The Next Big Idea
For the medical products industry, certain sectors may offer relief from the economic travails of the past few years.
Contributing Writer
"In growth we trust.” OK, that likely isn’t catchy enough to serve as a national motto, but it sure would find some traction as something the medical products industry can hang its hat on as it lurches out of the morass of a painful economy that has governed the past few years.
While growth in many of the biggest medical technology sectors has slowed to a snail’s pace due to a variety of factors, a number of smaller but still significant segments either already are growing robustly or are poised for such growth from now to the middle of this decade. That’s the view several industry professionals with a broad range of connections to the medical device business expressed in recent conversations with Medical Product Outsourcing.
Thomas Gunderson, senior research analyst and managing director at Piper Jaffray, an investment bank headquartered in Minneapolis, Minn., cited three growth areas in particular, leading with percutaneous heart valves. “You don’t have them in the U.S. yet,” he said, ‘but you’ve got people visiting South America and Europe to get these done. We should have our first [U.S. Food and Drug Administration]-approved ones by the end of this year, but that’s just opening the door. For the next several years you will have a number of players and advances that will take us into structural heart disease through a catheter, which is pretty amazing.”
His other two picks as major growth areas are obesity and neurostimulation. “Many venture investors and inventors and technologists in the last several years have been putting a lot of their efforts and resources behind diabetes/obesity. It’s clear that this is a large—no pun intended—population, and in need of alternative methods for treatment.”
Gunderson cited the co-morbidities obesity brings. “There was a Rand Corp. study several years ago that said if you cured cancer or heart disease, you wouldn’t save that much money as a society because you’d just live longer enough to get something else. But obesity was the one [disease[ that looked like, if you were to cure it, might be the one because it has so many other overlapping diseases, so it might be cost-effective as a society to take a look at.”
Citing the leading anti-obesity device, the Lap-Band from Allergan, he said the question is, “Are there other surgical and device technologies that are out there?” The answer “taps into my third area, with some people in the obesity area looking at neurostimulation.” The clinical question is, “Can you stimulate nerves going into and out of the gut to fool the brain into thinking that you’re full, or that you don’t want to eat anymore, or whatever brain cycle that’s going on there, but essentially leading you to eat less?”
He said that neurostimulation overall, with multiple indications being investigated—almost all of them representing huge potential patient populations—represents the third growth market, although he called it “an end-of-the-decade sort of big-ticket item.”
Gunderson also touted ophthalmology’s growth. “I remember an Archives of Surgery article from maybe seven or eight years ago talking about the boomers and where we’re going and what kinds of doctors we were going to need, and ophthalmology was number one and urology was number two. Staying active just isn’t as much fun if you’re blind and incontinent.”
Another area that might be a sleeper, he said, “is what I call mining the pharmaceutical area. In other words, congestive heart failure has a number of pharmaceuticals that treat it, but they don’t work for everybody. Epilepsy has a number of pharmaceuticals that treat the disease, but they don’t help everybody. It is the same with diabetes, hypertension, etc. Hypertension is a big problem and a huge market for pharmaceuticals, so patients already are in the system, they’re already seeing a doctor, they’re already being treated, but many are not being treated adequately.”
Analyst Highlights Three Sectors
William Plovanic, managing director and medtech research analyst for Boston-based Canaccord Genuity, said, “In the markets I cover, diabetes, obesity and aesthetics are the fast-growth areas.” Plovanic, who works from Canaccord’s offices in Evanston, Ill., said all three of those markets are driven by huge potential patient numbers. “Demographics are the biggest factor for almost everything in medtech,” he said, “and when we talk about diabetes, obesity and aesthetics, these are big markets. You can even look at dental implants that way too.”
He added that obesity impacts many other things—hypertension, Type 2 diabetes and increased risk of cancer among them. “We have seen a shift toward clinical trial endpoints that are not just weight loss,” he said. “If you go back five years, every endpoint for an obesity company in the device world was excess weight loss. But in the past year or two, you have seen much more focus and data on resolution of Type 2 diabetes and hypertension.”
Plovanic also cited wound care as a fast grower. “Obesity impacts diabetes, which impacts blood flow, which can cause wound care issues such as foot ulcers.”
Having followed the neurostimulation space since 2002, he said, “I agree that it is a growth area, but it is more of a platform technology than it is for any one indication. The challenge is that the outcomes haven’t been there for a lot of the indications that they have gone after. There have been a lot of failures.”
Under the category of “sleeper” technologies, he cited regenerative medicine, “which has been talked about for a long time, but we’re now starting to see data, whether it be stem cells or something else, with more of these products advance in the clinic.”
Pockets of Growth Seen
A third medtech market analyst, Raj Denhoy, a managing director in equity research at New York-based Jefferies & Company, said when the big device sectors are examined, there are pockets of slow growth and pockets of faster growth. On the cardiovascular side, there are growth areas such as transcatheter valves. Noting that “they are still first-generation device,” he said percutaneous valves “are not without their challenges right now. There has been some elevated stroke data on this where patients that have them have a slightly elevated risk of stroke than with standard surgical valves.” The thing to focus on, Denhoy said, “is that as newer devices get approved, we should see a lot of the outcomes improve as well.”
He added that the ventricular-assist device space also has a lot of growth potential. “There is not a lot of usage of these right now, so in the future we should see more of them. There is not much you can do with these patients; these devices have shown that they can extend their lives, so they’re getting used and they’re getting paid for.”
Within orthopedics, Denhoy said growth is being seen in extremities, “things like shoulders and ankles and elbows, and also fingers and toes, so that has been a nice growth market, but still relatively small compared to some of the larger ones.” He also cited some traction in areas like robotics and custom implant guides, “ways to make the procedures better in a sense.”
He too cited diabetes, obesity and neurostimulation as having solid growth prospects. “There are new technologies for treating insulin-dependent diabetes,” he said. “The use of pumps to deliver insulin has grown; now about 25 percent of Type 1 diabetics are using pumps as opposed to multiple injections daily. That number should continue to go up. You’ll see more innovation within that space,” as well as within the continuous glucose monitoring space.
Longer term, Denhoy said, “the holy grail is combining the pump with the sensor, but I think it’s going to be a while before that actually happens, at least until the regulatory bodies become comfortable with the devices being able to talk to one another without somebody interjecting thought into it.”
On neurostimulation, he cautioned that it’s still too early to tell. What’s being studied, Denhoy said, is the application of energy into a lot of different disease states and the ability to modulate nerve activity. “You’re seeing it used in things like epilepsy and depression and obesity and incontinence and migraine; all these various conditions. A lot of them are still a ways away, but there certainly are developments in all these different areas,” he said.
Also looking at the “growth markets” question were Greg Caressi, senior vice president of the Healthcare & Life Sciences group at global consulting firm Frost & Sullivan, and Venkat Rajan, a research analyst specializing in the medical device industry. Rajan, who is located at the firm’s offices in San Antonio, Texas, said, “sectors like regenerative medicine and neurology are definitely potential areas for hot growth. The neuro side is where there is a lot of untapped potential; there is still an underserved population for the various indications.”
He said that within the cardiovascular and orthopedic sectors, there are some subsections poised for growth. “On the cardiovascular side, looking at peripheral applications, both lower limbs and the carotid artery, I think there’s an underserved patient population and there’s high co-morbidity with coronary artery disease,” Rajan said. “With the saturation of the larger coronary markets, the big guys have now increased their focus in that space.”
Rajan also hailed the promise of the percutaneous heart valve space. “You have a huge number of folks who need this sort of valve work who aren’t qualified for this type of open surgery because of their health or age. These products are now fairly close to market, so that’s an exciting area with potential for growth. The other exciting news in the cardio space is that Abbott got CE-mark [in the European Union] approval for its biodegradable stent, so that could be another potential high-growth area.”
Beyond the big sectors, he said that one area that might be “huge” for potential as a growth sector is aesthetic surgery. Aesthetic procedures are completely out of pocket, so they obviously took a hit during the recession, but there are a lot of newer technologies coming out, he explained. “You’re dealing with a generation that places more weight on quality of life and appearance and that sort of thing,” Rajan added.
Like Plovanic, Rajan mentioned dental implants as a growth space. “There are a lot of advances happening in dental implants, like computer-aided design and customization of implants. Some of the dental implants haven’t changed a lot in 20 years, so now there is newer stuff coming out where they can map and image your mouth and customize the implants to fit perfectly.”
Caressi, who works at Frost & Sullivan’s headquarters in Mountain View, Calif., talked about things that are going on with alternative-care models.
“We’re finally starting to see a boost for remote monitoring and home monitoring. There’s definitely more interest that we would expect to see stimulated around these alternative-care models,” he told MPO. “There are all kinds of healthcare IT investments that are going to be related to collecting information, processing information and sharing information. Obviously, analytics is a big area that is going to be part of driving those outcomes and making decisions, so there’s a lot more investment that will be made there.”
Caressi said that a little further down the road, the process of gathering and analyzing data will see consumers being the recipients of information, say, on the quality of healthcare providers, as opposed to the current focus, which mostly involves data analysis for use by providers.
He said such an approach already is gaining a foothold in other countries. “They’re already providing information back to consumers and that is an area where you’ll see a little more activity a little further out here in the U.S.,” he said, noting that patients “already bring in tons of paper to their physician’s office with a lot of information about technologies, etc.” Caressi said that in a few years, it’s going to be more about quality.
Academics Weigh In
Bringing another viewpoint to the future growth question were Jeffrey LaBelle, a research professor in the School of Biological and Health Systems Engineering at Arizona State University in the Phoenix suburb of Tempe, and Eric Ledet, assistant professor in the Department of Biomedical Engineering at Rensselaer Polytechnic Institute in Troy, N.Y.
LaBelle said he thinks there is going to be more emphasis on “education or technologies that can help people understand the current status of their health. The cost of taking care of problems after they have occurred is just insurmountable; it’s unsustainable, so I think we’re going to start shifting toward early detection but also a lot more monitoring.”
Another area is home care and remote monitoring technology. “Things that connect with a physician’s system so they can look at you and say, ‘OK, everything is going well, keep up with this,’” LaBelle said.
And, he said, “I think we’ll be more focused on outcomes, answering questions such as, ‘Is this treatment working?’ This will give the doctor more time to assess their patients rather than having them come into the office and spending all their time reading through files. This will kind of be the next step in medical record automation—remote patient viewing.”
LaBelle said that from an academic standpoint, looking at the big picture, the entire healthcare system is key. “What can we do to improve it? From software to clinical studies to you name it—we’ll get involved with the full spectrum,” he explained.
In the area of obesity as a growth market, LaBelle said: “ I think our healthcare system will push eventually to being more preventative than curative; curative costs way too much money.” Other “sleeper” sectors might include anything that’s an age-related disease. “We have an aging population, and there’s going to be a lot more that we’ll start to see from dementia, Alzheimer’s, Parkinson’s,” he said. “I think we’ll see more in the autoimmune type of things, maybe even in environmental-related issues—what we do to the environment stresses out our bodies as well.”
Ledet said a new technology with “huge potential” both in the short term and the long term, in particular for orthopedic devices, would be the incorporation of microelectronics. “Basically, making ‘smart’ implants out of our current ‘dumb’ implants,” he joked.
Noting the big push right now in personalized medicine, he said that for personalized medicine to really work, there needs to be an influx of new technology that allows, in great detail, individual patients to be assessed uniquely from every other patient.
“I think that the enabling technology for doing that and for making personalized medicine a reality is going to be the incorporation of microelectronics into different implants,” Ledet explained. “Being able to do onboard diagnostics will help monitor healing, help to diagnose disease, and help to facilitate the broad new trends in determining which therapies work best, the time course of therapies, things like that.” Ledet said that the microelectronics now are small enough that they can be incorporated either into or on the implant, without any significant alteration of the implant itself.
“That opens up all kinds of windows,” he said. “In the short term, this technology could facilitate diagnostics; in the longer term, where this technology is just budding right now, is also using it for therapeutics. And therapeutics can be anything from targeted drug delivery to actually having dynamic implants where you could wave a magic wand externally and have the implant inside actually do something. It could stimulate tissue, it could adjust itself to be optimized to whatever the patient needs or could deliver a therapeutic dose of drugs, for example.”That will take several more years of development before it could reach its commercial potential, Ledet said. “Basically, the diagnostics side is there now; it’s ready to take off in commercial applications. Therapeutics is a little more of a challenge.”
Entrepreneurial Insight
Serial entrepreneur Manny Villafana, whose latest company, Plymouth, Minn.-based Kips Bay Medical, is the sixth publicly traded medical device firm he has founded, said: “We still have the patients, and the patient numbers are growing. We still have the aging population we have always had and now we have the baby boomers and their aging population.”
What is constraining, he said, is the question of cost.
“Be it tougher regulation, tougher reimbursement, all these things put a strain on it. But as long as we still have people working on new ideas, we’re going to still have growth,” he noted. “Occasionally you’ll have something that is so game-changing that it will be a super hit, but for the standard products that are out there, there is going to be pressure on slowing it down.”
Villafana said he thinks there still will be growth in medical products areas over the next several years, “but not double-digit growth; it will grow in the single digits. Single-digit growth is good.”
Saying there still are going to be some new technologies that are overwhelming and will in fact reduce costs, he cited his newest company’s development of a mesh enclosure for the saphenous veins used in coronary bypass procedures. “What we’re doing at Kips Bay in supporting saphenous veins will reduce costs,” he said. “Sure, there’s a little cost when you install it, but after that you should be able to show tremendous savings.”
Medical device innovator, entrepreneur and venture investor Josh Makower, M.D., who is founder and CEO of ExploraMed Development, a medical device incubator based in Mountain View, Calif., and also a venture partner with New Enterprise Associates, said, “I don’t have a crystal ball, but there are still many areas of medicine and surgery where we have very inadequate solutions for patients.”
He said that cardiovascular and orthopedic markets “will continue to dominate in terms of magnitude, but the major growth areas I believe will be technologies that address conditions which will increasingly afflict the baby boomers such as obesity, sleep apnea, prostate disease and women’s health issues.”
Jim Stommen, retired editor of industry publication Medical Device Daily, is a freelance writer focusing on the medical product sector.