Small Device Companies Continue to Fuel U.S. Medtech Innovation and Growth

Suresh Kumar, the assistant secretary of commerce and director general for the U.S. & Foreign Commercial Service at the U.S. Department of Commerce, sat down with MedicalDeviceNow during Medica 2011, the world’s largest medical technology and supply trade fair (held Nov. 16-19 in Düsseldorf, Germany), to discuss his bureau’s observations about and efforts on behalf of the U.S. medical device market.

Here are excerpts from that discussion.

MedicalDeviceNow: Medica is such a large forum for medical technology. How do you find American companies standing out, or setting themselves apart? How do you engage with medical device firms?
Sec. Kumar: The medical device industry is something that Americans can be very proud of. It is an industry where the United States has a comparable strength. It is an area that I would say we have virtually created, developed and grown. And what is particularly striking about this industry, there are big names—when you look at the capital space, for example, you have the GE’s and so on of the world. And then you look at some of the other spaces—dealing with hospitals for example, you’ve got companies such as Abbott, J&J and Roche. The industry is still largely categorized by the 6,000 companies that are small and medium enterprises. The heart of this business is innovation. And at the heart of innovation are small and medium enterprises.

Ironically, you and I are sitting here at Medica in Germany—both away from Washington—and we’re talking about American innovation. What’s delightful is that if you take a walk through the different halls, whether you go to the informatics and wireless hall, or to diagnostics, or to hospital equipment, you cannot miss the palpable American presence. More importantly you can’t miss the pride as you talk to each one of these companies as they describe the kinds of and amounts of new products released since last year. It’s a testament to the fact that we are extremely innovation-based.

I will add that America is at it’s best when it’s inventive. America wins when we’re inventive and we have innovated. And that’s why President Obama has said to win the future we must “out innovate, out educate” the rest of the world. And I think we need to out commercialize the rest of the world. The service that I lead is privileged to lead the charge in helping American business connect to business elsewhere and then create both a sales transaction, a profitable entire an commercialize what American companies have developed.

Just think about it. When I say we’re at our best when we innovate, we gave the world mobility—in terms of the motorcar or the airplane—now we are giving the world a different form of mobility. Whether it is knee or hip joints, where are the best products coming from and who are these companies? They are American companies. We gave the world connectivity—the computer, the semiconductor, the Internet and GPS (global positioning systems). All these are seminal discoveries that have significantly changes the world. Therefore it is incredibly important that we continue to innovate and foster an atmosphere of innovation. A huge amount of the innovation, happens in smaller companies. Someone asked Bill gates what keeps him awake at night. And he said two men in a garage. I think the U.S. foreign commercial service can help with that.

What’s interesting is that smaller firms generate 28 percent of the industry’s R&D spending in medical devices. That’s quite spectacular and very different when you compare it with other firms. Twelve percent of sales, more than four times the average for manufacturing overall, come from small and medium enterprises. And many of the innovations commercialized by large companies come from innovations licensed in technologies that came from small and medium enterprises.

So, I think the very fact that we work with these companies to connect them to trade-related opportunities by creating more and more opportunities for direct buyer-seller interaction is a huge step forward. In addition, we need to work in a policy sense with several of other continues to make sure that the regulatory environment is such that it helps innovation, and not impeded it, that we make our rules transparent and clear for small companies to engage in. For example, can we all move to common languages for packaging, or at least common standards for packaging? That’s an area where we can help. Now in addition to that, while trying to control cost—and everyone is looking for healthcare cost containment—how can we improve access to capital for small companies that have superior products that over time add value? Now, I have walked the floor [at Medica], and the U.S. is represented here in many different ways—the U.S. pavilion, multiple state pavilions. We’re working with states all the time, whether it’s Florida, Pennsylvania or Georgia, and its heartening to see that a number of companies have moved from being part of the state pavilions to having their own dedicated booths, so they’ve grown.

MDN: How do we keep these companies innovative?
Kumar: In several ways. When the president called for out innovating the world, he also called for two things. First he called for 3 percent of our entire GDP being invested in R&D and by doing that and providing incentives and breaks—that is how you keep inventiveness up. Providing and incentive for people to innovate to invest in research and development, so they get a benefit from the federal government for doing so. Last year, we also had tax exemption for companies that invested in R&D and capital equipment that was used for R&D or new products. These are concrete fiscal measures that help companies invest in innovation. In addition, while we do that—which is the right thing to do anyway—in any bilateral or multilateral deals we have put together we will always raise the issue of patent protection, of openness and opening of and access to markets, in reducing regulatory barriers an time of entry. And over the last two weeks we have three more free-trade agreements that we’ve agreed to, and we’re waiting for the countries to ratify. These are with Korea, Panama and Colombia. In all of these, we’ve provided fiscal incentives, eased regulatory pathways, helped companies to connect to markets, and in a policy dimension, to help drop tariffs in international markets, by connecting through free trade agreements. And just days ago, the president was at APEC (Asia-Pacific Economic Cooperation meeting) in Honolulu [Hawaii], where he raised the issue with other heads of state, about the TPP, the trans-Pacific partnerships, which is a state-of-the-art multilateral arrangement to create a common platform and protocol for international trade. It encompasses nine countries in the Asia-Pacific region and a tenth company has shown an interest in joining. Measures like this address intellectual property issues, tariff issues, market access issues, so it is much better if we can have a common language, a common protocol that becomes much easier and clear. Our empirical evidence indicates that small and medium sized companies have benefitted the most when it comes to free trade agreements, because regulations become clear and they find it easier to engage.

MDN: Where are the international opportunities and challenges for medical technology companies?
Kumar: First and foremost, if you had 100 percent knowledge and guarantee that your patents and trademarks would be guaranteed, I would argue that every company would be exporting. But first, we invest so much in developing the future, we need some protection for it. So it’ is international protection and clarity around that. Then you look at growth. And you ask, “Which markets do I go into?” And generally it is markets where we have a free trade agreement or a bilateral or multilateral treaty. The rules and regs are generally easier and the room for growth and, as a consequence, are quicker. Then, beyond that, we look at systems that follow and share the same value. While India and China are growing, and they are certainly good markets to look at, let us not forget that biggest of all markets is in our backyard. Our biggest trading partner is Canada, not China. Our next-biggest is Mexico. After that, it’s the European Union. When you read some of the business publications, you’d think that all our business had shifted to India and China, and that’s certainly not the case. They are incredibly important markets. Let’s not dismiss that 40 percent of the world’s population resides in India or China and that those markets add to their population every year. They are certainly future growth markets. But you also have to look at the current opportunity markets. Our exports to Canada are two and half times our exports to China. Our exports to Canada—put another way—are more than our exports to China, Japan, South Korea and Singapore combined. The other issue, if you look at it in the context of India, just our tourism inbound from the Canadian province of Quebec is bigger than our exports to India. The third issue is to look at markets with similar value systems, where the regulatory environment is similar. With [U.S.] Food and Drug Administration (FDA) issues, we’ll continue to work with the FDA. And I know the White House Office of Science and Technology, along with the NIH (National Institutes of Health) have convened companies and stakeholders in medical devices, and are working on a framework to get products to market quick, but ensures that products are safe and effective and, without being onerous, benefit everyone.

Bio of Suresh Kumar: Secretary Kumar was nominated by President Obama and unanimously confirmed by the U.S. Senate to serve as assistant secretary of commerce and director general for the U.S. & Foreign Commercial Service at the U.S. Department of Commerce, where he leads the U.S & Foreign Commercial Service (USFCS).

Between 1999 and 2003, Kumar headed the Worldwide Consumer Pharmaceuticals business of Johnson & Johnson and served on the corporation’s Group Operating Committee. He previously led consumer healthcare, confectionery and grooming businesses of Warner Lambert/Pfizer as vice president, Consumer Products for Latin America and Asia.

Kumar is former member of the board of the World Self-Medication Industry and has served on global councils such as the American Management Association, Consumer Healthcare Products Association and the Thunderbird School of Global Management. In 2004, Kumar was named distinguished executive in residence by Thunderbird School of Global Management for his contributions to global trade.

Most recently Mr. Kumar was president and managing partner of KaiZen Innovation, a management consulting firm he founded in 2004. He also has served as a consultant to leading institutions and corporations including the Bill & Melinda Gates Foundation, the African Development Bank and the Alliance for a Green Revolution in Africa. Between 2006 and 2007, Kumar served as special advisor to the Clinton Foundation and worked with governments in Sub-Saharan Africa and corporate CEOs to establish collaborative business models and execute farmer and market-friendly programs to promote food security and stimulate economic development in the region.

Kumar also served as adjunct faculty member at the Schulich School of Business at Toronto’s York University, Bombay University, India and has been appointed professor of International Business at Rutgers University executive MBA program. He has an economics degree from Delhi University, an MBA from Bombay University, and is a graduate of the Thunderbird International Consortium Program.