2011 Medical Device Industry Outlook

2011 Medical Device Industry Outlook

Maria Shepherd
Data Decision Group

We all know that that the global medical devices industry is large, fiercely competitive and highly innovative, with 2009 worldwide sales in excess of $220 billion. The former industry rule of thumb was that the United States accounted for 50 percent of the total global market, but this may no longer be true. According to experts who follow the medical device industry, the United States may now account for approximately 41 percent of the global market.1

All is not lost, however. Even though there is a shift in U.S. healthcare consumer dominance to markets outside the country, our worldwide industry continues to grow at a fast clip. This is due to an aging global population, underserved markets with high unmet medical needs and a higher incidence of lifestyle diseases, such as cardiovascular disease, diabetes, hypertension and obesity. The cardiovascular and orthopedic segments still represent the fastest-growing categories.

The U.S. aging population base was estimated at 39 million in 2009, or approximately 13 percent of the U.S. population.2 Consumer-wise, they account for 30 percent of healthcare consumption. In 2000, physicians spent an estimated 32 percent of patient-care hours providing services to the age 65-and-older population. If current consumption patterns continue, this percentage could increase to 39 percent by 2020.3 The U.S. government estimates that the elderly population will surge to 72 million by 2030, a huge driver to the medical device industry and the healthcare business overall.

At the 29th Annual JP Morgan Healthcare Investor conference in January, industry leaders addressed their concerns. This conference is described as the Super Bowl of healthcare industry meetings, bringing together established industry CEOs, emerging fast-growth startup companies and innovative technology creators. This year, more than 300 companies attended to deliver presentations to more than 4,000 investors. Attendance at the conference is by invitation only.Two major—though not surprising—concerns emerged: the impact of healthcare reform and increasing regulatory involvements, which have a negative effect on industry innovation.

Regulatory

Medical devices companies have significant reimbursement risk if their products are new or disruptive. Global third-party reimbursement programs, both through the government and via private insurance continue to develop different means of controlling healthcare costs. Healthcare reform initiatives such as the Patient Protection & Affordable Care Act create uncertainty for medical devices companies.

“There’s an ecosystem in our industry that requires different levels of players, and in our whole country, overall fewer barriers [to innovation are] needed,” Bill Hawkins, outgoing CEO of Medtronic, said at the JP Morgan conference. “I’d rather have [regulatory] barriers lower and have more innovation occurring that could help [smaller] companies we could integrate.”

510(k) Reform

Concerns about 510(k) reform are real. The U.S. Food and Drug Administration (FDA) recently announced a series of steps designed to overhaul the 510(k) device approval process (see Washington Roundup on page 24). The FDA’s stated goal is to streamline the device review process in response to challenges that it needs to be more predictable and transparent.Industry—justifiably scared about more bureaucracy—seemed cautiously optimistic about the results but insisted that how the changes will be implemented is the real key to the puzzle.

Growth is Still Possible –Covidien’s Expansion Strategy

Big companies such as Covidien with a broad array of products may be less affected by economic turbulence. Covidien has a diversified presence in cardiovascular, orthopedic, medical supplies and pharmaceutical. Covidien reports that it is investing for growth.

The company aggressively has optimized its portfolio by divesting retail products, U.S. nuclear pharmacies, specialty chemicals and sleep and oxygen products. The company reports that this has improved its growth and operating margins. The company also has decided to compete in growing markets with a goal to grow faster than the market and gain share through expansion.

Covidien, as is the case with all the medical device giants, is active on the acquisition front and is investing in emerging markets, which will be an important growth driver.

The economy may not be in full rebound, but economic indicators are pointing in the right direction. Look to companies with outspoken leadership and focused growth strategies such as Covidien and Medtronic. Their leadership and investment strategies will point to a healthy return for our industry in 2011.

References:

1. http://www.stockbloghub.com

2. US Census Data

3.http://www.oppapers.com/essays/Impact-Of-The-Aging-Population-On/468368

Maria Shepherd, founder of Data Decision Group, has 20 years of leadership experience in medical device/life-sciences marketing in small startups and top-tier companies. The firm quantitatively and qualitatively sizes opportunities, evaluates new technologies, and assesses prospective acquisitions. Shepherd can be reached at (617) 548-9892 or at [email protected] or www.ddecisiongroup.com.