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The Impact of Academic Research on Industrial Performance (2003)

Chapter: 3. Report of the Panel on the Medical Devices and Equipment Industry

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Suggested Citation:"3. Report of the Panel on the Medical Devices and Equipment Industry." National Academy of Engineering. 2003. The Impact of Academic Research on Industrial Performance. Washington, DC: The National Academies Press. doi: 10.17226/10805.
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Suggested Citation:"3. Report of the Panel on the Medical Devices and Equipment Industry." National Academy of Engineering. 2003. The Impact of Academic Research on Industrial Performance. Washington, DC: The National Academies Press. doi: 10.17226/10805.
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Suggested Citation:"3. Report of the Panel on the Medical Devices and Equipment Industry." National Academy of Engineering. 2003. The Impact of Academic Research on Industrial Performance. Washington, DC: The National Academies Press. doi: 10.17226/10805.
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Report of the Pane! on the Medical Devices and Equipment Industry Rapid changes in the financing and delivery of U.S. health care may have a significant effect on the incentives for universities and industrial firms to gener- ate, evaluate, and introduce new medical devices. This report examines the inter- actions of these two critical participants in technological changes, specifically the contributions of academic research to the medical device industry. The Panel on Medical Devices and Equipment, one of the five panels formed by the Committee on the Impact of Academic Research on Industrial Performance of the NAE, hopes this report will provide a starting point for further research on critical, but often neglected, institutional interactions in the medical device innova- tion process. The Panel on Medical Devices and Equipment comprised six members: one National Academy of Sciences member from academia, one Institute of Medicine member from industry, one other member from academia, and three more from industry. Three of the panel members were also members of the parent commit- tee. The panel assessed the contributions of academic research, which may in- clude new knowledge, inventions, and the training of people in modern research techniques, to the medical device industry and recommended ways of improving such contributions in the future. This assessment is especially timely in view of the fundamental changes occurring in the American health-care system, includ- ing academic medicine, and American higher education, which are putting un- precedented pressures on both academic medical centers and medical device firms. In the course of this study, the panel reviewed the literature, developed several case studies, and sent a questionnaire to individuals in academia, the medical device industry, and government. This questionnaire was followed by a 77

78 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE workshop attended by approximately 35 senior individuals in the medical device sector (see Addendum). There are several compelling reasons for undertaking a close examination of the interface between firms and universities in the medical device sector. First, although this industry, like the pharmaceutical industry, develops and markets products that contribute to human health and well-being, it has received far less attention than the pharmaceutical industry. Second, the number and variety of interactions between universities and industrial firms has increased significantly. Third, a common misperception of the relationship between industry and univer- sities assigns to universities the role of generating fundamental (basic) knowl- edge and to industry the role of performing applied research and developing medical technologies. A closer look at the ways medical innovations arise and spread suggests that both parties perform much more complex, subtle, and wide- ranging roles than conventional wisdom suggests. This report addresses two sets of questions: . · What role has university-based research played in technological advances in the medical device industry? What impact has academic research had on the industry's performance? Are the current mechanisms for university-industry collaboration, both formal and informal, adequate? How might academic research contribute more effectively to the medical device industry in the future? Are there new modes of university-industry collaboration that would increase the payoffs without compromising the core mission of either sector? What specific actions might increase the contributions of academic research to the industry' s performance? Whereas the focus of the report is on the contributions of academic research to industry, important contributions also flow in the other direction. Industry, among others, contributes resources for conducting university R&D and for train- ing students. Both academic and industrial institutions are involved in the whole innovation cycle research, development, manufacturing, evaluation, marketing, and product modification. Industry and universities have distinctive, complemen- tary skills, as well as overlapping competencies. In fact, one characteristic of innovations in medical devices is close collaboration, even codependency, be- tween universities and industry firms. The first part of this report is a review of the main components and a defini- tion of the boundaries of the medical device industry. Following a brief overview of the structural and performance characteristics of the industry, the main players in the innovation system for medical devices are identified, and the multifaceted nature of research relations between academia and the medical device industry are analyzed. Sweeping changes are occurring in the health-care environment, including the introduction of market forces and the widespread diffusion of man- aged care into the delivery of health care, modifications in Food and Drug

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 79 Administration (FDA) regulations, and new policies and practices regarding in- tellectual property rights. This report attempts to weigh the effects of these changes on university-industry relations and consider how university contribu- tions to the medical device industry in this rapidly changing environment could be enhanced. DEFINITION OF THE INDUSTRY Main Components Medical devices encompass a heterogeneous group of products, ranging from low-tech, inexpensive devices, such as tongue depressors and disposable needles, to sophisticated devices, such as implanted therapeutic devices, lithotripters, and magnetic resonance imaging (MRI) machines. The U.S. Department of Com- merce currently groups medical devices into five categories, according to North American Industrial Classification System (NAICS) codes: · Surgical and medical instruments (NAICS 339112) include medical, sur- gical, ophthalmic, and veterinary instruments and apparatuses. Examples are syringes, hypodermic needles, anesthesia apparatuses, blood trans- fusion equipment, catheters, surgical clamps, and medical thermometers. · Surgical appliances and supplies (NAICS 339113) include orthopedic devices, prosthetic appliances, surgical dressings, crutches, surgical su- tures, and personal industrial safety devices (except protective eyewear). · Dental equipment and supplies (NAICS 339114) include equipment and supplies used by dental laboratories and dentists offices, such as chairs, instrument delivery systems, hand instruments, and impression materials. · Irradiation apparatuses (NAICS 334517) include apparatuses used for medical diagnostic, medical therapeutic, industrial, research, and scien- tific evaluations. · Navigational, measuring, electromedical, and control instruments (NAICS 334510) include electromedical and electrotherapeutic apparatus, such as MRI equipment, medical ultrasound equipment, pacemakers, hear- ing aids, electrocardiographs, and electromedical endoscopic equipment. This report focuses mainly on the high-tech, innovation-driven segments of the industry, such as implantable devices, bioengineered devices, optical instru- ments, surgical staplers, and surgical miniaturization, in which the contributions of academia are likely to be most apparent. Most FDA Class 3 devices, for which sponsors are required to demonstrate safety and efficacy before the FDA grants marketing clearance, are included in this category. It also includes so- called "510(k) devices," which are "substantially equivalent" to devices that were on the market before the 1976 Medical Device Amendments took effect

80 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE and, therefore, are subject to less stringent regulatory review. This study also examines emerging market segments that are expanding the boundaries of the traditional device industry, such as tissue engineering and health information systems intended to improve the quality and efficiency of health-care deliv- ery systems. The global market for medical devices was $138 billion in 1999. The U.S. market accounts for 37 percent of global demand, and the U.S. industry supplied 40 percent of the global market with shipments of $55 billion in 1999 (McGraw- Hill and U.S. Department of Commerce, 2000~. The United States traditionally runs a positive balance of trade in medical device products (estimated to be $7 billion in 2000), and several American firms have strong market shares in Europe and Japan (AdvaMed, 2001~. All major firms throughout the world par- ticipate in the U.S. market; most leading foreign firms have U.S. sales subsidiar- ies, and many also have extensive research and manufacturing activities in the United States. As of 1999, both domestic and foreign medical device firms oper- ating in the United States employed almost 300,000 workers, and the medical device industry was one of the fastest growing manufacturing sectors in the U.S. economy (U.S. Bureau of the Census, 2001~. Companies in this industry capture relatively few sales from any single product. The norm for important therapeutic tools (e.g., vascular grafts) is a total global market of $70 million (Wilkerson Group, 1995~. Even "blockbuster" prod- ucts rarely surpass $100 million. The Johnson & Johnson Palmaz-Schatz stent for coronary heart disease was unusually successful in garnering sales of almost $400 million annually in its early years. But despite the purported strength of the Johnson & Johnson patent and its headstart in the market, new companies contin- ued to improve stent designs for opening coronary arteries. As a result, Johnson & Johnson lost more than 70 percent of its market share in five years to new entrants. Johnson & Johnson is expected to make a comeback, however, because of sharply reduced restenosis with its new drug-coated stems. In short, this is a dynamic industry driven by intense competition. Products that briefly capture sales are swept away within a few years by more innovative replacements. Consequently, research activity is intense; publicly traded device firms invest 12.9 percent of sales in R&D, and the most innovative firms reinvest as much as 23 percent of sales revenues in R&D. This figure is comparable to investments by aggressive pharmaceutical companies (Lewin Group, 2000~. The Roles of Large and Small Firms The extremely diverse medical device industry includes small start-up com- panies and giant corporations. In 1999, 65 percent of firms had fewer than 20 employees, and only 12 percent had more than 100 (U.S. Bureau of the Census, 2001~. The correlation between the size of a firm and its role in the market is not entirely clear, but it is widely believed that small firms play a

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 81 disproportionate role in initial innovation and that large firms determine the commercial success of new products. Large Firms The underlying economics of the industry drive product development toward larger firms that have the sophisticated assets to exploit the commercial potential of innovations and can navigate the complex regulatory requirements for the introduc- tion of new health-care products. First, as a result of multiple filings, large firms have developed the capability of managing clinical trials to meet regulatory re- quirements. An excellent example is the development of the home HIV test. A1- though the technology was relatively simple, numerous start-up companies had failed to demonstrate their ability to collect and test potentially contaminated blood in the home setting. Johnson & Johnson, which has extensive knowledge of the regulatory process, was able to shepherd the first successful home HIV diagnostic test to market. Second, large companies often have considerable skills in manufac- turing and marketing. The history of diagnostic imaging, for example, clearly shows that first-mover advantages are not always a key to success in the marketplace of new technologies that have significant commonalities with earlier technologies (e.g., MRI with CT). Although large multinational companies were often late en- trants, their skills in marketing and servicing and their established reputations often enabled them to assume dominant positions (Gelijns et al., 1998~. Third, large, experienced companies understand the purchasing patterns of multiple stake- holders in a complex hospital environment. Because buyers prefer to contract with a limited number of suppliers, successful device companies offer a full product line of compatible products. Small companies with the most innovative devices may gain a foothold but can rarely maintain it. Finally, the most successful companies plan for short product life cycles, and they swiftly introduce incremental enhancements developed by internal R&D. These companies rarely invest in basic research because the direct returns on basic science are relatively low during the short payback time for internalizing and commercializing product concepts. Consequently, larger firms invest in so- phisticated market scanning and acquisition capabilities to identify new ideas for internal development and tend to leave "breakthrough innovations" to others. To be sure, large companies do produce pioneering innovations from internal re- search, but these breakthroughs often leverage technologies from preexisting products. In addition, large companies can exploit the experiences of users to produce next-generation products. Innovative Small Firms The existence of numerous small, innovative start-up companies in the medi- cal device industry has been well documented. A study of publicly traded medical

82 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE device firms found that in 1997, 65 percent of firms had fewer than 50 em- ployees. Firms with less than $5 million in revenue spent an average of 252 percent of sales revenue on R&D (Lewin Group, 2000~. These research- focused companies specialize in the "front end" of R&D, and perhaps not surpris- ingly, a study by the Wilkerson Group concluded, "nearly all significant new and innovative products and procedures were pioneered by start-up companies." In- deed, in their survey they cite 29 major therapeutic advances, all of which could be attributed to start-ups (Wilkerson Group, 1995~. According to Gelijns and colleagues (1994~: Attempts to measure the innovative activity of [medical device] firms as a function of their size have long been handicapped, not only by methodological but by conceptual difficulties for example, the absence of an unambiguous criterion for recognizing and, therefore, for measuring innovations, or for dis- tinguishing between "major" and "minor" innovations. One study conducted in the early 1980s by the Futures Group defined large firms as having more than 500 employees and small firms as having fewer than 500 employees (OTA, 1984~. The same study reviewed more than 8,000 innovations published in trade journals in 1982 (which were likely to have overstated the contributions of large firms and understated the contributions of small firms) and calculated rates of innovation per employee for each of the 5 SIC (now NAICS) code medical device categories. The study concluded that, with the exception of the small ophthalmic goods category, small firms were more than twice as innova- tive per employee as large firms (OTA, 1984~. This conclusion reflects the likely differences in the workforces of small and large firms; small firms are often "R&D boutiques" that do not have large numbers of personnel in, for instance, regulatory affairs, marketing, or distribution infrastructure that large firms have. The medical device industry also relies on individual inventors for ideas for new products. Once a working prototype or proof-of-concept device has been produced, the inventor is in a position to negotiate with large companies for a license or to create a start-up company. Besides individual initiative, small companies capable of demon- strating product potential require venture capitalists, high-risk/high-return investors willing to bankroll entrepreneurs with unproven technology. INNOVATION SYSTEM The medical device industry depends heavily on an infrastructure of institu- tions and activities outside the industry. Traditionally, both large and small firms have depended heavily on nonmedical industry sectors (e.g., those that deliver customized components or highly specialized materials), as well as research universities, especially academic medical centers (AMCs). Government policies have also had a strong impact on innovation practices and university-industry relationships. First, although only a modest percentage of

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 83 the federal budget is allocated directly for R&D on medical devices, the federal government is a major source of R&D funding. Second, the federal government influences the development process through the FDA's premarketing approvals and policies for medical devices. Third, the government has become a major source of payments to the providers of medical care (e.g., Medicare). For ex- ample, by including end-stage renal disease as covetable by Medicare, the gov- ernment assured a market, which led to significant innovations in exchange de- vices, biocompatible materials, and other technologies necessary for dialysis. Government decisions have a decisive influence over how existing technologies are used. In addition, government decisions have a powerful impact on the finan- cial incentives for private industry to undertake R&D. Government is not the only payer that influences the market for medical devices. In recent years, managed care, ranging from classic health maintenance organizations (HMOs) to modified fee-for-service programs, has grown rapidly. Managed-care purchasers are taking a more critical and more independent stance about which technologies they will cover and the level at which they will re- imburse providers; thus, they too influence the demand for new technologies. Research Universities and Academic Medical Centers Research universities are key players in the medical device innovation sys- tem. Basic advances in physics, materials sciences, optics, analytical methods, and computer science have resulted in many new device capabilities. Bioengi- neering research has emerged as a separate discipline in the last few decades; in 1998, 70 universities and colleges offered degrees in bioengineering. A typical AMC generally comprises a medical school, a teaching hospital, a network of affiliated hospitals, and a nursing school. Some AMCs also have schools of dentistry, schools for allied health professionals, and schools of public health. These complex, multifunctional organizations have a three-pronged mission: (1) training clini- cians and biomedical researchers, thereby ensuring the distribution of medical skills and specialties; (2) providing advanced specialty and tertiary care and therefore adopting the latest technologies; and (3) conducting biomedical research, ranging from laboratory- based fundamental research to population-based clinical studies. In the United States, AMCs, and biomedical research in particular, have been major beneficiaries of post-World War II science policy. Total national invest- ment in health-related R&D (public and private) has increased dramatically in the postwar period, more than three-fold since 1985 to more than $42 billion in 1998 (Commonwealth Fund Task Force on Academic Health Centers, 1999~. At the same time, health insurance coverage was expanded, and Medicare was estab- lished. Medicare pays AMCs for patient care and educational activities. These financial incentives encouraged the spectacular growth of American academic medicine. Between 1960 and 1992, the average medical school budget in the U.S. expanded nearly 10-fold in real terms (see Table 3-1~. The table shows

84 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE TABLE 3-1 The Growth of U.S. Academic Medicine, 1960-1992 (in 1992 dollars) 1960 1970 1980 1992 Support from NIH ($ millions) Average medical school budget ($ millions) 1,320 3,028 5,419 8,407 24.1 64.6 91.9 200.4 Full-time medical school faculty (no.) Basic 4,023 8,283 12,816 15,579 Clinical 7,201 19,256 37,716 65,913 Matriculated medical 30,288 40,487 65,189 66,142 students (no.) SOURCE: Adapted from Iglehart, 1994. that basic science faculty increased from 4,023 to 15,579, and clinical faculty increased far more rapidly from 7,201 to 65,913 over the three-decade period (Iglehart,1994~. As of the late l990s, about 30 percent of all health-related R&D in the United States took place at AMCs (Commonwealth Fund Task Force on Academic Health Centers, l 999~. Clinical specialists are major participants in the clinical testing and advancement of devices. The financial support structure for AMCs, which is quite different from the support structure for other components of universities, contributed significantly to their past research success; AMCs have also developed a separate culture (Keller, 1998~. AMC research activities are funded by a variety of sources. The federal government has funded the majority of AMC research (nearly 70 percent), especially for basic biomedical research. In 1996, the government funded more than 70 percent of new AMC research projects and more than 60 percent of all new nonclinical research or research on nonhuman subjects (Director's Panel on Clinical Research, 1997~. In recent years, funding for academic research has increased under a variety of arrangements. Foundations and philanthropical organizations are also important sources of research funding. A substantial portion of academic research is funded internally; revenues from faculty practice plans, for example, are often used to under- write research (they support about 9 percent of research, mostly clinical, in AMCs). An analysis in 1999 of six AMCs showed that, on average, clinical enterprises trans- ferred about $50 million a year to medical schools for academic purposes. Universi- ties also provided institutional funding to support the direct costs of research (Com- monwealth Fund Task Force on Academic Health Centers, 1999~. Federal Agencies Federal support for R&D in medical devices flows through multiple institu- tional and disciplinary channels. Although the majority of medical device-related

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 85 R&D funds is spent in AMCs, federal agencies also fund basic and applied research in academic science departments and engineering schools, federal labo- ratories, and industry proper. The United States spends a larger percentage of its federal research budget on research in the life sciences than any European country (NSF, 2000~. Between 1985 and 2001, federal obligations for research in the life sciences more than doubled, totaling more than $18 billion in 2001 (NSF, 2001~. Most of NIH's overall budget of more than $13 billion a year is spent on extramural research at AMCs, particularly in basic (nonhuman subjects) research. Only a small portion of NIH's budget is allocated specifically to create opportunities for the develop- ment of devices. For example, in 1964 the National Heart, Lung, and Blood Institute (NHLBI) created the artificial heart program to support the development of a family of devices to assist patients with failing hearts and to rehabilitate patients with heart failure (Watson et al., 1994~. NHLBI has also invested in clinical trials of cardiac devices, for example, to determine the effectiveness of defibrillatory in high-risk patients with coronary artery disease and in the left ventricular-assist device for end-stage patients with heart failure. Determining the portion of the NIH budget directly related to R&D on medical devices, however, is problematic. A congressional study in 1992 estimated that the government had invested about $422 million in R&D on medical devices (Littell, 1994~. A 1998 report in Science estimated that NIH funding of bioengineering- related research projects, including biomaterials, prosthetic devices, and artificial organs, amounted to $417 million in 1996 (Agnew, 1998~; this figure increased to $500 million in 1998 (Chronicle Information Resources, 1999~. In 2000, NIH created the National Institute for Biomedical Imaging and Bioengineering (NIBIB) to "improve health by promoting fundamental discoveries, design and develop- ment, and translation and assessment of technological capabilities. The Institute will coordinate with biomedical imaging and bioengineering programs of other agencies and NIH institutes to support imaging and engineering research with potential medical applications and will facilitate the transfer of such technologies to medical applications" (P.L. 106-580~. NIBIB's FY02 budget was $112 million. In addition, the government supports some applied research in industry set- tings. In the early 1980s, for example, the federal government established the Small Business Innovation Research (SBIR) Program; and in 2000, 10 federal agencies awarded $1.1 billion in SBIR grants. Since the program's inception in 1983, the life sciences, which include medical devices, have received more than $2 billion in awards from NIH. NIH's SBIR awarded $435 million in 2001 (Goodnight, 2002~. Food and Drug Administration The introduction of new or modified medical devices is subject to stringent and complex regulations. The Medical Device Amendments of 1976 were

86 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE intended to ensure that new devices are both safe and effective before they are marketed. These amendments divide medical devices into three classes, depend- ing on their potential risks to patients. Approximately 30 percent of all medical devices are grouped in Class 1, which comprises instruments (e.g., stethoscopes) that do not support or sustain human life and do not present an unreasonable risk of illness or injury. Class 1 devices are subject to the general controls used before passage of the Medical Device Amend- ments for example, regulations regarding registration, premarketing notification, record keeping, labeling, and good manufacturing practices. About 60 percent of devices fall into Class 2, which includes x-ray devices and other devices that pose some risk. Class 2 devices are subject to federally defined performance standards. Class 3 devices include all life-supporting or life-sustaining devices that substan- tially prevent health problems or that could pose a risk of injury or illness. For Class 3 devices, the sponsor must demonstrate safety and efficacy before the FDA grants marketing approval. Approximately 10 percent of medical devices fall into Class 3; examples include left-ventricular assist devices and laser angioplasty devices. Since 1976, all new devices are automatically placed in Class 3 unless the sponsor suc- cessfully petitions the FDA to reclassify them as "substantially equivalent" to a device that was on the market before the amendments took effect. Demonstration of this equivalence, called a 510(k) submission, is provided by descriptive, perfor- mance, and even clinical data. To support a marketing approval decision, or in some instances a 510(k) submission, a sponsor must conduct clinical studies. If a device poses a signifi- cant risk, the sponsor submits a request for an investigational device exemption (IDE) to the FDA. Following clinical studies, the device may be approved for marketing through a so-called premarket approval (PMA) decision. Most PMAs are individual licenses secured by the developer for particular devices and spe- cific clinical uses or indications. Other developers of similar kinds of devices must submit separate PMAs and clinical data. In the 1990s, FDA regulation of medical devices changed significantly with the passage of the Safe Medical Devices Act of 1990. Under new requirements for premarketing studies, manufacturers are required to conduct more rigorous studies with appropriate, and where possible randomized, controls. Postmarketing surveillance now provides a number of separate mechanisms for collecting data. Both device manufacturers and health-care providers must report information indicating if the device may have caused or contributed to a death or serious injury. For high-risk devices, companies must keep track of patients, and, in certain cases, must conduct postapproval clinical studies to detect possible risks associated with the use of the device, as well as information on its effectiveness. These changes should improve the quality of evaluations and provide more infor- mation about safety and efficacy. At the same time, they have slowed the pace of introductions of new medical devices and increased the risk and cost for medical device firms.

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 87 In the early l990s, the FDA had long review times for IDEs, PMAs, and 510(k) submissions, and the agency had accumulated a considerable backlog. Subsequently, the FDA reorganized its device branch, and then, in 1997, the FDA Modernization Act (also known as FDAMA) was passed. This wide-ranging legislation attempts to shift resources in the agency from relatively low-risk to relatively high-risk areas and to specify the requirements for trials of clinical devices. As a result of these changes, the backlog was diminished substantially and review time was shortened considerably; in 1998, for instance, the average review time for a 510(k) submission decreased by 12.3 percent from the preced- ing year. Venture-Capital Industry The United States has a mature venture-capital industry that provides access to liquid capital markets for the financing of high-risk ventures. Venture capital has been pivotal to the development of the industry, because the development and commercialization of medical devices can be a prolonged process, and few in- ventors can survive with debt financing alone. Venture capital allows the origina- tor to obtain operating funds and to share financial risks. Small firms with no track records often need multiple sources of funding for a substantial period of time, usually beginning with private financing and pro- ceeding to the equity markets. Venture capitalists fund these companies when revenues are small or even nonexistent. As recently as 15 years, ago, the venture- capital market was small, but in 2001, health care, principally biopharmaceuticals and medical devices, received $5.6 billion in venture capital, 17 percent of total venture capital investments for the year (Zemel, 2002~. In addition, the initial public offering (IPO) market expanded in the l990s, which allowed venture capitalists to exit projects and thereby reap rewards for the risk they had borne; small companies subsequently had access to large pools of liquid capital for future expansion. IPO investment in the medical device industry rose from $410 million in 1995 to $1.268 billion in 1996; much of this growth was in the cardiovascular device sector. In recent years, with the economic downturn, venture-capital investment in medical devices has declined sharply, and IPOs have come to a virtual standstill. In 2001, there were only eight IPOs of medical device firms, raising roughly $741 million. Third-Party Payers In the last 20 years, dramatic changes have been made in the financing and delivery of U.S. health care. Changes include the rapid growth of managed care initiatives and the consolidation of hospitals and clinics into large integrated delivery systems. Managed care organizations increasingly reimburse health-care providers on a capitated basis (i.e., fixed reimbursement per patient per month),

88 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE promote cost-conscious purchasing by negotiating price discounts on high- volume procedures, and may use selective contracting to concentrate sophisti- cated devices and related procedures in a smaller number of institutions. As a result, the incentives for industrial firms to generate new medical devices has also changed. These changes have had many consequences for AMCs and university- industry interactions. First, the pressures to contain the costs of medical care have reduced the resources in AMCs for cross-subsidizing research. Second, research- ers in AMCs in areas with high managed care penetration are less likely to obtain NIH grants or to publish than investigators in areas with less managed care competition (Griper and Blumenthal, 1998~. The decrease is especially apparent in clinical research, raising questions about whether the necessary level of clini- cal research for the medical device enterprise can be sustained. Finally, the pay- ment for treatment of patients in clinical trials is becoming increasingly conten- tious, which could inhibit the refinement of devices and the collection of data on medical devices. Traditionally, industry has supported the evaluation of medical devices, gov- ernment has supported the evaluation of major clinical procedures and off-label uses, and payers have supported (often unknowingly) the treatment costs of pa- tients enrolled in clinical trials. However, managed care organizations have be- come increasingly reluctant to do so, and they are coming under increasing pres- sure to support these trials. Every sector the federal government, industry, AMCs, and managed care would obviously prefer that others shoulder more of the burden, but as both the number of evaluations and their complexity and sophistication have increased, the need for partnerships to pool resources has become evident. Conditional coverage, in which payers cover the costs of patient treatment in a predetermined research protocol while government and industry cover the costs of doing the research, is one option for intersector funding. In 1995, an Interagency Agreement between the FDA and the Healthcare Financing Administration made certain Category B nonexperimental/investigational devices eligible for Medicare payment during clinical trials. More than 90 percent of investigational device exemptions (IDEs) have been made eligible for Medicare payment in this manner. Legislation introducing conditional coverage for all Medicare enrollees was enacted in September 2000 (42 CFR411.1~. CONTRIBUTIONS OF ACADEMIC RESEARCH Education and Training One of the most important long-term contributions of academia is the train- ing of people skilled in research techniques. Universities train people in many disciplines biological, behavioral, and physical sciences, as well as engineer- ing. Advances in the biological sciences, biomaterials sciences, and in biological

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 89 information processing and analysis have ushered in a new era of progress and innovation in medical devices and bioengineering. In the l990s, bioengineering was the fastest growing specialty at engineering schools that offer these programs (Agnew, 1998~. To meet the growing need for multidisciplinary education in engineering, biology, and medicine, beginning in the late 1960s various educa- tional programs have been developed to integrate engineering and clinical medi- cine. The University of Pennsylvania, Johns Hopkins University, Purdue Univer- sity, and Rice University are some of the institutions that had early multidisciplinary programs. NIH and NSF have funded the development of more of these programs. Medical schools train clinicians in a wide range of specialties, as well as scientists in laboratory-oriented basic research, translational (applied) research, and clinical evaluative sciences. In the 1970s and 1980s, NIH funding was in- creased for basic, laboratory-oriented research, which was reflected in an in- crease in the number of Ph.D.s receiving NIH awards and a decrease in the number of physician/scientists receiving awards. Since then, the ratio of Ph.D. applicants to physician applicants has remained constant at 3:1 (Commonwealth Fund Task Force on Academic Health Centers, 1999~. Between 1994 and 1996, as pressures to contain costs increased and demands on physicians to maintain a certain volume of clinical care mounted, the number of first-time physician appli- cants to NIH dropped by 30 percent, raising concerns that the number of clinical researchers might be permanently diminished. As a result, NIH created new training (and research) initiatives for clinical researchers, in both translational and clinical evaluative research (e.g., biostatistics, clinical epidemiology, and outcomes research, fields that were traditionally covered by schools of public health). The number of training programs leading to joint MD/Masters of Public Health (MPH) degrees have increased as a result. Schools of public health train people in sociomedical, health management, and policy sciences. As device production, evaluation, and marketing become more difficult, industry demand for people trained in outcomes analysis, bio- statistics, health economics, and medical decision analysis has increased. A1- though educational programs in these areas have been established around the country, many of them are small, have insufficient clinical involvement, and are not geared toward the assessment and regulatory approval of medical devices. Business schools, which train people in the management sciences, have expanded programs that offer MD/MBA programs. Research in the Physical Sciences and Engineering Because markets for medical devices are often fragmented and relatively small, the medical device industry historically has not invested heavily in basic research but has depended heavily on scientific and technological capabilities developed in other sectors. Medical devices have exploited research and new

90 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE technological capabilities and components developed by universities, the mili- tary, the electronics industry, and firms that manufacture specialized materials, such as high-quality glass for fiber optics and special materials for pros- thetic devices. Arguably, there have been two very distinct patterns to the collaborations between physical scientists and engineers on the one hand and clinical research- ers on the other. One is in the field of instrumentation where electrical engineers and physicists either had separately developed a technology that could be used in a device or instrument or, working on a problem defined by a clinical researcher, had come up with a device or instrument that would solve the problem. Earl Bakken's development of the pacemaker is an example of the latter. However, a very different kind of collaboration developed between me- chanical and chemical engineers and clinical researchers, in which the engineers became directly involved in defining the problem, not merely helping to find the solution. This manifested itself in studies of fluid mechanics and transport phe- nomena in blood flow, and in the many studies aimed at characterizing the inter- actions between biological fluids and synthetic materials. These collaborations led to insights that have been key to understanding the effect of flow patterns in certain diseases, like atherosclerosis, but also to understanding the importance of flow patterns in prosthetic devices in promoting or inhibiting thrombosis or hemolysis. In these cases, engineers did not borrow from other fields but became involved in direct research in the biological systems to understand the unique phenomena of those systems. In a 1998 study of trends in medical device technology conducted by the FDA, a survey revealed six somewhat overlapping "trend categories": computer- related technology; molecular medicine; home care and self-care; minimally in- vasive procedures; combination drug/device products; and organ replacements and assist devices (Herman et al., 1998~. Most of these categories reflect contri- butions either from universities or other industry sectors. For example, computer- related technologies, which include computer-aided diagnosis, intelligent devices, biosensors and robotics, and networks of devices, all depend on the results of R&D in computers and communications, which, in turn, interact with and build on advances in mathematics, computer science, electrical engineering, and other disciplines. Minimally invasive procedures include minimally invasive instru- ments, medical imaging, microminiaturized devices, laser diagnosis and therapy, robotic surgical devices, and nonimplanted sensory aids, all of which make use of developments in physics, mathematics, electrical engineering, and computer sci- ence. Organ replacements and assist devices depend on advances in the materials sciences and, increasingly, on the interface between biology and the physical and . . . englneenng sciences. Universities play an important role in the evolution of medical devices. University research may lead to the discovery of new scientific or technological principles, new designs, new materials, and advances in computer sciences. Ex- amples of academic contributions and university-industry collaborations can be

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 91 found in the development of lasers, endoscopy devices, and medical imaging machines. For instance, work by Charles Townes at Columbia University in the early 1950s resulted in the invention of the maser, a device that creates a focused microwave beam using stimulated emission (Rosenberg, 2000~. Townes later collaborated with Arthur Schawlow of Bell Laboratories on a paper that outlined how stimulated emission might work at the wavelength of visible light. Bell Laboratories received a patent for the resulting invention, the laser, in 1960 (Spetz, 1995~. Medical uses of the laser quickly became apparent, especially after the in- vention in 1964 of the argon laser, a light source that promoted photocoagulation. Ophthalmologists and dermatologists were the first and most frequent users of lasers, which enabled retinal reattachment, treatment of glaucoma, and the re- moval of disfiguring port-wine stains. However, other uses of the laser technique proceeded more slowly. Although clinicians recognized that the wavelength, duration, and energy intensity of a laser beam could be manipulated, fundamental questions about the optical, thermal, and physical properties of tissue had to be answered before lasers could be used to treat other clinical conditions. By the 1980s, many of these uncertainties had been overcome, and lasers were soon used in a wide range of clinical specialties, including gynecology, gastroenterology, and cardiology. Flexible gastrointestinal endoscopy was first developed in the early 1960s with significant academic contributions by physicists van Heel in Holland and Hopkins and Kapany in the United Kingdom (Gelijns and Rosenberg, 1999~. Their work, reported simultaneously in Nature in 1954, laid out the principles of coherent image transmission for sending images along an aligned bundle of flex- ible glass fibers (Hopkins and Kapany, 1954; van Heel, 1954~. Van Heel pre- sented the concept of the coated glass fiber and the possibility of plastic coatings, which later turned out to be unworkable. Both papers described the conveyance of optical images along a glass fiber, a concept that had been developed earlier. Hopkins and Kapany also elucidated the basic principles of fiber alignment. Upon reading their work in Nature, Hirschowitz, a gastroenterologist at the Uni- versity of Michigan, Peters, an optical physicist, and Curtis s, an undergraduate student, undertook research to develop a workable fiber-optic instrument for visualizing the upper gastrointestinal tract (Gelijns and Rosenberg, 1999~. Hirschowitz tested the first operating gastroscope on himself in February 1957. The academic trio subsequently licensed the technology to American Cystoscope Makers, Inc., and collaborated with the firm to develop the first commercial flexible endoscopes. Basic advances in physics were essential to the development of all imaging technologies (Gelijns and Rosenberg, l999~. These advances were typically gen- erated in departments of physics at universities in Europe and the United States; they can be traced all the way back to Roentgen, a professor of physics at the University of Wurzberg in the nineteenth century.

92 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE As these examples illustrate, collaboration between AMCs and physical sci once and engineering departments has been a consistent pattern in the medical device industry. In some cases, collaborations date back many years. Current collaborative efforts often are continuations of long-standing cooperation be- tween engineers, scientists, and medical faculty. Tissue engineering is an ex- ample. One of the most productive collaborations was between Joseph Vac anti, a pediatric surgeon at Massachusetts General Hospital in Boston, and Robert Langer, a professor of chemical engineering at MIT. Basically, tissue engineering involves creating a scaffold of an artificial, biodegradable polymer, which is then seeded with living cells and immersed in growth factors. As the cells multiply, they fill up the scaffold and grow into a three-dimensional tissue. R&D was focused on creating organs and body parts, such as bone, skin, pancreas, teeth, breast, heart valves, arteries and veins, urinary tract, and cartilage. This research, and the involvement of academic faculty in the creation of start-up firms, spawned an entirely new industry. Lysaght et al. (1998) documented the creation of 40 start-up firms in tissue engineering, 10 of which had gone public at a market capitalization of $1.7 billion in January 1998. The increase in interdisciplinary research collaborations has also been stimulated by several federal funding initiatives. For instance, several engineering research cen- ters funded by NSF perform research relevant to medical devices. These include the Center for the Engineering of Living Tissues at Georgia Institute of Technology and the Emory School of Medicine, the Engineering Research Center for Computer- Integrated Surgical Systems and Technology at Johns Hopkins University, the Engi- neered Biomaterials Engineering Research Center at the University of Washington, and the Engineering Research Center in Bioengineering Educational Technologies at Vanderbilt University. Other agencies have also funded interdisciplinary research centers. The Center for Integration of Medicine and Innovative Technology (CIMIT), established with funding from the Massachusetts General Hospital and DOD, in- volves various clinical specialties in the Partners Health Care System in Boston, MIT, and Draper Laboratory, as well as industrial partners in the Partners Health Care System in Boston (Parrish, 1998~. CIMIT is devoted to the development and evalua- tion of innovative diagnostic and therapeutic devices. . Case Study: Center for Integration of Medicine and Innovative Technology CIMIT was founded in 1993 to accelerate the generation, development, and time-to-practice of innovative and high-impact concepts in minimally invasive therapy that improve the quality and lower the cost of health-care delivery. CIMIT operates as a consortium that includes Massachusetts General Hospital and the Brigham and Women's Hospital, both of which provide clinical expertise, and MIT and Draper Laboratory, which provide basic technical and engineer- . . 1ng expertise.

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 93 In 1998, with the consortium structure in place, CIMIT won a competitive federal award for minimally invasive health-care technologies, administered through the U.S. Army. This unconventional funding source allows CIMIT to undertake high-risk, high-reward research that spans a wide range of scientific and technical fields. Army funding allows CIMIT to pursue short-term, un- conventional, developmental, integrative, and sometimes speculative research, in addition to longer term, clinical, and basic science projects. To maximize the potential for interdisciplinary collaborations, CIMIT is organized as a matrix, with clinical focus areas: cardiovascular; stroke; trauma and critical care, supported by a technological infrastructure comprised of tech- nology teams; biomaterials; endoscopic tools; endovascular tools; energy deliv- ery; medical imaging; microsensors; simulation and modeling; surgical planning; and tissue engineering. CIMIT also has an outcomes and technology assessment program to analyze the cost effectiveness of new therapies and devices. Research activities are supplemented by a broad industry collaboration initiative, a fundraising initiative, and an education/outreach initiative. Industry collaboration is a major component of CIMIT, which uses a hierarchi- cal mechanism for industry-funded research. CIMIT conducts project-specific re- search funded or performed in conjunction with industry. At the next level, compa- nies interested in multiple areas of CIMIT research may join the CIMIT industrial partnership program in order to gain access to physician consultation, Republication reports, and symposiums. Lastly, corporations with a business interest in integra- tive technologies that would otherwise have to negotiate multiple research agree- ments with multiple departments can become strategic alliance partners of CIMIT, thereby making a long-term commitment to research in minimally invasive therapy and ancillary technologies. Industry gains early access to opinion leaders, novel technologies, and interdepartmental expertise. For CIMIT, industry collaboration provides a research focus as well as additional research dollars. CIMIT enables the Army to leverage research dollars and provides a conduit for transitioning research and technology into clinical practice or the device industry. Academic Medical Centers AMCs conduct research that contributes to the development and diffusion of medical devices. AMCs have been involved in: (1) generating knowledge about human physiology and pathophysiology; (2) developing product ideas, device prototypes, and manufacturing methods; (3) clinical testing and feedback; (4) modifying existing products; and (5) discovering new indications of use. Physiology and Pathophysiology AMCs are an important source of knowledge concerning human physiology and pathophysiology. Understanding the electrophysiology of the heart, for

94 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE example, is critical for designing a pacemaker or implantable defibrillator, as is circulatory physiology for designing artificial hearts and circulatory assist de- vices. Similarly, knowledge of renal physiology, which has been crucial in eluci- dating the pharmacodynamics and pharmacokinetics of hemodialysis, has con- tributed to the development of improved dialysis machines. Research increasingly involves collaborations between basic science departments (e.g., physiology and pharmacology), engineering departments (e.g., mechanical, electrical, and chemi- cal), and clinical departments (e.g., surgery and medicine). Another important research focus is health information systems. Compared to other service industries, especially financial services, the diffusion of informa- tion technology in health care has been slow. The role of university faculty in developing and commercializing health information systems is reviewed in the following case study. Case Study: Development of the Medical Information System Industry in the United States The advent of Medicare and Medicaid in the mid-1960s marked the beginning of the transformation of the health-care delivery system. These federal programs provided enormous new resources for medical care, but also initiated significant new reporting requirements for receiving institutions. The combination of increased patient demand and the need for a more sophisticated administrative infrastructure created a demand for information. At the same time, the development and industrial use of information technology developed to the point that it could be adapted to the health-care industry. One of the major barriers to the transfer and growth of infor- mation technology was the absence of industrial organizations capable of financ- ing, absorbing, and adapting the technology. In the 1960s, most hospitals were charitable institutions, and most physicians were in solo practices. Research in medicine (carried out in medical schools and AMCs) has been concentrated in the scientific and practice arenas, focused on basic causes of disease and the drugs, devices, and procedures to treat them. However, with the entry by the federal government into the direct delivery of medical care, Congress provided funds for research into medical computer applications, mainly through NIH, but also through a number of directed programs in other federal organiza- tions and the newly created National Library of Medicine. By the 1970s, two strategies emerged. The first, derived from the research support of NIH and other agencies, was a new specialty medical informatics- in a relatively small number of institutions and mainly federally supported. The second, the business needs of hospitals and doctors, spawned the development of a growing number of commercial enterprises, often as outgrowths of IBM, which dominated the field of business applications for hospitals. Information technol- ogy rapidly expanded from purely business applications to more clinical areas and, more recently, into decision support areas.

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 95 Compared to other service industries, especially financial services, the dis- persion of information technology in health care has been slow. In 2001, almost 38 years after Medicare and Medicaid were introduced, Healthcare Informatics, which lists the top 100 medical information technology companies by revenue, found only four that had exceeded $1 billion in revenue; the next highest was $523 million, and the next $435 million. Number 100 was $3.7 million. The total market is estimated to be as much as $50 billion (in a health-care industry of more than $1 trillion). The direct, traceable transfer of academically developed systems to commercial use has followed two tracks: (1) direct transfer of results of gov- ernment and/or institution-sponsored programs; and (2) the results of privately funded programs. In the late 1960s, government agencies gave grants to academic institutions for R&D on computer systems. In almost every case, funds were matched by internal institutional funds because it was believed that these projects would also be beneficial to the operation of the hospital. After initial development, the hos- pital either gave or sold the programs to a company to develop systems for other hospitals. The second track was university personnel who left and began start-up companies that have become significant commercial enterprises. An example of a major academic contribution began with research at the Laboratory of Computer Science at the Massachusetts General Hospital (MGH), one of the principal teaching hospitals of Harvard Medical School. Government-sponsored research resulted in important commercial outcomes, such as the language MUMPS (MGH utility multiprogramming system), which went on to be used in many applications and was supported by both a MUMPS users group and the MUMPS Development Committee, which managed the MUMPS ANSI Standard. One early example of an institution-sponsored transfer was the work of Homer Warner of the Latter Day Saints (LDS) Hospital, the principal teaching hospital of the University of Utah Medical School (later named Intermountain Health System), in the development of computerized hospital information sys- tems. LDS developed both MEDLAB and Health Evaluation through Logical Processing (HELP). In the 1980s, the rights were acquired by the 3M Company and commercialized as a leading clinical information system. Another example, which resulted from research funded directly by govern- ment that was spun off into a private company, is Public Health Automated Medical Information System (PHAMIS). Initially, a government contract to auto- mate the records of the public health hospitals was given to Malcolm Glaser at the University of Washington. In the 1980s, the government closed the hospitals and transferred ownership of the resulting information system to Glaser who started the commercial company. The PHAMIS hospital information system was named Lastword. The company went public and was acquired by the IDX company in 1997. The combined company was the tenth largest in the health information technology industry in 2001.

96 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE A second spin-off of MGH was Meditech, now the twentieth largest health information technology company. The principals who developed MUMPS left MGH to form Meditech and it has developed several generations of proprietary languages following MUMPS (MIS and MAGIC) and used them to develop hospital information systems that are now installed in more than one thous- and hospitals. A final example relates to two efforts at the Beth Israel and Peter Bent Brigham Hospitals (PBBH), also principal teaching hospitals of Harvard Medical School. A program begun in 1976 under the leadership of Warner Slack and Howard Bleich, both professors at Harvard Medical School, sponsored mainly by government grants, expanded from research on medical informatics to opera- tional systems for laboratories, pharmacies, other laboratories, and routine ser- vices. A second project (known as BICS) at PBBH focused on order entry and other operational functions. Commercial spin-offs resulted from both projects. A related example involves the work of Dr. Dennis Gillings, a statistician and epidemiologist from the University of North Carolina School of Public Health. Dr. Billings started a company that grew into Quintiles, a major corporation that sup- ports clinical trials, pharmacoeconomics, and the health service research needs of the pharmaceutical, biotechnology, and medical device industries. Examples of privately funded research that have contributed to the industry also abound. One example of the direct translation of an AMC product develop- ment project funded by private dollars to a public company is Transition Sys- tems, Inc. The system was originally developed as an internal clinical cost- accounting system for the growing managed care market. New England Medical Center received private foundation support in 1981 to develop a management control system that combined clinical and financial data. When Medicare shifted from cost-based reimbursement to prospective payments to providers based on diagnosis-related groups (DRGs) in 1984, there was a widespread demand for cost-accounting systems, and New England Medical Center transformed the project team into a corporate spin-off, retaining the majority ownership. The company prospered and went public in conjunction with an investment group partnership 10 years later. A second example is a company whose products were developed by the Health Policy Institute at Boston University. Health Payment Review was formed with venture capital funding to market products that added clinical appropriate- ness to the payment methods of managed care companies. After going public, the company was acquired by HBO, Inc., which, in turn, was acquired by McKesson in 1999, the third largest health information technology company in 2001. The flow of researchers forming new commercial start-up companies contin- ues. The managers of many companies that serve niche markets, such as elec- tronic medical records and disease management, started as participants in aca- demic research teams. Thus, the array of information technology, which is becoming critical to the success of managed care, is likely to be infused with a

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 97 continuing stream of developments from AMCs to industry. However, as AMCs become more insistent on retaining value from the results of their research, they are beginning to take equity positions in companies willing to commercialize their research. For example, the PBBH's BICS system has been incorporated into the public company, Eclypsis, in which Partners Health Care System, the parent of the PBBH, holds an equity position. In conclusion, it appears that the greatest impact of AMC research on informa- tion technology development has come from entrepreneurs who leave academic environments with research experience and ideas of how that experience can be transformed into commercial products. Successful individuals have garnered ven- ture capital and eventually either consolidated companies into larger health infor- mation companies or made public offerings as independent companies. Ideas, Prototypes, and Manufacturing Methods Clinicians/academic researchers not only identify the need for new devices or improvements in existing devices, but, because they are also the eventual users of their devices, they are often the innovators and builders of original prototypes. Von Hippel and Finkelstein (1979), for example, described how users were in- volved in the invention of the automated clinical chemical analyzer. Other studies in the area of renal dialysis, intrauterine devices, catheters, and MRI machines have presented similar findings (Straw, 1987, Gelijns 1991, Gelijns and Rosenberg, 1995; Gelijns et al., 1998~. However, academic researchers are often unable to advance projects beyond a certain point because critical enabling tech- nologies are missing or are too specialized to be developed in the laboratory or elsewhere in the university. To overcome this hurdle, researchers often form partnerships with industrial firms with the applicable technological expertise and interest in the proposed application. The contributions of academic faculty in the development of device proto- types can be documented for the whole clinical spectrum of medical device categories, ranging from diagnostic devices to therapeutic devices. In diagnostic devices, for example, Robert Ledley, professor of physiology, biophysics, and radiology at Georgetown University Medical Center, developed the first proto- type for a whole body CT scanner, patented the device, and created a company, Digital Information Systems, to commercialize it. Pfizer ultimately licensed the device and introduced it into clinical practice in 1975. In therapeutic devices, numerous examples show the central role of clinical faculty in the development of new or modified devices. In gynecological laparoscopy, for example, the gynecologist Kurt Semm at the University of Kiel worked with the device company Storz to develop a whole range of instruments that could be moved through the operative channel of the endoscope or any other cannula (Gelijns and Rosenberg, 1999~. Through Storz's close collaborations with Semm and Hopkins, this firm became the leading manufacturer of

98 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE gynecological laparoscopes worldwide. The cardiologist Andreas Gruentzig, then at the University of Zurich, collaborated with the device firm Schneider to develop the first percutaneous, transluminal, coronary angioplasty catheter. The role of AMCs in the development of focused ultrasound therapies is another case . . In point. Case Study: Development of Focused Ultrasound Therapies Clinical ultrasound works much the same way as radar energy is produced by a transducer, and the reflected energy is received and processed by a receiver. The time between signal transmission and reception correlates directly with dis- tance, and the amplitude of the return indicates the material properties of the reflecting surface. When an array of acoustic transducers is used, the resulting fan-beam image shows distance and amplitude as a function of the placement of the transducer along the array. In this mode, ultrasound is used primarily for diagnostic purposes, such as cardiovascular or fetal imaging. Just as optical lenses can focus light on a single spot, however, acoustic lenses can focus ultrasound on a single spot. In this mode, ultrasound becomes a therapeutic tool, rather than a strictly diagnostic tool. The principles behind using acoustic energy for diagnostic purposes have been known since at least 1942, when researchers at Columbia University dem- onstrated the operation of a focused ultrasound generator capable of producing focal heating in paraffin blocks, liver tissue, and inside the brains of animals (Lynn et al., 1942~. Subsequently, significant advances were made at the Univer- sity of Illinois, as well as the Massachusetts General Hospital and Harvard Medi- cal School. These early applications of focused ultrasound were used to examine central nervous system tissue (Fry et al., 1955) and the brain (Basauri and Lele, 1962; Fry and Fry, 1960; Lele, 1962~. By the late 1970s, the broader use of ultrasound in surgery was considered a viable treatment modality (Fry, 1978; Lele, 1975~. By the 1970s, the dominant obstacle to the use of focused ultrasound for therapy was no longer the delivery of acoustic energy, but the inability to monitor the extent of the therapy. There are two aspects to this obstacle. First, because focused ultrasound must operate with a relatively small focus spot to deliver sufficiently high energy, real-time monitoring of the focus location is necessary to ensure that the entire target zone has been treated. Monitoring is particularly important to determine the duration of the therapy sometimes up to several hours. Second, because the purpose of focused ultrasound therapy is to induce either coagulation or tissue necrosis, the inability to monitor the induced tem- perature changes in the targeted tissue meant that it was nearly impossible to establish rigorous treatment protocols. For these reasons, advances in magnetic resonance (MR) physics, which led to an understanding of how MR can be used to monitor temperature, and the integration of magnetic resonance imaging (MRI)

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 99 with focused ultrasound therapy for image-based guidance became key enabling technologies for using focused ultrasound for therapy. Based on the interrelation- ship between focused ultrasound therapy and MR, companies with significant business interests in high-end imaging equipment, such as GE, began to invest in sponsored research in focused ultrasound. GE sponsored the Brigham and Women's Hospital an AMC affiliated with Harvard Medical School to fur- ther develop this technology. Indeed, the collaboration between Brigham and GE was so complete that GE researchers were contributing, or even leading, authors of several of the major papers on the topic of focused ultrasound (e.g., Cline et al., 1992, 1994~. By the early l990s, the potential for focused ultrasound was beginning to be realized. Numerous studies on the use of focused ultrasound for prostate hyper- plasia were conducted at various AMCs; focused ultrasound therapy on brain tissue without prior removal of a section of the skull was initially demonstrated at Brigham (Hynynen and Jolesz, 1998), as well as new treatment options for the ablation of breast fibroadenomas (Hynynen et al., 2001~. As of the late l990s, numerous research activities in focused ultrasound were under way at the Univer- sity of Michigan, the Mayo Clinic, and elsewhere (Spera, 1998~. Although the market demand for focused ultrasound technology remains low, many clearly believe in its potential. Focus Surgery, Inc., for example, has secured licenses for therapeutic applications of focused ultrasound in a number of organ systems, including the prostate, brain, liver, kidney, pancreas, and breast. MRI manufacturers, including GE, Siemens, and Phillips, are all believed to be actively pursuing this technology (Spera,1998~. Like other imaging technologies (e.g., CT, MR), focused ultrasound is a technology that was born in academic research settings and has gained commercial interest. Industry is now turning to AMCs for both new insights and clinical validations. Clinical Testing and Feedback Improvements in product design depend in large measure on extended clini- cal testing that requires close collaborative relationships between industry and academia, sometimes involving several major medical schools and their teaching hospitals (Gelijns and Rosenberg, 1999~. The clinical data generated by testing not only provide feedback for altering product designs, but also provide a basis for obtaining FDA premarketing and payer coverage approval, and thereby lead to widespread market access. In recent years, spending on clinical trials by indus- try has increased substantially. AMCs have traditionally been involved in the testing of prototype devices and have been the source of patients for extensive clinical trials. AMCs have been the venue of care for patients who need implantable devices and invasive proce- dures. AMC faculty members were often involved in designing, conducting, and analyzing clinical trials, but in the last decade contract research organizations

100 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE (CROs) have captured part of this market (Moskowitz and Thompson, 1997~. CROs are private, for-profit organizations engaged in the management of clinical trials, including protocol design, patient recruitment, data collection, data man- agement, monitoring, and analysis. In the medical device industry, CRO use is not common; only 13 percent of medical device firms use CROs (whereas 90 percent of drug firms use CROs) (Centerwatch, 2001~. Only a small percentage of devices (i.e., Class 3 FDA devices and a small subset of 510(k) devices) must undergo rigorous safety and efficacy evaluation. As a result, the overall number of randomized controlled trials for devices is low. The number is slowly increasing, however, as the FDA grapples with changing its policies about which devices require rigorous evaluation. The FDA must ensure that device trials take into account ethical, technical, and methodological challenges at various stages of the evaluation process. To begin with, choosing the optimal time to initiate a device trial is more of a challenge than the same decision for a pharmaceutical. A pharmaceutical com- pound generally does not undergo substantial changes as it progresses from ani- mal to human studies. Devices, however, undergo extensive modifications and refinements during the development phase, and early evaluations run the risk of failure or, at least, the need for redesign and retesting, which entails time and monetary expenses that few start-up companies can afford. Once the optimal time to begin a clinical evaluation is established, decisions concerning which venue and which clinicians to engage to test the device can have a major effect on how the results of the trial will be interpreted and whether the device is widely adopted. In contrast to pharmaceuticals, the efficacy of a surgically implanted device can be linked to the skill of the implanting surgeon. Thus, con- ducting a trial in a highly specialized medical center that has unique surgical expertise may result in a successful trial but may not lead to widespread use. Blind studies, an important technique for controlling observational bias in evaluating the safety and efficacy of new clinical interventions, is also problem- atic in trials of invasive or implantable devices. The clinician who implants a device cannot implant placebos; blind studies are not possible when the compara- tive therapy is not a device. Randomization is also a problem in device trials, especially in the case of a life-threatening illness, in which case both patient and physician expect that the device is their best hope and would be devastated to learn, up front, that they would not receive the preferred therapy. This deters some patients and physicians from entering into device trials; others might enroll but seek treatment outside the protocol if they don't receive the therapy they want. This might lead to a loss-to-follow-up or out-of-protocol crossover, which could ruin a small-scale trial. The ethical dilemma is heightened when there are no alternative therapies and assignment to a control group means essentially no therapy (Moskowitz and Thompson, 1997~. Measuring survival in trials that compare devices and medical therapies poses methodological challenges. When device therapy involves a high up-front

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 101 operative risk, but subsequently a reduced mortality compared to the control therapy, the survival curves are likely to cross. Analyzing the differences depends on the analytical method chosen and the time frame of the analysis. Most analyti- cal methods (e.g., log-rank, Wilcoxon test) average risk over the follow-up period. So, extending or reducing the follow-up time can potentially reverse the ordering of relative efficacy because less or more weight, respectively, will be given to mortality in the perioperative period (Rose et al., 1999~. Another technical constraint is the limitation of patient recruitment. Devices often have small numbers of potential users and, therefore, few eligible candi- dates for clinical trials. Also, device implantation and monitoring usually require specialized training or skills that may not be available in large enough numbers to conduct trials at several AMCs. University research could make significant contributions to evaluative re- search for medical devices by addressing some of the methodological challenges of device randomized control trials (RCTs). Moreover, academic analysis could clarify the bases for policy changes at the FDA, for example, with respect to the strength and limitations of RCTs, and the implications of expediting the ap- proval process (e.g., shifting some of the premarketing research to the post- marketing setting). Product Modification and Discovery of New Indications of Use Of course, the development process does not end with the widespread intro- duction of new products into practice. Their eventual uses depend on an extensive improvement process that vastly increases their practical applications. Users, often clinicians in AMCs, provide necessary feedback about the shortcomings of new devices. Consider, for instance, the evolution of endoscopes. Today's "cold- light" video-endoscope, with a computer-chip camera at its tip that can be used both for diagnosis and therapy, is a world apart from its predecessor in the 1950s. During those years, for instance, the lamp at the tip of the endoscope could cause serious burns, vision was often restricted, the quality of images was poor, thera- peutic applications were essentially nonexistent, and obtaining permanent docu- mentation of the images was highly problematic. Feedback from users encour- aged manufacturers to develop subsequent generations of endoscopes. Whereas the evolution of endoscopic technology did indeed require a few major improve- ments, such as the introduction of fiber optics and video capabilities, its current characteristics are the result of a continuous flow of refinements that have re- sulted in increased flexibility, miniaturization, and improved visibility, which have vastly expanded the therapeutic possibilities of endoscopy (Gelijns and Rosenberg, 1999~. In addition, clinicians can expand the applications of a device to new clinical uses. In the case of GI endoscopy, for instance, academicians expanded the use of fiber-optic endoscopes from the upper GI tract to gastroenterological areas, such

102 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE as the esophagus, duodenum, and colon. Lasers were originally introduced for ophthalmologic and dermatologic purposes but are currently being used for a wide variety of indications in gynecology, cardiac surgery, and oncology, to name but a few. The identification of new applications, sometimes totally un- expected, is an important contribution of academic researchers to the medical device industry (Rosenberg, 1996; Gelijns et al., 1998~. Mechanisms of Transfer from Academia to Industry Advances have been transferred to industry by various routes. Traditionally, research advances were placed in the public domain either through publications or presentations at conferences. Another common practice was to hire academic researchers as consultants or researchers, sometimes after firms had sponsored their research. Another pathway that has expanded very rapidly in recent decades is university patenting and licensing practices. Pfizer licensed Georgetown's whole body scanner, whereas Syntex, Varian, and GE all entered the CT field by licensing important technical improvements from research at Stanford Univer- sity. University faculty members have also been active in the creation of start-up firms to develop and market their inventions. IMPACT ON INDUSTRIAL PERFORMANCE Past and Present Contributions One of the defining characteristics of the medical devices and equipment sector is a strong dependency between universities and industry. Based on the results of its fact-finding efforts, the panel concludes that academic research has had a substantial impact on the industry's performance. The contribution of universities goes well beyond educating new generations of employees and making fundamental advances in scientific and technological knowledge that may contribute to the development of new medical devices. It includes a high degree of involvement in product development, product evaluation and intro- duction, and product modification. In making this observation, the panel does not wish to diminish the long- term importance of training people in research techniques or making funda- mental advances in the scientific and technological knowledge base. In fact, basic advances in physics, mathematics, and chemistry have directly contrib- uted to a whole range of medical devices and equipment. Moreover, with the integration of the biological sciences and the engineering sciences, as in tissue engineering, the contributions of university research may be even greater in the future. Nevertheless, the panel wants to highlight the role of AMCs in the development, clinical testing and evaluation, modification, and extensions of

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 103 use of prototype devices. The case studies above represent just a few illustra- tions of their importance. Trends, Opportunities, Challenges, and Gaps Although university research has made substantial contributions to the medi- cal devices and equipment industry in the past, the rapidly changing health- care environment is creating both new opportunities and new challenges for university-industry interactions. In recent years, the NIH budget has grown, al- lowing for an increase in research on the biological bases of health and disease. The increase in NIH funding does not, however, obviate the need to address questions about the allocation of these funds for different types of research. Traditionally, NIH support for research closely coupled to the development of medical devices has been limited. Recently, NIH, as well as NSF, created new initiatives to encourage bioengineering research to compensate for the planned closing in 2006 of the Whitaker Foundation, which has provided significant support for bioengineering research in the past (Whitaker Foundation, 2001~. Moreover, most federal investment in biomedical research goes to support laboratory-oriented (or nonhuman subjects) research; much less support is allo- cated for studies of the very diverse activities that come under the rubric of clinical research. The latter have traditionally depended heavily on internal fund- ing from academic health centers, particularly cross-subsidies from patient care revenues. As pressures for cost containment increase and clinical faculty compete for contracts with managed care organizations, however, clinical income has decreased substantially, which means less money is available to cross-subsidize research. In addition, recent studies have shown that academic faculty in regions with high managed care penetration publish fewer papers and are less likely to be awarded NIH grants (Griper and Blumenthal, 1998~. Thus, although NIH funds continue to increase, changes in the financing of medical care are creating serious uncertainties in the funding flow that sustains clinical research. Various disciplines and various schools in universities contribute to the de- velopment of medical devices. However, establishing interdisciplinary links in the university between faculty in the natural sciences and engineering with fac- ulty in medicine has been difficult in the past. With the emergence of new fields of research, such as tissue engineering, and encouraged by interdisciplinary re- search funding initiatives by both NIH and NSF, creating interdisciplinary link- ages may be easier in the future. Although there has been a strong interdependency between universities and medical devices and equipment firms in the past, opportunities are being created for more systematic interactions. With the rapid increase in the costs of conduct- ing research, for example, universities and companies may look for ways to share basic facilities, such as animal laboratories or expensive equipment (e.g., a proton beam unit) (Their, 1998~. Another mechanism for improving university-industry

104 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE relations may be the creation of more systematic research partnerships. One interesting model is the Center for Innovative Minimally Invasive Therapy, which involves faculty from AMCs and the physical and engineering sciences, as well as industry partners (Parrish, 1998~. Systematic partnerships may also have considerable payoffs in product modi- fication and the discovery of new indications of use. For most medical devices, new uses result from application to other organ systems, although these transfers often require design modifications. The first endoscopes, for example, were used for cystoscopy early in this century. In the 1960s, after the development and introduction of fiber optics, GI endoscopy and gynecological laparoscopy be- came well established. It took nearly four decades to transfer laparoscopy from gynecology to general surgery, where it transformed gallbladder surgery. Earlier identification of such secondary indications may have substantial benefits, for society and for industry. Universities are an important location for clinical testing. Universities, as well as private CROs in recent years, have been active in designing, conducting, and analyzing clinical trials. Major questions, however, remain about the appro- priate evaluation of new devices, especially innovative and implantable devices. These questions differ significantly from questions about the evaluation of pharmaceuticals. Traditionally, the research results of AMCs that have been most important in the development of medical devices were not patented but were placed in the public domain through open publication. In recent years, as a result of a number of changes in federal policy, there has been a major upsurge in university patenting and licens- ing. The panel has little doubt that this increase in patenting has strengthened university-industry interactions, to the benefit of both the economy and the univer- sity. Despite these benefits, however, the panel believes some hard thinking and empirical research should be done to assess the consequences of these changes on the role of universities in the innovation system. Have these developments indeed increased the effectiveness of technology transfer from universities to industry? Or would the licensed technologies have been picked up by industry anyhow? And what are the unintended consequences? Are universities changing the nature of their research activities from fundamental, long-range research to applied research? Has the upsurge in university patenting increased the transaction costs of science? Are universities licensing inventions that can be classified exclusively as research tools? All of these questions should be addressed. RECOMMENDATIONS The panel was asked to examine the contributions of academic research to the medical devices and equipent industry and to delineate ways of improving such contributions in the future. This report provides evidence that academic

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 105 research has contributed strongly to industrial performance in the medical de- vices and equipment sector; at the same time, steps can be undertaken to improve these contributions. Recommendation 3-1. The panel concurs with recent recommendations by the Commonwealth Task Force on Academic Health Centers that the National Insti- tutes of Health and other institutions should recognize the importance and vulner- ability of clinical research by increasing support for clinical research at academic medical centers. Recommendation 3-2. Optimizing the contributions of university research will require creating effective linkages between faculty in engineering schools and faculty in medicine. The panel recommends that universities invest in interdisci- plinary centers to generate new knowledge for advancing medical devices and to develop new diagnostic and therapeutic modalities. Universities are also encour- aged to decrease barriers to conducting interdisciplinary research. Funding agen- cies should carefully evaluate new interdisciplinary programs and initiatives in biology/medicine and engineering and encourage the growth of the most promis- ing ones. Recommendation 3-3. Universities and medical device firms should explore ways of creating more systematic partnerships between universities (especially academic medical centers) and industrial firms for the development and evalua- tion of new, cost-effective medical devices. Models worth contemplating include interdisciplinary centers for the development and evaluation of medical devices that include industrial partners, the sharing of expensive facilities (e.g., animal laboratories), exchange fellowships, and the teaching of joint courses. Moreover, the panel believes that both society and the medical device industry would benefit substantially if new indications of use could be identified sooner after the devel- opment of a device. To expedite the discovery of new indications, device manu- facturers might draw more fully on interdisciplinary panels of academic experts who would consider how a new technological capability (e.g., lasers or positron emission tomography) that is useful for one purpose might also be useful (modi- fied as necessary) in another field. Recommendation 3-4. Federal agencies that fund academic research relevant to the medical device industry should support research on the effectiveness of cur- rent incentives for transferring research findings to the industry and ways of improving the transfer process. Given the short product life cycles of many medical devices, the timing of decisions and processes pertaining to transfer affects the short windows of commercial opportunity. Recommendation 3-5. Academic researchers should bring together industry, regulatory, and clinical panels to discuss requirements for device evaluations. Discussions should include regulatory requirements (e.g., market clearance by

106 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE the Food and Drug Administration), third-party payment eligibility, market re- search, and information disseminationlmarketing issues (e.g., direct-to-consumer advertising). Regulation, payment/reimbursement systems, and marketing all have profound effects on the pathway for getting device concepts to users. Therefore, anticipating and understanding regulatory, payment, and marketing needs should be incorporated and fed back into device design and refinement. Academic cen- ters (including business schools) and industry can share considerable insight and expertise in all of these areas. Recommendation 3-6. Given that all parties physicians, patients, manufactur- ers, and payers benefit from the rigorous information on the value of new and improved medical devices, the panel recommends that payers, National Institutes of Health, and medical device firms define the circumstances under which public-private support for device trials is appropriate. REFERENCES AdvaMed (Advanced Medical Technology Association). 2001. U.S. Medical Technology Industry Statistics. Washington, D.C.: AdvaMed. Agnew, B. 1998. Multidisciplinary research: NIH plans bioengineering initiative. Science 280(5369): 1516-1518. Basauri, L., and P.P. Lele. 1962. A simple method for production of trackless focal lesions with focused ultrasound: statistical evaluation of the effects of irradiation on the central nervous system of the cat. Journal of Physiology 160(3): 513-534. Centerwatch. 2001. Assessing change in CRO usage practices. Centerwatch Newsletter 8(1): Article 201. Chronicle Information Resources. 1999. The Chronicle of Cardiovascular and Internal Medicine. Mississauga, Ontario: Chronicle Information Resources Ltd. Cline, H.E., K. Hynynen, C.J. Hardy, R.D. Watkins, J.F. Schenck, and F.A. Jolesz. 1994. MR tem- perature mapping of focused ultrasound surgery. Magnetic Resonance in Medicine 31(6): 628-636. Cline, H.E., J.F. Schenck, K. Hynynen, R.D. Watkins, S.P. Souza, and F.A. Jolesz. 1992. MR-guided focused ultrasound surgery. Journal of Computer Assisted Tomography 16(6): 956-965. Commonwealth Fund Task Force on Academic Health Centers. 1999. From Bench to Bedside: Preserving the Research Mission of Academic Health Centers. Boston, Mass.: The Common- wealth Fund. Director's Panel on Clinical Research. 1997. Report to the Advisory Committee to the NIH Director. Bethesda, Md.: National Institutes of Health. Fry, F.J., ed. 1978. Ultrasound: Its Applications in Medicine and Biology. Part I. New York: Elsevier Press. Fry, W.J., J.W. Barnard, F.J. Fry, R.F. Krumins, and J.F. Brennan. 1955. Ultrasonic lesions in the mammalian central nervous system. Science 122(3168): 517-518. Fry, W.J., and F.J. Fry. 1960. Fundamental neurological research and human neurosurgery using intense ultrasound. IRE Transactions on Medical Electronics 7: 166-181. Gelijns, A.C. 1991. Innovation in Clinical Practice: The Dynamics of Medical Technology Develop- ment. Washington, D.C.: National Academy Press. Gelijns, A.C., and N. Rosenberg. 1995. From the Scalpel to the Scope: Endoscopic Innovations in Gastroenterology, Gynecology, and Surgery. Pp. 67-96 in Medical Innovation at the Cross- roads. Volume VI. Sources of Medical Technology: Universities and Industry, A.C. Gelijns and N. Rosenberg, eds. Washington, D.C.: National Academy Press.

MEDICAL DEVICES AND EQUIPMENT INDUSTRY 107 Gelijns, A.C., and N. Rosenberg. 1999. Diagnostic Devices: An Analysis of Comparative Advan- tages. Pp. 312-358 in The Sources of Industrial Leadership in Seven Industries, D. Mowery and R. Nelson, eds. Boston: Cambridge University Press. Gelijns, A.C., N. Rosenberg, and G. Laubach. 1994. Medical Device Innovation: Opportunities and Barriers for Small Firms. Washington, D.C.: National Academy Press. Gelijns, A.C., N. Rosenberg, and A.J. Moskowitz. 1998. Capturing the unexpected benefits of medi- cal research. New England Journal of Medicine 339(10): 693-698. Goodnight, J. 2002. Statement Submitted to the Record, Committee on Small Business, U.S. House of Representatives. June 21, 2001. Available online at: www.hhs.gov/asl~testify/tO10621.html. [June 24, 2003] Griner, P., and D. Blumenthal. 1998. Reforming the structure and management of academic medical centers: case studies of ten institutions. Academic Medicine 73: 817-825. Healthcare Informatics. 2001. The Healthcare Informatics 100. Available online at: http:// www.healthcare-informatics.com/issues/2001/06_01/junOl.htm. [June 24, 2003] Herman, W.A., D.E. Marlowe, and H. Rudolph. 1998. Future Trends in Medical Device Technology: Results of an Expert Survey. Rockville, Md: Center for Devices and Radiological Health, U.S. Food and Drug Administration. Available online at: http://www.fda.gov/cdrh/ost/trends/ TOC.html. [June 24, 2003] Hopkins, H.H., and N.S. Kapany. 1954. A flexible fibrescope, using static scanning. Nature 173: 39-41. Hynynen, K., and F.A. Jolesz. 1998. Demonstration of potential noninvasive ultrasound brain therapy through an intact skull. Ultrasound in Medicine and Biology 24(2): 275-283. Hynynen, K., O. Pomeroy, D.N. Smith, P.E. Huber, N.J. McDannold, J. Kettenbach, J. Baum, S. Singer, and F.A. Jolesz. 2001. MR imaging-guided focused ultrasound surgery of fibro- adenomas in the breast: a feasibility study. Radiology 219(1): 176-185. Iglehart, J.K. 1994. Rapid changes for academic medical centers. Part 1. New England Journal of Medicine 331(20): 1391-1395. Keller, K.H. 1998. How are Changes in the Health Care Environment Affecting University-Industry Research Collaboration? Presentation at the NAE workshop on Medical Devices and the University-Industry Connection: Future Directions, Washington, D.C., November 2, 1998. Lele, P.P. 1962. A simple method for production of trackless focal lesions with focused ultrasound. Journal of Physiology 160: 494-512. Lele, P.P. 1975. Ultrasound in surgery. Pp. 325-340 in Fundamental and Applied Aspects of Non- ionizing Radiation, S.M. Michaelson, E.L. Carstensen, R. Magin, and M.W. Miller, eds. New York: Plenum Press. Lewin Group. 2000. Outlook for Medical Technology Innovation. Washington, D.C.: Health Indus- try Manufacturers Association. Littell, C.L. 1994. Datawatch. Innovation in medical technology: reading the indicators. Health Affairs 13(3): 226-235. Lynn, J.G., R.L. Zwemer, A.J. Chick, and A.E. Miller. 1942. A new method for the generation and use of focused ultrasound in experimental biology. Journal of General Physiology 26(1): 179-193. Lysaght, M.J., N.A. Nguy, and K. Sullivan. 1998. An economic survey of the emerging tissue engineering industry. Tissue Engineering 4(3): 231-238. McGraw-Hill and U.S. Department of Commerce. 2000. U.S. Industry and Trade Outlook '00. New York: McGraw-Hill. Moskowitz, J., and J.N. Thompson. 1997. Preventing the extinction of the clinical research eco- system. Journal of the American Medical Association 278(1): 241-245. NSF (National Science Foundation). 2000. Federal R&D Funding by Budget Function: Fiscal Years 1998-2000. Arlington, Va.: NSF. NSF. 2001. Federal Funds for Research and Development: Fiscal Years 1999, 2000, 2001. Arlington, Va.: NSF. OTA (Office of Technology Assessment). 1984. Federal Policies and the Medical Devices Industry. Washington, D.C.: Government Printing Office.

108 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE Parrish, J. 1998. Why CIMIT? Why Now? Research Perspectives Online. Available online at: http.// www.mgh.harvard.edu/DEPTS/puba~airs/ResearchPerspectives/Aug98whyCIMIT.htm. [June 24,2003] Rose, E.A., A.J. Moskowitz, M. Packer, J.A. Sollano, D.L. Williams, A.R. Tierney, D.F. Heitjan, P. Meier, D.D. Ascheim, R.G. Levitan, A.D. Weinberg, L.W. Stevenson, P.A. Shapiro, R.M. Lazar, J.T. Watson, D.J. Goldstein, and A.C. Gelijns. 1999. The REMATCH trial: rationale, design, and end points: randomized evaluation of mechanical assistance for the treatment of congestive heart failure. Annals of Thoracic Surgery 67(3): 723-730. Rosenberg, N. 1996. Uncertainty and Technological Change. Pp. 334-356 in the Mosaic of Eco- nomic Growth, R. Landau, T. Taylor, and G. Wright, eds. Palo Alto, Calif.: Stanford Univer- sity Press. Rosenberg, N. 2000. Interfaces between Universities and Industry. Submitted to the Canadian Center for Advanced Studies. Shaw, B.F. 1987. The Role of the Interaction between the Manufacturer and the User in the Techno- logical Innovation Process. Ph.D. dissertation. University of Sussex, Sussex, United Kingdom. Spera, G. 1998. The next wave in minimally invasive surgery. Medical Device and Diagnostic Industry 20(8): 36-44. Spetz, J. 1995. Physicians and Physicists: The Interdisciplinary Introduction of the Laser to Medi- cine. Pp. 41-66 in Sources of Medical Technology: Universities and Industry, N. Rosenberg, A. Gelijns, and H. Dawkins, eds. Washington, D.C.: National Academy Press. Thier, S. 1998. Academic Medicine and the Development of Prototype Technology. Presentation at the NAE workshop on Medical Devices and the University-Industry Connection: Future Direc- tions, Washington, D.C., November 2, 1998. U.S. Bureau of the Census. 2001. Statistics for Industrial Groups and Industries, 1999. Annual Survey of Manufacturers. Washington, D.C.: U.S. Government Printing Office. van Heel, A.C.S. 1954. A new method of transporting optical images without aberrations. Nature 173: 39. Von Hippel, E.A., and S.N. Finkelstein. 1979. Analysis of innovation in automated clinical chemis- try analyzers. Science and Public Policy 6(1): 24-37. Watson, J.T., et.al. 1994. NHLBI Program History. Pp. 27-32 in Report of the Workshop on the Artificial Heart: Planning for Evolving Technologies. Bethesda, Md.: National Institutes of Health. Whitaker Foundation. 2001. Grant Programs to Phase Out. Available online at: http:// www.whitaker.org/news/phaseout.html. [June 24, 2003] Wilkerson Group. 1995. Forces Reshaping the Performance and Contribution of the U.S. Medical Device Industry. Washington, D.C.: Health Industry Manufacturers Association. Zemel, T. 2002. Venture Capital Investment Stabilizes in 4Q01, According to VentureOne. Press Release, January 28, 2002. San Francisco: VentureOne.

109 ADDENDUM E-mai} Questionnaire The following questionnaire was sent to selected individuals in various parts of the medical devices and equipment industry, some of whom attended the November 1998 workshop. Included among the respondents were senior execu- tives at Biomet, Inc., the Center for Integration of Medicine and Innovative Technologies, General Electric Company, Health Quality, IBM, Johnson & Johnson, MedInTec, Inc., Pfizer, and RAND Corporation; professors with ex- pertise in biomedical engineering, mechanical engineering, medical innovation management, and policy from Draper Laboratories, Massachusetts Institute of Technology, and Washington University; and a representative of the Food and Drug Administration. THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE Medical Devices Panel We invite your responses to the questions that follow. In addition, please feel free to add any general comments or responses under Question 11 below. Your responses will be used by our Panel as background information for our report. Any material used verbatim will not be attributed to you without seeking . . your permission. 1. Could you describe briefly significant academic (i.e., university-based research basic, applied, clinical, etc.) research contributions to the medical devices and equipment industry? (If possible, please supply references to pub- lished information that outlines the contributions.) 2. Overall, would you describe the impact of academic research on industrial performance in the medical devices and equipment industry as (Please put an X in one box): 1. very large 2. large 3. medium 4. small ~ 5. very small/non-existent 3. What is the role of academic research in educating people who work in your industry? (Please focus on university research activities, rather than univer- sity education generally.)

110 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE 4. What structural forms of university-industry collaboration lead to good results in your industry? An example of such a structure might be a discipline- or industry-oriented "center" that solicits industry sponsors for a collection of projects that span a varied research program, or an academic medical center that provides a venue for clinical research. What seem to be the essential determi- nants of success of such structures? 5. What are significant emerging trends or problems that the medical devices and equipment industry will face in the future that could benefit from aca- demic research? 6. What changes are required, if any, in academic research if it is to be responsive to these industrial trends and problems? 7. What single step could be taken by universities to enhance the impact of academic research on the industry? 8. What single step could be taken by companies to enhance the impact of academic research on industry? 9. What single step could be taken by government to enhance the impact of academic research on industry? 10. Do you see any downside to enhanced university-industry research col- laboration? Things to be avoided? 11. Other comments? Any comments, pointers to other studies, or sugges- tions would be appreciated.

MEDICAL DEVICES AND EQUIPMENT INDUSTRY Workshop Agenda MEDICAL DEVICES AND THE UNIVERSITY-INDUSTRY CONNECTION: FUTURE DIRECTIONS November 2, 1998 National Academies Building 2101 Constitution Avenue .NW. Washington, D.C. 111 9:00 a.m. Welcoming Remarks and Overview of the Broader NAE Project Jerome Grossman, President, HealthQuality, Inc. 9:15 a.m. Overview of the Work of the Medical Devices and Equipment Panel Annetine Gelijns, (Panel ChairJ, Director, International Center for Health Outcomes and Innovation Research, Columbia Presbyterian Medical Center 9:40 a.m. How are Changes in the Health Care Environment Affecting University-Industry Research Collaboration? Kenneth Keller, University of Minnesota 10:15 Break 10:30 a.m. Session I. Basic Academic Scientific and Engineering Research: Contributions to the Medical Device Industry Moderator: Clifford Goodman, The Lewin Group Speaker: Donald Engelman, Yale University Speaker: Robert Ne rem, Georgia Institute of Technology Respondent: John Linehan, The Whitaker Foundation 12 p.m. Lunch in Meeting Room 12:45 p.m. Session II. Academic Medicine and the Development of Proto- type Technology Moderator: Nathan Rosenberg, Stanford University Speaker: Samuel Thier, Partners Health Care Respondent: Paul Citron, Medtronic, Inc.

112 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE 2:15p.m. Break 2:30 p.m. Session III. Clinical Evaluative Research on Medical Devices: University-Industry Interactions Moderator: Frederick Telling, Pfizer, Inc. Speaker: Richard Rettig, RAND Speaker: Alan Moskowitz, Columbia Presbyterian Medical Center 4:00 p.m. Open Discussion. What have we learned today about the impact of academic research on performance in the medical device industry? How can the university research contribution and impact be enhanced? 4:45 p.m. Closing Remarks Jerome Grossman

MEDICAL DEVICES AND EQUIPMENT INDUSTRY Workshop Attendees Annetine Gelijns, chair * Director, International Center for Health Outcomes and Innovation Research Columbia Medical Center James Benson HIMA S. Morry Blumenfeld General Manager, Global Advanced Technology GE Medical Systems Paul Citron * Vice President, Science and Technology Medtronic, Inc. Diane Davies Pfizer Donald M. Engelman * Professor, Department of Molecular Biophysics and Biochemistry Yale University Marilyn Field Institute of Medicine Robert Fischell MedIntec Clifford Goodman The Lewin Group *Parley member 113 Jeanne Griffith Director, Science Resources Studies Division National Science Foundation Jerome H. Grossman * President and CEO Health Quality Inc. Elizabeth Jacobson Deputy Director for Science Center for Devices and Radiological Health Kenneth H. Keller HHH Institute for Public Affairs John Linehan The Whitaker Foundation Stephen Merrill National Research Council Dane Miller Airport Industrial Park Warsaw, Indiana Alan Moskowitz Columbia Medical Center Richard Nelson Columbia University Robert M. Nerem School of Mechanical Engineering Georgia Institute of Technology

114 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE John Parrish Center for Innovative Minimally Invasive Therapy Massachusetts General Hospital Homer Pien * Manager, Biomedical Technologies, and Head, Image Recognition Systems Laboratory C.S. Draper Laboratory Peer M. Portner President, Novacor Division Baxter CVG Richard A. Rettig Senior Social Scientist RAND Edward B. Roberts School of Management Massachusetts Institute of Technology Nathan Rosenberg Center for Economic Policy Research Stanford University NAE Program Office Staff Tom Weimer, Director Proctor Reid, Associate Director Nathan Kahl, Project Assistant Robert Morgan, NAE Fellow and Senior Analyst *Parley member Stephen I. Shapiro Managing Director The Wilkerson Group, Inc. Kenneth Shine President (until 2002) Institute of Medicine John S. Taylor Director of Research National Venture Capital Association Frederick Telling * Vice President Pfizer Samuel O. Thier President and CEO Partners Health Care Systems, Inc. John T. Watson Acting Deputy Director National Heart, Lung, and Blood Institute

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Drawing on the findings of sector-specific workshops, e-mail surveys, research literature, expert testimony, and committee and panel members’ expertise, this National Academy of Engineering study assesses the qualitative impact of academic research on five industries—network systems and communications; medical devices and equipment; aerospace; transportation, distribution, and logistics services; and financial services. The book documents the range and significance of academic research contributions to the five industries—comparing the importance of different types of contributions, the multi- and interdisciplinary nature of these contributions, and the multiple vectors by which academic research is linked to each industry. The book calls for action to address six cross-cutting challenges to university-industry interactions: the growing disciplinary and time-horizon-related imbalances in federal R&D funding, barriers to university-industry interaction in service industries, the critical role of academic research in the advancement of information technology, the role of academic research in the regulation of industry, the impact of technology transfer activities on core university research and education missions, and the search for new pathways and mechanisms to enhance the contributions of academic research to industry. The book also includes findings and recommendations specific to each industry.

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