Ranica Arrowsmith , Associate Editor04.01.15
In 2011, The Wall Street Journal called “Modernist Cuisine” “The most astonishing cookbook of our time.” While that may seem like an exaggeration, chefs nationwide bolster that statement by their almost unanimous reverence toward principal author Nathan Myhrvold. On season nine of Bravo TV’s “Top Chef,” Myhrvold appeared on an episode to challenge the competitor chefs to study his 2,500-page volume and come up with dishes that exemplified the cookbook’s modern development on traditional techniques.
The winning chef created ravioli filled with an almost raw egg yolk, blending the very traditional, Italian method of pasta creation with a modern surprise within. This approach painted the perfect picture of “Modernist Cuisine”—applying new approaches, based on hours upon hours of research by innovator chefs such as Myhrvold, to old, tried-and-true techniques. In short: development.
Chris Jones, former executive chef and director of innovation at the well-regarded Chicago restaurant Moto, said, “I look up to chef Nathan. He’s a genius. If I could be one-tenth as smart as he is, I could rule a small continent.”
Mhyrvold: Creative genius chef? Perhaps—but he never went to culinary school. In fact, Mhyrvold is primarily known to folks outside the heady world of creative cuisine as former chief technology officer of Microsoft and general tech innovator. With degrees in mathematics, geophysics and space physics from the University of California-Los Angeles, and a period of study under Stephen Hawking, Mhyrvold went on to work for Microsoft for 13 years. In 1991, he founded Microsoft Research, the research arm of the software giant. After Microsoft, he co-founded Intellectual Ventures, a patent portfolio developer and broker in technology and energy that holds approximately 30,000 patents. He also is a past winner of the Memphis barbecue championship.
Mhyrvold is the embodiment of both the R and the D in research and development. In the tech world, he literally founded the research vision of one of the world’s largest technology companies; and in the cooking world, he applied his scientific know-how to develop new and groundbreaking culinary techniques. You can’t have the new without the old, and medtech is no different.
Precedent is gospel for medical technologies such as imaging systems, glucose monitoring devices and even resorbable devices such as nerve conduits, and precedent means development on prior foundations.
Funding has always been the foremost consideration of R&D, because it is an area that does not provide immediate return on investment. Some medical products, such as the material nitinol, remain decades in the making before becoming viable for market, let alone profitable. Nitinol, an alloy of nickel and titanium, today is used in orthopedic applications for its shape memory properties. The material was discovered in 1959. It took 10 years before a practical commercial application was found, and only became financially viable in the 1990s.
Nitinol’s medical applications owe their thanks to two milestone medical devices developed in the 1980s: Mitek’s Homer Mammalok for breast tumor localization, and Nitinol Medical Technologies Inc.’s Simon nitinol filter, designed to trap blood clots in the venous system. These devices set a precedent for Nitinol, opening the door for Nitinol-based Class II medical devices. Another factor in the popularization of nitinol was how its producers in the 1980s shared information on ways to design and develop the novel material.
Research takes years. Development takes more years. And when financial resources are limited, the natural focus will fall on development of existing knowledge and technologies. Since the economic downturn of 2008 and implementation of the medical device excise tax in 2013, the medtech industry has belt-tightened considerably in recent years. Before the 2.3 percent tax came into effect under the Affordable Care Act, one of the most popular pundit predictions for the industry was that R&D would take the hit. Post-tax, there haven’t been too many noticeable disasters in terms of innovation falling off or companies going belly-up (as many cynics feared)—but that doesn’t mean original equipment manufacturers (OEMs) and contract manufacturing organizations (CMOs) in medtech aren’t making cuts.
“Money and resources are greatly reduced from what they used to be,” Pat Meheran, director of operations for Silikon Technologies LLC, the Hamburg, N.Y.-based silicone molding spinoff from Polymer Conversions Inc., told Orthopedic Design & Technology. “Prior to joining this venture, I worked in product design and development and I saw the money and the resources greatly reduced. And I would say that the number-one reason for that is the downturn in the economy in 2008. On top of that, some of the U.S. Food and Drug Administration’s increased restrictions on passing certain devices and being more strict with others has also contributed. The medical device tax has also contributed. OEMs have to make that 2.3 percent up somewhere, and I believe that contributes to cutting some of the R&D.”
Boston Engineering Corporation’s vision finds a potential solution to the funding quandary. Research is the more demanding half of R&D when it comes to money, because it is original work, while development has the advantage of building off precedent.
“Boston Engineering develops new products for client companies. As such, it would be more appropriate to say we focus on new product development—or as I refer to it, small r and large D,” explained the Waltham, Mass.-based company’s Director of Medical Devices Dave Jacobs. “In order to mitigate technical risk, our preference is to use existing technology whenever possible, and package and/or modify that technology to meet a new need.”
Innovation in a Changing Environment
According to an Ernst & Young annual industry report, 2013 actually saw a 7 percent increase in R&D investment in the medical device industry. The top medtech R&D spenders invested more than $10.5 billion on innovation in 2013, up by about $200 million from 2012. Of course, statistics can be misleading and as the biggest R&D investors continue to be the large players such as Medtronic plc, Johnson & Johnson, and GE Healthcare, the startups can get lost in the mix. Indeed the E&Y report notes that financing increasingly has become scarce for small companies. Between 2008 and 2012, $14 billion was lost from R&D investment due to slowed growth.
Even if a company is lucky enough to still have the physical investment dollars, the effects of a general economic dive and a very real tax on industry create the feeling and culture of financial deprivation, and for most, that is enough to create a culture of careful spending and consideration of funds allocated.
So remove the money, at least from a company’s zeitgeist, and what do you have? People, ideas and culture. Whether a company has an R&D team of two or 20 (depending on how many salaries it can afford), ideas are limitless if you have the right engineers and collaborators.
“We’re constantly communicating with our clients to give them insights into exciting things that we’re working on, in a translational approach, to match their clinically relevant needs with our R&D,“ Larry Thatcher, president of TESco Associates Inc., a Tyngsborough, Mass. based bioabsorable polymer engineering consulting and manufacturing firm, told ODT. “Internally, we have an open-door, open-team concept, where every employee at every level is valued. Everyone is encouraged to present their ideas to the senior management team. It’s rewarding that not only senior researchers but also a technician who’s working with a process, or an employee who comes back from a physician visit and says, ‘I have an idea.’ At whatever level it can be very exciting. Everyone is really encouraged to be on the alert and bring things to the table.”
R&D is one of the key areas in a medical device manufacturing firm that allows for true collaboration, and encourages input from every single member of a team to be successful. An “engineer’s paradise” is actually what any smart technology company creates in order to ensure innovation. A focus on engineers and engineering rather than researchers (though engineering and research certainly aren’t mutually exclusive) is one more way companies place emphasis on the development side of R&D.
“Our team is the key,” stressed Rob L. Richards, business development manager of Orchid Design, part of Orchid Orthopedic Solutions LLC, headquartered in Holt, Mich. “Orchid Design has pulled together a world class team of engineers that thrive in creative design solutions through their diverse technical backgrounds and critical thinking mentality. Our team includes mechanical engineers, materials engineers, biomedical engineers, as well as industrial designers that each brings a unique skill set to the development process. In addition to bringing comprehensive orthopedic experience to the table, many on our staff have diverse backgrounds in vastly different industries ranging from bicycle design, biosensors, automotive design, and of course, medical OEMs. In addition to building a world-class team, we’ve designed our facilities to encourage rapid innovation; with in-house rapid prototyping capabilities, mechanical testing, wet labs, and fully capable machine shop, our engineers are encouraged to build and play and the results are tremendous. We pride ourselves in generating innovative and clinically relevant solutions that can be protected with strong IP (intellectual property). Since opening our doors over ten years ago, our engineers have contributed to over 100 patents for our clients with countless more applications under review.”
One of the keys to maintaining the deal environment for creativity and collaboration in the R&D department is making sure hierarchical structures are not instated and reinforced. According a recent Forbes magazine article, “flat” organizational structures work best when a company’s main point of differentiation is innovation. They also work well when teams need to be more nimble to respond to a rapidly changing environment, and when the organization has a shared purpose. In orthopedic technology, where companies find themselves facing broad new issues such as aging populations in need of implants that last much longer than ever before, true innovation has to be at the forefront of device development.
Bioventus has adopted a flat approach within its organization in order to foster a culture of true innovation. Bioventus began as a spinoff from orthopedic device company Smith & Nephew plc, which shed its biologics branch in 2012. Today, Bioventus has a global presence. Based in Durham, N.C., the company provides bone stimulation devices and osteoarthritis injection treatments. Neill Pounder, Ph.D., director of project management at the company, explained to ODT that Bioventus’ relatively small size makes a flat organizational structure particularly useful. Also, the company maintains strong links with industry experts to leverage innovative thinking and keep track of trends.
“Within Bioventus we have a very flat organizational structure,” said Pounder. “This allows communication through our organization very quickly, and allows ideas to be reviewed by numerous people from different perspectives. We also have a close relationship with our marketing and sales organizations. This allows us to have close contact with the end-users of our products and provides a true voice of the customer. As a small organization we can’t do everything, but a presence at orthopedic conferences allows us to link with experts and keep track of the latest trends. To allow innovation to grow, it is important to give a technology sufficient time to develop, rather than be driven by a rigid timeline and business case for commercialization. We have a recent example where we purposefully kept a technology development away from our commercialization process, but encouraged its development by exposing it to a range of technical skill sets (physics, electrical engineering, and cell biology). Besides the systems and the processes, the biggest part of creativity is the people. It is critical to encourage a risk-taking attitude and to constantly challenge the status quo. It is easy to explain why something is not possible, whereas we try to ask ‘what if?’ Lastly, serendipity is essential to major R&D breakthroughs. Having the right people in the right place at the right time.”
The Evolving Role of CMOs
Before the implementation of the medical device excise tax, many medtech players warned that it would stifle innovation and drive some of the United States’ best technologies overseas. R&D seemed like the corner that would take the most beating within medical device companies, as it often is a department that requires the most investment. According to a January report from Kaiser Health News, however, Warsaw, Ind., which is often called the “orthopedic capital of the world” because of the number of major orthopedic technology companies located there, is healthy and hiring. There certainly have been a number of major mergers that have helped keep companies robust (such as Zimmer Holdings Inc.’s bid to buy cross-town competitor Biomet Inc. for approximately $13.5 billion), but also, Warsaw enjoys the insulation of a niche within medtech—orthopedic devices—which have been more profitable than other major device categories such as cardiac devices, analysts note.
TESco’s Thatcher noted that some large OEMs are looking to their CMOs to conduct more R&D, thereby shouldering more of that costly burden.
“The larger orthopedic firms today, in my view, are relying much, much more on their CMOs and materials suppliers to perform basic or translational R&D, and to present more mature programs to them that require much less investment or present lower risk,” he said. “We don’t see as much innovative R&D coming from within our clients. They’re either acquiring it from startups or they’re really asking firms like ours to present the next best material or process, and to show them how it applies to either their current products or the products that they have in development coming down the pipeline.
“On the other side, we also see both individual clinicians or startup companies in the ortho space—especially single device companies that have been formed by some entrepreneurs—with an idea for a single device or procedure. Their hope is to develop it to a point where it is of interest to a larger firm. That is their exit strategy,” Thatcher continued. “They may have a good idea, but they don’t always know how to execute it. This can get complicated particularly when jointly-developed IP comes out of an exercise where they are collaborating with a company like TESco. The other part that gets complicated is embedded proprietary or prior IP coming from a firm like ours, that has a long tradition of proprietary processing techniques or materials, which may get embedded into an incoming company’s device.”
Of course, success and profitability purely is a numbers game. According to Ernst and Young, since 2008, the growth rate of medtech company revenues has been 7 percent annually. However, if post-2008 revenue growth had been sustained at the 13 percent historic rate it had been enjoying, the medtech industry would have brought in an additional $131 billion in revenue between 2008 and 2012. As a result of these “lost” revenues, and consequently, lost R&D funding, there remains the attitude that America could be doing a lot better than it is—even though compared to the rest of the world, American companies do invest a significantly larger portion of corporate revenues back into R&D.
“I want the country that eliminated polio and mapped the human genome to lead a new era of medicine—one that delivers the right treatment at the right time,” President Barack Obama said during this year’s State of the Union Address. He urged Congress to boost research funding so the United States could herald a movement toward curing some of the most damaging and persistent diseases today, such as cancer and diabetes. He noted that increased funding for research had had a great impact on the cystic fibrosis space, and said that he was “launching a new precision medicine initiative… to give all of us access to the personalized information we need to keep ourselves and our families healthier.”
“R&D is not at the robust pace of some years ago,” said Rohit Tandon, vice president of new product development for SMC Ltd., a CMO based in Somerset, Wis., that provides a variety of services for finished medical devices. “OEMs are extending the life of current product lines, and often find their new technology from startups. OEMs have greater expectations from international markets, and interest in converting existing products to international needs. We do see large OEMs and startups looking to the supply chain for partnerships in innovation to provide manufacturing solutions.”
Another approach is not to shift the R&D burden to CMOs, but rather to shift it to other departments. President of Rochester, N.Y.-based Highpower Validation Testing & Lab Services Inc., Gary J. Socola, noted this particular problem in the industry, which is a direct result of efforts to cut costs. Trimming R&D departments and shifting responsibilities is a quick fix, but the danger for orthopedic companies that fall into this cycle is not correcting the imbalance at the first opportune moment. R&D is the nerve-hub of where profitable ideas originate. Cutting the department only makes short-term sense, and some experts would even argue against that point. This approach is comparable to a struggling theater cutting performances to save money—eventually, you have no more programs, and no more revenue.
“We are not seeing the amount of activity put towards the development of new orthopedic devices that there was a few years ago, but there is still activity,” said Socola. “Many companies have scaled back the number of projects that were being worked on concurrently; and some that have lost key R&D employees and have not replaced them. Instead, these companies have chosen to reallocate their projects to other employees. This places a burden on existing employees and puts more projects on their plate than ever before. Other companies simply put projects on hold until more employee resources are available or they have the finances to move the project forward. We are just now starting to see an uptick in the number of projects coming into our lab and I do see this trend continuing as the economy slowly gains momentum.”
A common theme among CMOs is the effort to remain plugged in to industry standards and demands by attending conferences and maintaining relationships with outside experts.
“Orthoplastics has a strong established R&D group,” said Mark Allen, managing director of the Lancashire, United Kingdom-based company which makes premium-grade orthopedic ultra-high-molecular-weight polyethylene (UHMWPE). “We continually develop the experience in both processing and materials technology by attending conferences, exhibitions and being proactive in ASTM (American Society for Testing and Materials) standards meetings. The next generation is always an important factor in innovation as well as knowledge transfer.”
Innovation Thrives
Despite the obstacles to R&D that can seem frustrating, U.S. medtech innovation is thriving. Data from the online statistics clearinghouse Statista Inc. show that the United States consistently re-invests a far greater percentage of medtech revenues into R&D compared to large competitor markets such as Europe. In fact, finding ways to stay profitable while commercial prices and investment stagnate is itself innovative.
“You only have to look at all the new devices to get a sense for the state of R&D in the medical device industry,” said Boston Engineering’s Jacobs. “We can monitor ECG (electrocardiogram) data from wearable devices remotely, send that data to the cloud, analyze it to identify cardiac events and when they occur send that data to a physician. Neurostimulation devices are being used to treat pain and even allow paralyzed people to walk. The technology to create an artificial pancreas exists, and several companies are working to make that available to diabetes patients. Many new diagnostic medical devices are only possible due to low-power wireless communication technology. Soon we’ll start to see remote therapeutic devices as well. These new devices will allow us to provide healthcare to people who have no access to healthcare providers today.”
The winning chef created ravioli filled with an almost raw egg yolk, blending the very traditional, Italian method of pasta creation with a modern surprise within. This approach painted the perfect picture of “Modernist Cuisine”—applying new approaches, based on hours upon hours of research by innovator chefs such as Myhrvold, to old, tried-and-true techniques. In short: development.
Chris Jones, former executive chef and director of innovation at the well-regarded Chicago restaurant Moto, said, “I look up to chef Nathan. He’s a genius. If I could be one-tenth as smart as he is, I could rule a small continent.”
Mhyrvold: Creative genius chef? Perhaps—but he never went to culinary school. In fact, Mhyrvold is primarily known to folks outside the heady world of creative cuisine as former chief technology officer of Microsoft and general tech innovator. With degrees in mathematics, geophysics and space physics from the University of California-Los Angeles, and a period of study under Stephen Hawking, Mhyrvold went on to work for Microsoft for 13 years. In 1991, he founded Microsoft Research, the research arm of the software giant. After Microsoft, he co-founded Intellectual Ventures, a patent portfolio developer and broker in technology and energy that holds approximately 30,000 patents. He also is a past winner of the Memphis barbecue championship.
Mhyrvold is the embodiment of both the R and the D in research and development. In the tech world, he literally founded the research vision of one of the world’s largest technology companies; and in the cooking world, he applied his scientific know-how to develop new and groundbreaking culinary techniques. You can’t have the new without the old, and medtech is no different.
Precedent is gospel for medical technologies such as imaging systems, glucose monitoring devices and even resorbable devices such as nerve conduits, and precedent means development on prior foundations.
Funding has always been the foremost consideration of R&D, because it is an area that does not provide immediate return on investment. Some medical products, such as the material nitinol, remain decades in the making before becoming viable for market, let alone profitable. Nitinol, an alloy of nickel and titanium, today is used in orthopedic applications for its shape memory properties. The material was discovered in 1959. It took 10 years before a practical commercial application was found, and only became financially viable in the 1990s.
Nitinol’s medical applications owe their thanks to two milestone medical devices developed in the 1980s: Mitek’s Homer Mammalok for breast tumor localization, and Nitinol Medical Technologies Inc.’s Simon nitinol filter, designed to trap blood clots in the venous system. These devices set a precedent for Nitinol, opening the door for Nitinol-based Class II medical devices. Another factor in the popularization of nitinol was how its producers in the 1980s shared information on ways to design and develop the novel material.
Research takes years. Development takes more years. And when financial resources are limited, the natural focus will fall on development of existing knowledge and technologies. Since the economic downturn of 2008 and implementation of the medical device excise tax in 2013, the medtech industry has belt-tightened considerably in recent years. Before the 2.3 percent tax came into effect under the Affordable Care Act, one of the most popular pundit predictions for the industry was that R&D would take the hit. Post-tax, there haven’t been too many noticeable disasters in terms of innovation falling off or companies going belly-up (as many cynics feared)—but that doesn’t mean original equipment manufacturers (OEMs) and contract manufacturing organizations (CMOs) in medtech aren’t making cuts.
“Money and resources are greatly reduced from what they used to be,” Pat Meheran, director of operations for Silikon Technologies LLC, the Hamburg, N.Y.-based silicone molding spinoff from Polymer Conversions Inc., told Orthopedic Design & Technology. “Prior to joining this venture, I worked in product design and development and I saw the money and the resources greatly reduced. And I would say that the number-one reason for that is the downturn in the economy in 2008. On top of that, some of the U.S. Food and Drug Administration’s increased restrictions on passing certain devices and being more strict with others has also contributed. The medical device tax has also contributed. OEMs have to make that 2.3 percent up somewhere, and I believe that contributes to cutting some of the R&D.”
Boston Engineering Corporation’s vision finds a potential solution to the funding quandary. Research is the more demanding half of R&D when it comes to money, because it is original work, while development has the advantage of building off precedent.
“Boston Engineering develops new products for client companies. As such, it would be more appropriate to say we focus on new product development—or as I refer to it, small r and large D,” explained the Waltham, Mass.-based company’s Director of Medical Devices Dave Jacobs. “In order to mitigate technical risk, our preference is to use existing technology whenever possible, and package and/or modify that technology to meet a new need.”
Innovation in a Changing Environment
According to an Ernst & Young annual industry report, 2013 actually saw a 7 percent increase in R&D investment in the medical device industry. The top medtech R&D spenders invested more than $10.5 billion on innovation in 2013, up by about $200 million from 2012. Of course, statistics can be misleading and as the biggest R&D investors continue to be the large players such as Medtronic plc, Johnson & Johnson, and GE Healthcare, the startups can get lost in the mix. Indeed the E&Y report notes that financing increasingly has become scarce for small companies. Between 2008 and 2012, $14 billion was lost from R&D investment due to slowed growth.
Even if a company is lucky enough to still have the physical investment dollars, the effects of a general economic dive and a very real tax on industry create the feeling and culture of financial deprivation, and for most, that is enough to create a culture of careful spending and consideration of funds allocated.
So remove the money, at least from a company’s zeitgeist, and what do you have? People, ideas and culture. Whether a company has an R&D team of two or 20 (depending on how many salaries it can afford), ideas are limitless if you have the right engineers and collaborators.
“We’re constantly communicating with our clients to give them insights into exciting things that we’re working on, in a translational approach, to match their clinically relevant needs with our R&D,“ Larry Thatcher, president of TESco Associates Inc., a Tyngsborough, Mass. based bioabsorable polymer engineering consulting and manufacturing firm, told ODT. “Internally, we have an open-door, open-team concept, where every employee at every level is valued. Everyone is encouraged to present their ideas to the senior management team. It’s rewarding that not only senior researchers but also a technician who’s working with a process, or an employee who comes back from a physician visit and says, ‘I have an idea.’ At whatever level it can be very exciting. Everyone is really encouraged to be on the alert and bring things to the table.”
R&D is one of the key areas in a medical device manufacturing firm that allows for true collaboration, and encourages input from every single member of a team to be successful. An “engineer’s paradise” is actually what any smart technology company creates in order to ensure innovation. A focus on engineers and engineering rather than researchers (though engineering and research certainly aren’t mutually exclusive) is one more way companies place emphasis on the development side of R&D.
“Our team is the key,” stressed Rob L. Richards, business development manager of Orchid Design, part of Orchid Orthopedic Solutions LLC, headquartered in Holt, Mich. “Orchid Design has pulled together a world class team of engineers that thrive in creative design solutions through their diverse technical backgrounds and critical thinking mentality. Our team includes mechanical engineers, materials engineers, biomedical engineers, as well as industrial designers that each brings a unique skill set to the development process. In addition to bringing comprehensive orthopedic experience to the table, many on our staff have diverse backgrounds in vastly different industries ranging from bicycle design, biosensors, automotive design, and of course, medical OEMs. In addition to building a world-class team, we’ve designed our facilities to encourage rapid innovation; with in-house rapid prototyping capabilities, mechanical testing, wet labs, and fully capable machine shop, our engineers are encouraged to build and play and the results are tremendous. We pride ourselves in generating innovative and clinically relevant solutions that can be protected with strong IP (intellectual property). Since opening our doors over ten years ago, our engineers have contributed to over 100 patents for our clients with countless more applications under review.”
One of the keys to maintaining the deal environment for creativity and collaboration in the R&D department is making sure hierarchical structures are not instated and reinforced. According a recent Forbes magazine article, “flat” organizational structures work best when a company’s main point of differentiation is innovation. They also work well when teams need to be more nimble to respond to a rapidly changing environment, and when the organization has a shared purpose. In orthopedic technology, where companies find themselves facing broad new issues such as aging populations in need of implants that last much longer than ever before, true innovation has to be at the forefront of device development.
Bioventus has adopted a flat approach within its organization in order to foster a culture of true innovation. Bioventus began as a spinoff from orthopedic device company Smith & Nephew plc, which shed its biologics branch in 2012. Today, Bioventus has a global presence. Based in Durham, N.C., the company provides bone stimulation devices and osteoarthritis injection treatments. Neill Pounder, Ph.D., director of project management at the company, explained to ODT that Bioventus’ relatively small size makes a flat organizational structure particularly useful. Also, the company maintains strong links with industry experts to leverage innovative thinking and keep track of trends.
“Within Bioventus we have a very flat organizational structure,” said Pounder. “This allows communication through our organization very quickly, and allows ideas to be reviewed by numerous people from different perspectives. We also have a close relationship with our marketing and sales organizations. This allows us to have close contact with the end-users of our products and provides a true voice of the customer. As a small organization we can’t do everything, but a presence at orthopedic conferences allows us to link with experts and keep track of the latest trends. To allow innovation to grow, it is important to give a technology sufficient time to develop, rather than be driven by a rigid timeline and business case for commercialization. We have a recent example where we purposefully kept a technology development away from our commercialization process, but encouraged its development by exposing it to a range of technical skill sets (physics, electrical engineering, and cell biology). Besides the systems and the processes, the biggest part of creativity is the people. It is critical to encourage a risk-taking attitude and to constantly challenge the status quo. It is easy to explain why something is not possible, whereas we try to ask ‘what if?’ Lastly, serendipity is essential to major R&D breakthroughs. Having the right people in the right place at the right time.”
The Evolving Role of CMOs
Before the implementation of the medical device excise tax, many medtech players warned that it would stifle innovation and drive some of the United States’ best technologies overseas. R&D seemed like the corner that would take the most beating within medical device companies, as it often is a department that requires the most investment. According to a January report from Kaiser Health News, however, Warsaw, Ind., which is often called the “orthopedic capital of the world” because of the number of major orthopedic technology companies located there, is healthy and hiring. There certainly have been a number of major mergers that have helped keep companies robust (such as Zimmer Holdings Inc.’s bid to buy cross-town competitor Biomet Inc. for approximately $13.5 billion), but also, Warsaw enjoys the insulation of a niche within medtech—orthopedic devices—which have been more profitable than other major device categories such as cardiac devices, analysts note.
TESco’s Thatcher noted that some large OEMs are looking to their CMOs to conduct more R&D, thereby shouldering more of that costly burden.
“The larger orthopedic firms today, in my view, are relying much, much more on their CMOs and materials suppliers to perform basic or translational R&D, and to present more mature programs to them that require much less investment or present lower risk,” he said. “We don’t see as much innovative R&D coming from within our clients. They’re either acquiring it from startups or they’re really asking firms like ours to present the next best material or process, and to show them how it applies to either their current products or the products that they have in development coming down the pipeline.
“On the other side, we also see both individual clinicians or startup companies in the ortho space—especially single device companies that have been formed by some entrepreneurs—with an idea for a single device or procedure. Their hope is to develop it to a point where it is of interest to a larger firm. That is their exit strategy,” Thatcher continued. “They may have a good idea, but they don’t always know how to execute it. This can get complicated particularly when jointly-developed IP comes out of an exercise where they are collaborating with a company like TESco. The other part that gets complicated is embedded proprietary or prior IP coming from a firm like ours, that has a long tradition of proprietary processing techniques or materials, which may get embedded into an incoming company’s device.”
Of course, success and profitability purely is a numbers game. According to Ernst and Young, since 2008, the growth rate of medtech company revenues has been 7 percent annually. However, if post-2008 revenue growth had been sustained at the 13 percent historic rate it had been enjoying, the medtech industry would have brought in an additional $131 billion in revenue between 2008 and 2012. As a result of these “lost” revenues, and consequently, lost R&D funding, there remains the attitude that America could be doing a lot better than it is—even though compared to the rest of the world, American companies do invest a significantly larger portion of corporate revenues back into R&D.
“I want the country that eliminated polio and mapped the human genome to lead a new era of medicine—one that delivers the right treatment at the right time,” President Barack Obama said during this year’s State of the Union Address. He urged Congress to boost research funding so the United States could herald a movement toward curing some of the most damaging and persistent diseases today, such as cancer and diabetes. He noted that increased funding for research had had a great impact on the cystic fibrosis space, and said that he was “launching a new precision medicine initiative… to give all of us access to the personalized information we need to keep ourselves and our families healthier.”
“R&D is not at the robust pace of some years ago,” said Rohit Tandon, vice president of new product development for SMC Ltd., a CMO based in Somerset, Wis., that provides a variety of services for finished medical devices. “OEMs are extending the life of current product lines, and often find their new technology from startups. OEMs have greater expectations from international markets, and interest in converting existing products to international needs. We do see large OEMs and startups looking to the supply chain for partnerships in innovation to provide manufacturing solutions.”
Another approach is not to shift the R&D burden to CMOs, but rather to shift it to other departments. President of Rochester, N.Y.-based Highpower Validation Testing & Lab Services Inc., Gary J. Socola, noted this particular problem in the industry, which is a direct result of efforts to cut costs. Trimming R&D departments and shifting responsibilities is a quick fix, but the danger for orthopedic companies that fall into this cycle is not correcting the imbalance at the first opportune moment. R&D is the nerve-hub of where profitable ideas originate. Cutting the department only makes short-term sense, and some experts would even argue against that point. This approach is comparable to a struggling theater cutting performances to save money—eventually, you have no more programs, and no more revenue.
“We are not seeing the amount of activity put towards the development of new orthopedic devices that there was a few years ago, but there is still activity,” said Socola. “Many companies have scaled back the number of projects that were being worked on concurrently; and some that have lost key R&D employees and have not replaced them. Instead, these companies have chosen to reallocate their projects to other employees. This places a burden on existing employees and puts more projects on their plate than ever before. Other companies simply put projects on hold until more employee resources are available or they have the finances to move the project forward. We are just now starting to see an uptick in the number of projects coming into our lab and I do see this trend continuing as the economy slowly gains momentum.”
A common theme among CMOs is the effort to remain plugged in to industry standards and demands by attending conferences and maintaining relationships with outside experts.
“Orthoplastics has a strong established R&D group,” said Mark Allen, managing director of the Lancashire, United Kingdom-based company which makes premium-grade orthopedic ultra-high-molecular-weight polyethylene (UHMWPE). “We continually develop the experience in both processing and materials technology by attending conferences, exhibitions and being proactive in ASTM (American Society for Testing and Materials) standards meetings. The next generation is always an important factor in innovation as well as knowledge transfer.”
Innovation Thrives
Despite the obstacles to R&D that can seem frustrating, U.S. medtech innovation is thriving. Data from the online statistics clearinghouse Statista Inc. show that the United States consistently re-invests a far greater percentage of medtech revenues into R&D compared to large competitor markets such as Europe. In fact, finding ways to stay profitable while commercial prices and investment stagnate is itself innovative.
“You only have to look at all the new devices to get a sense for the state of R&D in the medical device industry,” said Boston Engineering’s Jacobs. “We can monitor ECG (electrocardiogram) data from wearable devices remotely, send that data to the cloud, analyze it to identify cardiac events and when they occur send that data to a physician. Neurostimulation devices are being used to treat pain and even allow paralyzed people to walk. The technology to create an artificial pancreas exists, and several companies are working to make that available to diabetes patients. Many new diagnostic medical devices are only possible due to low-power wireless communication technology. Soon we’ll start to see remote therapeutic devices as well. These new devices will allow us to provide healthcare to people who have no access to healthcare providers today.”