“The economy.” It’s a common phrase these days, uttered when people are assigning blame or pinpointing reasons for less-than-stellar job hunts, pay raises and of course, business growth opportunities. No one can say the government has been ignoring the problem—in fact, current administration officials have been vocal about their ideas for job creation and the restoration of America’s image in the global marketplace. So when word came that the device industry was going to be hit with billions in excise taxes, industry professionals not only were angry,but surprised.
Why? The device industry is responsible for the employment of more than 400,000 people nationwide. It generates approximately $25 billion in payroll, pays salaries at 40 percent more than the national average, and invests nearly $10 billion annually into the research and development that helps steady the country’s position as a leader in innovation (which has become somewhat precarious, depending on who you ask).
More than 400 companies kicked off a week in late July with a big statement, sending identical letters to top lawmakers in the U.S. House of Representatives and Senate urging the repeal of the $20 billion medical device excise tax, which is set to take effect in 2013. According to Congress, the tax was passed to help pay for the healthcare overhaul’s expansion of coverage. Manufacturers are to pay 2.3 percent of a product’s gross sale price. The tax originally was intended to raise $40 billion over 10 years, but aggressive lobbying cut it in half. But most in the device industry still are not satisfied with the compromise.
“We believe that implementation of this $20 billion excise tax will adversely impact patient care and innovation, and will substantially increase the costs of healthcare,” according to the letters, which also were signed by the Advanced Medical Technology Association (AdvaMed).
“If this tax is implemented in 2013, it will undermine our industry’s ability to create and maintain good jobs in the United States, and worse, will lead to higher costs for patients, undercutting one of the primary goals of healthcare reform,” said Stephen J. Ubl, president and CEO of AdvaMed.
Congress has cited demand for medical devices as a way to justify the tax, a point that AdvaMed and signing companies disputed in the letters.
“The tax will not be offset by increased demand for medical devices,” the letter stated. “Unlike other industries that may benefit from expanded coverage, the majority of device-intensive medical procedures are performed on patients that are older and already have private insurance or Medicare coverage.”
The week before the letters made their way to Capitol Hill, AdvaMed released a study that showed prices for medical technology have been rising at a slower rate than those in the overall economy for the past 20 years, and less than one-fourth the rate of prices for other medical goods and services. Data show the average annual medtech growth rate is 1 percent, compared with the Consumer Price Index (CPI) increase of 2.8 percent, the Medical Care CPI increase of 4.7 percent and the Medical Care Services CPI increase of 5 percent.
Furthermore, spending has increased only slightly. Over the past 21 years, spending on advanced medical technology has gone from 5.3 percent of national health expenditures (in 1989) to 5.9 percent (in 2009), and has remained virtually constant since 1992.
“It’s important for policymakers to understand that patient access to medical technology saves lives and improves quality of care,” said Ann-Marie Lynch, executive vice president of Payment and Health Care Delivery Policy for AdvaMed. “Medical devices and diagnostics are central to medical practice, but spending on advanced medical technology is consistently a small and growing portion of national health expenditures.”
There is no word yet on whether the letters—which described the device industry as a “unique American success story”—appealed to Congress’ sensibilities, but it’s quite clear that regardless of the outcome, the industry will continue to strive to do what they urge lawmakers to consider in the letter: “encourage and promote research, development, investment and innovation.”
Patients Get Personal at FDA Review Process Hearing
The U.S. House of Representatives Committee on Energy and Commerce held a recent hearing to discuss the regulation of medical devices by the U.S. Food and Drug Administration (FDA) and the impact of the agency’s Center for Devices and Radiological Health (CDRH)’s policies on patient access to care, innovation and job creation.
“The medical device industry has brought hundreds of thousands of high paying jobs to our country and life-saving, life-improving devices to our nation’s patients in a safe and efficient manner,” said Cliff Sterns (R-Fla.), chairman of the House Energy and Commerce Subcommittee on Oversight and Investigations. “Unfortunately, it appears that regulatory inconsistency and inefficiency at FDA is causing innovative medical device companies to move offshore and launch their products abroad, oftentimes years before they enter the U.S. market, if at all.”
That very issue is what propelled several witnesses to share their personal experiences detailing how they were adversely affected by regulatory inefficiencies. One such witness was Carol Murphy from Fairborn, Ohio. Murphy has suffered from migraines for 40 years, and currently experiences three or four migraines with aura each week. After minimal success with every type of treatment, from beta-blockers to Botox, Murphy was prescribed oxycodone because she failed to fit medical protocols for migraine medication at the Michigan Head Pain and Neurological Institute when she turned 60.
The only time Murphy found relief was when she entered a clinical trial at Ohio State University for the transcranial magnetic stimulator (TMS). “At the end of the aura, when the pain should have started, it didn’t,” Murphy said. “For nine months, I lived like a normal person.”
The TMS was submitted to the FDA for approval in June 2006, and Murphy was told she would have to wait nine months to a year to be able to use it again.
“It’s now July of 2011, and where is my machine? That’s in England. That’s not here. I can’t get it here,” Murphy testified at the hearing. “We, as Americans, should not have to go to England to get medical equipment to help live a normal life. This is a product made in America, by Americans, but not for use by Americans.”
Jeffrey Shuren, M.D., CDRH director, testified that approval methods are being refined. He noted that the agency recently invited comment on any rules that might be considered obsolete, and also cited recent draft guidance that describes the FDA’s intent to exercise enforcement discretion with certain device approval procedures.
“As we continue to look for ways to improve our ability to facilitate innovation and to speed safe and effective products to patients, we must not lose sight of the benefits of smart regulation, to the industry, patients, and society,” Shuren said. “Medical device regulation results in better, safer, more effective treatments and worldwide confidence in, and adoption of, the devices that industry produces.”
List of Most-Implanted Devices in the United States Compiled
A study by 24/7 Wall St. (a financial news and opinion website) analysts reveals that eye and ear devices are the most-implanted products in the United States. Implant frequency was ranked using National Health Survey data, various professional physician services, peer-reviewed journals and U.S. Security and Exchange Commission filings.
Artificial eye lenses for the treatment of cataracts topped the list of the 11 most frequently implanted medical devices, with more than 2.5 million surgeries performed annually at a rate of about $3,200 to $4,500 per eye, depending on the type of lens. Total expenditure was estimated at between $8 billion and $10 billion per year.
The vision-correcting procedure far outnumbered the rest of the devices on the list. Second place went to ear tubes. According to the report, eye and ear device implants have increased at least 40percent in the last 10 years.
Coronary stents ranked third, with 560,000 implants and a total annual expenditure of $7.5 billion. The stents are followed up by artificial knees, which total 543,000 implants and an annual expenditure of $12 billion. Rounding out the top five are metal screws, pins, plates and rods for traumatic fracture repair, which are used in 453,000 procedures per year and have an annual expenditure of $12 billion.
Other orthopedic devices that made the list are spinal fusion hardware (spine screws, rods and artificial discs), and artificial hips. Spinal fusion hardware came in at number seven, totaling 413,000 procedures a year and an annual expenditure of $10 billion. The average cost per procedure is $25,000. Artificial hips came in at number 10, with 230,000 procedures per year and an annual expenditure of $10.5 billion. The average cost per procedure is $45,000.
Device Investments On the Rise, But for How Long?
According to a PricewaterhouseCoopers (PwC) LLP report, venture capitalists invested $841 million in 90 deals in the second quarter of 2011, a 26 percent increase in dollars invested compared with the first quarter (the number of deals remained relatively flat). The jump propelled the medical device and equipment industry to place third overall in terms of dollars invested in the second quarter. Venture capitalists invested $7.5 billion in 966 deals across all sectors this quarter, which is somewhat surprising considering that just $6.3 billion was invested in 814 deals in the first quarter. The report was compiled with the National Venture Capital Association (NVCA) and based on data from Thomson Reuters.
“This level of investment cannot continue if we do not start to see a pick-up in exits and, subsequently, fundraising,” said Mark Heesen, president of the NVCA.
One place the right type of pick-up was seen, however, was the life sciences sector. Venture capitalist dollars totaled $2.1 billion—a 37 percent increase in dollars and 12 percent rise in deal volume compared with the first quarter. The life sciences sector includes both the medical device and biotechnology industries.
Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC U.S., attributed the rise to an increase in exit activity in the life sciences sector.
“This quarter’s increased investment levels signal an incredible opportunity for job creation and innovation, but if current dynamics continue, it will not be sustainable,” Heesen noted. “For the past three years, the venture capitalist industry has been investing significantly more dollars in companies than it has been raising from institutional investors.” Heesen suggested thatventure capitalists shift their focus to the future and make sure there are ways to adequately fund opportunities that will present themselves in the next decade.
Stryker Gets Out of the Hip Resurfacing Business
The orthopedics division of Stryker Corp. no longer will distribute the Cormet Hip Resurfacing System made by British medical technology company Corin PLC.
Stryker, based in Kalamazoo, Mich., said it decided to withdraw from the global hip resurfacing market due to business factors such as changing market opportunities. Corin will resume direct distribution of the system. Stryker began distributing Cirencester, United Kingdom-based Corin’s Cormet hip resurfacing device in the United States after it won U.S. Food and Drug Administration approval in 2007.
“Distribution of a hip resurfacing device no longer fits within Stryker’s long-term product strategy,” said Stuart Simpson, vice president of Stryker Orthopaedics’ Global Hip Reconstruction Marketing.
According to the company, the decision was also based on the changing ownership of the supplier that manufactures the MITCH product line, which is distributed in international markets.
Smith & Nephew Acquires Tenet Medical Engineering
Smith & Nephew has acquired Calgary, Alberta-based Tenet Medical Engineering, Inc. The company has had a distribution agreement with the privately held Tenet for its patient positioning products for several years.
Tenet provides advanced technology in the arthroscopic surgery space with intuitive patient positioning controls, increased versatility, adjustability and stability, global compatibility and fully integrated systems, according to the company.
“Tenet brings material expertise and a global awareness of customer needs, all of which complements Smith & Nephew’s own understanding of arthroscopic procedures and techniques,” commented Mike Frazzette, president, Smith & Nephew Endoscopy.
DePuy Gets FDA Approval for Ceramic-On-MetalHip Replacement
The first ceramic-on-metal total artificial hip system has been approved by the U.S. Food and Drug Administration (FDA) for patients with osteoarthritis. The Pinnacle CoMplete Acetabular Hip System, manufactured by DePuy Orthopaedics, Inc., is the first to use a ceramic ball and a metal socket.
“Orthopedic surgeons and their patients now have an additional option for total hip replacement with the approval of the Pinnacle CoMplete Acetabular Hip System,” said Christy Foreman, director of the Office of Device Evaluation in the FDA’s Center for Devices and Radiological Health.
The approval is based on a two-year randomized clinical trial that found no clinical difference between 194 patients who received the ceramic-on-metal hip system and 196 patients who received a metal-on-metal system. Two patients in the experimental group required a second surgery to replace their new implant, compared with three patients in the control group (given the metal-on-metal system).
Warsaw, Ind.-based DePuy will conduct a post-market study of patients who receive the Pinnacle
CoMplete System for adverse events and metal ion concentrations in the bloodstream.
“The CoMplete system offers durability and stability, along with enhanced low-wear characteristics, that will provide surgeons with an important new option for patients with severe osteoarthritis,” said Randy Kilburn, vice president, U.S. Marketing, DePuy Orthopaedics, Inc. “This addition to the Pinnacle platform, when available, will provide surgeons with the freedom to choose the bearing combination, whether it is metal-on-metal, metal-on-polyethylene, ceramic-on-polyethylene, ceramic-on-ceramic, or ceramic-on-metal, that best meets the patient’s individual needs.”
J&J Gets Proactive About Compliance Issues
Johnson & Johnson’s board of directors is taking preventative measures against the compliance issues that have plagued the company lately, creating a new regulatory and compliance committee to
monitor quality issues.
Consequently, the company is not pursuing litigation filed by certain shareholders last year. According to a report filed by a special committee formed in 2010,“it is not in the best interests of the company to pursue the derivative litigation currently pending or to initiate litigation based upon demands made upon the board by the demand shareholders.”
The recommendation reportedly was adopted unanimously by the board, although CEO William Weldon purportedly did not participate in the vote.
J&J’s new regulatory and compliance committee is an attempt by the global healthcare conglomerate to improve product quality in the face of a string of recalls that has hurt both its financial performance and its reputation.
One of those product recalls occurred last August when the company recalled its ASR XL acetabular system, a hip socket used in traditional replacement surgery, and the ASR hip resurfacing System, a partial hip replacement that involves placing a metal cap on the ball of the femur in order to preserve more bone.
Shortly before the recalls were announced, J&J received a warning letter from the U.S. Food and Drug Administration (FDA) that claimed the company was selling hip and other joint products without agency approval.
In addition, there seemed to be an uncommon number of patients who needed a second implant after the initial surgery. The company had warned physicians of a possible high failure rate several months prior.
The failure rate for the Acetabular System was later shown to be an astonishing 49 percent—more than triple what the company had cited. The number came to light in a study presented at the British Hip Society Annual Conference in Torquay, England. Around 93,000 patients in the United States were implanted with ASR hips between 2005, when DePuy first began selling it, and August 2010, when the company officially issued a recall.
So far, more than 1,000 affected patients have filed lawsuits against DePuy and J&J, accusing the companies of ignoring problems with the ASR hips’ design before putting them on the market. The hips went through the FDA’s 510(k) program, which allows medical devices that are similar to previous devices gain approval without the volume of clinical trials normally required.
The lawsuits appear to have affected J&J’s bottom line. In its second-quarter earnings results, the company posted a net income of $2.8 billion, significantly below the $3.5 billion it earned in the same period in 2010. The company has paid $223 million, in part to cover expenses related to the ASR recall and legal expenses.
“The company’s management takes the shareholder concerns and criticisms very seriously and appreciates that the independent special committee has given these matters careful consideration,” said J&J spokeswoman Carol Goodrich.