Is the U.S. Losing its Medical Device Innovation Mojo? PwC Report Says Yes
(Page 2 of 2)
over time, Wasden says. The FDA has been seeking to revamp its 510k regulatory approval process, which essentially allows med device innovators to piggyback on existing data from prior inventions to speed delivery of new technologies to the market. The FDA has been burned when long-term studies show new technologies fail to live up to their original promise, or sometimes are shown to be dangerous—after billions of dollars have been spent and sometimes millions of patients are affected. That means evidence requirements are going up, meaning more time, more money, and less predictability from regulators.
Once a new device wins FDA approval, it doesn’t mean money starts to flow automatically from doctors and patients who fall for a compelling sales pitch. Insurers—who used to pay a premium for a new product when it had more innovative bells and whistles—suddenly are pushing back hard in negotiations before they will reimburse.
“In the old world, the FDA was reasonable to deal with, and as long as you followed the rules, you could get an approval,” Wasden says. “Then if you brought it to market, insurance companies would pay for it based on a reasonable assessment of the value you would bring, and the cost it took to bring it to the market. That whole calculus has been thrown out the door.”
Now, insurers want to see how much a new medical device can actually save the insurer, by, say, reducing hospitalization rates. Just because something is innovative doesn’t mean insurers are willing to pay more for it anymore, Wasden says.
This isn’t a bad thing for consumers, and isn’t necessarily all bad for innovators either, Wasden says. He made the analogy to his new iPhone 4, which has twice the speed and twice the functionality as his old iPhone, yet costs about the same. Medical device companies are going to have to get used to consumers having more pricing power, yet still make profits. “The med device industry is becoming more like consumer electronics,” Wasden says.
If med device innovation shifts more toward a model of rewarding better/faster/cheaper stuff, that will leave out companies fixated on developing more bells and whistles.
To illustrate his point, Wasden used the example of industrial giant General Electric. The company markets a 400-pound cart-bound ultrasound machine that costs about $100,000. It provides great resolution for doctors looking to monitor beating hearts, developing fetuses, and more activity inside the body. The tool is a hit with hospitals in the U.S. and Europe. But it’s a dud in India, where they don’t have the budgets or the space to deal with that sort of thing, Wasden says.
So, GE created an innovative new product for the developing world, an ultrasound technology that was more portable—a 10 to 15 pound machine that cost $10,000 to $15,000. It doesn’t have all the features of the expensive machine, but it can do most of what a doctor needs in a more practical package.
Where Wasden lost me was his next point. This kind of model, in which developing countries value the better/faster/cheaper technology, means they could have a new edge in the innovation ecosystem.
The smaller GE ultrasound machine “never would have been invented in US because we don’t have the pain points they do,” Wasden says. “But then U.S. doctors wanted it once it was made in India.” So India, then became a breeding ground for a new innovative device, he says.
That didn’t make much sense to me—and I told Wasden so. Here in the U.S., the U.S. government’s Defense Advanced Research Projects Agency (DARPA)—the same people whose work gave rise to the Internet—invested heavily in portable ultrasound machines for the battlefield way back in the 1990s. That base of support led to the creation of a company in Bothell, WA, in 1998, SonoSite (NASDAQ: SONO). SonoSite generated $227 million in revenue last year with a whole array of lightweight ultrasound machines it sells around the world. The company has a market value of $462 million and 730 employees at last count. The company was years ahead of GE in the lightweight ultrasound business.
And here in Seattle, I regularly hear about interesting new med device ideas getting started, like one at Redmond, WA-based Mobisante. This is a startup founded by an ultrasound researcher at Washington University in St. Louis, and a former senior director in Microsoft’s Windows Mobile group, who are seeking to put some basic ultrasound capability into the average smartphone that a doctor in India can carry everywhere. Last month, it raised some seed financing from WRF Capital.
It could be that a whole lot of ideas like this are emerging in places like China and India, that I am not as familiar with, and they are about to bury companies like SonoSite, GE, Boston Scientific, Medtronic, etc. And this is not to say that there aren’t some things going wrong in the current innovation ecosystem in the U.S. But looking at the standings in the PwC report, it sure looks like a couple of policy moves could be enough to keep the U.S. in the lead of med-tech innovation for a long time.