Medical Device Link.

Originally Published MDDI February 2003

CORPORATE OUTLOOK

How are device manufacturers getting ready for technological change and new market factors? Four industry executives share their views.

The course that the healthcare industry will follow in the next few years is being shaped by a number of influences. Among these are fundamental shifts in regulatory policies and payment mechanisms, the growth of new markets, and the promise of exciting new technologies. The complex, evolving relationship of these and other factors poses a great challenge to the device industry. It is a time of change, with rewards waiting for those who anticipate and adapt to the industry’s new shape.

MD&DI asked four executives of medical device manufacturing companies to share their perspectives on the factors that are shaping the healthcare industry. The participants come from both large and small companies that serve diverse market segments, making devices for surgical and critical-care use, and for cosmetic applications. They also represent various regions of the United States. Participants are: David D. Hood, president, Integrated Medical Systems Inc. (Signal Hill, CA); Daniel A. Pelak, president and CEO, Closure Medical Corp. (Raleigh, NC); Thomas M. Prescott, president and CEO, Align Technology (Sunnyvale, CA); and Paul S. Weiner, CFO, Palomar Medical Technologies Inc. (Burlington, MA).

MD&DI: What are the key factors now driving the medical device marketplace? 
Hood: I believe the world is a changing place and we need to be more efficient at responding to the dynamics. The markets and the needs are global. The United States clearly has an aging population resulting from the baby boomer phenomenon. User-friendly rapid access to applicable information will be increasingly essential for our medical teams in the future. I believe the seamless integration of medical technologies with information and communication technologies will be even more vital in the future than it is today.

Pelak: Certainly favorable demographics are still playing a critical role in overall growth in spending for devices. It’s a trend that has been going on for a while and it’s going to continue for a while. However, I believe that the introduction of new technologies has really been key. The technologies that the industry has brought forward have been the key factors driving the medical device workplace.

There are a lot of things that I believe are about to change. Healthcare systems throughout the world are straining under the weight of these demographic trends and technological innovations. I think all of us within the healthcare industry have to be concerned because many of these systems are ready to break. It would be problematic for the patients who are served, but I think it’s also going to be problematic for the suppliers to the system. So in terms of a potential issue in the future, as I see it, the strength of the healthcare systems worldwide is a concern to the industry.

Weiner: The industry we specialize in is cosmetic lasers used for permanent hair reduction, skin rejuvenation, photofacial treatments on vascular and pigmented lesions, tattoos, acne, etc. 

When we started selling our lasers seven years ago, we concentrated on the high-end market—that is, the dermatologists and plastic surgeons. We’ve captured a lot of that market. But our industry is similar to the way computers work: every few years you need to buy a new one if you want the latest and greatest technology. So every two or three years, the laser or light source technology that’s out there becomes outdated, and the markets that we’ve been penetrating will usually step it up and buy the next generation of products. 

Over the last few years, we’ve also been penetrating down into the lower-end markets: the general practitioners, OB/GYNs, and even the spa and salon market. This market is worldwide and regulatory approvals for the devices are on a country-by-country basis and state by state within the United States.

The cost of the devices is also coming down, so they become a more affordable investment for smaller operations, such as spas and salons. The return on investment for these devices is about six months, so the financial benefits are obvious to potential customers. The whole industry has been driving in the direction of bigger markets, with lower prices, and better technology. 

Prescott: There are several broad drivers. Of course the whole demographic wave of the baby boomers has been well defined and documented. We’re living it. From my perspective, the greater issue is the consumerist mentality and empowerment that has been seen relative to healthcare. Most healthcare consumers now have an unprecedented level of access to information via the Internet on diagnosis and therapies of all kinds. And often they use that first, even before consulting their healthcare professional.

In our case as a developer of new technology for straightening teeth without braces, many millions of people whose only alternative was to go with conventional treatment were unwilling to do so. We have the ability to tap into that value proposition for them. The issue is broader than just healthcare. It’s more of a consumer-driven, feel-better-about-yourself sort of thing. You see that in weight-loss programs, in aesthetic procedures, and in people choosing better, healthier, more active lifestyles. 

I think that, ultimately, this is an effect of the boomers. But if you come back to that issue around healthcare and information, I don't think it’s just a U.S. trend. I believe it’s a global phenomenon. 

Consumer access to information via the Internet is very important. We feature use of the Internet, both in terms of accessing customers and patients, through making our digital interface a key part of the operating engine and the value creation for the doctors. A big part of what we do—all the data and the 3-D models that become the aligners that move teeth—is all enabled through the Internet. So the very technology that we’re using to make this a cost-effective proposition is also a key part of what touches our doctors and is part of their on-line experience.

MD&DI: How much influence are group purchasing organizations (GPOs) in healthcare today? 
Hood: GPOs are a significant influence and an important enabler for the medical industry. Bottom line, the medical teams and caregivers must be able to get medical supplies rapidly and cost-effectively to have the best possible outcomes for their patients. GPOs should provide the medical teams access to both new and old tools that may decidedly influence patient outcomes. We need to be focused on the patient. Efficient and user-friendly access to information should allow buyers to rapidly gain access to the products and services they require.

Prescott: We operate in the overall dental industry, which is not largely affected by GPOs. But it appears that some of the dominant GPO influence is being questioned through adverse media and legislative pressure. There are good reasons for GPOs to exist, in that they can provide substantial value to members and shareholders. However, I don’t think they should be a lockout for competing firms, large or small. Companies can win or lose share, but I think all of our best interests are best served in a competitive setting. My guess is that a lot of firms that are rethinking their GPO strategy.

Pelak: I think that the GPOs will continue to maintain some influence into the future. However, I believe it will wane in the ensuing months and years. I think the recent scrutiny of GPOs within the national media will serve to lessen the influence over time. I think local hospital boards are going to be asking more questions about the value derived from their association with these groups. I believe that those concerns and scrutiny will cause the GPO’s influence to wane as time goes on.

MD&DI: How have your company’s working relationships with various government and regulatory agencies changed in recent years? 
Pelak: Actually, our primary interface with government perspectives at Closure is with FDA. And we’ve seen little change in the agency. With that being said, however, with the proposed changes in user fees, we’re actually quite enthusiastic about possibly faster action and greater service from this regulatory body.

Hood: I believe working relationships with the government have changed dramatically, allowing companies to work closely and collaboratively toward innovations that meet the needs of our medical teams and their patients. We have worked closely with the government team at the Walter Reed Army Institute of Research and at FDA to rapidly develop our cornerstone product. FDA can provide insight and input related to ensuring the safety and efficacy of the product.

Like FDA rules, the Centers for Medicare and Medicaid Services (CMS) coverage and reimbursement decisions must be considered early and incorporated into the design approach. 

Prescott: Because of the nature of our specific market with a Class I device, we don’t feel the same challenges as other firms. That said, I believe FDA and CMS are working to speed the processes in their approach to decision making. Certainly, from our perspective, we have very efficient working relationships. 

For reimbursement, many small, single-product firms face very critical decisions on coverage for a product or procedure reimbursement. And with looming federal deficits, CMS decisions are going to continue to be sum zero, with winners and losers. I think it’s going to be very difficult for new technologies to demonstrate that they are not just equivalent in cost, but that they are actually reducing costs. 

There are some compelling technologies out there. Developing a coherent reimbursement strategy and achieving a reasonable reimbursement level on the devices might actually take longer than FDA approval. You not only have to have the same kinds of data, you also have to have cost-benefit analyses and marshall popular and political support—both in the industry and among consumers. It is clearly a more complex and critical area than it was five years ago.

Weiner: All of our devices are FDA cleared through the 510(k) process rather than a PMA process. These are noninvasive procedures; instead of taking maybe five to seven years for a PMA application, we do a 510(k), which generally takes about 90 days for FDA to review. 

Certainly over the last few years, there have been a number of changes with FDA. That’s because as more and more devices are being developed and going through the agency, FDA is becoming more familiar with these devices and their overall safety. This allows us to get the devices through FDA a lot faster. And there are more predicate devices out there, which means you don’t have to do as many clinical trials to prove the safety and efficacy you need to get the 510(k) clearance. 

With our first device, which was approved in 1996, it took us about a year to get clearance from FDA. Clearances now take about 90 days. 
Once you get past FDA, you’re in good shape for obtaining regulatory approval from other countries. Europe requires the CE mark, which is not too difficult to obtain, especially once you’ve received FDA clearance. There are other areas of the world, such as Japan and China, where you need different approvals. Palomar has its international distributors work with their local governments to get the regulatory approval for the devices.

MD&DI: Considering the dramatic technological changes that have taken place in healthcare in the past decade, what do you foresee as the “next big thing” in medical technology? 
Hood: I believe the next big thing in medical technology relates to the integration of technologies to more efficiently support the medical teams and patient outcomes. There will be a seamless integration of essential medical equipment with smart power sources, very user-friendly information and data-related technologies, and versatile communications capabilities. 

Prescott: It’s pretty clear that over the coming decade the fusion of drugs and devices is going to be very important. You see that already in drug-eluting stents. And there are going to be a multitude of ways that this is going to play out, impacting a variety of products and procedures. I think it’s extremely interesting and exciting.

There are companies, both large and small, that are working on integrating bioreactive materials with existing products to either improve efficacy or to open up a whole new therapeutic or diagnostic range. And I believe we’re just scratching the surface.

That said, I’m not sure our regulatory agencies and those that have oversight are moving as fast as the industry. So there is probably going to be some stress, and potentially some braking effects, as research partners, regulatory agencies, and the like around the world have to understand the technology that just got complicated by the interaction of a drug. Are these things drugs or devices? Do you need an NDA? What’s going to be the process to get through these? I believe they’re just going to multiply.

Longer term, decades out, I can imagine a whole new class of what we’ll call devices but may be molecular-size, nanotechnology-based systems designed for a certain purpose—diagnostic, therapeutic, or what have you. 
More prosaically, I’d say it would be great if the information systems scattered throughout the healthcare system—manufacturers, providers, and payors—could talk and we could do a better job of identifying costs associated with new technology. It would be ideal if we could see the impact that technology had across the continuum of care, and across the entire disease state as a whole, instead of this episodic view we have today. I don’t think we’re going to be able to show the value of some of these new technologies unless we’re able to show how it impacts an entire disease state.
Weiner: As far as the cosmetic laser industry is concerned, more and more conditions that have been treated in the past with surgery, pills, or lotions or creams, can now be taken care of with one to five light-based treatments. This includes conditions mentioned earlier, like unwanted hair and vascular and pigmented lesions. 

But outside of the medical market is where we really expect to see the biggest change. Palomar is in the process of moving light-based cosmetic treatments and devices into the home. Now, that would not mean that there would not be a place for these devices in the medical community. There will always be a place in the medical community for the higher-end permanent types of treatments. But there’s no reason that simple weekly or monthly maintenance treatments can’t be done in the home. Therefore, we envision light-based cosmetic devices continuing to become smaller in size, more portable, safer, less expensive, and designed for consumer use.

Pelak: Many of the big things that have arrived in the past in this industry have come through venture funding. Unfortunately, what we see today is the drying up of venture funding in the medical device area in particular. I see this as a very negative trend for healthcare as a whole because many larger companies depend on venture funded smaller companies for their product development. I believe that this will have a negative impact on your question, which is: what is the next big technology? New technologies are not getting the same type of funding that they were just a few years ago. So I believe the change in the financial markets will cause drastic change in terms of technology trends in the future.

If I were to look at it believing that somehow our system has always been able to provide adequate funding for innovation, then I think the next big innovation is likely to come in the area of materials. I think that is the next big wave. The device industry at first had a mechanical orientation, then moved to an electromechanical orientation. I think the next big wave is in the area of biomaterials, unique polymers that are implantable or usable inside the body. There have been some breakthroughs in that area, but I think we’re just scratching the surface. We certainly have seen the introduction of drug-coated stents. That’s a first step, but I do believe that we’re going to see that trend expand significantly. It fits particularly well with Closure Medical because our core competency is polymer chemistry and we’ve pioneered bioadhesives that replace sutures, which are a mechanical device. Consequently, we’re continuing to accumulate knowledge and are looking at novel compounds that could solve an unmet need inside the human body. 

As a consumer of healthcare, as we all are, I’m hopeful we will continue to see the innovation that we have seen over the past few decades. We will get through the financial issues surrounding healthcare delivery on a worldwide basis, but it will probably take different forms and potentially go at a slower pace than many of us would like to see. 

Copyright ©2003 Medical Device & Diagnostic Industry