Commerce Secretary: Device Industry Key to Increase Exports

Perhaps his was not the most anticipated speech at the recently held Advanced Medical Technology Association’s 2010 annual meeting and conference, but the message he delivered to attendees was equally as important as those sent by the heads of the U.S. Food and Drug Administration and the Centers for Medicare and Medicaid.

“America will remain the most open major economy in the world. That’s been good for our nation’s quality of life, and it’s been good for our economy,” U.S. Commerce Secretary Gary Locke told medical device manufacturers gathered at the convention center in Washington, D.C., for the AdvaMed meeting.

“But we will continue to insist that if we give foreign countries the privilege of access to our market, U.S. companies must receive the same access and protection in theirs,” he continued. “This expectation has taken on greater significance since President Obama announced his National Export Initiative with a goal of doubling U.S. exports by 2015. There’s no question that AdvaMed members will have a leading role to play in reaching this target.”

No question, indeed. With aging populations worldwide and emerging markets clamoring for more sophisticated medical devices and equipment, the U.S. medical technology industry most likely will remain a dominant player in the global market in the foreseeable future. Over the last three years, device exports have steadily increased, rising from a value of $28.3 billion in 2007 to $36 billion in 2009, according to various

industry data.

And though Locke claims medical technology has maintained a favorable trade balance in recent years, the numbers tell a different story. Data from the International Trade Administration (ITA) in Washington, D.C., indicate the United States imported more medical devices than it exported in 2007 and 2008. According to a 17-page industry assessment conducted by the ITA, the U.S. imported $31 billion worth of medical devices in 2007 and exported $28.3 billion; in 2008, device exports increased to $31.4 billion but imports also rose, to $33.6 billion.

“Over the past decade the value of imported medical devices has steadily increased, gradually eroding the previous trade surplus,” the ITA wrote in its assessment. “The majority of imports are lower tech products, e.g. surgical gloves and instruments. Continuing shifts in trade patterns have resulted in China emerging as a significant export of lower tech equipment and supplies to the United States.”

At the same time, however, China increasingly has become a target market for American companies exporting high-tech medical devices. China (including Hong Kong) is the second largest market for U.S. medical device exports in Asia, having taken in about $1.5 billion worth of goods in 2008, according to ITA data. The organization expects device exports to China to increase 5-10 percent annually for “the foreseeable future.”

Markets outside of China also are expected to grow in the future, particularly India, where
shipments of healthcare products shot up tenfold in the 1990s and rose about 12 percent annually from 2000 through 2008. U.S. exports to India totaled nearly $400 million in 2008, according to ITA figures.

Latin America is expected to become fertile exporting ground as well, with destinations such as Mexico, Brazil and Venezuela contributing to growth. U.S. exports of medical devices to Latin America and the Caribbean in 2008 totaled about $7.7 billion, a figure that is prompting an increasing number of device firms to pursue this market despite challenging access issues and economic difficulties in the region.

The ITA said the U.S. government can help the medical device industry overcome some of those challenges and difficulties by:

• Negotiating to reduce or eliminate tariffs on medical devices;

• Addressing foreign governments’ regulatory policies that are inconsistent with international harmonization efforts and that may cause unfair discrimination against U.S. industry;

• Educating the industry on ways to comply with foreign regulatory requirements and providing similar export help that foreign governments provide for their industries; and

• Encouraging developing countries to consider the advantages of the appropriate use of advanced medical technologies.

Earlier this year, President Obama unveiled a National Export Initiative (NEI) designed to double exports over the next five years and support 2 million jobs. The initiative, according to Locke, provides “more funding, more focus and more cabinet-level coordination” to increase exports. Specifically, the president’s plan includes fighting tariffs and non-tariff barriers as well as practices that blatantly harm American companies and hiring as many as 328 trade “experts” who will serve as advocates for U.S. firms.

The NEI also calls upon the Export-Import Bank to increase its financing available for small and medium-sized businesses from $4 billion to $6 billion over the next year.

“The opportunity to sell more of what [companies] make to the 95 percent of consumers who live outside our borders is real and immediate,” Locke said. “Under the NEI, and with traditional drivers of American economic growth facing headwinds, we are committed to doing more than ever to help U.S. companies reach new markets.”

FDA Reverses Menaflex 510(k), Adds to Ongoing Debate

In a rare acknowledgement of misguidedness, the U.S. Food and Drug Administration (FDA) is revoking approval of an orthopedic knee device that has become the poster child for a highly criticized product approval process used by the agency.

FDA officials admitted in mid-October to making a mistake in approving the Menaflex Collagen Scaffold in December 2008 for repairing and reinforcing meniscal tissue in the knee. The surgical mesh, manufactured by Hackensack, N.J.-based ReGen Biologics Inc., is designed to stimulategrowth of new meniscal tissue in damaged knees.

Jeffrey Shuren, M.D., director of the FDA’s Center for Devices and Radiological Health (CDRH), called the move an “unusual, unique” circumstance. Though it is not uncommon for the FDA to revoke approval for a device based on new safety data, it is rare for the agency to consider the entire approval process flawed and re-evaluate a product.

The FDA’s reversal on Menaflex, together with its decision to withdraw the obesity drug sibutramine (Meridia; Abbott Laboratories) from the market at around the same time, demonstrates that the agency is more militant about patient safety than it had been during PresidentBush’s administration, said Diana Zuckerman, Ph.D., president of the nonpartisan National Research Center for Women and Families, a Washington, D.C.-based group that specializes in health issues.

“The new FDA leadership under [President Barack] Obama is more public-health oriented. They’re more willing to admit a mistake,” Zuckerman told Medscape Medical News, adding that FDA decisions to rescind a drug or device approval are rare.

The FDA uses two different processes to approve products: the premarket approval process, in which a manufacturer must provide evidence that its product is safe and effective; and 510(k) premarket notification, in which a manufacturer needs only to show that its product substantially is the same as a “predicate” drug or device already approved by the FDA—and therefore is as safe and effective.

The 510(k) premarket notification process has been a boon to manufacturers, but critics (including U.S. Sen. Charles Grassley (R-Iowa) and some FDA scientists) have insisted the less stringent vetting method has allowed unsafe products to enter the market and be used

by consumers.

Menaflex won FDA approval through 510(k) premarket notification. But the decision soon came under fire by members of Congress who questioned whether the agency had properly followed its procedures and succumbed to undue pressure from the manufacturer. In September 2009, the FDA agreed to reevaluate its decision.

“There were in fact numerous departures from the review process,” Shuren said at the time about the CDRH’s 2008 decision. “There is no adequate information in the record establishing why thedevice was approved.”

That same month, the FDA commissioned the Institute of Medicine (IOM) to study its 510(k) approval process. The IOM is scheduled to publish a final report next summer.

After reevaluating its decision, the FDA said it concluded that Menaflex was “technologically dissimilar” from other surgical-mesh devices the agency had approved, and it embodied differences that could affect its safety and effectiveness. Unlike predecessor products that repair or reinforce damaged tissue, for example, Menaflex helped the human body grow new meniscal tissue.

“Because of these differences, the Menaflex device should not have been cleared by the agency,” the FDA said in a news release.

Regen Biologics’ chief executive blamed the FDA’s decision on politics.

“The agency’s clearance of Menaflex has become a political football, and the FDA is not playing by the rules,” CEO Gerald Bisbee said in a statement. “Regen has invested 58 months and more than $30 million to meet (the center’s) requirements only to have the agency reverse decisions made by previous officials by stating that they were in error with no substantial evidence that is true.”

Bisbee said the company is evaluating its options. Executives already are investigating ways of financing its European subsidiary, ReGen Biologics AG, so it can continue to market Menaflex outside the United States. Menaflex has been sold in parts of Europe for the past nine years.

Revoking FDA approval can take as long as a year and does not preclude the manufacturer from reapplying for market approval. Until revocation is made final, Menaflex will remain on the market, and physicians are free to implant it during that time, according to the agency.

Because the surgical mesh is resorbed and replaced with meniscal tissue, removing it in light of the impending rescission generally would be unnecessary, the FDA stated. However, surgeons should speak to their patients with implanted Menaflex devices about any steps they might need to take.

Stryker Enters the Latter Half of 2010 With Two Notable Buys

Boston Scientific has said goodbye to its neurovascular business. The Natick, Mass.-based medical device company will sell the business to Kalamazoo, Mich.-based Stryker Corp. for $1.5 billion in cash. The deal is expected to close before the end of the year, according to the companies.

Boston Scientific said it plans to use about half of the $1.2 billion in after-tax proceeds of the sale for acquisitions and the remainder for retiring debt. Stryker has agreed to pay Boston Scientific $1.4 billion for the business at the closing of the deal and the remaining $100 million after the closing based on certain milestones, including the commercial launch of the business’s new Target detachable coils for treating hemorrhagic stroke.

Boston Scientific’s neurovascular business, which employs 1,150 people, is based in Fremont, Calif., and reported revenue of $348 million last year. The company first acquired the business in 1997 through its purchase of Target Therapeutics. That deal was valued at $1.1 billion.

Mark Paul, the current president of Boston Scientific’s neurovascular business, will continue to lead the unit after the acquisition closes. The division provides medical technologies such as detachable coils, stents, and guidewires used in the treatment of neurovascular diseases.

“The sale of our neurovascular business is part of our overall strategic plan that will refocus our portfolio to, amongst other criteria, leverage existing sales forces with least invasive, cost and comparatively effective medical devices that reduce or eliminate refractory drug regimens,” said Ray Elliott, Boston Scientific’s president and CEO.

A day after the Boston Scientific deal was announced Stryker also inked a deal for bio-implantable products maker Porex Surgical Inc. for an undisclosed amount. According to Stryker officials, the cranial implant maker’s assets will complement its existing craniomaxillofacial product offering.

Porex Surgical develops bio-implantable porous polyethylene products for use in reconstructive surgery of the head and face. Its parent company, Porex Corp., based in Fairburn, Ga., manufactures porous plastic products for a variety of industries. Porex is owned by Los Angeles, Calif.-based investment firm Aurora Capital Group.

Wright Pays $7.9 Million to Settle Federal ProbeTalk about a valuable lesson.

Wright Medical Group Inc. is shelling out $7.9 million to settle a criminal investigation and avoid prosecution for allegedly violating a federal kickback statute. A deferred prosecution agreement the Arlington, Tenn.-based orthopedic manufacturing company reached with the U.S. Justice Department settles the civil component of a nearly three-year federal probe and establishes a program to monitor the firm’s relationships with its surgeons. In exchange, Wright Medical admitted no wrongdoing.

James B. Tucker, a former U.S. Attorney for the Southern District of Mississippi, will monitor Wright’s relationships with surgeons. A partner and head of the Investigations Group at the Bethlehem, Pa.-based law firm Butler, Snow, O’Mara, Stevens and Cannada PLLC, Tucker has assembled a team to help him monitor Wright’s current and future relationships with surgeons. “My team includes three former in-house compliance officers, three members with in-house orthopedic medical device experience, and three former government prosecutors, the perfect mix for this project,” he said in a news release issued by the law firm. “The strength and depth of this team certainly enhanced my selection.”

In addition to the monitoring program, Wright reached a five-year corporate integrity agreement with the U.S. Office of the Inspectors General within the U.S. Department of Health and Human Services. The integrity agreement requires the firm—in addition to other conditions—to develop, implement and distribute a written Code of Conduct; create and maintain a central tracking system for its existing and new relationships with healthcare professionals; monitor the use of leased space, medical supplies, medical devices, equipment and other patient care items to ensure the uses do not violate the Anti-Kickback Statute; establish a written review and approval process for establishing relationships with healthcare professionals (a legal review is necessary); and requiring Wright’s compliance officer to review the central tracking system, internal review and approval processes and relationships with healthcare professionals on “at least an annual basis.”

Wright Medical President and CEO Gary D. Henley praised the terms of the deferred prosecution agreement, claiming the resolution “is in the best interest of shareholders.” He also said company executives are looking forward to working with Tucker to continue the firm’s “commitment to the highest standards of ethical and legal conduct.”

“The terms of the resolution reflect our cooperation with the government throughout the investigation,” Henley said in a news release. “This commitment applies to all our dealings with customers, vendors and business partners, as well as with our surgeon consultants who are an important source of innovation in medical technology and integral to the training of their peers.”

The federal government began investigating Wright Medical’s relationships with surgeons and other healthcare professionals in 2007 to determine whether the company’s consulting agreements induced physicians to use its hip and knee products. With the investigation now closed, Wright follows in the footsteps of other large orthopedic companies that were the targets of similar probes.

Wright’s settlement is the most recent in a series of ongoing investigations over the last few years. Such inquiries, in part, are what lead to strict gift-ban laws in many states and regulations in the new federal healthcare legislation limitingdevice company and physician interaction.

In September 2007, DePuy Orthopaedics Inc., Biomet Inc., Stryker Orthopaedics Inc. and Smith & Nephew reached similar settlements with the federal government over their relationships with surgeons. In July 2006, Medtronic agreed to pay the U.S. government $40 million to settle kickback allegations. The company was accused of paying kickbacks to doctors through consulting agreements, sham royalty payments and lavish trips.