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Mayo-Boston Scientific R&D Partnership Bridges Venture Capital Gap

Industry insiders say the collaboration was made possible in part through the repeal of the medical device tax.

During the recent political debate over whether to repeal the federal excise tax on medical devices, manufacturers claimed part of the reason it was a bad policy is that it stifled research and development innovation. Now that the tax has been suspended for two years, Boston Scientific and Mayo Clinic say they’ve been freed to greatly expand a unique R&D collaboration.

In December, device makers celebrated when the tax was suspended for two years, and last week Boston Scientific -- which employs about 5,000 people in Minnesota – announced it was using some of savings to ramp up a previously unrevealed scientific research collaboration with the Mayo Clinic.

Both parties claimed the move will result not only result in an unspecified number of new jobs at Boston Scientific, but expand and solidify something thought to be unique in the nation: A formal R&D “marriage” between a major device manufacturer and a major academic medical center.

Douglas Pennington, a Boston Scientific research fellow who is heading up the Mayo collaboration, wouldn’t be specific about how much the company has committed to fund the effort, which is kicking off immediately with the clinical trials of two new devices suggested by Mayo doctors. But he said the amount was “in the millions” and predicted the expanded collaboration would be groundbreaking for both the company and the Mayo Clinic.

“It’s a highly structured arrangement between a device maker and a medical center, and is unique in that way, as far as I know,” he said. “There’s a great deal of trust between these two organizations and a real relationship is forming between them.”

The device tax was originally imposed in 2013 to help pay for the reforms of the Affordable Care Act. It was suspended through 2017 in a compromise signed in December by President Barack Obama as part of an omnibus tax and spending bill. The move is expected to benefit U.S. device manufacturers to the tune of nearly $5 billion.

The repeal effort was led by U.S. Rep. Erik Paulsen (R-Minn.)—whom Pennington credited for making the current collaboration possible—and backed by such Minnesota Democrats as U.S. Sens. Amy Klobuchar and Al Franken, who lent their support with the hope that the resulting revenues would be used to create new jobs. 

Like other device makers, Boston Scientific quickly confirmed it would use the windfall to benefit research and development. CFO Daniel Brennan said in a February earnings call the company plans to increase its 2016 R & D budget by 50 basis points as a result of the device tax suspension. It spent $850 million for R&D in 2015, some 11.4 percent of sales – that will be increased to 11.5 percent in the coming year.

The juiced-up collaboration with Mayo appears to be one of the first fruits of that move. The first two devices resulting from the partnership now undergoing trials include a new method for quickly centering and installing catheters during aortic heart valve replacement surgery; and a new application of Boston Scientific’s Precision Spectra Spinal Cord Stimulator system, in which Mayo clinicians are evaluating if it’s able to block the neural signals that trigger shortness of breath and muscle fatigue during exercise among patients with heart failure.

Pennington said they are the first in a pipeline of an unspecified number of projects the two organizations have been working on under the radar for three years, but which had gone underfunded. That, however, has now changed due to the tax suspension, kicking the whole project into a much higher gear.

The company’s close working relationship with Mayo doctors is meant to supply it with a steady stream of information on where market gaps exist, what clinical opportunities are arising and brilliant ideas to address them. For Mayo, meanwhile, it represents a fresh kind of strategy for getting vital new medical devices onto the market at a time when venture capitalists are shying away from device start-up companies.

Jim Rogers, chairman of Mayo Clinic Ventures, is tasked with commercializing the clinic’s intellectual property. He says the changing financial realities of the medical device start-up world have been hindering advances in patient care, and so the clinic decided it needed to try to change the equation.

“This partnership with Boston Scientific means that when developing ideas for new devices we can work closely right from the very beginning with a company that has major resources, knowing that they’re capable of following through on the approval processes,” Rogers said. “It’s an alternative to starting up new companies.

“What we’re seeing is that a lot of the (venture capital) investors have left the device space. One of the primary reasons is uncertainty over the regulatory pathways – they were becoming more elongated, and investors didn’t see the return they would expect.”

In response, he said, Mayo leaders knew they had to figure out a way to “interact directly” with a big device company like Boston Scientific. The first sign of the marriage was the device maker’s opening of an office several years ago in the Mayo Clinic Business Accelerator incubator. Pennington and Rogers both said that having a regular physical presence in Rochester helped ease the natural wariness between two organizations with different missions – one to turn a profit, the other to advance medical science.