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Medtech's Patent Scorecard


Posted by mddiadmin on March 1, 2007
Leading medtech companies continue to build their business strategies around innovative patents.

MARKET ANALYSIS



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Innovation and success in the medtech field are typically predicated on strong patent holdings. In fact, the medtech industry is one of the clearest examples of the direct links that exist among innovative research and development (R&D), patenting activity, and ultimate market success. This year is no exception.

In this article, MX again teams with the Patent Board (Chicago), an intellectual property (IP) research and advisory services firm, to assess the competitiveness and overall quality of the IP landscape in the medtech industry. Perhaps coming as no surprise to industry observers, industry behemoths Boston Scientific Corp. (Natick, MA), Medtronic Inc. (Minneapolis), and Johnson & Johnson Inc. (J&J; New Brunswick, NJ) lead the patent quality rankings. However, the 2007 Medical Device Patent Scorecard—based on companies' patenting activity in 2006—also features several emerging companies that have developed interesting and novel patent portfolios worthy of note.

The Patent Board's scorecard data reflect a blend of quality and quantity patent metrics. Technology strength is the ranking indicator for most industries, including the medical device industry. The Patent Board employs mathematically based analysis to rank a company's overall intellectual property and innovation strength using a series of metrics (see sidebar).

The medical device industry is obviously technology intensive. Of the 17 industries that the Patent Board monitors, the medical device industry ranks fourth in its overall industry impact score, right behind the information technology, telecom, and semiconductor industries. Medtech also ranks fifth according to the Patent Board's science strength metric, right behind the pharmaceutical, biotechnology, information technology, and semiconductor industries.

Medtech's Top Ten in Patents

Although the companies that top the medtech scorecard in terms of patent portfolio strength remained largely unchanged between the 2006 and 2007 scorecards, Boston Scientific's acquisition of Guidant Corp. (Indianapolis) in April 2006 moved the combined company up one place to take the top position, previously held by Medtronic. Although it remains to be seen if the purchase will meet or exceed expectations in the marketplace, the acquisition substantially broadened Boston Scientific's intellectual property base and strengthened its portfolio as a whole.

In connection with the Boston Scientific–Guidant acquisition, Abbott (Abbott Park, IL) acquired Guidant's vascular intervention and endovascular business units, an IP boost that helped Abbott rise seven places to the 17th position.

In 2006, seven of the top 10 medtech companies increased their annual patent output, whereas most of the 17 industries that the Patent Board tracks have seen a decline in annual patent output compared with their five-year historical levels.

Within the medical device industry, half of the companies appearing on the top-10 list have patent holdings dispersed among several industries. In particular, GE Healthcare (Chalfont St. Giles, UK), Siemens Medical Solutions (Malvern, PA), and 3M Healthcare (St. Paul, MN) are part of global conglomerates with diverse patent holdings.

In 2007, the Patent Board—which formerly operated under the name ipIQ—refined its IP mapping tool and metrics to enable the company to better disperse conglomerate patent portfolios into appropriate industries. Thus, the patent scorecard for a given industry includes only industry-specific data for companies operating in multiple industries. As a result of such refinements, data included in this year's article deviate from those included in last year's installment. For example, under the previous criteria, GE Healthcare did not appear on the 2006 Medical Devices Patent Scorecard. However, this year it holds the number four spot, reflecting the company's robust medical device patent portfolio.

To enable proper comparisons in this article, the refined criteria have been applied to companies' historical patenting data (see Table I).

Boston Scientific. With the acquisition of Guidant, Boston Scientific jumps into the lead position on the 2007 Medical Device Patent Scorecard. The rise in position stems from both the additional patents that the Guidant transaction brought to the combined company as well as a strong industry impact score of 1.41. This score is tied for the fourth highest among the top-10 medtech companies and is 41% higher than the overall industry average score.

The company managed to climb into the top spot despite a decline in Boston Scientific's 2006 technology strength score to 1021. A year ago, the combined score of the Boston Scientific–Guidant entity would have been 1398.

Boston Scientific is positioned to remain at the top of the medtech scorecard. The company currently leads the industry in terms of the number of patents issued per year. In 2006, the company secured 549 patents, compared with the 378 secured by the industry's next-most-prolific patent issuer, Medtronic. Additionally, Boston Scientific's R&D efforts are a leading factor in the company's high ranking. The company's research intensity score for 2006 was 1.77, which was the third highest among medtech's top 10. The company's robust research score will likely continue to bolster the company's patent quality rankings in the future.

Medtronic. Medtronic fell to the number two slot in the 2007 Medical Device Patent Scorecard with a technology strength score of 747. Interestingly, even though Medtronic dropped one position on the scorecard, several of its patent quality indicator scores improved, demonstrating the high level of IP competition that exists among medtech leaders. Medtronic posted stronger indicator scores for technology strength (up to 747 from a five-year average of 720) and industry impact (up to 1.50 from a five-year average of 1.38).

Among the top-10 medtech companies, Medtronic posted the largest net increase in patents issued in 2006 over its average patent output for the prior five years. With a patent output increase of 48 in 2006, Medtronic doesn't appear to be content to let other companies leapfrog over it in the innovation race via acquisitions.

Johnson & Johnson. Maintaining its number three position in the 2007 Medical Device Patent Scorecard, J&J's annual patent output increased modestly, up to 285 from its five-year average of 281. The company's technology strength score during 2006 fell, reflective of a lower industry impact score of 1.02.

J&J's science strength score of 1428 was only slightly below that of Medtronic's 1458. This strong score may indicate that J&J's current product pipeline is closely linked to cutting-edge science. In the IP-rich medtech industry, such a score may foreshadow future innovations in the marketplace.

GE Healthcare. GE Healthcare maintained its year-ago scorecard position in fourth place. The company's 2006 technology strength score of 342 was essentially unchanged versus the prior year. However, GE Healthcare's industry impact score of 0.70—up slightly from 0.65 in 2005—was the second lowest among the top 10. Industry observers would do well to closely monitor companies' performance in this indicator category, as the development of influential patents is crucial to success in the medtech industry.

In 2006, GE increased its annual patent output to 367, up from its five-year average of 331. Despite its low industry impact score, such an increase in patenting activity may bode well for the company's future.

Masimo. As in last year's Medical Device Patent Scorecard, Masimo leads its much-larger competitors in terms of the industry influence of its patent portfolio. Masimo's industry impact score of 9.71 is the highest among all medtech companies, not to mention one of the highest among all companies tracked by the Patent Board across 17 industries. Its strong industry impact score enabled Masimo to garner the number five slot on the medtech scorecard, despite having a smaller patent portfolio than other leading companies.

Masimo is achieving its leading industry IP position largely through its own research activities. Masimo's patent applications rely largely on references related to its own prior patents. In addition, many other companies refer to Masimo's portfolio in their applications, which demonstrates that the company is truly breaking new ground in its research.

St. Jude Medical. The integration of recent acquisitions by St. Jude Medical (St. Paul, MN)—including those of Irvine Biomedical, Epicor, and Advanced Neuromodulation Systems—seems be going well. The company's indicators are relatively unchanged from its five-year average, which indicates a reliable, well-managed innovation engine. St. Jude Medical's technology strength was down slightly at 204, a decrease from its five-year average score of 220. The company's industry impact score was virtually unchanged.

Tyco Healthcare. Tyco Healthcare (Mansfield, MA) moves up four positions in the latest medtech patent scorecard to the seventh slot. The driving factor in Tyco's climb was a significant increase in its industry impact score, which rose to 1.30 from a five-year average of 0.85. The industry impact score increase more than countered a decline in Tyco's annual patent output, which dipped to 96 from a five-year average of 107.4. Among the top-10 medtech companies, Tyco also posted the second-highest research intensity score.

As a part of a larger corporate restructuring that was initially announced in January 2006, Tyco International Ltd. (Pembroke, Bermuda) announced in January 2007 that it would spin off Tyco Healthcare. Under the name Covidien, the new company will operate independently from the parent firm.
Optical Dynamics Corp. An optical lens and equipment company that manufactures machines for the on-site eyeglass lens market,

Optical Dynamics Corp. (Louisville, KY) jumped six spots on this year's Medical Device Patent Scorecard with a technology strength score of 156. Much like Masimo—the other small company at the top of the scorecard—Optical Dynamics posted a high industry impact score of 8.45, which was nearly double the company's average industry impact score for the prior five-year period.

Siemens Medical Solutions. Falling one position to ninth in the medtech patent scorecard, Siemens saw a small decline in its industry impact score, which dropped from 0.71 in 2005 to 0.61 in 2006. This decline in influence overshadowed an increase in the company's annual patent output. Siemens produced 189 medical device patents in 2006, up from a prior-five-year average of 179.

3M Healthcare. Due to the strong gains of other companies in medtech's top 10, 3M fell three slots to 10th with a technology strength score of 125. The company posted improved scores in patent quality, as measured by the industry impact indicator. Its score in 2006 increased to 1.41, up noticeably from its five-year average of 1.10. Its annual patent quantity grew to 67, up slightly from an average of 63 per year for the previous five-year period.

Significant Movers

Within the Medical Device Patent Scorecard, there are companies that experience considerable shifts in rank—both up and down—each year. In some cases, relatively unknown companies will surge considerably upward in rank because of a newfound emphasis on IP, only to be acquired shortly after their rise in patent power.

As the highest-ranking newcomer to the medtech patent scorecard, respiratory device manufacturer ResMed Corp. (Poway, CA) not only broke onto the 2007 scorecard, but it also moved up 13 positions to the number 12 slot. ResMed's technology strength score improved to 97.9, up significantly from an average of 60.0 for the prior five-year period. ResMed's 2006 technology strength score benefited from both a strong industry impact score—2.06, up from an average of 1.66 for the prior five-year period—and a significant jump in its annual patenting activity. In 2006, the company received 36 granted patents compared with an annual average of 22 for the prior five-year period.

Interestingly, Animas Corp. (West Chester, PA) and Sybron Dental Specialties (Orange, CA)—two companies highlighted as significant movers on last year's medtech scorecard—apparently caught the attention of larger players last year. J&J acquired Animas, a manufacturer of insulin delivery systems, for $518 million in March. Meanwhile, in April, Danaher Corp. (Washington, DC) agreed to buy dental products company Sybron Dental, a maker of disinfectant wipes for dental instruments and tooth extractors for root canals, for about $2 billion. The acquisition represented Danaher's largest to date.

Industry Insights

Longtime industry players know that investing in R&D and the buildup of a strong IP portfolio are keys to success in the medtech realm. Recent mergers and acquisitions activity provides further proof of the value that a robust IP platform can bring.

The rankings on the 2007 Medical Device Patent Scorecard are yet another example of how innovation in the lab can be translated into success in the marketplace. The IP leaders of the medtech industry include many of the companies that industry observers would expect to dominate the list. Many of these large companies got bigger—and stronger—during 2006.

However, the sheer number of patents held by the industry's largest players does not preclude the emergence of influential innovations. Masimo and Optical Dynamics have developed innovative technologies that—based on the degree of influence their patents are having in the overall medtech industry—are likely to do well in the marketplace. It will be interesting to see whether patents developed by other leading medtech companies follow their lead.

The 2007 Medical Device Patent Scorecard again underscores the fact that top medtech companies continually fortify their market leadership through high-quality patents. Although it is important to build a robust patent portfolio in terms of quantity, the key to success in the medtech industry is in the quality of a company's IP base. This year's Medical Device Patent Scorecard provides an overview as to which medical device manufacturers currently boast the most innovative and influential patent portfolios. Further interpretation of companies' scores may also provide insights as to which companies to watch in the coming years.

Scott Kratzer is vice president of consulting services for the Patent Board (Chicago), an intellectual property research and advisory services firm.

Copyright ©2007 MX

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