More Change in the Cardiovascular Device Market: A Year in Review

More Change in the Cardiovascular Device Market: A Year in Review

Maria Shepherd • Data Decision Group

There’s no doubt that last year was another turbulent year for most medical device companies, driven by the double whammy of a poor global economy and an uncertain U.S. healthcare environment. The issues that emerged in 2009-2010 continued in 2011. Price, reimbursement and procedure volume pressures are here to stay. Healthcare reform, an elevated U.S. Food and Drug Administration (FDA) regulatory involvement, and a looming 2.3 percent medical device excise tax all tighten the noose a little more. Is there anything good to say about the prospects for our industry?

Actually, there’s plenty.

The Light at the End of the Cardiovascular Tunnel

Healthcare job growth rates continue to rise. The rate of acquisition activity in cardiovascular medical devices continues and is an indicator of a dynamic industry seeking improved financialperformance. In addition, cardiovascular industry leadership maintains its focus on evaluating new strategic options for thesector’s device domain.
 

Healthcare Job Growth

Across all industries in the United States, unemployment is down from its highest point of 10.1 percent in 2009 to 8.5 percent in December 2011, and it is expected to continue to decline.¹ More important to the cardiovascular device industry is that, according the U.S. Bureau of Labor Statistics, healthcare employmentcontinues to expand, with growth in jobs in ambulatory surgical centers (ASCs) up by 2.8 percent in November 2011 and inhospitals up by 1.4 percent in September 2011. When hospitals and ASCs hire, this means procedure volumes are expected to go up.

In the device space, cardiovascular companies are slightly less sensitive to the weak economic recovery, but may have limited organic growth due to layoffs and other factors. For those companies with the cash, a shining star is to turn to mergers and acquisitions (M&A) to achieve growth targets and enter strategic markets. Key M&A activity in the cardiovascular space shows that 2010-2011 was a

period of strategic acquisitions in growth markets, especially in the heart valve replacement and renal denervation device sectors.

Growth in Global & Emerging Markets

Tough times often drive new strategies. The cardiovascular industry faces several challenges, which include poor foreign exchange rates and international market pressures. The relatively new CEO of Medtronic Inc., Omar Ishrak, is responding aggressively. In a recent interview, he indicated his belief that there are approximately 200,000 to 300,000 people in India’s middle class who could afford many of Medtronic’s existing technologies.⁷ His goal is to help build the healthcare infrastructure around those patients, which could lead to millions more. Ishrak believes the same scenario is true in China, where he indicated that the market could be significantly larger than that in the United States by the end of the decade.

It Sounds Great,but Will They Execute?

At the recent J.P. Morgan investors’ conference held Jan. 9-12, the CEO of Covidien plc, Joe Almeida, outlined his company’s plan to provide clinically and economically advantageous products and solutions to customers and to support products with healthcare economics and outcomes data.⁸ One of his three strategic initiatives is to take full advantage of opportunities in emerging markets with existing products and also to develop products that meet local needs. What was remarkable at the conference was how few CEOs presented such a compelling emerging market strategy and measurable tactics, such as Covidien’s addition of 1,000 new salesrepresentatives in Asia and the opening of three regional offices in India and China.

Aging Population:A Key Driver for Cardio

We all know that the aging population represents a major catalyst for demand of medical devices, but what does it mean in real numbers? The aging population (people 65 years and above) based in the United States in 2010 was roughly 40 million, representing about 13 percent of the U.S. population.

This segment accounts for approximately one-third of U.S. healthcare consumption. Federal government estimates indicate that the elderly population will jump to 72 million by 2030, representing approximately 19.3 percent of the population, and providing a significant increase in the use of medical devices.⁹

Several other growth catalysts exist for the cardiovascular industry in 2012. Geographic expansion, the trend toward minimally invasive techniques and emerging markets all will help as growth drivers. Persistent issues from 2008-2011 are expected to continue, but good strategy and actions plans will address and mitigate them as our industry heads steadily toward the light at the end of the tunnel.

References:

1. www.bls.gov/news.release/empsit.nr0.htm

2. www.bls.gov/iag/tgs/iag622.htm,

3. http://bostonscientific.mediaroom.com

4. http://bostonscientific.mediaroom.com

5. www.ardian.com/pdfs/Ardian%20closing%20news%20release_FINAL_01_13_2011.pdf

6. http://investors.sjm.com/phoenix.zhtml?c=73836&p=irol-newsArticle&ID=1498191&highlight=

7. www.massdevice.com/news/medtronic-ceo-emerging-markets-could-be-safer-bet-developing-products-us

8.http://investor.covidien.com/phoenix.zhtml?c=207592&p=irol-presentations

9. www.census.gov/compendia/statab/cats/population.html

Editor’s note: Readers are invited to submit market data and trend questions to Maria Shepherd. Periodically, selected questions will be presented in this column, with answers from Maria. Send your questions to [email protected].

Maria Shepherd, founder of Data Decision Group, has 20 years of leadership experience in medical device and life-sciences marketing in small startups and top-tier companies. Her firm quantitatively and qualitatively sizes opportunities, evaluates new technologies, and assesses prospective acquisitions for medtech companies. Shepherd recently was appointed to the board of the MSBiV Medtech Investment Committee. She can be reached at (617) 548-9892 and online at [email protected] or www.ddecisiongroup.com.