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New England Journal of Medicine - Editorial on Device Regulation

Overview of Altico Advisors' Experience in the Medical Device Sector

As a result of our work with medical device manufacturers and distributors, Altico has a clear understanding of the operational, business and technology requirements, the regulatory framework, current industry trends, and the challenges faced by companies in this sector.

Trend analyses reveal that despite a challenging and competitive environment, the medical device industry is profiting from increased demand and is gearing up for growth. Request the full First Research report 

Select Altico Clients in the Medical Device Sector

• Marlborough, MA - A leading supplier of products, technologies and services to medical device and lifescience companies, this company creates, designs and build innovative products and technologies for catheter and specialty needle applications.
   
• Beverly, MA - A trendsetter in the manufacture and distribution of laboratory centrifuges worldwide with more than 200 approved patents, this company introduced the first microprocessor-controlled centrifuge and developed the first robot-operated centrifuge with PC-control and rotor positioning.
  
  
• West Yarmouth, MA - Meeting the challenge of orthotic compliance and addressing scoliosis with nighttime spinal bracing, this company manufactures custom orthopedic spinal orthoses for patients requiring stabilization, immobilization, or correction of the spine or a portion of the spine. 
  
  
• Marlborough, MA - As a leading medical technology company for the design, development, manufacturing and marketing of ultra-widefield retinal imaging devices, this company operates within a highly regulated environment in the United States under the Food and Drug Administration’s Quality System Regulation (FDA 21CFR part 820) and the Safe Medical Devices Act of 1990. 

Industry Analyses
Growth Forecast
First Research - a D&B company - is a leading provider of industry analysis and business intelligence.  According to their October 2009 report, the output of US medical instruments and supplies is forecast to grow at an annual compounded rate of 4 percent between 2009 and 2014.    

Industry Trends
Specialization - Medical device manufacturers are increasingly specializing in one area of medicine and sometimes in just one type of treatment. EPMedSystems, for example, makes only devices that treat atrial fibrillation. The high degree of specialization in a field of rapid innovation allows small companies to compete more successfully, but also greatly increases the risk of technological obsolescence for any individual company.

Consolidation - Increased consolidation of manufacturers and distributors has been driven partly by customer consolidation: hospitals, doctors groups, clinics, purchasing groups, and MCOs. To buy in bulk at lower costs, customers form large buying groups, and sellers are more likely to get contracts with these groups if they can offer a wide product assortment. Other factors driving consolidation are shorter product life cycles and the high cost of new technology development.

Outsourcing Distribution - Strong sales and marketing skills are often necessary to convince healthcare providers to accept new technologies. Many medical product manufacturers outsource sales and marketing to networks of specialty distributors, who typically are small and local, selling a dozen manufacturers' lines.

Industry Opportunities
Medical Technology Unaffected by Economic Climate - While many industries are affected by economic downturns, the growth of medical technology remains largely undeterred due to its indispensable nature. Implanted defibrillators, female diagnostics, and cardiac monitoring equipment are rapidly growing market segments.

Advances in Wireless Technology - Manufacturers of implantable medical devices and diagnostic equipment are rapidly adopting wireless capabilities into their designs. With wireless technology, doctors and patients have better access to real-time data from devices such as pacemakers and defibrillators. And wireless technology in devices such as hearing aids allows patients and doctors to remotely adjust volume and balance.

Favorable Demographic Changes - Changing demographics of the US population favor the medical device industry, quite aside from the pace of technological innovation. From 2000 to 2020, the number of Americans over 65 will grow more than 50 percent.

Reprocessing Medical Devices - The US healthcare system discards $6 billion worth of obsolete medical supplies and devices each year. Due to increasing concern over the volume of medical waste, some medical devices are now recycled or reprocessed for resale. New FDA rules stipulate that all hospitals and third-party medical device reprocessing facilities must comply with the same FDA regulations as original equipment manufacturers of medical devices.

Industry Challenges
Dependence on Regulators - All new medical devices require approval from the FDA to be marketed, and from Medicare and other insurers that ultimately pay for use. Although FDA and Medicare have streamlined procedures, review for new devices can be lengthy and approval uncertain. Devices that get FDA approval may be unsuccessful if insurers judge them to be too expensive. The costs associated with such regulation can be high, particularly with higher risk, Class III devices.

Healthcare Cost-Containment - Because of rapidly increasing healthcare costs, private insurers and government programs like Medicare have moved to limit payments for many medical treatments that require medical supplies or devices. Doctors and hospitals, in turn, have a greater incentive to resist price increases. Wholesale prices for surgical instruments, for example, increased only 5 percent in the last 10 years.

Product Obsolescence Risks - Medical device manufacturing is highly specialized, and rapid industry innovation greatly increases the risk of technological obsolescence. Most medical device companies are small and specialize in just one type of device, targeted toward one particular market, so they can't spread the risk of obsolescence across multiple products and markets.

Product Liability - Because their products are devices that interact with humans, companies in the industry have increased risk of being held liable for injury. The cost and availability of liability insurance are a major concern for most companies. The greater use of healthcare devices and equipment also has resulted in more device-related malpractice cases.

Dependence on Large Customers - Buying groups act as distributors for about half the nation's nonprofit hospitals. Often, smaller medical device and supply companies can be shut out of sales to hospitals when a larger competitor has secured exclusive contracts with the purchasing group. Most large medical manufacturers sell heavily to purchasing groups.

Product Cost Justification - Third-party payers, such as Medicare, Medicaid, MCOs, and commercial insurers, are becoming more involved in determining the types of diagnostics and treatments eligible for cost reimbursement to doctors, hospitals, etc. In many cases, these third-party payers pay a flat fee, which encourages the provider to use the lowest cost generic treatment. Device manufacturers that can document a favorable cost-performance ratio for their products can benefit, but clinical trials to prove cost-effectiveness are expensive and time-consuming.

Competition from Alternative Products - Device manufacturers are concerned that advances in biotechnology may make certain devices obsolete. Biotech treatments like bone, organ, and tissue replacements may ultimately be more restorative than devices implanted into patients. Even preventative and pay-for-performance healthcare, with its proactive focus to reduce the risk of disease and debilitating conditions, may also be considered a competitive force.