Michael Barbella, Managing editor12.11.14
The final weeks of a calendar year typically brim with tradition—from masquerade balls, homecoming ceremonies and holiday parades to shopping marathons, turkey dinners and family fetes. It’s a season of endless revelry, where time neither ebbs nor flows but snowballs instead toward the finish line. The frenetic home stretch usually spawns a retrospect of the previous 12 months, a customary exercise that can offer valuable perspective on the year’s failures (our legacies) and triumphs (the key to future success). As German poet/critic/philosopher Friedrich von Schlegel once noted, “The historian is a prophet facing backwards.”
With the 2014 finish line looming, Medical Product Outsourcing uses its reverse prognostication prowess to determine the past year’s legacies and achievements. Our analysis follows:
HITS
3-D printing: One of the 21st century’s most promising technological breakthroughs moved into the mainstream this year after more than three decades in the making. NASA announced plans to fly a 3-D printer into Earth orbit, while Phoenix, Ariz.-based Local Motors printed and test drove a car (the Strati) made from ABS plastic infused with carbon fiber. The company plans to start selling the automobile in 2015 at prices ranging from $18,000 to $30,000. Canadian startup ORD Solutions, meanwhile, began 3-D printing food in September, and Los Angeles, Calif., architect/designer Jenny Wu printed her own collection of geometrically-shaped jewelry.
The technology really took hold in the medical industry, where 3-D printers created a titanium pelvis, a facial implant, a customized metal hip, and a U.S. Food and Drug Administration-approved jaw. American dental labs increasingly are investing in systems that can scan patients’ teeth and improve outcomes in complex procedures. Analysts expect these applications to boost the 3-D printed medical and dental market by 365 percent to $867 million by 2025, though the potential of bioprinting (embedding products with biological materials for regenerative purposes) could inflate the sector to $6 billion or more within 10 years.
Such growth is entirely possible, as companies like San Diego, Calif.-based Organovo Holdings Inc. develop 3-D printed liver tissue and researchers explore the use of tantalum and ceramics for layered implants with pores or textures to promote osseointegration. Clinicians also are tinkering with stem cell-embedded treacheas, drug-delivering heart wraps, and a 3-D printed brain implant that can treat mental illness.
mHealth: Apple Inc., Google and Samsung all have cemented their footholds in the mHealth market with platforms that link app-acquired information to healthcare services. Analysts expect those platforms to expand the scale of app data collection and improve the integration of health stats in various applications. The platforms also are likely to fuel explosive growth in the overall mHealth market: A report from San Francisco, Calif.-based market analysis/consulting firm Grand View Research projects the industry to exceed $49.1 billion in sales by 2020, with monitoring services expanding most rapidly, achieving a near 50 percent compound annual growth rate through 2020. “Mobile health is everywhere in our industry,” one medical device expert noted. “That’s the area where you’re going to see the investments being made, particularly in the area of mobile apps.”
IPO window: Sidelined by the Great Recession and long overshadowed by the biopharmaceutical sector, medtech’s public market prospects took center stage this year, racking up $1.3 billion in completed IPOs through June 30, a 44 percent increase compared with the same period in 2013. The largest initial public offering in the first half belonged to Castlight Health, a San Francisco, Calif.-based healthcare IT company that raised $204 million in March. The amount was nearly double the $120 million raised in May by spinal device maker K2M.
Nevro Corp. led second half financing with its better-than-expected $126 million IPO in early November. The Menlo Park, Calif.-based startup sold 7 million shares at $18—considerably more than the 6.25 million shares it had projected and at a price above its anticipated $15-$17/share range. Nevro plans to use the funds to commercialize its Senza spinal cord stimulation system (currently in U.S. clinical trial), which uses high-frequency electrical pulses to treat chronic back pain.
Prompt PMAs: The U.S. Food and Drug Administration (FDA) has significantly picked up the pace of novel medtech approvals, authorizing 17 premarket applications through June 30—nearly double the nine recorded during the first half of 2013. Devices were approved in just 18.4 months, down substantially from last year’s average of 35.9 months, though some, like Medtronic Inc.’s Corevalve (a transcatheter aortic cardiac valve), raced through the process in just 5.8 months, according to an EP Vantage report. “The approval came six months earlier than even the company itself had expected,” EP Vantage said, and far more quickly than a rival device manufactured by Edwards Lifesciences Corporation, whose Sapien XT aortic valve was sanctioned in June after 13.5 months.
Boston Scientific Corp.’s Rebel coronary stent and Qiagen’s Artus diagnostic kit were quickly endorsed too, each receiving the FDA’s blessing in only 5.9 months. Anika Therapeutics, on the other hand, waited more than four years (49.9 months) for PMA approval of its hyaluronate-based osteoarthritis therapy, Monovisc. The timing, however, isn’t all that bad, considering the FDA had twice rejected Monovisc.
Roughly two-thirds of H1’s PMA approvals went to big medtech companies. Among the smaller public and private companies gaining market clearance were Ocular Therapeutix Inc., hearing implant firm Cochlear Limited and Medtronic spinoff Inspire Medical Systems Inc. (for the first FDA-approved sleep apnea implant).
Enemies no more: After years of bitter squabbling,the medical device industry and FDA finally are playing nice together. The two former rivals seemed rather chummy this year, exchanging praise and kudos for their collaborative efforts to improve patient outcomes. The genial relationship is a stark turnaround from the dark, post-recession, finger-pointing days of 2011, when industry leaders blatantly voice their frustration with “declining FDA performance.”
MISSES
Corporate inversions: U.S. healthcare firms have never tried to mask their contempt of American tax laws. “I pay the largest corporate tax,” Mylan CEO Heather Bresch told Fortune over the summer. “As I am trying to deliver and grow this company I am now handicapped and penalized being in the U.S. We can’t stand still and stay in the U.S.”
Bresch isn’t sticking around. She’s among a growing number of CEOs skirting sky-high corporate tax rates through inversions, a legal loophole that allows U.S. firms to buy foreign companies and incorporate in countries with lower business taxes. Mylan’s $5.3 billion purchase of Abbott Laboratories’ generic drug business gives it a one-way ticket to the Netherlands, while Medtronic Inc.’s $42.9 billion acquisition of Covidien plc allows it passage to Ireland, and Steris Corporation gains instant British citizenship through its $1.9 billion merger with Synergy Health. The U.S. Treasury Department tried discouraging inversions with new rules in September, but Medtronic and Steris are determined to part ways with Uncle Sam.
So much for investing in America.
Medical device tax: Industry leaders tried their best, but failed once again to convince Washington Democrats to repeal the 2.3 percent medical device excise tax, despite wide bipartisan support in both chambers of Congress. Obamacare champions, including U.S. Rep. Nancy Pelosi (D-California) and U.S. Sen. Al Franken (D-Minnesota), have manned the ramparts for repeal but have not been able to get a bill to the President’s desk. Moreover, the industry’s Chicken Little-esque forecasts of catastrophe have failed to materialize: A report from EP Vantage found that 13 of the 15 largest medical device manufacturers increased headcount in 2013 and two of the three who cut staff did so by selling subsidiaries.
With Republicans back in control of Congress, a showdown with the President is practically guaranteed, though a victory is far less certain.
MIXED BLESSINGS
Outsourcing: A surefire way to lower costs, but companies can have a difficult time maintaining control of their suppliers.
UDI: A good majority of companies have met their unique device identification deadline requirements, but many have failed to broadly examine the value of the UDI to the patient or practitioner.
Emerging markets: Overall, the BRICs (Brazil, Russia, India and China) still represent solid long-term growth opportunities, but managing non-English-speaking customers in different time zones remains challenging. In addition, Russia’s wargames with Ukraine and China’s slowing economy (Q3 growth was the slowest in five years) could temporarily sideline investments.
With the 2014 finish line looming, Medical Product Outsourcing uses its reverse prognostication prowess to determine the past year’s legacies and achievements. Our analysis follows:
HITS
3-D printing: One of the 21st century’s most promising technological breakthroughs moved into the mainstream this year after more than three decades in the making. NASA announced plans to fly a 3-D printer into Earth orbit, while Phoenix, Ariz.-based Local Motors printed and test drove a car (the Strati) made from ABS plastic infused with carbon fiber. The company plans to start selling the automobile in 2015 at prices ranging from $18,000 to $30,000. Canadian startup ORD Solutions, meanwhile, began 3-D printing food in September, and Los Angeles, Calif., architect/designer Jenny Wu printed her own collection of geometrically-shaped jewelry.
The technology really took hold in the medical industry, where 3-D printers created a titanium pelvis, a facial implant, a customized metal hip, and a U.S. Food and Drug Administration-approved jaw. American dental labs increasingly are investing in systems that can scan patients’ teeth and improve outcomes in complex procedures. Analysts expect these applications to boost the 3-D printed medical and dental market by 365 percent to $867 million by 2025, though the potential of bioprinting (embedding products with biological materials for regenerative purposes) could inflate the sector to $6 billion or more within 10 years.
Such growth is entirely possible, as companies like San Diego, Calif.-based Organovo Holdings Inc. develop 3-D printed liver tissue and researchers explore the use of tantalum and ceramics for layered implants with pores or textures to promote osseointegration. Clinicians also are tinkering with stem cell-embedded treacheas, drug-delivering heart wraps, and a 3-D printed brain implant that can treat mental illness.
mHealth: Apple Inc., Google and Samsung all have cemented their footholds in the mHealth market with platforms that link app-acquired information to healthcare services. Analysts expect those platforms to expand the scale of app data collection and improve the integration of health stats in various applications. The platforms also are likely to fuel explosive growth in the overall mHealth market: A report from San Francisco, Calif.-based market analysis/consulting firm Grand View Research projects the industry to exceed $49.1 billion in sales by 2020, with monitoring services expanding most rapidly, achieving a near 50 percent compound annual growth rate through 2020. “Mobile health is everywhere in our industry,” one medical device expert noted. “That’s the area where you’re going to see the investments being made, particularly in the area of mobile apps.”
IPO window: Sidelined by the Great Recession and long overshadowed by the biopharmaceutical sector, medtech’s public market prospects took center stage this year, racking up $1.3 billion in completed IPOs through June 30, a 44 percent increase compared with the same period in 2013. The largest initial public offering in the first half belonged to Castlight Health, a San Francisco, Calif.-based healthcare IT company that raised $204 million in March. The amount was nearly double the $120 million raised in May by spinal device maker K2M.
Nevro Corp. led second half financing with its better-than-expected $126 million IPO in early November. The Menlo Park, Calif.-based startup sold 7 million shares at $18—considerably more than the 6.25 million shares it had projected and at a price above its anticipated $15-$17/share range. Nevro plans to use the funds to commercialize its Senza spinal cord stimulation system (currently in U.S. clinical trial), which uses high-frequency electrical pulses to treat chronic back pain.
Prompt PMAs: The U.S. Food and Drug Administration (FDA) has significantly picked up the pace of novel medtech approvals, authorizing 17 premarket applications through June 30—nearly double the nine recorded during the first half of 2013. Devices were approved in just 18.4 months, down substantially from last year’s average of 35.9 months, though some, like Medtronic Inc.’s Corevalve (a transcatheter aortic cardiac valve), raced through the process in just 5.8 months, according to an EP Vantage report. “The approval came six months earlier than even the company itself had expected,” EP Vantage said, and far more quickly than a rival device manufactured by Edwards Lifesciences Corporation, whose Sapien XT aortic valve was sanctioned in June after 13.5 months.
Boston Scientific Corp.’s Rebel coronary stent and Qiagen’s Artus diagnostic kit were quickly endorsed too, each receiving the FDA’s blessing in only 5.9 months. Anika Therapeutics, on the other hand, waited more than four years (49.9 months) for PMA approval of its hyaluronate-based osteoarthritis therapy, Monovisc. The timing, however, isn’t all that bad, considering the FDA had twice rejected Monovisc.
Roughly two-thirds of H1’s PMA approvals went to big medtech companies. Among the smaller public and private companies gaining market clearance were Ocular Therapeutix Inc., hearing implant firm Cochlear Limited and Medtronic spinoff Inspire Medical Systems Inc. (for the first FDA-approved sleep apnea implant).
Enemies no more: After years of bitter squabbling,the medical device industry and FDA finally are playing nice together. The two former rivals seemed rather chummy this year, exchanging praise and kudos for their collaborative efforts to improve patient outcomes. The genial relationship is a stark turnaround from the dark, post-recession, finger-pointing days of 2011, when industry leaders blatantly voice their frustration with “declining FDA performance.”
MISSES
Corporate inversions: U.S. healthcare firms have never tried to mask their contempt of American tax laws. “I pay the largest corporate tax,” Mylan CEO Heather Bresch told Fortune over the summer. “As I am trying to deliver and grow this company I am now handicapped and penalized being in the U.S. We can’t stand still and stay in the U.S.”
Bresch isn’t sticking around. She’s among a growing number of CEOs skirting sky-high corporate tax rates through inversions, a legal loophole that allows U.S. firms to buy foreign companies and incorporate in countries with lower business taxes. Mylan’s $5.3 billion purchase of Abbott Laboratories’ generic drug business gives it a one-way ticket to the Netherlands, while Medtronic Inc.’s $42.9 billion acquisition of Covidien plc allows it passage to Ireland, and Steris Corporation gains instant British citizenship through its $1.9 billion merger with Synergy Health. The U.S. Treasury Department tried discouraging inversions with new rules in September, but Medtronic and Steris are determined to part ways with Uncle Sam.
So much for investing in America.
Medical device tax: Industry leaders tried their best, but failed once again to convince Washington Democrats to repeal the 2.3 percent medical device excise tax, despite wide bipartisan support in both chambers of Congress. Obamacare champions, including U.S. Rep. Nancy Pelosi (D-California) and U.S. Sen. Al Franken (D-Minnesota), have manned the ramparts for repeal but have not been able to get a bill to the President’s desk. Moreover, the industry’s Chicken Little-esque forecasts of catastrophe have failed to materialize: A report from EP Vantage found that 13 of the 15 largest medical device manufacturers increased headcount in 2013 and two of the three who cut staff did so by selling subsidiaries.
With Republicans back in control of Congress, a showdown with the President is practically guaranteed, though a victory is far less certain.
MIXED BLESSINGS
Outsourcing: A surefire way to lower costs, but companies can have a difficult time maintaining control of their suppliers.
UDI: A good majority of companies have met their unique device identification deadline requirements, but many have failed to broadly examine the value of the UDI to the patient or practitioner.
Emerging markets: Overall, the BRICs (Brazil, Russia, India and China) still represent solid long-term growth opportunities, but managing non-English-speaking customers in different time zones remains challenging. In addition, Russia’s wargames with Ukraine and China’s slowing economy (Q3 growth was the slowest in five years) could temporarily sideline investments.