Is the U.S. Losing its Medical Device Innovation Mojo? PwC Report Says Yes

1/20/11Follow @xconomy

The United States has been the undisputed leader in medical device innovation for the past 50 years. But there are some out there who insist that title is in jeopardy.

It would certainly take a breathtaking free fall, if you look at the standings today. The U.S. is where most of the R&D gets done, and the most money gets made, on workhorse tools of modern medicine like diagnostic ultrasound, stents that prop open clogged coronary arteries, or clever new insulin pumps for diabetes. A whopping 32 of the 46 medical technology companies with $1 billion or more in annual sales are based here in the U.S., according to a new report this week from PwC. Many new medical devices are regional economic drivers in the geographies we cover—Boston, San Francisco, Seattle, San Diego, and Michigan.

Yet if you talk to medical device entrepreneurs in the U.S. today, they are frustrated. They tell horror stories about dealing with an FDA that’s constantly moving the goalposts around before granting product approvals, and about insurers driving ever-tougher bargains. They seethe in private—and sometimes in public—about a new 10-year tax increase on medical device companies (originally proposed at $40 billion, later reduced to $20 billion) that was incorporated into the new healthcare reform law. Venture capitalists are doing the math and wondering whether to steer clear.

Josh Makower, a prominent med device entrepreneur with ExploraMed and a consulting professor at Stanford University School of Medicine (and Xconomist), said in the PwC report that there are so many costs and regulatory hassles that he now looks outside the U.S. first to do clinical trials, because high quality clinical trials can be done overseas cheaper and faster.

While the U.S. is still the undisputed leader, the foundation for much of its med-tech strength is weakening, according to PwC. The firm’s report, written by a team led by former med device entrepreneur Chris Wasden, sought to put together a five-point list of essential ingredients for med-tech innovation, and then grade the U.S. on it against other countries over the past five years. The idea was that med device entrepreneurs and investors needed to stop passing along anecdotal stories, and start coming up with some convincing data to support their arguments, if they want to really persuade lawmakers, insurers, and citizens to provide more support for med-tech innovation.

Chris Wasden

“When we’d talk to regulators, policy people, they’d hear our anecdotes, but many of them were not impressed,” Wasden says.

The PwC formula factors in how much insurers in the country are willing to pay for med-tech innovation; the underlying strength of academic research; the regulatory approval process for new products; demand from patients for the best possible healthcare; and the base of support from venture capital. When PwC crunched the numbers and created a scorecard ranking countries from 1 to 9, with 9 being the best, the U.S. was head and shoulders above everyone else. The U.S. had a 7.4 score in 2005, which dipped to 7.1 over the next five years. Germany was second, seeing its score drop from 5.6 in 2005 to 5.4 last year—a decline that was similarly seen with other major European countries.

China, Brazil, and India all saw gains in that same five-year period, but they still aren’t even within hailing distance of the top—which you can see in the PwC bar charts if you click here on the Innovation Scorecard report go to page 5.

Still, there are reasons to worry that the U.S. leadership will continue to erode … Next Page »

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  • John Schaefer

    No doubt one will continue to hear that US medical regulation should be “simplified and eased” from individual companies and investors who have a short-term profit motive. It’s shortsighted, though, for those with a strategic view of US economic strength and our overall medical innovation lead to join such an argument.

    The US’s medical innovation lead to a significant extent is related to US companies’ market strength internationally. That international market strength is directly associated with international end users’ recognition that US medical devices are developed and market-approved in the most rigorous of all regulatory oversight environments. That recognition, and thus the US medical innovation environment, is strengthened by FDA regulation tightening.

    Those of us who benefit generally by US medical innovation and strength in the international medical device market, and who want the US to maintain that lead, would do well to support efforts to make FDA regulation more rigorous and more pointedly structured so as to allow those products for which there is strong evidence of safety and effectiveness, while blocking those products for which there isn’t.

  • Rogan

    Luke,

    I think that the view of India as a source of innovation was meant in the sense that the problems there and the cost constraints provide room for innovative products to succeed, then filter back to the US. I don’t think that this was meant to say that companies from India were necessarily going to outpace US companies.

  • http://www.xconomy.com/author/ltimmerman/ Luke Timmerman

    Rogan—I think that is the point that Wasden was making, and it’s a reasonable one about low-cost environments giving rise to clever new kinds of med device innovation that might not pop up here in the U.S. I just felt it was necessary to point out that the U.S. was already way ahead with supporting this particular type of lower-cost, lightweight ultrasound. DARPA and Sonosite worked on this for years before GE heard from doctors in India, and decided to make another lightweight ultrasound machine. It just struck me as an example where the fundamental pillars of med device innovation in the U.S. remain intact.

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