HIMA report predicts hardshipsfor U.S.-based device industry

Survey blames FDA over-regulation for R&D migration

The Health Industry Manufacturers Association has issued its mostpowerful broadside yet against Food and Drug Administration regulationof medical devices. Its survey of manufacturers blames the federalagency for destructive policies that deny Americans life-savingmedical technology and encourage the industry to move overseas.

The survey of 526 companies conducted for the lobbying groupby the Wilkerson Group (TWG), a New York-based research firm,paints a bleak picture of diminishing innovation and investmentin the U.S. medical device industry.

The release of the survey results was timed to coincide withHIMA's campaign to ease FDA regulatory control over the industry.HIMA also submitted a 54-page white paper to Congress this monthcalling for restructuring of medical device regulation. It proposesto streamline requirements and restrain the FDA's authority over510(k) submissions.

Companies that participated in the January 1995 survey includemanufacturers of imaging equipment, interventional devices, durablemedical equipment, supplies and in vivo diagnostics. Responsesreflect a 33% response rate to surveys sent to 1600 device companyexecutives. Conclusions were also drawn from interviews with 150industry executives and experts.

The report cites the following factors as responsible for whatit calls the "radical transformation of the U.S. medicaldevice industry":

• longer and more costly FDA review;

• private-sector health-care cost containment;

• legal liability concerns;

• restrictive Medicare payments;

• loss of venture capital sources; and

• reduced funding from academic sources.

The HIMA report singled out the FDA for attack, concludingthat the agency's increased demand for clinical data with 510(k)submissions and longer clearance times have increased the investmentrequired to gain a single approval by more than $10 million overthe last 10 years. The time required to generate positive cashflow from products that have successfully run the FDA gauntlethas increased by two years.

The industry has responded by pulling up stakes and conductingR&D elsewhere, the report says. The survey found that 50%of manufacturers and 87% of start-up companies are increasingclinical trials in Europe. About 45% of manufacturers are investingmore in European-based R&D, and 43% are increasing manufacturingcapabilities on the continent.

TWG found that the manufacturers expect a three-year gap betweena product's European introduction and regulatory clearance formarketing in the U.S. The report lists 100 examples of new productsthat are available in Europe but not in the U.S. It claims thatthousands of lives and billions of dollars have been lost becauseU.S. access to these products has been delayed.

The list includes many vascular stents, catheters and balloonangioplasty devices for interventional radiology. Several cancer-specificradiopharmaceuticals developed by Centocor and MRI contrast agentsdeveloped by Advanced Magnetics are on the list.

The study warns that these trends will have a devastating impacton the U.S. industry. It forecasts sweeping consolidation as marketleaders increase their market share at the expense of smallerplayers. As many as 20% of firms will be forced to exit the industry,according to TWG researchers.

The survey found that 57% of the respondents believe it ishighly likely that their company will be involved in a mergeror acquisition in the next five years. About 46% said that thelikelihood of a merger/acquisition is much higher today than threeyears ago.

The report also found that fewer start-up companies are likelyto emerge to replace those gobbled up by the market leaders. Itnotes that start-ups have historically been the source of mostof the breakthroughs that have aided medical practice and spurredeconomic growth.

Those few new companies that do emerge will have difficultymaturing into full-fledged manufacturing concerns. TWG researchersnote that many venture capital firms are insisting on much highermarket potentials before financing new companies. Such requirements,according to the report, are limiting venture capital investment,a key source for start-up companies.

The analysis found that the total financial commitment of venturecapital to the medical device industry has declined, despite anincrease in total venture capital available to U.S. industry overall.Between 1992 and 1994, the share allocated to medical devicesand diagnostics companies fell by 30%, the report concluded.