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Incubating Capital

Originally Published MX July/August 2001

Business Planning & Technology Development

Business incubators can provide medtech start-ups with strategic services essential to their growth.

S. Ramesh and Jenny Sakhrani

Medical technology companies are at the forefront of developing innovative products and services that improve not just the quality of healthcare, but of people's lives. But starting a medtech company based solely around a new idea isn't feasible—no matter how great the idea. Entrepreneurial scientists and researchers with bold visions shaped by breakthrough discoveries or technical wizardry often wind up as heads of failing medtech companies because they don't realize that the business development process can offer many difficult challenges.

Revisiting Healthcare Markets on the Internet: Dot-Com or Dot-Gone?

Originally Published MDDI July 2001

Despite the disappearance of many of the Web-based medical exchanges in the past year, surviving medical technology dot-coms continue to make progress, quietly fulfilling their promises.

Cliff Henke

What a difference a year makes—especially in cyberspace. In an article that appeared in these pages just a year ago, about 40 Internet-based marketplaces for medical technology were billed as up-and-comers. Within months, the count in many published reports had swelled to 70 sites.

A year later, however, many such exchanges have fallen by the wayside, casualties in the dot-com bust. Yet as the following pages reveal, all was not baseless hype. Indeed, some of the survivor companies offer great promise for the future of the Web-based medical exchange.

THE FIELD THINS

How the mighty have fallen. Perhaps the most dramatic example is Promedix (Salt Lake City). Its owner, Ventro, was one of the earliest of the Internet initial public offerings. In its Chemdex site, Ventro had what seemed to be the model all other business-to-business dot-coms might follow. But last fall, after posting dismal third-quarter earnings and operating-loss data, the firm announced a complete change of strategy. It said it was selling off Promedix and Chemdex, getting out of Web-based marketplaces and concentrating instead on selling its own software and consulting services to others. All this after Ventro reportedly spent more than $50 million to build its sites.

Meanwhile, other companies have changed and consolidated in different ways. Embion changed its name to Encounter Care Solutions, then went on an acquisition spree. Similarly, empactHealth.com was bought up by Medibuy.com, which in turn started to partner with a variety of Web technology companies— such as supply-chain infrastructure firm Commerce One—to beef up its capabilities in the face of intensifying, increasingly sophisticated competition.

Some of that competition has come from industry-led and industry-funded sites, either organized by associations or by groups of manufacturers and distributors themselves. These projects are not focused on profits, which is particularly threatening to the dot-coms; price is not as great a concern and they can thus undercut the commercial exchanges.

But that strategy has not been a guarantee of market success, either. In a bid to sharpen its focus and gain better identity, one of the industry sites, the distributor-owned New Health Exchange, decided to change its name—it became HealthNexis at the end of March, just as it went live for the first time. The new name reflects the company's vision of uniting healthcare through powerful information and technology solutions. The company's transaction clearinghouse went live March 31, 2001, connecting several companies to the HealthNexis exchange: AmeriSource Health Corp., Cardinal Health Inc., Fisher Scientific International Inc., McKessonHBOC Inc., and Bergen Brunswig Corp.

"The name HealthNexis communicates our unique role in the healthcare supply industry," says David Hurley, CEO of the exchange. "Nexus means 'that which unites' and 'a means of connection.' Our quest is to unite the healthcare supply chain by providing a centralized infrastructure and technology platform to enable more-efficient, lower-cost interactions among health industry trading partners."

Founded by these five firms—among the nation's largest healthcare companies—HealthNexis aims to provide infra-structure and technology solutions that streamline the complex business processes necessary to transmit, process, aggregate, verify, and maintain product and contract data. The company will offer a single point of access to an integrated set of products and services including a transaction clearinghouse, product data manager, contract data manager, and data services. HealthNexis released its transaction clearinghouse in March; its product data manager was scheduled for release in early June.

Meanwhile, the manufacturer-led Global Healthcare Exchange (GHX; Westminster, CO), which is owned by nearly a dozen medical device and pharmaceutical giants, is slowly and deliberately developing its presence, yet still has not gone live. Support for the project continues to build within the medical device supply chain. For example, Siemens Medical Systems (Iselin, NJ) just announced that it has become the 11th equity partner in the exchange.

GHX is open to all healthcare provider organizations, buying groups, distributors, and manufacturers and suppliers of medical and nonmedical products. It has been conducting live transactions in pilot sites since October of 2000, and has conducted several transactions, with order confirmation and product shipment occurring in all of them.

The company is putting its chief focus not on early deployment but on the quality of its infrastructure. Officials say that soon the system will be able to handle up to 500,000 transactions per second, far more than the transaction volume anticipated in healthcare. In addition to running pilot-site transactions, GHX will continue to test the system at maximum ca- pacity to ensure that it can handle any conceivable healthcare transaction volume.

Officials at GHX say that its solution will be the result of an industry-accepted, standardized, normalized catalog—one combined with integration to the broadest array of suppliers, manufacturers, and distributors. GHX is also establishing partnerships with channel partners, primarily independent software vendors serving the healthcare industry, to make its offering as complete and easy to integrate as possible. This approach is designed to help provider organizations gain additional benefits from their existing legacy systems.

WHY HASN'T ON-LINE DISTRIBUTION CAUGHT ON?

The demise of so many dot-coms can be attributed to much more than the rapacious competition. After all, several of the competing companies should eventually emerge as clear winners, yet that hasn't happened in Internet-based medical technology supply-chain management.

The potential remains, of course. The healthcare market has several characteristics that make it well suited for an Internet-based marketplace solution—its large size, high degree of fragmentation, significant inefficiencies, industry cost pressures, and highly complex supply chain.

The last characteristic includes a broad, heterogeneous list of healthcare providers: manufacturers that range in size from the small start-up struggling to develop one device to multinational research-driven medical technology companies spanning multiple markets; both local and national distributors; aggressive group-purchasing organizations (GPOs); and rapidly evolving multispecialty, multisite managed-care integrated-delivery networks (IDNs). Internet-based marketplaces and exchanges aim to significantly improve business processes within these organizations; first they must get broad agreement on some basic practices, however, a task that is more difficult than it seems.

According to the most recent estimates, the healthcare supply chain (i.e., the buying and selling of healthcare supplies, equipment, and services) is a $200-billion-a-year industry in the United States. From 10 to 15% of that annual spending is wasted on inefficiency, redundancy, and poor data and pricing information. The result: nearly $11 billion of the $83 billion spent on medical, surgical, and pharmaceutical supplies is attributed to redundancies and inefficiencies within the healthcare supply-chain process.

Collin Brink, an analyst with the on-line magazine eMarketing.com, gives one important example of the daunting challenge. He says that for the Internet to gain traction in business-to-business healthcare procurement, it will have to demonstrate that it can surpass legacy payment systems. All the levels of distribution mentioned above have existing computer systems and are obviously concerned with recouping returns on those earlier IT investments, and thus demand that any new applications are interoperable with their existing infrastructure.

Brink also cites the complexities of medical device order entry, which is far more complicated than pharmaceutical purchases. The result is that far more drugs are purchased on-line than are devices.

Frustrated by the disparities in computer infrastructure and recognizing that something must be done about it, some leading healthcare GPOs and e-commerce companies formed the Coalition for Healthcare eStandards (Ann Arbor, MI) in June of 2000. The Coalition's goal is to ensure that the cost savings promised by e-commerce will not be compromised by multiple, inconsistent data standards in the industry. It is focused on creating, driving, and adopting e-commerce standards throughout this huge economic sector, which totals well over a trillion dollars annually in the United States alone. If it is to achieve success, however, this standards push must significantly broaden its efforts to include all the above-mentioned stakeholders.

Nonetheless, progress is being made. In April of this year, HealthNexis joined the coalition as a core member with a seat on the board of directors. In addition to HealthNexis, members now include Consorta, empactHealth.com, Healthtrust Purchasing Group, Insource Health Services, MedAssets.com, MedCenterDirect.com, medibuy.com, Neoforma, Novation, and Premier Purchasing Partners. The group represents nearly 70% of the healthcare providers in the United States. (Visit http://www.CHeStandards.org for more information.)

The signing on of HealthNexis is significant because of its nonprofit, member-supported orientation. "HealthNexis brings e-business expertise and an understanding of the issues and complexities involved in making e-commerce a reality for the healthcare supply chain," says Joe Pleasant, coalition chairman and chief information officer at Premier. John Burks, coalition board treasurer and senior vice president of Novation, adds that HealthNexis will help the coalition "develop and drive adoption of data standards that are the basis for more-efficient interactions between healthcare trading partners."

TRANSACTION VOLUMES

Most analysts agree that the chief barometer for measuring future success of e-marketplaces is the transaction volumes. The chief barrier to achieving the volumes anticipated by most healthcare dot-coms is the difficulty of tying together the broad variety of legacy and new information technologies. As healthcare providers and suppliers conduct more transactions with more trading partners through electronic marketplaces, they realize increasing value—lower technology, connectivity, and process costs for successive new customers; greater visibility of spend data and purchasing habits; and on-line collaboration among trading partners. These features of on-line offerings are known as network effects, and follow the principle of increasing returns. They are the chief reason why stock valuations of Internet companies are largely based on future earnings, particularly since so many of them fail to make money currently.

A classic example of how the success of on-line distribution systems is tied to legacy systems and transaction volumes is the experience of Neoforma Inc. (San Jose). "Neoforma's financial success is directly tied to the gross transaction volume of our marketplaces," says Dan Eckert, the president and chief operating officer of the firm. That's because the company's revenues are derived from volume-based fees. Eckert adds that the company will meet another important milestone—achieving cash operating income profitability—by the first quarter of 2002.

Eckert points out that Neoforma is now on track to meet its stated gross transaction volume and net revenue projections. Company gross transaction volume was estimated at $150 million and net revenue totaled $4 million for the most recent quarter available. "As we connect additional hospitals and suppliers to our marketplaces, we continue to drive gross transaction volume," Eckert says. "We delivered on our targets in the first quarter and we're confident in our ability to do it again in the second quarter." Neoforma reported $80.8 million in gross transaction volume in the first quarter of 2001, exceeding previously announced estimates by 21%.

In Neoforma's largest marketplace, the hospital-focused [email protected], a percentage fee is guaranteed. "Less than halfway through the year," says Eckert, "we already have enough healthcare providers and suppliers contracted to participate in our marketplaces to achieve our projected $1.3 billion in gross transaction volume for the year." Currently, 407 hospitals and 80 manufacturers and distributors—including industry giants Abbott Laboratories, Allegiance Healthcare Corp., McKessonHBOC, and Owens & Minor—have joined [email protected] Of the hospitals under contract, 174 have been connected. Novation, the nation's largest GPO, manages $15 billion in annual purchasing for more than 2000 members and affiliates of VHA and University HealthSystems Consortium, and for more than 5200 members of HealthCare Purchasing Partners International.

Neoforma operates two other marketplaces. They include the Canadian Health Marketplace for Medbuy, Canada's largest group purchasing organization, and NeoMD, for the alternate-site healthcare market.

Neoforma has also worked on the important legacy-systems barrier with fervor. In January, the firm announced a partnership with i2 Technologies, a major provider of marketplace solutions, to improve its Internet supply-chain software. The deal comprises a three-year software license agreement and a joint marketing and support arrangement, in addition to revenue sharing. i2 also took a minority stake in Neoforma.

"Our partnership with i2 is unique and exciting for Neoforma," said Bob Zollars, chairman, president, and chief executive officer of Neoforma. "We expect to generate new revenue streams and reduce technology expenses through aligned 'go-to-market' and development strategies. By leveraging i2's industry-leading R&D machine, we expect to accelerate the introduction of new marketplace solutions."

Neoforma and i2's joint solution is aimed at reducing or eliminating supply-chain inefficiencies. Neoforma brings its healthcare expertise, established alliances, and proven customer track record to the relationship.

Meanwhile, in May of 2001, Broadlane Inc. (San Francisco), another on-line provider of supply-chain services to the healthcare industry, announced that its private e-commerce exchange has successfully processed more than 3500 hospital purchase orders since its debut on April 10. In that short time Broadlane handled 35,000 purchase-order line items from 53 Tenet Healthcare hospitals that bought medical supplies from Owens & Minor, Medline, and Tri-Anim. Owens & Minor is a major distributor of healthcare supplies in the United States; Medline and Tri-Anim are suppliers of a variety of medical-surgical supplies. By the end of May, Broadlane executives said, they expected to have completed the integration of 100 Tenet hospitals with Owens & Minor, the firm's primary distributor for medical and surgical products. It has also signed up managed-care giant Kaiser Permanente. Broadlane currently counts among its customers 572 acute-care hospitals and 2335 subacute healthcare facilities.

CONCLUSION

Despite the demise of so many companies in such a short time, the surviving medical technology dot-coms continue to make progress, albeit more slowly than originally anticipated. All that remain recognize the daunting challenges of standardizing the complex flow of goods—and money—through the medical and healthcare supply chain.

While it remains to be seen whether the companies that want to compete in this game will be successful, important efforts to overcome the significant obstacles are well underway. Medical device firms should encourage them; they may well be the future of distribution. As Intel founder Andy Grove recently said, "The Internet is real and it's here to stay."

Copyright ©2001 Medical Device & Diagnostic Industry

The Effects of FESTO on Medical Device Patents

Originally Published MX July/August 2001

Governmental & Legal Affairs

A new ruling could drastically reduce the value of a medical device manufacturer's patent portfolio.

Eric K. Karich

The medical device industry spends a tremendous amount of resources on R&D efforts. Those device companies that are successful in their product and technology development efforts add value to their business through their patent portfolios. But the rules of patent law have changed, and company valuations in the medical device industry are sure to change with them.

On November 29, 2000, the Federal Circuit Court of Appeals delivered a decision in Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co. Ltd. (Festo) that rocked the patent world. The decision not only profoundly altered the way that patents are prosecuted, but also dramatically altered the present scope and value of existing patent portfolios. It is important that executives of medical device companies understand the dramatic changes brought about by Festo in order to properly evaluate their own patent portfolios as well as those of their competitors.

FDA's Regulation of Internet Promotion and Advertising

Originally Published MDDI July 2001

Medical device manufacturers must closely monitor the content of their Web sites and related links to avoid being reprimanded by FDA for product adulteration or misbranding.

Jeffrey K. Shapiro and Jonathan S. Kahan

When Internet use accelerated in the late 1990s, some observers predicted that the new technology would add an impossible burden to FDA's regulation of promotion and advertising. The World Wide Web made possible nearly instantaneous global transmission of information about medical products. It appeared that FDA might be forced to rethink its entire approach to regulating advertising and promotion, especially promotion of off-label uses. Indeed, in October 1996, FDA held a public meeting to discuss how this revolutionary new medium should be regulated.

THE INTERNET AS ENFORCEMENT TOOL

Surprisingly, in the past year or so, the Internet has proven itself one of FDA's most effective enforcement tools. FDA watchdogs can simply access the Internet to quickly and easily gather and document evidence of promotional violations. Many companies are presenting FDA with written and often irrefutable evidence of violations of the Federal Food, Drug, and Cosmetic Act (FD&C Act) that appear as aggressive Web site postings. As a result of this increased access, FDA's output of untitled letters and warning letters for promotional violations is on the rise. At the same time, some, like the Washington Legal Foundation (WLF), believe FDA's reach has extended beyond its statutory mandate.

Still No General Guidance. In July 1999, nearly three years after its October 1996 meeting, FDA publicly stated its intent to draft an Internet guidance document. Since then, however, the agency has publicly confirmed that the guidance-drafting effort has been suspended indefinitely. While FDA has talked about plans to address Internet issues in future guidances related to promotion and advertising, no general guidance will be issued in the near future. This regulatory void is unfortunate. A clear, general guidance could have resolved or prevented many industry misunderstandings about what material is or is not acceptable to post on a company's Web site.

Enforcement on a Case-by-Case Basis. In the absence of a general Internet guidance document, FDA's regulatory expectations have been communicated in untitled letters and warning letters. The majority of these cite violations similar to those pursued in the off-line world. Most of the letters allege that statements on the companies' Web sites either promote a device for a new intended use requiring a separate premarket notification (or 510(k)) clearance or premarket approval (PMA) application, or that they unlawfully promote an investigational device. These alleged violations reflect CDRH's traditional legal theories, and no new statute has been proposed or regulation promulgated by FDA to prevent such allegedly violative activity.

The legal basis for FDA's approach is as follows: After FDA grants a company premarket approval or 510(k) clearance of its device, that device may be labeled and promoted only for its approved or cleared intended use. According to FDA's regulations, the intended use of a device is determined from the circumstances surrounding distribution. The pertinent FDA regulation reads:

The words intended uses... refer to the objective intent of the persons legally responsible for the labeling of devices. The intent is determined by such persons' expressions or may be shown by the circumstances surrounding the distribution of the article. This objective intent may, for example, be shown by labeling claims, advertising matter, or oral or written statements by such persons or their representatives. It may be shown by the circumstances that the article is, with the knowledge of such persons or their representatives, offered and used for a purpose for which it is neither labeled nor advertised. (Code of Federal Regulations, 21 CFR 801.4)

Thus, when a device is promoted for an unapproved new use on a firm's Web site, FDA may conclude that the device has a new intended use. The device is consequently considered adulterated or misbranded until FDA grants the manufacturer a new PMA or 510(k) clearance.

A recent example of intended-use infringement is CDRH's January 2001 warning letter to Voyager Medical Corp. (Portland, OR) alleging the company's therapeutic massager was cleared only for relief of minor muscle aches and pains, increase of local blood circulation, and local muscle relaxation. Voyager's Web site, however, reportedly made claims that the device treats a wide range of temporary and chronic conditions said by FDA to be beyond the scope of the 510(k) clearance. FDA's legal position is that the company created new intended uses for the device, which render it adulterated or misbranded until a separate PMA or 510(k) clearance is obtained.

In another recent example, FDA applied the intended-use regulatory approach to product testimonials posted on-line by patients and clinicians. The agency issued two warning letters last year (May 19, 2000, to Phazx Systems Inc., Colorado Springs, CO, and August 25, 2000, to Z'Strong International, El Monte, CA) citing violations based on testimonials appearing on the two companies' Web sites. In particular, Phazx Systems' product was cleared only for measurement of galvanic skin resistance for biofeedback information. Several statements posted on Phazx Systems' Web site, however, testified that the product successfully diagnosed medical conditions. FDA argued that these claims effectively created new intended uses for the product that required additional 510(k) clearances to avoid a charge of adulteration, misbranding, or both. The Z'Strong International case raised a similar issue.

Investigational Devices. FDA's regulations prohibit a sponsor from promoting or commercializing an investigational device or representing it as safe and effective for the intended use under investigation (Code of Federal Regulations, 21 CFR 812.7(a), (b), and (d)). When promotional information about an investigational device appears on a firm's Web site, FDA may conclude that the firm has violated that regulatory prohibition.

THE WLF PETITION

FDA has not taken a stance on whether the medical product information available on the Internet is labeling or advertising. The agency may need to confront the issue soon, however, in light of a citizen petition filed on April 13, 2001, by WLF. The group has requested that FDA formally draft a definitive rule, policy, or guidance stating that information on a company's Web site—including information displayed on third-party sites to which the site is linked—does not constitute labeling as defined by the FD&C Act and in light of relevant judicial precedents.

WLF further asks FDA to declare that information on, or accessible through, a Web site may, but does not necessarily, constitute advertising. WLF specifically cites a recent warning letter issued to Ocean Spray Cranberries Inc. ( Lakeville- Middleboro, MA) in which FDA threatened to seize product because of the company's failure to conform to food labeling requirements. In the letter, FDA's New England district office found that the content of the company's Web site— including "health claims" related to its juices—constituted labeling and was therefore violative of food labeling regulations. The products were then subject to potential seizure.

WLF has previously engaged in litigation with FDA concerning what health information may be disseminated by industry. Therefore, if FDA ignores the WLF petition, or refuses to grant WLF's request, it is likely that WLF will take legal action against the agency.

WLF and Medical Device Manufacturers. If WLF prevails, and Web sites are deemed advertising and not labeling, the consequences could be significant for device manufacturers. In the case of medical devices, the jurisdiction for false or misleading statements would reside in the Federal Trade Commission (FTC), which has no product-seizure authority. Under the device authorities of the FD&C Act, FDA only has authority over advertising for restricted devices, which constitute a very small minority of devices regulated by the agency. However, CDRH could continue to issue warning letters alleging that a Web site has created a new intended use requiring separate 510(k) clearance or premarket approval. As stated in 21 CFR 801.4, the objective intended use of a device can be determined by all the circumstances surrounding distribution, including "advertising matter." Therefore, it is CDRH's position that information posted on a Web site can change the intended use of a device, taking that use outside the scope of the original clearance or approval. Similarly, CDRH could continue to issue warning letters alleging that a Web site has promoted or commercialized an investigational device. CDRH takes the position that this regulation extends to all promotional activities, including advertising.

Ultimately, it is unclear whether WLF's petition will result in litigation or a change in FDA policy. What is clear is that FDA has, for some time, taken an expansive view of what constitutes labeling. The device industry has traditionally been reluctant to challenge the agency's position. The WLF petition may prove to be the catalyst for either agency or judicial clarification as to FDA's reach concerning Web site content in particular and labeling in general.

FOREIGN AND U.S. APPROVAL STATUS

Another important Internet issue concerns the content international companies may legally post on their Web sites regarding products that have received approval outside the United States for uses that are unapproved or considered investigational by FDA. Before the advent of the Internet, segregating promotional materials for the U.S. market from those intended for the rest of the world was relatively simple. Because of the global nature of the Internet, however, information displayed on a company's Web site is accessible across national boundaries. Companies are unclear on the legality of posting on their Web sites' product information that is lawful outside of but not in the United States.

FDA's position is that if a company's Web site is accessible from the United States, it must reflect the U.S. clearance or approval status of that company's products. A Web site should clearly state which intended uses and indications for a product have been cleared or approved by FDA, and which ones are unapproved or considered investigational in the United States. However, the use of disclaimers and caveats warning site visitors that a device is not cleared in the United States for a specific use generally will not pass enforcement scrutiny; in fact, a warning letter issued recently to Datascope Corp. (Montvale, NJ) urged the company to maintain a "separate Web site for those indications approved in the United States and one Web site for those indications approved overseas." Datascope's original Web site had included a list of product benefits; the indications for use approved only in Europe were marked with the disclaimer "Not applicable to the U.S. market." FDA, unsatisfied with the disclaimer, took the position that "it is inappropriate for a Web site essentially targeted to the American consumer to include indications for the device that may be approved in foreign markets but not in the United States."

Similarly, in an untitled letter to Visx Inc. (Santa Clara, CA) dated January 16, 2000, FDA reportedly argued that information on uses available internationally but considered investigational in the United States should only be accessible through a separate link identified for international customers.

In many cases, this task can be accomplished by way of a so-called "gateway" home page listing separate links for U.S. and international visitors. If no link exists between information on U.S.- and internationally cleared products, then FDA appears ready to agree that the Web site conforms to the rules regarding off-label promotion or promotion of investigational products. Additionally, one FDA official has reportedly said that U.S. firms with European subsidiaries are permitted to link the U.S. firm's home page to the home page of a European subsidiary, provided there is no direct link from any page containing U.S. product information to the European subsidiary's site. Again, however, without any written guidance from FDA on Internet use, predicting exactly how FDA may officially approach this issue in the future is difficult.

LINKS TO OTHER SITES AND DOCUMENTS

Hyperlink capability among Web sites poses the question, "May a company provide a link on its Web site to other sites, message boards, or chat rooms that may provide off-label information about the company's products?" FDA's current position is that a company is responsible for information posted on a linked site in the same way that it is responsible for the information that it presents on its own site or in its own promotional brochures. For instance, in a March 1, 2000, warning letter to Sands Hyperbaric Systems (Beverly Hills, CA), FDA cited the company in part because its Web site provided links to other Web sites—including two posted by clinics affiliated with the company—that were allegedly promoting the company's hyperbaric chamber for off-label uses.

In the event that a company's Web site offers a direct link to a journal article discussing off-label uses of its product, such a link will likely be considered violative. By extension, FDA would probably also deem it unacceptable for a firm to link to a chat room or message board it knows to be devoted to off-label discussion of its products. On the other hand, FDA appears ready to accept links to reputable trade association or general medical professional sites that may or may not contain a journal article discussing an off-label use for a device, so long as the manufacturer's Web site does not directly link to a specific off-label-use article.

According to the June 13, 2000, issue of The Gray Sheet, FDA officials have reportedly suggested in recent statements that they might be willing to accept links to journal articles about off-label use if the links were located in a password-restricted area of a company's Web site, with access permitted only to healthcare practitioners and other parties covered under the off-label-promotion safe-harbor provisions of Section 401 of the Food and Drug Administration Modernization Act of 1997. Such a suggestion may serve as a trial balloon offered as a compromise with industry that would permit links to these articles while making their general dissemination more difficult.

FDA has also shared its view that direct links to journal articles containing information about off-label use compromise a company's ability to rely upon FDA's long-standing (but largely unwritten) policy of permitting manufacturers to provide off-label-use articles to healthcare professionals in response to unsolicited requests. In an April 18, 2000, warning letter to OmniCorder Technologies Inc. (Stony Brook, NY), FDA observed that the company's Web site posted direct links to articles with off-label-use information. FDA found that these links were inappropriate and stated that the links were the equivalent of "an open solicitation to the general public" that would "make it difficult" for the company to acceptably fill unsolicited requests for reprints in the future. In other words, FDA maintained that the company had tainted future requests for the reprints as solicited rather than unsolicited. An FDA official reportedly suggested recently that had these links been in a password-protected portion of the company's Web site, the links would not have been considered an open solicitation tainting future requests. A logical conclusion, then, is that FDA is attempting to steer companies toward the use of password- protected links. Whether this suggestion becomes official FDA policy remains to be seen.

FINANCIAL AND CORPORATE INFORMATION

The use of Web sites to communicate information about a company's activities raises issues about what is acceptable for different segments of the public audience. For example, FDA has recognized that companies need to communicate information about their activities and present and future products to investors and other members of the financial community; yet, an on-line press release aimed at investors is equally available to potential customers. It appears that FDA will generally permit the on-line posting of press releases and announcements that include off-label information, e.g., foreign approval of a use not approved in the United States, if the information appears for only a reasonable time and is not directed at customers or potential customers. A preferred practice would be to place the information on a separately labeled "investor information" portion of the Web site. FDA may still object if the information remains for a prolonged time or a press release egregiously promotes unapproved products or off-label uses. Nevertheless, when the intent of on-line off-label discussions or references to unapproved products is to inform the investment community, FDA typically offers manufacturers some freedom.

CONCLUSION

Because FDA holds companies responsible for their Web site content in the same way it does other promotional material, companies should draft and maintain a policy that subjects all material to regulatory review prior to posting it on the Internet. If Web-based activities (e.g., a hosted forum or chat room) occur in real time, the nature of the planned activities should be scrutinized by the company, and guidelines should be established in advance. Information disseminated on the Internet should be subjected to the same compliance review as conventional promotional material; indeed, it would be appropriate for a company to draft detailed standard operating procedures covering Internet promotional activities.

When a manufacturer is uncertain about a specific promotional activity displayed on the Internet, the best course is for that company to seek the advice of regulatory experts to determine whether a valid legal and regulatory rationale exists for the proposed activity. If a company's Internet activity is questionable but not decidedly violative, prudence would dictate taking the conservative approach rather than subjecting oneself to a potential enforcement letter. The stock market has been known to react adversely to FDA allegations of unlawful promotional activities.

Some in industry have criticized FDA's failure to provide general guidance regarding product promotion on the Internet. Critics cite the potential for subjective and inconsistent decisions when enforcement policy is created on a case-by-case basis through warning letters. FDA, however, argues that most Internet cases can be resolved by applying existing policy. In addition, FDA has reportedly said that a team of agency officials meets weekly to discuss and triage Internet-posted promotional violations reported from all centers of the agency (drug, device, and biologic) in an effort to make its enforcement approach more consistent. What remains to be seen is whether such an informal procedure can substitute for a comprehensive, understandable, and detailed Internet policy.

Copyright ©2001 Medical Device & Diagnostic Industry

IT Solutions for Medtech Manufacturers

Originally Published MX July/August 2001

Information Technologies

Part 3: The Bold New Web

The Web revolution is rapidly reaching even the most complicated processes of medtech development and manufacturing, but top management's role will be critical in separating hype from reality.

Cliff Henke

In corporate America, the advent of highly advanced information technology (IT) systems has brought about a revolution in management thinking. As illustrated in the TV-commercial anecdotes that have opened the previous installments of this series, however, the course of this revolution has unfolded only gradually. At first there was ignorance and confusion ("ERP?"), followed by the dawning of a business vision (but, "I don't know how to do that"). And today, corporate leaders are ready for the next phase—ready to adopt and reap the benefits of IT applications in their businesses.

Collaborative Commerce for the Global Economy

Originally Published MDDI July 2001

To compete in the new economy, medical device manufacturers must take advantage of the Internet's instant communications and collaborative platforms throughout the supply chain.

Michael J. Carroll and Christopher Williams

For better or worse, the full-time global connectivity made possible by the Internet is changing the ways medical device manufacturers make and sell products. Traditional business models based solely on process or functional efficiency simply cannot deliver the results needed to compete in a world where successful companies take advantage of the Internet for instant communication and global collaboration.

In this new world, where time truly is money, manufacturers need a new business model based on competitive efficiency that leverages the Internet, allowing them to move forward at maximum speed. Consequently, world-class manufacturers are adopting collaborative product commerce (CPC) as a core competency.

COLLABORATIVE COMMERCE: A WORKING DEFINITION

Collaborative commerce, commonly referred to as c-commerce, is the second generation of e-commerce solutions—providing significantly more value and power than existing solutions. While e-commerce focuses on cost reduction, c-commerce focuses on providing new revenue opportunities by enabling manufacturers to bring innovative products to market faster than the competition.

Collaborative commerce is more than a transaction exchange. It is an intellectual-capital exchange that can potentially deliver the much-anticipated virtual enterprise. To reach the next competitive plateau, companies must deploy new collaborative platforms and strategies. On top of these platforms, they must adopt automated business processes that facilitate the exchange of intellectual capital and capture business-process logic that can be used to improve existing and future products and processes.

The rapid growth of the Internet as a global medium through which businesses can communicate, share information, and conduct business has escalated the level of competition worldwide. The Internet has also provided the technology backplane to enable collaboration in a way that has not been explored before.

The invention of the telephone created a virtual room where two or more people could gather to talk—regardless of geography or time zone. Today, the Internet allows software to stretch business processes across multiple locations and time zones, creating a new "room" in which participants in a particular process can communicate ideas, address concerns, and initiate changes. This exchange, surrounding the definition of a product or service, has been described as CPC by the Gartner Group research firm.

The Aberdeen Group consulting firm defines CPC as "a class of software that uses Internet technology to permit individuals, no matter what role they have in the commercialization of a product, no matter what computer-based tools they use, no matter where they are located geographically or within the supply net, to collaboratively share intellectual data, improving the development, manufacture, and management of products throughout the life cycle."

The collaborative sharing of intellectual data related to the delivery of a product is dependent on the ability to encapsulate a business process and then extend that process across the entire organization or even the entire supply chain. Gartner Group analysts observe that although several vendors are providing various components of the CPC platform, no real automated business-process solutions will be readily available until 2005.

This vision of the potential of CPC solutions is nothing short of revolutionary. Business solutions, enabled by the Internet, will facilitate both active and passive collaboration, control and track tasks and actions, and provide feedback. These CPC solutions will also provide the user with information that facilitates decision making and collaboration—regardless of where data reside. The Aberdeen Group cites this as one of the primary benefits of CPC, saying, "CPC delivers two primary benefits: it improves quality and capability by connecting islands or pockets of product knowledge into a single, extended experience base; and it collapses time and distance variables, using the Internet to gain faster time to market."

Applied to medical device development, the vision of CPC is to harness the speed and efficiency of Internet-based technologies to optimize design, supply, manufacturing, and distribution channels, enabling companies to become more competitive and more profitable. Software vendors targeting the area of collaborative commerce are all offering solutions for one or more commerce-related business processes by facilitating collaboration throughout the enterprise, and between the enterprise and its partners and customers. Specific processes include product design and development, sourcing, change requests or orders, channel management, and outsourced production.

Unfortunately, most of these solutions only focus on that portion of the process relating to the flow of product data out of engineering, and not to the portion of the process that relates to the flow of intellectual capital into engineering. The entire process, outbound as well as inbound, downstream and upstream, must be included.

INTERNET RESHAPES THE COMPETITIVE LANDSCAPE FOR MANUFACTURERS

Traditional business models, such as Deming, Kiasen, and Kanban, are unable to provide total solutions to world-class manufacturers in the new economy. They were created to address only process efficiencies in the pre-Internet age—when changes to processes, products, and services took far longer to materialize than they do now. The chief differences between then and now are the pervasiveness of instant global communication between suppliers, manufacturers, and customers, and the emergence of software-driven improvements in manufacturing. Such distinctions add up to more-efficient ways to communicate and collaborate, make and ship goods, win and keep customers, and, ultimately, make money.

The growing adoption of the Internet for doing business and improving business processes has elevated the level of competition around the world. Such market forces as shorter product cycles, intense customization demands, and greater use of outsourcing services have made CPC essential for most manufacturers. To thrive in the e-economy, manufacturers must be superefficient at sharing information internally as well as with partners, suppliers, and customers in the supply chain.

The accelerating rate of technological change, coupled with growing demand for customized products, has dramatically shortened product life cycles. To keep pace, reduce costs, and increase profitability, manufacturers must speed product changes while creating an environment that promotes continuous improvement and constant innovation. As the rate and volume of product changes increase, so does the need to streamline change processes.

Today's leading medical device manufacturers understand that only by handling change efficiently and at Internet speed can they hope to outpace competitors, thereby maximizing customer satisfaction and gaining competitive advantage. This is especially true when bringing a new product to market, or keeping an existing one in production. The need for collaboration is greatest during the early design of a product and its introduction into manufacturing. One major manufacturer predicted it could save $124 million by 2004 by removing the "collaboration lag" that occurs in engineering when designers submit their designs for team review. The company also estimated that it could save $266 million by 2004 by removing the collaboration lag in manufacturing.

NEW BUSINESS MODELS FOR MANUFACTURERS

The old business models have dematerialized, said Carly Fiorina, chairman and CEO of Hewlett-Packard, at the i2 Planet2000 Conference in San Diego last October. She suggested that profits would not be made on products, but on competitive efficiency. "Speed in making decisions and handling change is the competitive advantage,'' she said. Fiorina noted that companies now have the opportunity to create an almost perfect manufacturing environment because they can initiate change in real time, with all participants involved. Furthermore, she advised that participants should be open to, and flexible with, new and constantly evolving technology. IT professionals, in particular, need to realize that current technology has not necessarily come to stay—they need to understand that today's technology will be obsolete tomorrow, and they should be receptive to new concepts and innovations.

Underscoring this shift from products to competitive efficiency, manufacturers have basically ignored the shop floor for the past 15 years, focusing their automation and technology efforts on engineering and procurement. In many cases, the trend has been to outsource production so that the shop floor is actually in another company or, in many cases, another country.

Medical device manufacturers are also feeling the changes being brought about by the widespread influence of the Internet, including an explosion in the use of contract manufacturers. There is a strong drive to develop products in an almost pure R&D environment. Unfortunately for medical device manufacturers, this process is highly regulated and requires rigorous documentation and traceability. For most, the cost of implementing an electronic change management system is prohibitive, and manual processes that are developed during research and development persist into production and rollout.

As e-commerce continues to mature into c-commerce, medical device manufacturers in particular are looking for cost-effective technology that will enhance their efficiency and productivity so they can maximize profit margins. Total cost of ownership (COO) becomes central to selecting an automated solution, and the COO for most available solutions is too high. The Gartner Group has estimated that the purchase price of an automated solution is only 20% of the COO. The remaining 80% is spent on administering and maintaining the solution. Medical device manufacturers need a solution that automates the change process throughout the product life cycle with a reasonable COO.

Such a solution provides full command and control of both inbound and outbound change requests and change orders. It will reduce the COO by providing off-the-shelf automated processes that embody a wealth of best practices and can be quickly deployed and easily maintained. This kind of CPC solution can close the loop in the change process by ensuring that everything is linked, controlled, and recorded.

Improvement in both active collaboration (such as Internet-based meetings) and passive collaboration (such as e-mail, attached documents, and captured intellectual capital) fuels innovation and efficiency. Replacing ineffective and error-prone paper-based systems, faxes, overnight delivery services, and e-mail systems enables a collaborative commerce solution to transform change management into a value-added process that improves a manufacturer's competitive position by reducing costs, improving productivity, and increasing quality.

Currently, more than 80% of companies use manual systems such as packages of files and drawings, fax machines, overnight services, couriers, travel, meetings, and e-mail. Many medical device manufacturing analysts estimate that the percentage is closer to 99% in the regulated industries because of concerns about regulatory compliance, particularly 21 CFR Part 11 electronic-signature requirements.

Companies that are actually processing change electronically are doing so mostly through homegrown electronic systems. Such systems are costly to develop, prone to error, heavy in infrastructure, high in maintenance, marginal in value, incapable of leveraging the ubiquity of the Internet, and provide no real-time interaction with external business partners.

Competitive efficiency revolves around an Internet-based business process that is manufacturing-centric—providing total command and control over what is being made at every process phase. Throughout the product life cycle, intellectual property must be accessible to all members of the supply, design, and manufacturing chains at any time.

Properly deployed and used, CPC permits all individuals in the supply chain to unleash and exchange silos of intellectual property and production data using Internet technologies. Companies can elect to purchase the components of a CPC platform and automate various business processes as focused CPC solutions, or they can find a vendor that has applied CPC technology to a business process and packaged that technology as a CPC business solution.

BENEFITS OF CPC

CPC can help manufacturers manage change, make decisions, and act on those decisions with optimum speed. It improves product quality and increases efficiency by automating complex business processes by connecting centers of product knowledge and eliminating the confusion common in non-Internet systems. Essentially, it can result in faster time to market, time to volume, and time to productivity.

  • Faster time to market can yield a shorter cycle time for new product introductions, lower costs, less time required for meetings, streamlined processes, and reduced friction among departments by eliminating the walls between engineering and manufacturing.
  • Faster time to volume means that a manufacturer can ramp up to full production rapidly, collapse time and distance variables by means of the Internet, and increase supply chain satisfaction through bilateral communication.
  • Faster time to productivity means that manufacturers can reach the "sweet spot" of capitalizing on optimum efficiencies in order to capture profits quicker and produce a greater return to the enterprise.

Other benefits include a competitive advantage, cost reductions, productivity improvements, better quality, and a quick return on investments.

Competitive Advantage. Customers cannot be served if a factory is not prepared to respond to change. Many manufacturing professionals are unaware of how valuable manufacturing change management can be to their environment.

"Manufacturers need to change years and years of embedded thinking," says Sanji Sidhu, chairman of i2 Technologies Inc. (Dallas). "The primary problem is in the cost of variability—that is, the cost of change, [and] the primary force behind inefficiency is change. The key problem is coordination and synchronization [and] you must manage change through high-velocity planning and high-velocity collaboration with all partners. All players need to be on the same page."

Cost Reduction. Using a CPC solution, manufacturers can lower costs through a timely implementation of change. This results in less scrap, less rework, and less inventory being required. By analyzing the effectiveness of change management, manufacturers can reduce slow-moving inventory and avoid costly mistakes.

Bill-of-material cost reductions can be targeted by all participants and tracked in real time. This work can be done interactively throughout the global organization with the participation of all members of the supply chain, from the stockroom clerk and assembler to the inspector or tester on the factory floor.

Productivity Improvements. Because a CPC solution can reduce scrap and rework for a manufacturer, less overtime is required and overdue orders can be reduced. As a result, less time will be needed to monitor and track such out-of-control conditions. Additionally, because decisions can be made and implemented quickly, on-time shipments increase, requiring less manpower.

Through improved productivity, manufacturers can often reduce their head count or prevent the head count from increasing —even with high product volume.

Additional productivity benefits are derived from administrative advances that enable people to focus on creative possibilities instead of being mired in problem solving. Certainly not to be overlooked are the benefits of fewer meetings and reports.

Better Quality. When improvements can be implemented with surgical precision and timing, higher quality results. Simply put, there are fewer mistakes, fewer material reports, fewer corrective-action requirements, less rework, and less scrap. The manufacturing team is more likely to be able to do its job right the first time, which is critical in the medical device market and results in higher-quality products and greater customer satisfaction.

Additionally, a good solution facilitates synchronized relationships, allowing all members of the supply chain to move together at the same pace, which fosters an ideal manufacturing environment. This environment produces increased productivity, and ultimately faster time to profit. What were once hard-to-obtain targets can become business-as-usual expectations.

CPC can quickly focus an organization's entire business on the requirements of the new economy. Real collaboration, in real time, provides the actual competitive advantage that bridges the gap between the old economy and the new global economy. Companies that do not make the transition to new technologies will fail to compete and be left behind.

Quick Return on Investment. On average, a collaborative commerce solution will yield extraordinarily fast returns—within three months in some cases, and within a year in most.

CONCLUSION

To succeed in today's economy, medical device companies must have the fastest, most efficient business model. The development and nurturing of such a model must be pursued with missionary zeal if companies don't want to see their technologically innovative product become tomorrow's commodity.

Device manufacturers must take control of the complete manufacturing-change life cycle and communicate in real time throughout the supply chain, globally. Critical to success is the ability to collaborate and communicate—ensuring that all participants speak the same language, plan together, transact business together, and execute process change together. All departments, divisions, and members of the supply chain must work together at the same optimized pace, while eliminating friction of all types across the organization and supply chain.

SOME LEADING SUPPLIERS OF COLLABORATIVE COMMERCE SOFTWARE

Ingenuus Corp. (Sunnyvale, CA)
www.ingenuus.com

Ingenuus provides software that enables manufacturers to take command and control of the product change life cycle by providing real-time collaboration throughout the global supply chain. The software enables various change requests and change orders to be generated, routed, reviewed, and approved efficiently.

Flagship Product: Manufacturing Change Manager. Designed to support manufacturers that must achieve extremely aggressive growth targets, the Internet-based Manufacturing Change Manager (MCM) facilitates and drives every aspect of intelligent manufacturing for collaborative commerce. MCM improves the ability of all members of the manufacturing-content supply chain to communicate and collaborate with one another about new or changing information concerning the manufacture, source, or supply of products or components. The product is intended for participants in outsourced supply chains and companies managing multisite engineering, manufacturing, sales, and distribution operations that are connected via the Internet.

Agile Software Corp. (San Jose, CA)
www.agilesoft.com

Agile provides software that enables supply-chain partners to communicate and collaborate over the Internet about new or changing product content, then source and procure the required components. At its MyAgile.com site, Agile also provides the dispersed supply chain with mission-critical e-services, such as on-line marketplaces, custom part procurement, wireless access, and components research.

Flagship Product: Agile Anywhere. The Agile Anywhere suite of products offers a comprehensive web-centric business-to-business solution to the problem of product change collaboration across the manufacturing supply chain. Using XML technology, Agile Anywhere allows supply-chain partners to share and collaborate on product content and changes in real time via the Internet. At the core of the Agile Anywhere suite is the Agile eHub, which can be used to manage product content, processes, and business rules. Information consumers and collaborative users interact with the product content within the eHub via the MyAgile portal.

Documentum Inc. (Pleasanton, CA)
www.documentum.com

Documentum provides enterprise content management software for automating the production, exchange, and personalization of all types of content. Built on an Internet-scale, XML-enabled, and standards-compliant platform, Documentum products manage Web content, power portals, enable collaborative commerce, and solve regulatory content challenges.

Flagship Product: Documentum 4i. The 4i platform enables companies to manage and distribute large volumes of content within and beyond the enterprise. Based on long-standing expertise for managing electronic content, Documentum 4i provides an open, scalable, and reliable platform for building and deploying e-business solutions, enabling collaborative portals, meeting regulatory requirements, and powering global Web sites.

MatrixOne Inc. (Chelmsford, MA)
www.matrixone.com

MatrixOne provides software that facilitates business-to-business collaboration among customers, suppliers, and business partners, while enabling secure access to independent trading communities and applications within private and public Internet markets.

Flagship Product: eMatrix 9. An open, flexible Internet platform with extensive collaboration services, adaptable business applications, and a suite of packaged integrations, eMatrix 9 software delivers an array of product life cycle capabilities—from concept and design through manufacture and ongoing service.

Copyright ©2001 Medical Device & Diagnostic Industry

MAKING AN Entrance

Originally Published MX July/August 2001

Finance

IPO veterans relay what it's really like to take your company public.

Stacey L. Bell

A few days shine more brightly than others in a company's history: the day a new product wins FDA approval, the day a company's first sale is made, and the days a firm's stock is priced and then begins trading publicly.

"You're tickled pink on pricing day," says Nassib Chamoun, president and CEO of Aspect Medical Systems Inc. (Newton, MA). "It's payoff day. You get to see the result of all your hard work. It's a phenomenal feeling—right up there with the next day, when your stock starts to trade."

Satisfying QSR Requirements with Collaborative Production Management Systems

Originally Published MDDI July 2001

Satisfying QSR Requirements with Collaborative Production Management Systems

A technology based on the Internet and intranets can automate the tasks required for regulatory compliance.

Steven A. Vogel

Among the regulatory burdens faced by healthcare manufacturers is the fact that the production of medical devices requires adherence to FDA's quality system regulation (QSR). This complex undertaking is made even more difficult for many companies because of a trend toward increased outsourcing to contract manufacturing plants all over the world. Given the added complication that a project's design input often originates from several locations within different companies, the challenge of meeting the QSR requirements can sometimes seem overwhelming.

To assist manufacturers with QSR compliance, systems are beginning to be deployed that make it easier to meet FDA requirements—particularly in such extended, or "virtual enterprise," environments. Built around the Internet and intranets, these systems are collaborative in nature and can reach beyond the walls of a particular manufacturing plant to interact with similar systems in other facilities. Expanding beyond the capabilities of earlier, software-based solutions, they can also interact with enterprise resource planning (ERP) and product data management (PDM) systems anywhere in the world, resulting in networks that can provide unprecedented data integrity throughout the entire medical product life cycle.

This article discusses such collaborative production management (CPM) systems, which are being used by a number of medical manufacturing companies to address various QSR requirements, including the sections dealing with traceability (820.65), production and process controls (820.70), process validation (820.75), device master records (820.181), and device history records (820.184).

Figure 1. The four elements of collaboration.

WHAT IS COLLABORATIVE PRODUCTION MANAGEMENT?

CPM is one of four key elements of collaborative product commerce, or CPC. As defined by the Aberdeen Group, this term describes the technologies used to help companies collaborate on design, sourcing, planning, and manufacturing functions. Figure 1 shows the four constituent elements of CPC. Each of these technologies provides visibility—by tracking design changes, for example—and collaborative tools to allow interaction among team members throughout the extended enterprise.

WEB-CENTRIC SOLUTIONS

The new technology driving collaborative manufacturing solutions is the Internet. Systems have evolved from distributed architectures in the 1980s to client/server architectures in the 1990s to Web-centric solutions today. To further promote interactivity among these systems, the computer language known as extensible markup language (XML) has become the predominant data-interchange mechanism that is recognized by Web-centric clients and servers. The use of Java as a universal Web programming language and the use of common object request broker architecture (CORBA) as a platform-independent middleware are also key ingredients for this architecture.

Figure 2 illustrates the architecture for one current CPM system. Among the important features of this architecture is the ability to interface via Web browsers over a company intranet or the Internet. In addition, the architecture has the ability to scale the solution—that is, to add server hardware and software to process higher transaction volumes as product lines are added—with application servers to meet the performance needs of the problem. Also, the use of XML and HTML as a way of communicating to outside systems allows collaboration with engineering, planning, and sourcing databases located anywhere in the world.
Figure 2. Architecture for a collaborative production management system.
Figure 3. A typical electronic medical device manufacturing line.

CPM AND THE MANUFACTURING PARADIGM

To demonstrate the use of a CPM system to meet the QSR requirements, one can take the example of a case study based on an electronic medical device. The production setup for the device consists of a printed circuit board (PCB) line, a final assembly and test line, and a packaging and shipping line, as shown in Figure 3.

As is typical in medical electronics manufacturing, the first part of the production line is dedicated to circuit board assembly. In this case, products are surface-mount devices (SMDs) that are placed onto the board with high-speed, SMD-placement equipment. The two-sided board requires components to be placed on both sides. The last step in the circuit-card assembly is optical inspection using automated equipment to examine solder joints and component placement.

The second portion of the production line encompasses final assembly and test. In this stage, the circuit card is placed into the final device and additional product components are assembled. After assembly, a procedure is run on the unit to test all functional characteristics. If a problem is detected, a rework process is provided to debug the unit, make necessary repairs, and send it back for more functional testing. A final inspection is carried out to check all visual and cosmetic aspects of the product.

The final manufacturing stage involves packaging and shipping. During this process, the product is put into its final package along with appropriate user instructions, peripheral devices such as power cords, and packaging and wrapping materials. The last step is to place the packaged unit into a shipping container that will be put directly onto a truck, train, or other form of transportation.

The production line also includes three material storage areas for components that are loaded onto the SMD machines and final assembly stations. There are also two work-in-process (WIP) queues used as temporary storage buffers between major parts of the production line. These buffers allow for differences in production rates and product mix among the three main sections of the assembly process.

N-LEVEL TRACEABILITY

Among the major QSR requirements is traceability of components and component lots through their manufacture, assembly into final product units, and packaging and loading into containers for shipping. The first step in this process is the assignment of a serial number at the board level that is then incorporated into a work order. The work order links the board to all product data (bills of materials, engineering changes, manufacturing instructions, design information, etc.). Once this relationship is established, the serial number of the board becomes the means of tracking and managing the product throughout the production process.

Collaboration is an overriding concept implying that individuals involved in product design, product changes, order fulfillment, manufacturing planning, and manufacturing execution are able to "see" the information and to change information in real time. For example, if an engineering change notice (ECN) is introduced, it immediately becomes enforced in production via the CPM system. If an order is changed, CPM immediately enforces the change.

When the circuit board is placed into the device at the beginning of final assembly, a second serial number is associated with the final unit to track it through the final assembly, test, and rework operations. At this point, the serial number of the circuit board is merged with the serial number of the final unit. This happens again during packaging, when the serial number of the final unit is merged with the serial number of the packaged box containing the unit, instructions, power cords, and other items.

The ability to merge product information into the successive levels of product buildup is referred to as n-level traceability. This process provides a complete product genealogy throughout the manufacturing process.

COMPONENT LOT TRACEABILITY

One of the most important aspects of traceability is the tracking of component lots to the final product. In the electronics example, the lot number of each SMD component at the two SMD placement procedures, as well as the components going onto the end item at final assembly, must be tracked. This is accomplished by reading the lot information on the component boxes, reels, or other forms of bulk material as they are placed onto the equipment or put into bins at the assembly line (bar codes are scanned by operators on the shop floor). This process establishes the link between the component lot number and the subassembly or end item with which the components are associated.

If a component lot is subsequently determined to pose a problem (due to nonconformance, presence of defects, obsolescence, etc.), the finished devices that received components from this lot can be very accurately traced and recalled for further action. If those units are in the manufacturing facility, they can be tracked to individual stations or work queues; if they have been shipped, they can be tracked to their final destinations.

ENGINEERING CHANGES

Another critical tracking problem for medical manufacturers—and especially for contract manufacturers—is the management of ECNs in the production process. The ECNs may be coming from one customer or from several customers, depending on the complexity of the supply chain.

ECNs can occur for a variety of reasons. The product design sometimes changes to incorporate less-expensive materials, especially during the transition from initial product start-up to mass production. A design can also change to address performance or endurance deficiencies, or as a result of concerns over device safety or other regulatory issues.

ECNs must go through a rigorous process of review and sign-off before they can be released for production. When they finally clear this process, they are generally released through a product data management procedure. Once this occurs, the change is implemented according to an effectivity date, which indicates the date on which the change should be implemented on the factory floor. After this date, no product must be made with the previous version of the component.

With CPM, the processing of ECNs can be efficiently achieved. Because each product is identified by a serial number at each level of assembly (n-level traceability), and each serial number is associated with a work order that tracks back to the latest bill of materials, any ECN will immediately be implemented in production at the exact moment it becomes effective. When the product on the assembly line arrives at a workstation and its serial number is read by the system, the latest bill-of-materials information is consulted. If the component setup does not conform to that bill of materials, the process will be stopped until the problem is resolved.

For example, if an ECN changes a resistor that is being placed on a circuit board, the obsolete resistor would be rejected if the operator attempted to load a new reel containing the old part to the machine.

DEVICE HISTORY RECORDS

QSR compliance requires the presence of a complete device history record that represents the as-built configuration of the medical device and incorporates all production results, such as test and rework processes. With paper-based systems, it can be costly, difficult, and time-consuming to collect this information and maintain an effective process over an extended time period. Moreover, the information is often subject to errors.

CPM systems can automate and improve this process, since all information for the device history record is saved as a by- product of the production management system. In addition to the collection of serial-number traceability information described above, CPM systems also capture information at each process step using the XML capabilities of the software. For example, at each test and inspection station, all symptom and defect information is collected and associated with the serial number of the final unit. In the case of units that fail a test, all of the rework information is also captured, including traceability data for rework materials that are added to the unit. Because the exact bill of materials in effect at the time of manufacture is known, the as-built bill-of-materials information is also included in the device history record.

CONCLUSION

CPM systems automate and integrate many of the tasks required to achieve QSR conformance. In an industry that is becoming more extended because of outsourcing and increasingly complex global customer-supplier relationships, this technology represents an important component of a successful manufacturing strategy for medical device companies. As firms become part of an extended supply chain, the need for flexible CPM systems that can integrate with multiple PDM and ERP systems will increase.

Because different medical devices—from custom products to disposables—are fabricated in a wide range of production volumes, CPM systems must be capable of addressing the diverse spectrum of production environments. The use of Web-centric technology with middleware provides an unprecedented level of scaleability and reliability that makes these solutions viable for both low- and high-volume device manufacturing.

SELECTED SECTIONS OF THE QUALITY SYSTEM REGULATION FOR MEDICAL DEVICE MANUFACTURING

SEC. 820.65 TRACEABILITY

Each manufacturer of a device that is intended for surgical implant into the body or to support or sustain life and whose failure to perform when properly used in accordance with instructions for use provided in the labeling can be reasonably expected to result in a significant injury to the user shall establish and maintain procedures for identifying with a control number each unit, lot, or batch of finished devices and where appropriate components. The procedures shall facilitate corrective action. Such identification shall be documented in the DHR [device history record].

SEC. 820.70 PRODUCTION AND PROCESS CONTROLS

(a) General. Each manufacturer shall develop, conduct, control, and monitor production processes to ensure that a device conforms to its specifications. Where deviations from device specifications could occur as a result of the manufacturing process, the manufacturer shall establish and maintain process control procedures that describe any process controls necessary to ensure conformance to specifications.

Where process controls are needed they shall include:

  1. Documented instructions, standard operating procedures (SOPs), and methods that define and control the manner of production;
  2. Monitoring and control of process parameters and component and device characteristics during production;
  3. Compliance with specified reference standards or codes;
  4. The approval of processes and process equipment; and
  5. Criteria for workmanship which shall be expressed in documented standards or by means of identified and approved representative samples.

(b) Production and process changes. Each manufacturer shall establish and maintain procedures for changes to a specification, method, process, or procedure. Such changes shall be verified or where appropriate validated according to Sec. 820.75 before implementation and these activities shall be documented. Changes shall be approved in accordance with Sec. 820.40.

SEC. 820.75 PROCESS VALIDATION

(a) Where the results of a process cannot be fully verified by subsequent inspection and test, the process shall be validated with a high degree of assurance and approved according to established procedures. The validation activities and results, including the date and signature of the individual(s) approving the validation and where appropriate the major equipment validated, shall be documented.

(b) Each manufacturer shall establish and maintain procedures for monitoring and control of process parameters for validated processes to ensure that the specified requirements continue to be met.

  1. Each manufacturer shall ensure that validated processes are performed by qualified individual(s).
  2. For validated processes, the monitoring and control methods and data, the date performed, and, where appropriate, the indiv-idual(s) performing the process or the major equipment used shall be documented.

(c) When changes or process deviations occur, the manufacturer shall review and evaluate the process and perform revalidation where appropriate. These activities shall be documented.

SEC. 820.181 DEVICE MASTER RECORD

Each manufacturer shall maintain device master records (DMRs). Each manufacturer shall ensure that each DMR is prepared and approved in accordance with Sec. 820.40. The DMR for each type of device shall include, or refer to the location of, the following information:

(a) Device specifications including appropriate drawings, composition, formulation, component specifications, and software specifications;
(b) Production process specifications including the appropriate equipment specifications, production methods, production procedures, and production environment specifications;
(c) Quality assurance procedures and specifications including acceptance criteria and the quality assurance equipment to be used;
(d) Packaging and labeling specifications, including methods and processes used; and
(e) Installation, maintenance, and servicing procedures and methods.

SEC. 820.184 DEVICE HISTORY RECORD

Each manufacturer shall maintain device history records (DHRs). Each manufacturer shall establish and maintain procedures to ensure that DHRs for each batch, lot, or unit are maintained to demonstrate that the device is manufactured in accordance with the DMR and the requirements of this part. The DHR shall include, or refer to the location of, the following information:

(a) The dates of manufacture;
(b) The quantity manufactured;
(c) The quantity released for distribution;
(d) The acceptance records which demonstrate the device is manufactured in accordance with the DMR;
(e) The primary identification label and labeling used for each production unit; and
(f) Any device identification(s) and control number(s) used.

Copyright ©2001 Medical Device & Diagnostic Industry

Creating Electronic Catalogs for Greater Customer Interaction and Product Exposure

Originally Published MDDI July 2001

With the proper planning, medical device companies can publish product catalogs in a variety of media from one master database.

Lynda Brooks

Companies in various industries are beginning to heed this prediction offered by the Aberdeen Group (Boston) in a 2000 report: "A key determinant of success in the Internet economy will be the ability to digitize, manage, and distribute information in the form of an electronic catalog that meets end-users' unique and varied requirements." The report also cites industry estimates that the value of Internet-based business-to-business transactions is growing more than 200% annually—and will pass the $2 trillion mark by 2003.

From a marketing perspective, manufacturers and distributors of medical equipment are in a strong, strategic position to take advantage of e-commerce technology. These companies have decades of experience in providing customers with useful product information and taking their product orders efficiently; now medical device OEMs can take advantage of electronic technology to accomplish these same tasks.

With proper planning, a company can simultaneously—and without wasted effort—publish catalogs in the three most popular media: paper, CD-ROM, and the Internet. Serious problems can arise when a company attempts to manage and update its electronic catalogs separately from its print catalog. One basic principle of database management applies: anytime two databases are maintained for the same information, one will be wrong. By using one database to drive both print and electronic catalogs, companies eliminate the need to enter and update information twice, thereby decreasing the potential for error.

MAINTAINING AN ACCURATE DATABASE

Traditionally, the heart and soul of a company's sales department is the product catalog. Thanks to recent technology, the information in that catalog—including product descriptions, photographs, and price information—can be stored, organized, and updated in a single computer database. By using the information in that database, a company can print paper, on-line, or CD-ROM catalogs.

The first steps to a successful e-commerce venture are choosing a database strategy and then organizing the information in the database in a useful way.

Selecting a Database Strategy. All databases are not created equal; it is important for a company to design its product database thoughtfully. One that is poorly designed can be slow, hard to manage, and difficult to expand as new products are added. Poor design compromises one of the database's most important functions: quickly locating products. For example, in a Microsoft Excel database that sales teams use regularly to look up product numbers, the product-number field should be the first listed. Otherwise, finding a number will require a long search and, ultimately, it will be harder to find.

A poorly chosen database is one that is inadequate for its intended use. Using such a database is analogous to pulling a boat with a compact car when what is really needed is a sport-utility vehicle. The sport-utility vehicles of databases are Oracle and Microsoft SQL Server, which provide higher-capacity software than their more primitive counterparts.

Selecting a strategy that works with the company's existing computers and programs also is recommended; companies should avoid using vendors who provide software or service for only one platform, such as Windows NT. Firms should also make sure that the strategy is compatible with standard systems found on the Internet, particularly those of industry-portal Web sites. Such Web sites can act as gateways for a company's product information to reach other industry-specific sites.

Standardizing the Data. After selecting a database, the product information needs to be analyzed and standardized. The information needed to make up the database is typically scattered throughout a company in a variety of forms: on individual computers, in three-ring binders, in printed catalogs, and in the minds of engineers and salespeople. Three types of data analyses should be conducted:

  • A Review of Existing Product Information. The company should perform an inventory of the information contained in existing databases, images, technical drawings, and pricing spreadsheets. A plan to convert that information into a standard electronic format for use in the new system should be devised. This process entails gathering the data onto either a PC or Macintosh computer—not both. For consistency, one image type, either jpeg or bitmap, should be used for all photos. Technical drawings and pricing should also be uniform.
  • A Check for Missing Information. After all the existing information has been collected, the firm should check to see if any elements that would enhance the product information are missing. No detailed product descriptions, graphics, or technical specifications should be overlooked.
  • An Organization of Product Lines. Once all the product information is gathered, it needs to be organized. Again, standardization is key. All employees should use the same abbreviations, names, and styles when entering data. To facilitate consistent data entry, a data specialist can help design a spreadsheet or standard form. Such consultants can also interview all employees responsible for contributing information to the database, such as product managers and marketing staff, to define product families and the features and attributes of each.

DATABASE CREATION AND MANAGEMENT TOOLS

Once the right database strategy has been established and all in-house information has been assessed, collected, and organized, the time comes for actually building the database. The following are tools necessary for the creation and management of information in the database that will be used to produce a catalog.

  • The Editorial Interface. Information is entered and updated in a database using an editorial interface. This is nothing more than a computer program that permits individuals to input information in a standardized format. A typical interface appears as an electronic, fill-in-the-blank form into which employees can enter the necessary data.
  • The Work-Flow Program. Because many departments and individuals en- ter product information into a single database, building a work-flow program into the system is important. This program lists the individuals responsible for checking and approving data, which project stages are mandatory, and which are optional. The program should include these two rules of content management: No product can be published in the catalog until product numbers are completed in the database, and no product can be published until it has been signed off by the CFO. A clear work-flow program ensures that the organization's approval requirements are met and that supervisors are involved in the work being performed.

Content-creation and management tools should be intuitive and easy to use. They should not be so complex that they require users to have a computer-programming background. Such tools help businesses drastically reduce costs by eliminating the need for extensive training and, ultimately, by streamlining the content management process.

PUBLISHING THE PRODUCT INFORMATION

Once the database program is in place and connected with the interface and work-flow management programs, information is ready to be entered into the database by content authors with proper supervision and approvals.

After a company has selected and implemented a database, gathered product data, and devised its authoring and data-management tools, publishing the catalog is its next step. The catalog can be published on paper, on-line, onto a CD-ROM, or all three. Each format has its own benefits to both the company and the customer, and each requires its own set of publishing tools.

Print Publishing. Despite all of the predictions about a so-called paperless office, print remains a viable communication tool. Printed catalogs are handy and are still preferred by many customers. With a print publishing program, companies can produce full-product-line or specialty catalogs from a central database, with the assurance that all product information is as accurate and up-to-date as possible.

CD-ROM Publishing. Some customers prefer viewing product information on a CD-ROM. While this type of catalog looks and operates like an Internet catalog, it typically runs faster and does not require the customer to be on-line. Distribution of CDs is also less costly than print distribution. Another benefit of CDs to customers is that a CD can be accessed when logging onto the Internet is not possible. For example, if a company's sales force works on the plant floor, it may not have Internet access. In this case, accessing a CD-ROM catalog is the more practical option.

Web Publishing. Web-publishing software is used to create a Web-based electronic catalog. An on-line catalog requires dynamic search capabilities and data presentation to meet the needs of all users. Different users—technical staff, salespeople, prospective customers, and channel partners—request various types of information, and they often prefer to access it in different ways. Design engineers, for example, may need to search specific product features, e.g., "waterproof" or "less than 10 lb." Sales representatives, on the other hand, may want to look for items by price. Each user must be able to find products easily, as well as view all of the supporting information, so he or she can buy or recommend the appropriate products.

Both IBM and Microsoft provide standard electronic-catalog packages that contain all the software needed to create an electronic catalog, including database programs, editorial interfaces, and Web-publishing software. IBM's WebSphere Commerce Suite allows a company to select only the features it needs. The software can accommodate dozens to thousands of products. Microsoft Commerce 2000 is another example of a complete electronic-catalog package.

The appearance of the information can vary depending on a company's needs. Some software provides modifiable Internet templates for the display of on-line database contents. Or, a firm may choose to build its on-line catalog pages from scratch. In general, the more features the electronic-catalog software includes, the greater the cost to the company.

INTEGRATING 3-D MODELS INTO ON-LINE CATALOGS

One Company's Innovation

By using a new version of CAD-modeling software developed by SolidWorks Corp. (Concord, MA), companies can integrate 3-D product models into their on-line catalogs. Once integrated, the PartStream.NET software makes it possible for customers to view, configure, translate, and download 3-D images of a product. Users of the program can upload designs from various CAD applications, add new product configurations, and analyze customer visits to their on-line catalogs.

Alden Products (Brockton, MA), a manufacturer of components for heart defibrillators, uses the SolidWorks software in combination with i-Mark's Web-based catalog technology to maintain an electronic catalog. Defibrillator manufacturers searching for components in Alden's catalog, for example, can configure 3-D solid models of Alden connectors and visualize how the connectors will fit into their own designs. Alden president Jeff Greer hopes SolidWork's second version of the software, which performs faster than the original, will lend his company a competitive advantage. "The new-batch-upload and parameter-constraint features will help us easily add new product configurations and quickly upload multiple CAD parts so we aren't limited to uploading one product design at a time," he says.

More information about SolidWorks' 3-D PartStream.NET 2.0 is available at the company's Web site, http://www.solidworks.com.

DIRECTING INTERNET TRAFFIC TO AN ON-LINE CATALOG

For a company that chooses to display its electronic catalog on an existing Web site, gaining public exposure to the catalog is crucial. The following are proven methods for improving traffic to a Web site:

  • Registering the Site with Search Engines. Well-respected, popular engines like Altavista, Google, and Yahoo provide primary access to the World Wide Web.
  • Registering the Site with Leading Industry Portals. Portals are industry-specific sites that provide serious customers with a convenient clearinghouse of product information.
  • Including a URL on All Business Correspondence. A firm's print catalogs, business cards, advertisements, and news releases should each list its Web address.
  • On-line Advertising. Incorporating Internet advertising into its marketing strategy can increase a company's on-line catalog exposure.

INTERACTING WITH CUSTOMERS

There are myriad ways to interact with customers. The most basic way for a company to communicate with customers visiting its Internet catalog is by inviting them to e-mail the customer service department.

A more sophisticated system permits customers to place on-line orders. Each transaction is connected with an existing inventory system, which notifies the customers of whether or not the item is in stock. Final orders are approved and processed in the existing order-entry system.

A fully integrated system such as this one provides a company with up-to-the-minute sales and inventory information. Customers' shipping, billing, and purchasing information is collected automatically. All of this information is valuable in measuring the success of sales and marketing programs, and gives management the tools needed to make decisions about the direction of future marketing plans.

CONCLUSION

Creating an all-inclusive product database is the key to publishing catalogs in a variety of media. The most sophisticated of these, the electronic catalog included in a company Web site, offers customer interaction and product exposure. Successful publishing of such a catalog is reliant upon the company's strategically compiling data, standardizing it, entering it into an editorial interface, and following an outlined work-flow program.

To more quickly and effectively accomplish these goals, some firms hire an e-commerce consultant. Small firms, for example, may lack the technical staff needed for the job. With or without the assistance of a consultant, however, medical device manufacturers and distributors wishing to remain competitive should produce catalogs that offer customers plenty of information, purchasing options, and interaction with the company.

ELECTRONIC-CATALOG SITES

The following are examples of user-friendly electronic catalogs.

BD
http://catalog.bd.com/scripts/catalog.exe

FCI/Berg Electronics
http://www.bergelect.com/

GE Fanuc
http://catalog.geindustrial.com/index.jsp

ITT/Cannon
http://www.ittcannon.com/

Rodale Press
(Gearfinder) http://www.gearfinder.com/
(Gorefinder) http://www.gorefinder.com/

Weidmuller
http://www.us.weidmuller.com/usa/Catalog/catalog.htm

Copyright ©2001 Medical Device & Diagnostic Industry

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