Those kinds of things can really change how you are-- what your drug is doing in the marketplace. And so having that post-market surveillance and those types of things are critical to ensuring that you are on top of things in terms of claims-- potential claims and risk management.

JOAN WOODWARD: OK, thank you for that. I want to go to the global process because, Marcus, you touched on it for a minute. So bringing drugs to market, how often is this really global? Like, for example-- let me throw this out-- if a drug gets approved in Europe before it gets approved here in the U.S. by the FDA, how does that all work kind of global coordination?

MARCUS SCHABAKER: Yeah, I would say the large pharmaceutical companies have a very well thought through regulatory strategy. So when you start to identify a molecule which you think is relevant and you're targeting a particular indication, you will think about what is the best possible, quickest way for us to get approval for this.

And often, it's a parallel process. You start this program in various regions of the world, often in the UA-- in the EU, for example. You use what's called the Member Reference State. So you use one EU state which you work closely with their regulatory affairs authority. You make sure that they have the time to work with you, they have the resources, and they are interest in that particular drug.

And then you use that state and go through their regulatory process. And then there's a time where the other members of the EU can opine and ask additional questions. But that essentially allows you to do that for-- and then when you get approval, it's for all of Europe.

If you have it in Europe, it doesn't mean you have it anywhere else in the world. Often, some other smaller countries or regions use either the EU or the FDA process as a guide, as a reference. And you can use studies which you have done in Europe in the U.S. And you can use studies which you have done in the U.S. in Europe. But there is intricacies you need to understand.

The FDA is entirely different process than in the EU. So you will have to do clinical trials specifically for the FDA. As I said, sometimes you can use part of it or some of it. And then there's the other key markets are Japan, Australia, and more and more now Asia-Pacific as well as Latin America.

But they are often secondary because the potential is just not so good. The biggest markets clearly is Europe and the United States. United States by far the highest priced market together with Japan. So every company who needs to regain those billions they invested going to make sure they have that covered in their regular strategy. But it's a very thought through and thoughtful process. And as we mentioned, it takes a long time.

JOAN WOODWARD: OK, I'm going to shift gears a little bit. I'm learning so much along the way. Jenn, we talked about personalized or precision medicine. So first of all, what is personalized or precision medicine? And what about risk patient safety?

Let's talk a little bit about the targeted chemotherapies, maybe cancer drugs. First of all, what is personalized or precision medicine? And then how are you seeing those risks evolve?

JENNIFER AMPULSKI: So, the key to understanding this kind of therapy is that companies are trying to make the therapies more effective. So for instance, different drug delivery approaches can reduce side effects. So you wind up having a patient who is actually metabolizing the drug better. Perhaps they're using through a skin patch or something like that rather than an oral route, which is going through the mouth and having to go through the liver and all that processing.

So No. 1, it's to try and allow patients to have better treatment with fewer side effects. And then secondly, when you're talking about things like hard-to-treat cancers or very rare cancers, it's hard to get a clinical trial with enough patients in it to actually see the efficacy of a large patient population because the cancer is rare.

And so instead, trying to-- for companies to be able to look at how do they make that particular drug, maybe it's through a biologic. There was a question, I believe, in the questions about where do things like biologics fit into this. A biologic can be a device. You can also have a biopharmaceutical which is based on cell therapy or gene therapy that can be created to the specific patient and that particular very rare illness.

So it allows for advancement in areas where we wouldn't necessarily have advancement because of the fact that there are so few patients who maybe are experiencing that particular illness.

JOAN WOODWARD: OK, I want to shift a little bit to medical devices because Jenn, back to you, underwriting a relatively simple device like a surgical scalpel is much different than underwriting a life-saving device like a heart valve or a brain implant or a ventilator, which carry, obviously, higher risk. So how do we underwrite the development and manufacture of these more complex medical devices in your world?

JENNIFER AMPULSKI: So, the No. 1 thing to keep in mind is that most of these devices can actually hurt, injure and in some cases kill people. So it really isn't as much about the severity of the device. When I was in claims, I handled a matter involving dental floss. And that resulted in somebody who had a pretty serious injury. Nobody would think of dental floss as being something that could hurt you.

And so looking at-- the primary thing that I look at when I'm underwriting an account is what does the company do, how does the company address the FDA regulations and so on and so forth, and whether those-- whether that's the minimum for them because we really want them to go above and beyond what regulatory may require for safety and for efficacy of those particular drugs.

So does the company have-- has it conducted clinical trials? Does it have appropriate controls in place? I talked about post-market surveillance a little while ago. Do they have post-market surveillance? What are their contracts looking like?

I saw a question in the question and answer about what are the kinds of things that we like to see in contracts. And in fact, at my company, we do have those kinds of sell sheets, actually, that would have information regarding contracts because everybody thinks that they have great relationships with their customers until they don't and that that particular customer then is upset about something. And now, you have a lawsuit.

So making sure that you have the contracts in place is also really important. And then we get to the drug or the device itself and what is the known safety profile of it, looking at the FDA data, looking at FAIR’s data. All of those kinds of things are important for that particular drug. And if it's not, just that drug or device, let's say, that device, which is brand new to the market.

Does it have a predicate? Is it a 510(k) approved product, such that there is now a whole class of devices that you can look at and compare the safety profile to? And then, obviously, things like ventilators or an ECMO machine, which is a life support machine that helps to-- your heart and lungs function while you're recovering from illness, those kinds of devices are, obviously-- serious injuries and death can definitely happen if they don't work properly.

So looking at what the company is doing to try and ensure that they have checked all the boxes on what kinds of redundancies and those kinds of things they have built into their products because a safer company is in the end going to produce safer products.

JOAN WOODWARD: OK, quickly, Marcus, we're going to ask you a quick question. And then we're going to go to the audience questions. So we'll get-- we have a bunch of them coming in. I want to talk about when things go wrong after a product is in use.

For example, we had the CPAP machine that's been the news recently. What does ECRI do in a situation like that, and what lessons can be learned from when a product is on the market and it goes wrong, goes south?

MARCUS SCHABAKER: So hopefully, we prevent it by testing it previously. And so one other resource is, obviously, our test reports and so on, which you can go to and evaluate the risk. But when something goes wrong, I think it's upon the manufacturer and the regulator to then quickly act.

And often, ECRI steps in there when we get reports from our members. And just to give you an example, we got over 800 reports in a year; 130 evaluations would cause analysis; 20 of those led to improvements.

So we then inform all our clients. And we inform the FDA. We work with the FDA and say, hey, there's a potential problem once we identified the problem. And then things kick into gear. But on top of that, then we helping finding replacement. Because often, if you have a lifesaving machine like a ventilator or an ECMO or an infusion pump, you can't just pull hundred thousands of devices off the market and repair them. You need to have something in a mitigation strategy in place.

So, we helping our clients and members to think through those mitigation strategies and find equivalent products for them to help them continue to treat their patients because those are things-- it's not like a car which you can just park and take the bus. Those are things which are lifesaving, life sustaining. And we need to make sure that our providers have the right tools in their hands.

JOAN WOODWARD: OK, Jenn, we got to get to you quickly on litigation. So what litigation trends are you seeing in the pharmaceutical and medical device industry today?

JENNIFER AMPULSKI: So if I'm looking into my crystal ball, the thing that I'm actually the most concerned about in terms of litigation is that we are now returning to post-pandemic levels of elective surgeries. These are not surgeries that are not necessary. They just were surgeries that didn't need to be done emergently.

And so any time you have more patients going in and having treatments, you have the risk of a potential error or a potential device failure, product failure that could result in an injury to that patient. So one of the things that I'm really paying attention to is just the numbers alone and how much additional business our insureds are doing because of the elective surgeries.

And this isn't just things like robots that are being used. This is everything that's being used in the operating room suite. So it's everything from your scalpels to your PPE, those kinds of things, all the way up to the actual orthopedic implants or that sort of thing.

JOAN WOODWARD: OK, so Jenn, when you talk to agents and brokers all the time, what should they be looking for in an insurance underwriter as a life science client-- you're looking for a life science client to place a product. What do you tell agents and brokers that they should keep their eye out for?

JENNIFER AMPULSKI: So No. 1, risk control. Risk control isn't just for an-- or for the insurance company. It should also be for the insured. And is that risk control-- can they-- do they have resources and management tools that can help you to manage your risk?

Secondly, the claims folks. These are very specialized claims that come in. They are more than just the average product liability case. They are more than just the average medical med mal case because these are devices and drugs that are in a very highly regulated industry and that have reports and all of those kinds of things that are available to FDA. And therefore, they're available to everybody.

And so making sure that you have the claim professionals who have the specific experience for a life sciences claim. And myself, I always drew on my litigation background. And having actually tried product liability cases was something that was really beneficial to me. So those kinds of things are key for a life sciences company that needs that specialization.

JOAN WOODWARD: OK, question from the audience coming in. Adam Isabella, New York. "How do you see-- " This is maybe for Marcus. "How do you see AI affecting the way we treat patients, and could it possibly lower the cost of health care going forward?" Marcus, you want to take that one?

MARCUS SCHABAKER: Yeah, so AI is going to be everywhere. We right now see it in imaging mainly. So a lot of things are there. We starting to see it in clinical trials and how they're designed. There's certain issues with AI.

They are often developed through people who have no medical background. They're coming from a tech shop. We don't understand what goes into the algorithm. So it's very difficult for us to assess is it a robust algorithm based on facts; is there bias included, racial bias, a bias towards healthier patients, depending on how those algorithms were developed.

So there are certain concerns. We have made mistakes in the past when we introduced new technology like medical health records, electronic medical health records. They have created a whole slew of new risks and lead now 10, 15 years later to significant problems. So let's make sure we not jumping right into this. I'm afraid we're already-- the horse are already out of the barn to a certain extent because AI is everywhere and is going to just get more.

Now, for you, as risk insurers, I would take a very hard look on how have these AI models been developed. Has there been medical input? What populations have they been based on? What is the underlying medical understanding of those to make sure?

Because they claim to be decision support. In reality, they're decision-making tools. And so that's the danger there. And I have never seen any technology making health care cheaper. So I'm [INAUDIBLE]

JOAN WOODWARD: Cheaper.

MARCUS SCHABAKER: [INAUDIBLE]

JOAN WOODWARD: All right. Thank you for that. Jenn, very last question. We're going to get this in at the end here from our audience member Austin White at Marsh. "What considerations should digital health business leaders give to malpractice insurance across state lines?" Want to take that one, Jenn?

JENNIFER AMPULSKI: Yeah, so there is a real significant interplay between medical malpractice and devices or pharmaceutical manufacturers and the life sciences industry. So to the extent that the question is about understanding that interplay and ensuring that companies have the types of coverages that they need and working with your vendors and your suppliers to make sure because each state has its own individual requirements.

And so it's important to make sure that you have those needs that are being met by the individual states because tort caps and all those kinds of things can really impact a claim that winds up getting levied against you or your insured.

JOAN WOODWARD: OK, listen, the hour has just flown by. I want to thank our terrific experts and speakers for their time and all the work you're doing for all of us and the benefit of society. So we really appreciate your time. We'll have you back in the coming years to give us an update.

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And then on our webinars, we have one coming up this Monday, actually, with our Citizen Travelers program and military civic engagement. So that's this Monday, the 22nd. And then on January 31, that Wednesday, I'm going to check in with you on how you're doing on your New Year's resolution to get fit and healthy, eat better, exercise more. 

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