MRG Medical Device Market Blog
Contributor: Karen Gierszewski
I was wracking my brain this morning to come up with an appropriate Halloween-themed blogpost that was somehow related to medical devices. The pharma industry has it easy—the so-called ‘zombie virus’ creates a great opportunity for a spooky, yet relevant blog entry. As I was checking out people’s costumes on my way into work this morning though it suddenly came to me: vampire face lifts.
Although more technically this procedure refers to injecting platelet rich plasma to promote natural collagen production, the idea of using blood as a dermal filler has prompted this procedure to be dubbed the ‘vampire face lift’ by the media—and given the hype around vampires these days, that’s no doubt useful to the companies who have developed these techniques. Previously used for more serious medical conditions like nerve, muscle, or bone repair and regeneration, two companies have now developed products specifically for cosmetic facial injections, and these procedures are becoming increasingly popular.
Although the vampire face lift is not in direct competition with dermal fillers, it will nonetheless limit sales of more conventional dermal fillers to some extent because it is natural and therefore less likely to cause irregularities. Because the procedure is so new, however, the full extent of its popularity and impact on the dermal filler market are as of yet unknown, especially because a number of other new dermal filler techniques are also in development. This one does, however, certainly have the catchiest name.
Posted: 10/31/2011 10:10:27 AM
A trend that is becoming painfully obvious in the US medtech market is the increasing cost-consciousness of hospitals, in response to both economic and governmental pressures. As noted in the recent Ernst & Young
report on the medical device industry, one of the major effects of this trend is the increasing use of group purchasing organizations (GPOs) to buy medical devices. These groups function by increasing the purchasing power of hospitals by making very large bulk purchases, allowing them to negotiate significant discounts. As the report notes, this represents a major change in competitive tactics for medical device companies, which have traditionally relied on maintaining close relationships with physicians to drive sales.
This generally represents a problem among companies selling devices that are more commoditized and where innovations are more incremental rather than game-changers. Some examples of markets that are being particularly affected by this trend include the reconstructive joint implant markets, the spinal fusion implant market, various endoscopy device markets, and the vascular access device market.
In these markets, the focus is going to move away from brand reputation and device features, and focus mostly on pricing. Companies will therefore need to examine if their profit margins can take a hit, or if they need to take more extreme measures, such as reducing manufacturing costs. Unfortunately, justifying higher prices for newer device features will likely become more difficult under these conditions—the onus will be on the companies to prove that it’s not just a “me too” device, which are characteristic in these markets. The presence of GPOs is likely to benefit the larger companies the most because these companies will be better able to negotiate more attractive discounts due to their broad product lines and more extensive manufacturing capabilities.
There has been some pushback to this trend, however. In 2011, Medtronic Spinal & Biologics—the spinal implant market leader–cancelled its agreement with two GPOs, opting instead to negotiate directly with facilities. This way, the company avoids GPO administration fees and has more control over price cuts. The company does, however, risk losing some customers to companies willing to absorb the reduction of their profit margins in order to secure the high number of unit sales.
Overall, however, it’s looking like US medtech companies are going to have to gear up to face shrinking profit margins.
Posted: 10/27/2011 10:25:03 AM
Karen Gierszewski, Mashkur Reza and Ian Swanson
Traditionally, the US Food and Drug Administration (FDA) and the European CE mark have been at opposite ends of the approval spectrum. While the FDA approval process has typically been long, stringent, and expensive, CE marking is much easier to obtain (on a relative scale, of course!). The implications of these very different approval processes have been notable in the medtech industry. One prominent example is transcatheter heart valves—the first of these devices became available in Europe in 2007, while approval in the US had not been granted as of September 2011. Realistically, this has meant that for four years, patients in Europe have been able to have their ailing heart valves replaced using a small catheter and a tiny incision in their leg or chest, while physicians and patients in the US have faced the choice of medical therapy—which has limited effectiveness in treating heart valve disease—or open-heart surgery—which some patients are not eligible for. Given the severity of the condition and the fact that many of the people suffering from heart valve disease are elderly—and thus not suitable candidates for open-heart surgery—this was not an ideal scenario.
Another example is autologous chondrocyte implantation (ACI)—one of the more recent knee cartilage repair innovations. While a number of companies sell ACI products throughout Europe, manufacturers have struggled to receive approval in the US, with only one product available as of 2011. This product is also barely used because of its extremely high price—the lack of competition and pushback from insurers for reimbursement has left this as a very expensive option. Physicians interviewed by MRG commented that the stifling of innovation in this market in the US is at least partially due to the stringent FDA approval process.
Obviously all the blame can’t be placed on the FDA in this case—it is no doubt in their best interest to ensure that the devices that can be used in the US are safe. Industry experts have, however, noted that this process may cause companies to drive innovation in the European or Asia Pacific markets, causing the US to fall behind in terms of offering the most advanced health care.
In fact, industry sources have noted that the earlier commercial launch in Europe is often used to fund expensive FDA trials.
On the flip side, European regulatory bodies have been tightening the guidelines for granting CE mark approval in an effort to ensure the devices offered to European patients are safe. Doctors in Europe tend to look toward FDA trials anyway to judge a device’s effectiveness, so there has been some pressure to bring the two systems more in line.
All of this leaves us to wonder if there is a happy middle ground.
Posted: 10/21/2011 2:13:07 PM
On Thursday, September 29th, 2011, MRG participated in the annual Heart & Stroke Big Bike Fundraiser to raise both awareness and money for the Heart & Stroke Foundation. About 15 of us rode the 30-person bike around downtown Toronto, raising nearly $5700. The day had been a little rainy earlier on so we were a bit concerned about the event, but thankfully the clouds cleared by the time we left. We even got to feel a bit like celebrities because we had music in the background and bystanders took pictures of us with their cell phones!
Overall, it was definitely a great way to raise awareness for this cause and to show our support. Everyone had a fantastic time—not to mention it was a great way to take a short break from the office to get outside and get some fresh air! For those who have not participated before in the Big Bike Fundraiser, we highly recommend it!
Posted: 10/19/2011 12:35:51 PM
Over the next few years, some of the most dramatic medical procedure volume growth will be seen in China, an emerging economic powerhouse. According to the Economist
, it is possible for China’s economy to overtake the US economy within the decade, resulting in increasing disposable incomes for Chinese citizens. In a country where reimbursement for health care is severely lacking, economic development in China will be of particular interest to the medical device industry. In fact, according to MRG, medical procedure volume growth in the country is expected to dramatically outpace the US and Europe as an increasing proportion of the large Chinese population is able to afford health care. For example, between 2010 and 2015, reconstructive knee implant procedures in China will grow at a rate of over 25% annually compared to under 6% in the US. Over the same time period, dental implant placements in China will grow at a rate of over 23%. Even procedures that are not generally considered elective will see substantial growth; peripheral vascular procedure volumes in China will grow 13% annually between 2010 and 2015 compared to only 4% in the US.
Many of the medical device giants have been quick to recognize this trend. Recently, in September 2011, Covidien
announced the establishment of a large research and development facility in Shanghai. Covidien follows in the footsteps of Johnson & Johnson
— which through its subsidiaries manufactures everything from neurovascular devices to hip implants—which announced the establishment of a research & development facility in mid-2009. In the next few years, companies able to gain a strong foothold in China will be best positioned for revenue gains as demand for medical procedures skyrockets.
Competing in China is no picnic, however. The Chinese market is characterized by a large number of domestic manufacturers that are able to dramatically undercut prices of foreign manufacturers; despite economic growth, price still remains an important factor in the country, especially in rural hospitals. Additionally, domestic companies are generally better able to navigate complex distribution networks and maintain relationships with local hospitals. Current legislation also favors the marketing of domestic products, although this may change over time.
Foreign companies in China will therefore need to be prepared to heavily market their devices, focusing on additional features that may not be available in local products. International competitors may also be able to take advantage of local distributors to get their foot in the door at local hospitals. Other strategies to cope with the threat of domestic manufacturers will undoubtedly also emerge as more companies attempt to gain a piece of the growing market.
Posted: 10/12/2011 10:23:20 AM