Medical Device Link.

Originally Published MX July/August 2004

COVER STORY

Top industry leaders who are reshaping their companies, the medtech industry, and the future of healthcare.

Steve Halasey and Courtney Harris

Executives in medical technology companies often wear a lot of hats. This wide-ranging involvement frequently provides medtech executives with just the sort of experience necessary to exercise leadership in an industry that is known for innovation. Such leadership often begins at home, with individuals who are dedicated to advancing their company's technologies and products and growing their own business. But whatever their company's size, many medtech executives also make significant contributions to advancing industry goals and improving the delivery of healthcare to patients.

In this issue, MX profiles 14 company executives whose ideas and energies are making a difference in their own companies and in other areas of industry concern. During the past year, these leaders have been involved in notable activities on behalf of their own companies and industry, and their achievements are helping to reshape the future of healthcare in the United States and throughout the world.

Big Dealers

Jeffrey R. Immelt, chairman and CEO General Electric Co.

Large, diversified, multinational companies may have the wherewithal to do big deals, but few leaders of such companies have the vision to make medical technology the focus of their deals.

Such a limitation certainly doesn't apply to Jeffrey R. Immelt, chairman and CEO of General Electric Co. (Fairfield, CT), who formerly headed the company's medical systems unit before assuming the top spot from legendary GE boss Jack Welch in September 2001. In the past several years, Immelt has led the company through a number of acquisitions that have made GE the world's second-largest medtech manufacturer.

Two of GE's biggest deals have come in the past year alone. The company closed the first of these last October, when it completed the purchase of Finland's Instrumentarium for $2.3 billion. But even before the ink was dry on that deal, Immelt announced GE's intention to acquire the UK's Amersham plc for a whopping $9.5 billion.

To many industry analysts, it is no surprise that Immelt has targeted medical technology as a key area of growth for his diversified company. Before becoming chairman and CEO for all of GE, Immelt led GE Medical Systems through a period of technological advances and solid business gains.

More than merely the temporary interest of a broadly diversified company, under Immelt's leadership GE's commitment to the future of healthcare seems like the real deal. And although Immelt hasn't tipped his hand with regard to potential acquisition targets for the future, this is one company leader who clearly has an eye for making medtech deals.

J. Raymond Elliott, chairman, president, and CEO Zimmer Holdings Inc.

When J. Raymond Elliott, CEO of Zimmer Holdings Inc. (Warsaw, IN), promised shareholders that 2003 would be a great year for the company, perhaps even he didn't realize just how great it would be. With the surprise acquisition of Switzerland's Centerpulse AG, Zimmer emerged as the world's largest pure-play orthopedics company—gaining entry into the high-growth spine segment and increasing its market presence in Europe.

The Centerpulse deal was valued at $3.1 billion, placing it in the upper echelon of medtech acquisitions, but still well below record size. Nevertheless, it was one of the most closely watched and widely reported bidding wars in the history of the industry. With the ink just about dry on a bid for Centerpulse by Smith & Nephew plc (London), Elliott and his firm came in from out of the blue, upped the ante by $900 million, and held on in the ensuing struggle to ride off with the prize.

Zimmer continues to post solid gains. Revenues in 2003 totaled $1.9 billion, a 39% increase over 2002. The full-year pro forma performance of Zimmer and Centerpulse was $2.6 billion.

And what's the outlook for Zimmer in 2004 and beyond? According to Elliott, "We will be a bigger company with a bigger sales force, a bigger product portfolio, a bigger market presence, and a bigger manufacturing and distribution footprint."

And, as Elliott likes to say, "In this case, bigger is better!"

Robert D. Walter, chairman and CEO Cardinal Health Inc.

Few medtech executives have used the acquisition route to fuel growth and expansion as aggressively as Robert D. Walter, chairman and CEO of Cardinal Health Inc. (Dublin, OH).

Cardinal originated in 1971 as a food wholesaling business that was purchased as part of a $1.5 million leveraged buyout by the then-26-year-old Walter. Since then, the company has grown to become a $51 billion business with 50,000 employees on five continents.

The company's most recent acquisition is Alaris Corp. (San Diego), a manufacturer of intravenous products, equipment, and services for both drug and infusion therapy. In a conference call, Walter described the synergies as "large, achievable, and near term." Yet some analysts have speculated that Cardinal paid too much for Alaris, whose purchase price of $1.6 billion is roughly three times the company's 2003 revenues.

To Walter, that's a familiar refrain—and one for which he has a solid track record of proving the naysayers wrong. With 3000 employees, Alaris has a prolific product pipeline—introducing 19 new offerings in 2003 with 20 or more on tap for this year. That's of particular importance to Cardinal—as is the fact that Alaris generates 30% of its revenues from overseas markets. As Walter sees it, "access to new product lines plus the efforts of our combined sales team will present significant opportunities for growth—particularly in Western Europe."

It remains to be seen whether Cardinal's latest acquisition will match Walter's high expectations for such deals. But with the experience that Walter brings to the process, one has to imagine that the chances for success are pretty high.

Public Policy Gurus

Paul T. Touhey Jr., president and COO Fujirebio Diagnostics Inc.

Paul Touhey is president and COO of Fujirebio Diagnostics Inc. (Malvern, PA), a subsidiary of Fujirebio Inc. (Tokyo). He is also the immediate past chairman of the Medical Device Manufacturers Association (MDMA; Washington, DC), a national trade association for the U.S. medical device industry.

Touhey has frequently urged industry executives to become more involved in trade associations. "Every day, congressmen and senators are making decisions that affect our businesses—and many times not in a positive way. Active trade association membership should be a prerequisite for every CEO. Otherwise, they are shortchanging their investors, employees, and customers.

Touhey's initiation to public policy issues came soon after he became an MDMA board member. He represented MDMA and its member companies in the negotiations with Congress and FDA that resulted in enactment of the FDA Modernization Act of 1997. Since then, he has also served as a member of the FDA/Industry grassroots task force. "Especially over the last decade, FDA interest in obtaining input from industry has increased," says Touhey.

Touhey has also become heavily involved in monitoring FDA's implementation of the Medical Device User Fee and Modernization Act of 2002. In December 2003, he spoke on behalf of industry at a meeting of stakeholders convened by FDA. "The most serious ongoing challenge facing industry, FDA, and Congress is ensuring that the user fee legislation is effective and implemented as intended," he says.

Touhey is skeptical of some proposals to 'fix' the user-fee act. "There is currently talk of passing a bill to absolve Congress of its funding obligations under the user fee act," he notes. "This is wrong. Industry has stepped up and Congress must do the same—and then FDA must meet the requirements to improve its performance in rapidly reviewing product applications."

Robert H. O'Holla, vice president for regulatory affairs, medical devices and diagnostic group Johnson & Johnson Co.

When it comes to representing industry views on public policy issues, few company executives can match the experience of Robert H. O'Holla, vice president for regulatory affairs in the medical devices and diagnostic group of Johnson & Johnson Co. (New Brunswick, NJ). In his role at J&J, which he has held since 1990, O'Holla is responsible for focusing regulatory activities for all of the corporation's medical device companies. He represents J&J to trade associations, FDA, and other government agencies.

Working with industry association AdvaMed (Washington, DC), O'Holla has served on dozens of committees devoted to developing industry viewpoints and negotiating with regulatory agencies.

According to O'Holla, there are several current challenges facing the device industry on the regulatory front. First, he says, is the user fee program for medical devices, which has been in place for the past two years. "It is important for this program to succeed if we are to ensure that FDA's Center for Devices and Radiological Health has the resources and expertise to see that patients have rapid access to new medical technologies," says O'Holla. "But it is also clear that some fine tuning is necessary to keep the program viable."

Second, says O'Holla, is the trend toward the development of drug-and-device combination products. This trend, he says, "will continue to test FDA's ability to regulate products that do not neatly fit into the old definitions of a drug or device for regulatory purposes."

O'Holla is currently president-elect of the Regulatory Affairs Professionals Society (RAPS), a post he took on January 1, 2004. In keeping with the organization's three-year rotation of officers, he will serve as president in 2005 and as chairman in 2006.

Making sure that regulatory policy reflects the needs of industry is an important activity, says O'Holla. "It's vitally important that regulatory paradigms and structures be able to handle the types of products and technologies we see coming down the pipeline."

Richard J. Naples, vice president for regulatory submissions, reimbursement, and government affairs Roche Diagnostics

Ask anyone in the sector and they'll tell you: in vitro diagnostics are different. And the same goes for the challenges of shaping public policy for the sector.

Richard J. Naples, vice president for regulatory submissions, reimbursement, and government affairs at Roche Diagnostics (Indianapolis), brings a unique perspective to this arena of regulated healthcare. He has more than 25 years of experience in the clinical laboratory industry, including work experience as a lab manager, FDA scientific reviewer, and a healthcare executive for one of the world's leading developers of IVD technologies.

Naples is a recognized leader in the U.S. diagnostics industry, chairing numerous industrywide efforts to ensure technology-sustaining healthcare policies. "For 2004, one of Roche's top-five priorities is doing more to shape healthcare policies," says Naples. "We believe this is the only way to ensure new genetic technologies are effectively integrated into clinical standards of care. Shaping policy is so important that we have recently opened a new federal government affairs office in Washington, DC, which will represent both of Roche's core businesses, diagnostics and pharmaceuticals."

According to Naples, Roche believes that the reimbursement arena represents the greatest challenges and opportunities for the IVD industry around the globe. "Advances in healthcare combined with the growth of our aging population will create an unrelenting demand for new technologies. However, questions remain whether payers can afford all this new technology and whether IVDs will get their fair share," says Naples.

To resolve this problem, companies in the IVD industry must take a more active role in the development of national reimbursement policy, especially in the area of molecular diagnostic tests, says Naples. "Roche is working with AdvaMed to develop a five-year strategy for reforming the IVD reimbursement system," he says. "The goals of this initiative are threefold: to develop data that demonstrate the value of diagnostics in improving health outcomes; to reform payment systems to recognize this value; and to ensure reasonable standards of evidence for IVDs."

Great Communications

Peter L. Gove, vice president for corporate relations St. Jude Medical

The changing demands of the healthcare marketplace present a variety of challenges for leaders who handle their companies' communications. At St. Jude Medical (St. Paul, MN), that's the role of Peter L. Gove, vice president for corporate relations.

"What has altered the responsibilities of public relations and government affairs professionals the past few years has been the need to communicate the value of advanced medical technology in an environment of rising healthcare costs," he says.

"Technology and product communications in our industry have moved from specifications and features to evidence, outcomes, and cost-effectiveness," notes Gove. "We are now frequently engaged in communications challenges and opportunities with public and private payers—in addition to the more traditional communications to clinicians and specialty societies."

The challenges of communicating a company's message are made more complex because companies must now address a wider variety of stakeholders. For St. Jude Medical, Gove considers clinicians and other healthcare professionals, patients, employees, investors, payers, and government decision makers all to be key audiences of the company. "The amount of information and level of detail required by these audiences differ, as does the timeliness of communications," says Gove. "That is a challenge, particularly in designing marketing communications programs for physician specialists and patients."

Gove serves on the boards of directors of QRS Diagnostic LLC (Plymouth, MN); Information for Public Affairs Inc. (Sacramento, CA); the Medical Technology Leadership Forum; and Medical Alley, Minnesota's healthcare technology association.

Gove considers his extramural service an important factor in the success of his efforts at St. Jude. "Public policy decisions are so important to global medical technology companies in terms of market access, regulatory, and reimbursement issues," he says. "I don't believe you can be successful in a communications and public affairs executive position in this industry unless you leverage your own company's resources with your industry association."

Money Managers

Michael A. Baker, president and CEO ArthroCare Corp.

Sometimes optimizing the success of a growing medtech company requires an experienced hand. Fortunately for ArthroCare Corp. (Sunnyvale, CA), that's precisely the kind of contribution that Michael A. Baker is making in his role as company president and chief executive officer.

Baker joined ArthroCare in 1997, 18 months after the company's first product shipment in the arthroscopy market. Recognizing that the company's approach to arthroscopic surgery constituted a platform technology—applicable to nearly any surgery in which soft tissue must be removed—Baker developed a strategic plan to leverage ArthroCare's patented coblation technology across a variety of surgical markets.

Coblation uses low-temperature radio-frequency energy to gently and precisely dissolve rather than burn soft tissue, minimizing damage to healthy tissue. Following Baker's lead, ArthroCare has expanded beyond arthroscopy to commercialize its coblation technology across several medical specialties, including the spine/neurologic; ear, nose and throat; cosmetic; urologic; gynecologic; and laparoscopic/general surgical markets. According to ArthroCare, the company's market opportunity today totals about $6.4 billion. To date, coblation-based products have been used in more than 2.5 million surgical procedures worldwide.

The company's financial growth has also been solid. Since Baker joined ArthroCare, the company's revenues have grown from $6 million in 1996 to $119 million in 2003. For the first quarter of 2004, the company reported product revenues of $34.3 million, a 30% increase over the $26.4 million recorded in the same quarter of 2003.

Henry L. Nordhoff, chairman, president, and CEO Gen-Probe Inc.

In the words of chairman, president, and CEO Henry L. Nordhoff, 2003 was "an excellent year" for Gen-Probe Inc. (San Diego). He could hardly be accused of overstatement.

Last year, under Nordhoff's stewardship, Gen-Probe celebrated its 20th anniversary and completed its first full year as an independent public company, achieving record revenues and earnings.

Gen-Probe was formerly a subsidiary of Chugai Pharmaceutical Company, Ltd. (Tokyo). Following its spin-off in September 2002, Gen-Probe's total revenues increased 33%, from approximately $155 million in 2002 to more than $207 million in 2003. Based on this strong financial performance, Gen-Probe's share price more than tripled, from $11.90 to $36.47 on a split-adjusted basis.

In addition to its robust financial performance, Gen-Probe also achieved several regulatory and development milestones in 2003. In December, the company received FDA approval to test for certain sexually transmitted diseases on its Tigris instrument, the first integrated, fully automated, high-throughput testing platform for the molecular diagnostics industry. Gen-Probe also acquired from DiagnoCure Inc. (Quebec) exclusive, worldwide rights to a gene called PCA3, a new prostate cancer marker.

For Nordhoff, Gen-Probe's accomplishments are directly attributable to its people. "As I think about Gen-Probe's future, I have tremendous confidence in our employees' ability to continue the outstanding innovation and execution that have made us so successful to date," he said in a March annual letter to shareholders. "We are excited about our future, and believe we are gaining momentum as a newly independent company."

Leading by Example

John P. Friel, president and CEO Medrad Inc.

At Medrad Inc. (Indianola, PA), perseverance is not taken lightly. Last year the medical imaging company received the nation's highest honor for business excellence. For Medrad, receiving the 2003 Malcolm Baldrige National Quality Award was a milestone following a 15-year commitment to integrate Baldrige principles into its daily operations.

At the helm of the journey was John P. Friel, Medrad president and CEO. Friel received the Baldrige award on behalf of Medrad's 1200 employees at a March ceremony in Washington, DC, where President Bush complimented Friel's executive leadership. "John has built a culture where everyone at the company has a voice in the way things are done," Bush said.

Friel is quick to point out that the employees are the real reason behind Medrad's success. He says the Baldrige criteria—a series of best practices that companies from all industries can use to improve manufacturing and other operations—helped Medrad to determine what to invest in, including human resources.

For Friel, leading Medrad toward performance excellence takes continued focus and effort. "You have to have the whole organization committed to it," he says. "You can't just pursue it in sales and marketing and not in research and development—it has to be across the board. It reaches into the core of business operations.

"At Medrad, we do Baldrige every day—it's not some kind of special project sitting in a corner," he says. "It is the way we run the company."

Mary C. Cade, vice president and senior counsel Medtronic Inc.

In the view of Mary C. Cade, vice president and senior counsel at Medtronic Inc. (Minneapolis), integrity means everything. During the past year, Cade has devoted much of her time to updating a code of conduct and business conduct standards for Medtronic, as well as a revised code of ethics for industry association AdvaMed (Washington, DC).

Cade has held her current position at Medtronic since 1999. In that time, she has developed and currently manages a shared legal services team that provides counsel and training in legal and regulatory areas that are core to the company's businesses.

Cade's vision and support of a medtech industry code of conduct is unwavering. "It is critical that a code of ethics for the medical device industry recognize and preserve the essential collaborative relationships between industry and healthcare professionals," says Cade. "On the other hand, it is also critical that industry behave with the highest of ethical standards and avoid even the appearance of impropriety." Adherence to such stringent standards is necessary, she says, because patient trust and the delivery of high-quality healthcare depend upon the integrity of the relationships between the medical device industry and healthcare professionals.

Many of the provisions of AdvaMed's revised code have been incorporated into Medtronic's business conduct standards, says Cade. Likewise, AdvaMed's revised code reflects many of the provisions that already existed in the Medtronic business conduct standards.

"Medical devices are not created in a vacuum," says Cade. "The development of cutting-edge medical technology, as well as the improvement of existing products, is a collaborative process between device companies and physicians. This collaboration includes the development of intellectual property, research to provide safety and effectiveness data, training on the use and surgical implantation of complex technology, as well as other initiatives that improve healthcare."

"Medtronic's revised U.S. business conduct standards—by incorporating both the letter and the spirit of the revised AdvaMed code—take that initiative to the next level," says Cade.

Kristine A. Rapp, vice president of ethics and compliance Hospira Inc.

"Leadership by example is essential." So says Kristine Rapp, vice president of ethics and compliance for Hospira Inc. (Lake Forest, IL), describing the challenge of persuading medical technology companies to implement the recently revised code of ethics from industry association AdvaMed (Washington, DC).

Rapp is a special representative to AdvaMed. Since June 2002, she has chaired the working group responsible for the revision and implementation of the AdvaMed Code of Ethics for Interactions with Healthcare Professionals. The revised AdvaMed code was adopted in September 2003 and became effective in January 2004. The voluntary code provides companies with information to facilitate ethical interactions with their physician partners and others in the healthcare community.

"Changing long-standing industry practices is not an easy process; it is something all AdvaMed member companies have to actively work toward," says Rapp. "Evoking change within an industry starts with the leadership at the individual companies. The message regarding ethical behavior and compliance with the code must come from the top of each company."

In order to ensure that AdvaMed's member companies successfully implement the association's revised code of ethics, AdvaMed will focus on enhancing awareness of the code among healthcare professionals through a multifaceted outreach program, says Rapp. She says education activities will include training for healthcare professionals, published articles, conference speeches, and on-line assistance through AdvaMed's Web site.

Plugged In

Neal L. Patterson, chairman, cofounder and CEO Cerner Corp.

Is the healthcare industry finally ready to embrace and implement Neal Patterson's long-held vision of information-driven medical enterprise systems that reduce errors, eliminate waste and duplication, streamline care, and provide real savings to hospitals?

The chairman, cofounder, and CEO of Cerner Corp. (Kansas City, MO), Patterson acknowledges that there have been numerous missteps and false hopes in the past. And, in spite of his company's success, such errors have left a legacy of islands of automation in a sea of paper-based records.

Yet Patterson is bullish on the future, believing that healthcare is finally getting serious about implementing information technology. The movement appears particularly strong in light of federal mandates such as the Health Insurance Portability and Accountability Act (HIPAA) and the Bush administration's recent call for the nationwide adoption of electronic medical records.

Cerner is the world's largest stand-alone provider of clinical information systems, with 5000 employees and 1500 healthcare clients around the world. Patterson launched the company in 1979 with two other systems consultant colleagues from Arthur Anderson LLP (Chicago).

Patterson, 54, is widely recognized as a fervent and articulate advocate of medical IT and speaks frequently at industry conferences. He brings that same passion to his own company. Although Cerner did not achieve all it hoped for in its bid for a share of the UK's National Health Service connectivity initiative, the company continues to post impressive gains. Cerner stock is up 130% since 1998, and 2003 revenues of $839.6 million reflected an 11.6% gain over 2002.

Ruedi G. Laupper, chairman emeritus, founder, and chief technology officer Swissray International Inc.

"The challenge of designing the perfect radiography system has always been my first love and I look forward to having more time to focus on new innovations." That's how Ruedi Laupper announced his decision last November to step down as CEO of Swissray International Inc. (Elizabeth, NJ) and assume his new role as chairman emeritus and chief technology officer.

In his many years of work with radiography systems, Laupper noted the inefficiency of conventional equipment. He speculated that the market—now in the age of information technology—would soon demand an all-digital system that would provide a better image; enable quick clinical review and fast transmission, storage, and retrieval of image documents; decrease space requirements; reduce the hazards associated with chemically dependent film-based systems; and—most important to Laupper—enable radiology departments to increase their patient throughput.

Swissray introduced the medtech industry's first direct digital radiography (ddR) systems at the 1996 Radiological Association of North America (RSNA) show in Chicago. The system received FDA approval in December 1997 and the first units were sold one month later.

Sales continue to grow and Swissray now has the largest number of back orders in its history. Laupper reports that the company has recently received an infusion of investment capital from 3i (Waltham, MA, and London), Commonwealth Capital Ventures (Wellesley, MA), and the Audax Group (Boston), which will be used to increase production capacity and spearhead new growth initiatives.

Copyright ©2004 MX