What Does it Take to Innovate?

Ken-Gall web Lee Hunter_web Jeff-Marx web Matityahu-Head-shot-web

Ken Gall, Ph.D.

Lee Hunter, M.D.

Jeffrey Marx, Ph.D.

Amir Matityahu, M.D.

Founder & CTO
MedShape 

Founder
Hunter Medical 

President & CEO
Cerapedics 

Founder & CEO
Epix Orthopaedics 


Orthopaedic device manufacturers are often called upon by surgeons to develop new devices that transform care—to improve surgeon techniques, hospital efficiencies and patients’ lives. In the face of widespread industry challenges, such as price pressures and regulatory roadblocks, product innovation lags.

BONEZONE spoke to four executives and surgeons about the need, cost and obstacles for innovation.

“Innovation does not always lead to short-term sales impact, so most companies are afraid to invest in it,” says Ken Gall, Ph.D., Founder & CTO of MedShape. “But even without premium pricing strategies, product innovation is necessary to stay competitive long-term. Companies that do not innovate will eventually lose market share to innovative companies, especially since emerging new technologies do not always force premium pricing, but can sometimes bring new product function without additional per-unit costs. Resourcing for product innovation in startups or large companies comes from risk capital, money that is invested for longer term gain vs. short-term earnings.”

Innovation can be seen as a double-edged sword. Lack of innovation, especially in mid- and-small-tier players, can hinder companies’ negotiating power with hospitals. True innovation saddles companies with upfront costs in the hopes of greater adoption and return. All products are undergoing cost scrutiny by hospitals and payors.

However some in the industry, including surgeons, have questioned whether the need for more innovative products exists due to the cost to hospitals and time required by surgeons to learn how to use new devices. This applies to the more mature market segments, such as hip, knee and trauma.

In developing products, all companies need to determine the payoff to innovate. What will and won’t hospitals pay for today? What are surgeons looking for?

“Physicians and hospitals are getting frustrated by the cost of implants and devices,” says Lee Hunter, M.D., an orthopaedic hand, elbow and shoulder surgeon and Founder of Hunter Medical. “So much of what we use regularly is off-patent. Often times, companies will roll out a device that is similar to what is on the market now. They’ll put out a new ad campaign and charge a premium of 20 percent more than their generation implant just two years ago. People have started to look at that and demand more. The price of an implant has never correlated with functional outcome of a patient, for any device. The $300 suture anchor has never been shown and will never be shown to provide any better functional outcome than the standard $100 suture anchor. You’re going to see a lot of hospitals, as their budgets get squeezed tighter, push that more and resist some of these pricing increases for standard technology devices.”

Hunter founded his company in 2013 with the goal of providing solutions for unanswered problems in orthopaedic surgery. His product, the ElbowLOC® Arm Positioning System, simplifies elbow surgery for the surgeon, OR staff and patient by enabling improved supine or lateral patient positioning.

He continually calls on industry to be more innovative.

“There’s a tremendous amount of clever device marketing campaigns out there, but not much true innovation,” he says. “We can do better.”

Hunter considers distal radius plates, all-inside arthroscopic meniscal repairs and the favorable pricing for off-patent or generic devices to be innovative.


In a highly regulated, cost conscious industry, the roadmap to innovation is just as important as the type of innovation itself. Companies large and small need to do the following to successfully meet market expectations: allocate money, leverage data and consult FDA.

Allocate Financial Resources

Orthopaedic innovation routinely comes from small companies, a trend that is expected to continue. However, changes in investor behavior have facilitated less innovation, because there is a lack of capital to get products through regulatory and clinical challenges and into the market.

Amir Matityahu, M.D., Founder and CEO of Epix Orthopaedics, notes the following trends in funding that have led to a lack of innovation. One is little venture capital money. Two, the available venture capital money is expensive. Three, angel investors are acting like venture capitalists, but are less likely to take risks than they were 15 years ago, due to financial pressure and FDA’s conservatism.

So, just how much does it take?

“Some 510(k)s can be done with just bench testing or mechanical testing, and in some instances can be done (excluding development and prototyping costs) for thousands to tens of thousands of dollars,” says Jeffrey Marx, Ph.D., President and COO of Cerapedics. “Most of the 510(k) products I’ve been involved in required some level of animal studies. Some were reasonably complicated, requiring more than one animal study. In those cases sometimes we would spend $200,000 on all the animal testing, then biocompatibility testing – at the high-end – is another $80,000. You could be pushing upwards of maybe $0.5 million in total investment for a 510(k) product that requires mechanical and animal testing. As soon as you’re talking about human clinical trials, particularly if they’re on the level of an IDE, you’re jumping into an entirely different stratosphere. The typical orthopaedic IDEs are usually somewhere in the 300 to 500 patient range, and total cost is a large function of length of follow-up, whether additional radiology needs to be done, etc. A reasonable ballpark number is in the $15 million to $35 million range to run an IDE clinical study. The way I look at it, it’s hard to describe something as being innovative if it didn’t require at least a clinical trial.”

Having the ability to show investors that a product has value, paired with a strong sales proposition to illustrate how it will gain traction in the market, can help alleviate some of these challenges.

The larger OEMs are foregoing an increase in R&D spending, instead making incremental changes and allowing startups to take on innovation, which is more easily facilitated by their structure and nimbleness. Innovation is rolling over to larger companies by way of acquisition, and money is being spent on products proven in the market. This is recently evidenced by Smith & Nephew’s acquisition of Blue Belt Technologies or K2M’s acquisition of KSpine.

“In the big companies, by virtue of the way they’re managed (divisional presidents are measured quarter to quarter based on revenue performance, and their managers are measured the same), it’s challenging to engage in longer-term, riskier and more innovative processes,” Marx says. “The big companies tend to have smaller iterations, and the bigger leaps in innovation are more likely to come from smaller companies.”

Also, the larger companies tend to have greater inventory, thus making it harder to roll out newer, more novel technologies.


“You can imagine that the larger companies basically play defense,” Matityahu says. “If you think about the corporate culture in large companies, you’re not going to be innovating so much that you have to get rid of a huge inventory already on the field. If I have a product in the field and then have to change what I’m doing, it’s a huge hurdle because I have millions of dollars in inventory and millions of dollars of teaching – there is so much out there that I need to change. It’s like a big machine that has to change gears.”

Leverage Data

Smaller companies face many hurdles to actually get innovative products into the marketplace.

Seven companies, each with revenues over $1 billion, claim 71 percent of the overall orthopaedic market. This control of the market can affect hospital purchasing behavior based on manpower to feed into distribution and relationships.

“A company that has a full line of products will go to the hospital and say, ‘We’ll sell this to you for less money if you use our products 80 percent of the time,’” Matityahu says. “So when a small company comes in with an innovative product, the hospital is hesitant to allow that company in. Physicians are also relationship-driven. There’s a relationship between the sales rep and the surgeon, because there are so many parts in the operating room that the rep helps with. Small companies don’t have the wherewithal to create this huge network of people who can be in every operating room.”

Matityahu’s company created a variable angle nail (VAN) implant and reduction tool (which will be on the market in 1Q16) that intends to solve two challenges for surgeons: realigning the bone into an anatomical location out of varus and placing the lag screw that goes up in the femoral head in the right position. He says that solving these challenges for surgeons will differentiate this company in the marketplace, despite its small size.

Further, to overcome sales and distribution challenges, new solutions must demonstrate to value analysis committees that they improve upon current products in the market and ultimately, better serve the surgeon and patient. A product that saves the hospital personnel time, OR cycle time or patient length of stay will sell, Hunter says.

Clinical and economic data that demonstrates a proven benefit to patients and surgeons in the form of clinical outcomes can further differentiate your product.


“True innovation deserves a higher price point and completely separates that product from the other things coming under price pressure,” Marx says. “One of the primary reasons that price pressure has become such a theme in orthopaedics is that most of the products are pretty much interchangeable. Clinical outcomes from one company’s knee or hip to another are not really measurably different. For that reason, if the patient outcomes are going to be the same, if the surgeon delivery is going to be the same and the hospital has five to six, or in the case of spine, 50 different options to choose from, it seems reasonable that they should expect to get some price concessions in that environment. When a product has demonstrated superiority to the alternatives, ideally supported by Level I human clinical trials, that’s how you break that cycle. You can’t expect to bring in a product the same as 50 other companies in the hospital and not have the hospital ask for a better price.”

However, because not all regulatory approvals will require clinical research, deciding whether or not to collect clinical data is another consideration.

“When you don’t have to have it for regulatory reasons, you have to be confident that it’s going to provide you leverage in the marketplace,” Marx says. “It’s not clear that will always be the case, depending on the segment and the products you’re competing against. Product cycles are fairly short and if it’s clinical data that you decided is the differentiator, clinical studies take a while to complete and even longer to get published. If that’s what area you’re planning to invest in, you had better decide that upfront and you had better get your machine in motion to get that accomplished. The earlier, the better.”

Consult FDA

Regulatory considerations for innovative products should also begin as early as possible.

“The more innovative a product is, the sooner I would put it in front of FDA,” Gall says. MedShape was founded in 2005 by Gall and a small group of engineers and surgeons, and built upon the need for change and novel ideas, exemplified by the company’s use of proprietary advanced material technologies like Nitinol and manufacturing processes like 3D printing. “FDA has become very scientific with teams of Ph.D.s closely backing up their reviewers. It is the responsibility of companies to do the basic science necessary to back up early submissions beyond the ‘required’ equivalence data. Thus, when we talk to reviewers, we have a deep scientific discussion about the data; this seems to be the best path to get approval on innovative technologies. Exact prediction [of clearance] is difficult, but we always try to assume a year for clearance of a new technology from the initial submission. We stay on track by running ‘extra tests’ that would help with the reviewer discussions during the initial review phase.”

Marx agrees that the process begins early, and the best way to predict your regulatory clearance timeline is to stay engaged with FDA.

After several years of working with FDA, Cerapedics received its PMA for the i-FACTOR™ Peptide Enhanced Bone Graft, the first approval of bone graft for use in the cervical spine and the second PMA-approved bone graft in the spine, in October 2015. The company filed its clinical module in August 2014.


“If you partner with FDA early on, the sooner you understand what they’re looking for to check their boxes and answer their questions, and what questions they’re concerned about and how to answer them,” he says. “The more you can collaborate with them on coming up with the plans to do that, it helps move the process along and gives you better visibility as to what your risk factor is and where you may trip up in the process. That helps you understand what the timing is likely to be.”

Marx also recommends seeking out regulatory consultants.

“Because consultants spend so much time at FDA working with multiple products through multiple pathways, and working with different reviewers at multiple levels within the organization, they have a much better view as to what shifts are going on within FDA,” he says. Whether they are political, resource shortages, etc., that gives you a lot of insight with regard to timing, risks and probability of success.

Defining your value proposition to then incorporate it into your marketing and distribution efforts is also of critical importance during your product’s early stages.

“In any product’s lifecycle, you need to think through upfront the very initiation of the project, what the value proposition is for all of the stakeholders, whether that’s the patient, the surgeon, the hospital and the company, anybody in the distribution chain,” Marx says. “If there are opportunities to create differentiation and you want to consider investing in those to create that differentiation, you need to decide that upfront.”

Ultimately, innovation within a company rests on the company’s culture and passion to innovate, starting from leadership.

“If you don’t have a culture of innovation driven from the top, other cultural forces take over and make it challenging,” Marx says. “I’ve been with big and small organizations and I’ve seen it done well in both, and I’ve seen it done poorly in both. There has to be commitment and drive from senior management down.”


Hannah Corcoran is Editorial & Media Assistant at ORTHOWORLD. She can be reached by This email address is being protected from spambots. You need JavaScript enabled to view it..