Zacks Analyst Blog Highlights: Medtronic, Boston Scientific, Zimmer Holdings, Stryker and Johnson and Johnson

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Jan 24, 2011, 09:30 ET

CHICAGO, Jan. 24, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Medtronic (NYSE: MDT), Boston Scientific (NYSE: BSX), Zimmer Holdings (NYSE: ZMH), Stryker (NYSE: SYK) and Johnson and Johnson (NYSE: JNJ).

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Here are highlights from Friday's Analyst Blog:

510 (k) Reform: FDA's Blueprint

In a major move, the U.S. Food and Drug Administration ("FDA") have outlined a plan on January 19 consisting of 25 proposals, which it intends to implement during 2011 to improve the regulatory approval pathway for medical devices. Most of these proposals, announced by the FDA's Center for Devices and Radiological Health ("CDRH"), appear favorable for the medical devices industry.

The proposals are aimed at overhauling the three and half decade old 510 (k) device approval program by which roughly 4,000 devices have been cleared annually. The list includes streamlining the de novo review process for lower-risk devices, clarifying when devices companies should submit clinical data for a 510 (k) application and establishing a new council of senior FDA experts ("Center Science Council").

However, interestingly, the regulator has shelved the most controversial issues of its previously-announced proposals including a definition of its authority to rescind approval of potentially unsafe or ineffective products and the creation of a new category of devices, which have drawn sneers from industry groups and devices companies.

President Barack Obama, in his opinion article in the Wall Street Journal, recently emphasized that the planned changes represent the government's efforts to keep patients safer and accelerate the approval process of innovative and life-saving products. The president also highlighted that the changes are aimed at removing burdensome rules that hinder economic growth.

The 510 (k), in a nutshell, is the submission made by the manufacturers to the FDA to demonstrate the medical device is at least as safe and effective as a device (dubbed "Predicate Device") which is legally marketed. It is the most widely used regulatory path for medical devices companies.

This so-called pre-market notification process is generally faster and less expensive than the meticulous pre-market approval ("PMA") review that require the manufacturer to prove that its device is safe and effective (requiring human clinical testing).

Devices classified as Class II (moderate risk devices) such as infusion pumps, catheters and diagnostic imaging devices are cleared through 510 (k) while those belonging to the Class III (high-risk) group, including implantable pacemakers and blood vessel stents, are subject to PMA review.

The FDA declared, on August 3, 2010, a set of ambitious proposals for revamping the 510 (k) device approval protocols. The 200-page report, consisting of 55 proposed changes was designed to serve as a blueprint for the reform, representing FDA's vision to streamline the device review process and make it more predictable and transparent.

As part of the listed proposals, the FDA intends to create the Center Science Council, which will oversee medical device science-based decision-making. Moreover, the regulator is seeking additional information regarding the safety and efficacy of devices in the 510 (k) submissions.

As part of the 510 (k) reform, the FDA aims to form a subset of moderately risky devices under the "Class IIb" moniker that would require submission of more clinical data and manufacturing information vis-a-vis the existing Class II devices. However, it remains uncertain which devices or group of devices should fall under this domain.

Consequently, critics and certain industry groups, including the Advanced Medical Technology Association ("AdvaMed"), started lobbying against such a proposal as, if implemented, the changes would make the device approval process more complex, lengthy and burdensome. Moreover, with the expected rise in the regulatory bar for approvals, medical devices companies may require to shell out more for R&D.

The CDRH forwarded seven of the controversial proposals to the Institute of Medicine, which provides national advice on medical issues, for independent review with feedback expected in mid-2011. These issues were met with significant concerns as indicated in the comments submitted to the public docket.

However, following the announcement of the 25 proposals, AdvaMed commented that it is generally pleased with the FDA's proposals while arguing that whether the proposed changes will benefit (or harm) the industry is contingent upon its successful implementation, which may be a lengthy process.

The proposals represent good news for medical devices makers, including the industry heavyweights such as Medtronic (NYSE: MDT), Boston Scientific (NYSE: BSX), Zimmer Holdings (NYSE: ZMH), Stryker (NYSE: SYK) and Johnson and Johnson (NYSE: JNJ), as they feared that implementation of the tighter, more contentious plans as highlighted in the FDA's August 2010 draft would have slowed the development and approval of new devices.

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