Medtronic buying Covidien

Big news in the medical device world:

U.S. medical device maker Medtronic said on Sunday it had agreed to buy Covidien for $42.9 billion in cash and stock and move its executive base to Ireland in the latest transaction aiming for lower corporate tax rates abroad.

As big as they are, these two companies don't have that much overlap in the products they sell.  Medtronic focuses on cardiovascular, while Covidien does not have many products in that space.  So from that perspective the deal makes sense.  Although one of the main benefits seems to be a tax advantage for Medtronic, when you're paying $42 billion for a company for a tax advantage, I think it is a clear sign that the US corporate income tax is too high.

On the other hand, the stock market is at an all time high, so you're buying a company at its most expensive. If you're buying it with your shares which are also at all time high, then maybe it all works out, but you have to pay the buyout premium of 40% or whatever it turns out to be.

Entertainingly enough a few years ago Covidien bought ev3 (among others) and was still working on re-branding their products world wide, assuming they re-brand to Medtronic, at this rate, they'll never catch up.

Regardless, we'll see how this deal works out in the long run.

Free pumps

As part of the ACA insurance companies are now required to cover the cost of a breast pump, either a rental or a new one for you to keep.  The FDA considers a breast pump a medical device. A breast pump and basic accessories will run you $150 to $300 with Medela seemingly the current most popular brand.

As a consequence to the new law, if you check eBay or Craigslist you will find many breast pumps sealed in their boxes, available for sale below list price.  Why?  Because people are claiming the benefit with no intention of breast feeding then turning around and selling the devices to those without the benefit (such as those without insurance, on Medicaid, or in other countries).  Now obviously some people intend to breast feed, but it doesn't work out and they don't need a pump, establishing breast feeding can be a struggle and you generally know in the first week if you're going to stick with it or not.  There is nothing wrong with this.  However, the whole situation is generating a lot of waste, in this case it seems like a copay may be appropriate.  If something is "free", you're likely to take it, regardless of if you're going to use it or not.

Just out of curiosity I looked at breast pump MDRs to see what they were reporting, it was what you would expect, potential electrical issues and some potential allergic reactions to materials.  Evenflo also got a warning letter back in 2009.

The Washington Post covered the booming breast pump industry in: The breast pump industry is booming, thanks to Obamacare.

Medical Device Tax

The medical device tax is a 2.3% tax on medical devices, everything from bed pans to surgical tools.  It was signed into law as part of the Affordable Care Act, also known as Obamacare.  As I understand, the logic behind it was if more people are getting more care, more medical devices are being sold and therefore medical devices can pay some of the way.  This logic doesn't follow for drugs, whose companies have better lobbyists.

What is a company to do?  Assuming you are a public company and a certain margin is expected you can either pass the costs on to your customers or cut back on generally marketing and/or R&D (you could also cut quality, but I wouldn't recommend that).  I suspect if you're in the low margin bed pan business, you pass the costs on, you don't have a bunch of bed pan R&D to cut.  If you are the stent or some other product with higher margin, I suspect you also pass the costs on to your customers.  You have some brand leverage and a product you can differentiate yourself from the competitors so switching is more difficult.

Alternatively in either case you could just suck it up, maybe decrease your dividend and hope your investors are kind, but I'm telling you right now, CEOs are looking for ways to pass costs on to their customers.  That is their job, to look out for the company.  Passing the costs on to the customers defeats the whole purpose of the tax, lets look at the cutting R&D option as well.

The Incidental Economist has a post title the job killing medical device tax parts 1 and part 2.  He quotes a recent paper by Bryan Schmutz and Rex Santerre on the device tax and R&D, in part:

simulations show that the recently enacted excise tax on medical devices, taken alone, will reduce R&D spending by approximately $4 billion and thereby lead to a minimum loss of $20 billion worth of human life years over the first 10 years of its enactment.

So decreased R&D spending on medical devices reduces health care quality, which again defeats the purpose of the tax.

The incidental economist has seven points about the tax, none of which I entirely disagree with, however a one I think deserves comment.

One can be confident that the medical device industry will benefit tremendously from the large increase in the number of insured individuals to begin in 2014.

On this point, it depends on the device, some devices are presumably being used to treat the entire population that needs treated now.  These devices would typically be used in emergency cases.  For example, if you're having a heart attack, if you show up at the hospital, you'll get the treatment you need.  If there are people out there not getting treated, it is not because of insurance, more likely its due to access to medical care (i.e. they live in a place that can't deliver the needed treatment), or patient education (i.e. they think they'll be fine if they just wait it out).  More insured people won't increase device use here.  The devices most likely to be used more are the low margin ones, which are generally manufactured overseas.

In fact, a company could end up in a situation where the low margin products increase, the higher margin products don't increase, and you have a tax to deal with where you must cut R&D on high margin products, and/or pass the tax on to customers, neither of which was the purpose of the tax.

One of the comments brings up a good point about start ups:

This is a 2.3 percent tax on gross sales, right? If gross sales are $10, and profits are 10% or $1, then a 2.3 percent tax on gross sales wipes out roughly a quarter of the firm’s profits. For early stage companies with sales but with current operating losses, or negligible profits this could easily mean either paying taxes on losses or imposing losses on break-even revenues.

There are a decent number of companies with a few products and don't currently make a profit as they expand, they don't lose much either, but they are constantly on the edge.  It would be somewhat interesting to see how a company like Thoratec would have grown with this tax in place.  This makes it seem to me that a start up economics may change and a start up may try to sell itself or its products to a larger company sooner, as the transition from small to medium sized company is now harder.  This would result in the 10 or so large diversified companies that dominate the market continuing to do so.

All of this remains to be seen, and I'm trying to keep an open mind about it, but it doesn't make much sense to me right now.

Tech Talk – Stroke Treatment with Medical Devices

I thought I’d move into a newer area for medical devices, stroke treatment.  Stroke affects more than 700,000 people a year in the US alone, of these, over 150,000 die.  Most of the strokes are ischemic in nature.  Unfortunately the treatment options are very limited and time to treatment is absolutely critical to a good outcome.  Successful recanalization of the occluded cerebral vessel during the acute ischemic event is associated with lower three month mortality and improved functional outcome.  [Source]

Intravenous Tissue Plasminogen Activator (tPA) is the FDA approved drug for acute ischemic stroke for up to three hours after the stroke.  This drug can dissolve the clot and is sometimes applied right at the clot through a catheter.  This is generally the first form of treatment; however, tPA is not effective in all cases and can cause bleeding in the brain, particularly in older patients. 

Mechanical removal of the clot using a medical device is being performed more and more alone or in conjunction with tPA.  These devices have some advanatges over tPA, including more rapid achievement, ability to treat large vessels, and lower risk of hemorrhagic events.  Only two neurothrombectomy devices are currently cleared for use in the US.  You don’t have to be a rocket science to figure this one out- 700,000 people affected and two cleared devices, stroke treatment is a screaming opportunity for medical devices.

The FDA defines these devices as neurothrombectomy devices, these are devices intended to retrieve or destroy blood clots in the cerebral neurovasculature by mechanical, laser, ultrasound technologies, or combination of technologies.  The FDA has provided guidance on these devices, one note of interest is that a clinical trial must be performed due to the high risk of the device.

There are some general procedural steps common to both devices that I will cover quickly now.  Both devices must have access to the clot itself.  This means advancing a guide wire and catheter using angiography to the clot first. Don’t tell cardiologists, but this is more difficult in the head than in the heart- there are many more possible pathways and the vessels are generally smaller and more easily damaged.  If the patient has been given tPA any damage can be catastrophic.  Angiography is also used to measure the vessel diameter so the appropriate sized device can be chosen.

Another procedure common to both devices in certain situations is the use of a balloon guide catheter with aspiration.  The balloon guide catheter is inflated, which blocks blood flow in the blood vessel with the clot.  Aspiration is then applied, this means taking a large syringe (typically 60 ml) and pulling it back, sucking whatever you can out of the blood vessel, alternatively you can buy a pump to do this.  Minimizing balloon inflation time is important because the lack of blood flow is what causes a stroke, you don’t want to compound the problem.

The two approved devices are shown below:

                                            Merci Retreiver (left) and Penumbra System (right) Image source.

The first FDA approved neurothrombectomy device was the Merci Retriever by Concentric Medical.  The device was approved through the FDA 510(k) process in 2004, the current indication for use is:

Merci Retrievers are intended to restore blood flow in the neurovasculature by removing thrombus in patients experiencing ischemic stroke. Patients who are ineligible for intravenous tissue plasminogen activator (IV t-PA) or who fail IV t-PA therapy are candidates for treatment. Merci Retrievers are also indicated for use in the retrieval of foreign bodies misplaced during interventional radiological procedures in the neuro, peripheral and coronary vasculature.

The Merci Retriever system includes a flexible nitinol wire coil formed into what looks like a corkscrew.  The latest version of the device has filaments (made of suture material – I would guess nylon) that provide an additional mechanism for securing the clot during removal.

Basically, the device is advanced distal to the clot, deployed, turned, and when pulled back through the clot it captures the clot in the corkscrew and the device is then removed from the artery while under balloon aspiration.  The balloon aspiration (pulling a vacuum on the vessel while a balloon blocks it) minimizes pieces breaking off from the clot and causing additional issues.  [source]  You can watch a demonstration of the device here. 

Concentric Medical was recently bought by Stryker for $135million, which goes along with Stryker's previous purchase of Boston Scientific’s neurovascular division.  I don’t know what Concentric’s revenue was, but I think this sounds like a good acquisition, with the caveat that the Concentric team must remain focused on Stroke treatment and not get caught up in all the other things Stryker does.

The second device in use is the Penumbra System of Continuous Aspiration Thrombectomy by Penumbra. The Penumbra System is used for the “revascularization of patients with acute ischemic stroke secondary to intracranial large vessel occlusive disease…within 8 hours of symptom onset”.  The device is first advanced to the blood clot, the Penumbra Catheter’s tip is then placed at the proximal end of the clot.  The Penumbra “separator” is advanced to the clot, aspiration is started, then the separator is used to help to break up the clot (or “debulking”) and make it easier to suck into the guide catheter.  The separator has a straight tip and a cone (purple cone shown in the picture).  In theory, there should be less damage to the vessel with this system, this is important if the patient has received tPA and that has not worked. 

As reported in a State of the Evidence article, the clinical effectiveness of the devices, defined as the having a good outcome (modified Rankin Scale score 0 to 2), rates ranged from 21 to 36% with the MERCI and 20 to 48% with the Penumbra System.  These numbers are not necessarily comparable to each other as the devices can be used for different types of clot.  Presumably the Merci retriever is typically used for “hard” clots and the Penumbra system is used for softer clots (This is just my guess).

Other types of devices sometimes used off-label in the US, such as snares, exist, but I would expect their use will decline as more devices get approval for stroke treatment.  Additionally, stent retrievers are available in the EU, but not yet approved for the US, I assume these devices will be approved in the next year or so and if you were so inclined you could roadmap out which ones are doing well in the EU and make an investment on that.  The EU is currently two or so years ahead in types of devices available for stroke treatment.  Other devices are certainly under development, with ideas from coronary or peripheral vascular being expanded for use.  Startups include Insera Therapeutics who is developing a snare type device.   I wasn’t able to identify any more in a few minutes of Google searching- if you know of any, leave a comment and I’ll add them later.

Update:  In 2012 two more stroke treatment devices were approved by the FDA, thee Solitaire FR by Covidien and the Trevo by Stryker.  Clinical trials for both of these devices showed that they were superior to the Merci Retriever.  

Google health shuts down and the FDA approves a device in 30 days

Google Health is apparently shutting down, too soon, we're just getting ramped up in fact.  Although they didn't seem to embrace the key to making their system widespread and more popular, user input, not just physician input, the two would be easy to separate.  The aps are already out there, they just need to be linked to health records, blood pressure, workout data, smoking, drinking, drugs, diet, etc.  The whole state of California would love to upload their workout history to their health record, with the user invested in their health record, the health record becomes more useful and valuable.  Someone will put this together and it will be awesome.

Anyway, enough on that, I did say that I had something good to say about the FDA a post or so ago, from Mass Device: "The system was submitted for Food & Drug Administration 510(k) review in mid-May and is available for sale in the U.S. just one month later."  They managed a 30 day 510(k) review, which is probably nothing impressive for a blood pressure device, but it is on the iPhone which is probably somewhat more difficult to show that it wouldn't be corrupted, do you apply for the Ap from Apple or for approval from the FDA first?  So, good work.

New product turn over

MedCity News has an article on J&J exiting the coronary drug eluding stent business:  End of J&J stent business carries lessons for medical device innovators.  It is very surprising to me that they are just leaving the market, surely with $400 million revenue this year they could make something happen.  I know they were getting their clock cleaned, but what kind of signal does this send to their R&D organization as a whole?  We're not afraid to throw in the towel?  Obviously J&J has a lot of smart people and I've never run a Fortune 500 company.

The take away message from the article is you need to keep innovating...  I have no idea why you wouldn't, you need to turn over your devices regularly to stay competitive, plus each time you do it you can raise prices and increase margin.  Plus you're paying those engineers anyway (hopefully)- don't let them get distracted on non value added side projects.  How often you turn over your devices with new models depends on the devices, guide wires and catheters, every 1-2 years you should have a new model or at least a respectable line extension.  Other devices can take longer depending on their complexity and regulatory approval time, obviously for drug eluding stents you need a more significant investment. 

That being said, don't do it just for the sake of having something new, if the device isn't actually improved a reasonable amount they customer will notice.  I was part of one launch with really good immediate sales, then a huge fall off because the customer realized this new product didn't meet any need the old one didn't, in fact it was worse (from their point of view, from the company point of view it was cheaper.)  After the initial buys, the customers didn't reorder, they saw right through it despite the best efforts of marketing.  If you're investing in a medical device company this is one thing you want to look for, are they launching new products at a reasonable rate, or are they just sitting back and letting things happen?

Anyway, congratulations to Abbot, Boston Scientific, and Medtronic enjoy your extra sales. 

Catheter recall - tip detachment due to embrittled material

Boston Scientific is getting a bit of attention for an IVUS catheter Class I recall, to be honest a smaller company probably wouldn't get the same attention.  What I thought was interesting was that they published a rate for the catheter tip detachment, from Cardiovascular Business:

The corrective action, announced May 27, is being taken due to eight confirmed cases of catheter tip detachments caused by the embrittlement of catheter material. The Natick, Mass.-based company confirmed a rate of 0.027 percent of catheter tip detachments in the U.S. and Puerto Rico from April 1, 2010, to May 10, 2011.

I don't think I've seen a rate published before and a quick search didn't turn up anything.  Presumably this is their complaint rate, of 0.027% or about 1 in 3700, so their recall of 30,000 devices prevented 8 tip detachments.  No more details are available, so we don't know if it is a design issue or a manufacturing issue, although an "embrittlement of catheter material" sounds like a design issue- but it is not impossible to imagine something done incorrectly in manufacturing that could cause this.  That being said, storage conditions or sterilization effects (if it is not EtO) would be where I would start.

From a risk point of view, if there is one thing you don't want to happen is for parts of a catheter to fall off inside of someone, the severity is obviously high.  Tip detachment is generally detectable at least when you remove the catheter from the body, if not sooner, depending if the part detaching is radiopaque or if the catheter stops functioning when the tip detaches.  In this case the bar has been set, a rate of 0.027% is too high, which I would agree with, especially for a large company and this type of diagnostic device with suitable alternate diagnostic methods available.  Boston Scientific is doing the right thing with the recall and hopefully they are able to address the issue and move on.

SonoChief predicts the costs of the recall:

Boston Scientific’s voluntary recall of the iCross Coronary Imaging Catheters will be disruptive to their ultrasound division. With an average street price of  [private]$800 dollars a recall of nearly 30,0000 catheters equates to a loss of 2.4 million inventory.
...
Boston Scientific customers are being told all iCross Coronary Imaging Catheters are being replaced with Atlantis SR Pro Coronary Imaging Catheters, which will operate with Boston Scientific’s IVUS imaging consoles and are immediately available.  The Company does not expect this recall to have a material financial impact.

Which is actually $24 million (incorrectly multiplied above), if you use street value, but presumably Boston has a margin of 60% or more, and no one buys list price, which would put the cost closer to $4 million.  Although the recall is being expanded beyond the original 30,000 catheters.  The cost to their reputation as competitors gain is obviously significantly higher.

I'm not sure what the take away from this is other than do a thorough job on your verification testing, Boston Scientific surely documented and tested for the tip detachment risks and thought they were acceptable, but the rate came out higher than predicted.  I would like to know the material and conditions that lead to the issue, I have a few guesses, but its doubtful we'll ever see that level of detail.

Labeling for Reuse of Single Use Medical Devices

Another relatively new EU requirement effective March 21, 2010 per the revised Medical Device Directive (MDD) (93/42/EEC) M5 is the following:

Where appropriate, the instructions for use must contain the following particulars:
...
If the device bears an indication that the device is for single use, information on known characteristics and technical factors known to the manufacturer that could pose a risk if the device were to be re-used. If in accordance with Section 13.1 no instructions for use are needed, the information must be made available to the user upon request;

Now it is not good enough (in the EU anyway) to just put single use device in your instructions for use (IFU), but you also must identify the risks associated with reuse (sepsis/infection is probably common). I'm sure these are already documented in your risk analysis already, just cut and paste them into your IFU. Apparently anyone already using the device off label by reusing it will be deterred by the listing of potential risks, a new mitigation is born.

This seems like a potentially slippery slope to me, why not have every warning list potential risks if not followed? Is it okay to exceed the shelf life? After all, there are no risks listed- how bad could it be? If it was really bad wouldn't they list more than just a rule like they do with reuse?

Anyway, it is not hard to comply with this requirement and we like to sell stuff in Europe, so we're in.

See my previous post on the new MDD phthalates labeling requirement.

Phthalate labeling in medical devices

Hello my friends, I am a little late, but a relatively new EU requirement per the revised Medical Device Directive (MDD) (93/42/EEC) is the identification of phthalates used in some common medical devices:

If parts of a device (or a device itself) intended to administer and/or remove medicines, body liquids or other substances to or from the body, or devices intended for transport and storage of such body fluids or substances, contain phthalates which are classified as carcinogenic, mutagenic or toxic to reproduction, of category 1 or 2, in accordance with Annex I to Directive 67/548/EEC, these devices must be labelled on the device itself and/or on the packaging for each unit or, where appropriate, on the sales packaging as a device containing phthalates.

This update was required by March 21, 2010 and your certificate of conformance was probably signed on that date. The main use of a phthalates in medical devices is DEHP in PVC. There are no limitations imposed, but labeling is required (I suggested "Portions of this device contain phthalates").

Since we're involved with tubing and IV bags, we are knee deep in PVC with DEHP. When we started design we had considered trying to go DEHP free, but found the DEHP free PVC alternatives not as robust and as customizable as we wanted. A review of the product risk analysis clearly showed that the risks of a IV bag or tubing leak were many times greater than even long term phthalate exposure (which is now mitigated with labeling...). Maybe the materials will improve in the near future, but right now it doesn't look like it warrants a separate project to go DEHP free, new materials can be worked in as part of other projects as they arise.

I know there was ample warning, but it caught us a bit off guard, luckily we do not have a large inventory to manage or relabel. If there is one lesson I have certainly learned over the past year, it is inventory makes you feel good, but we keep getting burned with costly rework orders due to various changes.

Medical Device Web News

Some medical device related news that caught my interest:

Nelson Laboratories to add 350 jobs- We use Nelson and have no complaints, I'm glad to see they're doing well. We also use pretty much everyone else though, it just depends on who is most responsive and seems like they can get the job done. I'm always glad to see anecdotal confirmation that the industry is not majorly affected by economic downturns. Although I would think device development may be, just because there would be less startups.

Top 10 medical device hazards of 2008- Its probably about the same every year, it is not like we've solved "Ineffective Alarms" lately. There hasn't been much movement on that front since blinking lights and a noise. The article is still interesting from a risk analysis standpoint.

Miraculous facial tumor surgery- With picture, Wow!

Best practices for part numbering- Keep it short and numerical for future barcode implementation is a good tip. Eventually it is going to get all screwed up (and this is actually a good thing, it means your company is growing and one person can't manage it all), having a good system at the start might give you an extra year or two before it does.

Medtronic wins

Devicetalk:

Medtronic has won a case that went to the U.S. Supreme Court over whether patients could sue manufacturers of PMA-approved devices in state courts. The high court ruled 8-1 that because FDA has already made a determination about the safety and effectiveness of the product, state lawsuits are barred when they would impose different requirements. The ruling, which pertained to a patient named Charles Riegel who was injured by a Medtronic catheter, was released this morning, reports the Associated Press.

Medical device news of the decade! I'm not really kidding either, no one talks about medical devices. It would be mildly entertaining if a medical device maker tries to convince the FDA that they fall under a PMA instead of a 510(k) now.

Unproductive employees

MDBBATL discusses Radiant Medical, a medical device company that shut down. I agree with his takeaway:

The takeaway: If there are geniuses in your company wasting time with paper work, unnecessary plant closures, too much pow-wow about innovation without actually producing anything, and creating a hostile enough working environment that the company looks like one big revolving door...fire 'em! You already have too much to worry about as a medical device company!

I'm not familiar with what stage Radiant was at when it shut down (I see they at least did some clinicals in 2005 with $36 million), but this advice is particularly true for start ups. If you have unproductive employees it is worse than just paying a worthless salary, it effects the whole company. Other employees see the unproductive behavior and mimic it, maybe not to the entire degree, but some productivity is lost. Even worse is if the employee effects the regulatory end, this is a disaster waiting to happen at a small or start up company.

Everyone needs to be on the same page and management needs to keep the goals clear and well defined, pet projects realistically requiring years of research will not help sales or approvals today.

BTW if anyone knows anymore details I'd be interested, their burn rate of ~$15 million a year seems pretty high, of course it was Redwood City.

iPod's and pacemakers

Medgadget reported some time ago:

Cell phones have been getting a lot of flak in ERs and hospitals, while iPods are seen as the pinnacle of design. Leave it to a 17-year old to bring the real troublemaker out into the open. Apparently iPods interfere with pacemakers, sometimes causing them to stop working completely. Here's more from Reuters:

The study tested the effect of the portable music devices on 100 patients, whose mean age was 77, outfitted with pacemakers. Electrical interference was detected half of the time when the iPod was held just 2 inches from the patient's chest for 5 to 10 seconds.

This is unpleasant news and something we're in the middle of dealing with at my company (shielding and hazard analysis). We are not making an implant, so the shielding task is quite a bit easier than the pacemaker maker's.

However, hazard analysis is never easy and the trend is to get more and more detailed. Where once we assumed a certain level of competence from the operator, now we assume less. Part of this is greater ability on the device's part to monitor and measure various systems as electronics and programming have advanced. We are more able to catch operator and equipment errors. But part of this is a safer society as a whole, we move towards airbags and bicycle helmets where before it was acceptable to do without.

Medical Devices are flavor of the month for VCs

According to the NY Times, medical devices are the venture capitalist's flavor of the month:

Venture capitalists, apparently, are going cuckoo for medical-device companies at the expense of past favorites like computer-related start-ups or drug-development companies.

In the first quarter of this year, seed investors put $1.1 billion into such businesses, a quarterly record for the medical-device industry, and a 60 percent increase over the same period in 2006, according to the National Venture Capital Association, a trade group.

I was just saying that medical devices deserved more investor attention few days ago! Medical Connectivity Consulting also looks at the article and notes some concerns. Obviously I think this is a good thing, but you know I'm biased.

Chinese companies and generic medical devices

A Chinese medical device company, Mindray Medical, is growing fast in North America, while a generic surgical mesh has received 510(k) clearance. Both events could have significant effects on the medical device industry as we know it today. Is your company ready?

Charles River Labs going to space?

Medgadget covers Astronauts getting hand held microorganism detectors for use in space. Interestingly enough the picture shown and the source pictures is a Charles River Laboratory Endosafe PTS. It looks like the have the older version of what is being sold currently. That sure is a lot of horn tooting from NASA for buying a piece of off the shelf equipment. In fact, the description sounds exactly like how the Endosafe PTS works right down to the crabs and only detecting gram negative bacteria, they even call the thing LOCAD PTS. Maybe the modified it for use in space or gave it more features?

Drug eluding stents

Advanced Medical Technologies looks at the drug eluding stent issue, which is obviously not helping out the device industry very much. Although two years ago, it was the hot ticket. Look at the list of stent developers if you want proof. Jumping on the bandwagon doesn't always pay off.