Trends at the Top

Having been an editor covering this industry prior to my arrival at MPO, I was already familiar with the annual Top 30 report. The issue left me with mixed opinions each year when it would come out. I recognized it as an impressive assessment of the largest medical device manufacturers. Further, it served as a useful resource throughout the year to refresh my memory on what happened at a particular company that might be impacting a decision made at the present time or driving a new direction put forth by management.

On the other hand, as an editor, I looked at the effort that must have gone into such a lengthy and comprehensive report with a bit of trepidation. I imagined it was quite an undertaking each year and now, having completed the first one since my start, I can honestly say it’s one of the most mentally exhausting efforts I’ve been through in publishing in a long time. The amount of research that goes into this report is a truly grueling undertaking.

With that said, I’m extremely thankful to be working with a couple editors who deserve a tremendous amount of credit for their unquestionable effort—Michael Barbella, managing editor and resident Top 30 veteran, and Sam Brusco, associate editor and fellow Top 30 rookie. I’d also be remiss if I didn’t acknowledge the efforts of Ranica Arrowsmith, former associate editor, who has since explored new opportunities. Recognition should also be provided to our art director, production manager, publisher, and sales team who are all tasked with a larger role for this specific issue of MPO.

While working on the Top 30 report, a number of industry insights were revealed. It was quite interesting to see the similar directions several companies were taking in response to influential factors affecting the industry.

Perhaps most obvious was the continuing trend of mergers and acquisitions among the medical device OEMs on the list. While every company makes fairly significant investments into research and development, a strategic acquisition of another company, whether a recently launched start-up or a fellow Top 30 company, can significantly enhance a product portfolio or provide a new technology. (On a related note, be sure to check out the financial column on page 18 that looks at the Medtronic-Covidien transaction today and the subsequent results.)

While the prominent M&A activity isn’t really a surprise to anyone, another financial trend seemed to be gaining momentum among larger firms serving dissimilar industries. In this year’s report, you’ll find several companies that are splitting into two stand-alone entities (or have done so recently), enabling them and their management teams to better focus on the industries they serve specifically. For example, one Top 30 company has recently gone through this, resulting in a medtech/life sciences firm and an industrial/testing company. Even the very top company in the report, Johnson & Johnson, has heard members of the investment community call for a split of the primary business units into three separate entities. Of course, when the calls are coming from investor voices, the question is if the move is to enhance quality for patients or for shareholders.

That question serves as a perfect segue into another trend observed within this year’s report. More than a few companies are recognizing the need to shift from a company that’s serving a fee-for-service healthcare model to the coming fee-for-value model, a concept that’s rather challenging for the medtech industry. Several of the leading companies on the list, however, are making adjustments in strategy to align with the new model of reimbursement. Others are making acquisitions that give them direct access to patients; they are managing more of the value chain that serves patients with financial investments in medical services. Still others are just now reevaluating the company’s reimbursement strategy but are demonstrating a significant focus on the patient, potentially revealing a deliberate shift in vision. Regardless of the action, it’s wonderful to see companies truly looking at patient care as the primary mission.

Still another trend is the global market view companies have. Long gone are the days of a company serving the United States or Europe or Japan. Instead, emerging markets, especially China, are seen as significant opportunities for growth. Companies who have already made the necessary investments in these regions are reaping the rewards now with excellent growth in those markets.

One final note on a trend I’ve forecasted in the past, but is not seeing too much adoption (yet) is that of R&D collaboration between medtech companies and leading universities. There is one example in this year’s report of a five-year deal signed between one of the top companies and MIT, but I expect we’ll see this much more in the coming years as a supplement to internal R&D.

Once you’ve read this year’s report, let us know your thoughts. We always enjoy hearing from the MPO readership.

Sean Fenske
Editor