Techmedica Seeks Edge in Custom Prostheses
Using technology developed for missiles, Clyde Pratt makes custom-designed artificial knees, hips, shoulders and other joints and bones.
Techmedica, Pratt’s Camarillo firm, is the most high-tech of the companies around the country competing for $500 million a year from sales of replacement bones and joints.
To make models of a patient’s bone structure, Pratt can use computer-aided design and manufacturing techniques similar to those used by defense contractors. He also can start with a picture of the patient’s bone structure provided by computerized axial tomography, or CAT, scans, which provide images from many different angles.
The model then is used to design the replacement body parts, called prostheses, on the same computer-design screen.
Computers Give Edge
The frequent start-to-finish use of computers is the basis of Techmedica’s effort to stand out from the competition around the country--four companies that are subsidiaries of pharmaceutical giants and a dozen other smaller outfits like Pratt’s.
“The wax mold method some of our competitors use is out of the Middle Ages,” Pratt said. “Its quality is spotty. An implant manufacturer can’t ship junk.”
Tough talk notwithstanding, Pratt has not found it easy to convert his approach into profits for his 3-year-old, privately held company.
Pratt said the company made a profit for the first time, in its fourth quarter ended June 30, but he won’t say how much.
Fight for Market Share
Like many health-care businesses, Techmedica must fight for a share of a market that is relatively stable--the number of sick people who need its products simply does not grow that much. And the company must convince physicians that expensive, custom-made replacement bones and joints are better than much less expensive, standard-size models off the shelf.
Bone implantation was not performed widely until about 13 years ago. It was developed to serve people whose bones had deteriorated because of arthritis or debilitating diseases, such as osteoporosis, which makes bones brittle. Other customers’ bones have deteriorated because of cancers.
The industry is dominated by four companies that are part of pharmaceutical giants. Controlling up to 90% of the market are Howmedica of Rutherford, N.J., part of Pfizer; Zimmer of Warsaw, Ind., a Bristol-Myers subsidiary; Depuy in Warsaw, Ind., a division of Boehringer-Mannheim; and Richards Surgical Co. of Santa Monica, part of the Pennsylvania-based Rorer Group Inc.
All can use computer-aided design and manufacturing technology. But, unlike Techmedica, none does custom work exclusively. And the other firms almost exclusively use simpler X-rays, not the more complex CAT scans, to measure patients’ skeletons.
‘Using Guerrilla Warfare’
Harry Kraus, a product manager for Howmedica, said Techmedica probably will not be threatened by its giant competitors. “They’re using guerrilla warfare,” Kraus said. “Custom implants have been our weak point. They’ve found our weakness and exploit it.”
Pratt said 30% of his 500 cases last year used CAT-scan contours. His company receives the results of the tests from hospitals around the country over telephone lines to a Techmedica affiliate in Torrance.
With the direct hookup, Techmedica can make and deliver an artificial bone in two weeks, less than half the time of some other suppliers, according to several competitors. Swift delivery means patients may be in pain for a shorter time, or that a bone cancer patient may be spared amputation.
Howmedica’s Kraus was one of those who conceded that Techmedica can prepare a custom prosthesis faster than his company can. But “quicker may not be better,” he said, noting also that someone pays dearly for the Techmedica product.
Chose Quality
Joseph Riccardo, an analyst with Bear, Stearns, a New York brokerage, said Techmedica has followed one of the two paths a new small company in a crowded marketplace must take to succeed. “He can go generic or he can improve quality. Techmedica went to provide better quality care,” he said.
Techmedica was begun with about $500,000 from 30 private investors. Last year, three venture capital groups invested about $2 million in the firm, much of it for new equipment that Pratt said would help the company expand.
Revenue for the 1985 fiscal year, which ended June 30, was slightly more than $1 million, Pratt said. Techmedica’s revenue has been doubling annually, he said, and its staff has increased steadily to 35.
Pratt said his greatest worry is not the big competitors. “The larger companies have a full plate,” he said. “So far, they deliberately have not challenged our niche. I’m worried about new competitors.”
Sales Force on Commission
There are now about a dozen such small companies making standard as well as custom prostheses.
The companies all compete for business nationwide, relying on commissioned sales forces to promote their products at hospitals. Most of the firms, however, are strongest in the region nearest their headquarters. “The local surgeon relies on his local salesperson,” said Joseph C. D’Errico, marketing director of Osteonics, an Allendale, N.J., company that makes only hip prostheses.
Pratt acknowledged that Techmedica has barely begun to penetrate markets outside California. Much of its business now comes from the area’s university hospitals, including those at UCLA, USC and the University of California, Davis.
The company’s high-tech approach seems to appeal most to such research-oriented hospitals.
Titanium Alloy
Techmedica bone implants are made of highly polished titanium alloy rods and components, which are only slightly heavier than bone.
The process starts when the CAT-scan results enter the Techmedica computer and a scale three-dimensional view of part of a patient’s body--the hip area, for example--is produced.
Images of different prostheses already programmed into the computer can be brought to the screen, and made bigger or smaller to fit the patient’s bone structure. The lathes that carve the prostheses from titanium blocks are then programmed with data from the computer.
In some cases, a life-size plastic shoulder or knee model is manufactured by Techmedica’s computers and its shop, which occupies the ground level of its two-story headquarters. The model is then sent to the patient’s doctor, who then is able to make a hands-on examination not possible when the doctor only has X-rays to look at.
Major Problem is Price
But a major problem for some doctors is the price. Like designer dresses, custom-made prostheses cost considerably more than standard ones.
Techmedica charges hospitals $3,200 for a shoulder. A similar prosthesis, from the catalogue of Richards Surgical, would cost from $600 to $1,200. A Techmedica knee would cost $4,500, the Richards model from $500 to $900.
Techmedica’s custom-made devices also are more expensive than the custom-made prostheses of other companies. Osteonics charges $1,600 to $2,600 for a custom-made hip. A hip from Techmedica costs about $3,200.
Although most patients have medical insurance, they may wind up paying some of the cost of the devices themselves.
“We won’t pay for a deluxe item,” said Jim Longo, a spokesman for the Prudential Insurance Co. of America, based in Newark, N.J. “We examine the price of an item, and compare it to what is normal among other competitors in the field.”
When a doctor says a patient must have a custom-made device, Longo said, Prudential would “make separate arrangements for such a special case.”
Blue Cross of California spokesman Bill Hunter said a custom-made device must be medically necessary to be reimbursable. The company then will pay from 20% to the entire cost, based on the patient’s coverage.
Dr. Richard Coutts, a San Diego orthopedic surgeon who specializes in joint reconstruction, said he more often chooses standard prostheses because they generally work as well and cost less. “The physician has to have a big role in cost containment,” he said.
Prostheses May Loosen
But Dr. David Green, a Cleveland orthopedic specialist who treated a 60-year-old woman with a Techmedica hip, said he prefers the custom-made prostheses because, in his experience, they are likely to last longer.
A problem with prostheses is that they may eventually come loose. From X-ray to implantation, the process is aimed at fitting them as tightly as possible.
Some doctors say the shape and size of a prosthesis are less important than other things. “The most important factor in fit is how good the surgeon’s cut is,” Coutts said. He says there is no guarantee a custom-made prosthesis will last longer than an off-the-shelf model.
Coutts also said that the elaborate Techmedica-type process is not appropriate for patients who have had previous prosthetic devices come loose. “The CAT scan doesn’t do those patients any good because the metal throws the picture off,” Coutts said.
Banking on Custom-Design
Green said he, too, is interested in keeping costs down. But his patient needed a custom-made device, he said, because cancer had affected her pelvic region so badly that there was not enough supporting bone to anchor a standard hip prosthesis. “We had no choice but to go with a custom-made device based on her deteriorated bone structure,” he said.
Theodore M. Wight, a partner in Walden Investors of San Francisco and Seattle, one of the venture capital groups backing Techmedica, said he is banking on doctors deciding that there are advantages to custom-designed prostheses.
“I would bet that in three to five years, doctors everywhere will find Techmedica far superior to anything off the shelf because of the naturally stronger fit,” he said.
Last year, 210,000 prostheses were needed in the United States, said Lorna Corbett, a spokeswoman for Bristol-Myers in New York.
10,000 Prostheses a Year
Techmedica, which made 50 prostheses its first year and 100 in 1983, now can produce up to 10,000 a year, Pratt said.
Nevertheless, Wight’s partner, Arthur S. Berliner, said he does not expect Techmedica’s business to boom, only to produce better profits. Although the trend for people to live longer means a slightly growing pool of people in need of replacement parts, “people don’t need these things the way they buy Apple computers,” he said.
Wight said the investors likely will not see any profits until the company is sold or goes public. “I see one of the big companies buying out Techmedica in a couple of years, once we’ve carved out our own place in the market,” he said.
