What should the medical device industry do now, as it faces a perfect storm of a tight funding climate, price pressures, a tough regulatory environment, as well as the new medical device tax? “It has probably never been harder to bring a device from the bench to the bedside,” reflected Stephen Ubl, AdvaMed president and CEO who served as a moderator for the AdvaMed CEOs Unplugged Panel held last week at OneMedForum in San Francisco.
To succeed, life science companies should rethink innovation, which for many years, has largely focused on incremental product improvements, said panelist David Dvorak, Zimmer CEO and AdvaMed’s chairman. While that type innovation helps device companies remain competitive in the short term, Dvorak said, medtech companies should budget sufficient money to invest in “bigger leapfrog-type improvements.”
The medical device tax has made that a difficult proposition, as it has reduced the amount of money left to invest in R&D. Panelist Virginia Rybski, who is the president and CEO of Regenesis, explained that the tax will cost her firm about $1 million in 2013 alone. “That was money earmarked for innovation,” she said.
Panelist Peer Schatz, president and CEO of diagnostics firm Qiagen was more upbeat. “Luckily we can absorb the device tax as a larger company,” but he added that the tax is “very poorly designed.” To succeed in this tough marketplace, Schatz said Qiagen is prioritizing the cost-effectiveness of its products and striving to compellingly demonstrate those potential savings to payers. “When we go and launch products, we can show significant cost advantages,” he said. “We come out with these amazing cost effectiveness ratios in diagnostics. It makes it very easy for us to go to these decision makers on the payers side—centralized as well as private, and have a very strong argument for our solutions.”
Dvorak joked that the device tax has made his team at Zimmer better business people by making them more efficient. He explained that, when preparing for the medical device tax, Zimmer has “developed some very aggressive programs to drive improvement and efficiencies” companywide. That enables the firm to invest in aggressive higher risk products while continuing to refine its existing product portfolio.
Dvorak also stressed the importance of innovative new business models between life science companies and their customer base. In Zimmer’s case, it is becoming “much more of a partnership.” Zimmer is working with hospitals to help them “reduce the total cost of care, improve the quality of the patient outcomes, greatly reduce the complication rates for readmissions, and help [hospitals] manage their costs,” he said. “Even in the deployment of our implant systems, we are keenly aware of how important it is for them to better manage the inventory that flows through their hospitals, to better manage the instruments that supports those systems, and the reprocessing costs within central sterilization,” he said.
At the close of the panel, Ubl asked the panelists to share the best advice they have ever received. Ubl first shared his favorite piece of advice: “Whatever you do in your career, dive into the substance. Know as much or more about the substance of what you are doing than anyone else in the room. I’ve really taken that to heart and spent a lot of time on the policy side as a result.”
Rybski said that her favorite was similar: “Work hard, understand everything, and if you want to excel, you have to do at least 50% better than your peers.”
“There has been a temptation to look for the outside savior for growth in another sector”
Schatz followed with the following: “The most valuable advice was from our venture capital investor when we started the company a little over twenty years ago. We had tough times and I went to him and he said: ‘don’t worry, the next Amgen is just around the corner and it might be you. Always believe in going big and having high hopes and shooting for the best.’
Dvorak closed the panel discussion by stressing the importance to have a maniacal focus on where your team can create the most value. “There has been a temptation to look for the outside savior for growth in another sector,” he said. “But if you know your space and your business best, that is the most likely place I believe you will have to create value and make a difference for patients ultimately,” he added. “I encourage you to plant that one in your head. And when you are making tough decisions, developing your strategic plan or your operating plans, it ends up being hard choices and focus that can be the single biggest difference maker.”