A Journal for Industry Executives

Brought to you by

Push for growth in emerging markets like Brazil, Russia, India and China (BRIC).

For some Med-Tech Companies, growth rates in emerging markets are double, triple and in some cases 10-fold those in the US and other developed markets. This trend was clearly evident as I listened to and reviewed transcripts from Q4 2012 earnings calls from Johnson & Johnson, Boston Scientific, and Medtronic.

While emerging markets continue to present significant growth opportunities, how can med-tech companies address the variety of needs and delivery models in these markets, while addressing increasing pricing pressures in developed economies?

To learn key strategies Med-Tech Executives are utilizing to push for growth in BRICs, click on this link to read the complete article.

This is an excerpt from our recently published article in MedicalDeviceSummit.

On this Manufacturing Geek podcast, Daniel R.  Matlis of Axendia, discusses his outlook on the issues and opportunities for Medical Device Manufacturing in 2013.

This podcast includes a discussion on:

• Emerging trends for Medical Device Manufacturers
• How the US and Global economies may impact manufacturing
• How manufacturers can adjust to the Medical Device Excise Tax
• Globalization and outsourcing
• Where medical device makers should focus in 2013

Listen to the podcast in Manufacturing Geek

By Axendia Staff

It has been said that a picture is worth 1000 words, and our research team agrees.  Therefore, we have distilled some of the key findings from our Med-Tech research report into this Info-Graphic. To get a full size version of the Info-Graphic simply click on the image below.

To learn more about this report read Are Med-Tech Companies Walking the Global Tightrope?

To request a copy of this report visit: www.axendia.com/Med-Tech-Report.html

The globalization of design, sourcing, manufacturing, and sales of Medical Technology (Med-Tech) has created opportunities and challenges for the entire ecosystem. As Med-Tech Executives embrace this trend, they need to balance the risks and rewards of globalization.

These are the key findings from a major research survey of 125 Med-Tech Industry Executives representing 89 different companies across 16 countries released today by industry analyst and strategic advisory firm Axendia, Inc. The report is titled: “Walking the Global Tightrope: Balancing the Risks and Rewards of Med-Tech Globalization.”

Industry Executives report that they must contend with three primary macro trends:

• Managing sustainable global growth
• Complying with tightening global regulatory environments
• Supporting changing healthcare delivery models globally

“Nine out of 10 Med-Tech Executives expect very strong growth in the next three years. In this context, Emerging economies represent burgeoning marketplaces, with increased sales rates over those in Developed markets,” said Daniel R. Matlis, President of Axendia. “While Med-Tech companies are poised to capitalize on these opportunities, global expansion has Industry Executives on alert. Nearly 7 out of 10 Executives reported moderate to high risk based on their level of visibility into critical suppliers,” he added.

The research revealed that Industry leaders are most worried about 3 issues:

• The increasing complexity and cost of compliance in a global regulatory requirements
• The ability to ensure the quality of finished products and raw materials around the globe
• The challenge of maintaining consistent standards across an extended network of internal and external sites

Axendia’s survey of 125 Med-Tech Executives around the globe found that:

• 88% expect increased sales in Emerging markets
• 69% expect increased sales in Developed markets
• 65% see the global regulatory environment as the top business threat over the next 3 years
• 72% are globalizing to improve the rate of product innovation
• 59% worry about maintaining consistent quality standards across internal & external sites
• 68% perceive moderate to high risk based on their current visibility into critical suppliers.
• 90% would like access to real time data and on-demand data from Critical Suppliers, Contract Manufacturers and other Tier 1 Suppliers

The top two reasons Med-Tech companies are focused on globalization are:

• Supporting emerging markets with locally produced products (64%)
• Improving the rate of innovation (63%)

The following globalization and outsourcing issues “keep Executives up at night”

• The quality of products, raw materials or services provided (60%)
• The ability to maintain consistent quality standards across internal and external sites (59%)

To mitigate globalization growing pains and attain sustained benefits, the Med-Tech ecosystem, according to Axendia, will need to implement new strategies, processes, and technologies to proactively manage risk across the life-cycle of Med-Tech Products in a global and outsourced environment.

These include the implementation of:

• Holistic control over governance, risk management, and compliance practices
• Enhanced visibility across the Med-Tech ecosystem
• Improved collaboration with all constituents in the ecosystem

To request a copy of this report, please visit www.axendia.com/Med-Tech-Report.html

NOTE TO EDITORS

Detailed findings from this research study as well as charts and graphs of key findings, will be available for your use with proper attribution in a report entitled, “Walking the Global Tightrope: Balancing the Risks and Rewards of Med-Tech Globalization.”

For additional information or to schedule an interview or briefing with the study’s lead researchers, please contact Lisa George via email at lgeorge@axendia.com

Last month, I had the opportunity to meet with Richard W. Smith, Managing Director - Life Sciences and Specialty Services at FedEx.  During our meeting in NYC, we focused our discussion on FedEx’s strategic initiatives in supporting the increasing globalization of the Life Sciences industry.

Smith has a deep understanding of the valuable role logistics serve in our increasingly global and outsourced ecosystem, and he should.  He literally grew up with the business; the son of FedEx founder Frederick W. Smith.

“Customers are counting on FedEx to provide stable and predictable environmental temperatures from pickup to final delivery; otherwise shipments can freeze or overheat,” said Smith.  The largest segment of pharmaceutical product from a temperature standpoint is bulk drugs in Controlled Room Temperature (CRT) ranging from 15-25°C.

“For these shipments, especially for generics, the manufacturers or distributors are often very price conscious and do not want to incur the added cost of using expensive temp-control packing materials or specialized containers,” said Smith.  ”Instead they often opt to ship on days where the temperature is mild at origin and destination and hope that they won’t get any temperature excursions in transit,” he added.

Smith shared some real life examples of how FedEx addressed the challenges of Pharma CRT shipments:

“A large pharmaceutical company was relying on freight forwarders to transport its generic drugs that need to be protected from extreme ambient temperature fluctuations.  The company was relying on costly leased temperature controlled containers en route from India to the U.S.

Even with these measures, the pharmaceutical manufacturer was experiencing product spoilage when transit delays occurred and the temperature deviated from the CRT range. Additionally, the pallets of temperature-sensitive freight were often exposed to the outside elements and left unprotected from direct sunlight and temperature fluctuations. The company needed a more reliable, economical temperature-controlled transportation solution.

To address the issue, FedEx teamed up with AmSafe to design a thermal blanket to shield the customer’s freight from extreme temperatures and weather conditions, including rain and snow - from the origin warehouse all the way to final delivery.  Additionally, the turn-key solution includes end-to-end shipment management - without the extra management fees and customs charges that the shipper paid to freight forwarders since FedEx owns the thermal blankets. And because the cargo is transported via the FedEx Express® network on FedEx planes, transit times have also been reduced.

Combining the AmSafe thermal blanket with round-the-clock support from a dedicated team of FedEx customer service agents, shipment-status tracking capabilities and stringent operational recovery procedures, FedEx has provided the manufacturer with a cost-effective solution for keeping time-sensitive freight safe from temperature fluctuations.”

But the company didn’t stop there.  To ensure that the product CRT conditions are maintained in transits, FedEx conducted extensive temperature mapping studies to determine the appropriate default temperature settings on its Boeing 777 aircraft.

“Based on these studies, FedEx has implemented procedures to maintain temperatures on board its new B777 aircraft remain within the CRT range during flights.  So now cold chain shippers can plan accordingly with a great degree of confidence knowing that their products will be cool on the ground and in flight,” he concluded.

Richard Smith has a deep understanding of the valuable role logistics serve in connecting people and goods and creating economic growth. As the son of FedEx founder Frederick W. Smith, he literally grew up with the business watching FedEx evolve from an express shipping company to a worldwide portfolio of services. In his role as Managing Director of Life Sciences & Specialty Services, Smith provides strategic direction for developing customized logistics and supporting specialized services.

In 1966 the Star Trek television series introduced us to the Medical Tricorder - a hand held device used by doctors to diagnose diseases and collect vital medical information about a patient.   Forty-five years later this object of an active imagination may in fact become reality.

The X PRIZE Foundation and Qualcomm Foundation recently announced the Qualcomm Tricorder X Prize - a $10 million global competition to develop devices that will give consumers access to their state of health by using mobile technology.  Some of the technology needed to meet this goal has already been developed.

I recently had the opportunity to chat with Rick Valencia, VP and GM of Qualcomm Life about the Tricorder X Prize, Qualcomm Life’s 2net^TM Platform and its impact on Healthcare.

“Up to 90% of health care spending today goes to managing chronic diseases,” commented Valencia.   There is a shift to a new model of health care delivery based on Accountable Care Organizations (ACOs).  The ACO mission is to keep patients healthier (and out of hospitals) through coordinated care.  Mobile communication devices play an important role in supporting this shift and making this goal more realistic.  “Hospital readmissions are a $25B problem in this country,” added Rick - enabling mobile devices to transmit medical data to health care practitioners on a periodic basis would enable early intervention.   Lower readmission costs will enable the market to support transformation to new health care models.

“Qualcomm’s 2net Platform and Hub were developed to be used in connection with wireless medical devices to support this transformation, “Rick stated.  It is important to note that both the 2net Platform and Hub are listed with the FDA as Class I Medical Device Data Systems (MDDS), which makes Qualcomm a medical device manufacturer.  The 2net Platform allows medical devices to connect via USB, Bluetooth or Wi-Fi to so that their data can be available across the continuum of care - an issue with managing chronic diseases.

“The beauty of the 2net ecosystem is that it provides medical device manufacturers with a one stop shop for wireless enablement of their devices.  It is also an open forum that encourages the creation of new healthcare apps,” noted Rick.  Using the 2net technology, data could be aggregated and analyzed for trends or anomalies.  The Platform connects patients with caregivers, family, and clinicians providing timely feedback.

Rick also pointed out that there are several benefits to device manufacturers around implementing this new technology:

• It provides a means of getting data out of devices outside of the clinical setting:
• It creates an interoperable ecosystem with medical devices, mobile medical applications and health service providers like hospitals; and
• It provides system support for tracking and tracing.

“Wireless technology is the biggest platform on earth.  We need to leverage it in health care,” declared Rick.  That is reason why the Qualcomm Foundation joined with X PRIZE to challenge the industry to develop a global customer platform.

I concur with Rick, mobile devices are the most exiting tools available today to improve health care.

By Daniel R. Matlis

Last year, I had breakfast with Dave Johnson, CEO of ConvaTec Inc. at “CEO Unplugged,” During the session; Mr. Johnson discussed the business and regulatory challenges the Medical Technology industry is facing today.  In this environment, “I sleep like a baby - I wake up every 2 hours and cry,” he said.

Over the last year, I have had the opportunity to ask Medical Device industry executives, outsourcers and regulators what keeps them up at night?

The answer boils down this: “The increasing pace of globalization and outsourcing in the Medical Device industry has created demanding challenges for brand owners, their partners, and regulators alike.”

To identify key pain-points and innovative strategies that brand owners, their partners, and regulators are undertaking to cope in this new environment, Axendia is launching a research study.

This research will evaluate the impact of globalization and outsourcing across the entire Medical Device life cycle (from R&D design, supply chain, manufacturing and distribution). The study will provide insights into how industry leaders and regulators are utilizing innovative strategies and systems to improve visibility, control, and collaboration.  It will also provide a roadmap to enable organization to mitigate risk and increase business success.

To support this project, the research team is seeking input from industry practitioners representing the broad spectrum of companies in the Medical Device sector - including organizations of all sizes and every geographic region across the broad spectrum of Medical Device products.

To provide your input for this important industry research and share your perspectives on Medical Device issues and trends, please complete the survey by clicking on this link: http://svy.mk/2012-Med-Dev-Survey

The results of this study will be published in a comprehensive research report and presented at the MedicalDeviceSummit conference scheduled for May 9th and 10th in Chicago, IL.

Industry practitioners who complete the survey will be eligible to receive a copy of the Research Report once it is completed.  Individual responses will remain confidential; responses will be aggregated to formulate the report findings.

We look forward to your contribution on this important research.  Please complete the survey by clicking on this link: http://svy.mk/2012-Med-Dev-Survey

At this year’s Camstar Customer Conference  Larry Dube, Vice President for Operations at NP Medical, presented a session entitled “quality (with a small q): Prevention, Analysis and Improvement.” Mr. Dube has a track record of successfully leading Medical Device organizations through cultural change and is a proponent of lean manufacturing.

NP Medical is an OEM supplier of drug and fluid access devices and components that ultimately help guard both patient and healthcare provider once incorporated into the world’s most precise medical device technologies.

I recently had the opportunity to speak with Mr. Dube about his approach to quality in the Medical Device industry. This article distills key points of our conversation.

In many organizations functional boundaries and silos have developed over the years regarding who is responsible for quality. Most Life-Science manufacturers are organized in well-defined and delineated functional areas, each with specific roles and responsibilities. Each of these functional areas have traditionally operated as silos or stove pipes, having their own well defined, independent and often unaligned goals, objectives and incentives. This level of independence has led to the “catapult effect”, where deliverables are thrown over the wall to the next functional area to deal with. See the article at http://axendia.com/blog/2007/06/13/tilting-at-windmills/

Mr. Dube’s perspective is that quality is everyone’s responsibility, not the exclusive domain of the Quality Department. “In some Medical Device companies, the organizational culture has developed in such a way that certain people are responsible for making the products and then they throw it all over the wall to somebody else to inspect it. In that scenario, the Quality Department ends up ultimately owning the responsibility for the product quality. This is just inefficient. I’m a big proponent of lean manufacturing and that is the antithesis of lean manufacturing,” he told me.

The implementing of a culture of quality (small “q”) throughout an organization, rather than leaving the entire responsibility to the Quality (large “Q”) Department is a major adjustment for many Life Science companies. As Mr. Dube commented: “It’s a big shift in ownership and mentality for the responsibility for quality; and changes the focus of the Quality Department to Quality Assurance.” This QA process is more akin to an auditing or verification process aimed at ensuring that processes remain within their validated parameters and specification rather than ongoing inspection of the product.

Driving this need for change at NP Medical is the high volume of product and the impossibility of testing hundreds of millions of units per year. To enable this culture shift, NP is implementing an MES strategy.

NP Medical plans to achieve several objectives with their MES implementation. First there are some savings from labor recapture (from replacing a manual paper-based process). More importantly, MES provides the capability to capture information automatically, monitor processes in real-time and the ability to react more quickly to process or product quality issues. According to Mr. Dube: “The sooner we can figure out that there’s something wrong, the easier it is to understand the root cause, and implement corrective actions.” And lastly, there is the savings from limiting scrap costs and tying up inventory.

The ultimate goal for NP Medical’s MES implementation is to have inspection by exception as opposed to inspections as the rule. Achieving this goal requires a phased approach: collect data, continue testing, compare data to test results, implement analytics software, look at correlation between certain process parameters and establish control limits. As a better understanding of the process develops it may require some modification to the automation equipment or tooling upgrades in order to provide the types of control needed. If a process parameter is important but unable to meet control limits, the design parameters may need to be revisited. And this is where the MES system can help as noted by Mr. Dube: “Just like it can help get to root causes of a particular problem, it can also help to justify making go/no go types of decisions. If I’m not getting what I expected out of this particular process I can stop.”

Moving to an MES environment is not just about implementing the technology. A company must have not only the resources needed to make this type of investment but also the willingness to commit to changing the organizational culture as well as long-term vision to implement based on long-term results. Unfortunately, there is generally an external trigger, some sort of compelling event (like an FDA audit or a product recall) that drives the decision to implement a technology solution.

Whatever the reason for implementing MES, a key outcome of the successful implementation of an MES strategy is that quality must become everyone’s job. “Putting information in the hands of the operators permits them to make assessments now and adjustments now and allows the transition to a corporate wide culture of quality to happen,” concluded Mr. Dube.

When I think of Jerusalem, iconic images of religious and historic sites come to mind. Last month, I had the pleasure of visiting Jerusalem. There I met with Chen Levin, Executive Director of BioJerusalem, and learned that Jerusalem is working to become the Bio-Pharmaceutical capital of Israel.

BioJerusalem, an initiative of the Jerusalem Development Authority, was founded in 2006 by Dr. Shirley Kutner to help fuel the economic development of Jerusalem by leveraging the vast Life Sciences resources available in the city. BioJerusalem is committed to growing Jerusalem into a thriving Life Sciences center of sustainable enterprises and solid investments, grounded on cutting edge innovation.

Dr. Kutner is now in the Philadelphia region, where we’ve had the opportunity to collaborate on a number of Life-Science committees and projects. She is currently leading the strategic planning for the creation of the Regional Health Innovation Partnership based on BioJerusalem’s model.

“If you are in the basic sciences and research, the names Hebrew University and Hadassah have a strong meaning for you. Over 50% of clinical research in Israel is performed at Hadassah & Shaare Zedek hospitals and 43% of the biomedical research is performed at the Hebrew University all based in Jerusalem,” commented Chen Levin. “Two blockbuster drugs, Exelon used to treat of Alzheimer’s and Doxil used to treat of cancer, originated from the Hebrew University of Jerusalem,” she added.

“If you look on the Industry side, over 150 pharmaceutical, biotech and medical device companies are already operating in Jerusalem,” Levin told me.

Teva Pharmaceuticals, which was founded in Jerusalem in 1901, operates 2 large manufacturing facilities in the city. In addition, Omrix Biopharmaceuticals, - which was acquired by Johnson & Johnson in 2008 for $438 million, BioLineRx, Medinol and Gamida Cell have operations in Jerusalem. The Life Science sector employs 32,000 people, which represents 12% of the Jerusalem’s workforce.

In 2005, the Israeli government allocated 280 million NIS (~ 93 million USD) to the Jerusalem Economic Development Program to be distributed over seven years, for the economic development of the city. As a result, a number of leading companies have expanded their presence in Jerusalem since 2005. Here are some examples:

• Teva Pharmaceutical has opened a new plant in Har Hotzvim with an investment of $80 million. Teva operates 2 plants in Jerusalem, which together employ ~1,000 people.
• Omrix Biopharmaceuticals constructed its main manufacturing site in Jerusalem. The company is building new facilities with an investment of approximately $20 million, which will employ 60 people.
• Rafa Laboratories has 5% of the Israeli pharmaceutical market, with annual sales of approximately $70 million. The company was founded in Jerusalem in 1937, and is building a new 10,000 square meter plant with an investment of ~ $38 million. The plant is expected to be finished in 2013 and will employ 300 people.
• Sigma Aldrich - Opened a new plant in Har Hotzvim in 2010, and is now planning another expansion. Sigma has 2 plants in Jerusalem which together employ 100 people.

To continue to support the momentum of the Life Science cluster in Jerusalem, the Israeli Government approved the Marom (Hebrew for uplift) Program in May 2011. The program offers financial incentives including:

• Grants for Life-Science companies 
• Creation of subsidizes laboratories facilities for start-up companies
• Grants for companies that supply R&D services to biotech companies
• Grants for encouraging doctors in hospitals to perform applied translational research

So why should Life Science companies establish a presence in Jerusalem?

“The main considerations for companies looking to establish a presence is the nature of the collaboration, the quality of the research and development taking place, and we have an edge in all of those areas here in Jerusalem. In addition we offer the most financial incentives in all of Israel. We’d like to see companies establish themselves in Jerusalem and take advantage of our leading edge research and development, whether they are Israeli companies, foreign companies or a collaboration.” said Levin.

The dynamics in the Healthcare market are changing. Healthcare organizations must provide high-quality patient care and improve clinical outcomes, while at the same time reduce the overall cost of providing high quality care and ensure compliance with all applicable regulations.

Watch this video to see how Smarter Healthcare can help to lower costs from the inside out

Learn more about this IBM offering at: http://ibmtvdemo.edgesuite.net/software/tivoli/demos/RTAL_LP/index.html