Michael Barbella, Managing Editor01.07.15
Image credit: The Food and Drug Law Institute.
Most Eastern cultures are rooted in superstition. The Japanese wear new shoes only in the morning, Koreans avoid trimming their fingernails at night (to protect their souls), the Vietnamese shun relatives’ towels and Thais never cut their hair on Wednesdays.
The Chinese have their fair share of eccentric beliefs as well: North-facing houses breed misfortune, concave navels portend prosperity, pet turtles are bad for business and clocks make for bad gifts (the phrase “giving a clock” sounds too much like “funeral”).
Numerology plays a particularly important role in Chinese culture. Citizens place great emphasis on the use of numbers, believing some to be either auspicious or unlucky. The number eight, for example, is propitious while 14 is the ultimate bad luck charm. The numeral one, which usually signifies loneliness, in this case means “guaranteed”; the four, meanwhile, is homophonous with the native word for death. As a result, Chinese and many other Asian societies go to great lengths to avoid the number four or 14—many numbered product lines skip the reviled digits (e.g., Nokia does not manufacture a “4” series cell phone and the Canon PowerShot G series skips from G3 to G5) and some Hong Kong high-rise residential buildings omit all floor numbers with a four in them, including the 40-49 floors.
Indeed, Middle Kingdom leaders may have preferred to skip 2014, as economic growth slowed and a weak property market blunted the impact of both stimulus measures and a long-awaited pickup in Chinese exports. Yet the country’s medtech market continued to accelerate, powered by an aging population, changing lifestyles, expanding healthcare coverage and less expensive care. Industry experts estimate the Chinese medical device market will reach roughly $50 billion by 2017, reflecting a 20 percent compound annual growth rate (CAGR) from 2013.
Though the global medtech market was not as fortuitous as China’s in 2014, it nevertheless recorded solid growth and experienced a halfway decent year: The value of completed medical technology M&A deals jumped 363 percent during the year’s first half, and companies raised $1.3 billion through initial public offerings—a 44 percent increase compared with all 12 months of 2013. In addition, the sector is expected to grow 5 percent annually to $514 billion 2020, with megamergers reshaping the lineup of industry leaders, according to Evaluate Ltd. estimates.
Medical Product Outsourcingspoke with Evaluate Ltd. executives as well as several industry leaders to better assess the past year in medtech and determine its general course in 2015. Participants in the roundtable discussion included Mark Leahey (pictured above), president and CEO of the Washington, D.C.-based Medical Device Manufacturers Association (MDMA), Stephen J. Ubl, president and CEO of the Advanced Medical Technology Association (also headquartered in the nation’s capital), and Michael A. Mussallem, chairman/CEO of Edwards Lifesciences Corporation, an Irvine, Calif.-based developer of heart valves and hemodynamic monitoring. Their full conversation with MPO follows:
Medical Product Outsourcing: How would you characterize the past year in medtech?
Mark Leahey: Encouraging. The headwinds that continue to confront this American success story remain but despite the challenges, MDMA has never been more proud of the resilience and passion that medical technology innovators are known for. Whether regulatory hurdles, the device tax, reimbursement pressures, patent threats and more, there is no shortage of obstacles facing the medtech ecosystem. Regardless, we see some amazing advancements being made to alleviate human suffering and improve the delivery of healthcare. We strongly believe much of this is due to stronger collaborations and communications between the various stakeholders in healthcare delivery. At the end of the day, when policy makers, innovators and administrators have a better sense of one another’s concerns, patients are the beneficiaries and a more robust ecosystem can develop.
Mussallem: Consolidation has been a topic of conversation this year and continues to be a catalyst for the evolution of the medical device industry, as well as in other areas of healthcare, such as hospitals. Many medtech companies are focused on diversification, lower-priced devices and emerging markets, and are looking to acquire in order to get there.
Ubl: If I had to choose one word to describe the past year in medtech—not to sound overly dramatic—I would say “undaunted.” The industry faces an incredibly challenging environment: an increasingly uncompetitive tax code made worse by the medical device tax; an FDA review process that is improving but still has a long way to go in terms of optimizing efficiency and predictability; and in the payment arena, both public and private insurers are asking for increasing amounts of evidence before providing coverage. And yet despite these headwinds, the industry continues to be a model of innovation, pursuing promising new treatments and cures for unmet clinical needs. We continue to have a positive impact on the U.S. economy, expanding GDP [gross domestic product] by more than $100 billion in 2010, according to a recent study by the Milken Institute and maintaining a positive trade balance. And we provide incredible value to both patients and healthcare systems around the world.
MPO: Please assess the industry’s general health in 2014 as compared to previous years.
Mussallem: I would characterize the health of our industry as generally healthy, although it’s a difficult time to start a medtech company and I’m concerned that the industry has lost some of its focus on innovation. We’ve all had some challenges driven by the slowdown in spending on medical technology in our core markets in the U.S., Europe and Japan, as well as increases in the regulatory and compliance requirements in countries around the world. However, as we continue to find new ways to deliver value to patients through life-changing and life-saving technologies. Overall, the financial performance of the medtech industry has been solid, and M&A activity has increased. In fact, according to a recent report from Ernst & Young, for the 12-month period ending June 2014, the total value of mergers and acquisitions for U.S. and European medtechs jumped 135 percent to $85.6 billion. This means dollars should be available to invest into further innovation. I hope to see the return to a focus on innovation, as well as investments in early phase technologies by venture capitalists and medtech companies.
Leahey:While many challenges remain, we are starting to see some encouraging signs that will hopefully bolster medtech. Some reports note that venture capital funding is on the rise in certain sectors, and we would certainly like to see more of this with early-stage startups where much of the cutting-edge advancements are being developed. At the same time, we continue to closely follow trends in reimbursement that can deter future innovations. The “cost of care” debate continues to get louder, and more and more parties are examining how and where our healthcare dollars are being spent. In order to bend down the cost of care, we need to address chronic conditions and other ailments in a way that allows patients to lead productive lives. Providing adequate reimbursements for all medtech will not only improve the health of this industry, but the health of patients throughout the world.
MPO: Please discuss some of the other issues that impacted the medtech industry in 2014.
Ubl: I think the other big issue I wold like to focus on is the continuing challenge posed by the changing payment landscape and the advent of new payment models such as accountable care organizations, bundling and other pay-for-performance mechanisms. Now the medical technology industry supports the movement away from fee-for-service towards payment models that reward providers for the quality rather than the volume of care provided. We believe this increases efficiencies in the healthcare system and should lead to improvements in patient care. And we believe medical devices and diagnostics will be a key contributor to the success of these new payment models as providers adopt technologies that will enable them to better manage their patients with chronic conditions. Having said all that, I think we have to acknowledge that as these models exist today the financial metrics aimed at reducing costs are strong and the quality standards are fairly weak. It’s in this context that AdvaMed has advocated for safeguards to ensure that providers do not stint on patient care and that early adopters of new medical technologies are not penalized.
Mussallem: While the Affordable Care Act primarily expands access to healthcare for Americans, it also generally strives, albeit to a lesser extent, to improve cost and quality. We welcome this focus on quality and value, as our commitment to providing innovative solutions for people fighting cardiovascular disease as well as the critically ill remains unchanged. We just need to be careful that in an effort to satisfy demands for more and more evidence that we don’t lose sight of the ultimate goal, which is helping patients. As tool makers, if we do our job innovating, we will succeed in bringing value to the system. Unfortunately, efforts to curb healthcare spending could have an unintended but profound impact on innovation. This is concerning and we are seeing documented declines in U.S. medical innovation due to an increasingly costly and cumbersome risk-averse culture in our regulatory and payment systems. It is important to understand that medical device innovations become more effective and more efficient with time, experience and device improvement. If new innovations are held to the same unforgiving standard to that of well-established technologies, we will miss opportunities to treat American patients with new and transformational therapies.
MPO: What specific issues will confront the industry in 2015?
Mussallem: Moving forward, we will continue to see more emphasis on clinical and economic evidence, as providers and payers have more and more influence on clinician decision-making for life-saving technologies. This means it is up to the industry to find new ways to differentiate and demonstrate value so that decisions are not based on price alone.
Ubl: One of the most exciting issues for the medical technology industry in 2015 will be the continued progress of the bipartisan 21st Century Cures initiative being spearheaded by House Energy & Commerce Committee Chairman Fred Upton (R-MI) and U.S. Rep. Diana DeGette (D-CO). The Committee is taking a comprehensive look at the innovation process for medical devices and pharmaceuticals to ensure the next generation of cures and treatments are developed in the U.S., and the medtech industry has been a strong supporter of their efforts. A number of our members have either delivered testimony, participated in related roundtables or submitted extensive comments, as AdvaMed did. As I stressed previously, the innovation ecosystem is under duress, so we appreciate this bipartisan search for constructive solutions. We believe this initiative will provide an opportunity for all stakeholders to review the entire medical device and diagnostics review and coverage/payment process from top to bottom. Chairman Upton has outlined his goal of drafting legislation, and we have been working with our members to develop policy ideas to submit to the Committee.
MPO: How will 2014’s issues/challenges shape the industry in 2015?
Leahey: Despite all the challenges facing the industry, the grassroots outreach and passionate advocacy by our members and others has allowed policy makers to have a better understanding how their decisions are impacting patient care and innovation. We strongly believe we have laid the groundwork for 2015 to be another year where we can make positive changes to policies and regulations that are having the unintended consequences of thwarting innovation.
Mussallem: It’s clear that all aspects of the healthcare environment are changing, whether with the delivery of care, documentation of care, or the adoption of new treatments, devices or drugs. We’ll also continue to see further hospital/provider consolidation and partnerships. The medical device industry is adapting to this changing environment in which device makers must satisfy not only expanding regulatory requirements but also increasingly produce more and more clinical and economic evidence. Above all, we must preserve medical device innovation in the U.S., and meet the needs of patients.
Most Eastern cultures are rooted in superstition. The Japanese wear new shoes only in the morning, Koreans avoid trimming their fingernails at night (to protect their souls), the Vietnamese shun relatives’ towels and Thais never cut their hair on Wednesdays.
The Chinese have their fair share of eccentric beliefs as well: North-facing houses breed misfortune, concave navels portend prosperity, pet turtles are bad for business and clocks make for bad gifts (the phrase “giving a clock” sounds too much like “funeral”).
Numerology plays a particularly important role in Chinese culture. Citizens place great emphasis on the use of numbers, believing some to be either auspicious or unlucky. The number eight, for example, is propitious while 14 is the ultimate bad luck charm. The numeral one, which usually signifies loneliness, in this case means “guaranteed”; the four, meanwhile, is homophonous with the native word for death. As a result, Chinese and many other Asian societies go to great lengths to avoid the number four or 14—many numbered product lines skip the reviled digits (e.g., Nokia does not manufacture a “4” series cell phone and the Canon PowerShot G series skips from G3 to G5) and some Hong Kong high-rise residential buildings omit all floor numbers with a four in them, including the 40-49 floors.
Indeed, Middle Kingdom leaders may have preferred to skip 2014, as economic growth slowed and a weak property market blunted the impact of both stimulus measures and a long-awaited pickup in Chinese exports. Yet the country’s medtech market continued to accelerate, powered by an aging population, changing lifestyles, expanding healthcare coverage and less expensive care. Industry experts estimate the Chinese medical device market will reach roughly $50 billion by 2017, reflecting a 20 percent compound annual growth rate (CAGR) from 2013.
Though the global medtech market was not as fortuitous as China’s in 2014, it nevertheless recorded solid growth and experienced a halfway decent year: The value of completed medical technology M&A deals jumped 363 percent during the year’s first half, and companies raised $1.3 billion through initial public offerings—a 44 percent increase compared with all 12 months of 2013. In addition, the sector is expected to grow 5 percent annually to $514 billion 2020, with megamergers reshaping the lineup of industry leaders, according to Evaluate Ltd. estimates.
Medical Product Outsourcingspoke with Evaluate Ltd. executives as well as several industry leaders to better assess the past year in medtech and determine its general course in 2015. Participants in the roundtable discussion included Mark Leahey (pictured above), president and CEO of the Washington, D.C.-based Medical Device Manufacturers Association (MDMA), Stephen J. Ubl, president and CEO of the Advanced Medical Technology Association (also headquartered in the nation’s capital), and Michael A. Mussallem, chairman/CEO of Edwards Lifesciences Corporation, an Irvine, Calif.-based developer of heart valves and hemodynamic monitoring. Their full conversation with MPO follows:
Medical Product Outsourcing: How would you characterize the past year in medtech?
Mark Leahey: Encouraging. The headwinds that continue to confront this American success story remain but despite the challenges, MDMA has never been more proud of the resilience and passion that medical technology innovators are known for. Whether regulatory hurdles, the device tax, reimbursement pressures, patent threats and more, there is no shortage of obstacles facing the medtech ecosystem. Regardless, we see some amazing advancements being made to alleviate human suffering and improve the delivery of healthcare. We strongly believe much of this is due to stronger collaborations and communications between the various stakeholders in healthcare delivery. At the end of the day, when policy makers, innovators and administrators have a better sense of one another’s concerns, patients are the beneficiaries and a more robust ecosystem can develop.
Mussallem: Consolidation has been a topic of conversation this year and continues to be a catalyst for the evolution of the medical device industry, as well as in other areas of healthcare, such as hospitals. Many medtech companies are focused on diversification, lower-priced devices and emerging markets, and are looking to acquire in order to get there.
Ubl: If I had to choose one word to describe the past year in medtech—not to sound overly dramatic—I would say “undaunted.” The industry faces an incredibly challenging environment: an increasingly uncompetitive tax code made worse by the medical device tax; an FDA review process that is improving but still has a long way to go in terms of optimizing efficiency and predictability; and in the payment arena, both public and private insurers are asking for increasing amounts of evidence before providing coverage. And yet despite these headwinds, the industry continues to be a model of innovation, pursuing promising new treatments and cures for unmet clinical needs. We continue to have a positive impact on the U.S. economy, expanding GDP [gross domestic product] by more than $100 billion in 2010, according to a recent study by the Milken Institute and maintaining a positive trade balance. And we provide incredible value to both patients and healthcare systems around the world.
MPO: Please assess the industry’s general health in 2014 as compared to previous years.
Mussallem: I would characterize the health of our industry as generally healthy, although it’s a difficult time to start a medtech company and I’m concerned that the industry has lost some of its focus on innovation. We’ve all had some challenges driven by the slowdown in spending on medical technology in our core markets in the U.S., Europe and Japan, as well as increases in the regulatory and compliance requirements in countries around the world. However, as we continue to find new ways to deliver value to patients through life-changing and life-saving technologies. Overall, the financial performance of the medtech industry has been solid, and M&A activity has increased. In fact, according to a recent report from Ernst & Young, for the 12-month period ending June 2014, the total value of mergers and acquisitions for U.S. and European medtechs jumped 135 percent to $85.6 billion. This means dollars should be available to invest into further innovation. I hope to see the return to a focus on innovation, as well as investments in early phase technologies by venture capitalists and medtech companies.
Leahey:While many challenges remain, we are starting to see some encouraging signs that will hopefully bolster medtech. Some reports note that venture capital funding is on the rise in certain sectors, and we would certainly like to see more of this with early-stage startups where much of the cutting-edge advancements are being developed. At the same time, we continue to closely follow trends in reimbursement that can deter future innovations. The “cost of care” debate continues to get louder, and more and more parties are examining how and where our healthcare dollars are being spent. In order to bend down the cost of care, we need to address chronic conditions and other ailments in a way that allows patients to lead productive lives. Providing adequate reimbursements for all medtech will not only improve the health of this industry, but the health of patients throughout the world.
MPO: Please discuss some of the other issues that impacted the medtech industry in 2014.
Ubl: I think the other big issue I wold like to focus on is the continuing challenge posed by the changing payment landscape and the advent of new payment models such as accountable care organizations, bundling and other pay-for-performance mechanisms. Now the medical technology industry supports the movement away from fee-for-service towards payment models that reward providers for the quality rather than the volume of care provided. We believe this increases efficiencies in the healthcare system and should lead to improvements in patient care. And we believe medical devices and diagnostics will be a key contributor to the success of these new payment models as providers adopt technologies that will enable them to better manage their patients with chronic conditions. Having said all that, I think we have to acknowledge that as these models exist today the financial metrics aimed at reducing costs are strong and the quality standards are fairly weak. It’s in this context that AdvaMed has advocated for safeguards to ensure that providers do not stint on patient care and that early adopters of new medical technologies are not penalized.
Mussallem: While the Affordable Care Act primarily expands access to healthcare for Americans, it also generally strives, albeit to a lesser extent, to improve cost and quality. We welcome this focus on quality and value, as our commitment to providing innovative solutions for people fighting cardiovascular disease as well as the critically ill remains unchanged. We just need to be careful that in an effort to satisfy demands for more and more evidence that we don’t lose sight of the ultimate goal, which is helping patients. As tool makers, if we do our job innovating, we will succeed in bringing value to the system. Unfortunately, efforts to curb healthcare spending could have an unintended but profound impact on innovation. This is concerning and we are seeing documented declines in U.S. medical innovation due to an increasingly costly and cumbersome risk-averse culture in our regulatory and payment systems. It is important to understand that medical device innovations become more effective and more efficient with time, experience and device improvement. If new innovations are held to the same unforgiving standard to that of well-established technologies, we will miss opportunities to treat American patients with new and transformational therapies.
MPO: What specific issues will confront the industry in 2015?
Mussallem: Moving forward, we will continue to see more emphasis on clinical and economic evidence, as providers and payers have more and more influence on clinician decision-making for life-saving technologies. This means it is up to the industry to find new ways to differentiate and demonstrate value so that decisions are not based on price alone.
Ubl: One of the most exciting issues for the medical technology industry in 2015 will be the continued progress of the bipartisan 21st Century Cures initiative being spearheaded by House Energy & Commerce Committee Chairman Fred Upton (R-MI) and U.S. Rep. Diana DeGette (D-CO). The Committee is taking a comprehensive look at the innovation process for medical devices and pharmaceuticals to ensure the next generation of cures and treatments are developed in the U.S., and the medtech industry has been a strong supporter of their efforts. A number of our members have either delivered testimony, participated in related roundtables or submitted extensive comments, as AdvaMed did. As I stressed previously, the innovation ecosystem is under duress, so we appreciate this bipartisan search for constructive solutions. We believe this initiative will provide an opportunity for all stakeholders to review the entire medical device and diagnostics review and coverage/payment process from top to bottom. Chairman Upton has outlined his goal of drafting legislation, and we have been working with our members to develop policy ideas to submit to the Committee.
MPO: How will 2014’s issues/challenges shape the industry in 2015?
Leahey: Despite all the challenges facing the industry, the grassroots outreach and passionate advocacy by our members and others has allowed policy makers to have a better understanding how their decisions are impacting patient care and innovation. We strongly believe we have laid the groundwork for 2015 to be another year where we can make positive changes to policies and regulations that are having the unintended consequences of thwarting innovation.
Mussallem: It’s clear that all aspects of the healthcare environment are changing, whether with the delivery of care, documentation of care, or the adoption of new treatments, devices or drugs. We’ll also continue to see further hospital/provider consolidation and partnerships. The medical device industry is adapting to this changing environment in which device makers must satisfy not only expanding regulatory requirements but also increasingly produce more and more clinical and economic evidence. Above all, we must preserve medical device innovation in the U.S., and meet the needs of patients.