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What Does it Take to Innovate?

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.