The medical device business is unique from the pharmaceutical industry in terms of innovation. There are significant distinctions between who does the research and development (R&D), what type of R&D it is, and how public policies affect it. For example, we may compare the device business to the pharmaceutical industry and find that smaller firms are leading a more fluid innovation system. Medical devices are no longer subject to as many restrictions. This chapter focuses on the most significant distinctions between device and drug innovation and their implications for public policy.
The significance of patents as incentives for innovation is determined by the varying natures of drug and device R&D. Drug patents are generally more valuable since it is challenging to develop a drug that replicates all of another medicine’s effects and drawbacks. Another distinction between the two industries is in which elements of the invention are claimed as patentable. The usage of antihistamines to cure allergies is a good illustration in the pharmaceutical sector.
The basic idea behind the usage of antihistamines isn’t protected, but their particular medications are. In the device industry, this is more often than not the case. The fundamental notion may be patented, but specific devices are scarce. In general, it is feasible to create a medical device for a certain purpose in a variety of ways. The breakthrough generally lies in the underlying concept that will be used in the application.
Patents appear less critical in many parts of the device industry. Competition generally follows swiftly once a product is introduced. Patents, on the other hand, play additional roles in the innovation process. The patent application had a significant role in determining whether royalties paid to the inventor were taxed as ordinary income or capital gains until recent changes in tax legislation.
The IRS treated the subsequent royalties as capital gains because a patent had been applied. When a tiny firm requires funding, another instance in which the patent comes into play is when it’s time to raise money from investors. Potential investors are often concerned about whether one or more patents cover the new project. The patents may be minor, but they give investors peace of mind.
Who does R&D?
Small startup firms are generally responsible for the creation of new medical technology. Once started, large businesses tend to buy up the smaller innovative firms and their goods, or they may develop their version. Small companies have taken the lead in medical device innovation, whereas large corporations dominate the pharmaceutical industry for several reasons.
The drug sector, on the other hand, is far more cautious due to its dangers and laws. In the device business, neither the regulators nor the technology is nearly as concerned about risk or regulation. A small firm can produce a new product faster than a large corporation because of its limited resources.
In a small business, the inventor is frequently also a key decision-maker, taking risks based on his intimate knowledge of the technology and its applications. In larger environments, decision-makers are commonly removed from the innovators and do not get the same level of assurance as those directly involved in the process.
Financing of Innovation
It should also be acknowledged that the majority of microenterprise enterprises fail. The causes may include a need for more advanced technology, a lack of marketing expertise, a limited market, or insufficient capital. This is a fast-growing and highly competitive sector. Entrepreneurs in this business find it more difficult as the regulatory climate becomes stricter and venture capital dries up.
In recent times, the medical device sector has not been as popular with investors. New technology is no longer embraced in hospitals unless it can be shown to be cost-effective early in the product development cycle. In many sectors of the gadget industry, public sector financing has had a minor impact on the R&D process that results in device innovation.
The usefulness of high-tech solutions for rural counseling is at the heart of many important government initiatives. A significant portion of these new developments occurs in the small company environment, where public sector assistance is not usually accessible. Although public funds support basic research in universities and hospitals, this is where invention and cuts to practice occur.
Small businesses developing, designing, and producing prosthetic limbs receive investment funding from private investors and venture capital organizations. In a few instances, the federal government has played an essential role in assisting small firms with such technologies as the artificial heart.
Edward James Letko is a medical device entrepreneur spearheading the innovation of new devices and treatments. He has more than 25 years of experience in medical device R&D and has founded or been part of several successful startup companies.