Q Justin: We have started to really dive into, I know, some of the nitty-gritty stuff from Lighthouse and talking about ways in which clients come to us and ask for solutions. On one of the recent episodes, we talked about single-use devices versus devices that again, are reused in different procedures. If we jump right into the case of single-use devices, what do you see as some challenges that you, manufacturers and developers encounter as they evaluate which way in which to go to help service their customers?
A Benjamin: Yes. A great question. One of the primary driving factors for single-use devices or at least primary consideration is the economics and the business model for such devices. Ultimately, what it usually comes down to is unit cost. One of the primary ways that we're able to bring unit costs down is through higher volumes on more of the material you purchase generally, the price breaks you get through the economies of scale. Additionally, the more units that you're building, you're able to generally employ better and more sophisticated levels of automation which reduces touch time or labor time.
Those really are highly-scalable applications, especially once you get to extremely high volumes, the automation side of things if you can be hands-off, you basically pay for a system once and it can produce material for you. Really, one of the things that we're looking at is are the economics viable and there are certainly cases where it's not. You can't get to a low enough cost for a device with a good enough functionality to make it viable on the market.
We do sometimes consider another class of devices that's halfway in between reusable and single-use and they're called re-poseable. There are devices that may be reused let's say 5 or 10 times rather than hundreds or thousands, but they're certainly used more than once. Looking at it from a cost per use scenario, if you're able to use something 5 or 10 times that greatly reduces the cost per case scenario which can be advantageous. It still allows you to design something relatively simply that doesn't have to be robust enough to last hundreds of your reprocessing cycles, but still gives you some of the advantages of a single-use device.
Q: I feel like we're talking a little bit in generalities about what you could or couldn't do. Let's bring this to more specific, what is a device where the economics of scale right now just don't allow it to really be single-use?
A: We've found that largely general surgery equipment, and again, I'm referring specifically to the video and imagery side of things. Let's say, general abdominal or thoracic surgery, which is surgery that's done typically in the abdomen. Let's say, maybe you're doing a gallbladder removal, which is a very high-volume type application. There are many, many done every day across the world and the reimbursement for those is not as high as some specialty type surgeries because it's a very routine surgery.
We find that it's really hard to get the economics of a disposable device to apply to that kind of surgery because a lot of the reimbursement costs are going to other aspects of the surgery. The visualization side of it just doesn't have the budget to expand on a device that performs well enough that can also be thrown away. You have a challenge of getting high enough performance out of a low-cost device that you can then throw away.
That's one area. I think certainly as technology improves even those applications may start to open up the ability to be single-use as well. As things have gotten smaller and more cost-effective, we see more and more markets opening up to that. We start to be cognizant that what we're doing does provide value.
Q: Well, you do make a good point about that there are areas that are opening up to the possibility of single-use devices, but truthfully sometimes the development, the cost of research and actually getting something out can take years and cost a lot of money, right?
A: Absolutely. One of the interesting things that we find is there's an inverse correlation between the unit cost and the development cost and schedule. If we're making a device that's going to be reused many times, it's typically not as cost-sensitive for the unit itself. As we're developing the product, we're thinking higher priority on functionality and durability than we are on unit cost. The inverse is true with disposable or reusable devices because we're so focused on trying to get the cost down.
There's typically a lot of engineering and development that goes into it, we still have to maintain a high level of performance, we're now super-focused, hyper-focused on cost reduction. This goes over into the manufacturing arena. There's typically a pretty high effort involved to get single-use devices to be made economically, and so you have to invest in the right levels of automation and equipment and processes to be able to facilitate that.
Q: Let's bring that more granular here, where are we at with a device that has taken a lot of development and it's just not there yet in the schedule and cost or even the reimbursement codes for those things?
A: Again, I tend to go back to rod lens systems or rigid endoscopes because they're sort of the grandfather of endoscopy visualization. They're made of very high-cost parts. There's many, many lenses in them. They're typically high-precision lenses. As you build the device, it's got a pretty high cost to spell, but the level of effort that goes into development as well as making the parts themselves is pretty routine. You're going to have pretty consistent cost from your processes and working through the different methods of manufacturing. If we start looking into single-use device and we're trying to really reduce the cost, we're now going to look at, for example, trying to do things in injection molding.
The idea is that we really reduce the cost of the part. I'll use lenses as a great example. If we have a glass lens that we buy in hundreds, thousands, tens of thousands, hundreds of thousands, eventually, you'll hit a point where you just can't make the part for any lower cost. Typically, they're pretty manual and there is a flow on how low you can go in. It certainly depends on the product, the material, and the process where that occurs, but, for the sake of discussion, let's say that 10,000 pieces a year that's where you get your point of diminishing return.
A pretty common next step in the optics world would be to look at injection-molded lenses where now they're being made rather than being grounded and polished, they are being made by injecting liquid polymer inside of a mold. As we all know injection molded parts are very common in this world because they're very cheap for high-volume applications. What we can do is now make hundreds and millions of lenses in pretty short amount of time with very little labor.
Basically, you're just paying for the material costs on a per-unit basis. The challenges to get to that point can typically be very expensive and can take much longer to create the tooling and the other production aids that you need to get to that point. Again, there's this trade-off, or sort of inverse relationship of effort and cost that it takes to get to an affordable and low-cost single-use device versus the other scenario where you can have a little bit lower overhead in getting a device to market with a reusable system but the unit cost is always going to be quite a bit higher.
Q: Another consideration with that is not just the cost of the development and deployment and yanking the supply chain and all those factors, isn't it waste too? There's a cost to throwing away single-use devices as well.
A: Yes, that's absolutely an issue. There's two ways to look at this. One, we keep going back to the economics. The economics have to make sense to be able to throw something away every time you use it. I think equally as important but often deemphasized is the waste that it does generate. This country specifically creates an incredible amount of medical waste and it's taken care of in various different ways whether it's through incineration or other methods of each decontamination.
We always want to be cognizant of what materials we're throwing away, the volume of the material, and what kind of material it is. We know that Styrofoam, for example, takes a long time to disintegrate back into earth as opposed to certain polymers and plastics which can be designed to actually be somewhat biodegradable. Of course, you don't want a medical device that's going to disintegrate but at the same time, we can't choose materials that don't have lifespans of thousands of years perhaps maybe dozens of years instead.
One of the things that we can do is look at the material that we're using and how much material we use in the design, and to be environmentally cognizant of that. There are also certain mandates, especially in the EU that medical device manufacturers have to provide means for recycling or reprocessing disposable devices so that it doesn't just end up in a landfill. The idea being that hopefully you can recycle a lot of the material and can be reused in one way or another. We certainly want to be environmentally conscious as we explore creating disposable devices but typically, that gets factored into the economics as well.
Q: It always comes back to money. Whether it's money on the front end or the back end. Back to your point about efficacy, those are probably the most important considerations for folks to look at when evaluating how they're going to move forward. What other considerations have we not talked about maybe that pose challenges to a single-use or disposable devices?
A: Certainly, one challenge that many manufacturers battle is unintended re-use and what that means is the device is intended to be used on one person and then disposed off. What we find particularly in third world countries where there's just no money in their healthcare system, these devices that are intended only to be used once get used multiple times, basically used until they can't be used anymore.
Q: Which is supposed to be one time?
A: Exactly. There are considerations that have to be made either making the device so that it can't be reused, and there are a few ways of doing that. You can do that through electronics and what we're calling electronic fuse where once something is used, the device knows that and it won't function again after that. We can also make devices such that if they are let's say autoclaved, they basically melt and they just can't be used, basically self-destructing if they go through a sterilization cycle.
Often times we also look at this from more of a risk-based perspective and we know that some devices will have some unintended re-use and so we want to make the parts so that they're safe and effective as possible in that scenario that they get used a few times. There's a lot of considerations there and that's a deep topic in itself but certainly, we want to be cognizant of single-use devices being used more than a single time and more than on a single patient.
Q: That is important for consideration at all levels because that only adds to and compounds the travesties or can hurt companies on other levels too if there's reuse when it's unintended or not intended. With a company like Lighthouse, I'm sure one of the things that we think through is how to eliminate those once a product has been used, right?
A: Yes, I think one parting thought that I'd like to share is that we keep coming back to the economics and we hope that the economics are driving good decisions. At Lighthouse, we try to use our core values when we approach devices and I think this applies to the waste element of disposable devices as well as the unintended re-use of single-use devices that we don't want to be involved in chasing the short dollar if you will, we want to be good stewards of our world and we want to make sure that what we're doing is viable economically in the short term but also the long term.
Generations from now, if we have to spend billions of dollars cleaning up the waste that was created, there may have been a short gain for us but ultimately a loss when it's all summed together. When we consider all of these elements, we do use our core value systems and our morals to make sure we're making the right decisions for our future as well as for the patients that are being operated on these devices.
Q: How can folks reach you to start a discussion on moving forward with evaluating how their need to match up with reuse or single-use?
A: I would invite anybody who's interested in learning more to visit our website. We do have some white papers that are available, some literature, as well as contact information. You can reach out to me directly, Benjamin Gray, at our website which is www.lighthouseoptics.com.