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  • MedTechs have built proficiencies to successfully create and market physical devices predominantly for the US and Western European markets
  • To remain relevant in the rapidly changing healthcare ecosystem they will need to develop advanced digital and data capabilities and increase their penetration of Asian markets, which will present challenges for most of them
  • Will companies be forced to decide whether to remain hardware manufacturers or become software enterprises, or can they look both ways and prosper?
  • Given the rate of market changes, the next 5 years represent a window of opportunity for traditional MedTechs to pivot and transform their strategies and business models
 
Can elephants be taught to dance?
MedTech’s strategic challenges
 
MedTechs are at a crossroad of manufacturing physical devices and developing software solutions. Both aim to deliver value by enhancing patient outcomes while reducing costs. Can these two scenarios co-exist, or will industry leaders be forced to choose one or the other?
 
For decades, many companies have displayed a deep-rooted reluctance to transform their business models and adopt digitalization strategies and have used M&A activity to become bigger. This suggests that a significant proportion of MedTech leaders are likely to manage increased competition and changing healthcare ecosystems by accelerating M&A activities, which are familiar to them and require no significant change. However, such activities alone will not future-proof companies. Over the next five years, “informed” MedTechs will benefit by shifting away from their current business models that depend on developing and selling physical products predominantly to hospitals in the US and Western Europe and move toward providing patient-centric software solutions as partners in dynamic, connected international healthcare ecosystems.
 
M&A activity to enhance scale

For decades, M&A activities have helped MedTechs to acquire mature assets to tuck into their existing sales and distribution channels. More than anything, this has assisted them to increase their scale, while optimising their portfolios, reducing competition, and improving profits. Over the past decade, when Western markets became more uncertain, monetary policy tightened, technologies advanced, and global economic growth slowed, MedTechs responded by exploiting the fall in the cost of capital to increase their M&A activities with the main purpose of increasing their scale: bigger was generally perceived by industry leaders to be better.
 
Before the COVID-19 pandemic crisis, 2020 was expected to be a strong year for MedTech’s M&A. However, the disruptive impact of the coronavirus outbreak slowed the industry’s M&A performance, and between July 2019 and June 2020, M&A expenditures plunged by 60% compared to the previous 12-month period. Activity returned in Q3, 2020, and today, although high asset valuations and increasing cost of capital have impacted M&A transactions and re-focused attention on organic growth, there are signs that a M&A buyer’s market is developing, but with a difference.
 
The difference is a significant number of M&A transactions do not appear to be focussed entirely on acquiring scale. While there are still some advantages to increasing scale, there are disadvantages, which include having to integrate and service more customers, more employees, and more institutional investors, and this often contributes to strategic rigidities.

 
The demise of scale

The significance of scale was first elaborated in 1937 by Nobel economics laureate Ronald Coase in his seminal paper, The Nature of the Firm, and ~50 years later, repeated by Michael Porter in his book, Competitive Advantage. Both Coase and Porter suggested that scale gained from reducing the ratio of overhead to production would increase the power of firms in markets. In 2013, Rita McGrath challenged this thesis in, The End of Competitive Advantage, by suggesting that bigger was not necessarily better. According to McGrath, in an increasingly high-tech environment, more important than size, is whether enterprises have access to technical capabilities, which can drive top-line growth in dynamic market settings.


Recapitalized MedTech’s M&A firepower
 
According to a 2020 report on the state of the MedTech industry, published by EY, a consulting firm, between July 2019 and June 2020, MedTechs took advantage of low interest rates, and financing levels more than doubled to a record US$57.1bn compared to the previous 12 months; with >40% resulting from debt financing. Thus, as we emerge from restrictions imposed by the COVID-19 pandemic, there is a lot of liquidity in the market and larger MedTechs have significant M&A firepower. Will they use this to become bigger, or will they use their capital to make strategic investments in new technologies and to penetrate large rapidly growing Asian markets?
M&A driving a shift to digital health

In H1,2021, the MedTech sector recorded a total of 33 M&A deals, up from 25 in the whole of 2020. There is some evidence to suggest that some companies in the sector are using their renewed M&A firepower to acquire high growth digital and AI opportunities that can be integrated into their existing product offerings to provide access to new revenue streams and help companies pivot away from being solely dependent upon manufacturing physical devices. We briefly describe four such deals.
 
In January 2020, as the first COVID-19 case was reported in the US, Boston Scientific paid US$0.925bn for Preventice, a developer of mobile health solutions and remote monitoring services, which connect patients and caregivers. Its digitally enabled service has the potential to reduce healthcare costs and improve patient outcomes. In February 2020,  Medtronic, acquired, for an undisclosed sum, Digital Surgery, a London-based privately-held pioneer in surgical AI, data and analytics. The acquisition is expected to accelerate Medtronic’s plans to incorporate AI and data into its laparoscopic and robotic-assisted surgery platforms. In December 2020 Philips acquired BioTelemetry for US$2.8bn. BioTelemetry is a US-based provider of remote cardiac diagnostics and monitoring, with offerings in wearable heart monitors and AI-based data analytics and services. The deal provides Philips with the capability to expand its remote monitoring business outside of hospitals and into lower cost day-care settings and patients’ homes. One of the largest healthcare deals of 2020 was Teladoc’s US$18.5bn acquisition of Livongo, a remote patient monitoring company, founded in 2014, to build a cloud-based diabetes management programme, linking a person’s glucose monitor to personalized coaching to help control blood sugar levels. In 2019, just one year before Teladoc’s acquisition, Livongo IPO’d at a valuation of US$355m, and expanded its products and services to cover high blood pressure and behavioural health with an ultimate goal of leveraging digital medicine to address “the health of the whole person”. 
 
These four acquisitions are from market segments, which run parallel to traditional medical devices and are often perceived by some MedTech executives to be competitors destined to be controlled by giant tech companies such as Apple, Huawei, and Samsung. However, given the rate at which technology is developing, the speed at which MedTech and pharma are converging, and the renewed liquidity in the market, it might be more efficacious for MedTechs to view such specialised digital health companies as partners rather than competitors.
 
Technologies helping MedTechs to develop actionable solutions

Today, many new biomedical technologies are being developed and benefit from continuous miniaturization, enhanced battery life, cost reductions and increasing data storage capacity. One such technology is photoplethysmography (PPG), a non-invasive, uncomplicated, and inexpensive optical measurement method that employs a light source and a photodetector to calculate the volumetric variations of blood circulation. PPG is employed in smartphones and wearables that are used by billions of people worldwide. There is a large and growing global research endeavour to develop more effective and sophisticated PPG algorithms that could be attached to traditional, non-active medical devices and implants to provide accurate and reliable real time monitoring of a wide range of conditions.
 
Outside of specific health monitoring technologies, few MedTechs collect, store, and analyse data generated by their existing traditional devices and implants, and even fewer use such data to facilitate real time, monitoring of conditions. However, some companies are beginning to transform their dumb devices into intelligent ones to gain access to new revenue streams. For example Zimmer-Biomet’s smart” knee, utilizes a biosensor [an analytical device that uses natural biological materials to detect and monitor virtually any activity or substance] to generate self-reports on patient activity, recovery, and treatment failures, without the need for physician intervention and dependence upon patient compliance. 
 
According to Roger Kornberg, Professor of Structural Biology at Stanford University and Nobel Laureate for Chemistry, “the excitement of biosensors pertains to their microscopic size and the ease with which they can transmit wirelessly in real time information about responses to treatment from an implantable device within the body”. [See video below].
 
A fast-growing field of AI is tiny machine learning (TinyML), which has the capability to perform on-device, real time, sensor data analytics at extremely low power, typically in the mW [one thousandth of a watt] range and below. The technology is expected to make always-on use-cases economically viable and accelerate the transformation of dumb devices and implants into smart ones.

 
 
Changing traditional R&D models
 
In their search for innovative healthcare solutions, MedTechs might consider increasing their R&D spend and reorganizing their R&D function. MedTech’s R&D spend, as a percentage of revenues, has slowed compared to levels the industry recorded prior to the 2007 financial crash. Overall, the industry tends to allocate more of its capital to share buybacks and investor dividends than to R&D. This strategy may please shareholders in the short term, but it suggests some uncertainty among industry leaders about how to invest for growth in the longer term and could have a medium- to long-term potential downside. 
 
Further, a significant percentage of R&D spend goes on tweaking existing products rather than creating new ones. Given that the future of the industry is dependent upon innovation, it seems reasonable to suggest that, as competition increases and markets tighten, MedTechs will need to consider increasing their R&D resources and capabilities to develop innovative technologies that provide improved actionable solutions across entire patient journeys.

Unlocking value from R&D innovations might require a different culture and new operating models to the ones that tend to prevail today. Instead of lengthy R&D cycles fixed on the launch of a physical product, it could be more beneficial to focus on developing minimum-viable patient-centric solutions, which research teams can deploy early, test, learn from and enhance. Moreover, R&D strategy sessions might benefit by including a mandatory question: “In the near- to medium-term, are there any evolving technologies likely to disrupt a specific market segment important to our company?”.

 
The potential of innovative technologies to disrupt markets
 
To illustrate the significance of this question, consider traumatic brain injury (TBI), which each year affects ~69m individuals worldwide. There is no cure for the condition, and the cornerstone of its management is to monitor intracranial pressure (ICP). [Pressures >15 millimetres of mercury (mm Hg) are considered abnormal, and ICP >20 mm Hg is deemed pathological]. An ICP monitor is expected to be easy to use, accurate, reliable, reproducible, inexpensive and should not be associated with either infection or haemorrhagic complications. Currently, the gold-standard is to drill a small burr hole in the skull, insert a catheter and place it in a cavity [ventricle] in the brain, which is filled with cerebrospinal fluid (CSF). Such an invasive intraventricular catheter system is accurate and reliable, but it is also a health-resource-intensive modality, which runs a risk of haemorrhage and infection. Recent advances in PPG and other technologies have accelerated research developing non-invasive techniques to continuously measure and monitor ICP, which in the medium-term, could replace the gold standard and avoid drilling a hole in a traumatised patient’s skull.   
  
Pros and cons of the COVID-19 crisis

One beneficial outcome for MedTechs of the COVID-19 crisis has been the change in regulatory norms, which favour innovation. In the US, the FDA reduced barriers to market entry for new devices by increasing its emergency use authorization (EUA), which fast-tracks the availability of medical devices. Also, at the onset of the pandemic, the EU deferred for one year the implementation of its Medical Device Regulation (MDR), which governs the production and distribution of medical devices in Europe. In mid 2021, when governments began removing the outstanding legal restrictions imposed to reduce the impact of the third wave of the COVID-19 pandemic, some MedTechs, which had invested in remote communication strategies, chose to build on the changes they had made and invest further in digitalization AI strategies, while many others reverted to their labour-intensive supply channels. According to a June 2021 Boston Consulting Group (BCG) study, “On average, MedTech companies are still spending two to three times more on selling, general, and administrative (SG&A) expenses (as a percent of the costs of goods sold) than the typical technology or industrial company”.
 
A potential disadvantage for MedTechs of the COVID-19 pandemic is that it can lead to an excessive focus on short-term challenges and put off addressing longer-term strategic threats.
 
MedTech executives have never had it so good

Why are some companies reluctant to transform their strategies and business models?

We suggest that a deep-rooted resistance to change results from MedTechs “never having it so good” over a long period. Indeed, for several decades before the global economic crisis in 2007 and 2008, the medical device market was buoyed by limited competition, benign reimbursement policies, aging populations, and a slower pace of technological change compared to today. These factors promoted double-digit growth rates, investor confidence, and solid valuations. This fostered a sense of security among C suites and encouraged “business as usual” agendas, which tended to focus on sharpening legacy products, legacy business models, legacy forms of market access and pricing and legacy capabilities.
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Who should lead MedTech?

The 2007-8 financial crisis only inflicted a short-lived blow to the industry and most companies bounced back relatively quickly. Throughout the decade that followed, MedTechs maintained solid financial performance, steady growth, investor confidence and robust valuations. Many enterprises across the industry ended 2019 in a strong position, with some trading at 52-week highs and the industry overall growing revenues at ~6%.
In 2020, the COVID-19 pandemic threw some segments of the industry off course by a substantial reduction in elective care. However, by 2H 2021, most MedTechs had recovered, albeit their annual growth in revenues did not recapture the heights of the early years of the 21st century.
 
MedTechs became like elephants

It seems reasonable to suggest that decades of commercial success shaped the mindsets of industry leaders and resulted in MedTechs becoming like elephants. In 1990, James Belasco published, Teaching the Elephant to Dance, in which he likened organizations to elephants. The book describes how trainers shackled young elephants to a stake securely embedded in the ground so that they could not move away despite their efforts. By the time the elephants became fully grown and had the strength to pull the stakes out of the ground, they were so conditioned they did not move and remained in position even though most were no longer tethered to the stakes. The author uses this analogy to warn how companies can become stuck in obsolete working practices, which are obstacles to their future commercial success.

In 1993, IBM, the world’s largest manufacturer of mainframe computers, had become “an elephant” continuing to produce hardware appliances when the industry was embracing software solutions. IBM, which had posted a US$8bn loss, appointed Lou Gerstner, an executive from outside the computer industry, to turn the company around. Nine years later, IBM had become one of the world's most admired companies. In a book published in 2002, entitled, Who Says Elephants Can't Dance?, Gerstner described how he successfully changed IBM from a maker of hardware to a service orientated company.
 
A 5-year window of opportunity
 
A doubt as to whether many traditional MedTechs can be taught to dance was sewn in a 2021 BCG study cited above, which suggested that enterprises “do not yet have the capabilities in place to develop and implement a next-generation, omnichannel commercial model”. Ten years from now, the MedTech market is projected to be significantly different to what it is today, and what it has been for the past four decades. However, it seems reasonable to assume that because of its size and growth rate, [~US$0.5tn, growing at a compound annual growth rate (CAGR) of ~6% and projected to reach US$0.75tn by 2030], many industry leaders will not feel any pressing need to transform their strategies and business models in the short-term.

However, with a rapidly changing healthcare ecosystem, it seems reasonable to suggests that, to remain relevant after 2030, MedTechs will need to use the next five years as a window of opportunity to prepare solutions that enable them to focus on entire patient treatment pathways, create best-in-class distributive services, and develop digital marketing and sales capabilities that help to expand their influence beyond selling hardware. This will require targeting the “right” market segments, developing the “right” solutions, funding in the “right” R&D, creating the “right” playbooks; and recruiting, retaining, and developing the “right” people with the “right” capabilities.

 
From restricted staged events to real time distribution

Companies are rich reservoirs of clinical data and expertise, but the data tend to be kept in silos and distributed intermittently to a limited number of clinicians and providers at “staged” events. Digital technologies can unlock these assets and facilitate real time, online marketing, self-service portals, and virtual engagements; all of which can provide physicians and providers with unprecedented access to knowhow that can help improve the quality of care and reduce costs. However, shifting to such a distributed care model to drive profitability requires developing a digital, remote, marketing and sales force, which is supported by data analytics, virtual demonstrations, automated call reporting, and AI-supported coaching tools.
 
The reduction of obstacles to data rich digital distributed care strategies

While distributed computing and communications systems have significantly enhanced a wide range of commercial organizations, they have yet to take root in MedTech settings, despite data sharing being critical in modern clinical practice and medical research. A challenge for MedTechs is to engage in data sharing that reconciles individual privacy and data utility. This will entail universally agreed AI and machine learning practices. Although there are sophisticated technologies that can help with this, MedTech’s management and information systems’ personnel may not be prepared to effectively reconcile these competing interests and push for universal data standards. According to a US National Institute of Health report, “The lack of technical understanding, the lack of direct experience with these new tools, the lack of confidence in their management, the lack of a peer group of successful adopters (except for a few academic medical organizations), and uncertainties about reasonable risks and expectations all leave conservative organizational managers hesitant to make decisions”. 
 
While the mindsets of some industry leaders appear to be obstacles to change, other obstacles to transformative business models have been reduced. For instance, privacy is now less of an obstacle for data-rich strategies than it once was. Increasingly, patients show a willingness for their clinical and personal data to be used anonymously in the interest of improving healthcare. Further, regulators’ attitudes towards data are changing.  In September 2021 the FDA published its AI enabled devices that are marketed in the US, which embrace the full scale of approvals from 510(k) de Novo authorizations to Premarket (PMA) approvals. The FDA’s initiative comes at a time of continued growth in AI enhanced digital offerings that contribute to a variety of clinical spheres, and the increasing number of companies seeking to enter this space. There are ~130 algorithms approved for clinical use in the US and Europe.
 
A recent report from Frost & Sullivan, a US market research company, suggests that although in the near-term, traditional medical devices will continue to make up the bulk of the market, after 2024, they are expected to grow at only a CAGR of ~2%. By contrast, digitally enhanced medical devices, and algorithms, which facilitate managing patients remotely and non-intrusively, are expected to grow at a CAGR >14% and reach US$172bn by 2024.

 
The shift to low-cost settings

Over the next five years, as technology advances, populations age, healthcare costs escalate, patient expectations continue to rise, and markets tighten, we can expect the shift away from hospitals to outpatient settings and other lower-cost venues to accelerate. This move to a distributed care model is a headwind for traditional MedTechs, whose principal focus is provider systems rather than patients, and a tailwind for new players entering the market unencumbered by legacy supply chains, costs, and infrastructures. According to an EY 2020 study, ~70% of start-ups in the diagnostics segment have products applicable to the point-of-care setting.
 
Corporate venture funds

To help traditional MedTechs dance leaders of medium sized, well capitalized enterprises might consider copying the world’s largest MedTechs and create corporate venture capital (CVC) funds to invest in tech-savvy start-ups. While 7 of the top 10 MedTechs by sales have venture arms, many company leaders shy away from investing in early-stage, unproven technologies. However, CVC funds offer traditional corporates access to innovations and scarce science, technology, engineering, and mathematics (STEM) skills, which are necessary to capture and analyse data, deliver enhanced care, and drive biomedical R&D with the potential to improve patient outcomes and lower costs.
 
The latest giant MedTech to launch a CVC fund is Intuitive Surgical. In Q4 2020, the company started disbursing capital from its initial US$100m venture fund to start-ups developing digital tools and precision diagnostics, with an emphasis on minimally invasive care. Intuitive is the world’s largest manufacturer of robotic surgical systems for minimally invasive surgery. Since its lead offering, the da Vinci Surgical System, received FDA approval in 2000, it has been used by surgeons in all 50 US states, ~67 countries worldwide and has performed >8.5m procedures.

In the first three quarters of 2020, CVCs participated in investment rounds worth US$1.2bn, which amounted to >25% of the total venture funding the sector raised. The lion’s share went to products and solutions that address digital therapies, telehealth, and treatments for low-cost settings. Such technologies are positioned to continue receiving significant funding in 2022 and beyond. A 2021 study by Deloitte, a consulting firm, suggests that MedTech start-ups, unencumbered by legacy products and practices have capabilities, which stretch beyond traditional devices that support episodic care, and focus on distributed solutions, which address the full patient journey: from diagnosis to rehabilitation. The study also maintains that technologies employed by these enterprises are getting smarter, with ~70% of them including digital AI capabilities.
 
Further, MedTechs with CVC arms might consider allowing their digital business functions to operate within a different organizational framework, giving them greater decision-making authority and enhanced freedoms.

 
Asia Pacific MedTech markets

Before closing let us briefly draw attention to the increasing significance of the emerging Asia Pacific MedTech markets. For the past 4 decades, industry leaders were not obliged to seriously consider penetrating markets outside the US and Western Europe because ~70% of global MedTech revenues came from the US and Western Europe. However, as Western markets tighten, and become increasingly competitive, attention is moving East towards Asia.

Over two decades ago, a handful of giant MedTechs began investing in Asia, but most companies in the sector preferred not to risk navigating such unfamiliar healthcare territories. An early investor in the region was Medtronic, which, since ~2000, has achieved significant growth from a multi-faceted strategy that included exporting innovative products from the US to China, establishing R&D facilities in China to design products specifically for the needs of the Chinese market, crafting partnerships with Beijing to educate patients in under-served therapeutic areas, and acquiring domestic Chinese MedTech companies.

Because of the current political stand-off between the two countries, such a China strategy is not so feasible as it has been over the past two decades. However, it is worth bearing in mind that Asia is comprised of 48 countries with a combined population of ~5bn, which is projected to reach 8.5bn by 2030, [~60% of the world’s population], with 1 in 4 people >60. In 2020, ~2bn Asians were members of the middle class, and by 2030, this demographic is projected to grow to ~3.5bn. Moreover, health insurance coverage in the region is expanding. By contrast, the middle classes in the US and Western Europe are smaller and growing at lower rates. According to the Pew Research Center in 2018, ~52% of the 258m US adults (>18 years) was considered middle class. The dynamics of the Asian middle class is driving a large and rapidly growing Asian MedTech market, which is on the cusp of eclipsing Europe to become the world’s second largest regional market, growing at a CAGR of ~9%.

Further, the region has become an important source of technological innovation. For example, in 2020, its digital health market was valued at ~US$20bn and projected to grow at a CAGR of ~21% until 2027, when its value is expected to be ~US$80bn. Despite its complexities and unfamiliarity, Asia represents a substantial opportunity for MedTechs. However, for Western enterprises to succeed in Asian markets they will require in depth local knowhow, long term commitments, agility, innovation, and robust strategies that can prosper under fiercely competitive conditions.  

 
Takeaways

MedTechs have built capabilities to develop, launch, market and sell physical devices. With some notable exceptions, few have the capabilities necessary to drive significant growth from digitalization and data strategies. Sharpening traditional commercial procedures and practices alone is unlikely to significantly increase growth, especially when competitors and new entrants have business models that are more effective, promote better patient outcomes and provide greater value to healthcare systems.  

MedTechs could play a significant role in the transformation of healthcare, but not without risks and some significant changes to the way they operate. Over the next five years, as competitive pressures increase, industry leaders have a window of opportunity to pivot. Here are six strategic questions that might help in this regard:
  1. Should we support significant investments in digitalization, and data analytics to improve our supply chains and R&D endeavours to convert dumb devices and implants into smart ones?
  2. What are the top three actionable innovations that we can develop in the near-term to provide access to new revenue streams?
  3. What are the top three technologies likely to disrupt our product offerings in the near- to medium-term and what should we do about them?
  4. Can we remain a hardware manufacturer while developing significant software solutions that embrace entire patient journeys or must we choose between manufacturing and software?
  5. How do we create valuable solutions that enhance patient journeys from data?
  6. How are global markets changing in ways that are not reflected in our company’s discussions?
The answers to these questions will help to shape a corporation’s strategy, and inform M&A and CVC activities, “must have” capabilities, desired partnerships, R&D spend and agendas, and the type of business models to pursue. All critical for teaching elephants to dance.
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Because of recent concerns raised by the UK’s Health Security Agency (UKHSA),colleagues suggested that we republish a Commentary entitled, “Slowing the steep rise in antimicrobial resistance”, which features Nobel Laureate Roger Kornberg. Since it was first published it has received >15,000 openings. UKHSA warned of a “hidden pandemic” this winter because last year, in the UK, 1 in 5 infections were resistant to antibiotic. The organization feared that as COVID-19 restrictions are lifted social mixing is likely to spread infections some of which will be resistant to antibiotics.
 
  • Currently 700,000 people die each year from Antimicrobial Resistance (AMR) and this could rise to 10 milion by 2050
  • AMR could make routine surgeries and childbirth as dangerous and lethal as in the pre-antibiotic era killing millions and costing trillions worldwide
  • Doctors inappropriately prescribing antibiotics for minor aliments shorten the useful life of antibiotics threatening modern medicine as there is an antibiotic pipeline deficiency
  • 90% of GPs feel pressured by patients to prescribe antibiotics
  • 70% of GPs are unsure whether sore throat and respiratory infections are viral or bacterial resulting in 50% of sore throats receiving antibiotics
  • Clinical diagnosis leads to 50% of patients with a sore throat being prescribed antibiotics without having Group A Streptococcal infection
  • 30% of patients with pharyngitis will not be treated but will be infected with Group A Streptococci
  • 24% of doctors say they lack easy-to-use diagnostic tools
  • 10m prescriptions for antibiotics are handed out in England each year to patients who do not need them
  • A Nobel Laureate has developed a new technology to provide rapid, accurate, cost-effective diagnosis of bacterial sore throat resulting in informed prescribing and reducing unnecessary antibiotic usage
 
Slowing the steep rise of antimicrobial resistance
 
Should we listen when a professor of medicine and a Nobel Laureate says that the technology already exists to develop a cheap hand held device, which can rapidly and accurately diagnose a bacterial sore throat?  
 
Without such a device to determine whether minor ailments require antibiotics, doctors will continue to prescribe them, and thereby contribute to the steep rise in Antimicrobial Resistance (AMR). In 2016 the National Institute for Health and Care Excellence (NICE), the UK government's NHS watchdog, reported that as many as 10m prescriptions for antibiotics are handed out in England every year to patients who do not need them. According to a 2016 report on AMR, by 2050 a staggering, “10m people will die from AMR each year . . . . The world needs rapid diagnostics to improve our use of antibiotics,” says the report.
 

Sore throat
 
Acute throat infections are among the most common infectious diseases presented to primary healthcare and A&E departments and are frequently misdiagnosed. They are responsible for 2 to 4% of all primary care visits. Viruses cause 85% to 95% of throat infections in adults and children younger than 5. For those aged 5 to 15, viruses cause about 70% of throat infections, with the other 30% due to bacterial infections, mostly group A β-hemolytic streptococcus (GAS), which can cause 0.5m deaths a year. There are challenges in diagnosing GAS because its signs and symptoms are often indistinguishable from viral and other causes of sore throat.
 
If a doctor intends to treat suspected GAS pharyngitis, it is generally recommended that laboratory confirmation of the presence of GAS be sought to limit unnecessary antibiotic prescription. The gold standard laboratory investigation is of a bacterial culture of a throat swab. However, this is expensive, and there is a relatively long lag time between the collection of the specimen and final microbiological diagnosis: so doctors tend not to it. 
 
Rapid antigen diagnostic tests (RADTs) are an alternative to the gold standard laboratory test for GAS. However, widespread use of RADTs has been hindered by low sensitivity for most commonly used RADTs (immunoassays). Reviews of RADTs performance have identified significant variability in the diagnostic accuracy, especially sensitivity, between different test methodologies.

 
Urgent need for rapid and accurate diagnostic test
 
A principal recommendation of a 2016 report on AMR is to ban doctors from prescribing antibiotics until they have carried out rapid tests to prove the infection is bacterial. The report also stresses that doctors need urgent help to temporise their use of antibiotics if AMR is to be reduced.

Notwithstanding, the AMR challenge is bigger than doctors overprescribing antibiotics. Farmers feed antibiotics to livestock and poultry, and spray them on crops to make our food supply ‘safer’. We dump antibiotics in rivers, and even paint them on the hulls of boats to prevent the build up of barnacles. However, it seems reasonable to suggest that successfully reducing doctors’ over prescribing antibiotics would represent a significant contribution to denting the burden of AMR. To do this, “We need a step change in the technology available . . . Governments of the richest countries should mandate now that, by 2020, all antibiotic prescriptions will need to be informed by up to date surveillance and a rapid diagnostic test,” urges the AMR report.
 
The technological ‘step change’, which the report says is essential, has already been achieved, says Roger Kornberg, Professor of Medicine at Stanford University and Nobel Laureate for Chemistry.Advanced biosensor technology enables virtually instantaneous, extraordinarily sensitive, electronic detection of almost any biomarker (protein, nucleic acid, small molecule, etc.). With relatively modest resources it would only be a matter of months to develop a simple, affordable handheld device, which not only would tell you immediately and accurately whether a sore throat requires antibiotics or not, but would also tell you which antibiotics you require, and for how long you should take them,” says Kornberg. See videos below in which Kornberg describes how tried and tested biosensor technology could facilitate rapid and accurate diagnosis of a sore throat.


Click to watch a cluster of videos by Professor Kornberg on Antimicrobial resistance and biosensor technology
Serious and growing threat
 
Each year, millions of people throughout the developed world present themselves to their doctors with minor ailments, such as a sore throat. 97% of these patients demand antibiotics although 90% of their ailments are viral and therefore do not require antibiotics. 90% of doctors, who do not have the means to rapidly and accurately determine whether a minor ailment requires antibiotics, feel pressured by patients to prescribe them.
 
A 2014 study of four million NHS patients from 537 GP practices in England found that more than 50% of those presenting with a minor ailment were prescribed antibiotics, despite warnings that the medication will not help, but increases their risk of developing resistance. The study, by scientists at Public Health England and University College London, published in the Journal of Antimicrobial Chemotherapy, found that antibiotic prescriptions for minor ailments increased by some 40% between 1999 and 2011. 70% of GPs surveyed said they prescribed antibiotics because they were unsure whether patients had viral or bacterial infections, and 24% of GPs said it was because of a lack of an easy-to-use, rapid and accurate diagnostic device.
 
Superbugs will kill millions and cost trillions
 
Concerned about the rising levels of drug resistance whereby microbes evolve to become immune to known drugs, in 2014 the UK Government, in collaboration with the Wellcome Trust, commissioned a review of the large and growing global burden of AMR. Jim O’Neill, a former Goldman Sachs chief economist who coined the phrase “BRICS”, was appointed to lead the endeavour and propose actions to tackle AMR. In 2015 O’Neill was elevated to the House of Lords, and appointed Secretary to the UK government’s Treasury.

During the 18 months it took O’Neill to complete his final report, one million people worldwide died from AMR. At least 25,000 people die each year in Europe from AMR. According to the Centers for Disease Control and Prevention (CDC), more than 2m people in the US become infected with resistant bacteria every year, and at least 23,000 of them die. According to O’Neill, “If we don't do something about antibiotic resistance, we will be heading towards a world with no-antibiotic treatments for those who need them.”
 
A threat to modern medicine
 
O’Neill’s findings are congruent with warnings from the World Health Organization (WHO), which suggests AMR is a crisis worse than the Aids epidemic – which has caused some 25m deaths worldwide – and threatens to turn the clock back on modern medicine. The misuse of antibiotics has created, “A problem so serious that it threatens the achievements of modern medicine. A post-antibiotic era, in which common infections and minor injuries can kill, far from being an apocalyptic fantasy, is instead a very real possibility for the 21st century,” says a 2014 WHO report. “Superbugs risk making routine surgery potentially lethal, killing millions and costing the world economy US$100 trillion a year by the middle of the century,” says O’Neill.
 
These dire warnings are supported by a case study of AMR published in Antimicrobial Agents and Chemotherapy in 2016, which suggests that we might be closer to a "post-antibiotic era" than we think. A particular group of bacteria (Gram-negative) have become increasingly resistant to currently available antimicrobial drugs. Colistin is one of the only antibiotics that still show some effectiveness against such infections, but the study suggests that even Colistin may no longer be effective.
 
Takeaways
 
AMR is widely recognized as a serious and growing worldwide threat to human health. New forms of AMR continue to arise and spread, leaving doctors with few weapons to bring potentially life-threatening infections under control. The injudicious use of antimicrobials, and the proliferation of AMR pathogens are compounded by the inability to rapidly and accurately diagnose minor ailments such as sore throats. Professor Kornberg has an answer.
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  • A wind of change is blowing through MedTech markets
  • MedTech markets have matured and are experiencing slower growth and increased competition, which have fuelled endeavours to increase growth rates
  • Artificial intelligence (AI) techniques applied to data from existing devices have the potential to achieve this and improve care
  • Obstacles to developing AI solutions include rigid manufacturing mindsets and a dearth of appropriate talent
  • To remain relevant MedTech leaders will need to “think beyond physical products”, develop new business models, new types of investments and new approaches to R&D
  • Will a wind of change that is blowing through MedTech markets be perceived as a temporary breeze?
 
A prescription for an AI inspired MedTech industry
 
Thinking beyond physical products and the growing significance of AI in MedTech markets


A wind of change is blowing through MedTech markets, which has prompted some key opinion leaders to think beyond physical products and begin to use artificial intelligence (AI) techniques to develop value added services that bolt-on to their existing physical offerings to improve clinical care and economic efficiencies while providing access to new revenue streams.

Bryan Hanson, Zimmer-Biomet’s CEO, recently suggested that >70% of his company’s R&D spend is now being invested in data informatics and robotics. Not far behind is Stryker, another global orthopaedic corporation, which has implemented AI strategies to improve care and differentiate its offerings. Both are thinking beyond their physical products to create a suite of services derived from AI enhanced data collected from their existing devices. Such actions provide a template that can be copied by other enterprises. How long will it take for AI solutions to represent a significant percentage of MedTechs’ revenues?

 
In this Commentary

This Commentary: (i) describes the growing significance of AI, (ii) explains the difference between data mining, AI, and machine learning, (iii) illustrates AI technologies that have become an accepted part of our everyday lives, (iv) highlights technical drivers of AI solutions, (v) describes obstacles to the development of AI systems, (vi) indicates how such obstacles may be reduced, (vii) describes Zimmer’s and Stryker’s AI driven data initiatives, (viii) suggests that the Zimmer-Stryker AI template has broad potential, (ix) suggests that AI systems can breathe life into 'dead data', (x) provides an example of a company at the intersection of medical information and AI techniques, (xi) describes the origins of the phrase, ‘wind of change’, and defines the ‘winds’ driving change in current MedTech markets, (xii) reports that ~80% of B2B sales in the economy generally are digitally driven, (xiii) provides some reasons for MedTechs’ slow adoption of AI systems, (xiv) floats the idea that the future for producers is to partner with tech savvy start-ups and (xv) describes how US AI supremacy is being challenged.
 
AI: vast and fast growing
 
It is challenging for baby boomers and older millennials, who populate MedTechs’ C suites, to fully grasp the potential of AI. This is largely because their corporate careers were underway before the digital age started, and for three decades they have personally prospered from manufacturing physical devices without the help of AI.
 
A person who understands the potential of AI is Sundar Pichai, the CEO of Alphabet, one of the world’s largest tech companies. In a recent BBC interview Pichai suggested, "AI is the most profound technology that humanity will ever develop and work on . . .  If you think about fire or electricity or the Internet, it's like that, but even more profound". This suggests that Hanson is right to redirect Zimmer’s R&D spend towards AI-driven solutions. A February 2021 report from the International Data Corporation (IDC), a market intelligence firm, suggests that the current global AI market is growing at a compound annual growth rate (CAGR) of ~17% and is projected to reach ~US$554bn by 2024.
 
Data mining, AI, machine learning and neural networks

Among MedTechs’ C suites there is some confusion about data strategies and AI solutions. Many enterprises use data mining techniques on existing large datasets to search for patterns and trends that cannot be found using simple analysis. They employ the outcomes to increase revenues, cut costs, improve customer relationships, reduce risks and more. Although data mining is commonly used when working on AI projects, in of itself, it is not AI. So, let us briefly clarify.

AI is the science and engineering of developing intelligent computer programs to enable machines to provide requested information, supply analysis, or trigger events based on findings. AI creates machines that think, learn, and solve problems better and faster than humans. This is different to traditional computing, where coders provide computers with exact inputs, outputs, and logic. By contrast, AI systems can be “schooled” to carry out specific tasks without being programmed to do so. This is referred to as machine learning, which usually requires large amounts of data to train algorithms [mathematical rules to solve recurrent problems].

A critical element of machine learning’s success is neural networks, which is an AI technique modelled on the human brain that is capable of learning and improving over time. Neural networks are comprised of interconnected algorithms that share data and are trained by triaging those data: a process referred to as ‘back propagation. In healthcare, machine learning outputs range from the ability to recognise images faster and more accurately than health professionals to making in vivo diagnoses.

 
AI systems have become an accepted part of our everyday lives without us realising it
 
Most people are aware of significant AI breakthroughs such as self-driving cars and IBM’s Watson computer winning the US quiz show Jeopardy by beating two of the best players the show had produced. Lesser known, is in 2012, AlexNet, a neural network learning system, won a large-scale visual recognition contest, which previously was thought too complex for any machine. In 2016, Google’s AlphaGo, a machine learning algorithm, defeated Lee Sedol, who was widely considered the world’s greatest ever player of the ancient Chinese game Go. Most observers believed it would be >10 years before an AI programme would defeat a seasoned Go champion. Although Go’s rules are simple, the game is deceptively complex, significantly more so than chess. It has a staggering 10170 possible moves, which is more than the number of atoms known in the universe. Significantly, machine learning algorithms embedded in AlphaGo, mastered the game without any prior knowledge and without any human input. More recently Google launched AlphaGo Zero, an AI system, which can play random games against itself and learn from it. During the decade of these breakthroughs, AI systems became an accepted part of our everyday lives without us realising it. Examples include, Google searches, GPS navigation, facial recognition, recommendations for products and services, bank loans we receive, insurance premiums we are charged, and chatbots, which organizations use to provide us with information.
 
Technical drivers of AI systems

In addition to commercial drivers, AI techniques are driven by easy availability of data, an explosion in computing power and the increased use of clusters of graphic processing units (GPUs) to train machine-learning systems. These clusters, which are widely available as cloud services over the Internet, facilitate the training of more powerful machine-learning models. An example is Google's Tensor Processing Unit (TPU), which has the capability to carry out more than one hundred thousand trillion floating-point operations per second (100 petaflops). This has the potential to accelerate the rate at which machine-learning models can be trained. Further, the cloud has made data storage and recovery easier, which has motivated government agencies and healthcare institutions to build vast unstructured data sets that they make accessible to researchers throughout the world to stimulate innovation.
 
Obstacles to the development of AI systems
 
So far, we have emphasised the benefits of AI, but there are concerns that machine intelligence will accelerate at an incomprehensible rate, surpass human intelligence, and transform our reality. This is referred to as “singularity”, which has generated concerns from key opinion leaders. Nearly a decade ago, Stephen Hawking, a pre-eminent British scientist, warned in a BBC interview, that singularitycould spell the end of the human race”. More recently, Hawking’s view has been echoed by Elon Musk, founder, and CEO of Tesla and SpaceX, who suggests that AI is, “more dangerous than nuclear warheads and poses a fundamental risk to the existence of human civilization". Musk has called for stronger regulatory oversight of AI, and more responsible research into mitigating its downsides. In 2015, he set up OpenAI, a non-profit research organization, with a mission to promote and develop AI systems that benefit society. 

 

In the June 2018 edition of the Atlantic Review, Henry Kissinger, who served as national security adviser and secretary of state for two US Presidents, described the potential harms from AI by addressing the question: “What would be the impact on history of self-learning machines that acquired knowledge by processes particular to themselves, and applied that knowledge to ends for which there may be no category of human understanding?”. Singularity might be more imminent than once thought. In a book published in 2015, futurist Ray Kurzweil predicted that singularity would occur in ~2045, but a paper published in the June 2020 edition of the International Journal of Astrobiology suggests that it is more likely to occur within the next decade.

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Robotic surgical spine systems, China, and machine learning

Overcoming obstacles to AI
 
In clinical settings there are growing concerns that complex algorithms can blur the reasoning behind specific machine interpretations and consequent actions of robotic surgical systems. As AI and machine learning develop so surgical robots are expected to become more autonomous and have the capability to make instantaneous diagnoses and pursue immediate therapies, which surgeons using the systems do not fully understand. The failure of humans to understand the workings of an AI system is referred to as an “interpretability challenge”, or more commonly, the black-box” problem, which could impact future clinical regulations.
 
Combatting the possible dangers of AI systems not being understood by humans is a relatively new and growing research area, referred to as Explainable AI” (XAI). XAI attempts to use AI techniques to develop solutions that can describe the intent, reasoning, and decision-making processes of complex AI systems in a manner that humans can understand. This could provide Stryker and Zimmer, and other manufacturers, a solution to potential future regulatory obstacles associated with advances in their robotic surgical systems
.
Zimmer’s and Stryker’s initiatives

In August 2021, the FDA granted De Novo marketing authorization [applicable for a new and novel device whose type has not previously been classified] for a “smart knee”, which Zimmer had developed in partnership with Canary Medical, a data analytics company. The device, called Persona IQ®, is the world's first and only smart knee cleared by the FDA for total knee replacement surgery. It combines Zimmer’s proven and trusted knee implant, Persona® The Personalized Knee®, with Canary’s proprietary sensor technology, which provides real-time feedback on how surgical implants and devices are working by generating self-reports on patient activity, recovery, and treatment failures, without the need for physician intervention and dependence upon patient compliance. The partnership is also expected to leverage Canary’s machine learning capabilities to identify further patterns in data from implants that could help clinicians catch problems, such as infections or loosening of the implants before they worsen. Persona IQ® will work together with Zimmer’s remote care management platform, mymobility® with Apple Watch®, as well as with other components of the  ZBEdge™ connected intelligence suite of currently available, and soon to be launched, digital and robotic technologies engineered to deliver transformative data-powered clinical insights, shared seamlessly across the patient journey, to improve patient outcomes. 

In January 2021, Stryker acquired OrthoSensor, a privately held technology company that makes intraoperative sensors for use in total joint replacements. Stryker expects these sensors to empower surgeons with AI-driven solutions and enhance its surgical robotic systems by eventually providing them with the capability to predict surgical outcomes. Additionally, OrthoSensor’s remote patient monitoring wearables, combined with a cloud-based data platform, are expected to significantly improve Stryker’s data analytics capabilities. According to a Stryker press release issued at the time of the acquisition, “OrthoSensor quantifies orthopaedics through intelligent devices and data services that allow surgeons and hospitals to deliver evidence-based treatments for all healthcare stakeholders. The company’s advancements in sensor technology, coupled with expanded data analytics and increasing computational power, will strengthen the foundation of Stryker’s digital ecosystem”.
 
The Zimmer-Stryker AI template has potential across MedTech

Despite Zimmer’s and Stryker’s AI-driven data initiatives to improve their respective competitive advantages and gain access to new revenue streams, few MedTechs collect, and store the data produced by their existing devices, and even fewer use such data to provide novel AI solutions. The Zimmer-Stryker template for achieving this is not limited to orthopaedics. For example, consider neuro critical care and traumatic brain injuries (TBI), which are a “silent epidemic”. Each year, globally ~69m individuals sustain TBIs. In the US, every 15 seconds, someone suffers a TBI. In England, ~1.4m people present at A&E departments each year following a head injury.

Despite extensive research, successful drug therapies for TBI have proven to be elusive. The gold standard management of the condition is to monitor intracranial pressure (ICP) and attempt to avoid elevated levels, which can cause further insults to an already damaged brain. Currently, there are no FDA approved means to identify advance warnings of changes in ICP. However, it might be possible to create an early warning of ICP crises by applying machine learning algorithms to standard physiological data produced by existing medical devices commonly used to monitor patients with TBI. This would not only provide time for interventions to prevent further trauma to critically ill patients but would also give producers access to new revenue streams.



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Breathing life into dead data

There are potentially limitless opportunities to improve care by breathing life into 'dead data'. This can be achieved simply by applying AI solutions to underutilized data from existing medical devices. The global MedTech industry is comprised of ~6,000 companies (mostly small to medium size). The overwhelming majority of these manufacture devices that produce, or could produce, patient data. These companies serve ~14 surgical specialisms each of which treat numerous conditions. For each condition there are millions of patients at any one time. For each patient, multiple devices used in therapies display real time data. Most producers are awash with dead data because they do not collect, store, and analyse these data to improve the quality of care. AI systems can change this.
A MedTech start-up at the intersection of medical information and AI techniques

A start-up, which understands the clinical and economic potential from the intersection of medical data and AI solutions is Komodo Health, which was founded in 2014. According to Web Sun, the company’s co-founder, and president, “We had a vision that integrating robust data with software solutions was the way forward for healthcare at a time when no one was doing this”. Komodo has created an AI platform, which it refers to as a "healthcare map", comprised of large-scale anonymous health outcome data from hundreds of sources.

In January 2020, Komodo announced a deal to import Blue Health Intelligence’s patient data onto its platform. Blue Health provides US healthcare claims data and actionable analytics to payers, employers, brokers, and healthcare services. The combined database charts >325m individual patient care journeys through tests and therapies at hospitals and clinics. In March 2021, Komodo raised US$220m to extend its platform to offer real-time assessments of patients’ healthcare journeys to detect disparities in the quality of care and outcomes, and to provide a basis for interventions aimed at improving outcomes and lowering costs.

The ability to introduce clinical insights into enterprise workflows potentially helps producers and providers close gaps in care journeys and address unmet patient needs. Not only are Komodo’s services designed to deliver timely interventions and alerts to improve care, but the company also records and reports the performance of specific medical products on patient cohorts. These data provide a basis to develop and market further innovative healthcare services, and novel therapeutics, which are expected to boost Komodo’s revenues.

 
A wind of change

We borrowed the ‘wind of change’ phrase used in our introduction from a famous speech made by British Prime Minister Harold Macmillan to the Parliament of South Africa on 3 February 1960 in Cape Town. Macmillan was referring to a system of institutionalised racial segregation, called Apartheid, which enforced racial discrimination against non-Whites, mainly predicated on skin colour and facial features. Despite the UK Prime Minister’s belief that in 1960, the days of White supremacy in South Africa were numbered, it took >30 years before Apartheid was ended and Nelson Mandela was inaugurated as the first Black President of South Africa on 10 May 1994. Mandela was an anti-apartheid activist and lawyer, who had spent 27 years as a political prisoner under the Apartheid regime.

A wind of change is now blowing through MedTech markets. In less than a decade, healthcare will be faced with significantly more patients, more data, more technology, more costs, more competition, and less money for producers and providers. Over the past five years, US providers’ profit margins have fallen, in Europe the gap between public health expenditure and government budgets has increased, and throughout the world healthcare systems are under budget pressure and actively managing their costs. With such strong headwinds, a sustainable future for MedTechs might be to reduce their emphasis on manufactured products distributed through labour intensive sales channels and increase their AI service offerings using data from their existing devices. Over the past five years AI solutions have become more prolific, easier to deploy, and increasingly sophisticated at doing what health professionals do, but more efficiently, more quickly and at a lower cost.  

 
~80% of B2B sales are digital

In addition to AI solutions being used to improve clinical outcomes, they can be employed to enhance business efficiencies. A previous Commentary described how AI systems can help to transform traditional labour intensive MedTech supply chains and personalise sales. A recent study undertaken by Gartner, a global research and advisory firm, suggests that, “Over the next five years, an exponential rise in digital interactions between buyers and suppliers will break traditional sales models, and by 2025, ~80% of B2B sales will occur in digital channels”. Giant tech companies are taking advantage of this to enter healthcare markets, MedTechs have been slow to implement such changes despite the boost in online engagements provided by the COVID-19 pandemic.
Reasons for slow adoption of AI systems

So, why are MedTechs slow to implement AI solutions to enhance clinical outcomes and improve economic efficiencies? Over ~3 decades they have achieved double-digit revenue growth from manufacturing physical devices and marketing them through labour intensive channels in a few wealthy regions of the world with relatively benign reimbursement policies. During this period of rapid growth and commercial success, MedTechs have not been required to confront data issues, bridge the science, technology, engineering, and mathematics (STEM) skills gap, and commit to new structures, new processes, new behaviours, and new aptitudes.
This suggests that despite a wind of change, now blowing through MedTech markets and challenging traditional business models and strategies, it could be perceived as a 'temporary breeze' and nothing will change. However, a step change in the direction of more AI solutions might occur when digital natives [people who have grown up in a digital age] replace digital immigrants [people whose careers were well underway before the onset of the digital age] in MedTechs’ C suites. According to a Gartner executive, “As baby boomers retire and millennials mature into key decision-making positions, a digital-first buying posture will become the norm. . . . . . Sales reps will need to embrace new tools and channels, as well as a new manner of engaging customers, matching their sales activity to their customers’ buying practices and information collecting needs”. A 2019 research report from the Boston Consulting Group (BCG), suggests that companies, which use AI systems to personalise sales can expect productivity gains of ~10%, and incremental revenue growth of ~10%.
 
Partnering with tech savvy start ups

Currently, many MedTechs neither have the mindsets nor the in-house STEM capabilities to create AI enhanced services. So, what might be a way forward? STEM skills, although scarce, tend to reside in people <30. Although there are ~68m of these people in the US, people with STEM skills tend to prefer to work either for giant tech companies or tech start-ups devoted to leveraging the potential of AI. Giant tech companies and start-ups are outside the comfort zones of most MedTechs. However, in the future, they may be obliged to partner with tech savvy start-ups engaged in developing AI driven solutions. Such collaboration will be challenging because it requires MedTechs to change their business models, create new ways of making strategic investments, and develop novel approaches to R&D that encompass a broader spectrum of partners.

Most of MedTechs’ R&D investment is consumed by incremental innovations to their current suite of devices. This tends to reinforce existing revenues rather than develop disruptive technologies aimed at capturing new revenue streams. Such strategies are efficacious in stable, fast growing economic environments, but lose their edge in slower markets. It seems reasonable to assume that, as market conditions tighten, MedTechs will need to consider shifting their R&D strategies towards the development of more disruptive technologies. We see this already in Stryker’s R&D investment in robotic surgical systems and Zimmer’s proposed R&D spend on AI, data informatics and robotics.

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China’s rising MedTech industry and the dilemma facing Western companies


and

Can Western companies engage with and benefit from China?
US supremacy challenged  

US tech giants are investing heavily in AI R&D and driving the adoption of advanced technologies in healthcare. Although these companies have made, and will continue to make, a significant contribution to the field, it would be a mistake to think that they have AI healthcare markets sewn up.
 
Three Chinese tech giants, collectively referred to as ‘BAT’, are also investing heavily in AI systems. All three offer services well beyond their core products and have far-reaching global ambitions. BAT is comprised of Baidu, China’s largest search provider, Alibaba the nation’s biggest eCommerce platform and Tencent, which runs WeChat that has access to >1bn users on its platform. For the past five years BAT has been expanding into other Asian countries, recruiting US talent, investing in US AI start-ups, and forming global partnerships to advance their AI ambitions.
In addition to these private endeavours, China has made AI a national project. Since 2017, Beijing has been pursuing a three-step New Generation AI Development Plan, which aims to turn AI into a core national industry. To this end, China is vigorously carrying out research on brain science, brain computing, quantum information and quantum computing, intelligent manufacturing, robotics, and big data. Already, China has become a world leader in AI publications and patents. The nation’s global share of AI research papers increased from 1,086 (4.26%) in 1997 to 37,343 (27.68%) in 2017, surpassing any other country, including the US. Most AI patents are registered by companies in the US and Japan. However, when it comes to AI patents registered by research institutes, China is the undisputed leader. According to a 2021 report on China's AI development,  ~390,000 AI patent applications were filed in China over the past decade, accounting for ~75% of the world total. Beijing’s competitive advantage in big data and AI strategies is driven by a combination of its weak privacy laws, a national plan, huge government investments, concerted data-gathering, and big data analytics by the BAT tech giants and others. Currently, China’s AI market is valued at ~US$22bn, and by 2030, the nation is expected to become a leader in AI-empowered healthcare businesses and the world’s leading AI power.

Beijing’s policies have given rise to hundreds of AI driven start-ups aimed at gaining access to new revenue streams in China’s rapidly growing healthcare market. Western MedTechs might consider accepting Beijing’s  Made in China 2025 policy, partner with these  tech savvy start-ups and jointly benefit from the nation’s current 5-year economic plan aimed at a “healthier China”.

 
Takeaways
 
We have presented an AI-driven prescription for MedTechs to enhance the quality of care while providing access to new revenue streams. We suggest that this can be achieved by bolting on AI solutions to existing devices, and over time through partnerships with tech savvy start-ups. But ~30 years of double-digit growth derived from manufacturing physical products and distributing them through labour intensive sales channels might have cemented mindsets among C suite incumbents that find it challenging to think beyond physical product offerings. This could suggest that the wind of change, now blowing through MedTech markets, will be perceived as a temporary breeze that does not require thinking beyond physical products, and AI solutions will be a long time coming.
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  • The ‘needle’ has moved significantly since the FDA approved the first artificial human skin in 1996
  • Researchers in Australia have developed an electronic artificial skin (e-skin) that reacts to pain just like real skin 
  • Researchers in the US have developed an e-skin that mimics the functions and properties of human skin
  • These are just 2 examples of 100s of e-skin developments currently taking place around the world
  • Research findings on the functions and properties of e-skin pave the way for enhancing non-invasive alternatives to skin grafts, improving consumer healthcare, developing smarter prosthetics and advancing intelligent robotics
  • Such improvements are likely to take place over the next decade
  • One possible near-term application for e-skin is to enhance the Apple Watch
  • The commercial beneficiaries of e-skin are more likely to be giant tech companies rather than traditional manufacturers of medical devices
  
E-skin set to disrupt healthcare
 
 
In September 2020 researchers from Australia’s Royal Melbourne Institute of Technology (RMIT) published findings of a study entitled, “Artificial Somatosensors: Feedback Receptors for Electronic Skins” in Advanced Intelligent Systems. The study’s focus was an electronic artificial skin (e-skin) made of silicone rubber with integrated electronics with the capacity to mimic the functionality of real skin and almost instantaneously distinguish between less and more severe forms of pain. Just as nerve signals instantaneously travel to your brain to inform you that you have encountered something sharp or hot, the e-skin reported in this study triggers similar mechanisms to achieve comparable results. This represents a significant advance towards the next generation of biomedical technologies, non-invasive skin grafts, smart prosthetics and intelligent robotics: all large, underserved fast growing global markets.
 
A significant advance in bioengineering

According to Madhu Bhaskaran, the study’s lead author, a professor at RMIT and the co-leader of the University’s Functional Materials and Microsystems Research Group, the research is the first time that electronic technologies have been shown to mimic the human feeling of pain. “No electronic technologies have been able to realistically mimic that very human feeling of pain - until now. It’s a critical step forward in the future development of the sophisticated feedback systems that we need to deliver truly smart prosthetics and intelligent robotics,” said Bhakaran.
 
Her remarks were emphasised by Md Ataur Rahman, a researcher at RMIT who said, “We’ve essentially created the first electronic somatosensors - replicating the key features of the body’s complex system of neurons, neural pathways and receptors that drive our perception of sensory stimuli . . . . While some existing technologies have used electrical signals to mimic different levels of pain, our new devices can react to real mechanical pressure, temperature and pain and deliver the right electronic response . . . .  It means our artificial skin knows the difference between gently touching a pin with your finger or accidentally stabbing yourself with it - a critical distinction that has never been achieved before electronically.”
 
Combination of three smart technologies

The RMIT device combines three ”game-changing” technologies to deliver its superior sensing capabilities, all previously designed and patented by Bhakaran’s team. The first is a stretchable, transparent and unbreakable electronic device made of oxide materials and biocompatible silicone, which allows it to be as thin as a piece of paper. The second is a temperature-reactive coating that is, “1,000 times thinner than a human hair”, which can transform when it comes into contact with heat. The third is a “brain-mimicking memory”, which facilitates electronic cells to simulate your brain’s ability to remember temperature and pain thresholds and store these in its own long-term memory bank. Further development is required to integrate these technologies into biomedical applications and demonstrate their stability over time, but crucially says Bhaskaran, “the fundamentals - biocompatibility, skin-like stretchability - are already there."
 
E-skin research has been progressing for decades

E-skin research is not new and has been developing for at least the past three decades. Here we cannot do justice to the breadth and depth of such research, but we can give a flavour of its history and briefly describe another e-skin that mimics human skin, which was reported in the February 2018 edition of Science Advances.
 
As early as the 1970s, researchers were exploring the potential application of tactile‐sensing simulation and had demonstrated certain touch sensors, but with low resolution and rigid materials. Notwithstanding, over the ensuing two decades significant breakthroughs were achieved in malleable and stretchable electronic devices for various applications. More recently, tactile sensors with enhanced performance have been developed based on different physical transduction mechanisms, including those affecting: (i) the change in the electrical resistivity of a semiconductor or metal when mechanical strain is applied (piezoresistivity), (ii) the ratio of the change in electric charge of a system to the corresponding change in its electric potential (capacitance), and (iii) the electric charge that accumulates in certain solid materials in response to applied mechanical stress (piezoelectricity). Parallel to these advances, significant progress also has been made in design, manufacturing, electronics, materials, computing, communication and systems integration. Together, these developments and technologies open new areas for applications of bioengineered systems.
 
Breakthrough e-skin by a US group

The 2018 e-skin research study reported in Science Advances was led by Jianliang Xiao, a Professor of Mechanics of Materials and Wei Zhang, a Professor of Chemistry, both from the University of Colorado Boulder. They describe the characteristics of their e-skin, as “thin, translucent, malleable and self-healing and mimics the functions and properties of human skin.” Reportedly the e-skin has several distinctive properties, including a novel type of molecular bond, known as polyamine, that involves the sharing of electron pairs between atoms, which the researchers have embedded with silver nanoparticles to provide enhanced mechanical strength, chemical stability and electrical conductivity. “What is unique here is that the chemical bonding of polyamine we use allows the e-skin to be both self-healing and fully recyclable at room temperature,” said Xiao. Further, the e-skin’s malleability enables it to permanently conform to complex, curved surfaces without introducing excessive interfacial stresses, which could be significant for its development. The Boulder group has created a number of different types and sizes of their wearable e-skin, which are now being tested in laboratories around the world.
 
In the Commentary

In this Commentary we not only report the research findings of the two e-skin studies mentioned above, but we also describe, in simple terms, how you experience pain to illustrate the achievement of the Australian researchers from RMIT. We then describe human skin, its capacity to be wounded and traditional skin graft therapies to deal with such wounds. We briefly reference the invention of the first artificial human skin to receive FDA approval and highlight some of the massive and significant technological and market changes that have taken place since then. We conclude by suggesting that, over the next decade as e-skin technologies are enhanced, their potential healthcare applications are more likely to be owned and controlled by giant tech companies than traditional manufacturers of medical devices. More about this later. In the meantime, let us return to Bhakaran’s new pain-sensing e-skin and briefly describe the devilishly complex functionality of how you experience pain.
The function of pain and how you experience it
 
Your skin constantly senses things and your sensitivity to pain helps in both your survival and your protection. Pain prompts reflex reactions that prevent damage to tissue, such as quickly pulling your hand away from something when you feel pain. Notwithstanding, your pain response only begins when a certain threshold is breached. For example, you do not notice pain when you pick up something at a comfortable temperature, but you do when you prick your finger or touch something too hot. Consider this brief, over-simplified, description of how you experience pain.


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When you prick your finger on something sharp it causes tissue damage, which is registered by microscopic pain receptors in your skin. These send electrical signals through your nerve fibres that are bundled together with others to form a peripheral nerve. These electrical signals pass up your peripheral nerve and spinal cord to your neck area. Here they are transferred from one nerve cell to another by means of chemical messengers. The signals are then passed to three areas of your brain: one, the somatosensory cortex, that deals with physical sensation, another, the frontal cortex, which is linked with your thinking and a third area, your limbic system, which is associated with your emotions. All this occurs in nano seconds and results in you instantaneously feeling pain, wincing and becoming irritated when a pin pricks your finger.
 
Human skin and traditional skin grafts

Skin is your body’s largest and most versatile organ, which is unlike any other, not least because you wear it on the outside of your body. Not only is your skin a huge sensor packed with nerves for keeping your brain in touch with the outside world, it provides you with free movement. Adults carry  between 1.5 and 2.0 square metres of skin on their bodies, which weighs about 3.5kgs (≈16% of your body weight). Your skin is a “smart”, multifunctional organ that not only serves as a protective shield against heat, light, injury and infection, but also it is a sensory organ that regulates body temperature, stores water and fat, prevents water loss and helps to produce vitamin D when exposed to the sun. Skin wounds are relatively common and can be caused by trauma, skin diseases, burns or removal of skin during surgery. In the US alone, each year some 35m cases require clinical intervention for major skin loss.Your skin has three layers. The thin, outer layer that is visible to the eye is called the epidermis and the deeper two layers are called the dermis and hypodermis. Due to the presence of stem cells, a wound to your epidermis is able to stimulate self-regeneration. However, in cases of deeper injuries and burns, the process of healing is less efficacious and leads to chronic wounds. Any loss of full-thickness skin more than 4cm diameter needs to be treated immediately. Traditional ways of dealing with significant losses of skin have been skin grafts. The most common is to use either your own shin (autograft) or the skin from another person (allograft). Skin  grafts can also be obtained from a non-human source, usually a pig (xenograft). Autographs suffer from the fact that you may not have enough undamaged skin to treat the severity of your injury. Allografts and xenografts suffer from the possibility of rejection or infection. These challenges drove a need to develop an artificial skin.
 
The first FDA approved artificial human skin

The first artificial human skin to receive FDA approval was invented in the late-1970s by John Burke, a Professor of Surgery at the Harvard University Medical School and Chief of Trauma Services at Massachusetts General Hospital and Ioannis Yannas, a Professor of Polymer Science and Engineering at the Massachusetts Institute of Technology (MIT) in Cambridge, Massachusetts. Burke had treated many burn victims and realized the need for a human skin replacement. Yannas had been studying collagen, a protein found in human skin. In the mid-1970s the two professors teamed-up to develop a material - an amalgam of plastics, cow tissue and shark cartilage - that became the first commercially reproducible, artificial human skin with properties to resist infection and rejection, protect against dehydration and significantly reduce scarring. In 1979 Burke and Yannas used their artificial skin on a woman patient, whose burns covered over half her body. In the early 1990s the Burke-Yannas skin was acquired by Integra LifeSciences Corporation. In March 1996 the company received FDA approval for it to be used on seriously burned patients, and Integra Artificial Skin became the first tissue regeneration product to reach the market. Since then, it has been used in therapies throughout the world and has saved and enhanced the lives of innumerable severely burned people. More recently, the Integra Artificial Skin has also been used in a number of other indications.
 
Technological advances and market changes since the first artificial skin

Since Integra’s launch of the first FDA approved artificial human skin, healthcare markets and technolgies have changed radically. In the mid-1970s when Professors Burke and Yannas came together to develop their artificial skin, Apple and Microsoft, two giant tech companies with interests in healthcare, were relatively small start-ups, respectively founded in 1976 and 1975.  it would be more than another  decade before Tim Berners-Lee invented the World Wide Web (1989), and then another decade before the internet became mainstream. The tech giants, Amazon and Google, also with interests in healthcare, were not founded until some years after that: 1994 and 1998 respectively. Over the past four decades substantial progress has been made in tissue engineered skin substitutes made from both artificial and natural materials by employing advances in various fields such as polymer engineering, bioengineering, stem cell research, nanomedicine and 3D bioprinting. Notwithstanding, a full thickness bioengineered skin substitute with hair follicles and sweat glands, which can vascularize rapidly is still not available. 
 
Market changes, e-skin, the Apple Watch and giant tech companies

In closing, we briefly focus on one potential near-term application for e-skin - to enhance the capabilities of the Apple Watch.  We do this to emphasise the significant market shifts, which are occurring in healthcare and the large and growing impact that giant tech companies are having on the sector.

The Apple Watch was first released in April 2015 by Tim Cook, Apple’s CEO, as a fashion accessory. Notwithstanding, its focus quickly shifted and within three years it had become a FDA approved medical device. The watch, not only can detect falls, but it also has 3 heart monitoring capabilities: one recognises and sounds an alarm when your heart rate is low, a second detects irregular heart rhythms and a third is a personal electrocardiogram (ECG), which is a medical test that detects heart problems by measuring the electrical activity generated by your heart as it contracts. According to Strategy Analytics, a consumer research firm, in 2019, an estimated 30.7m Apple Watches were sold worldwide; 36% higher than the 22.5m watches Apple sold in 2018.

In 2020, during the coronavirus public health emergency, the FDA expanded its guidance for non-invasive patient-monitoring technologies, including the Apple Watch’s ECG function. This expanded use is intended to help facilitate patient monitoring while reducing patient and healthcare provider contact and exposure to CoVID-19.

 
Currently, the Apple Watch is worn like any other watch and if it is loose, its data harvesting capacity could be compromised. In the form of a watch, e-skin would conformally adhere to irregularly shaped surfaces like your wrist. The two e-skins described in this Commentary; both with intrinsic stretchability could potentially facilitate the Apple Watch to be more integrated with the wearers own skin.

The unstoppable march of giant tech companies into healthcare
 
Today, not only do giant tech companies such as Apple, Amazon, Google and Microsoft have their global market presence as a significant comparative advantage to enter and expand into healthcare, but they also have unparalleled data management capabilities. Since the invention of artificial skin by Burke and Yannas healthcare has become digital and global. Because giant tech companies’ have superior access to individuals’ data and state-of-the-art data handling capabilities; they know customers/patients significantly better than any healthcare provider. This, together with their global reach, positions giant tech companies to provide discerning patients with the healthcare solutions they need and increasingly demand.
 
IBM Watson Health estimates that by the end of 2020, the amount of medical data we generate will double every 73 days. According to Statisticaan analytical software platform, new healthcare data generated in 2020 are projected to be 2,314 exabytes. Traditional healthcare providers cannot keep up with this vast and rapidly growing amount of health information, despite the fact that such information is increasingly significant as healthcare shifts away from its traditional focus on activity and becomes more outcomes/solutions orientated. Giant tech companies are on the cusp of meeting a large and growing need to understand, structure and manage health data to build a new infrastructure for the future of healthcare.
 
Takeaways

The potential impact of e-skin is significantly broader than enhancing the Apple Watch. The research findings reported in this Commentary suggest that e-skin is well positioned to disrupt substantial segments of healthcare over the next decade. Findings published in Advanced Intelligent Systems and Science Advances suggest that one potential application is for e-skin to be seamlessly integrated with human skin. This not only positions it to become the next generation for a number of traditional MedTech applications, such as non-invasive skin grafts, but also to deliver a step change in the consumer health market by producing breakthroughs in human-machine interfaces, health monitoring, transdermal drug delivery, soft robotics, prosthetics and health monitoring. If traditional manufacturers are to benefit from e-skin they will need to adapt and transform their processes because the natural fit for e-skin technologies is industry 4.0, [also referred to as smart manufacturing and the Internet of Things (IoT)], which is expected to become more pervasive over the next decade as developments of e-skin unfold. Industry 4.0 combines physical production and operations with smart digital technology, machine learning and big data to create more solution orientated healthcare ecosystems and thereby tends to favour the giant tech companies and their growing healthcare interests.
 
#e-skin #artificialskin #AppleWatch 
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Changing the code of life



Congratulations!
 
On 7 October,  the Royal Swedish Academy of Sciences announced that it had awarded the 2020 Nobel Prize for Chemistry to two women scientists: Emmanuelle Charpentier (L), a French microbiologist, geneticist and biochemist,  who is now the director of the Max Planck Unit for the Science of Pathogens in Berlin, Germany, and Jennifer Doudna (R), an American biochemist  who is a professor of chemistry, biochemistry and molecular biology at UC Berkeley.

The scientists developed a simple, cheap, yet powerful, and precise technique for editing DNA, which is called CRISPR-Cas9 (an acronym for Clustered Regularly Interspaced Short Palindromic Repeats) and popularly referred to as a pair of ‘genetic-scissors’. The technology endows science and scientists with extraordinary powers to manipulate genes to cure genetic diseases, improve crops to withstand drought, mould and pests, and affect climate change, and is considered to be the most important discovery in the history of biology. The Nobel citation refers to Charpentier’s and Doudna’s scientific contribution as a, “tool for rewriting the code of life”, which has “a revolutionary impact on the life sciences, by contributing to new cancer therapies and may make the dream of curing inherited diseases come true”.


For more than four years HealthPad has been following and publishing Commentaries on the scientists’ work. Our Commentaries have a large and growing global following of leading physicians, scientists, policy makers, journalists and students. The Commentaries listed below about CRISPR techniques, which we re-publish to celebrate Charpentier’s and Doudna’s Nobel Prize, have had more than 120,000 views.
 
Gene editing positioned to revolutionise medicine
1 Feb 2017

 
Gene editing battles
15 Mar 2017

 
Who should lead MedTech?
18 Jul 18
Base-editing next-generation genome editor with delivery challenges
17 oct 2018
CRISPR-Cas9 genome editing a 2-edged sword
31 Oct 2018
Will China become a world leader in health life sciences and usurp the US?
27 Feb 2019
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Since we first published this Commentary just over a year ago it’s received over 10,000 views. We’re republishing it  as colleagues have suggested that the digitization of MedTech is more relevant today because of the impact CoVID-19 has had on the industry.
  • Two Boston Consulting Group studies say MedTech innovation productivity is in decline
  • A history of strong growth and healthy margins render MedTechs slow to change their outdated business model
  • The MedTech sector is rapidly shifting from production to solutions
  • The dynamics of MedTechs' customer supply chain is changing significantly and MedTech manufacturers are no longer in control
  • Consolidation among buyers - hospitals and group purchasing organisations (GPO) - adds downward pressure on prices
  • Independent distributors have assumed marketing, customer support and education roles
  • GPO’s have raised their fees and are struggling to change their model based on aggregate volume
  • Digitally savvy new entrants are reinventing how healthcare providers and suppliers work together
  • Amazon’s B2B Health Services is positioned to disrupt MedTechs, GPOs and distributors 
  • MedTech manufacturers need to enhance their digitization strategies to remain relevant
 
MedTech must digitize to remain relevant
 
MedTech companies need to accelerate their digital strategies and integrate digital solutions into their principal business plans if they are to maintain and enhance their position in an increasingly solution orientated healthcare ecosystem. With growing focus on healthcare value and outcomes and continued cost pressures, MedTechs need to get the most from their current portfolios to drive profitability. An area where significant improvements might be made in the short term is in MedTechs' customer facing supply chains. To achieve this, manufacturing companies need to make digitization and advanced analytics a central plank of their strategies.
 
In this Commentary
 
This Commentary describes the necessity for MedTechs to enhance their digitization strategies, which are increasingly relevant, as MedTech companies shift from production to solution orientated entities. In a previous Commentary we argued that MedTechs history of strong growth and healthy margins make them slow to change and implement digital strategies. Here we suggest that the business model, which served to accelerate MedTechs' financial success over the past decade is becoming less effective and device manufacturers need not only to generate value from the sale of their product offerings, but also from data their devices produce so they can create high quality affordable healthcare solutions. This we argue will require MedTechs developing  innovative strategies associated with significantly increasing their use of digital technology to enhance go-to-market activities, strengthen value propositions of products and services and streamline internal processes.
 
MedTechs operate with an outdated commercial model
 
Our discussion of digitization draws on two international benchmarking studies undertaken by the Boston Consulting Group (BCG). The first,  published in July 2013 and entitled, “Fixing the MedTech Commercial  Model: Still Deploying ‘Milkmen’ in a Megastore World” suggests that the high gross margins that MedTech companies enjoy, particularly in the US, hide unsustainable high costs and underdeveloped commercial skills. According to BCG the average MedTech company’s selling, general and administrative (SG&A) expenses - measured as a percentage of the cost of goods sold -  is 3.5 times higher than the average comparable technology company. The study concludes that MedTechs' outdated business model, dubbed the “milkman”, will have to change for companies to survive. 
 
BCG’s follow-up 2017 study
 
In 2017 BCG published a follow-up study entitled, “Moving Beyond the ‘Milkman’ Model in MedTech”, which surveyed some 6,000 employees and benchmarked financial and organizational data from 100 MedTech companies worldwide, including nine of the 10 largest companies in the sector. The study suggested that although there continued to be downward pressure on device prices, changes in buying processes and shrinking gross margins, few MedTech companies “have taken the bold moves required to create a leaner commercial model”.
 
According to the BCG’s 2017 study, “Overall, innovation productivity [in the MedTech sector] is in decline. In some product categories, low-cost competitors - including those from emerging markets - have grown rapidly and taken market share from established competitors. At the same time, purchasers are becoming more insistent on real-world evidence that premium medical devices create value by improving patient outcomes and reducing the total costs of care”. The growth and spread of value-based healthcare has shifted the basis of competition beyond products, “toward more comprehensive value propositions and solutions that address the entire patient pathway”. In this environment, MedTechs have no choice but to use data to deliver improved outcomes and a better customer experience for patients, healthcare providers and payers.
 
MedTech distributors increasing their market power and influence
 
Although supply chain costs tend to be MedTechs' second-highest expense after labour, companies  have been reluctant to employ digital strategies to reduce expenses and increase efficiencies. As a consequence, their customer supply chains tend to be labour intensive relationship driven with little effective sharing of data between different territories and sales teams. Customer relations are disaggregated with only modest attention paid to patients and payors and insufficient emphasis on systematically collecting, storing and analysing  data to support value outcomes.  
As MedTech manufacturers have been slow to develop strong and effective data strategies, so MedTech distributors have increased their bargaining power through M&As and internationalisation. Some distributors have even assumed marketing, customer support and education roles, while others have launched their own brands. MedTechs' response to these changes has been to increase their direct sales representatives. However, consolidation among buyers - hospitals and GPO’s -  and the extra downward pressure this puts on prices, is likely to make it increasingly costly for MedTechs to sustain large permanent sales forces. 

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Who should lead MedTech?
Advantages of distributors but no way to accurately measure sales performance

Notwithstanding, the distributor model is still common with MedTechs and has been successful in many markets for a long time. Independent distributors are often used when producers have small product portfolios. In smaller markets, distributors are employed primarily to gain economies of scale as they can combine portfolios of multiple companies to create a critical mass opportunity and  obtain better and faster access to markets.
 
MedTechs have a history of investing in sales force effectiveness (SFE) typically to increase the productivity of sales representatives. Sales leaders have some indication that this pays-off through incremental revenue growth and profits, but they struggle to assess the true performance of such investments not least because SFE includes a broad range of activities and also it is almost impossible to obtain comparative competitor data.
 
Changing nature of GPOs
 
GPO’s also have changed. Originally, they were designed in the early 20th century to bring value to hospitals and healthcare systems by aggregating demand and negotiating lower prices among suppliers. Recently however they have raised their fees, invested in data repositories and analytics and have been driving their models and market position beyond contracting to more holistic management of the supply chain dynamics. Notwithstanding, many GPO’s are struggling to change their model based on aggregate volume and are losing purchasing volume amid increasing competition and shifting preferences.
 
New entrants
The changing nature of MedTechs' customer supply chain and purchasers increasingly becoming concerned about inflated GPO prices have provided an opportunity for data savvy new entrants such as OpenMarketsThe companyprovides healthcare supply chain software that stabilizes the equipment valuation and cost reduction and aims to reinvent how healthcare providers and suppliers work together to improve the way healthcare equipment is bought and sold. OpenMarkets’ enhanced data management systems allow providers to better understand what they need to buy and when. The company represents over 4,000 healthcare facilities and more that 125 equipment suppliers; and provides a platform for over 32,000 products, which on average sell for about 12% less than comparable offerings. In addition, OpenMarkets promotes cost efficiency and price transparency as well as stronger collaboration between providers and suppliers.
 
Amazon’s B2B Health Services
 
But potentially the biggest threat to MedTech manufacturers, GPOs and distributors  is Amazon’s B2B Health Services, which is putting even more pressure on MedTechs to rethink their traditional business models and to work differently with healthcare providers and consumers. With a supply chain in place, a history of disrupting established sectors from publishing to food and a US$966bn market cap, Amazon is well positioned to disrupt healthcare supply chain practices, including contracting. In its first year Amazon’s B2B purchasing venture generated more than US$1bn and introduced three business verticals: healthcare, education and government. Already, hundreds of thousands of medical products are available on Amazon Business, from hand sanitizers to biopsy forceps. According to Chris Holt, Amazon’s B2B Health Services program leader, “there is a needed shift from an old, inefficient supply chain model that runs on physical contracts with distributors and manufacturers to Amazon's marketplace model”.

If you look at the way a hospital system or a medical device company cuts purchase orders, identifies suppliers, shops for products, or negotiates terms and conditions, much of that has been constrained by what their information systems can do. I think that has really boxed in the way that companies’ function. Modern business and the millennials coming into the workplace, can’t operate in the old way,” says Holt.

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Is the digital transformation of MedTech companies a choice or a necessity?


Millennials are used to going to Amazon and quickly finding anything they need; even the most obscure items. According to Holt, “A real example is somebody who wants to find peanut butter that is gluten-free, non-GMO, organic, crunchy and in a certain size. And they want to find it in three to five clicks. That’s the mentality of millennial buyers at home, and they want to be able to do the same things at work. . . . The shift from offline traditional methods to online purchasing is very significant. It is our belief that the online channel is going to be the primary marketplace for even the most premium of medical devices in the future. That trend is already proven by data. So, we’ve created a dedicated team within Amazon Business to enable medical product suppliers to be visible and participate in that channel.
MedTechs fight back
 
According to the two BCG reports, MedTech companies can fight back by using digital technologies to strengthen and improve their go-to-market activities. This, according to BCG, would enhance MedTechs' connectivity with their customers and help them to learn more about their needs. Indeed, employing digitization to improve customer-facing activities could help standardise order, payment and after-sales service behaviour by defining and standardizing terms and conditions. This could provide the basis to help MedTechs increase their access to a range of customers - clinicians, institutions, insurers and patients - and assist them to tailor their engagements to the personal preferences of providers and purchasers. This could provide customers with access to product and service information at anytime, anywhere and could form the basis to implement broader digitalized distribution management improvements, which focus on value-based affordable healthcare in the face of escalating healthcare costs and variable patient outcomes.
 
Predictive models
 
Many companies use predictive-modelling tools to forecast demand and geo-analytics to speed delivery and reduce inventories. Online platforms provide customers with an easy way to order products and services, transparently follow their shipping status and return products when necessary. Barcodes and radio-frequency identification (RFID) chips, which use electromagnetic fields to automatically identify and track tags that contain electronically stored information attached to products, help customers track orders, request replenishments and manage consignment stock.
 
Back-office improvements
 
Further, the 2017 BCG study suggests that MedTechs only have made limited progress in improving their back-office operations. Many manufacturers  have more employees in their back offices than they do in their customer-facing functions and fail to leverage economies of scale. There is a significant opportunity for MedTechs to employ digital strategies to enhance the management of their back-office functions, including centralizing certain activities that are currently conducted in multiple individual countries.
 
Takeaway
 
For the past decade MedTech manufactures have been slow to transform their strategies and business models and still have been commercially successful. Some MedTech companies are incorporating digital capabilities into their products by connecting them to the Internet of Things (IoT), which potentially facilitate continuous disease monitoring and management. Notwithstanding, such efforts tend to be isolated endeavours - “one-offs” - and are not fully integrated into companies’ main strategies. This could run the risk of MedTech executives kidding themselves that they are embracing digitization while underinvesting in digital technologies. The two BCG studies represent a significant warning since digitization is positioned to bring a step-change to the MedTech sector, which potentially could wound successful manufacturers if they do not change.
 
Post scriptum
 
CoVID-19 has forced MedTechs to temporarily digitize their sales and marketing strategies as doctors and hospitals have restricted physical access, but still many MedTech companies look forward to returning to their single rep-based go-to market strategy when the coronavirus crisis is over. The question MedTechs need to ask themselves is, “Do our customers think that digital means of receiving sales and marketing information are significantly more effective and therefore should become permanent?”.
 


#COVID19 #pandemic #coronavirus #MedTech #internetofthings #IoT
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  • Prime editing devised by researchers at the Broad Institute led by David Liu is a significant advance of the original CRISPR gene editing tool discovered in 2012
  • CRISPR can cut and edit your DNA to correct defects inside your body’s cells to prevent and heal a range of incurable diseases and has revolutionized biomedicine
  • The original CRISPR is fraught with inaccuracies referred to as off target effects
  • Prime editing substantially reduces CRISPR’s off target effects and has the potential to correct up to 89% of known disease-causing genetic variations
  • CRISPR also has the capacity to edit genes in an embryo in such a way that the change is heritable
  • In 2018 Chinese researcher He Jiankui “created” the world’s first CRISPR babies
  • This triggered international criticism from scientists and bioethicists
  • A principal concern is that CRISPR is easy-to-use, cheap, regularly used in thousands of laboratories throughout the world and there is no internationally agreed and enforceable regulatory framework for its use
 
For better or worse we all now live in CRISPR’s world
 
In 2012 the world of biomedicine changed when a revolutionary gene editing technology known as CRISPR-Cas9 (an acronym for Clustered Regularly Interspaced Short Palindromic Repeats) was discovered. The technology harnesses your body’s naturally occurring immune system that bacteria use to fight-off viruses and has the potential to forever change the fundamental nature of humanity. Since its discovery CRISPR has been developing at lightning speed primarily because it is simple and affordable and today is used in thousands of laboratories throughout the world.
 
In this Commentary
 
In this Commentary we describe prime editing, which is the latest advance of the CRISPR's tool box, devised bya team of researchers, led by Andrew Anzalone, a Jane Coffin Childs postdoctoral fellow from the Broad Institute of MIT and Harvard and published in the October 2019 edition of Nature. Prime editing is significant because it provides a means to eliminate the unintentional consequences of CRISPR and therefore bring the technique closer for use in clinics. But this is still a long way off.
 
We also review a case where an ambitious scientist “created” the first CRISPR babies. This immediately triggered international criticism and a call for tighter regulatory control of the technology. Scientists and bioethicists are concerned that CRISPR can easily be used to create heritable DNA changes, which ultimately could lead to ‘designer babies’.
 
These two accounts of CRISPR might seem “opposites” and not sit well together in a single Commentary. Notwithstanding, what prompted putting them together was John Travis, the News Managing Editor of the well-known scientific journal Science, who soon after CRISPR’s discovery in 2012  said, “For better or worse we all now live in CRISPR’s world”
 
CRISPR and your DNA

CRISPR is different to traditional gene therapy, which uses viruses to insert new genes into cells to try and treat diseases and has caused some safety challenges. CRISPR, which avoids the use of viruses, was conceived in 2007 when a yogurt company identified an unexpected defence mechanism that its bacteria used to fight off viruses. Subsequent research made a surprising observation that bacteria could remember viruses. CRISPR has been likened to a pair of microscopic scissors that can cut and edit your DNA to correct defects inside your body’s cells to prevent and heal a range of intractable diseases. The standard picture of DNA is a double helix, which looks similar to a ladder that has been twisted. The steps in this twisted ladder are DNA base pairs. The fundamental building blocks of DNA are the four bases adenine (A), cytosine (C), guanine (G) and thymine (T). They are commonly known by their respective letters, A, C, G and T. Three billion of these letters form the complete manual for building and maintaining  your body, but tiny errors can cause disease.  For example, a mutation that turned one specific A into a T results in the most common form of sickle cell disease.
 
The original CRISPR
 
The original CRISPR tool, which is the first and most popular gene editing system, uses a guide RNA (principally a messenger carrying instructions from your DNA for controlling the synthesis of proteins) to locate a mutated gene plus an enzyme, like Cas9, to cut the double-stranded gene helix and create space for functioning genes to be inserted. However, a concern about CRISPR is that the editing could go awry and cause unintended changes in DNA that could trigger health problems. Findings of a study published in the July 2018 edition of  the journal Nature Biotechnology found that such inaccuracies, referred to as off-target effects, were substantially higher than originally reported and some were thought to silence genes that should be active and activate genes that should be silent. These off-target effects, such as random insertions, deletions, translocations, or other base-to-base conversions, pose significant challenges for developing policy associated with the technology.

Subsequently however, the paper was retracted, and an error correction was posted on a scientific website. Contrary to their original findings, the authors of the Nature Biotechnology paper restated that the CRISPR-Cas9 gene editing approach, "can precisely edit the genome at the organismal level and may not introduce numerous, unintended, off-target mutations".

 
Base editing

Notwithstanding, researchers remained concerned about CRISPR’s off target effects and several devised a technique, referred to as base editing, to reduce these. Base editing is described in three research papers published in 2017: one in the November edition of the journalProtein and Cell’, another in the October edition ofSciencethe and a third by researchers from the Broad Institute, in the October edition of the journal Nature’. Base editing takes the original CRISPR-Cas9 and fuses it to proteins that can make four precise DNA changes: it can change the letters C-to-T, T-to-C, A-to-G and G-to-A. The technique genetically transforms base pairs at a target position in the genome of living cells with more than 50% efficiency and virtually no detectable off-target effects. Despite its success, there remained  other types of point mutations that scientists wanted to target for diseases.

 

Prime editing
 
Prime editing is different to previous gene editing systems in that it uses RNA to direct the insertion of new DNA sequences in human cells. According to David Liu,  the senior author of the 2019 Nature paper and a world renowned authority on genetics and next-generation therapeutics, “a major aspiration in the molecular life sciences is the ability to precisely make any change to the genome in any location. We think prime editing brings us closer to that goal”.  Because prime editing provides a means to be more precise and more efficient in editing human cells in a versatile way, which eliminates many of CRISPR’s unintentional errors, it significantly expands the scope of gene editing for biological and therapeutic research.
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There are around 75,000 different mutations that can cause disease in people and prime editing has the potential to correct up to 89% of known disease-causing genetic variations. According to Liu, "Prime editing is the beginning, rather than the end, of a long-standing aspiration in the molecular life-sciences to be able to make any DNA change in any position of a living cell or organism, including potentially human patients with genetic diseases". Liu’s team at the Broad Institute intends to continue optimizing prime editing. In their October 2019 Nature paper researchers reported that they can precisely correct mutant genes, which cause sickle cell anaemia and Tay Sachs disease.
 

Sickle cell anaemia and Tay Sachs
 
Sickle cell anaemia is an inherited form of anaemia. This is when there are not enough healthy red blood cells  (haemoglobin) to carry adequate oxygen throughout your body. The condition is the most common inherited blood disorder in the US, affecting 70,000 to 80,000 and further it is estimated  each year some 300,000 babies are born with the disorder worldwide. Tay-Sachs disease is a rare and fatal nerve condition often caused by the addition of four extra letters of code.  Although anyone can be a carrier of  the disease it is much more common among people of Ashkenazi (Eastern European) Jewish descent. In the Ashkenazi Jewish population, the disease incidence is about 1 in every 3,500 new-borns and the carrier frequency is 1 in every 29 individuals.

 
Some moral and ethical implications of CRISPR
 
Being able to modify your DNA with CRISPR tools has transformed scientific research and is revolutionising medicine although it will be some time before the technology is regularly used in clinics. In addition to its potential benefits there are significant moral and ethical challenges associated with the technology, especially when it is used for germline engineering, which is the process by which your genome is edited in such a way that the change is heritable. Inappropriate use of germline editing could dent the progress of the CRISPR technology.
 
The first CRISPR babies
 
One well publicized  inappropriate use of CRISPR is a team in China, led by He Jiankui of the Southern University of Science and Technology in Shenzhen, which in November 2018 “created” the first gene edited twins, known by their pseudonyms Lulu and Nana. He edited the twins’ cells to be immune to HIV infection when they were embryos, therefore ensuring that every cell in their bodies were changed, including their reproductive ones, which means their edited genomes can be passed on to their children and grandchildren, despite the fact that scientists cannot be sure what the long term effects of such lasting modifications might be. The twins are the first CRISPR babies and the first humans to have every cell in their body genetically modified using the technology.
 
In 2015 Chinese researchers were the first to edit the genes of a human embryo in a laboratory dish. Although the embryos did not go to term, the experiment triggered an international outcry from bioethicists, who argued that CRISPR should not be used to make babies. Notwithstanding, He Jiankui did just this.
 
He  employed CRISPR to alter a gene in IVF embryos to disable the production of an immune cell surface protein, CCR5, which HIV uses to establish an infection before insemination. CCR5 is a well-studied genetic mutation, and there is scientific and medical value in understanding how CRISPR can be used to disable and prevent HIV/AIDS. He believed that the use of CRISPR technology was medically appropriate and expected his experiment, “to produce an IVF baby naturally immunized against AIDS”. But more contentiously, He created twins who could pass the protective mutation to future generations. It is CRISPR’s ability to easily and cheaply edit human embryos, eggs, or sperm in order to create irrevocable changes and the potential for designer babies, which raises concerns.  
 
He defended his work at a Hong Kong genomics conference in late November 2018, but there was immediate and significant international criticism about the scientific and ethical legitimacy of his experiments, which broached China’s guidelines as well as international ethical and regulatory norms. A Chinese government investigation found He to have violated state law in pursuit of “personal fame and fortune”.  His endeavours cost him his university position and the leadership of a biotech company he founded, which had successfully raised US$43m start-up capital and was advised by Craig Melloprofessor  of the University of Massachusetts Medical School and Nobel Laureate for medicine in 2006 for his genetics research.
 
Opacity and scientific competition
 
Some scientists are reluctant to be critical of He and suggest his studies, which resulted in the first CRISPR babies,  simply signal the “next chapter in the technology’s story”. He Jiankui appears to be an ambitious scientist desperate to become the first to conduct the gene editing experiment on humans, but who made some significant errors of judgement by initiating his study prematurely and by withholding information from regulatory authorities and his university. A generous interpretation might suggest that He was motivated by science and humanity. Through a Beijing-based organization, which helps Chinese people with HIV, he recruited couples for his experiment where only the fathers were living with HIV infections, which they managed by antiviral drugs. Eight couples agreed to participate, although one subsequently withdrew.
 
Since He’s statement at the Hong Kong conference he has disappeared, but the background to his studies has been well documented. In late 2017, He, who specialized in sequencing DNA, began his efforts to produce human babies from gene edited embryos and before and during his study it is reported that he sought advice from international experts in the field and communicated openly with international colleagues about his plans. Notwithstanding, it is alleged that He faked a blood test for one of the fathers in the study, aware that in China the HIV status of the father would disqualify him from participating in fertility treatments. Also, He failed to appropriately inform the hospital where the twins were edited and implanted of the status of his experiments.

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Fierce competition among scientists is not uncommon and competition fuels opacity among scientists in their battle to become the first to make a discovery. Indeed, it is not uncommon for scientists to shield their ideas and research. This does not condone He’s actions, but it might help to explain them. Generally speaking, scientific opacity is not created by ambitious scientists alone, but it is partly created by scientific funding bodies and research institutions. Such opacity is a significant obstacle to open collaboration. In addition to wanting to be the first, He’s intentions might also have been an attempt to spare children of parents with HIV/AIDS  from inheriting the disease.
CRISPR is not yet safe
 
Be that as it may, many scientists agree that CRISPR is not yet safe and precise enough to be used in human embryos. In the March 2019 edition of Nature a group of 18 prominent CRISPR scientists and bioethicists from seven countries called for a global moratorium on heritable genome editing until the establishment of an international framework that would compel countries to establish both scientific safety and broad societal agreement before allowing the technology to progress.  "We call for a global moratorium on all clinical uses of human germline editing; that is, changing heritable DNA (in sperm, eggs or embryos) to make genetically modified children" , the scientists wrote.

Opposition to germline editing is mixed
 
However, opposition to germline editing is mixed. In February 2017 the US National Academies of Sciences, Engineering, and Medicine (NASEM) published a report, which did not call for an international ban of germline editing, but instead suggested that it "might be permitted" if strict criteria were met. In July 2018, the UK’s Nuffield Council of Bioethics published a report on heritable genome editing and suggested that under certain circumstances it could be morally permissible, even in cases of human enhancement. 

Given that CRISPR is cheap, easy-to-use and already an effective tool in thousands of laboratories throughout the world, it seems reasonable to assume that standards and laws are unlikely to prevent a determined scientist and desperate patients from using the technology prematurely. Indeed, science and medicine have a history of researchers attracting public criticism for undertaking experiments prematurely only to have those experiments become common medical practices: in-vitro fertilization  (IVF) is one such example. Although IVF has a chequered history today it accounts for millions of births worldwide and  1% to 3% of all births every year in the US and Europe.
 
Germline engineering and somatic genetic modification
 
Here we describe the difference between germline and somatic adjustments. The former uses CRISPR to modify DNA in such a way that the change is heritable. The latter uses CRISPR to modify the DNA of people with incurable diseases in a way that such modifications are limited to the people treated and not passed on to future generations. Broadly speaking, your body has two kinds of cells: somatic and germ cells. The vast majority are somatic. These cells make up your body and are responsible for forming all your familiar structures: such as your skin, blood, muscles and organs etc. Your somatic cells die when you die so there is no chance of them creating a new organism. However, germ cells are different. Early in your development your germ cells  are sequestered: they divide more slowly and under restricted circumstances. Germ cells cannot become a physical feature such as an ear or a finger, but they do make the only bits of you, which can form a new person: your eggs and your sperm. Every cell in your body holds your DNA in an unbroken lineage stretching back millions of years and thousands of generations, but only the germline has a chance to go forward. Human germline modification means deliberately changing the genes passed on to children and future generations and thereby creating genetically modified people. Somatic genetic modification is different. It adds, cuts, or changes the genes in some of your cells, typically to alleviate a medical condition. The use of human genome editing to make edits in somatic cells for purposes of treating genetically inherited diseases is already in clinical studies. If perfected, somatic gene editing (gene therapy) holds promise for helping people who are sick, affecting only an individual consenting patient. With the exception of He’s studies, human clinical studies with CRISPR have been limited to somatic cells. In effect, this renders CRISPR no more consequential than any other experimental drug or treatment. Any CRISPR-made somatic cell changes are a genetic dead-end and are not heritable. However, germline cells have the possibility of immortality, with the potential to affect thousands of people over the course of several generations. Tampering with germline cells is therefore a much more serious proposition.
 
Clinical studies of gene therapies
 
Gene therapy is primarily available in a research setting. The US Food and Drug Administration (FDA) has approved only a limited number of gene therapy products for sale in the US.According to the US National Institutes of Health, which serves as a clearinghouse for biomedical research worldwide, there are over 800 clinical studies currently underway to test gene therapy as a treatment for genetic conditions. The list includes a relatively small number of CRISPR studies as a treatment for cancers of the lung, bladder, cervix and prostate, the majority of which are in China where doctors appear to be leading the race to treat cancer by editing genes. For the past two decades China has been investing heavily in biomedicine. It is one way that China is able to compete with the West and demonstrate its technological prowess in the 21st century. Also, it is important for China to keep its vast population healthy in the 21st century. Given the somewhat ambiguous state of CRISPR technology it seems reasonable to assume that the first therapeutic applications of CRISPR will be in diseases where cells can be taken out of your body, edited, checked to ensure they are safe and then reintroduced. This suggests blood disorders such as sickle cell or thalassemia.
 
Takeaways
 
Bioethicist Henry T (Hank) Greely, professor at Stanford University, California, US, compares CRISPR to the Model T Ford, which was not the first automobile, but because of its simplicity of production, dependability and affordability it transformed society. CRISPR is not the first gene editing technology, but it is cheap and easy to use and is on the cusp of transforming biomedicine. A significant challenge is getting CRISPR tools, which are capable of performing gene edits, into the right place and to ensure they are safe. Prime editing is a smart, innovative and a substantial step forward in achieving this. Indeed, David Liu and his colleagues from the Broad Institute  have expanded the gene editing toolbox to facilitate ever-more precise editing ability and efficiency. Significantly, the overwhelming majority of human genetic disorders are due to the types of mutation that prime editing is able to correct, which stands the technique in good stead to be useful in therapies for intractable diseases. Notwithstanding, it is one thing to cut out sequences of DNA that cause genetic diseases and another to make genetic changes that are passed down to all later generations. Because CRISPR is cheap, easy-to-use, in the hands of scientists throughout the world, and already has been used to create babies with heritable traits, the technology provokes deep ethical and societal debate about what is, and what is not acceptable in efforts to prevent disease. Given that CRISPR has the potential to change the nature of humanity, it is incumbent on all citizens, not just scientists, bioethicists and regulators, to call for open and inclusive processes associated with all aspects of CRISPR.
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  • Over the past decade MedTech valuations  have outperformed the market without changing its business model
  • The healthcare ecosystem is rapidly changing and MedTech is facing significant headwinds which require change
  • MedTech’s future growth and value will be derived from data and smart analytics rather than manufacturing
  • MedTech leaders will be required to leverage both physical and digital assets

 

Increasing MedTech’s future growth and value
 
 
Over the past decade, the medical device (MedTech) industry has enjoyed relatively high valuations and outperformed broader market indices without changing its manufacturing business model. Some MedTech leaders suggest that because the industry’s product offerings are essential, demand for them is increasing as populations grow and age, so unlike other industries, MedTech is immune to market swings and its asset value will continue to increase. As a consequence of this mindset, MedTech has been reluctant to change and slow to develop digitization strategies. Notwithstanding, digitization is an in-coming tide and positioned to impose a step-change on the industry. Future MedTech leaders will need to derive increased growth and value from digitization and emerging markets while improving the efficiency of their legacy manufacturing business and meeting quarterly earnings’ targets.

According to a 2018 report by the consulting firm Ernst & Young,Stagnant R&D investment, low revenue growth and slow adoption of digital and data technologies suggest that entrenched MedTech companies are overly focused on short-term growth, even as the threat of large tech conglomerates entering the space grows larger, which, in addition to the changing global healthcare ecosystem, threatens future revenue growth".

 
In this Commentary
 
This Commentary suggests that to create future growth and value, MedTech will have to (i) leverage data generated by medical devices, patients, payers and healthcare providers to develop clinical insights and trend analysis, which are expected to significantly improve patient outcomes and reduce costs, and (ii) substantially increase its share of the large and rapidly growing emerging markets. We suggest that there is a significant relationship between MedTech’s digital capacity and competences and its ability to increase its share of emerging Asian markets. But first we briefly describe the MedTech industry and its traditional markets and draw attention to some concerns, which include the relative low rates of top-line growth, stagnant R&D and share buybacks, M&A slowdown, giant tech companies entering the healthcare market, and challenges to recruit and retain millennials with natural digital skills and abilities.
 

The medical device industry
 
The MedTech industry designs, manufactures and markets more than 0.5m different products to diagnose, monitor and treat patients. These include wearable devices such as insulin pumps and blood glucose monitors, implanted devices such as pacemakers and metal plates, and stationary devices that range from instruments to sophisticated scanning machines. Medical devices can be instrumental in helping healthcare providers achieve enhanced patient outcomes, reduced healthcare costs, improved efficiency and new ways of engaging and empowering patients. The principal business model employed by the industry is to manufacture innovative products relatively cheaply and sell them expensively in wealthy developed regions of the world; predominantly North America, Europe and Japan; which although representing only 13% of the world’s population account for 86% of the global MedTech market share. This premium pricing model is predicated upon doctors’ and health providers’ belief that MedTech products are of superior quality and safety. Notwithstanding, as eye-watering healthcare costs escalate, providers and regulators demand better evidence of clinical and economic value to justify the pricing and use of MedTech products.  Over the next five years, the global MedTech industry is expected to grow at a compound annual growth rate of between 4% and 5.6% and reach global sales of some US$595bn by 2024.
 
Concern # 1: Reduced growth rates
 
Since the worse post-war recession ended in 2009, MedTech asset valuations have outperformed the market. Notwithstanding, of increasing concern is the slowdown of the industry’s revenue growth rates to single digits. The industry's aggregate revenue grew to US$379bn in 2017, an annual average industry growth rate of 4%, which now appears to be the new normal, and is significantly lower than the average annual growth rate of 15%, which the industry enjoyed between 2000-2007. The reduction in top-line growth rates is largely attributed to the world’s growing and aging population and the consequent growth in the incidence rates of chronic conditions, which increases the burden on overstretched healthcare budgets and intensifies pressure on MedTech’s to reduce their prices.
 
Population growth and aging
 
The aging population is driven by improvements in life expectancy. People are living longer and reaching older ages as fertility decreases and quality healthcare increases. People are having fewer children later in life. Some 8.5% of the global population (617m) have ages 65 and over. This is projected to rise to nearly 17% by 2050 (1.6bn). The number of Americans aged 65 and older is projected to more than double from 46m today to over 98m by 2060 – from 15% to 24% of the total US population. Around 18% of the UK population were aged 65 years or over in 2017, compared with 16% in 2007. This is projected to grow to 21% by 2027.
 
 Concern # 2: Stagnate R&D spend and share buybacks
 
In addition to relatively low revenue growth rates, MedTech R&D spend has stagnated over the past decade despite the need for companies to develop new and innovative product offerings, which drive top-line sales. Over the same period, MedTech returned more cash to shareholders in the form of share buybacks and dividends (US$16.4bn) than it spent on R&D.

To the extent that share buybacks extract, rather than create value why are they popular? One suggestion is that because share incentive plans represent a significant portion of executive compensation, share buybacks make it easier for executives to meet earning-per-share (eps) targets by reducing the number of shares, in the 1970s, share buybacks were effectively banned in the US amid concerns that executives might use them to manipulate share prices. However, in 1982 the US Securities and Exchange Commission (SEC) lightened its definition of stock manipulation, and share buybacks became popular again.
 

 

Concern # 3: High asset values slow M&A activity

Over the past decade, as markets became more uncertain, monetary policy tightened, technologies advanced and global economic growth slowed MedTech’s, buoyed by the dramatic fall in the cost of capital, increased their mergers and acquisitions (M&A) activity. This optimised portfolios, increased scale, reduced competition and improved profits. Notwithstanding, MedTech’s current high asset valuations make M&A transactions challenging to underwrite, and so, M&A activity has slowed.
 

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Is the digital transformation of MedTech companies a choice or a necessity?
 
Concern # 4: Giant techs entering market
 
Giant technology companies such as Apple, Amazon, Google and Microsoft, have entered the healthcare market by providing direct-to-customer innovative services, which leverage data, artificial intelligence (AI) and machine learning and define new points of value along the value chain, which is changing the traditional notion of “product vendor. Such innovations and services result in raising the expectations of stakeholders who are beginning to insist that healthcare is as convenient and personalized as every other good or service they purchase. Notwithstanding, leveraging data generated by devices, patients, healthcare providers  and payers is challenging for traditional MedTech’s who tend to view IT as an isolated cost centre often constrained by legacy systems, aging infrastructures, complexity and skills’ shortages rather than as a key strategic asset.
 
It seems reasonable to assume that over the next five years MedTech’s will be forced to rethink their role as product manufactures and forced to find new and innovative ways to deliver value in a rapidly evolving healthcare ecosystem. Failure of MedTech’s to accelerate their digital agendas will benefit giant technology companies who have entered the market and well positioned to take advantage of the digital transformation of the 4th Industrial Revolution: characterized by the marriage of physical and digital technologies and an ability to change the nature of work to the extent where a significant proportion of future enterprise value will be predicated upon analytics, artificial intelligence and cognitive computing.

 
Concern # 5: The dearth of millennials
 
An obstacle for MedTech to develop digital strategies and keep up with the pace of innovation is its inability to recruit, develop and retain millennials. This is significant because millennials are “digital natives” and crucial to MedTech’s shift to increase their service offerings.  Millennials have been raised in a digital, media-saturated world and are well positioned to opine on and contribute to digital initiatives. Also, millennials have a natural ability to understand, adopt and implement new technologies, use digital platforms and analyse data, which enable them to make informed decisions.
 
Unlike most C-suite executives, millennials inhabit a world unconstrained by precedent, where processes are digitized, and tasks automated to create seamless offline-to-online experiences. It seems reasonable to assume that with a dearth of such capabilities MedTech will lag other industries in defining and developing positive online interactions. This is important because effective digital strategies involve significantly more than simply providing online customer services. They involve leveraging social media and evolving technologies to create memorable experiences from content to customer support.

Millennials have a distinct ethical orientation and “sense of purpose”, which makes them difficult for traditional MedTech’s to recruit and retain. According to a 2018 survey by Deloitte’s, millennials tend to be pessimistic about the prospects for political and social progress and have concerns about social equality, safety and environmental sustainability. While they believe that business should consider stakeholders’ interests as well as profits, millennials’ perception of employers tend to be that they prioritize the bottom line above workers, society and the environment. This leaves millennials with little sense of loyalty to traditional business enterprises and thereby difficult to recruit and retain. According to Larry Fink, CEO, Black Rock, “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers and the communities in which they operate”.

Given MedTech’s dearth of expertise in digital skills, it might be obliged to develop dedicated teams and processes to source and execute value-added partnerships in a similar way big pharma has.
 

Smartphone penetration driving digitization strategies
 
Digital healthcare strategies are driven by the increased penetration of smartphones and the plummeting costs of wireless communications. Smartphones are powerful multipurpose devices capable of performing a number of tasks beyond their primary purpose of communication. These range from using the mobile’s SMS function to send alerts and reminders, to leveraging inbuilt mobile sensors or apps to capture and interpret clinical data.  Over the past decade, smartphones have fuelled the rapid uptake of internet access and transformed life for developed market consumers in terms of convenience and simplicity. In the US and UK smartphone penetration is about 84% and 80% respectively with the older age groups (55+) recording the highest growth. Smartphones have served an even more pivotal role for emerging market consumers by placing the internet into the hands of millions of consumers. In 2018, 98% of the global population had access to a mobile network with 75% having access to the fast 4th generation networks. Smartphones, together with other wireless technologies, (mHealth), are increasingly used in healthcare by patients, healthcare providers and payers, to improve health outcomes, increase efficiencies and reduce large and escalating healthcare costs. It is anticipated that by 2020, global smartphone subscriptions will be about 6bn and growing rapidly especially in emerging economies such as China, India, Egypt, Turkey, and the United Arab Emirates. In the past three years health apps have doubled and have reached over 140,000. The global mHealth market is expected to grow at a CAGR of 45% over the next six years and reach US$236bn by 2026.
 
 Concern # 6: Healthcare in emerging economies is predicated upon digital strategies
 
The relative high levels of healthcare demand and spending are expected to increase in emerging markets as populations grow, household spending rises and smartphone penetration increases. This is important to MedTech because emerging economies represent about 85% of the world’s population, 90% of which is under 30, and this cohort is expected to grow at three times the rate of the similar cohort in developed economies. Further, over the past decade, the number of high-income households have risen globally by about 30% to nearly 570m, with over 50% of this growth coming from emerging economies in Asia. Asia is comprised of 48 countries and represents roughly 60% of the global population, and its stake in world markets has grown dramatically in the last half-century. Today, Asian countries rank as some of the world’s top producers, which has brought them significant wealth.
 
According to Euromonitor International more than 50% of the world’s (3.6bn) internet users reside in Asia. Between 2013 and 2018, Asia accounted for 60% of new users coming online and the region has become an economic powerhouse, populated by young, digitally savvy consumers.  China is the largest mobile market in the world with close to 1.2bn subscribers. Significantly, in 2018, China’s rate of growth in mobile internet penetration reached 58% and the number of smartphone connections surpassed 1bn. Similarly, in India, the number of smartphone users is expected to double to 859m by 2022 from 468m in 2017; growing at a compound annual growth rate (CAGR) of 12.9% and expected to reach 859m by 2022.
 
Digitized services are replacing traditional distributors in China
 
Western MedTech operations in China have tended to replicate the Western commercial model, which relies heavily on distributor networks. But this is changing.
 
China has a land mass similar to that of the US and a population 1.4bn organised by 34 provincial administrative units, which are comprised of 23 provinces, four municipalities, five autonomous regions and two special administrative regions. Healthcare in China consists of both public and private medical institutions and insurance programs. About 95% of the population has at least basic health insurance coverage and is served by over 31,000 hospitals, primary care is patchy and there is a shortage of doctors.  Because of China’s large number of dispersed healthcare providers, traditional distribution models employed by western MedTech companies tend to be inefficient and costly.
 
In recent years, MedTech’s operating in China, supported by Beijing policy makers, have been gaining back control over customers from distributors. The reason for this is because, in the vast bureaucratic Chinese healthcare system, distributors evolved far beyond their core capabilities and controlled most commercial activities. For instance, the value Chinese distributors capture, as opposed to manufacturers, is disproportionately high and has led to restrictive policies. This has caught the attention of  policy makers who are seeking to correct these practices by promoting direct to customer digitized healthcare services. Beijing is minded that effective healthcare services for the nation’s vast and dispersed population cannot be achieved with traditional healthcare delivery models and has to be predicated upon appropriate digitized direct-to-customer operations. Similarly, this is true of other large emerging economies, particularly India.
 
The future is Asia and digitization
 
The reason we suggest that digitization is likely to help MedTech’s increase their market share in China is because digitization has become an essential part of everyday life in China including mobile payments, online-to-offline services, the sharing economy, smart retail, digital ID cards and healthcare services. WeDoctor and WeChat, are at the centre of this digitized society and only show signs of increasing their influence over Chinese healthcare and lifestyle.

WeDoctor is just one example of several Chinese start-ups that has leveraged data and digital strategies to re-engineer the nation’s healthcare system. Founded in 2010, the company has grown into a US$6bn enterprise and not only has increased access to healthcare, improved diagnoses, enhanced patient outcomes and lowered costs, but has disintermediated traditional distributors by simplifying and centralizing the procurement processes of medical devices.
 
It is sometimes hard for people based outside of China to grasp just how fully digitized Chinese society has become. WeChat, known in China as Weixin, is a multi-purpose messaging, social media and mobile payment app first released in 2011. By 2018 it had become one of the world's largest standalone mobile super-apps and controls life in modern China. For most Chinese citizens, especially those living in cities, it is possible to get through an entire day using WeChat for your every need. Millions of businesses have chosen to create mini-apps within WeChat instead of developing their own standalone apps. These allow businesses to send promotional messages directly to their customers via WeChat, as well as tap into the WeChat’s broader user base. With 1bn active monthly users, WeChat has reached the ceiling of its growth within China and its future will be about developing more services, which includes connecting people to businesses and products offerings.
 
Takeaways
 
Over the past decade, while the MedTech industry has increased its asset value, leaders focussed on, (i) short-term growth, (ii) portfolio optimization and (iii) returning cash to shareholders. Also, they allowed R&D to stagnate and were slow to appreciate the strategic significance of digitization. Data and smart analytics are positioned to play an increasing role in future MedTech growth and value creation. They are the key to creating new and innovative service offerings for healthcare providers, patients and payers and critical to MedTech increasing its share in large fast-growing emerging markets. Future  MedTech leaders will be required to leverage both physical and digital assets. Significantly, they will need to enhance the efficiency of legacy manufacturing systems while developing and marketing new innovative offerings derived from data and smart analytics.
 
Postscriptum
 
A concern not mentioned in the above discussion is ‘recession, which although mooted since the sharp fall in markets in December 2018 has not materialized. Indeed, the S&P 500 continues to rally, rising from 2,351 in 24th December 2018, to 3,026 in 26th July 2019. However, a reason for bullish US stock markets is low interest rates: the lower the interest rate, the higher the multiple the market applies to earnings. One indicator of recession is the J.P. Morgan Global Manufacturing Purchasing Managers’ Index (PMI), which has been declining since January 2018. In May 2019, it fell below 50, which is the number that suggests a recession has started. Another indicator of a recession is the yield curve, which is a chart showing the interest rate paid on bonds of different maturity. As a forecasting tool, the difference between long- and short-term interest rates has proved to be a reliable indicator of future recessions. Currently, the difference between the yield on the US 10-year bond and the US 3-month T-Bill is negative. This means the yield curve is inverted, which indicates recession. However, the yield curve is only an indicator of a recession and is neither definitive nor causal.
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  • People are living longer, the prevalence of age-related degenerative disc disease is increasing and sufferers are more and more turning to spinal implant surgery as a solution
  • As this significantly raises the burden on over-stretched healthcare systems, so is spine surgery increasingly becoming a key target for cost reduction within healthcare systems
  • This intensifies the pressure on manufacturers to innovate and make spinal implants more cost effective

Can 3D printing and the use of new alloys reduce the high costs of producing and marketing spinal implants?
 
On January 8th 2019 surgeons at Joseph Spinea specialist surgery centre based in Tampa Bay Florida, were the first in the US to implant a 3D printed interbody fusion device, which was produced  by Osseus Fusion SystemsThe company uses its proprietary 3D printing technology, also known as additive manufacturing,  to build spinal implants from titanium material that is optimized for bone fusion and biological fixation. In August 2018, a suite of Osseus’s devices received clearance from the US Food and Drug Administration (FDA) for a  range of heights and lordotic (inward spinal curvature) angles, which make them adaptable for a variety of patient anatomies. The interbody fusion devices work by being packed with biomaterials and bone grafts and inserted in between two vertebrae, where they fuse with the spine and work to prevent back pain.
 
In this Commentary
 
This Commentary explores whether 3D printing and the use of new alloys could be an appropriate strategy to help spine companies reduce  their production and sales costs and enhance their market positions. Our suggestions here complement a strategy, described in a previous Commentary, for MedTech companies to develop and implement digital strategies to enhance their go-to-market activities, strengthen the value propositions of products and services and streamline internal processes. The reasons spine companies might consider both strategies are because spinal implant markets, which are segmented  by type of surgery, product and geography, are experiencing significant competitive, regulatory, pricing and technological challenges as well as mounting consumer pressure for improved outcomes; and the business model, which served as an accelerator of their financial success over the past decade is unlikely to be effective over the next decade.
 
3D printing
3D printing is a process, which creates a three-dimensional (3D) object by building successive layers of raw material. Each new layer is attached to the previous one until the object is complete. In the healthcare industry, 3D printing is used in a wide range of applications, such as producing dental crowns and bridges; developing prototypes; and manufacturing surgical guides and hearing aid devices. Increasingly, 3D printing is being used for the production of spinal implants.

 
Spine surgery increasing significantly
 
An estimated US$90bn is spent each year in the US on the diagnosis and management of low back pain (LBP). LBP, caused by age related degenerative disc disease, is one of the most common and widespread public health challenges facing the industrialized world. It is estimated that the condition affects over 80% of the global population and inflicts a heavy and escalating burden on healthcare systems. Also, LBP affects  economies more generally in terms of lost production due to absenteeism, early retirement and the psychosocial impact caused by the withdrawal of otherwise active people from their daily activities. According to the American Association of Neurological Surgeons, more than 65m Americans suffer from LBP annually and the Chicago Institute of Neurosurgery and Neuroresearch suggests that by the age of fifty, 85% of the US population is likely to show evidence of disc degeneration. It is estimated that 10% of all cases of LBP will develop chronic back pain, which is one of the main reasons for people to seek surgical solutions and this significantly raises the burden on over-stretched healthcare systems.
 
Findings of a study published in the March 2019 edition of Spine, entitled, “Trends in Lumbar Fusion Procedure Rates and Associated Hospital Costs for Degenerative Spinal Diseases in the United States 2004 to 2015”, report that the rate of elective lumbar fusion surgeries in the US has increased substantially over the past decade. Such trends are indicative of most advanced industrial societies, which  are changing and ageing, primarily driven by improvements in life expectancy and by a decrease in fertility. This results in people living longer, reaching older ages and having fewer children later in life. Over the next decade, these market drivers are expected to make spine surgery a key target for cost reduction within healthcare systems and this, in turn, is likely to increase pressure on manufacturers of spinal implants to make spine surgery more cost effective.

 

The first surgery using a 3D printed spinal implant
 
The first surgery to implant a 3D printed interbody fusion device was carried out in China in August 2014, when surgeon Liu Zhongjun from Peking University Hospital successfully implanted an artificial 3D printed vertebra into a 12-year-old bone cancer patient to help him walk again. Liu first removed a tumour located in the second vertebra of the boy's neck before replacing it with the 3D printed implant between the first and third vertebrae to allow him to lift his head. “The customized 3D printed technology made the disc replacement stronger and more convenient than normal procedures”, said Liu.

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Age of the aged and low back pain
 
In July 2017, a team of doctors, led by Xiao Jianru, Professor of Orthopaedic Surgery at Shanghai Changzheng Hospital, China, treated a 28-year-old woman with a massive, rare neck tumour, by giving her a 3D printed spine. The patient had to have six consecutive cervical vertebrae replaced because they had been affected by the cancer, which was challenging to treat with chemotherapy. Cervical vertebrae, seven in total, which form your spine column in the neck are the most delicate bones in your body. The patient was discharged from the hospital after the operation. Reports suggest that she was able to walk, but had some difficulties turning her head.
 
First US company to receive FDA approval for 3D printed spinal implants
 
The first US  company to receive a 510(k) FDA approval for a 3D printed spinal implant was 4WEB Medical, in 2012. The company was founded in 2008 and since then has become a leader in 3D printed implant technology. Following FDA clearance, the company launched its proprietary and patented Truss Implant platform, which features a unique open architecture that allows for up to 75% of the implant to be filled with graft material and includes an anterior spine Truss System, a cervical spine Truss System, an osteotomy Truss System and a posterior spine Truss System. In April 2018,  at the annual meeting of the International Society for the Advancement of Spine Surgery (ISASS) 4Web announced that it has surpassed 30,000 implants worldwide of its proprietary Truss Implant Technology.
 
There is a plethora of established MedTech companies entering the 3D printing spinal implant market, which include Stryker, K2M, DePuy Synthes, Camber Spine, CoreLink, Medicrea, Renovis, NuVasive and Zimmer Biomet. With Stryker’s acquisition of K2M and DePuy Synthes’ acquisition of Emerging Implant Technologies GmbH (EIT), both in September 2018, the market for 3D printed spinal implants is positioned to grow rapidly over the next few years.
 
Increasing FDA approvals for 3D printed spinal implants
 
Significantly, spinal implants have become one of the most common cases of the FDA-cleared 3D printed medical devices. For instance, in 2018 Zimmer Biomet received FDA clearance for the company’s first 3D printed titanium spinal implantEIT received FDA approval in 2018 for its 3D printed multilevel cervical cage, which can treat multiple injuries in both the middle and top parts of the spine. Centinel Spine Inc, a US company based in Pennsylvania, which develops, manufactures and markets spinal devices used to treat degenerative disc disease, also received FDA clearance in 2018 for its 3D printed spinal implants called FLX devices, which are titanium fusion implants that work to stabilize vertebrae from the front of the spine in order to increase the healing process for patients.

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MedTech must digitize to remain relevant

 
3D printing medical devices market
 
The 3D printing medical devices market is projected to grow at a CAGR of 17.5% and reach US$2bn by 2022. Currently, the market is dominated by North America, followed by Europe, Asia Pacific and the rest of the world. Over the next decade, the Asia Pacific 3D printing medical devices market is expected to grow at the highest CAGR. Emerging markets are attractive for spine companies as they have large patient populations, which are growing fast, rising government healthcare expenditure, vast and rapidly increasing middle classes, rising income levels and rising obesity cases.
One example is India, with a middle class about twice the size of the US population, an economy growing at a rate of 7% year-on-year and a pro-business Prime Minister who has established himself as the country’s most formidable politician in decades and is committed to increasing healthcare spending. According to the World Bank’s March 2018 India Development Update the GDP of India had surpassed that of France and was on track to overtake the UK economy to make India the 5th largest economy in the world. Significantly, India’s GDP per capita has reached US$2,000, which is generally recognised by economists as a “tipping point”: when a country’s economic prospects improve, peoples’ confidence increases, and investment momentum remains at a desirable level for a long period. For instance, when the GDP per capita of China and South Korea reached US$2,000 their respective economies witnessed more than a decade of high growth with an average growth rate of about 10%. India appears to be on the cusp of something similar.
 
3D printing's competitive advantages
 
3D printing, although in its infancy, has the capacity to manufacture products of any complexity anywhere, at any time, which gives it a significant competitive-advantage over traditional manufacturing. Further, 3D printing is cheaper and quicker than traditional production methods because there is less machine, material, labour and inventory costs and less materials' waste. Complex designs can be created as a computer added design (CAD) model and then transformed into a reality in just a few hours. By contrast, traditional manufacturing methods can take weeks or even months to go from the design stage to a prototype and then onto the production process. Also, 3D printing is cost-effective in low production quantities and more environmentally friendly as the place of manufacture can be the same as the place of the product’s application.

The benefits of 3D printing specifically for spinal surgery include; (i) implants can be shaped to custom-fit patients, (ii) porosity and pore size can be personalized to a specific patient’s bone quality, which may improve integration. But perhaps the most significant potential advantage is bioprinting, where cells, growth factors and biomaterials are used to create living tissue.

 
Thinking beyond traditional metals used for spinal implants
 
Some spine companies are complementing their 3D printing endeavours by experimenting with new and stronger alloys. For the past two decades metals used for spinal implants have been mostly composed of cobalt chrome, titanium and stainless steel. The physical properties of these have prevented producers to reduce the size of spinal implants. But this is changing with the introduction of new alloys such as molybdenum-rhenium (MoRe), which is stronger than the traditional metals used for spine implants and has the potential to use less metal to achieve stronger, more durable constructs, while allowing for smaller sized products.

Already, MoRe is used for stents in cardiology and findings of a small animal study presented at the 2018 North American Spine Society meeting in Los Angeles suggested that MoRe is significantly more hydrophilic (having strong affinity to water) and therefore friendlier to bone when compared with cobalt chrome, titanium and stainless steel. This suggests MoRe might provide smaller rods with smaller pedicle screw heads, which decrease the prevalence of protruding, painful hardware in patients with wasting of the body due to severe chronic illness. Further, smaller spinal implants would be beneficial in minimally invasive spine surgery.

Another added benefit of MoRe is that it potentially decreases biofilm formations, which are typically caused by chronic medical device-related infections and allergenicity when compared to the traditional metals used in spine surgery. Bacteria are tougher to kill when they attach to the surface of a spinal implant, even before they form a biofilm. Research findings published in the December 2018 edition of Heliyon draws attention to the prevalence of the  antibiotic-resistant nature of bacterial biofilm infections on implantable medical devices and describes current state-of-the-art therapeutic approaches for preventing and treating biofilms. As the range of materials for spinal implants with improved biocompatibility, biodegradability and load bearing properties increase, so are biofilm infections expected to decrease.

 
Takeaways
 
Spine surgery is positioned to become a key target for cost reduction within healthcare systems over the next decade. This is because low back pain, caused by age related degenerative disc disease, is a common condition affecting most individuals at some point in their lives and increasingly people are turning to surgical solutions. As a consequence, we can expect increased pressure on stakeholders, including spinal implant manufacturers, to innovate to make spine surgery more cost effective. 3D printing and the use of new alloys, while in their infancy, are possible strategies to reduce the costs of producing spinal implants while improving patient outcomes.
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  • Two Boston Consulting Group studies say MedTech innovation productivity is in decline
  • A history of strong growth and healthy margins render MedTechs slow to change their outdated business model
  • The MedTech sector is rapidly shifting from production to solutions
  • The dynamics of MedTechs' customer supply chain is changing significantly and MedTech manufacturers are no longer in control
  • Consolidation among buyers - hospitals and group purchasing organisations (GPO) - adds downward pressure on prices
  • Independent distributors have assumed marketing, customer support and education roles
  • GPOs have raised their fees and are struggling to change their model based on aggregate volume
  • Digitally savvy new entrants are reinventing how healthcare providers and suppliers work together
  • Amazon’s B2B Health Services is positioned to disrupt MedTechs, GPOs and distributors 
  • MedTech manufacturers need to enhance their digitization strategies to remain relevant
 
MedTech must digitize to remain relevant
 
MedTech companies need to accelerate their digital strategies and integrate digital solutions into their principal business plans if they are to maintain and enhance their position in an increasingly solution orientated healthcare ecosystem. With growing focus on healthcare value and outcomes and continued cost pressures, MedTechs need to get the most from their current portfolios to drive profitability. An area where significant improvements might be made in the short term is in MedTechs' customer facing supply chains. To achieve this, manufacturing companies need to make digitization and advanced analytics a central plank of their strategies.
 
In this Commentary
 
This Commentary describes the necessity for MedTechs to enhance their digitization strategies, which are increasingly relevant, as MedTech companies shift from production to solution orientated entities. In a previous Commentary we argued that MedTechs history of strong growth and healthy margins make them slow to change and implement digital strategies. Here we suggest that the business model, which served to accelerate MedTechs' financial success over the past decade is becoming less effective and device manufacturers need not only to generate value from the sale of their product offerings, but also from data their devices produce so they can create high quality affordable healthcare solutions. This we argue will require MedTechs developing  innovative strategies associated with significantly increasing their use of digital technology to enhance go-to-market activities, strengthen value propositions of products and services and streamline internal processes.
 
MedTechs operate with an outdated commercial model
 
Our discussion of digitization draws on two international benchmarking studies undertaken by the Boston Consulting Group (BCG). The first,  published in July 2013 and entitled, “Fixing the MedTech Commercial  Model: Still Deploying ‘Milkmen’ in a Megastore World” suggests that the high gross margins that MedTech companies enjoy, particularly in the US, hide unsustainable high costs and underdeveloped commercial skills. According to BCG the average MedTech company’s selling, general and administrative (SG&A) expenses - measured as a percentage of the cost of goods sold -  is 3.5 times higher than the average comparable technology company. The study concludes that MedTechs' outdated business model, dubbed the “milkman”, will have to change for companies to survive. 
 
BCG’s follow-up 2017 study
 
In 2017 BCG published a follow-up study entitled, “Moving Beyond the ‘Milkman’ Model in MedTech”, which surveyed some 6,000 employees and benchmarked financial and organizational data from 100 MedTech companies worldwide, including nine of the 10 largest companies in the sector. The study suggested that although there continued to be downward pressure on device prices, changes in buying processes and shrinking gross margins, few MedTech companies “have taken the bold moves required to create a leaner commercial model”.
 
According to the BCG’s 2017 study, “Overall, innovation productivity [in the MedTech sector] is in decline. In some product categories, low-cost competitors - including those from emerging markets - have grown rapidly and taken market share from established competitors. At the same time, purchasers are becoming more insistent on real-world evidence that premium medical devices create value by improving patient outcomes and reducing the total costs of care”. The growth and spread of value-based healthcare has shifted the basis of competition beyond products, “toward more comprehensive value propositions and solutions that address the entire patient pathway”. In this environment, MedTechs have no choice but to use data to deliver improved outcomes and a better customer experience for patients, healthcare providers and payers.
 
MedTech distributors increasing their market power and influence
 
Although supply chain costs tend to be MedTechs' second-highest expense after labour, companies  have been reluctant to employ digital strategies to reduce expenses and increase efficiencies. As a consequence, their customer supply chains tend to be labour intensive relationship driven with little effective sharing of data between different territories and sales teams. Customer relations are disaggregated with only modest attention paid to patients and payors and insufficient emphasis on systematically collecting, storing and analysing  data to support value outcomes.   
As MedTech manufacturers have been slow to develop strong and effective data strategies, so MedTech distributors have increased their bargaining power through M&As and internationalisation. Some distributors have even assumed marketing, customer support and education roles, while others have launched their own brands. MedTechs' response to these changes has been to increase their direct sales representatives. However, consolidation among buyers - hospitals and GPOs -  and the extra downward pressure this puts on prices, is likely to make it increasingly costly for MedTechs to sustain large permanent sales forces. 

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Advantages of distributors but no way to accurately measure sales performance

Notwithstanding, the distributor model is still common with MedTechs and has been successful in many markets for a long time. Independent distributors are often used when producers have small product portfolios. In smaller markets, distributors are employed primarily to gain economies of scale as they can combine portfolios of multiple companies to create a critical mass opportunity and  obtain better and faster access to markets.
 
MedTechs have a history of investing in sales force effectiveness (SFE) typically to increase the productivity of sales representatives. Sales leaders have some indication that this pays-off through incremental revenue growth and profits, but they struggle to assess the true performance of such investments not least because SFE includes a broad range of activities and also it is almost impossible to obtain comparative competitor data.
 
Changing nature of GPOs
 
GPOs also have changed. Originally, they were designed in the early 20th century to bring value to hospitals and healthcare systems by aggregating demand and negotiating lower prices among suppliers. Recently however they have raised their fees, invested in data repositories and analytics and have been driving their models and market position beyond contracting to more holistic management of the supply chain dynamics. Notwithstanding, many GPOs are struggling to change their model based on aggregate volume and are losing purchasing volume amid increasing competition and shifting preferences.
 
New entrants
The changing nature of MedTechs' customer supply chain and purchasers increasingly becoming concerned about inflated GPOs' prices have provided an opportunity for data savvy new entrants such as OpenMarketsThe companyprovides healthcare supply chain software that stabilizes the equipment valuation and cost reduction and aims to reinvent how healthcare providers and suppliers work together to improve the way healthcare equipment is bought and sold. OpenMarkets’ enhanced data management systems allow providers to better understand what they need to buy and when. The company represents over 4,000 healthcare facilities and more that 125 equipment suppliers; and provides a platform for over 32,000 products, which on average sell for about 12% less than comparable offerings. In addition, OpenMarkets promotes cost efficiency and price transparency as well as stronger collaboration between providers and suppliers.
 
Amazon’s B2B Health Services
 
But potentially the biggest threat to MedTech manufacturers, GPOs and distributors  is Amazon’s B2B Health Services, which is putting even more pressure on MedTechs to rethink their traditional business models and to work differently with healthcare providers and consumers. With a supply chain in place, a history of disrupting established sectors from publishing to food and a US$966bn market cap, Amazon is well positioned to disrupt healthcare supply chain practices, including contracting. In its first year Amazon’s B2B purchasing venture generated more than US$1bn and introduced three business verticals: healthcare, education and government. Already, hundreds of thousands of medical products are available on Amazon Business, from hand sanitizers to biopsy forceps. According to Chris Holt, Amazon’s B2B Health Services program leader, “there is a needed shift from an old, inefficient supply chain model that runs on physical contracts with distributors and manufacturers to Amazon's marketplace model”.

If you look at the way a hospital system or a medical device company cuts purchase orders, identifies suppliers, shops for products, or negotiates terms and conditions, much of that has been constrained by what their information systems can do. I think that has really boxed in the way that companies’ function. Modern business and the millennials coming into the workplace, can’t operate in the old way,” says Holt.

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Millennials are used to going to Amazon and quickly finding anything they need; even the most obscure items. According to Holt, “A real example is somebody who wants to find peanut butter that is gluten-free, non-GMO, organic, crunchy and in a certain size. And they want to find it in three to five clicks. That’s the mentality of millennial buyers at home, and they want to be able to do the same things at work. . . . The shift from offline traditional methods to online purchasing is very significant. It is our belief that the online channel is going to be the primary marketplace for even the most premium of medical devices in the future. That trend is already proven by data. So, we’ve created a dedicated team within Amazon Business to enable medical product suppliers to be visible and participate in that channel.
MedTechs fight back
 
According to the two BCG reports, MedTech companies can fight back by using digital technologies to strengthen and improve their go-to-market activities. This, according to BCG, would enhance MedTechs' connectivity with their customers and help them to learn more about their needs. Indeed, employing digitization to improve customer-facing activities could help standardise order, payment and after-sales service behaviour by defining and standardizing terms and conditions. This could provide the basis to help MedTechs increase their access to a range of customers - clinicians, institutions, insurers and patients - and assist them to tailor their engagements to the personal preferences of providers and purchasers. This could provide customers with access to product and service information at anytime, anywhere and could form the basis to implement broader digitalized distribution management improvements, which focus on value-based affordable healthcare in the face of escalating healthcare costs and variable patient outcomes.
 
Predictive models
 
Many companies use predictive-modelling tools to forecast demand and geo-analytics to speed delivery and reduce inventories. Online platforms provide customers with an easy way to order products and services, transparently follow their shipping status and return products when necessary. Barcodes and radio-frequency identification (RFID) chips, which use electromagnetic fields to automatically identify and track tags that contain electronically stored information attached to products, help customers track orders, request replenishments and manage consignment stock.
 
Back-office improvements
 
Further, the 2017 BCG study suggests that MedTechs only have made limited progress in improving their back-office operations. Many manufacturers  have more employees in their back offices than they do in their customer-facing functions and fail to leverage economies of scale. There is a significant opportunity for MedTechs to employ digital strategies to enhance the management of their back-office functions, including centralizing certain activities that are currently conducted in multiple individual countries.
 
Takeaway
 
For the past decade MedTech manufactures have been slow to transform their strategies and business models and still have been commercially successful. Some MedTech companies are incorporating digital capabilities into their products by connecting them to the Internet of Things (IoT), which potentially facilitate continuous disease monitoring and management. Notwithstanding, such efforts tend to be isolated endeavours - “one-offs” - and are not fully integrated into companies’ main strategies. This could run the risk of MedTech executives kidding themselves that they are embracing digitization while underinvesting in digital technologies. The two BCG studies represent a significant warning since digitization is positioned to bring a step-change to the MedTech sector, which potentially could wound successful manufacturers if they do not change.
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