Amid Rumors and Stock Price Turbulence, ArthroCare Explores Options

Early this month, the board of directors at ArthroCare Corp. (Austin, TX) announced that the company 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.

The announcement comes on the tail of a tough few months for the company. Amid rumors of alleged inappropriate reimbursement practices, the company's stock has taken a significant hit over the past four months. At press time, the company reported a 52-week high share price of $65.70, significantly contrasted by its more-recent price of $32.75.

Prior to the company's announcement regarding the exploration of strategic alternatives, ArthoCare share prices had been taking quite a beating. “Since they surfaced in early November 2007, rumors propagated around the plasma disk decompression procedure and alleged inappropriate reimbursement practices have dogged [ArthroCare] shares, leading to a 38% stock decline,” says David Lebowitz, vice president of equity research for healthcare and medical devices at Sanders Morris Harris (Houston).

After the announcement, ArthroCare stock jumped 7% to close at $43 per share. At press time, however, the stock was still hovering around $34 per share.

 
Baker
 
ArthroCare's Baker: Confident despite turmoil.

“We remain confident in the strength and growth opportunities of our business, as reflected in our reported 2007 results and the guidance previously provided for 2008 in our recent earnings call, as well as the opportunities for near- and long-term value creation for our shareholders through execution of our business plan,” says Michael Baker, CEO of ArthroCare. “Any decisions the board makes will be based upon what it believes will be best for enhancing shareholder value.”

ArthroCare has been viewed as a potential acquisition candidate ever since the 2007 acquisition of Kyphon Inc. (Sunnyvale, CA) by Medtronic Inc. (Minneapolis), which represented a $4.2 billion consolidation in the spine market, says Lebowitz. “The company's Coblation technology—which contributes a substantial portion of revenue across each of the businesses (sports medicine, ENT, and spine)—could be attractive to a variety of potential acquirers,” he says. “Coblation's versatility would seem to make highly diversified medical device players the most likely candidates. These companies could easily expand the use of the technology beyond its current areas.

“Considering the rumors surrounding the stock, it might be some time before any substantial M&A activity takes place,” Lebowitz adds. “Any potential acquirer would be careful to conduct full due diligence on the reimbursement issue.”

Earlier this year, ArthroCare announced its $25 million acquisition of DiscoCare (Margate, FL), which the company described as a third-party billing and reimbursement service provider. Specifically, at the time of the acquisition, DiscoCare provided reimbursement assistance to physicians using ArthroCare's plasma disk decompression device. The company reported that the acquisition would enable it to significantly expand its internal reimbursement capability and to leverage such services across all divisions.

The move surprised some industry observers, as it came on the heels of insinuations from some analysts and media outlets that the relationship between the two companies might cross the line of acceptable business practices. Although the company refuted such reports, many analysts expected ArthroCare would still attempt to distance itself from DiscoCare.

“As an organization, we have a well-earned reputation for integrity and ethical behavior which we take very seriously,” Baker stated in December 2007. His statements were made in response to allegations printed in the New York Post, which suggested that DiscoCare might have engaged in inappropriate business practices. The article has since been retracted.

“Our FDA-cleared plasma disk decompression products are globally recognized as being among the most clinically successful and cost-effective spinal therapies,” Baker added. “We have carefully reviewed the business practices of our service provider and have found no evidence of anything improper in their activities. In fact, we believe that the application of a disciplined diagnostic and treatment algorithm improves patient selection and outcomes, and that the involvement of experienced professionals in the reimbursement process significantly decreases the chance of administrative errors.”

Despite Baker's comments and the article's retraction, speculation surrounding ArthroCare's reimbursement practices has persisted. On March 25, however, the company reported that it had been notified by the Nasdaq stock exchange that its review of DiscoCare had been closed. Details about the scope or focus of Nasdaq's investigation were not disclosed.

In addition to the continued controversy, there are several other risks that could negatively affect the outcome of ArthroCare's strategic alternative explorations, Lebowitz says. “First, while plasma disk decompression has had strong clinical results—data point toward an 80% reduction in pain—obtaining reimbursement has not been easy,” he says. “Many payers in the United States have yet to remove the ‘experimental' label despite approval by FDA. The reimbursement situation is improving, but is still being mostly addressed on a case-by-case basis.”

In addition, Lebowitz notes that ArthroCare is highly leveraged toward the continued adoption of the Coblation procedure. “Although the company competes in multiple unique markets, Coblation accounts for the bulk of revenue,” he says. “If physicians do not adopt at expected levels, the stock's valuation will suffer.”

The ArthroCare board has retained Goldman Sachs & Co. to assist it in the evaluation of its alternatives.

About a week after ArthroCare announced its hiring of Goldman Sachs, class action law firm Schatz Nobel Izard PC (Hartford, CT) announced that it is investigating possible securities law violations by ArthroCare. The investigation concerns whether ArthroCare materially overstated its financial results through the improper recognition of revenue. Specifically, the investigation concerns whether ArthroCare improperly recognized revenue from its business relationships with DiscoCare and another firm, Device Reimbursement Services.

Whatever the long-range future may hold for ArthroCare, industry watchers will likely be hearing a lot more from and about the company in the short-term. Stay tuned.

© 2008 Canon Communications LLC

Return to MX: Issues Update.

The Expanding Role of Biocides in Medical Devices

STERILIZATION

Photo by iSTOCKPHOTO
Organisms such as Staphylococcus aureus and Pseudomonas aeruginosa are resistant to pharmaceutical therapy. The proliferation of these organisms has become of increasing concern to those responsible for the welfare of patients in hospitals and other patient-treatment centers. To address this concern, a new initiative focuses on the patient rather than the disease. Device manufacturers already offer products that have antimicrobial qualities. However, the range of devices with such features can be greatly expanded.

The initiative was announced by the Association of Professionals in Infection Control and Epidemiology (APIC) at its 2007 annual meeting in San Jose, CA. The goal of the initiative is to achieve zero hospital-acquired infections (HAIs) in patients within the next three years. Participating in this effort are the Centers for Disease Control and Prevention (CDC) and the American Society for Healthcare Engineering (ASHE). CDC publishes its efforts on its Web site (www.cdc.gov/ncidod/dhqp/index.html).

The Initiative

An increased use of antimicrobial materials in medical devices and surgical instruments is expected as part of this initiative. These devices could be formulated with antimicrobial chemicals or could be coated so as to provide contact surfaces with antimicrobial characteristics.

In addition to devices that are used at the patient bedside, the initiative is also targeting other products used in hospital environments such as wall coverings, flooring, and climate control systems, as well as touch surfaces such as door handles and bed rails. Antimicrobial surfaces would also be required in public areas such as restaurants, airports, and hotels. Such surfaces are already being used in food-processing facilities. In addition, the initiative would increase emphasis on hand hygiene and skin covering and would promote the greater use of sterilized products and barrier architectures with the idea of making it more difficult for microorganisms to be transmitted from one place to another.

Alternative approaches to reducing surgical site infections include the development of devices and methods that pump warm air and water onto a bandage or blanket so that normal temperature is maintained by the patient. Devices that monitor and maintain normal blood oxygen levels and normal glucose (blood sugar) levels by the administration of insulin also help fight the spread of microorganisms. The initiative will recommend the use of such approaches and devices.

Use of ethanol, isopropanol, and other high-level disinfectants (these are not sterilizing agents) such as phenolics, quaternary ammonium salts, peroxides, and glutaraldehyde would continue. These kill microorganisms almost instantaneously but because of their volatility and chemical reactivity do not provide long-term protection. Other chemicals often used as disinfectants are triclosan and chlorhexidine gluconate. These latter chemicals are now being incorporated into sutures and surgical preparation cloths with the goal of reducing the incidence of surgical site infections. Bleach is also used to disinfect non-patient-contact areas and is especially useful in combating fungi such as Aspergillus niger.

Long-term microorganism-hostile surfaces are now being made with silver. It is hoped that registration with the U.S. Environmental Protection Agency (EPA) will be achieved within the next few months for surfaces made of copper and its alloys. Plastic laminates that incorporate triclosan or other nonvolatile organic disinfectants could also be used. Within the next few years, it is also likely that nanoparticles, especially those of zinc oxide and titanium dioxide, will be components of products with antimicrobial properties.

Use of Copper in Infection Control

A major target for anti-infective surfaces is stainless steel, which has traditionally been the touch surface for sinks, plumbing, bed rails, and other hospital installations. Studies have shown that the viability of microorganisms on different touch surfaces is as follows:

  • Stainless steel = days.
  • Copper and its alloys = hours.
  • Surfaces containing silver = minutes.1

The copper industry is undertaking a major effort to educate the healthcare community about the antimicrobial properties of this metal. Copper has been used since ancient times by many different civilizations to sterilize water and to treat infections. Egyptians used copper, for example, to sterilize water and wounds. Other civilizations also used copper for similar purposes. Today it is used in antimicrobial medicines and in some hygiene products. For example, copper sulfate is used in preparations for treating skin diseases. Copper organic complexes are used as anti-inflammatory drugs.

Recent studies sponsored by the Copper Development Association (CDA) and the International Copper Association Ltd. have shown that copper and its alloys are effective against methicillin-resistant Staphylococcus aureus (MRSA). The studies were carried out at the University of Southampton (UK). Other studies have shown that copper is also effective against the virulent E. Coli O157:H7 and against influenza A viruses.1 Copper and its alloys will most likely be used on touch surfaces such as sinks, IV poles, fluid dispensers (e.g., for soaps and alcohol), and work surfaces. Copper and its alloys could also be used on climate-control ducting and other equipment that would use significant quantities of metal.

Medical device manufacturers could also adapt copper and its alloys to achieve greater infection control on their products. The use of a copper-based foil is currently being evaluated for use in a stethoscope diaphragm.

CDA has collected sufficient data to submit a petition to EPA, which is scheduled to rule shortly. If the EPA response is positive, copper will be registered as the first and only metal with health claims under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA).

Use of Silver in Infection Control

The effectiveness of silver against many harmful microorganisms has been demonstrated in a number of published research studies. A review has recently been published.2 Silver chemistry has been developed commercially in several forms that provide effective and economical options for infection control.

Silver has also been used since ancient times to control infectious organisms. In ancient Egypt and Phoenicia, silver was placed in containers to control contamination of drinking water. The use of silver for wound dressings was first recorded in ancient Rome by Pliny the Elder. These applications are still important today. Silver is used in portable systems to purify drinking water and is occasionally used to purify water in swimming pools and spas when the use of chlorine is impractical.

In the past five years, almost all suppliers of wound-care products have incorporated a noncontact layer containing silver. The silver acts as a barrier to prevent microorganisms from penetrating to the wound surface, and thus minimizes the occurrence of secondary infections. Some FDA-approved products have layers containing silver that can directly contact the wound surface to provide direct antibacterial treatment.

Table I. (click to enlarge) Mechanisms of silver biocide activity.
Research has found that there are three mechanisms by which silver exerts its biocidal properties.2 These mechanisms are listed in Table I.
Table II. (click to enlarge) Harmful microorganisms controllable with silver.
Because silver provides mechanisms for controlling the growth and spread of microorganisms, products containing silver are useful for controlling harmful bacteria, viruses, and fungi. Although there is mention in the literature that plasmids can develop resistance to silver (and that resistance has been seen specifically to silver sulfadiazine), most microbes are not viable in contact with the metal and its compounds.3 A partial list of harmful organisms known to be controlled by silver is given in Table II.

The development of stabilized and controlled-release forms of ionic silver has enabled the increasing use of silver for infection control. Silver salts are photolytically unstable, and silver ion is a highly active and powerful oxidizing agent. Technology using zeolite incarceration or entrapment of ionic silver in titanium dioxide, zinc oxide, or other matrices has enabled the long-term use of ionic silver anti-infective agent properties.

This technology was first developed in Japan in the 1990s and has been licensed and developed globally since then. Although silver is expensive, its effectiveness in controlling bacteria and viruses is in the parts-per-million (ppm) range and is sometimes even lower. Control of fungi usually requires 200–300 ppm by weight of silver. Silver is therefore highly economical as well as effective. When in a controlled-release matrix, silver is also safe, providing long-term protection.

Biocidal silver is now commercially available in the form of sprays and gels. It is also available as an antimicrobial component of coatings, laminates, and textiles. In addition to wound dressings, silver is now found in medical draperies and gowns. Further use is likely to be seen in bedding, notably mattress covers. Textiles containing silver are already used extensively for products such as automotive carpets and sportswear, where odor control is important.

For medical devices, silver as a gel is used in Foley catheters and is being developed for endotracheal tubes. Silver is also used in the construction of stethoscope diaphragms. The integration of silver into medical devices has been slow, because of the need for FDA registration of the product.

Silver has recently been incorporated into portable items with the goal of minimizing the transmission of infectious organisms. Products include clipboards, pens, cell phones, and even paper. Cleanroom furniture also has surface coatings containing silver and other antimicrobial substances. The coatings, most of which are powder form, can be clear or colored. Wall coverings and flooring containing silver already are extensively used in
patient-treatment centers outside North America and are now being marketed here.

Silver can also be used on handrails, light switches, toilet seats, and changing tables. If climate-control system transmission is a concern, as is the case with Legionella and SARS, ducting and condenser elements coated with silver can prevent dispersion of the microorganisms. Plumbing and sink installations are also now available with a powder coating of antimicrobial silver placed on a stainless-steel surface.

Because of its antimicrobial properties, silver has also been proposed for use in the development of respiratory filters and protective clothing for military, emergency, and first-response personnel who may be faced with bioterrorism and perhaps chemical terrorism threats. Research sponsored by the Silver Research Consortium (Durham, NC) is being carried out at North Carolina State University to evaluate methods for depositing silver on textiles to get the requisite barrier properties. Research grants are available through the U.S. Department of Defense and Department of Homeland Security to develop products showing promise.

Silver, because of its reactivity in almost all environments, is generally considered to be environmentally benign. Although silver ion is toxic to fish and to other marine organisms, it reacts rapidly with ambient sulfur and organic chemicals to form innocuous compounds. If ingested, silver causes a bluing of tissue in some segments of the population, but is not otherwise harmful. Those uses of antimicrobial silver not within the jurisdiction of FDA come within the purview of EPA. This latter agency is in the process of revising its Registration Eligibility Document on silver as a pesticide.

Requirements for Success in Reducing HAIs to Zero

A successful initiative for reducing HAIs to zero must include the following:

  • Promoting changes in the way research in infective-organism control is communicated to the healthcare community.
  • Quick registration at FDA of medical devices and at EPA for generic coatings, laminates, and other products claiming antimicrobial qualities.
  • A willingness by hospitals and other patient-treatment centers to build or retrofit areas of their facilities with new materials that prevent the buildup of infectious organisms on surfaces.

Currently, research undertaken by infection control personnel is sponsored in individual facilities by companies trying to determine the effectiveness of proposed
infection control products. Negative results are rarely if ever published, and positive results usually are hampered by the slow regulatory registration process for medical devices and of generic antimicrobial products.

For medical device technologies involving and control of surgical-site infections, insurance companies must often approve such products and procedures. FDA or EPA registration must still be obtained even if products do not directly contact the patient. Coatings for walls and flooring, for example, must be registered. These coatings come under EPA's jurisdiction and are subject to FIFRA.

EPA is currently undertaking a FIFRA-mandated review and revision of the Registration Eligibility Document for silver. The document was last published in 1993. It is hoped that the copper industry's initiative to obtain broad application of copper and its alloys as a germicide will make it easier for other products to be registered and marketed.

Whether hospitals will spend money to build or retrofit facilities is unknown. No regulations require compliance, and the program is voluntary. Physician interest in achieving zero HAIs will also be vital in the success of the initiative. Increased regulation, consumer (patient) demand, and the possible adoption of a universal healthcare system may have positive effects. Europe and other industrial nations have already put many of these procedures in place.

Device manufacturers should certainly help as much as they are able to reduce the incidence of HAIs. Input on the kinds of products that are needed can be obtained from nurses and physicians who are in charge of infection control at hospitals and other patient-treatment centers. In the United States, a powerful incentive to move forward in addressing HAIs is that insurance companies and state and federal agencies are considering not paying for the treatment of these infections.

Many technologies are available to reduce the proliferation of infectious organisms. Perhaps deeper analysis of the costs of HAIs may help in justifying expenditure on upgraded facilities.

Jeffrey Ellis provides market research, technology assessment, and commercial development services to companies and trade associations in the chemicals and plastics industries, as well as to government agencies and universities interested in the commercial development of intellectual property. He can be reached at jrellischem@aol.com.


Reference

1. HT Michels, “Anti-Microbial Characteristics of Copper,” ASTM Standardization News (October 2006): 29–31.

2. N Silvestry-Rodriguez et al., “Silver as a Disinfectant,” Review of Environmental Contamination and Toxicology 191 (2007): 23–45.

3. R Cooper, “A Review of the Evidence for the Use of Topical Antimicrobial Agents in Wound Care,” World Wide Wounds, (February 2004); available from Internet: www.worldwidewounds.com.

Copyright ©2008 Medical Device & Diagnostic Industry

Outsourcing: A Blueprint for GMP Compliance

GUIDE TO OUTSOURCING: GMP COMPLIANCE

Outsourced medical device production offers a manufacturer the opportunity to enhance its production bandwidth, its technological capabilities, and ultimately, its profit margins. It is no surprise then that outsourcing continues to be an increasingly common business strategy used in today's U.S. medical device marketplace. In fact, it was deduced that outsourcing accounted for the production of approximately 20% of all devices sold in the United States during 2005 amid an estimated $4.4 billion contract manufacturing market.1 Looking ahead to 2010, the market for outsourced manufacturing is estimated to grow at 15% annually.1

Many firms are outsourcing the fabrication of devices destined for the U.S. market. Properly managing the current good manufacturing practice (GMP) requirements set forth in FDA's quality system regulation is a critical part of any successful outsourcing business endeavor. Yet pinpointing the applicable GMP obligations can be tricky. Every outsourcing scenario has unique aspects that affect stakeholder GMP responsibilities. For example, some manufacturers keep part of the process in-house and outsource the rest. Other manufacturers outsource the entire production process to a second party. Some may even outsource the design and development process.

As industry grapples with outsourcing GMP challenges, some interesting trends are developing. Overall, supplier control problems are on the rise.2 And FDA is stepping up enforcement in response to increased product recalls, nonconforming devices, and FDA warning letters related to inadequate control of outsourcing.3

When assessing outsourcing GMP obligations, it is important to remember that variability from one scenario to the next precludes the use of a canned approach. No two outsourcing GMP compliance plans are identical, but the thought process is always the same. This article suggests a blueprint intended to help tailor a customized GMP strategy to meet the needs of a company's own unique outsourcing situation.

Blueprint Overview

Figure 1. (click to enlarge) Managing GMP tasks during outsourcing.
When preparing to tackle the GMP puzzle associated with an outsourcing effort, it helps to keep in mind a broad overview of how to manage the process. Figure 1 shows four important logistical milestones to help address the right GMP tasks and issues at the right time.

The milestones in Figure 1 as well as the nuts and bolts of the GMP-compliance blueprint are discussed in more detail in the following sections. But one thing is worth mentioning immediately: All parties involved in the outsourcing process should strongly consider waiting to finalize the business contract between the stakeholders until it is known precisely which GMP obligations apply to each stakeholder. When outsourcing is involved, it is vital to unambiguously incorporate the respective GMP responsibilities into the contract because of the collaborative effort that is necessary to maintain safe and effective medical devices.

Define Stakeholder Roles and Assess Risk

To properly manage the many GMP implications in an outsourcing arrangement, it is critical at the outset to clearly identify all stakeholders and the exact roles each will play. This is essential because the nature, extent, and resulting risk of the roles played by each stakeholder dictate which GMP requirements apply, and to what degree. Primary stakeholders in outsourcing relationships are the OEM and the contract manufacturer (CM), each assuming the roles that most benefit its business goals.

The outsourcing effort should be managed within the context of a modern and active risk management program such as one fashioned after ISO 14971.4 One way to systematically estimate the risk associated with the proposed outsourcing arrangement is to do a failure mode and effects analysis (FMEA) for the device and for the outsourced process. A baseline residual risk can then be recorded in the risk management system and monitored as the product and outsourcing arrangement evolve. As discussed later in this article, residual risk is an important factor in tailoring the proper GMP solutions for each stakeholder.

Which Stakeholders Are Subject to GMP?

The GMP requirements applicable to medical devices intended for U.S. commercialization are codified in Title 21, Code of Federal Regulations (CFR) part 820—Quality System Regulation (QSR). It is important to note that QSR in this article refers to the entire regulation. It should not be confused with the QSR that is used to define quality system record in 21 CFR 820.186.

The GMP requirements found in the QSR apply to domestic and foreign manufacturers of finished medical devices unless there is an approved exemption in effect as codified in 21 CFR 862 to 892 or in 21 CFR 820.30(a). Manufacturers of components as defined by 21 CFR 820.3(c) are also exempt from the QSR pursuant to 820.1(a)(1), but are encouraged to use the QSR as a guide. It is important to consult an FDA guidance document or a competent GMP expert to help formally determine whether the stakeholders in a particular situation are in fact engaged in the manufacture of finished medical devices or whether they instead qualify for any GMP exemptions.

Many thought-provoking questions can arise when considering GMP requirements in today's diverse outsourcing marketplace. For example, what does it really mean to be a manufacturer of finished medical devices? Does this only apply to the OEM who developed the device and whose name and branding are on the label? Is an OEM still a finished device manufacturer even if it only performs initial fabrication of nonfunctional subassemblies prior to handing off to a contract manufacturer that finishes the process? And what about the contract fabricator that is merely performing fabrication on the OEM's behalf? Do finished device manufacturers include companies hired to perform device sterilization? What if a third party acquires concurrent marketing rights from the OEM by which the third party relabels and sells the device under its own brand?

Sidebar:
To find the right answers to these questions, start by looking at some key definitions from FDA (see the sidebar, “Definitions.”) In light of common contemporary outsourcing arrangements, note the additional explanations for specification developers and relabelers from FDA definitions and guidance.

Most OEMs meet the definition of specification developer. Consequently, the OEM also qualifies as the finished device manufacturer even though the company may perform no manufacturing. Obviously this distinction bears considerably on the GMP obligations of the OEM.

In many cases, the contract manufacturer to which the OEM entrusts production also meets the definition of finished device manufacturer based on the nature of the delegated operations. Consequently, such a contractor is also subject to GMP requirements along with the OEM. Indeed FDA may hold both the OEM and contractor jointly responsible for the GMP requirements applicable to the activities performed depending on the circumstances.5

Also apparent from these FDA definitions is that a third party that private-labels or own-brands an OEM's product by replacing the OEM's name, artwork, and brand name with its own versions does not become a specification developer in the traditional sense. Such a third party is instead defined as a relabeler if it performs the rebranding operations itself, whereas if the OEM performs the rebranding operations for the third party, the third party is called a private label distributor. Per the FDA definitions, a relabeler is a finished device manufacturer that is consequently subject to GMP requirements. Distributors, however, are typically exempt from GMP requirements.

Note also that the exemption in the relabeler definition refers to a distributor that merely adds its name to existing OEM or own-brander labeling without making any other changes. This interpretation is in light of FDA guidance stating that a distributor that only adds a label bearing its name and address is exempt from the GMP requirements.5 Care should be taken not to confuse the GMP-exempt activities of such distributors with the GMP-eligible activities of a true relabeler.

Table I. (click to enlarge) Applicability of GMP to outsourcing stakeholders.
Table I provides a list of some common outsourcing stakeholders and whether they are typically subject to GMP.

With an understanding of how to decide whether a stakeholder is subject to GMP, another question arises: What specific GMP tasks apply to each stakeholder given the fact that there may be multiple stakeholders in the outsourcing partnership who are concurrently subject to GMP?

What GMP Tasks Apply to Each Stakeholder?

The Underlying Philosophy. The QSR (section 820.1) says that if a manufacturer engages in only some operations subject to GMP requirements, and not others, the manufacturer only needs to comply with those requirements that are applicable. This provides a place to start when assessing division of responsibilities among the stakeholders; and at first glance it seems pretty straightforward. But remember that FDA will in some cases hold OEMs and their contract manufacturers jointly responsible for certain GMP requirements.5

To realize a practical action plan for managing outsourcing GMP, combine the flexibility of the QSR with a dose of GMP common sense and a genuine interest in protecting public health. The leeway offered by the QSR allows manufacturers to determine the need for, and extent of, the GMP solutions adopted. QSR preamble comment 13 illustrates this by stating that the extent of the documentation necessary to meet the regulation requirements may vary with the complexity of the design and manufacturing operations, the size of the firm, the importance of a process, and the risk associated with the failure of the device, among other factors. At a fundamental level, this means a GMP strategy should be tailored commensurate with the risk associated with the particular processes and devices involved. For example, if the FMEA for the device or for the outsourced process indicates a moderate or high level of residual risk, the GMP solutions would need to be more extensive than if the FMEA indicates a low level of residual risk. And don't forget: As the life cycle of the device progresses, the applicable GMP solutions may need to be revised if there are changes in residual risk.

In addition, all GMP decision-making should be anchored by an awareness that the OEM or the remanufacturer is ultimately responsible for establishing and maintaining control of device quality, safety, and efficacy. This remains true whether device processing is farmed out or done totally in-house. A sobering illustration of this is the scenario when a device recall is deemed necessary because of poor device quality due to contract manufacturing GMP problems. In such a case, the manufacturer identified on the label is the one who bears ultimate responsibility for the recall and corrective action even if the contract manufacturer is at fault.

A Case Study. Consider a firm that, to date, has done all manufacturing tasks in-house for its sterile device. A change has been proposed whereby subassembly fabrication will be kept in-house, but a contract manufacturer will now do final device fabrication, packaging, labeling, and sterilization. Finished devices will then be returned for final distribution.

This case study is particularly interesting because, at project inception, the original manufacturer has already established GMP solutions corresponding to total in-house manufacturing. For example, the existing device master record (DMR), device history records (DHR), equipment qualifications, and process validations were all done on the basis of in-house production and sterilization. So this means that, in addition to the fundamental task of identifying the GMP requirements applicable to each stakeholder, the outsourcing team is also faced with the challenge of the transitional GMP requirements that accompany making significant changes to existing production and quality practices. The rest of the article demonstrates how the GMP issues were approached in the case study.

Getting Started. To ensure that all specific GMP obligations are accounted for, it helps to systematically consider all elements of the QSR and then map them to the roles played by each finished device manufacturer in the outsourcing chain. This paves the way to devising specific GMP solutions that address each area of relevance.

A review of the QSR reveals many sections that are relevant to support a conversion to outsourcing. But there are two sections in particular that form the backbone of an overall GMP compliance plan:

  • 820.30(i) Design changes.
  • 820.50 Purchasing controls.

Maintain Adequate Change Control. Inadequate change control exposes a company to product liability actions, results in product recalls, and causes internal confusion. It is also a serious violation of the QSR.5 So how should such a major series of changes be approached and organized? The most savvy quality system pros always look at the whole picture when addressing any GMP issue.

When doing so for Class III, Class II, and some Class I devices, it becomes apparent that the design control process is where the device and its production processes were originally birthed, tested, and approved. FDA guidance confirms that design control includes the design of the device and the associated manufacturing processes.6 Further, design control applies not just to the design of products and processes, but also to changes in existing designs and processes.5 For many devices, this makes it apparent then that an effective way to ensure a state of control during the outsourcing transition is via QSR section 820.30(i) design changes.

This explanation may leave some wondering what role is played by QSR section 820.70(b) Production and Process Changes. FDA's Guide to Inspections of Quality Systems states that 820.30(i) design change control is in fact linked to, and is redundant with, 820.70(b).7 So for all Class III, Class II, and some Class I devices, it's clear that a conversion to outsourcing is in fact a design control issue. For manufacturers whose Class I devices are exempt from design controls, QSR section 820.70(b) still applies and requires careful control of the change. But by forgoing voluntary design controls, such Class I manufacturers miss out on the logistical and business benefits offered by design controls, as alluded to later in this article.

So who should champion the design change? The specification developer is ultimately responsible for the design change effort because design controls are outside the scope of the manufacturing activities performed by the contract manufacturer. Typically (as in the case study), the OEM is the specification developer. This means the OEM must sponsor, orchestrate, and ensure full documentation of the design change. All of the documentation must then be included or referenced in the design history file and must be maintained by the OEM.

Sidebar:

Use 820.30(i) Design Changes to Drive the GMP Plan. The design control subsystem can be a powerful tool during the outsourcing effort. The cascading effects inherent with design controls enable a systemic, organized, and fluent transition. Proper application of design controls during outsourcing provides a natural way to address many key GMP obligations applicable to the outsourcing stakeholders. See the sidebar, “Design Change Checklist,” for a demonstration of key items to address during the design change.

A review of the design change checklist reveals that many of the GMP tasks applicable to the OEM and contract manufacturer become apparent somewhat automatically in the context of an effective design control effort. For example, the design change mechanism prompted activity on more than 80% (20 out of 24) of the QSR sections applicable to the scenario in the case study discussed earlier.

GMP Obligations. A contract manufacturer that qualifies as a finished device manufacturer is independently accountable to FDA for its respective GMP obligations. But remember that the OEM, and where applicable the remanufacturer, bear ultimate responsibility to ensure overall device quality. So it is important to ensure close collaboration between the OEM and contract manufacturer throughout the duration of the outsourcing arrangement.

For instance, it's often a practical necessity for the OEM and the contract manufacturer to work closely to accomplish design output, verification, and validation even though the OEM (as the specification developer) bears primary responsibility for these tasks. It's also strongly recommended that a collaborative approach be taken to the many GMP responsibilities identified during the design change. For example, the parts of the DMR that directly pertain to the outsourced processes should be jointly developed and maintained, with the stipulation that the OEM has primary authority over all DMR changes.

What about process validation? For instance, does responsibility fall on the OEM or on the contract manufacturer to validate the sterilization process? The OEM is ultimately responsible for the validation of the process used to sterilize its devices, but it's a common and accepted practice to delegate portions of the validation study to the contract sterilizer.5 Such delegation is handled via written agreement. The OEM may even delegate the entire validation task to the contract manufacturer if the contract manufacturer is hired for its particular fabrication expertise. But the OEM still retains primary responsibility for the adequacy of the validation and, therefore, must ensure that the contract manufacturer's validation work fully satisfies the requirements called out in QSR section 820.75.

It's hard to imagine meeting these goals without a solid relationship between the OEM and the contract manufacturer. The bottom line is that, to maintain device quality, it's imperative that the OEM rely not just on FDA enforcement to ensure that the contract manufacturer meets its respective GMP obligations. Instead, the purchasing controls mechanisms integrated into the OEM's own quality system should be the primary means of ensuring that the contract manufacturer maintains GMP conformity.

Purchasing Controls Are a Cornerstone. Stakeholder collaboration (or lack thereof) can have a considerable effect on device quality. This is ultimately why it is prudent to finalize the outsourcing contract only after knowing precisely which GMP tasks will apply to each stakeholder. All respective GMP assignments should be plainly incorporated into the contract to ensure that all parties know what is expected.

As with the design control obligations discussed earlier, it is the specification developer (i.e., the OEM) that bears primary responsibility to meet these QSR purchasing control requirements. Note also that QSR preamble comment 100 states that this remains the case even when the contract manufacturer is a “sister facility” or some other corporate or financial affiliate. The following paragraphs give guidance on purchasing controls.

Establish Requirements. Use the contract to formally establish the requirements, including quality requirements, to be met by the contract manufacturer. In the case study, a detailed purchasing requirements checklist was used to direct contract development. The checklist contained nearly 30 GMP-related elements. Some of the important topics in the list include the following:

  • CM general quality system requirements.
  • OEM and CM responsibilities regarding the GMP deliverables pinpointed via the design change effort.
  • Utilization of preexisting test/validation data.
  • Joint maintenance of documentation.
  • Change control and authority.
  • Failure investigation of defective devices or processes.
  • Closed-loop corrective action.
  • Surveillance of the CM by the OEM.
  • Other requirements to be met by the stakeholders.

Evaluate the Contract Manufacturer. Via audit or other means by qualified personnel, objectively assess the contract manufacturer's ability to meet the requirements specified in the contract [820.50(a)(1)].

Define Control. Based on assessment results and the weight of the contract manufacturer's contribution, define the type and extent of control to be exercised over the contract manufacturer in order to maintain device quality [820.50(a)(2)]. In making this determination, the residual risk associated with the particular devices and processes involved should carefully be considered.

Approve the Contract Manufacturer. Document the approval of the contract manufacturer if found to be acceptable based on the 820.50(a)(1) assessment [820.50(a)(3)].

Set Purchasing Specifications. Establish the specifications that must be met in order to authorize the purchase of services from the contract manufacturer. This is essentially the prerequisite for approving the purchase of contract manufacturing services [820.50(b)].

Monitor the Outsourcing Relationship. After identifying specific GMP assignments, finalizing the contract, and ensuring initial compliance by all stakeholders, the relationship must be carefully monitored to ensure that GMP requirements continue to be met as the relationship evolves. The evaluations called for in section 820.50(a)(1) are a primary part of such monitoring and should be sponsored by the specification developer. Given the complexities associated with outsourcing GMP issues, it is important to use an assessor who is grounded in the subject and who has the training and experience to properly evaluate stakeholder compliance.

How frequently, and to what extent, should the OEM evaluate its contractor? Comment 99 of the QSR preamble gives some insight by indicating that the degree of control to be exercised over the contract manufacturer may vary with the type and significance of the services provided and their affect on device quality. Once again it's evident that a comprehensive risk management program is vital to any contemporary quality system maintenance effort. In a scenario like the case study—the outsourcing of significant parts of sterile device production—it is recommended that the contract manufacturer be evaluated on-site at least annually.

Finally, as shown in the work flow diagram in Figure 1 on page S-28, the entire process starts over again when the monitoring program reveals changes in stakeholder roles or risk.

Conclusion

GMP compliance in the United States is dynamic by design to account for a limitless variety of devices and business configurations. No two GMP compliance plans are the same, but they are all based on the same fundamental principles and laws. The solutions suggested in this article may not address all relevant GMP requirements applicable to a situation and are not meant to be the only possible means of meeting GMP requirements during outsourcing.

On a final note, remember that in addition to GMPs, other key regulatory requirements may apply to outsourcing stakeholders. Regulatory mishaps at any point in the outsourcing chain can compromise the business objectives of all involved. The outsourcing team must have the proper insights to ensure that each stakeholder has properly met these additional regulatory hurdles.

Kevin Randall is president of GlobalReg Compliance Associates Inc. (Erie, CO), a medical device consulting firm specializing in worldwide regulatory compliance and quality systems. He can be reached via e-mail at kevin@globalregcompliance.com.


References

1. B Dunn, Market Opportunities in Outsourcing (Boston: Covington, 2007).

2. F-D-C Reports, “The Silver Sheet,” (vol. 11, no. 5, May 2007, www.thesilversheet.com).

3. F-D-C Reports, “The Silver Sheet,” (vol. 11, no. 1, January 2007, www.thesilversheet.com).

4. International Organization for Standardization (ISO), ISO 14971:2007, Medical devices – Application of risk management to medical devices (2nd ed., 2007-03-01).

5. HHS/CDRH, Publication FDA 97-4179 – Medical Device Quality Systems Manual: A Small Entity Compliance Guide (1st ed., December 1996).

6. FDA/CDRH, Design Control Guidance for Medical Device Manufacturers (March 11, 1997).

7. FDA, Guide to Inspections of Quality Systems (August 1999).

Copyright ©2008 Medical Device & Diagnostic Industry

Saint-Gobain Performance Plastics Acquires IFK Isofluor

OUTSOURCING NEWS

Saint-Gobain Performance Plastics (SGPPL; Aurora, OH) has acquired IFK Isofluor GmbH of Neuss, Germany, a privately owned manufacturer of fluoropolymer tubing. The agreement was signed in late December, but the specific terms were not disclosed.

IFK supplies Isofluor-brand products to global medical customers from two European locations. SGPPL plans to integrate the IFK business into its process systems business unit, which is part of the company's fluid systems division. The marketing of IFK and the Isofluor line of products will be consistent with past practices.

“IFK Isofluor is an excellent fit within Saint-Gobain Performance Plastics, and we are pleased to welcome them to our company,” says Tom Kinisky, president of SGPPL. “IFK has a strong brand identity and complements [our] products.”

SGPPL is part of Saint-Gobain, a producer of construction products, flat glass, and high-performance materials and packaging. Headquartered in Paris, Saint-Gobain had worldwide sales of more than $52 billion in 2006 and has more than 207,000 employees in 56 countries.

Copyright ©2008 Medical Device & Diagnostic Industry

An Uncertain Path

INDUSTRY ASSOCIATIONS

(click to enlarge)
Bradley Merrill Thompson is a member in the healthcare and life sciences practice of Epstein Becker & Green PC (Washington, DC). Leah R. Kendall is a senior associate with the firm.
Over the past few years, the realm of combination products has undergone dramatic growth and change. Many start-up companies have ventured into the converging world of medical devices, pharmaceuticals, and biologics, and several of industry's largest players are also grappling with the challenges posed when two or more FDA-regulated articles are joined together.

In 2007, FDA's Office of Combination Products (OCP) underwent several leadership changes. Meanwhile, the much-anticipated good manufacturing practices (GMPs) and adverse-event reporting regulations for combination products continued to wind their way through the agency's internal review processes. Now, with Thinh Nguyen in place as the new permanent director, OCP seems poised to make new and exciting headway in its quest to further develop and refine the regulatory landscape for combination products.

Against this backdrop, in late 2007, the Combination Products Coalition (CPC; Washington, DC) began to plan its 2008 advocacy agenda. As it did, the organization's diverse group of member companies identified a need to step back and take the industry's pulse on existing combination product policies and guidance. The organization's goal in doing so was to ensure that it remained focused on its mission of developing and advocating improved policy positions on regulatory issues affecting combination products, which necessarily cut across multiple diverse industries.

With that goal in mind, the CPC members developed and sponsored an online survey designed to gauge industry priorities for guidance and rulemaking activities in the realm of combination products. The results of the survey—which was conducted in December 2007 with the assistance of survey software from the Regulatory Affairs Professionals Society—are being used to develop CPC's 2008 policy agenda and offer input on policy development priorities to OCP. This article summarizes the results of the survey.

Survey Scope and Methodology

The CPC survey was designed to evaluate participating manufacturers' demographics, their satisfaction with existing combination product regulatory guidance, and their opinions as to topics on which more or better guidance is needed. Participants ranked potential regulatory guidance topics according to perceived importance and then answered questions related to the type of guidance they would like to see and why they thought such guidance was needed. Throughout the survey, respondents were encouraged to elaborate on their answers in free-form comment boxes.

The survey was distributed widely among pharmaceutical, medical device, and biologics manufacturers with the help of several trade groups and industry publications, including MX magazine. Respondents completing the online survey were allowed to remain anonymous, although they could submit optional identifying information. In order to avoid having a single company or industry segment disproportionately represented, respondents were asked to complete only one survey per organization. However, due to the anonymity provided by the survey software, companies' adherence to this request could not be confirmed. Individuals completing the survey were asked to collaborate with colleagues at their company to provide a comprehensive view of their organizations' activities.

Demographics

The first section of the CPC survey revealed the following respondent characteristics and experiences.

Primary Product Focus. The medtech sector was particularly well-represented among survey respondents, with 78% of the survey's 32 participants indicating that their primary product focus was medical devices. Five of the 32 companies (16%) indicated that their primary product focus was pharmaceuticals, while only two companies (6%) said that biological products were their primary product focus.

Figure 1. (click to enlarge)
Annual U.S. sales of combination products of survey respondents.
Annual Sales. Survey respondents represented a wide range of sizes—from start-up companies to manufacturers with more than $1 billion in annual domestic combination product sales (see Figure 1). However, the majority of respondents indicated they were either start-up companies or had less than $100 million in annual U.S. sales of combination products—which is not surprising given the relatively recent advent of combination products.
Figure 2. (click to enlarge)
Development stage of respondents' most-developed combination product.
Combination Product Experience. In order to stratify responses by experience level, the survey asked respondents about their familiarity with developing and commercializing combination products. Participants were asked to rate their experience on a scale from no experience to extremely experienced. Nearly half (47%) said they had a moderate level of experience with combination products, which was defined as having commercialized, developed, or licensed and marketed at least one combination product. Slightly less than a quarter of respondents (22%) said they had low experience, and another 22% described themselves as extremely experienced. Low experience was defined as having one or more combination products in the beginning stages of development. Extremely experienced was defined as having commercialized, developed, or licensed and marketed several combination products. Only three survey participants (9%) said they had no experience at all with developing or commercializing combination products.
Figure 3. (click to enlarge)
Number of combination products developed and brought to market by survey respondents.
The survey asked respondents to indicate the stage of their most-developed combination product. The majority of respondents had at least one product in the postmarket stage (see Figure 2). However, every stage of development was represented among respondents. Also, the survey gauged companies in regard to the total number of combination products that they had developed and brought to market (see Figure 3). The majority of respondents had produced between zero and three products, although five companies indicated that they had more than 10 combination products on the market.
Figure 4. (click to enlarge)
Categorization of combination products produced by survey respondents, compared with categorization of all combination products reviewed by FDA's Office of Combination Products in 2006. Sources: CPC survey, OCP FY 2006 performance report to Congress.
The survey also required companies to categorize their combination products in the same way that OCP categorizes them. Respondents were allowed to select as many categories as needed (see Figure 4).1 The majority of respondents indicated that they were developing a combination product composed of a device that is coated or otherwise combined with a drug. Other top responses included prefilled drug-delivery devices or systems, devices coated or otherwise combined with a biological product, and cross-labeled products. The large number of products with device components is not surprising given the number of medtech companies completing the survey. Also, the types of products represented in the survey were generally proportionate to the number and type of combination products that undergo FDA review.

Satisfaction with Existing Guidance

Figure 5. (click to enlarge)
Respondents' level of satisfaction with existing guidance from FDA and other sources.
The second major section of the survey inquired about respondents' satisfaction with existing guidance sources, including both FDA and non-FDA sources, such as trade associations, consultants, and legal counsel. The latter sources were included as means of assessing the totality of existing guidance. More than half of the respondents (56%) indicated some level of dissatisfaction with existing guidance, saying they were either not satisfied or very dissatisfied (see Figure 5). Although 12 of the 32 participants said they were somewhat satisfied with existing guidance, no company indicated that it was very satisfied with existing guidance on combination products.

All three participants who said they had no experience with combination products indicated they were dissatisfied with existing guidance. Further, only one of the six respondents at the premarket submission level of product development indicated any level of satisfaction. In addition, only one of the five pharmaceutical companies said they were satisfied with existing guidance.

On a more granular level, some respondents offered additional comments about their satisfaction with existing guidance. For example, one respondent commented on the need for additional detail in FDA guidance, noting that "part of the problem with existing guidance documents is that they are at the 40,000-foot level, and there needs to be more guidance at the 10,000-foot level." Other respondents commented on specific areas where they were dissatisfied with existing guidance, such as device change control issues and the lack of detail on how pharmaceutical requirements apply to combination products.

Topics for FDA Guidance

In gauging the need for regulatory guidance on specific topics, the survey offered participants a list of 17 distinct regulatory topics and asked them to select the five topics on which they believe combination product guidance is needed most.

Weighted rankings were determined by assigning selected topics a point value from 1 to 5; a topic ranked first received a point value of 5, a topic ranked second received a value of 4, and so on. When weighted, the number-one topic was clinical studies (see Table I). In second place was GMPs—a subject on which a draft proposed rule and a well-known written guidance document do exist.2

Weighted Rank
Regulatory Guidance Topic
1
Clinical studies
2
Good manufacturing practices (GMPs)
3
Premarket approval submissions
4
Cross-labeled combination products
5
Adverse-event reporting
6
Combination product definition; postapproval modification issues (tie)
7
Preapproval inspections
8
Preclinical research
9
Labeling
10
Primary mode of action
11
Advertising and promotional issues; request for designation (RFD) and product jurisdiction (tie)
12
User fees
13
Recall requirements
14
Postapproval inspections 
Table I. Respondents' ranking of 17 regulatory guidance topics related to combination products. Each respondent selected five topics on which they believe combination product guidance is needed most. Weighted rankings were determined by assigning selected topics a point value from 1 to 5; a topic ranked first received a point value of 5, a topic ranked second received a value of 4, and so on.
Figure 6. (click to enlarge)
Respondents' top-rated guidance topics, based on raw number of responses.
When ranked by the raw number of responses, clinical studies and GMPs switched places as the top two topics, with GMPs slightly edging out clinical studies in terms of the number of respondents ranking those subjects in their top three priorities (see Figure 6).

All companies ranking GMPs as their top priority were self-described as moderately experienced combination product companies with less than $100 million in annual domestic combination product revenue. Nearly 80% of companies that ranked GMPs as either their first or second priority were moderately experienced.

Slightly more than a third of companies (37.5%) ranked clinical studies as one of their top-three priorities. Nearly 60% of respondents placed the topics of clinical studies or preclinical research among their top-three priorities. Research (either clinical studies or preclinical research) seemed to be important for device companies in particular. Of the participants who put a research topic among their top three priorities, only two were not device companies.

A number of additional topics were cited as being important to many survey participants. These included adverse-event reporting, cross-labeling, postapproval modifications, the definition of a combination product, and premarket submissions. In addition to the priority rankings, the following observations were made in regard to respondent guidance priorities.

  • Not surprisingly, most companies ranking adverse-event reporting in their top three were in the postmarket stage of development (eight of nine respondents). This topic was not rated highly by companies with no or low experience in combination products.
  • Also not surprisingly, nearly all companies ranking postapproval modification issues as a high priority were in the postmarket stage.
  • Combination product definition seemed to be a concern among all types of device companies, although no drug or biological company ranked this topic as a top-three priority. One possible explanation is the ambiguity surrounding a device becoming a combination product by virtue of cross-labeling with a drug or biological product.
  • As priorities, cross-labeling and premarket approval submissions remained fairly consistent across all company sizes, development stages, and experiences.

Type and Reason for Guidance

After respondents ranked their priorities for guidance topics, the survey requested additional information about the type of guidance they thought was needed on those topics, and why. Participants could select more than one type of guidance for each subject.

Figure 7. (click to enlarge)
Respondents preferences as to the type of guidance needed for the top-10 regulatory guidance topics (weighted). Each topic is ranked by the precentage of affirmative responses among respondents who listed that topic as one of their top-five priorities.
For all ranked guidance topics, the majority of respondents indicated that they would prefer a traditional, written guidance document as a resource (see Figure 7). Several respondents also indicated that, in addition to a traditional guidance document, they would like to have either a question-and-answer or frequently asked questions document, documented case studies and examples, or both types of resources. Further, in some cases, respondents would also like FDA to conduct a public meeting or workshop on a particular topic. However, most respondents preferred guidance in a written format instead of guidance given orally, such as at a meeting.

The survey also asked participants to indicate why they thought guidance was needed for their top five topic priorities. Again, respondents could select as many reasons as they thought applied. The reasons from which they could choose were as follows.

  • Guidance doesn't exist but should be developed.
  • Existing guidance is inadequate (unclear, too general, etc.).
  • Existing guidance is inappropriately burdensome.
  • Existing guidance is needlessly complex.
  • Existing guidance conflicts with another.
  • Other (specify).
Figure 8. (click to enlarge)
Respondent reasons as to why guidance is needed for the top-10 regulatory guidance topics (weighted). Each topic is ranked by the percentage of affirmative responses among respondents who listed that topic as one of their top-five priorities.
Results were peppered across all choices. However, the first two choices—guidance doesn't exist or guidance is inadequate—were by far the most frequently selected reasons (see Figure 8). Overall, the results suggest that industry wants more guidance related to combination products.

Conclusion

A few key takeaway messages were evident in the results of the CPC survey. Overall, industry members would like additional guidance—and in more detail—on combination product issues. Among the survey's limited sample size of manufacturers, clinical studies and GMPs represent top priorities for combination product guidance. Several other topics were ranked as second-tier priorities. For many of these issues, FDA and OCP have issued some preliminary guidance, either written or oral.

CPC has presented the survey results to OCP so the agency can consider the data when establishing its priorities. CPC will also continue its role in generating policy ideas for the agency to consider.




References

1. “FY 2006 Performance Report to Congress for the Office of Combination Products as Required by the Medical Device User Fee and Modernization Act of 2002,” (Rockville, MD: OCP, FDA, 2007); available from Internet: www.fda.gov/oc/combination/report2006/OCP%20Performance%20FY2006%20Final%20HHS%20Clearance.pdf.

2. “Guidance for Industry and FDA: Current Good Manufacturing Practice for Combination Products, Draft Guidance,” (Rockville, MD: OCP, FDA, 2004); available from Internet: www.fda.gov/oc/combination/OCLove1dft.html.

Copyright ©2008 MX

IP Watch: Medtronic’s Endeavor Inducted into Stent Wars

The Endeavor stent system by Medtronic Inc. (Minneapolis)—the first drug-eluting stent to be approved by FDA since 2004—spent only three weeks on the U.S. market before being drawn into its first patent infringement lawsuit. In late February, Wyeth (Madison, NJ) and Cordis Corp. (Miami Lakes, FL), a Johnson & Johnson company, filed suit against Medtronic in the U.S. District Court for the District of New Jersey. The suit alleges that the zotarolimus-eluting Endeavor stent infringes three patents owned by Wyeth and licensed exclusively to Cordis.

The suit hardly comes as a surprise, as industry players in the drug-eluting stent field have been embroiled in a multitude of legal disputes ever since the product category first emerged in the marketplace half a dozen years ago.

The three patents in question in the Wyeth-Cordis suit—referred to as the '781, '146, and '728 patents—are related to the use of rapamycin (sirolimus) and its analogues, including zotarolimus. Cordis markets the Cypher sirolimus-eluting stent, which received FDA approval in 2003. Prior to the launch of Endeavor, Cypher's only U.S. competitor was the Taxus paclitaxel-coated stent from Boston Scientific Corp. (Natick, MA), which hit the U.S. market in early 2004.

Medtronic's Endeavor received the CE mark in 2005 and is currently available in more than 100 countries around the world. And just days ago, Medtronic announced that Endeavor has also received regulatory approval from Health Canada. The company expects to begin commercial sales of the stent in Canada by the end of this month.

Medtronic acknowledged the Wyeth-Cordis lawsuit in a March 4 Securities and Exchange Commission filing, stating, “The same three patents are the subject of a pending arbitration between Medtronic and J&J, in which Medtronic asserts that it is licensed to the three patents under a 1997 agreement with J&J and also that J&J has covenanted not to sue Medtronic on the three patents. An arbitration panel has been selected, but a hearing date has not been scheduled. Additionally, [Medtronic] believes it is indemnified for the claims made by Wyeth and Cordis.”

Medtronic also indicated that it has not recorded an expense related to potential damages in connection with the lawsuit because “any potential loss is not currently probable or reasonably estimable.”

The Wyeth-Cordis suit alleges that Medtronic's infringement is willful and deliberate, a determination that would enable the plaintiffs to collect treble damages in the event of a victory. The companies are also seeking preliminary and permanent injunctions against U.S. sales of Endeavor. Although willful infringement claims and injunction requests are standard elements in patent infringement suits, both are rarely granted.

Indeed, if previous patent disputes in the ever-turbulent stent market are any indicator, it could be years before the Wyeth–Cordis–Medtronic battle nears anything resembling a resolution. In the meantime, Cordis, Boston Scientific, and Medtronic will continue to battle for market share in the hotly contested multibillion-dollar drug-eluting stent market.

Industry IP in Brief

In addition to the above intellectual property development, the following medtech IP news was announced in recent months.

• In mid-February, a U.S. district court jury in Marshall, TX, ordered Boston Scientific to pay $431 million to Bruce Saffran, MD, a New Jersey–based physician, in a patent infringement dispute related to the company's Taxus drug-eluting stent. Following the ruling, Boston Scientific reported that it intends to seek to overturn the verdict in posttrial motions before the district court and, if unsuccessful, to appeal to the U.S. Court of Appeals for the Federal Circuit. The company also noted that no injunction against Taxus had been requested. In related news, a similar patent infringement case is pending between Saffran and Cordis Corp. regarding the Cypher drug-eluting stent.

• Edwards Lifesciences Corp. (Irvine, CA) has filed a patent infringement lawsuit against CoreValve Inc. (Irvine, CA) in the U.S. District Court for the District of Delaware. The suit seeks injunctive relief and damages for infringement of three patents related to transcatheter heart valve technology. In May 2007, Edwards initiated litigation against CoreValve in the District Court of Dusseldorf, Germany, for infringement of a related patent, and similar litigation is also pending in the United Kingdom. The European proceedings address the sale of CoreValve's infringing valves; the most recent suit is directed at CoreValve's manufacture of valves in the United States for export and sale in Europe. CoreValve reports that it has reviewed the claims made by Edwards and believes the lawsuit is without merit.

• Last month, Smith & Nephew (Memphis) and Synthes Inc. (West Chester, PA) jointly announced the settlement of a patent dispute involving trochanteric fixation nails (TFN). Smith & Nephew has agreed to license its patents to Synthes and to dissolve the injunction against the Synthes TFN devices for an undisclosed amount.

• Covidien Ltd. (Hamilton, Bermuda) announced that a federal jury has ruled in its favor in a patent litigation suit brought against its United States Surgical subsidiary by Applied Medical Resources Corp. (Rancho Santa Margarita, CA). The jury ruled that United States Surgical does not infringe an Applied Medical patent related to trocar seal technology.

© 2008 Canon Communications LLC

Return to MX: Issues Update.

After Approval, You’re Not off the Hook

POSTMARKET SURVEILLANCE

Illustration by iSTOCKPHOTO
As a result of its Postmarket Transformation Initiative, CDRH is undergoing some major shifts in how it processes postmarket safety information and how it communicates that information. Among other things, the center is putting in systems to better analyze postmarket data for safety trends, and finding ways to feed information learned from the postmarket arena back into the premarket approval process, so mistakes don't get repeated.

So what does it mean for device companies right now? The initiative has not yet produced a whole lot of developments that are immediately affecting industry, experts say. New tools such as electronic medical device reporting have not been fully implemented yet. But that does not mean industry does not need to pay attention. The regulatory authority for FDA to monitor postmarket safety and sanction firms that have problems with it is already in place, and has been for a long time. What is starting to happen, though, is that FDA is stepping up its enforcement of the existing regulations and is doing what it can to get firms to use postmarket information as part of their product development processes.

“CDRH clearly understands the growing significance of postmarket issues,” says Steve Niedelman, executive vice president of Quintiles Consulting (Rockville, MD). “FDA has made it very clear to industry that postmarket surveillance is a top priority. It is very important that industry pay attention to FDA signals on this issue. You do not want to be left flat-footed or appear unprepared when an issue arises. Postmarket surveillance is finally getting the attention it has deserved for some time.” Niedelman, who served at FDA for 34 years, was an original member of the Postmarket Transformation Initiative's steering committee.

The emphasis on postmarket monitoring has coincided with realizations that regulators and industry aren't always going to be able to identify problems based on premarket data, says Danielle Giroud, vice president of strategic development, medical devices, for Premier Research (Philadelphia).

“FDA is willing to consider market access of products based on limited clinical data with the commitment of companies to conduct additional postmarket surveillance studies on larger populations,” she says. “With long-term implants, this is indeed a crucial element, because companies cannot always wait to have product life-experience data before putting their product on the market. Rationalistic approaches are needed to avoid putting patient safety at risk, but we must also take into consideration the significant benefits such products can bring to patients who have no other or poor alternatives.”

And with that comes the need to figure out how postmarket data can help the premarket process.

“CDRH has had its premarket activity concentrated in the Office of Device Evaluation and its postmarket activity concentrated in the Office of Compliance. [These offices] have not traditionally shared information,” explains Sheila Hemeon-Heyer, vice president of global regulatory affairs for Boston Scientific (Natick, MA). “The Postmarket Transformation Initiative is what happened when FDA realized that it needed to connect the dots. It needed to put systems in place to enable the agency to analyze postmarket information and feed it back to the premarket side.”

Getting the Message

Firms seem to be getting the message, too, albeit slowly in some cases, says Robert Schiff, PhD, president of Schiff & Company, Inc. (West Caldwell, NJ). “In the past, companies were not as diligent [about postmarket surveillance] as they could be,” he says. “Not because they wanted to do any harm, but because they just did not want to make the investment. There have been cases in which, because of financial or market considerations, companies have gone a bit slow with a recall or government notification. I have seen incidents in which a quality assurance person became aware of a problem, reported it to management, and then there was investigation after investigation before something was done. But now, at least the companies we are working with are taking it more seriously. Most QA and regulatory people I have met are strongly interested in improving the follow-up on devices in the marketplace, and helping FDA as much as they realistically can.”

Ignoring these developments can open a firm up to enforcement action, but perhaps even more importantly, in today's climate it is a bad business practice. A significant postmarket safety issue may produce not only a worldwide recall, but also a slew of negative headlines. These can expose a company to unnecessary costs, losses in sales, and a drop in stock price.

“Notwithstanding the regulatory requirements, a strong postmarket surveillance program is a good business practice,” says Richard Wright, principal consultant for Parexel Consulting (Waltham, MA). “It should be mandated from the top down as part of a successful business practice.”

While this advice is most pertinent to firms with high-risk products, it is not limited to them. “FDA focuses on high-risk products, but some low-risk products can be devastatingly [affected] by bad publicity,” says Judith Andrews, PhD, director of quality and compliance services for Medical Device Consultants Inc. (North Attleboro, MA). “That could be something that could have a bad business impact if not properly handled.”

Wright agrees. “Even though clinical data are not required for most [premarket notification] 510(k) products, you still need to have a good postmarket program for them,” he says.

Structure and Function

So what should a successful postmarket system accomplish?

“It's not only about whether you have the right system in place, but also about how well you are executing it,” says Hemeon-Heyer. “How competent are you in gathering the right information, taking the data about adverse-event information, and linking it all together? Only when you link it all together do you see trends that can tell you whether there is an issue with a product. It's not an easy thing to do. You must have adequate resources, and you must give this a high priority.”

“The most important thing is that you make sure to tap all sources of information,” says Andrews. “You can't just wait for [reports] to come back from the doctors. You have to tap into your sales representatives. They can be a great source of information about problems, as can anyone who has direct contact with users. Customers may not come forward with issues, but if you ask them a question, you'll get an earful. And when you do, look for something that meets the definition of a complaint.”

There is no universal formula for how to structure personnel and responsibilities for postmarket surveillance. Nor is there any blueprint in the laws, regulations, and guidelines. Some firms do it within the quality functions that are already in place, such as complaint handling and corrective and preventive action (CAPA) management. Others create special teams that are charged with overseeing all postmarket surveillance issues. “Special teams might be a good idea, depending on the size of the company,” Wright says. “It may come down to the number of complaints and reports that you think you might have to deal with.”

“Everyone needs to be on the same page,” he emphasizes. “There needs to be philosophical compatibility across the different groups that will be working together. You need to add quality individuals who can perform root cause analysis, and take the life cycle approach with it. That is, you have to ensure that information from the postmarket arena feeds back into the premarket arena.”

What is important, however, is that a comprehensive strategy be in place, and that personnel from all relevant departments be involved.

“Postmarket surveillance strategy is not only a quality and regulatory responsibility, but needs global company input and collaboration,” says Giroud. “Sales and marketing need to realize that postmarket surveillance is there to guarantee a product's safety on the market, and they should take this as a benefit for sales. On the other hand, poorly constructed postmarket surveillance studies may be a waste of money. So it is essential that there is an optimal collaboration with all departments including clinical research, R&D, senior management, and finance.”

Firms should develop compliant postmarket surveillance plans that meet FDA requirements, Niedelman says, “as well as what works best to meet the needs of your organization. The importance of developing an appropriate postmarket surveillance plan should not be simply to comply with FDA, but more importantly to ensure that you are manufacturing and distributing quality products.”

None of this may work, however, if senior management doesn't care.

“To have a successful postmarket surveillance strategy, you must engage senior management,” says Hemeon-Heyer. “Management must understand how a postmarket strategy can benefit the company. And that must be ingrained in the company's a culture.”

She also encourages firms to embrace the principle of “sustaining engineering.” That may take a cultural shift. “Everyone in R&D wants to make new devices, not fix things,” she says. “But you must have R&D people in place who are charged with using postmarket information to improve products. And it has to be seen as a valuable contribution to the company.”

Training is also crucial, she says, because “once a culture and a structure are in place, you must make sure that people are executing.”

“The quality team should be in charge of postmarket surveillance,” emphasizes Schiff. “The last people I want in charge is marketing. You want to have people in charge who are objective. Marketing folks are good at what they do, but postmarket surveillance is a quality function, not a marketing function.”

Executing the Strategy

When it comes to executing, it is extremely important to have a system that allows personnel to gather as much postmarket data as possible and organize them coherently.

“The best way to follow up on how a device is performing is to discuss the device with the end-user, if the hospital and distributor allow it. You get real information that way,” says Schiff. “You are more likely to get good information if you call them, than if you e-mail them or do nothing.”

Spectranetics Corp. (Colorado Springs, CO), a firm that makes devices that use excimer lasers, is an example of a firm with a significant data-gathering system in place. “We pay individual attention to each customer complaint,” says Don Fletcher, vice president of quality assurance and regulatory compliance. “We look to give a personalized, technical response to each customer complaint filed with us. And we use a postmarket database that we built to keep us abreast of customer concerns. This is then mapped to a CAPA system that enables us to address the customer complaints. Also, how we document particular improvement to our products is associated with postmarket safety input,” Fletcher says.

The most important step a firm can take when it becomes aware of information relating to postmarket safety issues associated with the use of their products, says Niedelman, is “not to sit on it. Search for and determine the root causes. Tie it back to potential quality system problems, and address it appropriately. Be aware of information that has been reported about your firm's products from all sources; you need to know how your product is performing in the market and what is being said about your device.”

Also important, he says, is “don't bank that FDA will not find out about problems associated with your devices. Be up front with the agency. Share your information in a timely manner and remain vigilant about identifying problems.”

And once problems are identified, the premarket personnel need to know about them.

“In design control at Spectranetics, a major player is postmarket safety,” says Fletcher. “Feeding back postmarket information into the design process was always my understanding of design control. Now we are making that a reality.”

The Role of Risk

A coherent postmarket surveillance strategy is not complete without a risk management plan. Risk analysis is extremely important when trying to ensure that unexpected problems will not pop up in the postmarket arena. And risk communication is extremely important in the event that they do.

“The new version of ISO 14971 puts more emphasis on postmarket risk,” says Andrews. “You need to identify postmarket risk in the premarket process, so that you can understand the risks and what you will do about them if they arise. I recommend that every company do a risk analysis. That way, you can understand the business implications of the worst-case scenarios.”

“Everything concerning a product is risk management, even things like labeling, language coverage, minor design changes, selection of distributors, and training of the users,” adds Giroud. “If we want to work in a medical environment, then we need to be risk-management-conscious at all times and never compromise, because in the end, a human being somewhere may be harmed. I think any human being should be able to understand this, even finance people, who should look at it as a long-term investment.”

In the event of a problem, any device company must carefully weigh its risk and decide which information is best to pass on to clinicians and the public. Firms have to consider what kind of information might be most useful for each audience, and what the consequences might be of telling or not telling certain details.

“Risk communication is an essential element of an effective postmarket surveillance program,” Niedelman says. “It is an area that has become a bit tricky. It's important that you be able to explain a technical problem in layman's terms, so the public can understand it. One thing FDA learned is that patients want to know about what could happen to them. They do not want to be kept in the dark.”

“Risk is what the market perceives it to be,” adds Andrews. “If risk is not managed properly, the market perception of risk can become greater than what FDA or your company suspect. I'm not sure everyone in a company understands the consequences of not addressing problems, even if they don't look very big. Even the smallest products can get you into trouble in the worst-case scenario. You have to be aware of how that can happen. It needs to be part of your risk strategy.”

Device companies should take into account how potential problems might be perceived by the mainstream media. “The press always glorifies and magnifies the negative. They do not look at things objectively,” says Schiff. “And once that happens, Congress gets on the bandwagon.”

Conclusion

A strong medical device postmarket system is mandated by and supported by top management. It is closely tied in with the quality system and is spearheaded by quality personnel. It has buy-in and participation from all departments. It makes coherent use of data-gathering systems such as complaint handling and field reports. It enables the analysis of such data in order to correct problems. It feeds the analysis back to the premarket process and to the manufacturing plant to make sure problems aren't repeated. And it is an integral part of the risk management process. Failure to build a strong system can result in unpleasant surprises, and even more unpleasant financial consequences.

Copyright ©2008 Medical Device & Diagnostic Industry

Exploring Singapore’s Supply Base

GUIDE TO OUTSOURCING: SINGAPORE OUTSOURCING

A quality control worker in Singapore prepares to test a printed circuit board assembly. Photo courtesy of SEM Manufacturing Pte. Ltd.
If statistics are any indication, Singapore has emerged as an attractive location for medical device manufacturing. The country's manufacturing output within the biomedical sciences sector grew to $15 billion in 2006, a 30.2% increase over the prior year, according to the Singapore Economic Development Board. A significant driver of Singapore's growth in medtech manufacturing is the country's availability of suppliers that provide a range of services to medical device manufacturers. These services include product development support, third-party registered quality systems, manufacturing strategies, and intellectual property (IP) protection.

Medical device manufacturers often have a complex mix of product requirements, and the competencies of Singapore's supply base provide medical device manufacturers with various options in structuring their sourcing strategy.

Product Development

Singapore's supply base includes both local and foreign-owned contract manufacturers and precision engineering firms that provide product development support services for their medical customers. For example, Singapore suppliers are available to help device manufacturers that only require assistance in design for manufacturability or design for testability. But there are also suppliers to help manufacturers that need support in adding product functionality such as radio-frequency capabilities, which may not be a core design discipline for some companies. Many suppliers in Singapore have invested in medical-industry-specific quality certifications such as ISO 13485, and some have met the requirements for FDA registration of their facilities. Following such steps has enabled the service providers in Singapore to better address the unique requirements of the medical device industry.

Manufacturing Strategies

Service providers in Singapore can help manufacturers develop cost-effective strategies for manufacturing. For example, device manufacturers may pursue a two-tiered strategy that shifts their mature, margin-sensitive products to regions with lower labor costs and that retains new projects for regions with skilled personnel and strong IP protection.

A technician inspects the quality of a ball-grid array solder joint. Photo courtesy of SEM Manufacturing Pte. Ltd.
Medical OEMs need suppliers that can implement engineering change orders, support varying production volumes over the life of a product, and cost-effectively support product end-of-life needs. But they also need support for high-volume, less-complex products. Many Singapore outsourcing firms have facilities that address the needs of complex projects. However, many of these supplies also have facilities in lower-cost labor markets such as Vietnam, Malaysia, Indonesia, Thailand, China, and India that can support the needs of more margin-sensitive, high-volume products. Such an arrangement enables manufacturers to select a supplier headquartered in an English-speaking country with a strong legal system, but still have access to manufacturing facilities in other countries. This can help device manufacturers to develop a one-stop outsourcing strategy. Such a strategy can support an entire range of products instead of only high-volume, margin-sensitive products. A one-stop strategy helps minimize hidden costs that are caused by poor communications or a poor fit between project requirements and the contractor.

Unlike many emerging labor markets, there is a minimal learning curve trade-off in Singapore because the service providers have experience with supporting complex, highly regulated manufacturing projects. Typically, when Singapore-based suppliers open satellite manufacturing operations in adjoining low-cost-labor regions, they transfer a robust set of administrative, quality, and manufacturing processes and provide extensive workforce training. As regional experts with an extensive network of business relationships, they often have a better understanding of the best areas to locate facilities in terms of labor availability and associated support supply base. Singapore-based suppliers can often help device manufacturers negotiate costs associated with running facilities in the region.

Although Singapore isn't the only manufacturing option in the region, its particular advantages have made it attractive to device manufacturers with concerns about product quality, product design security, and the availability of engineering and administrative support. These advantages include the following:

  • Stable political climate with strong government support for providing the infrastructure critical to medical device manufacturing.
  • IP protection.
  • Easy access to global markets and buyers.
  • A highly educated workforce.
  • Access to a number of low-cost labor markets within the region.
  • A diverse supply base that includes electronics manufacturing services providers and a range of precision engineering firms.

For many multinational companies in the device industry, this combination of features can translate to reduced outsourcing costs without compromising quality or responsiveness. Singapore also supports companies that wish to use the region for a combination of wholly owned manufacturing and outsourcing. In some cases, this strategy may involve also using Singapore as a distribution hub for product sales within Southeast Asia or beyond.

Specialized Personnel and Processes

Singapore's supply base offers the manufacturing expertise and high levels of product quality and traceability required by device manufacturers. For example, one medical device manufacturer selected a Singapore electronics manufacturing service (EMS) provider for an electronics design and printed circuit board assembly project for a device used in physical therapy. The lead supplier then teamed up with another supplier specializing in plastics injection molding for the housing design.

The EMS provider also provided support during the design phase for approvals through FDA, SFDA (China's regulatory body), South Korea, and Europe's CE mark. With a consultant's assistance, the supplier provided failure modes and effects analysis documentation to support risk management analysis and also ensured that the design met ISO 14001 standards.

Outsourcing partners in Singapore can also consult on key designs issues such as compliance with the Restriction of Hazardous Substances (RoHS) Directive. Although medical companies are currently exempted from complying with this directive under the EU RoHS legislation, all products sold in China are required to comply with China's RoHS legislation. The EMS provider offered both traditional and RoHS-compliant manufacturing capabilities so that the device could be sold in China, and its engineering staff had expertise with various market requirements.

Many Singapore suppliers retain experienced groups of engineers and program managers who already support initiatives such as Six Sigma, lean manufacturing, design for manufacturability, and customer-driven annual cost-reduction initiatives. Most supplier teams at Singapore outsourcing companies work directly with their customer counterparts. In some cases, joint teams are formed to focus on process improvement or cost-reduction.

In other cases, customers set joint goals with a supplier team that then manages the improvement process and reports results. Communication can be through e-mail, visits to either the supplier or customer's location, or through video or teleconferences, depending on customer preference.

One challenge faced by medtech companies entering new manufacturing regions is finding service providers with skills that are adequate to support their more-complex and rigorous requirements. Finding electronics contract manufacturers or disposables packaging contract manufacturers, for example, is usually not difficult. But in many emerging regions, finding quality precision engineering services can be challenging. These service providers often specialize in consumer product manufacturing and may not automate or have equipment compatible with the tooling required for more-complex projects such as medical devices.

A contract manufacturing firm in Singapore provides cleanroom assembly for a medical device. Photo courtesy of Beyonics Technology Ltd.
Singapore's precision engineering supply base was initially developed to support the disk-drive industry, which required both the ability to machine to tight tolerances and the ability to assemble complex products to rigorous quality and customer service requirements. This skill set transfers well to the medical industry.

Today, Singapore's precision engineering industry offers support for the medtech sector's requirements of cleanroom molding and assembly, precision machining, and stamping. Supplier capabilities range from custom components through complete unit construction. In some cases, suppliers provide a turnkey solution, while in others, they may team up with a consortium of complementary suppliers to address complex project needs. Such consortia can be formed under International Enterprise (IE) Singapore's I-Partner program, which encourages companies to band together while abroad to complement their product offerings.

The partnership enables members to provide a one-stop manufacturing option for manufacturers that require services such as precision plastic injection molding, metal stamping, precision die-casting for components, tool making, component design, and precision rubber fabrication. The country's precision engineering industry manufactures devices such as optical lenses, endoscopy video systems, electrocardiograph and neurology electrodes, anesthesia pumps, infusion pumps, infant respiration monitors, catheters, and diagnostic kits.

Key Elements of Infrastructure

In the 1980s, Singapore was focused on being a low-cost manufacturing center. But as low-cost markets emerged across Asia, Singapore started to build an electronics and precision engineering supply base that could offer high levels of responsiveness, industry specialization, and technical support. In addition, many Singapore-based suppliers, which include local suppliers as well as foreign-owned suppliers with headquarters in Singapore, began providing access to satellite manufacturing facilities in other low-cost-labor regions within Asia. At the same time, suppliers beefed up their access to manufacturing facilities in key manufacturing regions in Europe and the United States.

The infrastructure in Singapore includes a legal system based on English common law, use of English as the language of business, and strong governmental commitment to supporting the biomedical sector. Over the years, the Singapore government has designed programs addressing issues such as compatibility of quality standards and workforce training to support the critical infrastructure needs of companies. Within the medtech segment, a number of committees and agencies, such as the Singapore Accreditation Council and SPRING Singapore, provide support for research, regulatory policy standardization, workforce training, and development of key technical capabilities.

Today, Singapore's suppliers strongly adhere to ISO 13485, IEC 60601, Good Laboratory Practices, technical references, and Singapore standards. The Singapore Accreditation Council develops, maintains, and improves the standard of conformity assessment activities in Singapore. The council has signed mutual recognition arrangements (MRAs) with regional and international accreditation organizations covering more than 90 accreditation systems. These MRAs benefit companies manufacturing in the region because they help to ensure the availability of local registrars and auditors that support their specific quality standards requirements.

These efforts are meant to align Singapore's training and standards with the requirements of medical companies entering the region. Singapore suppliers have the resources to maintain robust quality systems that meet the medical device manufacturing standards requirements of FDA and its foreign counterparts in Europe and Asia. Such resources can help companies meet their objectives for cost reduction in existing markets as well as efficient entry into new markets.

The Singapore government has enabled firms to identify and assess the capabilities and offerings of potential suppliers in Singapore through IE Singapore. Under Singapore's Ministry of Trade and Industry, this agency organizes

Singapore-based events and international delegation visits to encourage networking between suppliers in Singapore and the companies seeking to outsource work to them. Companies have access to lists of relevant suppliers through IE Singapore's representatives, who are based in more than 30 locations worldwide, including New York, Los Angeles, Frankfurt, and London.

Intellectual Property Protection

Singapore is a contracting state of the Patent Cooperation Treaty and the Madrid Protocol, both of which are administered by the World Intellectual Property Organization. Under these agreements, a resident or national of Singapore may file international applications with the Intellectual Property Office of Singapore as a receiving office. Singapore is also a signatory to the Paris Convention, Berne Convention, Budapest Treaty, and the Agreement on Trade-Related Aspects of IP Rights.

With an established IP system in place, Singapore suppliers can protect the technology, products, and processes that are essential for success and protection against others in the market. This protection also benefits device manufacturers that use the products and services offered by suppliers in Singapore due to the country's strict enforcement of IP regulations. Additionally, companies that feel their IP has been infringed upon have a legal system to pursue the claim.

Free Trade Agreements

Singapore has been part of free trade agreements that support multiple-country manufacturing strategies, as well as market entry with minimal tariffs. For example, the Association of Southeast Asian Nations (ASEAN) Free Trade Area was initiated in 1992. The Common Effective Preferential Tariff Scheme, which came into effect in 1993, is the main mechanism through which tariffs are reduced in ASEAN countries. In the agreement, ASEAN countries agreed to reduce tariffs to 0–5% over 15 years.

Today ASEAN is committed to eliminating all tariffs for products on the inclusion list for ASEAN–6 (Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand) by 2010, and the new ASEAN countries (Cambodia, Laos, Myanmar, and Vietnam) by 2015. Details on the ASEAN free trade area are available at www.aseansec.org.

Singapore has more than a dozen free trade agreements in place and is involved in ongoing negotiations for additional agreements with other nations. IE Singapore maintains a list of these agreements, as well as information on the scope and current status of each, at www.fta.gov.sg. Specific benefits to device manufacturers may vary by the type of product or subassembly, the country in which the product is primarily manufactured, and the end market to which the product is shipped. But generally, the benefits of these free trade agreements for companies manufacturing in Singapore include the following:

  • Low or no tariffs for exports of goods.
  • Reduction or elimination of quantitative import restrictions.
  • Streamlined customs procedures.
  • Improved market access for various commercial and professional services.
  • Agreeable terms for investment in foreign countries.

Cost Reduction

Whether outsourcing or establishing new manufacturing facilities, device firms face two types of costs. The first type is measurable, and it includes manufacturing costs, materials, and freight. The second cost type is driven by project transition costs, expedition costs, quality issues, and other unplanned costs, which can be caused by learning curves, personnel turnover, or supplier inflexibility. Robust support systems and organized internal processes are key to minimizing total cost.

Singapore's supply base is focused on minimizing the surprise factor that can increase total product cost. Factors such as workforce education and stability, IP protection, and rigid adherence to regulatory requirements contribute to overall value for price by eliminating variables that can drive up accountability costs. Additionally, the supply base has focused on implementing internal processes such as lean manufacturing principles. Such processes include raw material or finished goods kanbans, production focused on smaller lot sizes, and minimized equipment changeover time to support the challenges of high-mix, low-volume production as a long-term strategy for supporting industries such as medtech. Some suppliers may collaborate with manufacturers to reduce costs with the following tools:

  • Six Sigma studies.
  • Analysis of supply chain and logistics elements.
  • Tooling design optimization.
  • Design for manufacturability, testability, and assembly.
  • Transfer of less-complex assembly processes to lowest-cost labor regions.

Suppliers may also lower costs through end-market support activities in North America, Asia, and Europe, such as regional support offices, localized program management, or engineering support to the company's facility, depending on project requirements.

Conclusion

Singapore's supply base focuses on many of the values and best practices found in high-cost labor markets. Its proximity to low-cost labor regions makes it a suitable place to centralize contract manufacturing activities. A manufacturing strategy with Singapore as the hub may enable OEMs to tap suppliers governed under an established legal system with mature program management and engineering structures in place.

Audrey Soon is the account manager of the Electronics and Precision Engineering Corporate Group at International Enterprise Singapore. She can be reached at audrey_soon@iesingapore.gov.sg.

Copyright ©2008 Medical Device & Diagnostic Industry

Winchester Electronics Awarded for Supplier Services

OUTSOURCING NEWS

Winchester Electronics Corp. (Wal­lingford, CT) has been rewarded for going above and beyond its duties in helping a company relocate. Advanced Energy Inc. (AE; Fort Collins, CO) gave Winchester its Supplier Recognition Award for its work during AE's facility transfer.

AE manufactures power and control technologies. When the company moved from Stolberg, Germany, to sites in the United States and China, it called on Winchester Electronics. During the process, Winchester sent a group of employees to Germany to check cable assemblies and translate documents from German to English. It also reverse-engineered product details for future reference.

Winchester's connectors are used in the manufacture of medical equipment. Its electronic products include radio-frequency coaxial connectors, input/output connectors, power connectors, and backplane connector systems. The 65-year-old company also manufactures cable and electromechanical assemblies.

Winchester has 800 employees and runs manufacturing sites in Connecticut, Mexico, China, and Malaysia.

AE made the announcement during its annual Supplier Day. In 2006, the company also awarded Winchester for best on-time delivery.

Copyright ©2008 Medical Device & Diagnostic Industry

Creating Cultures of Responsible Conduct

BUSINESS PLANNING & TECHNOLOGY DEVELOPMENT

Sidebars:
Companies that develop, produce, and distribute medical technology operate in a complex and challenging environment. By its nature, their work focuses on human well-being. Thus, it is not surprising that the industry is heavily regulated. Indeed, industry executives must devote a significant proportion of their time to helping their organizations navigate a maze of legal and regulatory requirements that constantly grows in scope and intricacy.

At the same time, these leaders face the rising public expectation that all for-profit firms will conduct their affairs in an ethically responsible manner. At one level, this expectation is a reaction to the business scandals of 2001 and 2002 that involved companies such as Enron and WorldCom. But it also is part of a broader trend—namely, a concern about corporate conduct and influence that has been growing since the 1960s.

Photo by JUPITER IMAGES
Medical device firms are far from immune to the rising tide of public scrutiny. In recent years, many leading industry players have found themselves at the heart of investigations involving everything from suspicious sales practices to highly criticized product recall management (see sidebars).

In the wake of these and other corporate scandals, the message the public is sending companies is clear: legal compliance is important, but it's not enough. This message was reinforced by the revised Federal Sentencing Guidelines for Organizations, issued by the United States Sentencing Commission in November 2004. The modified guidelines call upon companies to develop cultures that encourage ethical conduct, not just adherence to laws and regulations.1

There is no one-size-fits-all approach for company leaders looking to create an organizational culture that promotes ethically responsible behavior. However, there are frameworks that can help executives think about how they should approach this undertaking. This article focuses on an approach that has proven useful for two decades.

In the late 1980s, a young professor at Harvard Business School, Kenneth Goodpaster, identified three tasks leaders must address to create companies with a robust sense of moral conscience.2 First, leaders must orient their firms toward a set of ethical values—including, for example, respect for others, trustworthiness, fairness, honesty, and integrity. Second, they must institutionalize those values within the organization. Third, leaders must sustain values over time, making them an enduring part of the firm's identity.

Orienting a Company to Values

In orienting a firm, company leaders seek to establish a direction for their organization by guiding its members toward a shared understanding of the firm's purpose and mission. They also guide them toward a shared vision of how the organization will fulfill this purpose. This includes identifying the values or moral ideals that will serve as the company's ethical touchstone.

Values statements assist with the task of orientation. They systematically lay out the core moral ideals the company aspires to honor while conducting its affairs. They publicly express the company's espoused values—that is to say, the moral criteria to which a company's leaders will hold themselves and all other employees accountable.

The formulation of a values statement is a first step in providing an ethical orientation for a firm. It is not uncommon for leaders to consult the ethics statements of competitors, industry participants, and other companies during the drafting process. These examples may highlight moral aspirations relevant to their firm and provide other useful insights. For example, in addition to values such as honesty and integrity, many medical device firms include wording in their statements that expresses a commitment to the improvement of patient care and human welfare.

Once executives have articulated their firm's foundational values, they then must identify how their company stands in relation to those values. This means performing a moral inventory of the company during which executives identify the values actually operating within a firm through surveys, questionnaires, and sounding sessions with employees and other stakeholders. This inventory enables leaders to ascertain the gap that exists between the company's espoused values and the dominant values at work within it. The magnitude and nature of this gap can help executives determine the kinds of policy and practice changes required to move the organization from its current state toward the desired state described within its values statement.

Institutionalizing Values

Values statements abound in today's business world. Still, many corporate observers remain skeptical of such documents—and for good reason.

In 2000, Enron issued a “vision and values statement” that proclaimed “we treat others as we would like to be treated ourselves.” It also emphasized the need for ethical integrity throughout the company. Of course, this statement rings utterly false in light of subsequent revelations concerning Enron's brash kill-and-eat culture and disclosures of lucrative self-dealing within its executive ranks. The disconnect between the firm's stated values and the values actually followed by some Enron executives invites cynicism not only about Enron's values statement, but also about the worth of such pronouncements generally.

Yet this disconnection is instructive. It highlights an important truth: without a conscious, concerted, and continuous effort to integrate moral ideals and aspirations into a company's operations, a values statement remains mere words.

Moving words into practice is the challenge addressed by the task of institutionalization, which is a multifaceted process. Central to this process is leadership action that clearly shows a commitment to the company's stated values. If leaders' acts and decisions fail to honor the values they publicly advocate, employees quickly learn to discount any ethics-speak emanating from the corner office.

Also important are efforts that help employees grasp the practical implications of the company's moral values. A code of conduct is an essential aid in this regard. It communicates the company's values and brings them closer to the ground floor of day-to-day operations. It articulates standards and guidelines that can help employees recognize and resolve ethical issues that fall within their purview. Codes of conduct also typically address matters of legal responsibility. For this reason alone, they are a must-have resource in heavily regulated industries such as medical devices.

Work on a code of conduct does not end once it has been drafted and distributed. The code should be reviewed and discussed at successive levels within the organization to ensure that all managers and employees understand how it applies to their work. A cascading review of this type helps build comprehension and can generate useful feedback. It can help pinpoint where a code's guidelines may be unclear and identify questions on which employees require additional guidance. Such information permits the code to be improved over time and enables the company's leadership to deliver support where it is needed most.

Leaders must also ensure that company values are embedded within the firm's systems and processes so that they truly become a part of how the organization performs its work. To do this, executives must engage in an operational audit—specifically, an assessment that enables them to determine the extent to which company practices reinforce or undermine the organization's moral ideals and aspirations. For example, if bonuses and promotions are handed out exclusively on the basis of whether executives hit their numbers, a values statement is unlikely to prevent a manager from cutting ethical corners to reach a financial target or an operational goal.

The ultimate test of any values statement is whether the company's employees follow it daily. Institutionalization is the process that brings a values statement to life, and decisive executive action, codes of conduct, and operational audits all play an important role in this process.

Sustaining Values across Generations

If a company is to sustain its moral values over time, it must impart them to successive generations of leaders. This requires the firm to take steps to create congruence between the organization's moral ideals and the moral ideals embraced by its future leaders. Absent such an alignment, the firm's new leaders will allow the firm's values to wind down over time, or will replace them outright with values more congenial to their viewpoints.

Sustaining values assumes clarity about orientation and effectiveness at institutionalization. But it also requires organizations to carefully address other activities as well—for example, management development and succession planning for executive positions.

Creative approaches to management development can promote greater alignment between the organization's values and the values of its employees. Some companies offer seminars designed to help managers better understand the relevance of its values statement to business decisions. These workshops may feature case studies drawn from the organization's history. Participants also bring to the session challenges they currently face.

Typically, the topics raised by participants vary widely, addressing such diverse issues as the ethics of gathering competitive intelligence, maintaining pay equity among employees working in different parts of a multinational enterprise, and the circumstances under which the organization has an obligation to disclose product defects to its customers. The challenges are discussed by the class, which then attempts to formulate a values-based resolution. Managers come away from such events with greater skill in applying the organization's values to operational and strategic decisions.

In addition, since senior leaders are in a unique position to influence an organization's values, it is particularly important that the selection criteria for these roles account for both traditional business qualifications—such as economic performance, intelligence, and leadership skills—and less typical ones—such as personal and professional integrity, and alignment of personal beliefs with the organization's value system. The organization's leaders must work with its board of directors to identify and explicate these atypical criteria, and to determine how key managers will be evaluated and tracked against them. Only by doing so can they hope to ensure that future leadership appointments will preserve, not erode, the firm's value system.

Conclusion

It is sometimes said that there is nothing as practical as a good idea. For leaders creating new organizations, Goodpaster's framework suggests a way forward, a pathway toward the creation of a culture that supports ethical conduct. For executives leading established organizations, it provides a useful reference point, one that can help them critically examine the actions they have taken already to address a leadership challenge that is both daunting and vital.


References

1. 2004 Federal Sentencing Guideline Manual (Washington, DC: United States Sentencing Commission, 2004); available from Internet: www.ussc.gov/2004guid/TABCON04.htm.

2. KE Goodpaster, “Ethical Imperatives and Corporate Leadership,” Ethics in Practice: Managing the Moral Corporation (Boston: Harvard Business School Press, 1989): 212–218.

T. Dean Maines is president of the SAIP Institute at the University of St. Thomas Opus College of Business (Minneapolis).

Copyright ©2008 MX