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Global medical device market outperforms drug market growth

Although I frequently write about trends in the pharmaceutical and biotech industries, of equal interest and importance is the global medical device industry. Medical devices, in reality, include a wide range of sub-industries, including: diagnostics, imaging, cardiovascular devices, surgical devices, and orthopedic devices.

Each of the above industry segments has large and important sub-segments, and convergence in this industry is a key trend. Some of the major imaging companies, GE, Philips, and Siemens, have acquired key diagnostic companies, e.g. Siemens acquisition of Chicago's Dade-Behring substantially increased its investment in the imaging field, while cutting back or divesting of its conventional consumer-related business segments. GE recently announced, for example, that it was exiting its well-known consumer appliance business.

Likewise, medical device technologies and products are increasingly converging with drug-related technologies. The area of stem cells and nanotechnology is having significant impact on tissue and bone regeneration, which may change the whole character of the “nuts and bolts” (pediments, screws, and even joint implants) part of the medical device industry. The medical imaging companies are not the only ones analyzing closely these convergence trends - Johnson & Johnson, Abbott Labs, Hoffman La Roche, and Baxter International represent four drug companies with strong business segments in medical devices.

While the data on the medical device industry is not as precise as that of the pharma/biotech industry, the industry trade publication MX: Business Strategies for Medical Technology Executives, in its May/June 2008 edition, illustrates a good review of the top 25 medical device companies. Note that the sales reflected below represent only those sales of the companies for medical device products, and do not reflect other divisions.

Leading Global Medical Device Companies - 2007
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Company/(Ticker Symbol) Country of Origin 2007 Revenues ($ billions) 2006 Revenues ($ billions) % Change
1. Johnson & Johnson (JNJ) U.S. $21.7 $20.3 +7%
2. GE Healthcare (GE) U.S. $17.0 $16.6 +3%
3. Siemens Medical Solutions (SI) Germany $14.4 $11.6 +24%
4. Medtronic (MDT) U.S. $12.9 $12.1 +7%
5. Baxter International (BAX) U.S. $11.3 $10.4 +9%
6. Covidien (COV)* U.S. $10.0 $9.5 +6%
7. Philips Medical Systems (PHG) Netherlands $8.9 $8.9 -
8. Boston Scientific (BSX) U.S. $8.4 $7.8 +7%
9. Roche (ROG.VX) Switzerland $8.0 $7.2 +11%
10. Becton Dickinson (BDX) U.S. $6.5 $5.8 +12%
11. Abbott Labs (ABT) U.S. $6.3 $5.2 +21%
12. Stryker (SYK) U.S. $6.0 $5.1 +17%
13. Cardinal Health (CAH) U.S. $5.0 $4.2 +19%
14. Olympus (TSE: 7733) Japan $4.2 $3.8 +11%
15. 3M Healthcare (MMM) U.S. $4.0 $3.8 <1%>
16. Zimmer Holdings (ZMH) U.S. $3.9 $3.5 +12%
17. St. Jude Medical (STJ) U.S. $3.8 $3.3 +14%
18. Smith & Nephew (SNN) U.K. $3.4 $2.8 +14%
19. Beckman Coulter (BEC) U.S. $2.8 $2.5 +9%
20. Synthes (SYVE:VX) Switzerland $2.8 $2.4 +15%
21. Terumo Medical (TSE:4543) Japan $2.6 $2.3 +12%
22. Fresenius Medical Care (FMS) Germany $2.5 $2.1 +18%
23. Alcon (ACL) U.S. $2.5 $2.2 +14%
24. Carestream Health (OCX) Canada $2.5 $2.5 -
25. C.R. Bard (BCR) U.S. $2.2 $2.0 +11%
TOTAL. $173.5 $158.1 +10


Source: MX: Business Strategies for Medical Technology Executives, May/June 2008 edition

*Formerly TYCO Healthcare

Fast track for medical devices

The medical device market is about 50 percent of the world pharmaceutical market in terms of relative size, but is also growing faster than its drug counterpart. It is dominated by U.S. companies (16 of the 25 companies are U.S.- based) with 72 percent of the revenue. MX estimates that the medical device market will reach sales of $336 billion in 2008. Assuming similar growth to that of 2007, this means that the market last was in excess of $300 billion.

According to MX, although the top 25 companies represent the lion's share of sales (almost 60 percent), there are an estimated 20,000 medical devices companies around the world. Only one company showed a decline (however slight) in growth, and two companies had flat sales. The remaining 22 companies all posted positive growth with 15 companies showing double-digit growth. Not mentioned, but with substantial sales and growth, are companies like Toshiba Medical Systems, Hitachi Medical Systems, and Gambro.

The medical device industry faces a number of challenges in addition to the technology convergence factor mentioned earlier. In general, this industry is at lower risk than its pharmaceutical/biotech drug counterpart for a couple of reasons:

• Shorter product development times (about 33 to 50 percent of drug development time).

• Less regulatory (Food and Drug Administration) approval risk.

Additional factors favoring the growth of this industry include the greater physician need for better and more precise diagnostics and imaging to guide them on patient disease status and proper disease management, whether surgical or pharmaceutical (or both).

The industry has responded with better products and technology. The growth of the biomarker industry segment of diagnostics and imaging has been a testament to the FDA's interest in this technology for enhanced disease status prediction.

The convergence of the medical device and drug industry has been positive in terms of development of improved products: drug-eluding stents and glucose monitoring systems incorporated into insulin pumps, etc.

Growth inhibitors

Challenges to further growth include:

• Reimbursement difficulties (obtaining new codes from the U.S. government and healthcare system) and delays.

• FDA's lack of clarity on biomarker approval guidelines (particularly where now predicate diagnostic might exist).

• Larger clinical trials (meaning more patients, more expense, and longer times to run these trials) for Pre-Marketing Approval (PMA), and De Novo 510k approvals.

• Longer patent review and approval times.

• Utilization of new technologies and materials being developed from stem cells and nanotechnology that might replace the conventional materials used in orthopedic and cardiovascular devices.

Nevertheless, this industry is of vital interest to the Midwest, particularly Minnesota, Indiana, Illinois, Michigan, Ohio, and Wisconsin as many of the leading companies mentioned above, and emerging technology companies as well, are located in these Midwest states and were spun out of top Midwest biomedical engineering university research programs and the two leading U.S. clinics: the Cleveland Clinic and the Mayo Clinic.

Our Midwest medical device companies represent a key part of the Midwest life science industry but also need to pay attention to international hotbeds of new and innovative medical device discovery and development.

Israeli biotech

One of those technology hotbeds for medical devices is Israel, which boasts some 900 life science companies. I have just returned from the Israeli BIOMED 2008 Conference in Tel Aviv, held last week, which was combined with the International Stem Cell Conference and a Medical Robotics Conference.

More than 50 percent of Israel's life science companies are focused on medical devices, and the level of innovation, particularly in stem cell-related technologies, is astounding. Granted that many of these 900 Israeli companies are small (at least 80 percent have less than five people per company), the sheer breadth of medical device and new drug creativity is impressive.

Although there are no Israeli giants yet in the medical device field similar to what Israel has achieved in the drug business with TEVA Pharmaceuticals, there are fast-growing companies with impressive technologies such as Given Imaging, which maps the gastrointestinal tract with new imaging technology. Given's chairman, Israel Makov, is the former president and CEO of TEVA, and its CEO, Nachum Shamir, is a former corporate VP of Eastman Kodak. Given Imaging trades on the NASDAQ, has a market cap close to $500 million, and represents one Israeli success story in this field.

I will comment further on my Israel trip in a future article, but I was somewhat dismayed by the fact that many of our Midwest medical device giants were NOT present at this conference - a missed opportunity! Although the Israeli currency, the shekel, has significantly revalued against the dollar over 30 percent in the last three years, the cost of Israeli R&D is still relatively cheap for U.S. companies and should be seriously considered as an access point to innovative technologies.

See you soon!

Previous articles by Michael Rosen

Michael Rosen: Foreign biotech companies on U.S. buying spree

Michael Rosen: Globalization radically changing pharma, airlines, cars

Michael Rosen: Biotech financing remains strong

Michael Rosen: Canadian biotech: a profile of our northern neighbor

Michael Rosen: A tale of two biotech cities: Chicago and Baltimore

Michael S. Rosen is president of Rosen Bioscience Management, a company that provides CEO services, including financing and business and corporate development to start-up and early-stage life science companies such as Renovar and Immune Cell Therapy. Rosen also is a founder and board member of the Illinois Biotechnology Industry Organization. He can be reached at rosenmichaels@aol.com.

This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. The article is not meant to be a stock recommendation.

The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC.

WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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