Medtech Leadership Perspectives at MPO Summit

Leaders of four medical device companies explored the industry’s most pressing issues during the recent MPO Summit in Salt Lake City, Utah. Participants, including Kelvyn H. Cullimore, president and CEO of Dynatronics Corp.; Matt Jennings, president and CEO of Phillips-Medisize Corp.; Daniel T. Lemaitre, president and CEO of White Pine Medical Inc. and chairman of Bioventus LLC; and Geary A. Havran, president of NDH Medical Inc.; told participants the industry is being affected by uncertainty over healthcare reform, shrinking reimbursement and attempts to lower healthcare costs.

Jennings called the 2.3 percent excise tax a “confusing mess” and said it affects smaller companies more than it does larger companies, as the percentage is fixed and not on a sliding scale.

However, device giants such as Minneapolis, Minn.-based Medtronic Inc. have their own set of problems regarding increased government pressures. Lemaitre said that at one point, Medtronic had more than 70,000 suppliers, a number that makes it nearly impossible to handle compliance and other regulatory minutiae effectively.

With increased tax pressures and scrutiny from regulatory bodies such as the U.S. Food and Drug Administration (FDA), medtech companies are being forced to demonstrate how their technologies, devices and systems can be, above all, cost effective.

“Healthcare is being funded by taxes or reducing the rate of reimbursement,” said Lemaitre, referring to the Affordable Care Act, of which the device tax is a part. “You have to show how your device is going to help reduce costs or make physician more efficient.”

Havran noted how difficult it is for small companies like NDH to stay abreast of current compliance requirements. “It’s becoming more difficult to even find third party compliance experts,” Havran said. “Government data shows that the cost of compliance for small companies is significantly greater than for large companies. It’s causing people to freeze in place, not knowing where to go. Our industry is very innovative—you can’t sit on sidelines for even two or three years. You’ll get left behind.”

Panel moderator Steve Halasey, vice president for programs at the Institute for Health Technology Studies in Washington, D.C., described how the medtech industry has experienced waves of issues. In the 1990s, clinical testing was under the microscope; at the end of that decade, industry saw the proposal and implementation of FDA user fees. Now, Halasey said, medtech is experiencing changes in the U.S. patent system, more complex evidence required for the FDA to prove safety and efficacy, the device tax, and more compliance regulations. All these factors, as well as reduced early-stage funding, partly due to the economic crash of 2008, has put the squeeze on medtech.

“Reduced access to early-stage funding is a product of all the other problems,” said Lemaitre. “Small companies is where innovation occurs. Large companies want small companies to succeed because that’s where they harvest innovation.”

“There isn’t a CEO that doesn’t start off a conference call with top line or revenue growth,” Cullimore said. “It’s death when you don’t have a new product for a sales force.”

And yet, though medtech is and should be driven by innovation, the lack of venture capital (VC) funds could be crushing that very life-blood of the industry. VC investors want to minimize risk, and investing in new innovation is considered risky—especially when time to market in the United States is longer compared to other regions worldwide.

“What I see with the medical device industry today is there isn’t a clear view of what it looks like in United States when you get through [the initial phases of device development],” Jennings said. “The CEOs of many companies I deal with are seeking out areas where there is certainty, like Asia. Growth is slower in the United States and Europe, so they’re tightening up supply chain in these regions and growing in Asia. First they grow their sales and marketing presence, then they beef up their supply chain so they can make products in markets for those markets [e.g. manufacturing in China for Chinese customers].”

Havran, who spent approximately 20 years with Ohmeda (part of BOC plc), and has pharmaceutical experience with medical gases and anesthetic pharmaceuticals, explained how he used to have a historical perspective. He used the lessons learned from his years of experience in the pharmaceutical business as a “road map” for navigating the medtech industry. However, about three years ago, the map started to fall apart. “The past is no longer relevant,” he said. “What’s becoming increasingly scary is where we’re rapidly approaching a point where we don’t know what we don’t know.”

But he ended on a positive note. “On a macro level, historians say the United States is innovative due to its manufacturing base, rather than the other way around. Look at the glass half full—while VC and traditional funding is drying up, it opens the door for other novel approaches. The enthusiasm from universities, for instance, is unlimited.”

Indeed the presence of the University of Utah at MPO Summit was hard to miss. Click here to read about the U’s Dr. John Langell’s discussion on forging industry-academy partnerships.

Pictured: from left to right, Halasey, Jennings, Havran, LeMaitre and Cullimore.