Michael Barbella, Managing Editor10.28.22
The COVID-19 pandemic has created numerous healthcare challenges over the past two years—a gnarled supply chain among the most inhibiting—but it’s been quite a boon for medtech research and development.
The virus that has killed more than 6.5 million individuals worldwide led to a major boost in R&D spending in 2020, with the top 10 medtech companies collectively investing more than $15 billion, Evaluate Vantage data show. And while that figure rose to $17.4 billion last year, the financial news analyst organization expects R&D investment to slow in 2022 and rise only moderately through 2028.
“However, even modest growth year over year represents a record level of spending,” David Stuart, Life Sciences senior analyst, director, wrote in a Fall 2022 Industry Outlook for RSM, a London-based accountancy network. “We expect the trend of record R&D spend will continue as companies jockey for technical superiority and the pace of innovation continues to accelerate. There are no viable substitutions; if medtech companies don’t maintain strong R&D spend, they risk being left behind in a highly competitive and segmented industry.”
Substantial R&D investment has long been tied to healthy product innovation and market capitalization. Whether R&D spending levels stay consistent or falter in the near future remains to be seen, but medtech firms will most certainly have maintain robust research and development pipelines to ensure their future success.
MPO’s R&D feature details the trends and market forces driving medtech research and development. Tom Zarella, marketing director at Concise Engineering, was among the experts interviewed for the feature; his full input is provided in the following Q&A:
Michael Barbella: How has COVID-19 changed companies’ approach to R&D, if at all? Why did it change the approach to R&D?
Tom Zarella: COVID’s economic changes, like supply chain stability for prototypes and production, and specialized material shortages, significantly impacted R&D activities. In the past, supply chain challenges never really impacted the prototyping stage of design. Now, these disturbances delay projects and product release on otherwise straightforward designs. A lack of machining expertise availability in both programing and CNC labor has impacted delivery of even simple orders for basic prototype components.
Teams must now focus on these shortages in components, labor, and work to overcome a lack of information due to having these materials available earlier in the design process. Additionally, new R&D approaches now require exceedingly early supply chain research to source readily available materials. Without advance planning, given these increasingly commonplace delays, teams may lose two to three months at each stage of the design process, leading to six to 12 months in delays.
Barbella: In your observations and customer dealings, what areas of healthcare are companies focusing their R&D on (for example, diagnostics, cardio, robotics, etc.)? Why are companies investing in these areas?
Zarella: There has been a shift to fund projects related to the pandemic that have revenue potential. Personal Protective Equipment (PPE) is of course one area; diagnostics (both in testing and biometrics) is another. We have seen projects that focus on vaccine storage in controlled environments. We see these shifts as attempts to gain market share in new areas, capitalizing on the uncertain endpoint of pandemic. However, we believe the smart play for firms is to continue focusing on existing core strengths rather than diversifying based on the pandemic.
An example would be to improve or strengthen an available product line, or to make additional products or changes to models that will improve volume and access. Those firms following this mindset tend to remain on track from their original goals during the pandemic without significant distraction.
Outside of the COVID-19 pandemic, incremental changes continue, particularly with robotic systems that focus on stabilization or navigation to support the clinician. Improving the accuracy of the human in surgery or diagnosis, in areas where revenue potential and risks exist, are relevant and worthwhile improvements and additions.
Barbella: In your observations/customer dealings, are companies allocating their R&D dollars more into transformational or incremental innovation? What is the reason (or reasons) behind their choice?
Zarella: The firms we work with choose to focus on incremental innovation. New features and benefits introduced in new products, were not broadly transformative. This is true of most medical device products entering the market. Beyond R&D investment, transformative change in the medical device field takes time and money, to permit the clinical adoption of the innovative technology and in some cases, wait for the newly trained healthcare workers to adopt innovative technology. This longer-term adoption trend is commonplace and requires endurance, persistence, and appropriate funding to finance the wait until the realization of the anticipated revenue.
Barbella: Is there an ideal or best R&D outsourcing strategy that companies should employ when pursuing innovation? Please explain your answer.
Zarella: Innovation in design should always consider the expertise of the existing team. Anytime the expertise does not exist internally, the firm should contract a design firm or medical device development group to augment the team. Expertise can be engaged in various scopes, from a specific sub-system to a complete turn-key development project. Focusing your efforts on the market, the client needs, and product features that advance outcomes from (or reduce the risks of) a procedure keeps the goal of R&D on track. The primary efforts of the existing team should focus on these critical aspects. Once the team understands these critical aspects, hiring contract support or medical device development experts allow the details of the design and development process to accelerate while the existing team ensures the design progresses towards the goal.
Ideally, developing the next product or feature concept to keep a full pipeline is a smart strategy. An external development firm can develop multiple products in parallel (rather than just a sole product) once they understand your goals and overall strategy. Leveraging these outside teams really gives firms an edge on competition, provided they choose the correct partners.
Barbella: When does it make sense—if ever—NOT to outsource medtech R&D? Please elaborate.
Zarella: 1) If your firm is still doing customer research or 2) is trying to understand the basic clinical application of a specific product or feature, or 3) if the firm has adequate experts internally. It is best to use internal expertise, if it exists, in new and innovating projects. As soon as this work becomes even remotely repetitive, a firm should consider engaging an outsourced medtech R&D partner. This keeps internal talent focused on discovery, as opposed to slightly modifying existing processes. Your medtech partners are typically able to learn and adapt quickly in a way that augments your firm’s team, especially if an internal expert is available to support or re-direct, if management or clinical experts waver on their decisions on the device or service in development.
Barbella: How has virtual interaction benefited medtech R&D? Do you expect it to continue?
Zarella: Strong consulting and medical device development firms have been doing remote and virtual interaction for more than a decade or two, as the introduction of virtual meeting services occurred in the late 1990s. However, the pandemic has made virtual interaction more generally acceptable, creating better access to external staff where managers and team members previously believed a limit or restriction existed. Since this type of interaction was always part of the external consulting or contracting model, we expect it will continue.
We also believe it is likely that some employees will return to their typical on-site working roles, while other colleagues will be able to convert to a fully permanent remote position. These roles may change to part-time roles and absorbed by medical device consulting firms or medical device development firms. The ability to contract with these services when required, rather than supporting them as full-time resources may provide firms with more flexibility in overhead.
Barbella: How will approaches to R&D evolve in the future?
Zarella: Access to additive manufacturing for prototype devices in various and evolving materials has made proving a product’s functionality within a clinician’s hands significantly faster. Rapid prototyping and testing custom electronics allow designs to quickly progress from form-only models to functional appearance models.
I expect deeper pockets will continue to invest in skunkworks projects, to develop various models and concepts on the shelf for future consideration or combination. Without modular functional features and concepts ready for implementation, firms will continue to be plagued by a serial design process. Those that are aware of the associated restrictions will continue to link prior-testing and new systems, to reduce the serial aspects of verification and validation. Workarounds come from having nimble design teams, which is key to staying relevant as R&D pushes forward. In other cases, if pockets are deep enough, firms will seek to overcome the serial challenges of R&D through acquisition, to avoid suffering through the harder lessons.
Most firms are significantly smaller than the top 30 firms and must somehow remain abreast of methods for creatively addressing regulatory requirements, while maintaining the rigor and robustness of new scientific discoveries and engineering solutions. As an outsourced R&D medtech firm, we can see how hundreds of companies perform product development, which provides us the ability to help these smaller firms borrow or intermingle these concepts, to accelerate and evolve their design process.
The virus that has killed more than 6.5 million individuals worldwide led to a major boost in R&D spending in 2020, with the top 10 medtech companies collectively investing more than $15 billion, Evaluate Vantage data show. And while that figure rose to $17.4 billion last year, the financial news analyst organization expects R&D investment to slow in 2022 and rise only moderately through 2028.
“However, even modest growth year over year represents a record level of spending,” David Stuart, Life Sciences senior analyst, director, wrote in a Fall 2022 Industry Outlook for RSM, a London-based accountancy network. “We expect the trend of record R&D spend will continue as companies jockey for technical superiority and the pace of innovation continues to accelerate. There are no viable substitutions; if medtech companies don’t maintain strong R&D spend, they risk being left behind in a highly competitive and segmented industry.”
Substantial R&D investment has long been tied to healthy product innovation and market capitalization. Whether R&D spending levels stay consistent or falter in the near future remains to be seen, but medtech firms will most certainly have maintain robust research and development pipelines to ensure their future success.
MPO’s R&D feature details the trends and market forces driving medtech research and development. Tom Zarella, marketing director at Concise Engineering, was among the experts interviewed for the feature; his full input is provided in the following Q&A:
Michael Barbella: How has COVID-19 changed companies’ approach to R&D, if at all? Why did it change the approach to R&D?
Tom Zarella: COVID’s economic changes, like supply chain stability for prototypes and production, and specialized material shortages, significantly impacted R&D activities. In the past, supply chain challenges never really impacted the prototyping stage of design. Now, these disturbances delay projects and product release on otherwise straightforward designs. A lack of machining expertise availability in both programing and CNC labor has impacted delivery of even simple orders for basic prototype components.
Teams must now focus on these shortages in components, labor, and work to overcome a lack of information due to having these materials available earlier in the design process. Additionally, new R&D approaches now require exceedingly early supply chain research to source readily available materials. Without advance planning, given these increasingly commonplace delays, teams may lose two to three months at each stage of the design process, leading to six to 12 months in delays.
Barbella: In your observations and customer dealings, what areas of healthcare are companies focusing their R&D on (for example, diagnostics, cardio, robotics, etc.)? Why are companies investing in these areas?
Zarella: There has been a shift to fund projects related to the pandemic that have revenue potential. Personal Protective Equipment (PPE) is of course one area; diagnostics (both in testing and biometrics) is another. We have seen projects that focus on vaccine storage in controlled environments. We see these shifts as attempts to gain market share in new areas, capitalizing on the uncertain endpoint of pandemic. However, we believe the smart play for firms is to continue focusing on existing core strengths rather than diversifying based on the pandemic.
An example would be to improve or strengthen an available product line, or to make additional products or changes to models that will improve volume and access. Those firms following this mindset tend to remain on track from their original goals during the pandemic without significant distraction.
Outside of the COVID-19 pandemic, incremental changes continue, particularly with robotic systems that focus on stabilization or navigation to support the clinician. Improving the accuracy of the human in surgery or diagnosis, in areas where revenue potential and risks exist, are relevant and worthwhile improvements and additions.
Barbella: In your observations/customer dealings, are companies allocating their R&D dollars more into transformational or incremental innovation? What is the reason (or reasons) behind their choice?
Zarella: The firms we work with choose to focus on incremental innovation. New features and benefits introduced in new products, were not broadly transformative. This is true of most medical device products entering the market. Beyond R&D investment, transformative change in the medical device field takes time and money, to permit the clinical adoption of the innovative technology and in some cases, wait for the newly trained healthcare workers to adopt innovative technology. This longer-term adoption trend is commonplace and requires endurance, persistence, and appropriate funding to finance the wait until the realization of the anticipated revenue.
Barbella: Is there an ideal or best R&D outsourcing strategy that companies should employ when pursuing innovation? Please explain your answer.
Zarella: Innovation in design should always consider the expertise of the existing team. Anytime the expertise does not exist internally, the firm should contract a design firm or medical device development group to augment the team. Expertise can be engaged in various scopes, from a specific sub-system to a complete turn-key development project. Focusing your efforts on the market, the client needs, and product features that advance outcomes from (or reduce the risks of) a procedure keeps the goal of R&D on track. The primary efforts of the existing team should focus on these critical aspects. Once the team understands these critical aspects, hiring contract support or medical device development experts allow the details of the design and development process to accelerate while the existing team ensures the design progresses towards the goal.
Ideally, developing the next product or feature concept to keep a full pipeline is a smart strategy. An external development firm can develop multiple products in parallel (rather than just a sole product) once they understand your goals and overall strategy. Leveraging these outside teams really gives firms an edge on competition, provided they choose the correct partners.
Barbella: When does it make sense—if ever—NOT to outsource medtech R&D? Please elaborate.
Zarella: 1) If your firm is still doing customer research or 2) is trying to understand the basic clinical application of a specific product or feature, or 3) if the firm has adequate experts internally. It is best to use internal expertise, if it exists, in new and innovating projects. As soon as this work becomes even remotely repetitive, a firm should consider engaging an outsourced medtech R&D partner. This keeps internal talent focused on discovery, as opposed to slightly modifying existing processes. Your medtech partners are typically able to learn and adapt quickly in a way that augments your firm’s team, especially if an internal expert is available to support or re-direct, if management or clinical experts waver on their decisions on the device or service in development.
Barbella: How has virtual interaction benefited medtech R&D? Do you expect it to continue?
Zarella: Strong consulting and medical device development firms have been doing remote and virtual interaction for more than a decade or two, as the introduction of virtual meeting services occurred in the late 1990s. However, the pandemic has made virtual interaction more generally acceptable, creating better access to external staff where managers and team members previously believed a limit or restriction existed. Since this type of interaction was always part of the external consulting or contracting model, we expect it will continue.
We also believe it is likely that some employees will return to their typical on-site working roles, while other colleagues will be able to convert to a fully permanent remote position. These roles may change to part-time roles and absorbed by medical device consulting firms or medical device development firms. The ability to contract with these services when required, rather than supporting them as full-time resources may provide firms with more flexibility in overhead.
Barbella: How will approaches to R&D evolve in the future?
Zarella: Access to additive manufacturing for prototype devices in various and evolving materials has made proving a product’s functionality within a clinician’s hands significantly faster. Rapid prototyping and testing custom electronics allow designs to quickly progress from form-only models to functional appearance models.
I expect deeper pockets will continue to invest in skunkworks projects, to develop various models and concepts on the shelf for future consideration or combination. Without modular functional features and concepts ready for implementation, firms will continue to be plagued by a serial design process. Those that are aware of the associated restrictions will continue to link prior-testing and new systems, to reduce the serial aspects of verification and validation. Workarounds come from having nimble design teams, which is key to staying relevant as R&D pushes forward. In other cases, if pockets are deep enough, firms will seek to overcome the serial challenges of R&D through acquisition, to avoid suffering through the harder lessons.
Most firms are significantly smaller than the top 30 firms and must somehow remain abreast of methods for creatively addressing regulatory requirements, while maintaining the rigor and robustness of new scientific discoveries and engineering solutions. As an outsourced R&D medtech firm, we can see how hundreds of companies perform product development, which provides us the ability to help these smaller firms borrow or intermingle these concepts, to accelerate and evolve their design process.