Baiju R. Shah

April 12, 2012

6 Min Read
Op Ed: When the U.S. Medical Device Industry Wins, America Wins

The U.S. has been the global leader in medical device development for decades. It boosts the overall economy, reduces the foreign trade deficit, and provides jobs and products that enhance and save lives. 

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Baiju R. Shah, president and CEO, BioEnterprise

However, in recent years, regulatory uncertainty at FDA has begun to hinder industry’s growth. These uncertainties have driven up costs and could drive away medical technology innovation and jobs, hampering America’s economic recovery and future prosperity, as well as the health of its citizens.

 

For the United States to keep its world leadership in medical devices—a key driver of our economy and quality of life—it must restore an appropriate regulatory balance that fosters innovation in addition to ensuring product safety.

 

World Leader in Medical Devices

 

In 2008, the U.S. medical device industry shipped $136 billion worth of medical devices, from simple contact lenses to implantable neurostimulators, according to a 2010 report by The Lewin Group. That year, the industry employed 422,778 workers (researchers, biomedical engineers, manufacturing technicians and salespeople, to name a few) who earned a collective $24.6 billion in income at an average of $58,000 per worker.<

 

The industry has benefitted from consistent demand for new medical innovations that is fueled by better understanding of diseases and improved underlying technologies. And as foreign countries become wealthier, their citizens have added to this demand through their desire for improved medical devices to increase the quality and longevity of their lives.

 

Challenges to Medical Innovation in the United States

While the fundamentals to drive global industry growth are strong, the U.S. medical device industry is faced with a new challenge in regulatory uncertainty regarding the approval of new medical devices. Depending upon the nature of the medical device, the development costs can range from $10 million and a few years to upwards of $75 million and a decade of development due to required technology and clinical studies. Stumbling along an unclear regulatory path can adds millions more and years of time to the path of these devices. 

 

These costs and time to market have increased recently. In part, the additional time has been due to low staffing levels at the FDA, an issue that will be seemingly addressed through the higher user fees that have been agreed to by the industry. However, increased staffing alone will not cure the uncertain nature of the regulatory pathways for medical devices. This is the primary challenge to maintaining U.S. leadership in the medical device industry.

 

Less Spending on Development Means Fewer Devices

The regulatory uncertainty has already resulted in fewer investments for medical device innovations. Investors are increasingly wary of investing in medical devices prior to regulatory approval. At the recent JP Morgan Global Healthcare Conference, venture investors we met with consistently asked of new companies, “Is their device in the market today?” The current consensus is to shy away from investing in companies that have unknowable regulatory risks ahead of them. 

 

Venture capital investments in medical devices fell for the third straight year in 2010, down 37% to $2.3 billion from $3.7 billion in 2007. “The current situation has undermined the ability of venture capital firms to achieve a favorable return on their investments and to raise funds to support the next generation of innovative biotechnology and medical device companies,” investor Sharon Stevenson, managing director of Okapi Venture Capital LLC, told a House subcommittee in September 2011. Investors are more likely to put their money in devices already in the market. So while investments in medical devices increased a modest 19 percent in 2011, most of that money went to a handful of mature companies, according to an Ernst & Young report.

 

In response, U.S. device developers have had to seek smaller, gap funding sources to continue to advance their innovations—a grant here, a Defense Department contract there, some angel and seed money on top. These can be complemented in states such as Ohio, where BioEnterprise is based, that have dedicated seed funds, tax credits, grants, and accelerators to support emerging medical technology companies. But most states and regions lack these resources and bootstrapping is insufficient for truly breakthrough, innovative devices.

 

U.S. Global Competitiveness at Risk

The difficult regulatory environment for medical device innovators in the United States has led them to begin developing and testing their devices overseas.

 

“I am deeply concerned that we are in jeopardy of losing the U.S. leadership position in medical technology innovation as a result of the current regulatory environment at FDA,” medical device inventor and job-creator Dr. Josh Makower told the U.S. Senate’s Health Subcommittee in February 2011. “Over the past several years, it has been increasingly difficult, more time-consuming, more costly and less predictable to navigate the FDA approval process. As a result, investment is drying up, companies are moving overseas or closing their doors, and U.S. patients are being denied timely access to safe and effective new medical products.”

 

Eventually, this foreign investment could cost America its medical device leadership. China, for one, is investing enormous resources to develop its medical technology capabilities as a consumer of healthcare and as a producer of medical devices, and not surprisingly, U.S. companies are announcing new R&D facilities to be located there.

 

Restore the Regulatory Balance

 

The medical device industry is one of only a few U.S. industries that has a positive trade surplus, meaning the country exports more than it imports. If we give up our lead in medical devices, we give up this industry’s trade surplus and add to our nation’s trade deficit.

 

Historically, the United States has encouraged the advances of medical technologies by creating an environment in which entrepreneurs and investors could safely and profitably bring innovative products to market. An uncertain regulatory pathway for new devices is making it less favorable to develop devices in the United States than in other countries. Regulatory clarity at FDA that restores a pro-innovation environment will enable America to retain its leadership in this industry, enabling the sector to continue to supply jobs and medical innovations for Americans. The President and Congress must focus on creating a regulatory environment that encourages innovation to continue America's global leadership in medical devices.

 

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Baiju R. Shah is President and CEO and a Founder of BioEnterprise. He focuses on BioEnterprise's strategic initiatives as well as counseling clients on business and financial matters. Prior to BioEnterprise, Shah was with McKinsey & Company, where he played a leading role in the Growth and Business Building practice.  Shah is on the Board of Directors of Invacare and on the Midwest Regional Advisory Board of RBS Citizens/Charter One.  In the community, Shah is Chair of Global Cleveland and serves on the boards of Great Lakes Science Center, Saint Luke's Foundation, and United Way of Greater Cleveland. Shah received a J.D. from Harvard and his B.A. from Yale. 

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