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Report of the Pane! on the Medical Devices and Equipment Industry Rapid changes in the financing and delivery of U.S. health care may have a significant effect on the incentives for universities and industrial firms to gener- ate, evaluate, and introduce new medical devices. This report examines the inter- actions of these two critical participants in technological changes, specifically the contributions of academic research to the medical device industry. The Panel on Medical Devices and Equipment, one of the five panels formed by the Committee on the Impact of Academic Research on Industrial Performance of the NAE, hopes this report will provide a starting point for further research on critical, but often neglected, institutional interactions in the medical device innova- tion process. The Panel on Medical Devices and Equipment comprised six members: one National Academy of Sciences member from academia, one Institute of Medicine member from industry, one other member from academia, and three more from industry. Three of the panel members were also members of the parent commit- tee. The panel assessed the contributions of academic research, which may in- clude new knowledge, inventions, and the training of people in modern research techniques, to the medical device industry and recommended ways of improving such contributions in the future. This assessment is especially timely in view of the fundamental changes occurring in the American health-care system, includ- ing academic medicine, and American higher education, which are putting un- precedented pressures on both academic medical centers and medical device firms. In the course of this study, the panel reviewed the literature, developed several case studies, and sent a questionnaire to individuals in academia, the medical device industry, and government. This questionnaire was followed by a 77

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78 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE workshop attended by approximately 35 senior individuals in the medical device sector (see Addendum). There are several compelling reasons for undertaking a close examination of the interface between firms and universities in the medical device sector. First, although this industry, like the pharmaceutical industry, develops and markets products that contribute to human health and well-being, it has received far less attention than the pharmaceutical industry. Second, the number and variety of interactions between universities and industrial firms has increased significantly. Third, a common misperception of the relationship between industry and univer- sities assigns to universities the role of generating fundamental (basic) knowl- edge and to industry the role of performing applied research and developing medical technologies. A closer look at the ways medical innovations arise and spread suggests that both parties perform much more complex, subtle, and wide- ranging roles than conventional wisdom suggests. This report addresses two sets of questions: . What role has university-based research played in technological advances in the medical device industry? What impact has academic research had on the industry's performance? Are the current mechanisms for university-industry collaboration, both formal and informal, adequate? How might academic research contribute more effectively to the medical device industry in the future? Are there new modes of university-industry collaboration that would increase the payoffs without compromising the core mission of either sector? What specific actions might increase the contributions of academic research to the industry' s performance? Whereas the focus of the report is on the contributions of academic research to industry, important contributions also flow in the other direction. Industry, among others, contributes resources for conducting university R&D and for train- ing students. Both academic and industrial institutions are involved in the whole innovation cycle research, development, manufacturing, evaluation, marketing, and product modification. Industry and universities have distinctive, complemen- tary skills, as well as overlapping competencies. In fact, one characteristic of innovations in medical devices is close collaboration, even codependency, be- tween universities and industry firms. The first part of this report is a review of the main components and a defini- tion of the boundaries of the medical device industry. Following a brief overview of the structural and performance characteristics of the industry, the main players in the innovation system for medical devices are identified, and the multifaceted nature of research relations between academia and the medical device industry are analyzed. Sweeping changes are occurring in the health-care environment, including the introduction of market forces and the widespread diffusion of man- aged care into the delivery of health care, modifications in Food and Drug

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MEDICAL DEVICES AND EQUIPMENT INDUSTRY 79 Administration (FDA) regulations, and new policies and practices regarding in- tellectual property rights. This report attempts to weigh the effects of these changes on university-industry relations and consider how university contribu- tions to the medical device industry in this rapidly changing environment could be enhanced. DEFINITION OF THE INDUSTRY Main Components Medical devices encompass a heterogeneous group of products, ranging from low-tech, inexpensive devices, such as tongue depressors and disposable needles, to sophisticated devices, such as implanted therapeutic devices, lithotripters, and magnetic resonance imaging (MRI) machines. The U.S. Department of Com- merce currently groups medical devices into five categories, according to North American Industrial Classification System (NAICS) codes: Surgical and medical instruments (NAICS 339112) include medical, sur- gical, ophthalmic, and veterinary instruments and apparatuses. Examples are syringes, hypodermic needles, anesthesia apparatuses, blood trans- fusion equipment, catheters, surgical clamps, and medical thermometers. Surgical appliances and supplies (NAICS 339113) include orthopedic devices, prosthetic appliances, surgical dressings, crutches, surgical su- tures, and personal industrial safety devices (except protective eyewear). Dental equipment and supplies (NAICS 339114) include equipment and supplies used by dental laboratories and dentists offices, such as chairs, instrument delivery systems, hand instruments, and impression materials. Irradiation apparatuses (NAICS 334517) include apparatuses used for medical diagnostic, medical therapeutic, industrial, research, and scien- tific evaluations. Navigational, measuring, electromedical, and control instruments (NAICS 334510) include electromedical and electrotherapeutic apparatus, such as MRI equipment, medical ultrasound equipment, pacemakers, hear- ing aids, electrocardiographs, and electromedical endoscopic equipment. This report focuses mainly on the high-tech, innovation-driven segments of the industry, such as implantable devices, bioengineered devices, optical instru- ments, surgical staplers, and surgical miniaturization, in which the contributions of academia are likely to be most apparent. Most FDA Class 3 devices, for which sponsors are required to demonstrate safety and efficacy before the FDA grants marketing clearance, are included in this category. It also includes so- called "510(k) devices," which are "substantially equivalent" to devices that were on the market before the 1976 Medical Device Amendments took effect

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80 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE and, therefore, are subject to less stringent regulatory review. This study also examines emerging market segments that are expanding the boundaries of the traditional device industry, such as tissue engineering and health information systems intended to improve the quality and efficiency of health-care deliv- ery systems. The global market for medical devices was $138 billion in 1999. The U.S. market accounts for 37 percent of global demand, and the U.S. industry supplied 40 percent of the global market with shipments of $55 billion in 1999 (McGraw- Hill and U.S. Department of Commerce, 2000~. The United States traditionally runs a positive balance of trade in medical device products (estimated to be $7 billion in 2000), and several American firms have strong market shares in Europe and Japan (AdvaMed, 2001~. All major firms throughout the world par- ticipate in the U.S. market; most leading foreign firms have U.S. sales subsidiar- ies, and many also have extensive research and manufacturing activities in the United States. As of 1999, both domestic and foreign medical device firms oper- ating in the United States employed almost 300,000 workers, and the medical device industry was one of the fastest growing manufacturing sectors in the U.S. economy (U.S. Bureau of the Census, 2001~. Companies in this industry capture relatively few sales from any single product. The norm for important therapeutic tools (e.g., vascular grafts) is a total global market of $70 million (Wilkerson Group, 1995~. Even "blockbuster" prod- ucts rarely surpass $100 million. The Johnson & Johnson Palmaz-Schatz stent for coronary heart disease was unusually successful in garnering sales of almost $400 million annually in its early years. But despite the purported strength of the Johnson & Johnson patent and its headstart in the market, new companies contin- ued to improve stent designs for opening coronary arteries. As a result, Johnson & Johnson lost more than 70 percent of its market share in five years to new entrants. Johnson & Johnson is expected to make a comeback, however, because of sharply reduced restenosis with its new drug-coated stems. In short, this is a dynamic industry driven by intense competition. Products that briefly capture sales are swept away within a few years by more innovative replacements. Consequently, research activity is intense; publicly traded device firms invest 12.9 percent of sales in R&D, and the most innovative firms reinvest as much as 23 percent of sales revenues in R&D. This figure is comparable to investments by aggressive pharmaceutical companies (Lewin Group, 2000~. The Roles of Large and Small Firms The extremely diverse medical device industry includes small start-up com- panies and giant corporations. In 1999, 65 percent of firms had fewer than 20 employees, and only 12 percent had more than 100 (U.S. Bureau of the Census, 2001~. The correlation between the size of a firm and its role in the market is not entirely clear, but it is widely believed that small firms play a

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MEDICAL DEVICES AND EQUIPMENT INDUSTRY 81 disproportionate role in initial innovation and that large firms determine the commercial success of new products. Large Firms The underlying economics of the industry drive product development toward larger firms that have the sophisticated assets to exploit the commercial potential of innovations and can navigate the complex regulatory requirements for the introduc- tion of new health-care products. First, as a result of multiple filings, large firms have developed the capability of managing clinical trials to meet regulatory re- quirements. An excellent example is the development of the home HIV test. A1- though the technology was relatively simple, numerous start-up companies had failed to demonstrate their ability to collect and test potentially contaminated blood in the home setting. Johnson & Johnson, which has extensive knowledge of the regulatory process, was able to shepherd the first successful home HIV diagnostic test to market. Second, large companies often have considerable skills in manufac- turing and marketing. The history of diagnostic imaging, for example, clearly shows that first-mover advantages are not always a key to success in the marketplace of new technologies that have significant commonalities with earlier technologies (e.g., MRI with CT). Although large multinational companies were often late en- trants, their skills in marketing and servicing and their established reputations often enabled them to assume dominant positions (Gelijns et al., 1998~. Third, large, experienced companies understand the purchasing patterns of multiple stake- holders in a complex hospital environment. Because buyers prefer to contract with a limited number of suppliers, successful device companies offer a full product line of compatible products. Small companies with the most innovative devices may gain a foothold but can rarely maintain it. Finally, the most successful companies plan for short product life cycles, and they swiftly introduce incremental enhancements developed by internal R&D. These companies rarely invest in basic research because the direct returns on basic science are relatively low during the short payback time for internalizing and commercializing product concepts. Consequently, larger firms invest in so- phisticated market scanning and acquisition capabilities to identify new ideas for internal development and tend to leave "breakthrough innovations" to others. To be sure, large companies do produce pioneering innovations from internal re- search, but these breakthroughs often leverage technologies from preexisting products. In addition, large companies can exploit the experiences of users to produce next-generation products. Innovative Small Firms The existence of numerous small, innovative start-up companies in the medi- cal device industry has been well documented. A study of publicly traded medical

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82 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE device firms found that in 1997, 65 percent of firms had fewer than 50 em- ployees. Firms with less than $5 million in revenue spent an average of 252 percent of sales revenue on R&D (Lewin Group, 2000~. These research- focused companies specialize in the "front end" of R&D, and perhaps not surpris- ingly, a study by the Wilkerson Group concluded, "nearly all significant new and innovative products and procedures were pioneered by start-up companies." In- deed, in their survey they cite 29 major therapeutic advances, all of which could be attributed to start-ups (Wilkerson Group, 1995~. According to Gelijns and colleagues (1994~: Attempts to measure the innovative activity of [medical device] firms as a function of their size have long been handicapped, not only by methodological but by conceptual difficulties for example, the absence of an unambiguous criterion for recognizing and, therefore, for measuring innovations, or for dis- tinguishing between "major" and "minor" innovations. One study conducted in the early 1980s by the Futures Group defined large firms as having more than 500 employees and small firms as having fewer than 500 employees (OTA, 1984~. The same study reviewed more than 8,000 innovations published in trade journals in 1982 (which were likely to have overstated the contributions of large firms and understated the contributions of small firms) and calculated rates of innovation per employee for each of the 5 SIC (now NAICS) code medical device categories. The study concluded that, with the exception of the small ophthalmic goods category, small firms were more than twice as innova- tive per employee as large firms (OTA, 1984~. This conclusion reflects the likely differences in the workforces of small and large firms; small firms are often "R&D boutiques" that do not have large numbers of personnel in, for instance, regulatory affairs, marketing, or distribution infrastructure that large firms have. The medical device industry also relies on individual inventors for ideas for new products. Once a working prototype or proof-of-concept device has been produced, the inventor is in a position to negotiate with large companies for a license or to create a start-up company. Besides individual initiative, small companies capable of demon- strating product potential require venture capitalists, high-risk/high-return investors willing to bankroll entrepreneurs with unproven technology. INNOVATION SYSTEM The medical device industry depends heavily on an infrastructure of institu- tions and activities outside the industry. Traditionally, both large and small firms have depended heavily on nonmedical industry sectors (e.g., those that deliver customized components or highly specialized materials), as well as research universities, especially academic medical centers (AMCs). Government policies have also had a strong impact on innovation practices and university-industry relationships. First, although only a modest percentage of

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MEDICAL DEVICES AND EQUIPMENT INDUSTRY 83 the federal budget is allocated directly for R&D on medical devices, the federal government is a major source of R&D funding. Second, the federal government influences the development process through the FDA's premarketing approvals and policies for medical devices. Third, the government has become a major source of payments to the providers of medical care (e.g., Medicare). For ex- ample, by including end-stage renal disease as covetable by Medicare, the gov- ernment assured a market, which led to significant innovations in exchange de- vices, biocompatible materials, and other technologies necessary for dialysis. Government decisions have a decisive influence over how existing technologies are used. In addition, government decisions have a powerful impact on the finan- cial incentives for private industry to undertake R&D. Government is not the only payer that influences the market for medical devices. In recent years, managed care, ranging from classic health maintenance organizations (HMOs) to modified fee-for-service programs, has grown rapidly. Managed-care purchasers are taking a more critical and more independent stance about which technologies they will cover and the level at which they will re- imburse providers; thus, they too influence the demand for new technologies. Research Universities and Academic Medical Centers Research universities are key players in the medical device innovation sys- tem. Basic advances in physics, materials sciences, optics, analytical methods, and computer science have resulted in many new device capabilities. Bioengi- neering research has emerged as a separate discipline in the last few decades; in 1998, 70 universities and colleges offered degrees in bioengineering. A typical AMC generally comprises a medical school, a teaching hospital, a network of affiliated hospitals, and a nursing school. Some AMCs also have schools of dentistry, schools for allied health professionals, and schools of public health. These complex, multifunctional organizations have a three-pronged mission: (1) training clini- cians and biomedical researchers, thereby ensuring the distribution of medical skills and specialties; (2) providing advanced specialty and tertiary care and therefore adopting the latest technologies; and (3) conducting biomedical research, ranging from laboratory- based fundamental research to population-based clinical studies. In the United States, AMCs, and biomedical research in particular, have been major beneficiaries of post-World War II science policy. Total national invest- ment in health-related R&D (public and private) has increased dramatically in the postwar period, more than three-fold since 1985 to more than $42 billion in 1998 (Commonwealth Fund Task Force on Academic Health Centers, 1999~. At the same time, health insurance coverage was expanded, and Medicare was estab- lished. Medicare pays AMCs for patient care and educational activities. These financial incentives encouraged the spectacular growth of American academic medicine. Between 1960 and 1992, the average medical school budget in the U.S. expanded nearly 10-fold in real terms (see Table 3-1~. The table shows

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84 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE TABLE 3-1 The Growth of U.S. Academic Medicine, 1960-1992 (in 1992 dollars) 1960 1970 1980 1992 Support from NIH ($ millions) Average medical school budget ($ millions) 1,320 3,028 5,419 8,407 24.1 64.6 91.9 200.4 Full-time medical school faculty (no.) Basic 4,023 8,283 12,816 15,579 Clinical 7,201 19,256 37,716 65,913 Matriculated medical 30,288 40,487 65,189 66,142 students (no.) SOURCE: Adapted from Iglehart, 1994. that basic science faculty increased from 4,023 to 15,579, and clinical faculty increased far more rapidly from 7,201 to 65,913 over the three-decade period (Iglehart,1994~. As of the late l990s, about 30 percent of all health-related R&D in the United States took place at AMCs (Commonwealth Fund Task Force on Academic Health Centers, l 999~. Clinical specialists are major participants in the clinical testing and advancement of devices. The financial support structure for AMCs, which is quite different from the support structure for other components of universities, contributed significantly to their past research success; AMCs have also developed a separate culture (Keller, 1998~. AMC research activities are funded by a variety of sources. The federal government has funded the majority of AMC research (nearly 70 percent), especially for basic biomedical research. In 1996, the government funded more than 70 percent of new AMC research projects and more than 60 percent of all new nonclinical research or research on nonhuman subjects (Director's Panel on Clinical Research, 1997~. In recent years, funding for academic research has increased under a variety of arrangements. Foundations and philanthropical organizations are also important sources of research funding. A substantial portion of academic research is funded internally; revenues from faculty practice plans, for example, are often used to under- write research (they support about 9 percent of research, mostly clinical, in AMCs). An analysis in 1999 of six AMCs showed that, on average, clinical enterprises trans- ferred about $50 million a year to medical schools for academic purposes. Universi- ties also provided institutional funding to support the direct costs of research (Com- monwealth Fund Task Force on Academic Health Centers, 1999~. Federal Agencies Federal support for R&D in medical devices flows through multiple institu- tional and disciplinary channels. Although the majority of medical device-related

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MEDICAL DEVICES AND EQUIPMENT INDUSTRY 85 R&D funds is spent in AMCs, federal agencies also fund basic and applied research in academic science departments and engineering schools, federal labo- ratories, and industry proper. The United States spends a larger percentage of its federal research budget on research in the life sciences than any European country (NSF, 2000~. Between 1985 and 2001, federal obligations for research in the life sciences more than doubled, totaling more than $18 billion in 2001 (NSF, 2001~. Most of NIH's overall budget of more than $13 billion a year is spent on extramural research at AMCs, particularly in basic (nonhuman subjects) research. Only a small portion of NIH's budget is allocated specifically to create opportunities for the develop- ment of devices. For example, in 1964 the National Heart, Lung, and Blood Institute (NHLBI) created the artificial heart program to support the development of a family of devices to assist patients with failing hearts and to rehabilitate patients with heart failure (Watson et al., 1994~. NHLBI has also invested in clinical trials of cardiac devices, for example, to determine the effectiveness of defibrillatory in high-risk patients with coronary artery disease and in the left ventricular-assist device for end-stage patients with heart failure. Determining the portion of the NIH budget directly related to R&D on medical devices, however, is problematic. A congressional study in 1992 estimated that the government had invested about $422 million in R&D on medical devices (Littell, 1994~. A 1998 report in Science estimated that NIH funding of bioengineering- related research projects, including biomaterials, prosthetic devices, and artificial organs, amounted to $417 million in 1996 (Agnew, 1998~; this figure increased to $500 million in 1998 (Chronicle Information Resources, 1999~. In 2000, NIH created the National Institute for Biomedical Imaging and Bioengineering (NIBIB) to "improve health by promoting fundamental discoveries, design and develop- ment, and translation and assessment of technological capabilities. The Institute will coordinate with biomedical imaging and bioengineering programs of other agencies and NIH institutes to support imaging and engineering research with potential medical applications and will facilitate the transfer of such technologies to medical applications" (P.L. 106-580~. NIBIB's FY02 budget was $112 million. In addition, the government supports some applied research in industry set- tings. In the early 1980s, for example, the federal government established the Small Business Innovation Research (SBIR) Program; and in 2000, 10 federal agencies awarded $1.1 billion in SBIR grants. Since the program's inception in 1983, the life sciences, which include medical devices, have received more than $2 billion in awards from NIH. NIH's SBIR awarded $435 million in 2001 (Goodnight, 2002~. Food and Drug Administration The introduction of new or modified medical devices is subject to stringent and complex regulations. The Medical Device Amendments of 1976 were

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86 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE intended to ensure that new devices are both safe and effective before they are marketed. These amendments divide medical devices into three classes, depend- ing on their potential risks to patients. Approximately 30 percent of all medical devices are grouped in Class 1, which comprises instruments (e.g., stethoscopes) that do not support or sustain human life and do not present an unreasonable risk of illness or injury. Class 1 devices are subject to the general controls used before passage of the Medical Device Amend- ments for example, regulations regarding registration, premarketing notification, record keeping, labeling, and good manufacturing practices. About 60 percent of devices fall into Class 2, which includes x-ray devices and other devices that pose some risk. Class 2 devices are subject to federally defined performance standards. Class 3 devices include all life-supporting or life-sustaining devices that substan- tially prevent health problems or that could pose a risk of injury or illness. For Class 3 devices, the sponsor must demonstrate safety and efficacy before the FDA grants marketing approval. Approximately 10 percent of medical devices fall into Class 3; examples include left-ventricular assist devices and laser angioplasty devices. Since 1976, all new devices are automatically placed in Class 3 unless the sponsor suc- cessfully petitions the FDA to reclassify them as "substantially equivalent" to a device that was on the market before the amendments took effect. Demonstration of this equivalence, called a 510(k) submission, is provided by descriptive, perfor- mance, and even clinical data. To support a marketing approval decision, or in some instances a 510(k) submission, a sponsor must conduct clinical studies. If a device poses a signifi- cant risk, the sponsor submits a request for an investigational device exemption (IDE) to the FDA. Following clinical studies, the device may be approved for marketing through a so-called premarket approval (PMA) decision. Most PMAs are individual licenses secured by the developer for particular devices and spe- cific clinical uses or indications. Other developers of similar kinds of devices must submit separate PMAs and clinical data. In the 1990s, FDA regulation of medical devices changed significantly with the passage of the Safe Medical Devices Act of 1990. Under new requirements for premarketing studies, manufacturers are required to conduct more rigorous studies with appropriate, and where possible randomized, controls. Postmarketing surveillance now provides a number of separate mechanisms for collecting data. Both device manufacturers and health-care providers must report information indicating if the device may have caused or contributed to a death or serious injury. For high-risk devices, companies must keep track of patients, and, in certain cases, must conduct postapproval clinical studies to detect possible risks associated with the use of the device, as well as information on its effectiveness. These changes should improve the quality of evaluations and provide more infor- mation about safety and efficacy. At the same time, they have slowed the pace of introductions of new medical devices and increased the risk and cost for medical device firms.

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MEDICAL DEVICES AND EQUIPMENT INDUSTRY 87 In the early l990s, the FDA had long review times for IDEs, PMAs, and 510(k) submissions, and the agency had accumulated a considerable backlog. Subsequently, the FDA reorganized its device branch, and then, in 1997, the FDA Modernization Act (also known as FDAMA) was passed. This wide-ranging legislation attempts to shift resources in the agency from relatively low-risk to relatively high-risk areas and to specify the requirements for trials of clinical devices. As a result of these changes, the backlog was diminished substantially and review time was shortened considerably; in 1998, for instance, the average review time for a 510(k) submission decreased by 12.3 percent from the preced- ing year. Venture-Capital Industry The United States has a mature venture-capital industry that provides access to liquid capital markets for the financing of high-risk ventures. Venture capital has been pivotal to the development of the industry, because the development and commercialization of medical devices can be a prolonged process, and few in- ventors can survive with debt financing alone. Venture capital allows the origina- tor to obtain operating funds and to share financial risks. Small firms with no track records often need multiple sources of funding for a substantial period of time, usually beginning with private financing and pro- ceeding to the equity markets. Venture capitalists fund these companies when revenues are small or even nonexistent. As recently as 15 years, ago, the venture- capital market was small, but in 2001, health care, principally biopharmaceuticals and medical devices, received $5.6 billion in venture capital, 17 percent of total venture capital investments for the year (Zemel, 2002~. In addition, the initial public offering (IPO) market expanded in the l990s, which allowed venture capitalists to exit projects and thereby reap rewards for the risk they had borne; small companies subsequently had access to large pools of liquid capital for future expansion. IPO investment in the medical device industry rose from $410 million in 1995 to $1.268 billion in 1996; much of this growth was in the cardiovascular device sector. In recent years, with the economic downturn, venture-capital investment in medical devices has declined sharply, and IPOs have come to a virtual standstill. In 2001, there were only eight IPOs of medical device firms, raising roughly $741 million. Third-Party Payers In the last 20 years, dramatic changes have been made in the financing and delivery of U.S. health care. Changes include the rapid growth of managed care initiatives and the consolidation of hospitals and clinics into large integrated delivery systems. Managed care organizations increasingly reimburse health-care providers on a capitated basis (i.e., fixed reimbursement per patient per month),

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104 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE relations may be the creation of more systematic research partnerships. One interesting model is the Center for Innovative Minimally Invasive Therapy, which involves faculty from AMCs and the physical and engineering sciences, as well as industry partners (Parrish, 1998~. Systematic partnerships may also have considerable payoffs in product modi- fication and the discovery of new indications of use. For most medical devices, new uses result from application to other organ systems, although these transfers often require design modifications. The first endoscopes, for example, were used for cystoscopy early in this century. In the 1960s, after the development and introduction of fiber optics, GI endoscopy and gynecological laparoscopy be- came well established. It took nearly four decades to transfer laparoscopy from gynecology to general surgery, where it transformed gallbladder surgery. Earlier identification of such secondary indications may have substantial benefits, for society and for industry. Universities are an important location for clinical testing. Universities, as well as private CROs in recent years, have been active in designing, conducting, and analyzing clinical trials. Major questions, however, remain about the appro- priate evaluation of new devices, especially innovative and implantable devices. These questions differ significantly from questions about the evaluation of pharmaceuticals. Traditionally, the research results of AMCs that have been most important in the development of medical devices were not patented but were placed in the public domain through open publication. In recent years, as a result of a number of changes in federal policy, there has been a major upsurge in university patenting and licens- ing. The panel has little doubt that this increase in patenting has strengthened university-industry interactions, to the benefit of both the economy and the univer- sity. Despite these benefits, however, the panel believes some hard thinking and empirical research should be done to assess the consequences of these changes on the role of universities in the innovation system. Have these developments indeed increased the effectiveness of technology transfer from universities to industry? Or would the licensed technologies have been picked up by industry anyhow? And what are the unintended consequences? Are universities changing the nature of their research activities from fundamental, long-range research to applied research? Has the upsurge in university patenting increased the transaction costs of science? Are universities licensing inventions that can be classified exclusively as research tools? All of these questions should be addressed. RECOMMENDATIONS The panel was asked to examine the contributions of academic research to the medical devices and equipent industry and to delineate ways of improving such contributions in the future. This report provides evidence that academic

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MEDICAL DEVICES AND EQUIPMENT INDUSTRY 105 research has contributed strongly to industrial performance in the medical de- vices and equipment sector; at the same time, steps can be undertaken to improve these contributions. Recommendation 3-1. The panel concurs with recent recommendations by the Commonwealth Task Force on Academic Health Centers that the National Insti- tutes of Health and other institutions should recognize the importance and vulner- ability of clinical research by increasing support for clinical research at academic medical centers. Recommendation 3-2. Optimizing the contributions of university research will require creating effective linkages between faculty in engineering schools and faculty in medicine. The panel recommends that universities invest in interdisci- plinary centers to generate new knowledge for advancing medical devices and to develop new diagnostic and therapeutic modalities. Universities are also encour- aged to decrease barriers to conducting interdisciplinary research. Funding agen- cies should carefully evaluate new interdisciplinary programs and initiatives in biology/medicine and engineering and encourage the growth of the most promis- ing ones. Recommendation 3-3. Universities and medical device firms should explore ways of creating more systematic partnerships between universities (especially academic medical centers) and industrial firms for the development and evalua- tion of new, cost-effective medical devices. Models worth contemplating include interdisciplinary centers for the development and evaluation of medical devices that include industrial partners, the sharing of expensive facilities (e.g., animal laboratories), exchange fellowships, and the teaching of joint courses. Moreover, the panel believes that both society and the medical device industry would benefit substantially if new indications of use could be identified sooner after the devel- opment of a device. To expedite the discovery of new indications, device manu- facturers might draw more fully on interdisciplinary panels of academic experts who would consider how a new technological capability (e.g., lasers or positron emission tomography) that is useful for one purpose might also be useful (modi- fied as necessary) in another field. Recommendation 3-4. Federal agencies that fund academic research relevant to the medical device industry should support research on the effectiveness of cur- rent incentives for transferring research findings to the industry and ways of improving the transfer process. Given the short product life cycles of many medical devices, the timing of decisions and processes pertaining to transfer affects the short windows of commercial opportunity. Recommendation 3-5. Academic researchers should bring together industry, regulatory, and clinical panels to discuss requirements for device evaluations. Discussions should include regulatory requirements (e.g., market clearance by

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106 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE the Food and Drug Administration), third-party payment eligibility, market re- search, and information disseminationlmarketing issues (e.g., direct-to-consumer advertising). Regulation, payment/reimbursement systems, and marketing all have profound effects on the pathway for getting device concepts to users. Therefore, anticipating and understanding regulatory, payment, and marketing needs should be incorporated and fed back into device design and refinement. Academic cen- ters (including business schools) and industry can share considerable insight and expertise in all of these areas. Recommendation 3-6. Given that all parties physicians, patients, manufactur- ers, and payers benefit from the rigorous information on the value of new and improved medical devices, the panel recommends that payers, National Institutes of Health, and medical device firms define the circumstances under which public-private support for device trials is appropriate. REFERENCES AdvaMed (Advanced Medical Technology Association). 2001. U.S. Medical Technology Industry Statistics. Washington, D.C.: AdvaMed. Agnew, B. 1998. Multidisciplinary research: NIH plans bioengineering initiative. Science 280(5369): 1516-1518. Basauri, L., and P.P. Lele. 1962. A simple method for production of trackless focal lesions with focused ultrasound: statistical evaluation of the effects of irradiation on the central nervous system of the cat. Journal of Physiology 160(3): 513-534. Centerwatch. 2001. Assessing change in CRO usage practices. Centerwatch Newsletter 8(1): Article 201. Chronicle Information Resources. 1999. The Chronicle of Cardiovascular and Internal Medicine. Mississauga, Ontario: Chronicle Information Resources Ltd. Cline, H.E., K. Hynynen, C.J. Hardy, R.D. Watkins, J.F. Schenck, and F.A. Jolesz. 1994. MR tem- perature mapping of focused ultrasound surgery. Magnetic Resonance in Medicine 31(6): 628-636. Cline, H.E., J.F. Schenck, K. Hynynen, R.D. Watkins, S.P. Souza, and F.A. Jolesz. 1992. MR-guided focused ultrasound surgery. Journal of Computer Assisted Tomography 16(6): 956-965. Commonwealth Fund Task Force on Academic Health Centers. 1999. From Bench to Bedside: Preserving the Research Mission of Academic Health Centers. Boston, Mass.: The Common- wealth Fund. Director's Panel on Clinical Research. 1997. Report to the Advisory Committee to the NIH Director. Bethesda, Md.: National Institutes of Health. Fry, F.J., ed. 1978. Ultrasound: Its Applications in Medicine and Biology. Part I. New York: Elsevier Press. Fry, W.J., J.W. Barnard, F.J. Fry, R.F. Krumins, and J.F. Brennan. 1955. Ultrasonic lesions in the mammalian central nervous system. Science 122(3168): 517-518. Fry, W.J., and F.J. Fry. 1960. Fundamental neurological research and human neurosurgery using intense ultrasound. IRE Transactions on Medical Electronics 7: 166-181. Gelijns, A.C. 1991. Innovation in Clinical Practice: The Dynamics of Medical Technology Develop- ment. Washington, D.C.: National Academy Press. Gelijns, A.C., and N. Rosenberg. 1995. From the Scalpel to the Scope: Endoscopic Innovations in Gastroenterology, Gynecology, and Surgery. Pp. 67-96 in Medical Innovation at the Cross- roads. Volume VI. Sources of Medical Technology: Universities and Industry, A.C. Gelijns and N. Rosenberg, eds. Washington, D.C.: National Academy Press.

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MEDICAL DEVICES AND EQUIPMENT INDUSTRY 107 Gelijns, A.C., and N. Rosenberg. 1999. Diagnostic Devices: An Analysis of Comparative Advan- tages. Pp. 312-358 in The Sources of Industrial Leadership in Seven Industries, D. Mowery and R. Nelson, eds. Boston: Cambridge University Press. Gelijns, A.C., N. Rosenberg, and G. Laubach. 1994. Medical Device Innovation: Opportunities and Barriers for Small Firms. Washington, D.C.: National Academy Press. Gelijns, A.C., N. Rosenberg, and A.J. Moskowitz. 1998. Capturing the unexpected benefits of medi- cal research. New England Journal of Medicine 339(10): 693-698. Goodnight, J. 2002. Statement Submitted to the Record, Committee on Small Business, U.S. House of Representatives. June 21, 2001. Available online at: www.hhs.gov/asl~testify/tO10621.html. [June 24, 2003] Griner, P., and D. Blumenthal. 1998. Reforming the structure and management of academic medical centers: case studies of ten institutions. Academic Medicine 73: 817-825. Healthcare Informatics. 2001. The Healthcare Informatics 100. Available online at: http:// www.healthcare-informatics.com/issues/2001/06_01/junOl.htm. [June 24, 2003] Herman, W.A., D.E. Marlowe, and H. Rudolph. 1998. Future Trends in Medical Device Technology: Results of an Expert Survey. Rockville, Md: Center for Devices and Radiological Health, U.S. Food and Drug Administration. Available online at: http://www.fda.gov/cdrh/ost/trends/ TOC.html. [June 24, 2003] Hopkins, H.H., and N.S. Kapany. 1954. A flexible fibrescope, using static scanning. Nature 173: 39-41. Hynynen, K., and F.A. Jolesz. 1998. Demonstration of potential noninvasive ultrasound brain therapy through an intact skull. Ultrasound in Medicine and Biology 24(2): 275-283. Hynynen, K., O. Pomeroy, D.N. Smith, P.E. Huber, N.J. McDannold, J. Kettenbach, J. Baum, S. Singer, and F.A. Jolesz. 2001. MR imaging-guided focused ultrasound surgery of fibro- adenomas in the breast: a feasibility study. Radiology 219(1): 176-185. Iglehart, J.K. 1994. Rapid changes for academic medical centers. Part 1. New England Journal of Medicine 331(20): 1391-1395. Keller, K.H. 1998. How are Changes in the Health Care Environment Affecting University-Industry Research Collaboration? Presentation at the NAE workshop on Medical Devices and the University-Industry Connection: Future Directions, Washington, D.C., November 2, 1998. Lele, P.P. 1962. A simple method for production of trackless focal lesions with focused ultrasound. Journal of Physiology 160: 494-512. Lele, P.P. 1975. Ultrasound in surgery. Pp. 325-340 in Fundamental and Applied Aspects of Non- ionizing Radiation, S.M. Michaelson, E.L. Carstensen, R. Magin, and M.W. Miller, eds. New York: Plenum Press. Lewin Group. 2000. Outlook for Medical Technology Innovation. Washington, D.C.: Health Indus- try Manufacturers Association. Littell, C.L. 1994. Datawatch. Innovation in medical technology: reading the indicators. Health Affairs 13(3): 226-235. Lynn, J.G., R.L. Zwemer, A.J. Chick, and A.E. Miller. 1942. A new method for the generation and use of focused ultrasound in experimental biology. Journal of General Physiology 26(1): 179-193. Lysaght, M.J., N.A. Nguy, and K. Sullivan. 1998. An economic survey of the emerging tissue engineering industry. Tissue Engineering 4(3): 231-238. McGraw-Hill and U.S. Department of Commerce. 2000. U.S. Industry and Trade Outlook '00. New York: McGraw-Hill. Moskowitz, J., and J.N. Thompson. 1997. Preventing the extinction of the clinical research eco- system. Journal of the American Medical Association 278(1): 241-245. NSF (National Science Foundation). 2000. Federal R&D Funding by Budget Function: Fiscal Years 1998-2000. Arlington, Va.: NSF. NSF. 2001. Federal Funds for Research and Development: Fiscal Years 1999, 2000, 2001. Arlington, Va.: NSF. OTA (Office of Technology Assessment). 1984. Federal Policies and the Medical Devices Industry. Washington, D.C.: Government Printing Office.

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108 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE Parrish, J. 1998. Why CIMIT? Why Now? Research Perspectives Online. Available online at: http.// www.mgh.harvard.edu/DEPTS/puba~airs/ResearchPerspectives/Aug98whyCIMIT.htm. [June 24,2003] Rose, E.A., A.J. Moskowitz, M. Packer, J.A. Sollano, D.L. Williams, A.R. Tierney, D.F. Heitjan, P. Meier, D.D. Ascheim, R.G. Levitan, A.D. Weinberg, L.W. Stevenson, P.A. Shapiro, R.M. Lazar, J.T. Watson, D.J. Goldstein, and A.C. Gelijns. 1999. The REMATCH trial: rationale, design, and end points: randomized evaluation of mechanical assistance for the treatment of congestive heart failure. Annals of Thoracic Surgery 67(3): 723-730. Rosenberg, N. 1996. Uncertainty and Technological Change. Pp. 334-356 in the Mosaic of Eco- nomic Growth, R. Landau, T. Taylor, and G. Wright, eds. Palo Alto, Calif.: Stanford Univer- sity Press. Rosenberg, N. 2000. Interfaces between Universities and Industry. Submitted to the Canadian Center for Advanced Studies. Shaw, B.F. 1987. The Role of the Interaction between the Manufacturer and the User in the Techno- logical Innovation Process. Ph.D. dissertation. University of Sussex, Sussex, United Kingdom. Spera, G. 1998. The next wave in minimally invasive surgery. Medical Device and Diagnostic Industry 20(8): 36-44. Spetz, J. 1995. Physicians and Physicists: The Interdisciplinary Introduction of the Laser to Medi- cine. Pp. 41-66 in Sources of Medical Technology: Universities and Industry, N. Rosenberg, A. Gelijns, and H. Dawkins, eds. Washington, D.C.: National Academy Press. Thier, S. 1998. Academic Medicine and the Development of Prototype Technology. Presentation at the NAE workshop on Medical Devices and the University-Industry Connection: Future Direc- tions, Washington, D.C., November 2, 1998. U.S. Bureau of the Census. 2001. Statistics for Industrial Groups and Industries, 1999. Annual Survey of Manufacturers. Washington, D.C.: U.S. Government Printing Office. van Heel, A.C.S. 1954. A new method of transporting optical images without aberrations. Nature 173: 39. Von Hippel, E.A., and S.N. Finkelstein. 1979. Analysis of innovation in automated clinical chemis- try analyzers. Science and Public Policy 6(1): 24-37. Watson, J.T., et.al. 1994. NHLBI Program History. Pp. 27-32 in Report of the Workshop on the Artificial Heart: Planning for Evolving Technologies. Bethesda, Md.: National Institutes of Health. Whitaker Foundation. 2001. Grant Programs to Phase Out. Available online at: http:// www.whitaker.org/news/phaseout.html. [June 24, 2003] Wilkerson Group. 1995. Forces Reshaping the Performance and Contribution of the U.S. Medical Device Industry. Washington, D.C.: Health Industry Manufacturers Association. Zemel, T. 2002. Venture Capital Investment Stabilizes in 4Q01, According to VentureOne. Press Release, January 28, 2002. San Francisco: VentureOne.

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109 ADDENDUM E-mai} Questionnaire The following questionnaire was sent to selected individuals in various parts of the medical devices and equipment industry, some of whom attended the November 1998 workshop. Included among the respondents were senior execu- tives at Biomet, Inc., the Center for Integration of Medicine and Innovative Technologies, General Electric Company, Health Quality, IBM, Johnson & Johnson, MedInTec, Inc., Pfizer, and RAND Corporation; professors with ex- pertise in biomedical engineering, mechanical engineering, medical innovation management, and policy from Draper Laboratories, Massachusetts Institute of Technology, and Washington University; and a representative of the Food and Drug Administration. THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE Medical Devices Panel We invite your responses to the questions that follow. In addition, please feel free to add any general comments or responses under Question 11 below. Your responses will be used by our Panel as background information for our report. Any material used verbatim will not be attributed to you without seeking . . your permission. 1. Could you describe briefly significant academic (i.e., university-based research basic, applied, clinical, etc.) research contributions to the medical devices and equipment industry? (If possible, please supply references to pub- lished information that outlines the contributions.) 2. Overall, would you describe the impact of academic research on industrial performance in the medical devices and equipment industry as (Please put an X in one box): 1. very large 2. large 3. medium 4. small ~ 5. very small/non-existent 3. What is the role of academic research in educating people who work in your industry? (Please focus on university research activities, rather than univer- sity education generally.)

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110 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE 4. What structural forms of university-industry collaboration lead to good results in your industry? An example of such a structure might be a discipline- or industry-oriented "center" that solicits industry sponsors for a collection of projects that span a varied research program, or an academic medical center that provides a venue for clinical research. What seem to be the essential determi- nants of success of such structures? 5. What are significant emerging trends or problems that the medical devices and equipment industry will face in the future that could benefit from aca- demic research? 6. What changes are required, if any, in academic research if it is to be responsive to these industrial trends and problems? 7. What single step could be taken by universities to enhance the impact of academic research on the industry? 8. What single step could be taken by companies to enhance the impact of academic research on industry? 9. What single step could be taken by government to enhance the impact of academic research on industry? 10. Do you see any downside to enhanced university-industry research col- laboration? Things to be avoided? 11. Other comments? Any comments, pointers to other studies, or sugges- tions would be appreciated.

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MEDICAL DEVICES AND EQUIPMENT INDUSTRY Workshop Agenda MEDICAL DEVICES AND THE UNIVERSITY-INDUSTRY CONNECTION: FUTURE DIRECTIONS November 2, 1998 National Academies Building 2101 Constitution Avenue .NW. Washington, D.C. 111 9:00 a.m. Welcoming Remarks and Overview of the Broader NAE Project Jerome Grossman, President, HealthQuality, Inc. 9:15 a.m. Overview of the Work of the Medical Devices and Equipment Panel Annetine Gelijns, (Panel ChairJ, Director, International Center for Health Outcomes and Innovation Research, Columbia Presbyterian Medical Center 9:40 a.m. How are Changes in the Health Care Environment Affecting University-Industry Research Collaboration? Kenneth Keller, University of Minnesota 10:15 Break 10:30 a.m. Session I. Basic Academic Scientific and Engineering Research: Contributions to the Medical Device Industry Moderator: Clifford Goodman, The Lewin Group Speaker: Donald Engelman, Yale University Speaker: Robert Ne rem, Georgia Institute of Technology Respondent: John Linehan, The Whitaker Foundation 12 p.m. Lunch in Meeting Room 12:45 p.m. Session II. Academic Medicine and the Development of Proto- type Technology Moderator: Nathan Rosenberg, Stanford University Speaker: Samuel Thier, Partners Health Care Respondent: Paul Citron, Medtronic, Inc.

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112 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE 2:15p.m. Break 2:30 p.m. Session III. Clinical Evaluative Research on Medical Devices: University-Industry Interactions Moderator: Frederick Telling, Pfizer, Inc. Speaker: Richard Rettig, RAND Speaker: Alan Moskowitz, Columbia Presbyterian Medical Center 4:00 p.m. Open Discussion. What have we learned today about the impact of academic research on performance in the medical device industry? How can the university research contribution and impact be enhanced? 4:45 p.m. Closing Remarks Jerome Grossman

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MEDICAL DEVICES AND EQUIPMENT INDUSTRY Workshop Attendees Annetine Gelijns, chair * Director, International Center for Health Outcomes and Innovation Research Columbia Medical Center James Benson HIMA S. Morry Blumenfeld General Manager, Global Advanced Technology GE Medical Systems Paul Citron * Vice President, Science and Technology Medtronic, Inc. Diane Davies Pfizer Donald M. Engelman * Professor, Department of Molecular Biophysics and Biochemistry Yale University Marilyn Field Institute of Medicine Robert Fischell MedIntec Clifford Goodman The Lewin Group *Parley member 113 Jeanne Griffith Director, Science Resources Studies Division National Science Foundation Jerome H. Grossman * President and CEO Health Quality Inc. Elizabeth Jacobson Deputy Director for Science Center for Devices and Radiological Health Kenneth H. Keller HHH Institute for Public Affairs John Linehan The Whitaker Foundation Stephen Merrill National Research Council Dane Miller Airport Industrial Park Warsaw, Indiana Alan Moskowitz Columbia Medical Center Richard Nelson Columbia University Robert M. Nerem School of Mechanical Engineering Georgia Institute of Technology

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114 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE John Parrish Center for Innovative Minimally Invasive Therapy Massachusetts General Hospital Homer Pien * Manager, Biomedical Technologies, and Head, Image Recognition Systems Laboratory C.S. Draper Laboratory Peer M. Portner President, Novacor Division Baxter CVG Richard A. Rettig Senior Social Scientist RAND Edward B. Roberts School of Management Massachusetts Institute of Technology Nathan Rosenberg Center for Economic Policy Research Stanford University NAE Program Office Staff Tom Weimer, Director Proctor Reid, Associate Director Nathan Kahl, Project Assistant Robert Morgan, NAE Fellow and Senior Analyst *Parley member Stephen I. Shapiro Managing Director The Wilkerson Group, Inc. Kenneth Shine President (until 2002) Institute of Medicine John S. Taylor Director of Research National Venture Capital Association Frederick Telling * Vice President Pfizer Samuel O. Thier President and CEO Partners Health Care Systems, Inc. John T. Watson Acting Deputy Director National Heart, Lung, and Blood Institute