U.S. Still Reigns Over Medtech Innovation, but for how Long?

First, the good news: The United States still leads the world in medical technology innovation. Now the not-so-good news: Emerging markets such as Brazil, China and India are running a close second, and one day could usurp the top spot from America.

That is the deduction of a report from PricewaterhouseCoopers LLP called “Medical Technology Innovation Scorecard: The race for global leadership.” The 49-page report claims the nation has lost significant ground over the last five years to emerging markets that increasingly are luring both “innovation resources” and activities overseas.

Still, the United States is not expected to relinquish its leadership role anytime soon. The report states that decades of innovation dominance will help the nation lead the world in medical technology for the foreseeable future. But emerging markets are not to be discounted: They are developing Lean, frugal, and reverse innovation that eventually could help them bypass developed nations and provide more inventive healthcare.

“The nature of innovation is changing as developing nations become the leading markets for smaller, faster, more affordable devices that enable delivery of care anywhere and help bend the healthcare cost downward,” the report states. “These countries are free of the handicap of an entrenched healthcare system infrastructure that seeks to maintain the status quo. However, the difficulty of doing business in emerging countries and poor intellectual property protection could make these markets less attractive to multinational companies, despite their size, and could hinder these nations’ innovation leadership.”

The PricewaterhouseCoopers report is based on the findings of its Medical Technology Innovation Scorecard, a new, multifaceted assessment of a country’s ability to adapt to the changing nature of innovation. While there is anecdotal evidence to suggest that the United States is losing ground as the world’s medtech innovation leader, PricewaterhouseCoopers analyzed five specific factors that contribute to medical technology innovation and quantified them, using 86 different metrics to evaluate each nation’s capability to promote the factors that advance innovation. The report evaluated nine nations—Brazil, China, France, Germany, India, Israel, Japan, the United Kingdom and the United States.

Besides providing a current view of innovative capacity and capability in the nine countries, the Innovation Scorecard examined the past five years to gain a historical perspective and speculated on the outlook for medtech innovation leadership over the next decade. Among the conclusions:

• The United States currently ranks 7.1 on a scale of one to nine (with nine being the highest score) as a global leader of medtech innovation. While it is still significantly higher than other countries included in the Scorecard, America’s rank fell slightly from 7.4 in 2005.

• The scores of other developed nations (France, Germany, Japan and the United Kingdom) range between 4.8 and 5.4. Among the developed countries included in the study, Germany and the United Kingdom show the strongest support for innovation. Japan has the least support.

• Despite its size, Israel ranks near the level of European nations, an indication of its ability to foster innovation.

• Emerging markets lag behind developed ones. China, with its powerful economic growth engine, is ranked 3.4. India and Brazil each scored 2.7.

The United States isn’t the only developed nation expected to lose ground in medtech innovation over the next decade. The Scorecard projects relative declines for France, Germany, Israel, Japan and the United Kingdom. Brazil, China and India, on the other hand, are expected to experience gains, with China outpacing other countries to reach near-parity with European nations by 2020.

“The medical technology field in the U.S. has long benefited from a confluence of social, technical, political and economic forces that came together to create an ecosystem which fosters medical technology innovation,” said Michael Swanick, U.S. Pharmaceuticals, Medical Device and Life Sciences Industry Leader for PricewaterhouseCoopers. “However, the balance of these forces is beginning to change, driven by global economic dynamics, governmental policies and the actions of individual companies and entrepreneurs. As the innovation ecosystem evolves, it creates challenges for those countries and companies that have ridden this wave—and offers opportunities to those in the United States and around the world who find themselves well-positioned to adapt to new modes of innovation.”

The Scorecard evaluated each of the nine countries on five broad “pillars” that have supported medical technology innovation in the U.S. for the last several decades: powerful financial incentives such as reimbursements for adoption of new technologies; resources for innovation such as academic medical centers; a supportive regulatory system; demanding and price-insensitive patients; and a supportive investment community of venture capitalists and other investors.

The Scorecard found that the innovation ecosystem itself is moving offshore as the nature of medical technology innovation evolves. Some of this transformation is being driven by changes in the U.S., such as more expensive, less-predictable regulatory approvals from the U.S. Food and Drug Administration (FDA), an increased focus on value and cost-effective solutions in healthcare and increasingly international investments in research and development. Other dynamics are the result of changes abroad, including factors as diverse as investment in local academic medical centers; investment in research programs; the return of foreign-educated scientists and doctors to their homelands; advancement of mobile health technologies that expands access to care; and a focus on the Lean, frugal and reverse innovation necessary to deliver faster, better, cheaper and more effective healthcare solutions in these markets, the report states.

As a result of these factors, medical technology companies increasingly are looking outside the United States for clinical data, new-product registration and revenue. Accordingly, U.S. consumers are not always the first to benefit from advances in medical technology and eventually could be among the last groups to gain access to new innovation, the report notes. Medical technology innovators already are going to market first in Europe and, by 2020, likely will move into emerging countries before entering the United States.

“We created the Innovation Scorecard because we wanted to better understand how medical technology innovation is changing and which nations have the strongest capacity and capability for innovation,” said PricewaterhouseCoopers managing director Christopher L. Wasden, co-author of the report. “The findings will be helpful to government officials and regulators seeking to advance policies that foster innovation as well as medical technology companies working to develop their own commercialization strategies.”

Stephen J. Ubl, president and CEO of the Advanced Medical Technology Association, said the PricewaterhouseCoopers report shows the need within the industry to develop a strategy for maintaining America’s leadership position in medtech innovation.

“The Medical Technology Innovation Scorecard powerfully documents the need to hit the reset button on American policy toward innovation. While the United States remains an innovation leader, we are slipping and the report clearly shows other countries are gaining ground,” he said. “World leadership by the U.S. medical technology industry produces life-saving, life-enhancing treatments and cures for patients. Equally important, it is a driver of current and future U.S. economic growth, jobs, and exports.

“Today’s report offers a good launching point for a wide-ranging dialogue about how America can maintain its competitive edge in medical technology innovation,” Ubl continued. “Part of that dialogue must focus on reform of the FDA review process, because, as the report notes, regulatory system issues are part of the reason the United States is in danger of losing its innovation advantage. Indeed, regulatory approval times in the United States now rank close to the bottom—seventh out of the nine competitor nations studied. We will continue to engage in productive discussions with the FDA and other policymakers in order to achieve the goal of making sure the U.S. medical technology industry remains the world’s leader in the development of new technologies for patients.”

Mark Leahey, President and CEO of the Medical Device Manufacturers Association, said such policies as the medical device tax and shifting reimbursement requirements will further drive innovation to the shores of foreign countries in the future.

“Misguided policies such as the medical device tax and shifting reimbursement requirements further burden the innovation ecosystem, and make it much more difficult for patient care and job-creation to thrive,” Leahey said. “It is critical that industry, regulators and policymakers work together to support an environment where the United States can maintain its leadership position in medical technology.”