Addressing Congress on Wednesday, leaders of some of the biggest medical device companies expressed support for comparative effectiveness—as long as it doesn’t compromise patients. “Cheapest in the short run is not necessarily the best value for patients over the long term,†Bill Hawkins, chairman and CEO of Medtronic said, according to CNN.
The recently passed stimulus bill, which includes $1.1 billion for research comparing which medical devices work best for specific conditions, has sparked much debate. The device industry has been portrayed as opposing comparative effectiveness, but Hawkins protests that characterization, according to Finance and Commerce. “I would comment that in fact that we have endorsed the concept of comparative effectiveness and in fact it is very much what our industry does every day when we go and present our products and comparing what we do versus other products,†Hawkins said. The industry just wants to make sure that politicians consider device companies’ concerns when making healthcare reform.
Other major priorities raised by executives on Wednesday included ensuring that small device companies have access to capital during these tough financial times and increasing the funding of FDA.
After Medtronic shrugged off recession concerns with two notable acquisitions, analysts expect more deals to be made in the medical device sector. Part of this can be attributed to large device companies seeking ways to ensure their long-term growth.
“There are opportunities out there, and we’re going to see this continue throughout 2009,” says BMO Capital Markets analyst Joanne Wuensch. She doubts that this will be Medtronic’s last deal.
The outlook isn’t quite as rosy for start-up and small development companies, however. These companies are having a difficult time raising capital in the current economy, thanks to floundering credit markets. But the fact that medtech stocks are outperforming their counterparts bodes well for the entire industry.
A final note on Medtronic—the company has just announced that it will voluntarily disclose how much money it pays to doctors in consulting fees. The caveat is that disclosures would begin in 2011, for transactions that occurred in 2010.
In a bold (and expensive) move, Medtronic acquired two firms this week, one of which is for a record-setting sum.
Medtronic has agreed to pay $700 million up front cash for CoreValve (Irvine, CA), plus two potential $75 million milestone payments. It is believed to be the largest acquisition of a venture-backed medical device maker since at least 1998, according to data from Dow Jones VentureSource. The next-largest is the $525 million acquisition of St. Francis Medical Technologies Inc. by Kyphon Inc. in January 2007, with an additional $200 million in potential milestone payments.
In addition, Medtronic also agreed to pay $325 million up-front for an Israeli company, Ventor Technologies Ltd., which had raised $17 million in venture financing.
Both Ventor and CoreValve develop replacement aortic valve systems. CoreValve specializes in heart valves that don’t require chest surgery for insertion.
U.S. Marine engineer officer Jonathan Kuniholm lost his arm while serving in Iraq in 2005. An improvised explosive device detonated, severing his right arm below the elbow. Since then, Kuniholm has focused his energy on a project to develop fully functional prosthetic arms. The Revolutionizing Prosthetics 2009 program is a DARPA (Defense Advanced Research Projects Agency) effort comprised of 300 engineers that began out of a need to significantly improve prosthetics technology. A slideshow in IEEE Spectrum online features Kuniholm in his journey for better prosthetics. He also started the Open Prosthetics Project, an online group that facilitates open discussion of design ideas for the devices and promotes open standards. In an article that is scheduled to appear in the March issue of IEEE Spectrum, Kuniholm will discuss how developing the next generation of prosthetic arms can pull from the creativity found in gaming technology such as Guitar Hero.
Attendance at the MD&M West belied fears that the economic downturn is adversely affecting the medical device industry. The device industry is largely thought to be recession resistant. Record numbers of exhibitors and attendees at the expo seem to support such optimism in the strength of the industry.
Based on preliminary end-of-show reports, Canon is projecting an attendance increase of 4–5% for MD&M West alone, topping 16,000 attendees specifically interested in the medical device sector. Nonmedical attendance was slightly more than 30,000.
Amidst a building scandal, the president and CEO of ArthroCare Corp., Michael Baker, and two other executives have resigned. According to the Austin Business Journal, the company’s audit committee has found evidence that suggests that “the company’s spine unit engaged in and may have caused others to engage in improper practices in certain instances.†The article cites such examples as the company making inaccurate statements in claims to insurers regarding the location where some procedures were performed and seeking separate reimbursement for company products in connection with procedures that were contractually reimbursed on a global basis.
According to the company’s Web site, the Securities and Exchange Commission has issued a formal order of investigation, which allows them to subpoena witnesses and documents. The company has also been informed that they are a target of an investigation by the United States Attorney’s office in the southern district of Florida, as well as the office in North Carolina.
 To replace Baker, David Fitzgerald has been named as acting president and CEO.Â
President Obama has not yet announced his nominee for secretary of health and human services (HHS), but the New York Times reports that Governor Kathleen Sebelius of Kansas is at the top of the list. The Democrat’s ability to work across the aisle is one of the qualities that the President is looking for in a HHS, according to the Times. Another attractive asset is the knowledge Sebelius gained of healthcare by serving as the state insurance commissioner in Kansas for eight years.
But CBS News says don’t bet on the candidate just yet. According to its Web site, a White House source told the news organization that the Times article about Sebelius was overstated. CBS says that the following candidates could still be in the running: Governor Phil Bredesen of Tennessee, Governor John Kitzhaber of Oregon, and Obama’s transition chief of staff John Podesta. And Howard Dean is a long shot for the post, according to the Wall Street Journal health blog.
While the exact choice remains unclear, there appears to be two certainties. The HHS nominee will be a Democrat, and the candidate will undergo a rigorous vetting process. After Obama’s first nominee Tom Daschle was forced to withdraw over unpaid back taxes, the White House is being extra careful not to get burned again, according to the Times.
The Project on Government Oversight, an independent watchdog group, has accused FDA of scaling back enforcement of federal quality regulations at laboratories that develop medical devices. These labs are supposed to be inspected for maintaining good laboratory practices. In 2005, the agency inspected 33 facilities. Fast forward two years, and the number dropped to seven. FDA only inspected one facility in 2008. The group’s report says that zero inspections are planned for 2009.
“The decision … to not enforce (lab standards) is stunning in its contempt for the protection of patients,” the group said in its report.
Great post at Xconomy.com from Clif Alferness on the evolution of how medical device start-ups find funding. His basic premise is that as devices began to be more profitable, venture capitalists replaced the home garage shops and angel investors early in the process. Now, those VCs are becoming more conservative, engaging only in those devices that present low economic risk (i.e., those that are already on the books or have a short road to market).
Start-ups are historically thought of as the lifeblood of industry. Without the strong core of passionate people whose ideas are bigger than their pocketbooks, this industry may lose its next embolectomy catheter—and not even know it. But Alferness hasn’t lost hope. He sees a return to work on device innovations during evenings and weekends from the home office, taken forward by small investors. I’d like to see that, but I don’t think its likely.
The difference is that medical device industry has changed and has gotten exponentially more complex, even in the last 10 years. As the industry moves to nanotechnology and drug-device combinations, innovations are more likely to come from universities and (surprise) from large firms that have the equipment and drive to fund new technology.
I wouldn’t be surprised to see the latest and greatest come not from a garage but from the (hypothetical) whiz kids just hired by J&J or St. Jude Medical.
The truth, however, is that big innovations are simply less likely—even with generous VC funding—than incremental improvements. This is not to say such improvements are unnecessary; it’s quite the opposite. Incremental improvements are not sexy, but they often prove to be great value to end users and patients. Now may be the time to take a look at what we have and make it better.
Heather Thompson
Omnetics launched a bilobe nanoconnector at MD&M West that uses overmolding to help protect against contamination. The 0.025-in. pitch bilobe latching connector comes with overmolded cables or can be incorporated into equipment housings.
“For medical applications, this offers several benefits, including protection against contamination and easy sterilization,” said Lori Abfalter of Omnetics.
The connector passes the shock and vibration requirements of MIL-DTL-32139. The halves push together requiring no tools or complicated procedures. It is designed to proved a miniature, easy-to-mate system.
