 Diabetic Retinopathy

A gradual loss of vision of a diabetic patient is a very commonly observed trend around us. This
consequence of diabetics is so often ignored until it becomes a permenant vision impairement.
But the rather interesting fact is that early detection of this condition can enable a potential
patient to obtain timely treatment and not drag oneself to the rally of diabetic retinopathy
patients.

Diabetic Retinopathy (DR) is an eye condition that causes damages to the retina and there by
imparing vision. It is a result of the prevalence of the Type 1 or Type 2 diabetics. This vision
impairement often occurs as a result of the thickening of the diabetic macular oedema (central
part of retina) where blood vessels can grow from retina leading to bleeding, tearing of retina
and further vision loss. The major risk with the diabetic retinopathy is that the symptoms are not
displayed until a very late stage making the treatment less effective or sometimes even futile.
This is rather an avoidable if there is an early detection. The earlier the detection the lesser the
risk.

The generalization of vision loss and diabetics is so common that we fail to notice the
significance of the issue in the absence of supporting statistical evidences. The National Diabetes
and Diabetic Retinopathy Survey (2015-19) published by Union Ministry finds that there is a
16.9% prevalence of DR in the diabetic population in India. The approximation also shows that
India will have 98 million cases of diabetic retinopathy by the year 2030 as it has one of the
largest diabetic populations in the world. The current figure roughly translates to an estimated
72.96 million cases of diabetes in adult population of India and every diabetic is a potential DR
patient. So a speedy and accurate intervention is definitely the need of the hour considering the
spiking number of DR causalities is a preventable risk.

 Cost of conventional treatment infrastructure

Aravind Eye Care System is a hospital chain in India that has more than three decades of
experience in the field of ophthalmology. They have published a visionary statement of
‘Guidelines for the Comprehensive Management of Diabetic Retinopathy in India’ back in 2008
throwing light on the best practices for the management of diabetic retinopathy at primary,
secondary and tertiary levels in India by 2020.
Apart from the basic infrastructure facility at the secondary level, the following set of
investment by a clinic is required for a mere laser treatment facility back then;
And with every advanced technology coming into the arena we reduce the risk of DR by offering
enhanced diagnosis and early intervention. But at the same time increase in accuracy is often backed by
a substantially invested cutting edge technology. One of the most recent one in this rally is the AI based
Diabetic Retinopathy diagnosis platforms that make use of neural networks and AI backed image
assessment.

 AI platform for Diabetic Retinopathy

The Netra.AI is the most latest platform that came up with an AI based platform for Diabetic Retinopathy
diagnosis. The startup entity collaborate with Leben Care, Singapore to develop a comprehensive
ophthalmology platform that consist of the following;

 Netra Screen – for accurate and fast retinal screening

 Netra Track – to manage and view retinal change over time
 Netra API – building an integrated software solution to the clinics

The advantages that AI Platforms provides in the diagnosis and treatment are as follows;
Very fast diagnosis (takes less than 2 minutes)
Accuracy in diagnosis (99.7% and 98.5% as per the experiment claims)
Cost effectiveness & Affordability of treatment
Tele-Medicine supportive
Mass Screening provisions
Patient database management

The major players in the industry are thus ensuring that their platforms are making use of the latest
technology to provide best health care facilities and also maintain a competitive position. Shankara Eye
Foundation has made use of the Netra.AI platform; Aravind Eye Care System has engaged with Google
in designing an AI based Diabetic Retinopathy diagnosis system etc.
  Investment Decision in Health Tech Industry
The early detection, long term follow up, multiple interventions, portable equipments, tele-medicine
enabled diagnosis etc, are the major challenges when it comes to DR diagnosis and management. So the
amount of resources that a hospital has to set aside in managing these are substantial. Also since the
technology is advancing year after year, the amount of investment made has to yield an appropriate
return. Meeting this challenge by increasing the treatment charges is not an option considering the
extent of penetration of the condition among the population. Hence developing strategies on resource
allocation and selecting the most feasible medical technology without compromising health care quality
is a crucial decision making point for any firm in this sector.

A large real asset investment decision back two decades was not this conflicting because the return on
investment would be spread over a wider period of time. But with disruptive technologies challenging
the market situation, every single investment decision made along the line of health tech is gaining more
and more significance these days.

 The need of Real option Analysis for the Investment Decision

Considering the very nature of the sector – risk investment, uncertainty in cash flow, ambiguity in
investment period, technological advancements, and irreversibility of decision shows us that the
conventional method of Discounted Cash Flow is not appropriate in evaluating investment decision in
sophisticated medical equipments or technology.

A transition from a conventional laser treatment to an AI enabled comprehensive platform such as that
of Netra.AI demands substantial resource involvement. Any delay in adopting such equipment or
technology transition can significantly challenge the existence of the firm in the health sector.
Particularly when accurate and cost benefit options like these are available, patients always prefer early
accurate and affordable diagnosis. This demands every firm to adopt the technology as early as possible
to sustain in the market.

The advantage of adopting cutting edge technology like AI is that once the transition is done, further
investments on the project can be done at any point of time in future. For example a firm that has
adopted the technology here after gets the option to decide on whether to make invest in a particular
equipment that make use of more advanced imaging facility. Such technological options are available
infront of the firm thereafter and each decision of investment becomes an option. Based on effective
valuation analysis a firm might choose one over the other, or both or none therefore. This is very much
similar to the Binomial Valuation Model that puts forward a valuation analysis incorporating the
opportunity of several nodes and up-state (denoted as S u) and down-state (Sd) henceforth.
 Suu

Su Sud

Adoption of AI
Platform Sdu
Sd

Sdd

Year 1 Year 2 Year 3

In such an option analysis, the Present Value of the expected Cash Flows would serve as the Stock Price,
and cost of development would be the Strike Price. Since appropriate volatility measures of a developing
technology is not available, it is better to take industry average or a similar competitor volatility as the
Standard Deviation measure. Also reasonable assumption on risk-free rate and time to expiry based on
a given scenario can provide the crux for calculations.

For instance, an eye hospital say, XYZ decides to invest in adoption of Netra.Ai in the upcoming year.
The initial cost transition is very high. But even after making such a capital investment it is not sure if
they would be in a position to earn sufficient return from the investment by that initial investment
alone. So at every other year they might have an option to expand by including a new equipment or
prune their operation by abandoning some technology. A binomial real option valuation provides an
opportunity to evaluate investment at each of these stages and take an appropriate decision. Scope of
adopting a new technology is not ending there alone but such adoptions might enable smooth future
transition and thereby reducing the cost factor. Since such options are always open, it is inappropriate
to disregard that flexibility and choose conventional valuation method for analysis.

Note:- The NETRA.AI Platform and Solutions described in these pages are not available for clinical use.
Leben Care is evaluating the regulatory requirements for its products in development for the approval by
the Food and Drug Administration or any other regulatory body. Hence, data on investments or other
details of cost was not explicitly available because of the institution's data security concerns.
References

1) Hartmann, M., & Hassan, A. (2006). Application of real options analysis for pharmaceutical R&D
project valuation—Empirical results from a survey. Research Policy, 35(3), 343-354.
2) NATIONAL DIABETES AND DIABETIC RETINOPATHY SURVEY INDIA 2015-2019 – A SUMMARY
REPORT
3) Guidelines for the Comprehensive Management of Diabetic Retinopathy in India A VISION 2020:
The Right to Sight INDIA Publication ,July 2008, Developed by ARAVIND EYE CARE SYSTEM
4) https://leben.ai/
5) Wernz, C., Gehrke, I., & Ball, D. R. (2015). Managerial decision-making in hospitals with real
options analysis. Information Systems and e-Business Management, 13(4), 673-691.
6) Xie, Y., Nguyen, Q. D., Hamzah, H., Lim, G., Bellemo, V., Gunasekeran, D. V., ... & Ting, D. S.
(2020). Artificial intelligence for teleophthalmology-based diabetic retinopathy screening in a
national programme: an economic analysis modelling study. The Lancet Digital Health, 2(5),
e240-e249.
7) Diabetic retinopathy screening: a short guide – WHO report