From mergers, to wearable devices, to the recent election, medical device manufacturers have a lot on their minds this year. Market research firm Kalorama Information has detailed several trends that the medical industry will be concerned with in 2017. The seventh edition of Kalorama Information's yearly look at the market, The Global Market for Medical Devices, contains far more detailed market sizing, projections, and profiles of major companies.
The report can be found at: https://www.kaloramainformation.com/Global-Medical-Devices-10058730/.
Trump Administration and MDUFA Fees: The medical device industry advocates for legislation on a bipartisan basis, and medical device issues enjoy more bipartisan support than most industries. This is because of their geographically diverse base and supportive senators from both parties. That being said, it is logical for medtech to expect a sympathetic hearing from the incoming administration, especially as they opposed President Obama's signature healthcare reform legislation. Still, it is too early if the abstract political change of the election will lead to concrete action. One test of the new admin's stance towards the device industry will be the Medical Device User Fee agreement fee negotiations. It cost over $200,000 for a standard business to launch a new device with the FDA and $4,700 for a "shortcut" or 510 (k) application off a previously approved device. There are also inspection fees for facilities that manufacture some devices. These fees are substantially reduced for a small business. Fees were down over ten percent from 2016. A further reduction or limited/no increase are goals of the industry.
Trump Administration and ACA & FDA Likewise, improving the FDA regulatory process, and an outright repeal versus suspension of the medical device tax are other trends the industry will be advocating for. While the industry through its lobby group AvaMed will seek ACA repeal, they also signaled they'd like to see coverage of newly insured not disrupted, as they said "ensuring that the coverage process allows patient access to the latest innovations."
Revenue Growth Slow, but Steady: The 390+ billion-dollar medical device market will experience growth this year, according to our estimates. But we think it will be lower growth than we would have expected if we were making the prediction five years ago. Looking forward to 2017 and the following five years, expect 2.8% average growth. While the user base for medical devices is growing, cost-cutting mechanisms have impacted price increases and this should continue near-term.
No Slowdown in M&A: In a sluggish growth environment, medical device leaders have looked to acquisitions to boost growth, gain share and take advantage of buying opportunities while present. We expect trend that to continue in 2017. There were 153 significant device market mergers and acquisitions in 2015 and early 2016. Notable was Canon's purchase of Toshiba Medical Systems, Becton Dickinson's purchase of Care Fusion and Abbott's proposed buy of St. Jude Medical.
Hospital Consolidation Unfolding: Hospital consolidation continues in the United States and for the past five years, 80 to 100 hospital consolidation transactions have occurred. This means less buyers for medical device products and more gatekeepers in most cases. There are two potential bright sides as a) consolidated hospitals do perform better (15% higher when hospitals had no competition versus markets where there was competition), which could make them better spenders for top companies selling innovative products even as they reduce the total customer base. And b) the FTC is taking an aggressive stance as of late which might curb the trend.
GPOs, Buying Committees, Legislation Continue to Tame Pricing: Unlike most other areas of medicine, the prices of medical devices have actually been growing slower than inflation as a whole (and far lower than other aspects of healthcare). A lot is stacked against a new medical device. Hospitals have boards and buying committees that seek to streamline device purchasing. Many device purchases are made by hospitals are made through group purchasing organizations (GPOs). Value analysis committees, reimbursement reductions to hospital buyers of devices, competitive bidding schemes, and other programs combine to slow pricing growth.
Optimistic Device Companies Seek Innovation: A challenging market has only encouraged the industry to keep funding research. Kalorama estimates that medical device companies spend an average of 7% of revenue on R&D. This is higher than most industries. A majority of companies in Kalorama's Bellwether Index of Medical Device Companies increased research and developing spending as a percentage of revenue.
United States Still a Focus, Asia Rising: Most revenues from medical devices will still be earned in the United States in 2017, and the world's largest device market will be a focus due to the reimbursement challenges in Europe and slightly less growth than expected. China will see far greater growth than the overall market in 2017, as will the rest of Southeast Asia.
Cybersecurity: As devices become more complicated and have components that use the cloud or online reporting, the ability of hackers and criminals to undermine security systems is an increasing concern. An incident with St. Jude Medical this year highlighted the issue when an investment group called Muddy Waters Capital maintained that St. Jude Medical pacemakers and defibrillators are unusually vulnerable to remote computer hacking The FDA confirmed that it joined an investigation of claims that the devices can be hacked remotely. St. Jude denies the claims and is suing the investment company for what they say are unfounded allegations tied to a short-sell effort.
Wearable Features Grow Revenues: From glucose monitors to exercise trackers, devices with a wearable component will experience average revenue growth double the overall device market. The global wearable medical device market is valued at just over $13.2 billion for 2016. The wearable technology industry, in general, is continuing to expand and healthcare is no exception. In fact, healthcare is among the fastest growing segments for wearables due to the overwhelming need to monitor diseases and aging populations.
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About Kalorama Information
Kalorama Information, a division of MarketResearch.com, supplies the latest in independent medical market research in diagnostics, biotech, pharmaceuticals, medical devices and healthcare; as well as a full range of custom research services. Reports can be purchased through Kalorama's website and are also available on www.marketresearch.com and www.profound.com.
