Almost Two Years Later, Healthcare Reform Continues to Confound

Almost Two Years Later, Healthcare Reform Continues to Confound

The Affordable Care Act of 2010—a.k.a healthcare reform—may seem like old news, but medical device company leadership is still frozen in a “wait-and-see” mode, according to a panel at the recent AdvaMed 2011 medtech conference held in Washington, D.C.

In the year-plus since the act was signed into law, industry leaders have expressed concerns about possible decreases in innovation, quality and profitability. Questions remain about changes to Medicare and Medicaid and how those changes would impact reimbursement for the medical device industry.

Panelists included Carol Neubauer, chairman and CEO of B. Braun Medical Inc.; John Bishop, CEO of Cepheid; Mike Mussallem, chairman and CEO of Edwards Lifesciences Corp; and Patrick Morrisey, former deputy staff director and chief health counsel for the House Energy and Commerce Committee, and now a partner with the law firm of King & Spalding.

“This is uncertainty I have to live with,” Neubauer said. “We’re still getting our arms around this.”

Bishop characterized the impact on the industry more dramatically. “We can’t sacrifice quality of care for cost alone,” he said. “It used to be that the United States market was number one. That’s no longer true. Patients are going elsewhere for quality care.”

Mussallem said he’s “scared” about the macro effects. “I know our industry will adapt, but what will the long-term, greater impact be? An aging global population certainly helps to balance things out, but what [healthcare reform] is going to do is make it more difficult to get from ‘the napkin’ to the patient.”

Panelists agreed that the cost containment impact of reform activities will have—and already has had—a chillingeffect on innovation and new productdevelopment in the device space. The “napkin sketch” analogy (i.e., startup medical device companies taking a drawing on the back on a cocktail napkin idea all the way through to commercialization) was cited by many of the executives on the panel as traditionally being the driver of creative new technology. That model, and eager modes of funding, may be a thing of the future.

“Startups are disappearing,” Neubauer claimed. “We’re seeing more in Europe than the U.S. There’s been a march toEurope. Small companies don’t have the time to wait for approval here. If I were a startup today, I’d start in Europe first.”

Mussallem agreed. He said funding is limited now, and fewer venture capitalists are willing to take a chance on the medical device market—particularly with programs such as comparative effectiveness as part of the healthcare reform law. Comparative effectiveness evaluates different types of care to determine the most effective—clinically and financially—form of care. Governments and payers use it to critically examine the value they are receiving for their healthcare dollar. The industry has likened it to rationing care and that comparative effectiveness programs are difficult to implement and evaluate in this industry due to the iterative nature of product development compared with pharmaceuticals, for example. Lawmakers and lobbyists agree that researchers should compare the clinical merits of different treatments. Whether they also should consider cost is hotly debated.

“I’m very afraid for the small companies. [The medical device industry] is a uniquely American success story. You’re going to have to bring incredible evidence [for product approval and reimbursement] which means more time and money,”Mussallem said.

And those “realities” are “freezing”venture capital markets, Neubauer added.

According to a recent survey of U.S. healthcare consumers conducted by the Deloitte Center for Health Solutions, consumers want reform efforts to address costs, quality and access. They acknowledge that tradeoffs are necessary and hold mixed views on privatization as an approach. More than 4,000 U.S. adults were surveyed in April this year. When evaluating whether healthcare reform is successful, consumers say reducing costs (82 percent), improving quality of care (77 percent), and increasing access to insurance (60 percent) are important. Fifty-five percent believe that it is possible to improve quality and reduce costs simultaneously in the current system of care, while 23 percent agree that increased privatization in the healthcare system would improve the system’s performance. A total of 50 percent are uncertain and 27 percent disagree.

C.R. Bard Inks Deal for Ireland-Based Provider of Catheter Tech

C.R. Bard Inc. has offered to acquire Wexford, Ireland-based Clearstream Technologies Group plc, an Irish developer of catheters used in angioplasty procedures, for about $68.5 million.

Murray Hill, N.J.-based Bard will pay 85 pence per share, or $1.33, for all outstanding shares of Clearstream’s stock, an 85 percent premium on its closing price of 45.89 pence per share on the London Stock Exchange.

“The acquisition of Clearstream represents a compelling strategic opportunity for Bard, enabling us to strengthen our leadership in vascular medical devices,” said C.R. Bard Chairman and CEO Timothy Ring.

Bard derives a little less than a third of its total sales from its vascular business, which produces catheters and stents for peripheral vascular disease and heart arrhythmias. In the first half of 2011, its vascular business jumped 15 percent to $413 million compared with the first half of 2010.

Johnson & Johnson Wants to Explore New Product Areas; Ethicon Buys SterilMed

Johnson & Johnson has had a roller coaster of a year. Product recalls in consumer, pharmaceuticals and device product lines have challenged the venerable brand’scapacity to rebound. But come back it will—with market leading new technology, according to company executives.

For example, the company is looking to add heart valves and pumps to its product lineup as it reshapes its medical device portfolio. Chief Financial Officer Dominic Caruso indicated that J&J sees other attractive technologies in the cardiac device market, and could enter those sectors either through the acquisition of another company or by organically developing products. Heart valves and left ventricular assist devices—pumps implanted in patients with advanced heart failure who are awaiting a transplant—are two such opportunities.

“Both are interesting,” Caruso said at an investor conference on Sept. 13. “We are interested in looking at them.”

J&J announced its plans to stop selling drug-coated heart stents in June, citing the stents as a “commodity business” subject to pricing wars.

According to Caruso, the company would consider acquiring a heart valve or heart pump manufacturer, but only at the right price. “Unfortunately, they are overvalued today,” Caruso said. He did not name any specific companies.

Caruso also said the downturn in healthcare use that has hurt device sales over the past six quarters is stabilizing, but the industry remains under pressure.

Patients continue to delay treatment due to high unemployment and steeper insurance deductibles. He predicted that industry procedure volumes will improve as the healthcare reform law brings more patients into the marketplace beginning in 2014.

Along the lines of finding new markets, J&J’s Ethicon Endo-Surgery division recently snapped up SterilMed Inc. Financial terms of the deal were not disclosed.

SterilMed provides products and services including medical device reprocessing, equipment repair, and pre-owned equipment sales that, according to the company, help healthcare providers lower medical device and equipment costs, while reducing the amount of environmental waste they generate.

The acquisition broadens Ethicon’s portfolio and enables expansion in arapidly growing market segment, while also bringing “added scale, scope and experience” to SterilMed, according to a statement released by J&J’s leadership.

“The time is right for Ethicon Endo-Surgery and SterilMed to come together, given the rapid changes occurring in the U.S. healthcare system,” said Karen Licitra, Ethicon Endo-Surgery chairman.
“Together, we can continue our focus ondeveloping innovative surgical solutions, while providing healthcare facilities a wider range of flexible product options to save money, reduce medical waste, and maintain quality care for patients.”

SterilMed will be managed as part of the Ethicon Endo-Surgery franchise, but will continue to operate as a standalone company and retain the name SterilMed.

Brian Sullivan, SterilMed’s chairman and CEO, said: “Becoming part of the Ethicon Endo-Surgery franchise, one of the largest and most respected medical device companies in the world, will have a positive impact on our business, while also expanding our product portfolio.”

Value Plastics Now Part of Nordson Corp.

Fort Collins, Colo.-based Value Plastics Inc. has been acquired by Nordson Corporation, and will operate within Nordson’s Advanced Technology Systems segment.

“This is an excellent fit for our organization given Nordson’s approach, commitment to operational efficiency and continuous improvement, and their global footprint,” said Bruce Williams, president of Value Plastics. “We look forward to leveraging their established sales channels into various industrial markets and also believe that Nordson will help strengthen our position as the preferred component supplier to the healthcare industry.”

Nordson’s advanced technology systems segment includes biomaterial dispensing, dental molding, glucose test strip production and catheter, stent and pacemaker assembly. Nordson is headquartered in Westlake, Ohio, and has directoperations and sales support offices in more than 30 countries.

“Value Plastics supports Nordson’s strategic objective of building upon our medical and life sciences platform and complements our existing positions in biomaterial delivery devices and medical

device assembly,” said Michael F. Hilton, president and CEO of Nordson. “Value Plastics is an ideal addition to the Nordson portfolio and will leverage the business’s profitable growth beyond its primary

domestic markets served and into generalindustrial markets.”

Maquet Cardiovascular Buys Atrium Medical for Almost $700 Million

Sweden-based Getinge Group and itsMaquet Cardiovascular subsidiary acquired Atrium Medical Corp. for $680 million. Atrium provides medical device technology for interventional cardiology and radiology, chest trauma care and thoracic drainage, vascular surgery and general surgery. According to the terms of the agreement, Atrium will operate as an independent business unit of Maquet and will be led by current Atrium president, Trevor Carlton.

“The acquisition of Atrium is an excellent strategic fit with our long-term business goals as Atrium’s robust product line complements Maquet Cardiovascular’s existing therapy options and provides additional solutions for the customers that we serve,” said Christian Keller, president and CEO of Maquet Cardiovascular.

Carlton said the companies’ similar cultures will “unlock the value of the core technologies that have driven our success to date.”

The transaction is expected to close before the end of the calendar year.

In late September, Maquet’s Sensation Plus aortic balloon catheter won U.S. Food and Drug Administration approval and CE Mark clearance in the European Union.

Maquet Cardiovascular is headquartered in Wayne, N.J. Atrium Medical is based in Hudson, N.H.

Puerto Rico Ups the Ante to Attract Medtech Manufacturers and Suppliers

More than frosty rum drinks and balmy breezes, the island of Puerto Rico offers a base for medical device manufacturing—and has for many decades. But with increased competition from other areas of the world, Puerto Rico has had to step up its economic development game to remain competitive. According to the PuertoRico Industrial Development Company (PRIDCO), more than $5 billion in shipments of medical devices from more than 30device companies leave Puerto Rico each year. To keep that number of devices flowing out, medical device companies takeadvantage of a number of incentives.

Last year, for example, Puerto Rico’s government enacted Law 73, which provides up to a 50 percent tax credit for qualified research and development expenses for new technology developed there.

Victor Merced, PRIDCO’s businessdevelopment officer for life sciences, told Medical Product Outsourcing that a newincentive plan is being offered to medical technology firms that currently are manufacturing in Puerto Rico or are looking to add a facility in the commonwealth. In an effort to solidify its existing base of suppliers, the government will reimburse medtech companies between 10 and 20 percent (depending upon the complexity of the services provided by the supplier) of the cost of qualifying local supplier companies. This is coupled with a 25 percent tax credit on the purchase of locallymanufactured products.

According to Merced, the new program is a show of good faith in Puerto Rico’sstable of supplier companies, but it also serves as a reminder to those companies to maintain their “A-game” as well as to continually add new capabilities.

“Medical device companies that come to Puerto Rico want to see a wide range of services from suppliers that are highly qualified,” Merced noted. “We’re telling medtech companies we’ve got the talent here, and we’ll do what we can to help [supplier] companies stay competitive.”

The recipe must be working.

Minneapolis, Minn.-based Medtronic Inc. recently announced plans to add about 200 workers to its facility in Juncos. The company is planning to invest $50 million into expanding its Puerto Rican operations during the next three years. Medtronic firstestablished roots in Puerto Rico more than 30 years ago.

Medtronic currently manufactures a wide range of high-tech devices in Puerto Rico—from insulin pumps and diabetes equipment to defibrillators and other cardiovascular technology.