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Medtech's Patent Strongholds

An analysis of medical device patent filings highlights the industry's current intellectual property leaders as well as manufacturers that are on the move.

MARKET ANALYSIS

Sidebar:
Keeping Score

Few company assets are valued as highly or defended as vigilantly as a medical device manufacturer's patent portfolio. Whether a company owns an arsenal of intellectual properties amassed over many years or a single patent from which it hopes to create an empire, its portfolio is the essential foundation on which innovation is built.

For the past 30 years, ipIQ (Chicago) has tracked corporate innovation across multiple industries by analyzing the strength, breadth, and quality of patents and patent portfolios. ipIQ uses a proprietary indicator set comprised of the following measures (see sidebar).

  • Technology strength, which reflects overall innovation quality and breadth.
  • Current impact index (CII), which measures the impact of a company's patents      on the latest technological developments within a given industry.
  • Science linkage, which describes the nearness of a company's technology to cutting-edge science      and academic research.
  • Technology cycle time, which indicates the speed at which a company turns technology into      intellectual property.
  • Patent count, which indicates the number of U.S. patents awarded to the company during the      calendar year.

    Based on those five measures, ipIQ publishes an annual report called the Patent Scorecard, which ranks 15 patenting industries. Within each industry, the scorecard identifies the top 10 companies based on their technology strength, as well as the significant movers of the year.

    In the 2006 scorecard, the medical device industry delivers an impressive overall performance. Looking at averages across 15 industries, the medtech industry is one of only four industries to claim top-five rankings in two or more of the patent indicator categories. The consumer electronics, semiconductor, and telecommunications industries achieve similar top-five ratings. Although not positioned as highly in technology strength and technology cycle time as other industries, medtech has a clear leadership position in both its CII and science linkage scores.

    The medical device industry also stands out as a consistently high-quality performer among industries directly related to medicine and human health. In three of the key indicators of patent quality, it surpasses both the biotechnology and pharmaceutical industries. The medical device industry follows closely on the heels of these industries in the case of science linkage, an indicator in which the three industries hold the top spots. The high quality of patents emerging from the medical device industry is perhaps most evident when looking at CII scores, in which the industry is a full nine and 11 positions ahead of biotech and pharmaceuticals, respectively.

    Medtech's Top 10 in Patents

    Within the medical device industry, companies appearing on the top 10 and significant movers lists show exceptionally strong CII scores. On each list, seven of the 10 companies exceed the industry's average CII score. In the biotech and pharmaceutical fields, a lower percentage of top companies and significant movers outpace their respective industry averages.

    There are several possible explanations as to why a higher proportion of top companies and significant movers in the medical device space exceed the industry's average CII. It may denote greater awareness within the medical device industry of the technology that belongs to top companies. Thus, companies may place a greater reliance on their inventions as building blocks for future innovation.

    In the medtech industry, the 2006 IP leaders on the Patent Scorecard are as follows (see Table I).

    Medtronic. Industry-leading Medtronic Inc. (Minneapolis) maintains its number one position due to its high-impact patents, which put its CII score well above the industry average. Though Medtronic's patenting volume in 2005 is slightly lower than its five-year average, this is indicative of a larger trend within the industry. Due to increased lag time between the date of patent application and the date of patent issue, most companies in 2005 received fewer patents than in previous years. Medtronic's strongest patents reside in the areas of ablation catheters, targeted drug delivery, drug storing and metering stents, and pacemakers. Its aggressive intellectual property (IP) strategy is evidenced in its drive to acquire new technologies, as well as its efforts to protect its IP portfolio, as demonstrated by its recent patent infringement suit against Biomet Inc. and its subsidiary EBI Spine.

    Boston Scientific-Guidant. Ranked separately before the recent merger as number two and number four, respectively, Boston Scientific Corp. (Natick, MA) and Guidant Corp. (Indianapolis) had identical CII scores of 173 in 2005—markedly better than the industry average of 132. Though both companies experienced a decline in CII from their respective five-year averages, Boston Scientific managed to hold on to its previous rank. Guidant was not as fortunate.

    When combining the two companies' portfolios to represent the 2006 merger, the new company's CII score rises marginally. However, the technology strength of the new entity far surpasses that of Medtronic for the top spot. In short, the Boston Scientific–Guidant merger creates an IP force of considerable strength and substance.

    Johnson & Johnson. A highly diversified company with a significant presence in pharmaceuticals and consumer products as well as medical devices, Johnson & Johnson Inc. (J&J; New Brunswick, NJ) has the advantage of the largest IP portfolio within the medical device industry. Although its set of patents is not significantly stronger, its high volume of patents enabled J&J to edge out premerger Guidant for the number three spot. J&J's diversification into consumer products may explain its lower-than-average CII, while its patenting activity in pharmaceuticals explains the higher-than-average science linkage.

    Of the Johnson & Johnson patents issued between 2001 and 2005, the most highly referenced are relevant to the field of surgical anastomosis and are assigned to Heartport, part of J&J subsidiary Ethicon.

    Although J&J lost its bid for Guidant, the company's consumer healthcare unit is looking to boost its product portfolio with plans to acquire Pfizer's over-the-counter unit.

    Olympus. Though scoring a relatively low 2005 CII compared with medtech's other patent leaders, Olympus has been in the medical device arena for decades, evolving increasingly sophisticated microscopes, endoscopes, clinical analyzers, and other medical imaging products. Olympus is best known for its digital cameras and other offerings in the consumer electronics industry—even though the company is not as highly ranked on the Patent Scorecard in that industry. Meanwhile, over the past several years, Olympus has taken several significant steps to further its commitment to life sciences and medical device technologies.

    In 2004, the company acquired microfluidics company Advalytix AG, assumed a majority stake in Celon AG Medical Instruments, and established Waseda-Olympus Bioscience Research Institute, a joint research facility with Waseda University. These actions demonstrated the company's ongoing interest in medical technology innovation. Most recently, Olympus acquired Bacus Laboratories Inc. (Lombard, IL), a leader in providing high-quality scans of microscope slides. Despite an extremely low 2005 science linkage score, Olympus may further strengthen its position among competitors in the medical device industry as this newly acquired technology begins to mature.

    St. Jude Medical. For 2005, St. Jude Medical (St. Paul, MN) remains solidly in sixth position with a higher-than-average CII of 168 and one of the lowest average cycle times in the top 10. St. Jude Medical's position is bolstered by its recent rash of acquisitions of companies holding significant patent portfolios--Irvine Biomedical, Epicor, and Advanced Neuromodulation Systems.

    St. Jude Medical's most highly referenced medical device technologies are in the field of epicardial tissue ablation. They are being looked to as a means of fueling further innovation by a variety of companies, including the top three in the medical device industry.

    Masimo. Surging upward by six positions into the seventh spot, Masimo Corp. (Irvine, CA) boasts a 2005 CII that dominates the medical device space, as well as all other industries covered by the scorecard. This is due in large part to Masimo's propensity to build directly upon its preexisting, industry-leading company technology. For example, 72% of references to Masimo patents issued between 2000 and 2004 were made internally. The company's tendency to build upon its own art is considerably more pronounced than that of the rest of the device industry.

    On average, medical device companies were responsible for 18% of the references to their own patents in 2005. Masimo's rate of self-reference may demonstrate that the company is pursuing concentrated R&D efforts in innovative niche areas that are yet to be recognized or explored by competitors.

    The company also has the best technology cycle time among the top 10 medical device companies in 2005, which may be another indication of the novelty of Masimo's technology. Notable licensing partners include Fukuda Denshi, GE Healthcare, and Medtronic.

    Intuitive Surgical. Despite a year-over-year decline, the 2005 CII score of Intuitive Surgical (Sunnyvale, CA) is third strongest among the top 10 medical device companies, and it is the sixth strongest among all companies in the industry. The company's five-year CII is also extremely strong at 418—the fifth strongest in the industry.

    Intuitive Surgical's 2005 science linkage score of 12.5 nearly triples the industry average and is second only to ArthroCare among companies in the top 10. In addition, its increased issuance of patents has undoubtedly contributed to Intuitive's ability to hold on to its ranking. Intuitive Surgical's leading-edge technology is evidenced by most highly referenced patents issued in the last five years—all in the field of robotic surgical tools. The company's merger with Computer Motion Inc. (Goleta, CA) in 2003 added a strong collection of patents that has significant industry influence and science linkage—a key contribution that strengthened the company's IP position in the industry.

    ArthroCare. Breaking into the top 10 by improving across four of the five patent indicators for 2005, ArthroCare Corp. (Austin, TX) surges two positions up to ninth. The company sports the second-strongest CII score among top 10 companies at 576, and it ranks at the top of the medical device industry with a five-year average CII of 1209. ArthroCare is poised to remain in the top 10 for years to come. The company's IP position is bolstered by key acquisitions, including that of Opus Medical in 2004; a science linkage score that is more than twice that of the industry average; patents exhibiting strong technology cycle times; and a strong CII position.

    Stryker. Although recent acquisitions by Stryker Corp. (Kalamazoo, MI) did not bring large patent portfolios with them, the acquired IP contains considerable quality. Recently acquired subsidiaries eTrauma and PlasmaSol contribute to portfolio quality with extremely low technology cycle times, enabling Stryker to surpass the industry average with a score of 9.48. Patents belonging to subsidiary Image Guided Technologies are also highly influential, as evidenced by the volume of citations they have received. Although Stryker's CII is below the industry average, it managed to obtain double its five-year average of patents in 2005, boosting the company four spots up to 10th.

    Significant Movers

    Within the Patent Scorecard, there are companies that experience considerable shifts in rank—both up and down—each year. On an industry-by-industry basis, ipIQ reviews changes in technology strength rankings to determine shifts worthy of commentary. Shifts can occur for a variety of reasons, including significant acquisitions and new scientific research initiatives. 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.

    In the 2006 Patent Scorecard, Masimo is the only company to appear on both the top 10 list and the list of significant movers. The company's patent portfolio rose from a rank of 13th in 2004 to seventh in 2005. Other 2006 significant movers are as follows (see Table II).

    Nektar Therapeutics. Climbing from 28th to 14th, Nektar Therapeutics (San Carlos, CA) has a 2005 CII that is nearly twice the industry average, and its science linkage exceeds the industry average by almost 25%. Contributing to this impressive ascent is the company's acquisition of Aerogen, a company specializing in aerosolized liquid drugs. The acquisition adds depth to Nektar's portfolio of proprietary deep-lung delivery systems technology and solidifies its leadership position in the area of inhaled drugs.

    Baxter International. Bolstered by the highest issued patent count in 2005 among companies showing significant movement, Baxter International Inc. (Deerfield, IL) moves up six spots to the 15th position. While Baxter's science linkage is relatively strong compared with other significant movers and the top 10 companies—perhaps due to its strong ties to universities and research institutions—it experienced a decline from its five-year average in 2005. A sharp increase in patenting volume is likely the greatest contributor to Baxter's surge in the ranks. Its only portfolio indicator showing improvement over the previous year is Baxter's technology cycle time, which still lags well behind the industry average.

    Edwards Lifesciences. One of three companies to fall out of the top 10 in 2005, Edwards Lifesciences Corp. (Irvine, CA) moves from the ninth to the 16th position, a decline that might be explained by its plummet in patenting volume. Despite its fall in position, Edwards' exhibits a 2005 CII score that is better than seven of the medical device industry's top 10 companies.

    Edwards is active in defending and enforcing its IP rights, most recently winning an infringement suit against competitor and first-ranked Medtronic. On the acquisition front, Edwards' 2003 purchase of subsidiary Embol-X Inc. contributed patents with a high degree of innovation. These should continue to fuel Edwards' overall momentum in quality IP. Embol-X contributes to Edwards' strong CII, and its reliance on newer leading-edge technology strengthens the company's technology cycle time, which at 8.02 surpasses the industry average of 9.87.

    Steris. Surging 27 places into the 21st position, Steris Corp. (Mentor, OH) has continued to improve its volume of issued patents, CII, and technology cycle time. Such improvement has been bolstered by recent acquisitions, including those of Cosmed, Albert Browne Ltd., and Hamo.

    Gyrus. Despite its relatively small portfolio, Gyrus's strong CII—at 311, more than double the industry average—contributed to the company's surge to its new rank at 22nd. The company's technology cycle time of 9.04 also outperforms the industry average.

    Gyrus's acquisition of ACMI Corp. (Southborough, MA) helps solidify its IP position in minimally invasive technologies. Notable licensing partners include Ethicon Endo-Surgery and Depuy Mitek, both J&J subsidiaries.

    Animas. Acquired by J&J in 2006, Animas Corp. (West Chester, PA) will undoubtedly strengthen its new parent's patent portfolio in the areas of technology related to diabetes. Among 2005's significant industry movers, Animas boasts the second-largest rise in position, moving up 33 positions to the 33rd spot. Animas exhibited significant improvement in its CII and technology cycle time, bucking an industry trend in which these indicators are declining in strength. Across the industry in 2005, average CII declined 14% and technology cycle time increased 9% compared with the past year. Animas's science linkage is also nearly three times the 2005 industry average, giving a clear indication as to why J&J considered Animas a solid strategic acquisition.

    Sybron Dental. Improvement in its technology strength, CII, and technology cycle time between 2004 and 2005 enabled Sybron Dental (Newport Beach, CA) to leap from the 62nd spot to the 35th. Though its patenting volume peaked in 2002 and has leveled off in recent years, Sybron exhibits a strong CII score of 170 and a technology cycle time surpassed only by Alsius Corp. (Irvine, CA) when looking at the 2006 group of significant movers.

    A significant part of Sybron's growth has been its acquisitions of Bioplant Products Inc. in July 2004, Innova LifeSciences in October 2004, and Oraltronics Dental Technology in June 2005. Patents held by Sybron subsidiaries Kerr Corp. and Ormco Corp. show strong technology time cycles and a reliance on newer, leading-edge technology.

    Sybron was acquired by Danaher Corp. (Washington, DC) in May 2006. It will significantly strengthen its new parent's position in dental instrumentation, including the specialty markets of orthodontics and endodontics. The company's offerings also include a variety of infection prevention products used within the medical field.

    Fonar. In 2005, Fonar Corp. (Melville, NY) saw its technology strength, CII, and volume of issued patents improve over the previous year. However, the majority of its indicators still fall below industry averages. Though Fonar's history is not characterized by acquisition activity, it does aggressively defend its IP. The company has received significant infringement compensation from big players—$110 million from General Electric in 2005 and an undisclosed amount from Toshiba in 1998.

    Alsius. Despite a highly influential and competitive portfolio, as evidenced by an impressive five-year average CII score, Alsius's 2005 technology strength was weakened significantly due to a decline in its CII score and its number of issued patents. These translated into a 35-spot drop in the rank, landing Alsius at number 47. The company's proprietary temperature control technology is marketed internationally and about 60% of its business is in overseas markets.

    Industry Insights

    Device manufacturers' constant push for growth in an innovation-driven industry and their need to defend themselves from the growing threat of costly litigation are two significant forces behind the continued consolidation in the medical device industry. Although patent portfolios as large and diverse as those of J&J, Boston Scientific, and Medtronic can undoubtedly facilitate market dominance, it is important to keep an eye on smaller players such as Masimo, ArthroCare, and Intuitive Surgical, all of which possess high-quality and influential IP.

    The medical device industry continues to be an industry built on and fueled by innovation and extensive IP portfolios. Great patents are recognized in the marketplace for their prospects of generating future revenue and healthy margins for the companies that own them. Frequently, such prospects translate into generous market capitalizations, venture capital attention, and feverish mergers and acquisitions activity.

    Scott Kratzer is vice president of advisory services for intellectual property research and advisory services firm ipIQ (Chicago).
    Copyright ©2006 MX
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