008 Medtech Patent Scorecard

MARKET ANALYSIS

Medical device manufacturers value their patent portfolios highly—and with good reason. Within the medical device industry, intellectual property (IP) based on strong research and development (R&D) activity has long played an integral role in driving market success.

For the past 40 years, The Patent Board (Chicago and Philadelphia) has tracked corporate innovation across multiple industries by analyzing patents based on proprietary indicators that measure the impact and relation to research of companies' IP portfolios (see sidebar).

Among the 17 industries tracked by The Patent Board, the medical device industry currently ranks fifth based on the strength of the science behind its collective patent portfolios. It falls just behind the semiconductor, information technology, pharmaceutical, and biotechnology industries. However, out of all of the industries, medtech has the fourth-highest current impact score, far outstripping pharmaceuticals and biotechnology. The industry also nearly doubled the technology strength scores of pharma and biotech. However, medtech's technology strength score of 50 remains average when compared across all industries.

Over the past year, the medtech industry also outpaced pharma and biotech in terms of its technology strength indicator, which is a key measure of overall IP quality and quantity. In this category, the medical device industry more than doubled the score of its pharma and biotech counterparts; across all industries, however, the medtech industry's technology strength remains average.

In this article, MX and The Patent Board again team up to present this year's Medtech Patent Scorecard. The snapshot of the IP landscape presented in this article is based on data that were compiled in February 2008.

Medtech's Top 10

Between 2007 and 2008, there was little movement among the Medtech Patent Scorecard's top 10 players, which are ranked according to technology strength (see Table I). Medtronic Inc. (Minneapolis) traded places with Boston Scientific Corp. (Natick, MA), thereby claiming the top scorecard slot. Covidien Ltd. (Hamilton, Bermuda), the recent spin-off of Tyco Healthcare, gained three spots over last year. Meanwhile, Johnson & Johnson Inc. (J&J; New Brunswick, NJ), Masimo Corp. (Irvine, CA), and Siemens Medical Solutions (Malvern, PA) retained their rankings with slight improvements in most indicators. GE Healthcare (Chalfont St. Giles, UK) and St. Jude Medical (St. Paul, MN) slipped when evaluated against the large gains made by their competitors.

Abbott Laboratories (Abbott Park, IL) showed strong improvement on this year's scorecard. Thanks to a number of acquisitions and strategic alliances, the company jumped 10 spots to number six on this year's scorecard. In addition, Hitachi Medical Systems America (Twinsburg, OH) broke into the top 10 this year for the first time. Together, Abbott and Hitachi nudged Optical Dynamics (Louisville, KY) and 3M Healthcare (St. Paul, MN) off the 2008 top 10 list.

Overall, eight of the companies in the top 10 increased their patenting activity year over year—but most increases were modest. Half of the companies in the top 10 operate across multiple industries, compared with only 20% of all tracked medtech companies. Seven of the top 10 had current impact scores that were above the industry average—several of which were exceptionally above the average—indicating some very influential patent sets among these top companies.

Medtronic. After losing the medtech scorecard's top position to Boston Scientific last year, Medtronic has regained the lead. The company's dominance is attributable to the significant impact of Medtronic's patents as well as an 8.6% increase in the company's patent volume. While there has been a decrease in patents issued across the entire medical device and services industry over the past five years, Medtronic's increases in patent count—both this year and last—bucks the industry trend. Medtronic's current impact also continues to be well above the industry average and has increased year over year. In 2008, the company bested its five-year average by 12%.

Medtronic's technology strength surged over the past year to finish 162 points higher than on last year's Medtech Patent Scorecard. The increase was due in part to the company's acquisition of Kyphon Inc. (Sunnyvale, CA), a maker of orthopedic medical devices used to treat compression fractures of the spine. It also added to its ear, nose, and throat (ENT) offerings in 2007 by acquiring certain assets of the EndoSheath product line, manufactured by Vision-Sciences Inc. (Orangeburg, NY). The product line features sterile disposable sheaths used with fiber-optic endoscopes.

Boston Scientific. Falling back to the number two slot this year, Boston Scientific's indicators dropped almost across the board. Since last year, the company's rankings saw a 26% decrease in technology strength, a 22% decrease in patent count, and a decrease of 1% in its current impact. These figures mark a significant change over last year, when Boston Scientific was positioned to hold the industry lead with a technology strength score that was 274 points higher than that of Medtronic, its nearest competitor.

However, Boston Scientific's science strength outranked all other companies in the medtech top 10, and is third among all tracked medtech companies. Such a score indicates a great deal of cutting-edge science in its IP pipeline. This could translate to a strong future position if and when innovations based on that IP begin to enter the marketplace.

Johnson & Johnson. Maintaining its third-place spot for the third year in a row behind Medtronic and Boston Scientific, Johnson & Johnson increased its technology strength by a modest 3% over last year. Meanwhile, a 10% decrease in patenting volume was offset by a 17% increase in J&J's current impact score. Although the gain wasn't enough to boost its ranking on the scorecard above Medtronic or Boston Scientific, the combination of an increase in current impact with a drop in patenting activity means the importance of J&J's average patent is increasing. This gradual trend—combined with science indicators (science strength and research intensity) that are consistently above the industry average׫indicates that J&J is well positioned to continue to maintain its technological strength into the future.

Covidien. Tyco Healthcare split from Tyco International in mid-2007 and has since rebranded as Covidien. This past year, the company continued building on the momentum that was achieved last year under the Tyco heading. On this year's scorecard, the company climbed from the number seven spot to the number four spot. Its IP growth was reflected across the board, with all indicators showing improvement, with the exception of innovation cycle time.

Despite the fact that Covidien's patents seem to be building off of older technologies, its technology strength nearly doubled over the past year. In addition, its patent volume and current impact score rose 50% and 34%, respectively. Meanwhile, science strength—an indicator of the scientific clout of Covidien's patents—rose more than 300%. In addition, Covidien's research intensity on this year's scorecard is the highest among the top 10 companies and seventh across the entire industry, indicating a continuing commitment to core science.

Masimo. Holding steady in the fifth slot on this year's scorecard, Masimo's technology strength score climbed only 14 points. However, the company maintained its current impact leadership against much larger competitors, with a score more than 11 times the industry average. The company's small, influential portfolio has also made significant improvements in other indicators, including science strength and research intensity. Masimo's strong showing is a reflection of its commitment to building on preexisting in-house technologies in areas that are untapped by potential competitors.

Abbott. As one of this year's significant movers on the Medtech Patent Scorecard, Abbott Laboratories jumped 10 spots, moving from 16th place on last year's scorecard onto this year's top 10 list. Abbott's technology strength score is only three points behind Masimo's. Such newfound strength can be attributed to a doubling in the company's patent volume and a 90% increase in its current impact score. However, its technology strength and science strength scores—although much improved over the prior year—are still lagging behind their five-year averages. Such figures indicate that the company's IP performance over the past two years has been an anomaly rather than a trend, as Abbott's current indicators have not reached the technological and scientific levels that they have attained in years past.

Abbott's 10-spot jump to number six is due in part to a number of acquisitions and strategic alliances. The company strengthened its diagnostics unit with the purchases of genomic testing company Vysis Inc. (Downers Grove, IL) and diabetes test maker TheraSense Inc. (Alameda, CA), and it has forged an alliance with Celera (Rockville, MD) to help build its portfolio of molecular diagnostics.

GE Healthcare. Slipping three spots this year, GE Healthcare's decline is attributable mainly to its decrease in patent volume. The company's technology strength dropped by 30% compared with last year, mirroring its decline in patent volume, which also dropped by almost a third. The company's current impact score saw an almost imperceptible gain and remained below the industry average.

Despite declines elsewhere, GE Healthcare's research intensity score was up 40% over last year. If the company continues to improve its performance with regard to this indicator, such efforts could improve the current impact of the company's patents going forward.

In recent years, GE Healthcare—much like its competitors—has been moving aggressively to broaden its reach within the diagnostics arena. In 2007, the company announced a collaboration with Eli Lilly and Co. (Indianapolis) to create molecular tests related to two investigational cancer compounds. The tests would enable doctors to predict how effective the drugs would be in certain patients.

St. Jude Medical. Down two places from last year, St. Jude Medical's 33-point improvement in its technology strength score was not enough to offset larger gains by some of its competitors. St. Jude Medical held steady on its current impact score and saw a slight decrease in patenting over last year.

The company's improvement came in the form of its science indicators, with science strength improving almost fivefold over last year. Meanwhile, its research intensity score improved 160%, which could foreshadow a future climb in the IP ranks.

At the beginning of 2007, St. Jude Medical merged its cardiology and cardiac surgery divisions into a unified cardiovascular division. Although St. Jude Medical is a leader in the mechanical valve market and holds a 25% market share for bradycardia pacemakers, it has lagged behind rivals Medtronic and Guidant (now Boston Scientific) in the implantable cardioverter-defibrillator (ICD) market. Regardless, the company continues to forge ahead with R&D efforts in an industry that is becoming increasingly consolidated.

Siemens Medical Solutions. Holding steady in the number nine spot this year, Siemens saw small increases in its technology strength score and patent volume. Science strength and research intensity also improved this year; however, the company's research intensity is still far below the industry average. Siemens also saw a small increase in its current impact, although this score also remained below average.

Such scores indicate that, if the company maintains its current IP efforts, its ranking on the Medtech Patent Scorecard is likely to slip in coming years. However, in recent years Siemens has used acquisitions to grow some of its U.S. medical instruments and testing operations. Additional acquisition activity could alter its patent portfolio prospects significantly.

Hitachi. Jumping seven spots to enter this year's top 10 list, Hitachi nearly doubled its technology strength score to 110, which is well above its five-year average of 66. The company's current impact score also improved significantly, rising 83% and finishing just below the industry average. A small upward trend was also seen in the company's science strength and research intensity. Additionally, Hitachi is building off of newer technologies than most companies. The company tied GE Healthcare's innovation cycle time score on this year's scorecard; only Masimo has a shorter innovation cycle time among the top 10 medtech companies.

Significant Movers

Despite the relative stability among the companies on this year's top 10 list, a significant degree of volatility was seen among other mid-sized and large medtech manufacturers on the 2 (see Table II). The prime example of such volatility is Abbott Laboratories, jumping 10 places to land at number 6. Other significant movers include the following.

ArthroCare. Moving up 25 spots, ArthroCare Corp. (Austin, TX) ranks number 12 on this year's scorecard. Its impressive technology strength score of 85.1—compared with last year's score of 32.2—and a doubling of its current impact score boosted ArthroCare within reach of the top 10 list. Its robust science strength score of 1825 this year bodes well for the future. However, its relatively small patent set, when compared with most competitors in the top 10, will be a disadvantage going forward. In addition, the company recently announced that its board has decided to investigate financial and strategic alternatives that could enhance its shareholder value. Possible alternatives include everything from a recapitalization or stock repurchase to the sale of certain assets or a potential merger. Thus, it's impossible to say how ArthroCare will fare on next year's scorecard—or even if the company will still exist in its current form.

Arkray. Jumping 38 places on the scorecard to number 18, Arkray Inc. (Kyoto, Japan) is a player to watch. In 2006, the company acquired and integrated Hypoguard—now known as Arkray USA—into its stable of disease diagnosis and management products. The acquisition has given the company an IP boost in the United States, with its current impact score nearly quadrupling year over year and its technology strength score up more than threefold during the same period. The Patent Board expects Arkray's aggressive focus on R&D to keep new technologies coming down the pipe.

Zimmer Holdings. Though still trailing its five-year average, Zimmer Holdings Inc. (Warsaw, IN) has made large improvements in its technology strength score since last year and now stands at number 19 on the scorecard. Despite a relatively small (15%) patenting increase year over year, Zimmer's metrics outstripped last year's, with a 37% increase in technology strength, a 29% increase in current impact, and a doubling of its science strength. Zimmer's robust science strength puts the company among the top 25 in the industry in that metric.

Varian Medical Systems. Patenting activity is on the upswing at Varian Medical Systems (Palo Alto, CA), which rose 20 spots to number 22 on the 2. The company's patenting activity increased by nearly 50% over the past year, and its science strength nearly doubled to top the company's five-year average by almost a third. In addition, Varian's technology strength score rose from 26.5 to 48 year over year, with its current impact increasing 17%.

Resmed. A scorecard newcomer last year, Resmed Inc. (Poway, CA) fell 11 places this year from the number 12 spot. The company's impressive technology strength score from last year (97.9) dropped to less than half of that on the current scorecard. Meanwhile, the company's current impact and patenting activity also dropped, with its current impact score off by a quarter point and patenting down by 40% year over year. Despite Resmed's volatility, the company is performing within the range of its prior five-year averages—and well above the Medtech Patent Scorecard average as a whole.

3M Healthcare. Continuing its decline from previous years, 3M Healthcare (St. Paul, MN) fell off this year's top 10 list, down 14 slots to number 24. Last year, 3M maintained its patent quality but slipped on the scorecard in relation to strong gains made by others in the top 10. This year, however, 3M experienced decreases in overall patent quality, indicated by its lower current impact score. The company also saw a decrease in patenting activity, falling to 47 patents versus its five-year average of 55.

Regardless of declines, 3M's interest in medtech remains strong, as it continues to acquire smaller players to strengthen its device portfolio. Recent acquisitions include Biotrace International (Bridgend, UK) and Lingualcare Inc. (Dallas). 3M's size and commitment to the device industry mean it shouldn't be ruled out in any examination of industry leaders.

Carl-Zeiss Meditec. Despite a decrease in patent volume, Carl-Zeiss Meditec (Dublin, CA) climbed 12 spots to number 26 on the 2. The company's patenting decrease was more than offset by gains in its current impact score, which rose 52%. Although its current impact score is still below those of many players in the medtech field, Carl-Zeiss's corresponding 27% increase in technology strength earned it a place on this year's significant movers list. Additionally, Carl-Zeiss's science strength score skyrocketed from 3 to 82 year over year, reflecting the company's increased relationship with basic research and hopefully more good things to come.

Hologic. Making significant headway on this year's scorecard, Hologic Inc. (Bedford, MA) rose 39 places to number 34. The company earned its spot on the significant movers list with a technology strength of only 31.1, reflecting a tripling of last year's score. The increase corresponds with a more than threefold increase in patenting.

Still coming down the pipe at Hologic are 263 U.S. patent applications—a massive figure considering the company's current portfolio consists of a total of 400 granted U.S. patents. Almost half of the pending applications come from Hologic's recent acquisition of Cytyc Corp. (Marlborough, MA), a company with higher overall patent quality measures than Hologic. This multi-billion-dollar merger makes Hologic a company to watch over the coming year.

OraMetrix. A newcomer to the scorecard this year, Orametrix Inc. (Richardson, TX) is another company to watch. Debuting on the scorecard this year at number 41, this small company already beats the medtech industry average in current impact and research intensity. The company's current technology strength score of 25.2 is fairly stable, compared with a five-year average of 21. Although OraMetrix has a small portfolio, with 55 patents granted, it is noteworthy that 54 of those patents have been granted since 2001. Additionally, OraMetrix has 41 pending applications. Depending on the quality and influence of these pending patents, they could potentially produce future volatility in OraMetrix's rankings if and when they are granted.

Industry Insights

As this year's scorecard demonstrates, companies in the medical device industry continue to rely on top-notch innovation and intellectual property to gain dominance in the marketplace. The reasonably static nature of this year's top 10 list—which includes few surprising players—reflects growing consolidation within the industry. Most top 10 players grew bigger and stronger over the past year to maintain their ranks. Very few experienced the volatile increases and decreases that have been characteristic of top 10 players on past scorecards.

Overall, patenting in the medical device and services industry is still going strong, with a 1.5% increase in patenting this year across all tracked companies. However, this increase is less than the five-year industry average, indicating that the patenting activity decline that has been seen in other industries in recent years has now found its way to medical devices. But despite this trend, eight of this year's top 10 medtech companies increased their patenting year over year.

The medical device and services industry continues to value innovation and IP, and some of the largest players in the industry continue to be the leaders when it comes to patent portfolio strength. However, despite the size of some of the leaders' portfolios, the IP metrics that matter most within the medtech industry continue to be the ones that measure patent quality and cutting-edge science. Thus, the size and influence of the current top 10 medtech patent portfolios don't preclude others in the space from rising in the ranks. Like Masimo last year and Abbott this year, significant moves from year to year are possible, even among the top slots. Smaller players with highly influential patent sets, like OraMetrix, could change the IP landscape significantly as they grow.

Rachel Hill is an advisory services associate and Nicholas Stabinsky is an advisory services managing consultant at The Patent Board (Chicago and Philadelphia).

Copyright ©2008 MX