Andy Kessler: On Disruption Interview

I did Q&A with Michael Urlocker on his website, On Disruption, about The End of Medicine.

"It has Kessler's trademark bawdy stories and acid observations, but it is an outsider's examination and diagnosis of an industry that looks poised for change. We traded emails with Andy to learn a bit more.

Q: Andy, what got you interested in looking at the medical business and what got you to thinking that it is ripe for disruption?

I've spent over 20 years tracking the technology business for Wall Street, as an analyst and then as an investor.

The only thing I really learned was to find the silicon.

Once you find a market that is attacked by silicon, you only have to wait for big markets to come into being from nothing. Silicon gets cheaper every year by 30%, it halves in price every two years. If you find something that works today, but is too expensive, then wait a bit and the fireworks start.

I was bored looking at traditional markets, computing, telecom, wireless, even music and video. I drifted around for a while, sniffing at other interesting things when I learned that a friend was diagnosed with cancer, by accident, as he had banged his head skiing and an X-Ray and CT scan showed a tumor on top of his neck. A brother-in-law had a heart attack. I wondered if silicon could be found in medicine to be able to detect disease much earlier. I was astounded by what I found.

Ripe for disruption is an understatement. $2 trillion a year is spent on healthcare in the U.S. and it is quickly on its way to $3 trillion. Doctors drive medicine and are a large component of costs which rise by double digits each year. If silicon can make its way into diagnosis, perhaps costs could stop rising and at the same time provide better care."

<">Q: Are doctors to become the bank tellers of their industry, to be replaced by better, smarter, automated processes or online procedures that customers would prefer to deal with?

<">Think about what happened to telephone operators. Switches came along and performed their function better and cheaper. Eventually, switching happened so quickly, telephone calls could become cheap and ubiquitous. A machine embedded the intelligence of the operator.

<">Same for bank tellers. A slightly more complicated task, ATMs embed the intelligence of the teller into silicon and software and lower the cost of transactions.

<">Same for auto mechanics. They fix the problem, but silicon diagnoses what is wrong with autos today, embedding the intelligence of the mechanic into the system. At $60-75 per hour charged by service stations for labor, the payback for an automated diagnosis system is quick.

<">The same thing happened to stock traders…So why not doctors. I went for a physical and my doctor took my blood pressure, looked into my ears and the took out a rubber hammer and

banged my knee. $440 for nothing. Was I going to have a heart-attack? He couldn't tell me. Could I have a tumor the size of a golf ball on top of my neck? No way to tell looking in my ears. He was flying blind.

<">But new technology exists to do powerful diagnosis, and embed the intelligence of front line doctors into silicon and software. 256 slice CT scans that turn into high resolution 3D images that can be flown through looking for atherosclerosis to avoid heart attacks. Biomarkers and molecular imaging, all silicon based, will be able to detect unique proteins from cancer cells five years early. This will change what is spent on chronic care by huge amounts.

<">The trick is to get down the learning curve and make these tests cheap and routine.

<">Q: Ok let's cut out doctors. I am all for that. But they do a lot of thinking, don't they? Just like equity analysts. Can we really automate doctors? While we are at it, can we automate stock picking and eliminate analysts? Apart from in commodities, analysts don't scale well either.

First, not all doctors. Just the front-line doctors.

My friend had a tumor the size of a cocktail olive found on the top of his neck, by accident. If he hadn't banged his head skiing, he would probably be dead right now.

The idea is to look inside each of us. Front line doctors, internists, family doctors, can't do that. They can only guess.

Nature is the screen for heart disease and cancer. When you have a heart-attack, the system declares that you have arteriosclerosis. Couldn't you have told me ahead of time and avoid the midnight ambulance ride?

Cancer is worse. You piss red or your shoulder hurts or you’re throwing up dinner and after exhaustive tests, they find a tumor and declare you have six months to live and even chemo and wonder drugs are a long shot.

Using technology, we can scan for all sorts of proteins in our blood and do a much better job of finding cancer early. Five years early. Doctors can't do that. There are no symptoms. They would never know. But cheap technology can know. Smaller, cheaper, faster, better. In this case it is cheaper and better than doctors.

The security analyst comparison may not work, but the trader comparison does. You can trade in milliseconds huge blocks of stock anonymously, while using a trader requires phone calls and paper trails and confirms and moving the market, etc.

Specialists on the NYSE and doctors may be in the same boat: Progress bypasses them.

Q: Maybe this question is too simple, but from a customer's point of view, what is the broken part of the medical business and what might be the easiest way to fix it? Ie Convert the macro observations into a business idea.

Doctors are human and don't scale. Get them out of the equation and you have a business that can get smaller, cheaper, faster, just like everything else silicon valley touches.

Consumers can do their own tests, and then only see specialists when they need them. (No pun on the NYSE, but same concept!)

Q: Cancer is a big killer today, yet doctors and patients will tell you that despite all the advances in chemotherapy, it is still a crapshoot. Did you come across any technologies that might change that?

Mostly, I spent time looking at early detection, the ability to find cancer early enough so that treatment is simple and effective, directed radiation, surgical removal, heating, freezing, melting via directed ultrasound, etc. Detected early, cancer tumors are microscopic, a million cells vs. later stage tumors the size of a cocktail olive or golf ball with a billion cells. These microscopic tumors can be treated without affecting much surrounding cells, almost impossible with later stage larger tumors, hence chemo. So the earlier, the better.

Having said that, I did see imaging techniques involving probes tagged with radiation, that find these early microscopic tumors and then light them up for PET scans. There is research going on in increasing the radiation dose tagged to these probes, meaning that they not only find cancer tumors, but directly apply radiation to them. Interesting, but very early.

Q: Ok let's invest in some medical companies or startups. What are your picks for either companies or technologies to consider?

There really isn't a business model for early detection, not yet. There is more of a negative for expensive pharmaceuticals and treatment centers, the day that heart disease, stroke and cancer begin to subside in numbers.

However, sometime in the next several years, as the silicon and software and algorithms developed for early detection begin to get cheap enough, these business models will emerge, and you will see venture capitalists step up to fund interesting companies and IPOs of the hot new early detection players. 3-D imaging, computer aided detection, biomarkers, molecular imaging probes, nanotech scan devices for antibody chips, these are all areas that we will see companies emerge.

Read the whole thing here.