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Medical device innovation held back by regulations, overseas competition

Frank Vinluan

Smith & Nephew (NYSE:SNN) executive Mark Augusti takes time to occasionally talk to students about his experience in medical devices and his thoughts on the industry.

Often he’s asked if the industry that he’s made his career in will be a good one in the future.

“I think it will be,” he said. “But it will be very different.”

Augusti is the president of London-based Smith & Nephew’s biologics division, which is located in Durham, North Carolina. Last Friday, Augusti spoke at the BioSciences Forum, an annual life sciences event hosted by North Carolina State University‘s Poole College of Management. Augusti discussed how he sees the medical device industry changing and what he sees as the four major challenges facing medical device innovation in the United States.

Money. Healthcare costs are continuing to increase but budgets remain strained. But medical device prices have actually increased less than the consumer price index, Augusti said. The price increases that Augusti does see in medical devices he attributes to added costs from regulation.

Regulation. The medical device excise tax that was part of federal healthcare reform is already stifling innovation. The excise tax is the wrong way to pay for healthcare reform, Augusti said. Rather than drawing dollars away from medical device investment, Augusti said government needs to think of ways to spur investment in the sector. Taxes will only draw from the industry’s momentum to innovate. “If you want less of something, tax it,” Augusti said.

Approvals. The length of time needed to get a medical device cleared by the U.S. Food and Drug Administration has been on the increase. The FDA needs more resources, not less. Devices are becoming increasingly complex, which makes the job of reviewing the devices more challenging. Meanwhile, the number of devices reviewers are evaluating is on the increase and there are fewer people available to evaluate a growing number of devices. It’s both a quality and a quantity issue. Augusti said the job of reviewing medical devices needs an upgrade, including a pay boost for device reviewers. The uncertainty of regulation, increase in approval times and the looming medical device excise tax are all combining to dampen innovation.

Overseas competition. The uncertainty of U.S. regulation is playing a role in driving medical device companies overseas, particularly to the emerging markets. Emerging markets have lots of startups that are learning from their Western counterparts. Those startups see a shorter, more predictable regulatory path. Labor in emerging markets is also cheaper. Augusti notes that large U.S. medical device makers such as Medtronic (NYSE:MDT), Covidien (NYSE:COV) and Boston Scientific (NYSE:BSX) have all noted that they are focusing more on emerging markets at the expense of devoting more resources here. “They’re moving investment away from the U.S.,” Augusti said.

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