Device Makers Should Respond to Industry Shifts by Going Global

“Device makers are feeling a lot of anxiety right now,” says Jim Prutow, who is director for PRTM Healthcare Practices. PRTM is a management consultant firm that recently released a survey, “Medical Technology Innovation in a Time of Upheaval,” conducted in collaboration with MassMEDIC. The report surveyed about 100 medtech participants (more than 50% of the respondents were from the executive level). The goal was to look at the various factors that have irrevocably affected industry, such as the device tax, comparative effectiveness, the recession, and regulatory reform. Among its chief findings, the survey highlighted the following:

?    The new medical device tax will intensify pressure to control operating expenses and expand margins as companies try to protect R&D investment and profits.
?    There is anxiety in the industry about increasing regulatory scrutiny and FDA’s impending 510(k) reform.
?    U.S. companies will likely move more product development activities abroad as the domestic environment becomes more constrained.

It’s not just the normal trends toward globalization we’re seeing, Prutow explains. These changes are increasing as a direct result of policy changes, such as the device excise tax and uncertainty surrounding the future of 510(k) clearance. According to the survey, more than 80% of the medical device industry believes that the economic, policy, and regulatory changes are making it more attractive to do business outside the United States. “Eighty percent is a huge number,” says Prutow. “Usually we see numbers in the 40–60% range. This is way beyond what we expected.”

And, says Prutow, it is not just manufacturing practices that will continue to move offshore. More than 75% of the respondents would consider other countries for activities such as initial product filings and initial product launches, as well as manufacturing. Prutow says he also expects more R&D activities to move to foreign countries, which could have a significant influence on the U.S. economy. This is especially true because 40% of survey takers indicated that R&D spending was down in 2009, even for firms that reported revenue growth.

PRTM’s advice for OEMs is to begin adopting a much more sophisticated global outlook for conducting business. International markets deserve a closer look for commercializing the R&D pipeline, the report explains. Middle classes in emerging markets could be an important source of new revenue streams in the coming years, so companies must acquire a deeper understanding of the needs and priorities of such customer segments.

Development and supply chains should become more global in scope to leverage foreign talent, focus on patient and caregiver populations, and master regulatory expectations in international markets. The uncertainty felt by medical device companies will ease as we emerge from this global recession and as regulators provide interpretation and guidance for policies. But such changes are slow, and—if they aren’t already—device firms should start looking beyond U.S. borders.