According to a new report by Kalorama Information, the medical device industry will not be seeing sky’s-the-limit growth in upcoming years but can count on modest expansion of 3 to 4 percent per year. Aging populations in the United States and Europe will contribute to that growth, as will new technology innovations, but the largest players in the market are looking for other ways to accelerate growth.

There has been a flurry of mergers and acquisitions in the medical device market of late, with company transactions aimed at acquiring new technologies, taking advantage of distribution synergies, and opening up new markets. According to Kalorama Information, a medical market research specialist, there were 20 significant mergers and acquisitions in the medical device market in 2013 and early 2014.
Device headers like this one are critical components in providing patient therapy signaling. Credit: Greatbatch Medical

Device headers like this one are critical components in providing patient therapy signaling. Credit: Greatbatch Medical

Thomas J. Hook, president and CEO of medical device component and systems manufacturer Greatbatch, Inc., based in Frisco, Texas, said these mergers and acquisitions open up new opportunities for downstream companies like Greatbatch to gain new customers and markets. “Some of Greatbatch’s long-standing customers have been involved in recent merger and acquisition activities,” said Hook. “While this level of activity is higher than historical levels, it’s a natural progression within the medtech industry.”

Estimates of the global medical device market vary, depending on which product categories are measured, but the typical count is near $300 billion. It includes devices such as pacemakers and artificial heart valves, hip and knee implants, infusion pumps, catheters, diagnostic and imaging equipment, in vitro diagnostic machinery, and much more.

The industry faces a few roadblocks. A drive to bring down healthcare costs in the United States has created new challenges with insurance carrier reimbursement for medical devices. Changes that came into play with the Patient Protection and Affordable Care Act (PPACA or ACA) mean that medical need alone does not guarantee reimbursement by insurance providers, as they have been tasked with improving outcomes while simultaneously lowering costs.

A 2.3 percent excise tax on certain medical devices also came out of the ACA at the end of 2012, levied on manufacturers or importers. The tax, which many members of Congress have vowed to repeal, is, like the ACA, a hot-button issue. Forbes called the tax “devastating” and “pernicious,” while the New York Times said claims about the tax having a negative impact on the device industry were “disingenuous.” The article posited that the industry can easily eat the tax without compromising innovation, since its “enormous profits are the result of anticompetitive practices that themselves drive up medical device costs unnecessarily.”

Manufacturers were assured that they could recoup any losses from the tax in volume increases from the newly insured, but it will take some time to determine whether this will materialize. Uncertainty has them looking for new ways to ensure that their products are paid for.

Curtis Rooney, president of the Healthcare Supply Chain Association, told Health Technology Trends, a trade publication, some device companies are clearly obvious about passing on the costs. “What we’re seeing in the market is a handful of manufacturers explicitly including the excise tax on their bills,” he said.

Medical and hospital groups tried (but failed) to induce Congress to pass legislation that would have forced device manufacturers to prove that they “have not included the tax as a component of the price of their products, and therefore have not passed the tax on to their customers.”

Greatbatch's Hook called the excise tax “an onerous, job-killing tax that directly affects Greatbatch and our customers.”

“Since its implementation, jobs in the medical device industry have been lost, spending on innovation has been has been reduced, and investments in new equipment and facilities have been deferred or canceled altogether,” he claimed without specifying.

U.S. and European companies continue to dominate the medical device market. According to Ernst & Young, which publishes an annual report on the medtech industry, the top 10 device manufacturers are Johnson & Johnson, Siemens Healthcare, GE Healthcare, Medtronic and Covidien (which are in the process of merging), Baxter International, Philips Healthcare, Cardinal Health, Abbott Labs, and Stryker. Together, these companies use thousands of suppliers all over the world.

Companies like Greatbatch that supply the medical device industry are taking care to move rapidly, and in lockstep, with their giant customers. Greatbatch, itself, has been involved in M&A activity, acquiring a Uruguay company, CCC Medical Devices, in August. It says the company complements its core technology offerings and allows it to more broadly partner with other organizations to advance innovation and take advantage of global opportunities.

Greatbatch makes a wide range of products, including implantable-grade batteries and battery chargers, while CCC makes active implantable devices and also battery chargers and has customers and development partners in Europe and Israel. Both Greatbatch and CCC have deeply rooted histories in pacemakers.

Another major shift in recent years has been the convergence of devices and information technology. Today, devices are run by software apps, and for them to accurately report biometric information, telecommunications links are required. Companies that once simply made gear now need to make gear that self-reports its performance. This applies to both the device industry and the components industry.

“If you make a diagnostic (test) device now, you’ve got to make sure you are considering how to get results to the hospital or physician [electronic medical record],” said Bruce Carlson, publisher of Kalorama Information, in an interview with ThomasNet News. “It’s all well and good to give a healthcare worker a result, but you got to get that result into the patient record or your customer will have compliance issues.”

According to Ernst & Young, continued business survival in the medical device market may involve building better ways for patients to manage their conditions at home, without the need to visit healthcare facilities, thereby lowering costs. Reducing costs while fostering innovation will mandate closer relationships between device makers and their OEM suppliers. Suppliers will need to take more holistic approaches to business, rather than simply making parts and products.

Many OEMs that have traditionally operated in just the United States may need to globalize in order to chase opportunities, since overseas is where much of medical market growth lies. While competition from Asia may be on the rise, Carlson notes that the U.S. medical device industry is helped by the fact that devices need to be precision instruments, and there is an advantage to them being sourced locally. At the same time there is penetration by Asian device makers, sales opportunities in Asia are on the rise, as those nations’ populations age and spend more on healthcare.

“The market in China is where a lot of manufacturers are getting interested in now,” said Carlson. “You are seeing buys of Chinese distributors and factories to get an advantage and be in the local markets.”

Greatbatch’s Hook agrees. He told ThomasNet News that the company has forged strategic partnerships in Asia via investments in Singapore and China to leverage what he called “frugal innovation strategies,” particularly in areas of emerging technology.

“The objective is to develop cost-efficient active implantable medical devices and position the company to capitalize on emerging market business opportunities,” he said. “Greatbatch will continue to actively identify medtech innovators within the Asian market to partner with to develop product technologies.”

Going forward, suppliers to the large device makers may need to ready themselves for a sprint across the globe while, at the same time, maintaining a steady pace of innovation in a market where health is as much a term used for business as for patients.

source:Bernama