At least in principle, anyway.
Yet the pall continues, its hold on the CRM sector even stronger now than when it began at the height of the Great Recession. Most of the world’s top cardiac device makers hemorrhaged another batch of CRM revenue last year despite a long-awaited and fairly solid economic recovery. The average loss was 3.1 percent, though one company exuded nearly 9 percent of its life-sustaining earnings.
Last year’s bloodbath bore the all-too-familiar hallmarks of assailants that previously had targeted the sector: pricing pressures, reimbursement cuts and stagnant demand (the latter culprit was spawned by critical research data and a federal probe of implantable cardioverter defibrillators among Medicare beneficiaries). The U.S. Department of Justice spent more than 18 months investigating whether hospitals improperly billed Medicare for implantable cardioverter defibrillators (ICDs), devices that detect and correct cardiac arrhythmias (irregular heartbeats) by electric shock.
ICDs have been used for more than two decades to prevent sudden cardiac arrest, a condition in which the heart unexpectedly stops beating. U.S. Food and Drug Administration (FDA) figures show the number of ICDs and pacemakers implanted in the United States rose tenfold between 1990 and 2002. That total, however, fell sharply after federal prosecutors began examining ICD use among doctors and hospitals.
Likely contributing to the decline was a January 2011 article in the Journal of the American Medical Association (JAMA) that questioned the need for ICDs. The story cited a study that found 22.5 percent of patients may have received the devices unnecessarily.
“After the Justice Department started their rounds of investigations around the country, the implantation rate of ICDs went down 20 percent nationally,” Jonathan Steinberg, M.D., a Columbia University professor and director of the Valley Health System’s Arrhythmia Institute in northern New Jersey and New York, told Modernhealthcare.com. “Most people became a little more circumspect about doing implantations.”
Such prudence affected the coronary stent sector as well. Six months after stirring up controversy in the ICD realm, JAMA set tongues wagging with another study that scrutinized the need for stenting, a procedure used around 600,000 times a year to restore blood flow to blocked or constricted arteries and blood vessels. JAMA’s July 5, 2011, edition claimed the $20,000 procedure can help save the lives of heart attack victims but often do more harm than good to stable patients. The study found that one in eight patients (12.5 percent) who receive the tiny metal-mesh devices don’t necessarily need them.
JAMA’s sobering conclusions on stents—like its previous study of ICDs—prompted U.S. doctors and hospitals to re-evaluate their treatment strategies. But the revelations also helped highlight the importance of better controlling exorbitant medical procedures that drive up healthcare costs. Medicare, for example, paid $25.7 billion to doctors and hospitals that performed stent procedures between 2004 and 2009, according to a U.S. Senate Finance Committee report released in December 2010. If JAMA’s findings are indeed credible, then Medicare squandered $3.2 billion on superfluous procedures during those six years.
While expensive medtech procedures remain grossly overused, stenting volumes ultimately leveled off after the JAMA article was published, curbing profits and forcing Johnson & Johnson (JNJ) from the industry. The company, which invented the device in 2003, had suffered a 65 percent decline in stent sales when the JAMA study came out.
The CRM market hasn’t improved much since JNJ’s departure in late 2011. The macro forces contributing to stagnant demand and declining sales is expected to continue as politicians and health insurers attempt to contain skyrocketing healthcare premiums. As a result, cardiac device manufacturers have drafted some pretty creative plans to get back in the black.
Boston Scientific Corp., for instance, is betting its future on a subcutaneous defibrillator that is implanted just under the skin, while rival Medtronic Inc. is counting on a new catheter-delivered balloon device to return its atrial fibrillation (AF) unit to its former glory. St. Jude Medical Inc., meanwhile, is confident it can avoid past mistakes with its much-touted Durata ICD leads.
The companies have quite an arduous task ahead, but the scope and ingenuity of their plans proves their commitment to both the industry and patients. As management consultant, educator and author Peter Drucker once quipped, “Unless commitment is made, there are only promises and hopes ... but no plans.” Time will tell if these companies prove Drucker right.
Biotronik Going Solo
While Germany’s Biotronik SE & Co. KG has avoided the steep revenue declines that have plagued its competitors, the company nevertheless is contending with soft demand for its core group of CRM products. The Berlin-based manufacturing firm is counting on the Lumax 740 DX to rejuvenate its product line and beef up sales. Granted final FDA approval in February, the Lumax 740 is a single-lead ICD with a floating atrial dipole that can sense vital rhythmic changes in the heart’s atrium and ventricle. The magnetic resonance imaging-compatible device can detect increasing lung fluid levels and features algorithms that discriminate supraventricular tachycardias, AF and atrial flutter to reduce the risk of inappropriate shocks. It also works with a next-generation home monitoring system.
“The DX System is designed with the patient in mind,” said Paul Woodstock, Biotronik’s executive vice president of sales and marketing. “Expanding on the benefits of single-chamber ICDs, the DX System provides physicians with atrial sensing and home monitoring capabilities to monitor for important atrial conditions.”
Biotronik isn’t resting its future fortunes solely on the Lumax 740, though. The firm also plans to launch a 245-patient clinical trial this year in the United States to support an FDA application for a magnetic resonance imaging-safe pacemaker.
BSX Loses the Lead
Last year wasn’t exactly a banner one for Boston Scientific. The Natick, Mass.-based medical device behemoth slashed both jobs and budgets but still came up short in overall revenue. Its core business segments—interventional cardiology and CRM—sustained substantial deficits, falling 13 percent and 8.6 percent, respectively, while total sales slipped 5 percent to $7.25 billion. Exacerbating those losses was the global contraction of Boston Scientific’s key markets after growing 3 percent in 2010.
Yet CEO Mike Mahoney is confident his company can stage a comeback. The basis for his certitude is the S-ICD, a subcutaneous defibrillator the Natick, Mass.-based medtech behemoth acquired last summer in its $1.35 billion buyout of Cameron Health Inc. The FDA-approved device, implanted just under the skin, acts more like an external defibrillator than conventional ICDs, which thread wires through the body’s venous system to regulate heart rhythm.
“The acquisition of Cameron Health… represents an important part of our strategy to generate top-line revenue and market share growth,” interim CEO Hank Kucheman said when the deal was announced. “With the addition of the S-ICD System, we believe Boston Scientific has a compelling and highly differentiated portfolio that will help fuel our growth strategy.”
The company’s comeback team also includes the Emerge Percutaneous Transluminal Coronary Angioplasty Balloon Dilatation catheter, launched in late September; the Watchman Left Atrial Appendage closure device; and the CrossBoss CTO Crossing Catheter and Stingray CTO Re-Entry system, acquired through the purchase of Minneapolis, Minn.-based Bridgepoint Medical Inc. in September 2012.
Medtronic Targets AF
The law of unintended consequences is a fundamental building block of economics. Scottish moral philosopher Adam Smith believed all civilized societies—particularly those driven by self-gain—are led by an “invisible hand” that directs them to inadvertent outcomes.
While this omniscient force invades all aspects of society, its power clearly is most evident in the business and political arenas. Consider, for instance, Medtronic’s serendipitous path to growth: The company has made significant investments in emerging markets to compensate for lost cardiac device revenue. And while those markets have added to Medtronic’s bottom line, they’ve benefitted its long-troubled Cardiac Rhythm Disease Management (CRDM) business as well, lifting sales 3 percent to $1.33 billion in the fourth quarter of fiscal 2013, ended April 26. The increase, fueled by an 8.7 percent surge in international pacemaker sales, gave the Minneapolis, Minn.-based firm its highest European market share in two years.
Fourth-quarter ICD revenue climbed 2 percent to $755 million and pacing revenue jumped 5 percent to $505 million, thanks mostly to the robust performance of the Advisa DR MRI SureScan pacing system in Japan.
With their rising middle classes, increased access to care and new feature versus price trade-offs, emerging markets are expected to remain a key pillar in Medtronic’s future growth strategies. The company, however, is not giving up on its core technology. AF device sales jumped 22 percent over the last fiscal year, and Medtronic is counting on its Arctic Front Advance device to maintain that growth. Approved by the FDA last summer, the Arctic Front device is a catheter-driven balloon that emits coolant from within, presenting a large, uniform cold surface that reduces the need for surgeons to isolate pulmonary veins when treating paroxysmal atrial fibrillation.
St. Jude Stays Loyal to Durata
The bigwigs at St. Jude Medical certainly are an optimistic bunch. Despite a 2 percent decline in overall sales and a 6 percent contraction in total CRM revenue last year, management expects earnings to rise 9-11 percent in 2013.
The company’s growth game plan is multi-faceted, incorporating the European launch of a new pacemaker platform (which includes the company’s Premium tier of Allure Quadra CRT-P pacemakers); the unveiling of its Accent MRI pacemaker product line in Japan; the rollout of its MediGuide software-enabled ablation catheters and CRT tools; and the introduction of its EnSite Velocity precision technology in both Europe and the United States.
The success of this plan, though, ultimately depends on the fate of the much-hyped Durata ICD leads—specifically, whether the wires can avoid falling prey to the same flaw that doomed the Riata. An FDA warning letter over the leads’ manufacturing facility and a Medtronic-sponsored study questioning their longevity has some analysts speculating the Durata is following in its predecessor’s footsteps but St. Jude CEO, Chairman and President Daniel J. Starks insists the “safety and reliability data surrounding the Durata lead line are outstanding.”