Diagnostics & Imaging Week Washington Editor

WASHINGTON — Advanced Medical Technology Association (AdvaMed; Washington) held its first-ever med-tech conference here this week, running concurrently with a meeting of the Global Harmonization Task Force, thus giving the event an international punch.

Many of the sessions focused on the nuts and bolts of getting a medical device to market, as well as a look into how device makers will have to work to stay in business tomorrow.

A Monday session, titled "Future Scenarios for Medical Device Innovation," was an overview of how device firms can best anticipate changes to their markets, based on a business school study of the paradigm commonly employed in business forecasting.

Panel moderator Jim Austin, director of life sciences at consulting firm Decision Strategies International (DSI; Conshohocken, Pennsylvania), used as his text a recent Wharton School of Economics (Philadelphia) study on how the U.S. device industry "might evolve in the next five to 10 years." He said that Scenario Planning, the primary tool used in the study, will tell us where we might be "in 2012 or 2015" and "where we might work from the outside in," rather imposing a business plan on a world that has other ideas.

A study from Charles Schwab, he said, recently reported that the share values of the top nine firms in the device industry have grown almost 67% over the past five years, while in that same period "the Dow increased 26% — and had you purchased stock in the top six pharmaceutical companies, you would have lost 6% of your money."

Three-fourths of global medical device sales are for products made in the U.S., Austin said, and compound average growth rate for med-tech stocks was better than 7%.

But he suggested that this growth rate might be modified in the future as the result of concerns about questionable company payments to physicians and the rise in medical tourism, noting that "a knee replacement is about half the cost" in overseas hospitals compared to U.S. hospitals.

Why Scenario Planning?

Austin said that most conventional forecasting analysis focuses on what drives "asset value change" and that the drivers for asset value change can be put into three categories:

• 55% for factors that companies can have some control over;
• 10% industry conditions;
• and 35% consisting of outside influences such as general economic conditions, the politics of the day and "random noise."

Scenario Planning, he said, focuses on that 35% slice. It starts with forecasting what the outside influences will look like. Then, firms must ask "how our company is positioned to respond to those challenges," rather than letting wild cards be dealt with as they arise.

As just one illustration, Austin said that in the early 1980s, Halliburton was the industry leader in oil drilling supplies and equipment, but that its forecasts "did not take into account major changes" in tax legislation that had a profound impact on the company's bottom line.

To build a scenario plan, Austin said that Step One is to "forget about the past" and "start from the outside in," to determine what external conditions will be like in one year and in five years. And in Step Two, the company should determine what will do well in that industry.

Terry Fadem, managing director for corporate alliances at the University of Pennsylvania School of Medicine (Philadelphia), said that the drivers of medical device value include recent advances in technology, many of which are fueling "the huge drive to convergence" between drugs and devices.

For him, a key example is deep brain stimulation, of great interest because it offers the potential to treat some neurological conditions that pharmaceuticals have yet to tackle effectively.

On the subject of society's perception of industry ethics, Fadem said there is a deep concern about conflicts of interest, and so transparency will become more important in order to avoid public or congressional backlash.

As for getting paid for one's devices, Fadem said that "the real value driver there is reimbursement, not pricing." And despite all the hubbub about the cost of care in the U.S., "the real driver in the U.S. is demographics — we're going to be driven by the Baby Boomer demographic bulge."

With regard to overall healthcare costs and "outcomes-based care, he said, "You're beginning to see a change right now," given that emphasis by the Centers for Medicare & Medicaid Services. "Were going to be rewarded ... or not" for providing therapies that give payers the long-term outcomes they are seeking.

Fadem said an area of particular uncertainty will be the future role of the consumer in device selection. "I don't know how much influence information technology will have [in shaping choices], but we're beginning to see that right now" as patients check in at the doctor's office with preconceived ideas about treatments. Consequently, he advised that device makers need to track information flow carefully.

Fadem emphasized the role of the primary care physician" as "the one person in the entire system who receives no information" about the implanted device, calling this a "huge hole." He said that primary care physicians are purportedly responsible for coordination but are largely shut out of from device selection and information about that device

Free flow of information about device technology depends on universally adopted healthcare IT (HIT) standards, he said, and that the lack of information will suppress sales to doctors, patients and payers when a device exhibits problems. Also suffering will be device development.

"We don't know how to share data," Fadem said, adding that the various specialty physicians, business analysts and device makers "never attend the same meetings."