It seems like all of this new talk about reform and tightening regulations at the FDA will usher in a brave new world for the medical device industry.  Should we be worried or hopeful about pending changes to the health care system and the regulatory approval process?  To find the answer, we need only look to the past.  Yes,  like Bill Murray’s famous movie, Groundhog Day we have actually been here before.

Last time we woke up in this situation, it was 1993.  Punxsutawney Phil had predicted 6 more weeks of winter as then-President Bill Clinton was in his first term with a large agenda.  Health care reform and changes to the FDA were at the top of his list.   Legislation was being pushed by late Sen. Edward Kennedy (D-Mass) to increase regulations under then-Chief, Dr. David Kessler (actually appointed by former-President George Bush).  Dr. Kessler made it his mission to take on medical device companies.  The fear and uncertainty of increased regulations had the industry very concerned by late 1993.    Many companies were forced to delay major product releases, while struggling to comply with FDA regulations.  It seemed that this was to be the future for medical devices in the 90’s…until the 1994 Congressional election.

Once the power of congress was reversed, the newly appointed House Speaker, Newt Gingrich (R-Ga.) moved to streamline the FDA, claiming that slower medical device approvals were “killing jobs–and people”.  The reforms were designed to create a more efficient FDA, and encourage the regulatory agency to work with manufactures of new drugs and devices.  Eventually, Kessler resigned in 1996, and a year later legislation finally passed that benefited the industry, the FDA, and patients.

So now, here we are again.  Punxsutawney Phil gave us the same weather outlook, and it would seem we have the same regulatory forecast as well.  Previous posts on the Five-Ten Blog have discussed the current industry climate at-length; suffice to say we are still looking at proposals of increased regulations and slower device approvals via the 510(k) process.

What does this mean?  It may mean that the upcoming meetings to discuss reforms will only be part of the story.  We as an industry certainly need to make our case to the FDA.  However, we have an important mid-term election coming as well, and President Obama needs Congress to approve his FDA budget.  If the pendulum swings back to a more balanced Congress, it will affect the scope of any proposed reforms.  Hopefully, we see a balance that allows safe and effective medical devices to have more timely reviews, and ultimately an industry that continues to innovate and improve the health outcomes of our patients.

Happy Groundhog Day!

Before an hour had even passed, last night’s State of the Union address was already being analyzed and scrutinized in many different ways from a political standpoint.  Taking a closer look at the comments made by President Obama, it is interesting to see the implications this speech has for the continued health of the Medical Device sector.  Among the many issues discussed, two stand out as factors contributing the most to our industry.  Namely these are the continued economic weakness, and concerns over pending changes in health care policy.

The President addressed the economic climate, specifically the credit markets.  He cited that, “financing remains difficult for small business owners across the country, even those that are making a profit.”  This is especially telling if we consider that  most of the new products in the medical device industry come from small and medium sized companies.  Statistics and reports from GlobalData reveal that 56% of medical devices in the R&D pipeline are being developed by small businesses in the United States.   These small businesses need strong capital markets in order to survive and deliver cutting-edge therapies to the market.  These economic pressures combined with stronger regulatory enforcement, were cited in last week’s post as causes for a weaker VC market in the wake of  a proposed medical device tax.  Innovation needs a strong financial backing to survive.  Unfortunately, the President did not relate this to the medical device industry.  Instead, he focused more on the politically charged area of renewable energy.  Clean coal and other green energy technologies seem to be where the President is most interested in seeing new developments.  He stated, “And no area is more ripe for such innovation than energy…It means continued investment in advanced biofuels and clean coal technologies”  This leave some room to wonder where the medical device industry fits into President Obama’s overall plans to strengthen small business and innovation.  The medical device tax was not explicitly mentioned, but the President did discuss his health care reform initiative.

President Obama reiterated his vision for changing America’s health care system, and contended that, ” We are closer than ever to bringing more security to the lives of so many Americans”.  Both parties can agree that some form of restructuring is needed.  The President went so far as to state,

“By the time I’m finished speaking tonight, more Americans will have lost their health insurance. Millions will lose it this year. Our deficit will grow. Premiums will go up. Patients will be denied the care they need.”

Part of the cost for this proposed health care policy would be offset by the controversial “medical device tax”.  It would seem that this tax has a good chance of being reduced and maybe even eliminated in the final bill.  Most political analysts agree that with the recent Senate victory by Republicans in Massachusetts, the President will have to make some concessions in order to get a bill passed.  If that is the case, it certainly would ease some of the pressures in the Medical Device market.

The State of our industry is difficult, but it is starting to strengthen.  Several leading companies, like Medtronic, GE and, Boston Scientific are forecasting 10-12% sales growth and up to 15% annual earnings growth for 2010.  If real progress can be made in the area of the economy, the only concern remaining is regulatory reform.  Federal workloads should be easing as the FDA ramps up its operations.  In the past 2 years, the agency saw its budget  increase by 30%  to $3 billion and hiring grew by 20% to over 8,550 employees.  If the industry is able to influence changes in the 510(k) process to make it more efficient, then increased growth can be achieved.  However, the FDA has made it clear that they intend to tighten regulations.  It remains to be seen how this plays out, but indeed the fate of the medical device industry hangs in the balance.   If the spirit of the medical device industry and the country can be summed up, perhaps the President ended well saying, “We have finished a difficult year. We have come through a difficult decade. But a new year has come. A new decade stretches before us. We don’t quit.”

With all of the changes sweeping through the FDA in this past year, many in the industry are asking questions and waiting for answers on what is to come.  Still, it is encouraging to see that there are a few opportunities where the public and the industry can get access to the process.  This is important, because the device makers actually want to be held accountable, and they also want a say in how regulations will be enforced.  The Agency has been asking for input on many of the new agenda items it is seeking to undertake.

First, since this is a blog we should mention the public hearings that took place just last November regarding how manufactures of FDA Regulated products use the internet and particularly social media.  Most of the discussion that took place over the 2-day hearing covered topics ranging for marketing claims and messages online, to post-market surveillance on social media websites.  Complete coverage of the events and industry reaction can be found on the FDASM website.  Many differing viewpoints still are being considered, and the FDA has yet to enact any formal polices or guidance as a result of these hearings.

Also, most recently the FDA has announced that it will hold a public meeting on Feb. 18 to review the premarket approval, or 510(k) process, used to review and clear medical devices for sale in the United States market.  The goal of the meeting will be to hear comments and questions regarding any pending actions that the Center for Devices and Radiological Health (CDRH) may consider taking to tighten the 510(k) process.  Those wishing to attend  the meeting in person will need to register by 5 p.m. on Feb. 12, 2010. The agency is also accepting written or electronic comments by March 5, 2010.  Other meetings and committee hearings on various topics are posted on the FDA website throughout the year.  Though it remains to be seen how much of the public and industry feedback will find its way into policy, opportunities to have a voice are available.

As a final thought, this newly founded blog and soon to launch social network will be taking comments and feedback to submit to the FDA on the 510(k) process.  In an upcoming panel discussion at the Medical Device Summit there will be an opportunity to give some feedback and suggestions to Heather Rosecrans, Director, 510(k) Staff, CDRH, FDA.  We are collecting these suggestions from the industry in many forms including direct messages on Twitter to @my510k, posts to the Beta my510k.com network site, and comments in this blog.  All feedback will be collated and submitted to FDA on behalf of the community.  Start today and take action to defend our industry.  Change is inevitable, but you can make a difference…just don’t miss the chance to have your voice heard.

Most Americans are starting to get their tax documents in the mail, and finding out just how much of their hard-earned income the state and federal governments have…and how much more they may owe.  It’s one thing when a tax is collected where you can see it.  So what about the hidden taxes out there in the economy?  More often than not, when the government decides to enact “reform measures” or further regulate industry, it simply drives up the cost of doing business in those industries.  Companies then pass these costs onto their consumers, thus impacting the very consumer whom the legislation was supposed to protect.

Case and point with the proposed Medical Device Tax, that the Obama Administration has repeatedly outlined in the healthcare reform plans.  The interesting thing with this hidden tax is that its effects are being felt already, before it has even been enacted.  The mere discussion of the concept has made companies divert hiring plans, reconsider projects, and even caused entrepreneurs and VCs to reconsider further investment in the industry.

The Chronical Telegram reported that just this past week, Invacare CEO, A. Malachi Mixon III tried to get an appointment with President Obama to tour his facility in Elyria, OH and discuss the ramifications of a medical device tax on his company and the industry.  According to the report, Mr. Mixon made the following plea, “Please tell the medical device industry there will be no medical device excise tax in your health care bill so we can get back to business as usual…They are killing small businesses.”  Clearly the sting can be felt in local areas that depend on these companies for jobs and tax revenues.

Even more concerning is when an entire state economy is at stake, as it seems to be in Minnesota.  Device Industry news leader, MedCity News reports that the VC market for Medical Device startups is running dry to the tune of 40% investment reduction from 2009 in Minnesota.  The economy in the state of Minnesota is built on the Medical Device industry in much the way Silicon Valley depends on the Technology sector.  The combination of a down economy, a more active FDA, and the proposed medical device tax have created the “perfect storm” which is keeping Venture Capital locked in it’s proverbial shelter.

In the end, it’s the health care consumer who is paying the proposed tax.  In an industry where price competition is already fierce, the only way for companies to survive these new threats is to limit or delay product releases.  Many companies are being conservative with their project budgets, and may not include potentially cutting-edge products that would have a longer road to FDA approval.  As for the hidden cost of this proposed tax…Potentially live-saving therapy and life-enhancing treatments will not make it to the patients that desperately need them.