Estes Design and Manufacturing’s Vice President Operations Ron Estes is quoted in the latest issue of Medical Product Outsourcing (MPO) magazine with an article titled, “Small r, Large D,” written by Ranica Arrowsmith, associate editor. The story focuses on the development of existing knowledge in the company, fostering innovation among team members, and creating environments where innovative ideas can thrive. The full story is featured below:
In 2011, the Wall Street Journal called “Modernist Cuisine” “The most astonishing cookbook of our time.” While that may seem like an exaggeration, chefs nationwide bolster that statement by their almost unanimous reverence toward principal author Nathan Myhrvold. On season nine of Bravo TV’s “Top Chef,” Myhrvold appeared on an episode to challenge the competitor chefs to study his 2,500-page volume and come up with dishes that exemplified the cookbook’s modern development on traditional techniques.
The winning chef created ravioli filled with an almost raw egg yolk, blending the very traditional, Italian method of pasta creation with a modern surprise within. This approach painted the perfect picture of “Modernist Cuisine”—applying new approaches, based on hours upon hours of research by innovator chefs such as Myhrvold, to old, tried-and-true techniques. In short: development.
Chris Jones, former executive chef and director of innovation at the well-regarded Chicago restaurant Moto, said, “I look up to chef Nathan. He’s a genius. If I could be one tenth as smart as he is, I could rule a small continent.”
Mhyrvold: Creative genius chef? Perhaps—but he never went to culinary school. In fact, Mhyrvold is primarily known to folks outside the heady world of creative cuisine as former chief technology officer of Microsoft and general tech innovator. With degrees in mathematics, geophysics and space physics from the University of California-Los Angeles, and a period of study under Stephen Hawking, Mhyrvold went on to work for Microsoft for 13 years. In 1991, he founded Microsoft Research, the research arm of the software giant. After Microsoft, he co-founded Intellectual Ventures, a patent portfolio developer and broker in technology and energy that holds an approximate 30,000 patents. He also is a past winner of the Memphis barbeque championship.
Mhyrvold is the embodiment of both the R and the D in research and development. In the tech world, he literally founded the research vision of one of the world’s largest technology companies; and in the cooking world, he applied his scientific know-how to develop new and groundbreaking culinary techniques. You can’t have the new without the old, and medtech is no different. Precedent is gospel for technologies such as imaging systems, glucose monitoring devices and even resorbable devices such as nerve conduits, and precedent means development on prior foundations.
Funding has always been the foremost consideration of R&D, because it is an area that does not provide immediate return on investment. Some medical products, such as the material Nitinol, remain decades in the making before becoming viable for market, let alone profitable. Nitinol, which is an alloy of nickel and titanium, today is used in orthopedic applications for its shape memory properties. The material was discovered in 1959. It took 10 years before a practical commercial application was found, and only became financially viable in the 1990s.
Nitinol’s medical applications owe their thanks to two milestone medical devices developed in the 1980s: Mitek’s Homer Mammalok for breast tumor localization, and Nitinol Medical technologies’ Simon Nitinol filter, designed to trap blood clots in the venous system. These devices set a precedent for nitinol, opening the door for nitinol-based Class II medical devices. Another factor in the popularization of nitinol was how its producers in the 1980s shared information on how to design and develop the novel material.
Research takes years. Development takes more years. And when financial resources are limited, the natural focus will fall on development of existing knowledge and technologies. Since the economic downturn of 2008 and implementation of the medical device excise tax in 2013, the medtech industry has belt-tightened considerably in recent years. Before the 2.3 percent tax came into affect under the Affordable Care Act, one of the most popular pundit predictions for the industry was that R&D would take the hit. Post-tax, there haven’t been too many noticeable disasters in terms of innovation falling off or companies going belly-up (as many cynics feared)—but that doesn’t mean both original equipment manufacturers (OEMs) and contract manufacturing organizations (CMOs) in medtech aren’t making cuts.
“Money and resources are greatly reduced from what they used to be,” Pat Meheran, director of operations for Silikon Technologies LLC, the Hamburg, N.Y.-based silicone molding spinoff from Polymer Conversions Inc., told Medical Product Outsourcing. “Prior to joining this venture, I worked in product design and development and I saw the money and the resources greatly reduced. And I would say that the number one reason for that is the downturn in the economy in 2008. On top of that, some of the U.S. Food and Drug Administration’s increased restrictions on passing certain devices and being more strict with others has also contributed. The medical device tax has also contributed. OEMs have to make that 2.3 percent up somewhere, and I believe that contributes to cutting some of the R&D.”
Boston Engineering’s vision finds a potential solution to the funding quandary. Research is the more demanding half of R&D when it comes to money, because it is original work, while development has the advantage of building off precedent.
“Boston Engineering develops new products for client companies. As such, it would be more appropriate to say we focus on new product development—or as I refer to it, small r and large D,” explained the Waltham, Mass.-based company’s Director of Medical Devices Dave Jacobs. “In order to mitigate technical risk, our preference is to use existing technology whenever possible, and package and/or modify that technology to meet a new need.”
According to an Ernst & Young annual industry report, 2013 actually saw a 7 percent increase in R&D investment in the medical device industry. The top medtech R&D spenders invested more than $10.5 billion on innovation in 2013, up by about $200 million from 2012. Of course, statistics can be misleading and as the biggest R&D investors continue to be the large players such as Medtronic Inc., Johnson & Johnson, and GE Healthcare, the startups can get lost in the mix. Indeed the E&Y report notes that financing has become increasingly scarce for small companies. Between 2008 and 2012, $14 billion was lost from R&D investment due to slowed growth.
Even if a company is lucky enough to still have the physical investment dollars, the effects of a general economic dive and a very real tax on industry create the feeling and culture of financial deprivation, and for most, that is enough to create a culture of careful spending and consideration of funds allocated.
So remove the money, at least from a company’s zeitgeist, and what do you have? People, ideas and culture. Whether a company has an R&D team of two or 20 (depending on how many salaries it can afford), ideas are limitless if you have the right engineers and collaborators.
“Twenty years ago the two founders of our company set out to create an ‘engineer’s paradise,’” Jacobs told MPO. “Their commitment to doing that hasn’t waned one bit, and subsequently this is a great place for any technical person to work. We hire bright, intellectually curious people, put them into a terrific environment, give them interesting problems to solve, a little direction and support, and then just get out of their way. When you do that you see some pretty innovative solutions.”
Boston Engineering is not the only company that wants to make their engineers happy. An “engineer’s paradise” is actually what any smart technology company creates in order to ensure innovation. A focus on engineers and engineering rather than researchers (though engineering and research certainly aren’t mutually exclusive) is one more way companies place emphasis on the development side of R&D.
SMC Ltd. is a CMO based in Somerset, Wis., that provides a variety of services for finished medical devices. It too focuses very much on engineering as a core principle of innovation.
“SMC has a history as an engineering-based organization. This background has created a mind-set of engineering innovation,” said Rohit Tandon, vice president of new product development for SMC. “As a contract manufacturer, we see many types of devices across the medical, diagnostic and pharmaceutical markets and this, too, creates a drive of finding strong technical solutions in all areas. We actively encourage innovative thinking by providing laboratory space strictly for the use of engineers trying out ideas as well as funding to take prudent risk. This support for innovation is sponsored by our entire executive team, of which two-thirds, including our CEO, are engineers.”
At Indianapolis, Ind.-based Estes Design & Manufacturing Inc., Vice President of Operations Ron Estes takes a slightly different approach to innovation. Innovation, he says, is not the property of the R&D department. It is the responsibility of everyone within the company. Estes makes sheet metal products for a variety of industries including medical.
“Innovation is a direct product of corporate culture,” said Estes, who himself is an executive-engineer with a background in aeronautical engineering. “If you have talented people and put them in an environment where innovation and creativity are expected, valued and rewarded, innovation will happen. Innovation is not the responsibility of one person or one department—everyone in the organization should have the opportunity to make contributions. And it’s contagious.
Success breeds success. Winning projects foster excitement, enthusiasm, and confidence.”
There also are systematic approaches companies can use to encourage productivity and creativity in R&D. Steve Maylish provides business development on a consulting basis for Triple Ring Technologies Inc. and Promenade Software Inc., based in Newark and Irvine, Calif. respectively. He favors the “Scrum” methodology of handling R&D, a software development framework that relies on intense collaboration between people or teams and does not emphasize traditional, sequential approaches to product development.
When asked how he fosters innovation, Maylish said, “At Triple Ring Technologies, we host a monthly event called MedTech Frontiers where experts in a specific field discuss their area of expertise. We also foster curiosity and provide an environment for information sharing. Our teams work in collaborative work-spaces, use Scrum methodology and share technology. We meet monthly to share technical updates with our staff.”
A key feature of the Scrum approach is that it allows for customers to change their mind in the middle of a project and understands that a traditional planned or predictive approach is not the optimal approach for development. Scrum adopts an empirical approach, accepting that the problem cannot be fully understood or defined, focusing instead on maximizing the team’s ability to deliver quickly and respond to emerging requirements.
According to Ernst and Young, since 2008, the growth rate of medtech company revenues has been 7 percent annually. However, if post-2008 revenue growth had been sustained at the 13 percent historic rate it had been enjoying, the medtech industry would have brought in an additional $131 billion in revenue between 2008 and 2012. As a result of these “lost” revenues, and consequently, “lost R&D funding, there remains the attitude that America could be doing a lot better than it is—even though compared to the rest of the world, American companies do invest a significantly larger portion of company revenues back into R&D.
“I want the country that eliminated polio and mapped the human genome to lead a new era of medicine—one that delivers the right treatment at the right time,” President Barack Obama said during this year’s State of the Union Address. He urged Congress to boost research funding so the United States could herald a movement toward curing some of the most damaging and persistent diseases today, such as cancer and diabetes. He noted that increased funding for research had had a great impact on the cystic fibrosis space, and said that he was “launching a new precision medicine initiative … to give all of us access to the personalized information we need to keep ourselves and our families healthier.”
It’s not a trade secret that more money is needed to move medicine and medical technology forward, and that money is not misspent on research. But it historically is difficult to persuade shareholders that funding research is the best approach, because it is not immediately profitable.
“R&D is always a risk,” Silikon Technologies’ Meheran told MPO, explaining the road that leads from investment to profitability. “R&D is certainly not a short-term profit center for companies. But there’s no doubt that if your R&D is successful, the product or process that is being researched and developed becomes a profit center in the future.”
Last year, SMC expanded in Costa Rica and Massachusetts. These expansions were for manufacturing space, the natural result of product development.
“R&D is not at the robust pace of some years ago,” said SMC’s Tandon. “OEMs are extending the life of current product lines, and often find their new technology from startups. OEMs have greater expectations from international markets, and interest in converting existing products to international needs. We do see large OEMs and startups looking to the supply chain for partnerships in innovation to provide manufacturing solutions.”
Development of existing product lines is valuable in its own right. Continuous improvement of existing technologies means building on proven technology to create better versions of trusted devices. This also is a safe bet financially, as building on a device that already has proven profitable presents minimal financial risk. However, the heart of R&D is creativity and cutting edge innovation, which is lost when the focus shifts from R to D out of necessity.
“Innovation in the medical device industry, as in most other industries, comes from startups,” noted Boston Engineering’s Jacobs. “However, very few venture capital firms are investing in early-stage medical device companies, and this seriously affects the formation of these startups. Angel groups are providing larger investments and making up a small part of the funding shortfall. But it isn’t sufficient. The consequence is that many great ideas, some that can have a positive impact on systemic healthcare issues, are going unfunded.”
Because of the separate but major push to drive down healthcare costs, average selling prices for medical devices are not rising on par with any spending medtech companies do, whether it is on salaries, expansions or R&D. This is another factor that affects the return on investment in R&D significantly.
Despite the obstacles to R&D that can seem frustrating, U.S. medtech innovation is thriving. Data from the online statistics Statista Inc. show that the United States consistently re-invests a far greater percentage of medtech revenues into R&D compared to large competitor markets such as Europe. In fact, finding ways to stay profitable while commercial prices and investment stagnate is itself innovative.
“You only have to look at all the new devices to get a sense for the state of R&D in the medical device industry,” said Jacobs. “We can monitor ECG data from wearable devices remotely, send that data to the cloud, analyze it to identify cardiac events and when they occur send that data to a physician. Neurostimulation devices are being used to treat pain and even allow paralyzed people to walk. The technology to create an artificial pancreas exists, and several companies are working to make that available to diabetes patients. Many new diagnostic medical devices are only possible due to low-power wireless communication technology. Soon we’ll start to see remote therapeutic devices as well. These new devices will allow us to provide healthcare to people who have no access to healthcare providers today.