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SAN DIEGO – After three days of listening to AdvaMed 2015 panelists rant about the daunting challenges within the device industry, young entrepreneurs could have easily left the conference discouraged. But buried in the doom-and-gloom discussion that dominated the meeting last week were a few reasons for optimism.

"There's a whole environment at the moment that makes it problematic for innovative companies in the med-tech industry to survive," said Caroll Neubauer, chairman/CEO of B. Braun Medical Inc. (Bethlehem, Pa.), during a panel discussion about the innovation ecosystem in crises.

As head of a division of one of the largest medical device manufacturers, Neubauer has a long list of complaints about the current state of the industry, and it was clear from his comments that the medical device tax is at the top of that list. He said the tax is depriving his company of resources that would otherwise be spent on innovation.

"If we could repeal the device tax, that would help our industry tomorrow," he said, then snapped his fingers.

But Neubauer said his intention was not to scare his early stage peers off. "Don't let this discourage you, but take the fight up with us," he said, adding that the health care industry is a "wonderful place to be" in many other ways.

Ashley Wittorf, executive director of AdvaMed Accel (Washington) and the panel moderator, agreed.

"Even though we're seeing a lot of challenges within the industry, there's wonderful, great things happening from a life-changing innovation perspective," Wittorf said.

Nevertheless, the purpose of that particular panel discussion was to dissect the challenges facing the innovation ecosystem and to propose solutions.

The crises

Wittorf kicked off the discussion with some rather grim statistics. She said the number of new medical device businesses that are formed each year has dropped from more than 15,000 in the late 1970s and early 1980s to around 600 in 2012. In the context of all venture investments, med-tech investment has fallen to its lowest level since 2000, she said, and medical device companies now account for just 4 percent of the total venture capital investments in the U.S.

Catherine Burzik, CEO of CFB Interests LLC (San Antonio, Texas), a firm that invests in early stage companies in Texas with about 15 portfolio companies across a variety of life sciences sectors, said it is increasingly difficult to find companies to co-invest with her fund. She said she was in San Francisco prior to moving to San Antonio and she remembers how quickly med-tech funding dried up in the late 2000s when all the money went into social media.

Consolidation in the industry, particularly on the provider side, has created pricing pressure on the industry that trickles down to innovation, Burzik said. Now almost every hospital in the country has a value-added committee that device companies have to sell to as opposed to a decade ago when sales reps could pitch directly to doctors.

"But I refuse to be one who gives up very easily because there's great innovations out there," Burzik said. "We work very hard to find those right companies that we think could move the needle and not be daunted by not enough capital."

Another panelist, Nadim Yared, president/CEO of Cvrx (Minneapolis), talked about the duration from inception to exit, and said it now takes more than 10 years for a company to exit, compared to a few years ago when most companies were able to exit after the first or second phase of clinical development. "Now the exits are after all three phases are completed, regulatory approval and reimbursement accomplished and adoption of the market has been demonstrated," Yared said.

One of the driving forces behind that trend, he said, is an increasing demand for evidence. "FDA wants more evidence. CMS wants more evidence. Large companies that acquire small companies want more evidence. Public investors that invest in IPOs want more evidence," Yared said.

Cvrx has developed an implantable device called Barostim neo that is designed to treat cardiovascular diseases, including hypertension and heart failure, by electrically stimulating the baroreceptors on the carotid artery. The device is approved in Europe for both hypertension and heart failure and is under clinical evaluation in the U.S. and Canada.

Neubauer said medical device companies of all sizes are feeling the pinch as a result of being asked to do more with less. "We're being asked by governments and others to bring the new cures to the world, like in the 21st Century Cures Initiative, and on the other hand they're depriving us of the resources," he said. "It's going to get worse, it's not going to get better, if we don't work on changing that environment."

Taking action

"When I look at what we have done as an industry, particularly through AdvaMed, we have accomplished a lot of smaller successes and we need to do more of this," Yared said.

He used the example of the FDA's expedited access pathway (EAP), issued in April, which has helped bring some devices to the market faster. "Within the EAP, the FDA accepts a higher level of uncertainty in return for shifting some of the evidence collected from the pre-market to the post-market. Bingo, that's exactly what we need," Yared said. "As an industry, we've been complaining about all the external factors [such as] CMS, FDA, the medical device tax. There are some elements that are within our reach."

The most important thing companies in the industry can do to address the current challenges, he said, is to network and participate in organizations like AdvaMed. "If you're a small company and you're not a member of AdvaMed you are missing out on a huge opportunity ... yes, we do compete, but we have shared lessons to learn."

Neubauer said the purpose of discussing these issues is to address them and work on getting them resolved, not to discourage newcomers from doing business in the medical device industry. He encouraged attendees to fight the medical device tax by going to www.united4innovation.com.

"All these issues are resolvable," he said.

Yared agreed and added that there is no better time to start a medical device company than today. "You want to catch the wave on the way up," he said. "We hit rock bottom a couple years ago and we started the way up. Big opportunity."

Innovator winners

AdvaMed's (Washington) ninth annual conference drew more than 2,300 attendees from roughly 900 companies and organizations to San Diego last week. Attendance numbers held steady compared to last year's conference, which also drew about 2,300 attendees. For the first time, the conference hosted the MedTech Innovator finals with four finalist companies making a pitch and the winner was selected by audience vote.

"This partnership with AdvaMed placed our companies and our platform in front of the largest audience of industry leaders in the med-tech industry," Paul Grand, managing director of RCT Ventures (Los Angeles, Calif.), told Medical Device Daily. "The finalists did a terrific job in their presentations. In part, that was due to the much longer period we and our partners had to help the finalists in refining their strategies and presentations."

Mobileodt (Tel Aviv) was the overwhelming winner and Briteseed (Chicago) took second place. Medaware (Raanana, Israel) and Ubiome (San Francisco) were runners up.

Mobileodt launched in 2012 and is developing a portable colposcope for cervical screening. The company touts that its device is more affordable than traditional colposcopes because it leverages the optics and light source of smartphones. The first place cash prize was $200,000.

Briteseed won the second place cash prize of $50,000. The company has developed a surgical device designed to alert surgeons if an unsafe cut is made.

Each of the four finalist companies also won $25,000.

Medaware's technology is designed to identify and prevent prescription errors and adverse drug events.

Ubiome is developing DNA sequencing technology. //

Published: October 12, 2015