Lessons Learned

In a short time, we’ll close out 2016, a year that’s seen change in the medical device industry. Fortunately overall, I’d say there have been more positives than negatives, but there’s still work to be done. The device tax, although suspended, still exists. Cost constraints impact every device development project. Wearable and mobile health technologies are changing the way care is delivered. Finally, the industry as a whole is in full swing toward a value-based system of healthcare, rather than fee-for-service.

In addition to highlighting prominent trends, I wanted to look back at some of the lessons learned. Philosopher George Santayana stated, “Those who cannot remember the past are condemned to repeat it.” There are a few items the industry should not want to see repeated.

Invest in Science, Not Hype
One prominent story was the Theranos debacle. While this tale began well before 2016, its potential conclusion was revealed this year. Founder Elizabeth Holmes created a company that was seemingly based upon a diagnostic technology lie (or, at least, not quite ready for prime time). The mirage presented was one that non-traditional medtech investors came drooling after and the company’s value rose rapidly. Since the Theranos backers were primarily not typical medtech investors, questioning the science was not their first concern. They took the company at its word and awaited their seemingly inevitable payday.

Unfortunately, the medtech industry doesn’t work like that. Hype alone won’t cut it. In healthcare, technology needs to work and it needs to be able to prove that to an independent third party reviewer (i.e., FDA). Hopefully, those investors who were looking at the medtech space for new opportunities weren’t scared off by the Theranos situation and instead learned a painful lesson that they can apply to their next potential target.

Putting Your Money Where Your Mouth Is
In my first “Editor’s Letter,” which appeared in the January/February 2016 issue, I discussed the then recently suspended medical device tax. At that time, I mentioned how the tax was viewed as an assault against innovation and R&D. Its suspension offered a “windfall” for device makers for this year and 2017, but I was curious to see if the industry would step up and prove that the rhetoric against the tax was more than just words. It didn’t help that Johnson and Johnson, in spite of the suspension announcement, was moving forward with a restructuring of its medical devices business that would result in a 4 to 6 percent reduction in its workforce. The OEM’s move seemed to give credence to those who claimed the device tax simply offered an excuse to those companies looking to cut costs anyway.

Fortunately, that action seemed to be relatively limited to J&J. There were no other major announcements of corporate restructuring or significant layoffs. Instead, the Advanced Medical Technology Association (AdvaMed) is currently gathering stories from medical device OEMs regarding how they are using the recaptured funds that would have otherwise gone toward paying the device excise tax this year. They shared several in Minneapolis, Minn., at this year’s annual meeting. The examples offered varied from newly hired engineers, to investments in R&D, to strategic acquisitions of cutting-edge technology. The industry has made good on its word that a device tax repeal would mean more money dedicated to the development of next-generation technology. Perhaps in 2017, we’ll see the suspension become a permanent reality.

Cybersecurity Is a Real Business Issue
Recently, St. Jude Medical Inc. had to address questions about its implantable cardiac devices’ cybersecurity as short-seller Muddy Waters disseminated claims that the OEM’s technology was vulnerable to attack. Although St. Jude denies the claims and has filed a lawsuit against Muddy Waters, the company’s value has taken a hit. In early August, the stock price was almost at $84 a share; the close of October saw it below $78 a share. False or not, the cybersecurity claims being made are having an impact.

In the past, we’ve seen claims of a device’s ability to be hacked and then those claims subsequently dismissed when more details of the specific instance was revealed. As the industry continues to produce more connected medical technologies, this issue needs to be addressed. Unfortunately, there isn’t one simple solution to the problem and it will likely be something that device makers need to be better informed about. The FDA is also apparently getting involved with its recent guidance that addresses software changes.

Discover more “lessons” from this past year in managing editor Michael Barbella’s Year in Review feature.