08 Aug Medical device industry growing in importance in Midwest
CHICAGO – Many of my past columns have focused on the drug side of the life sciences industry, which has annual sales of more than $500 billion per year. The drug industry’s traditional leaders are heavily concentrated in the east coast (particularly in the corridor between Philadelphia and New York) with a secondary and smaller hub in the Midwest.
Another key segment of the life sciences industry is the medical device industry. While there are a number of medical device giants on the East Coast (such as Johnson & Johnson; Boston Scientific; Becton, Dickinson & Co.; C.R. Bard; and Tyco Healthcare), the Midwest is perhaps the largest hub of this industry with a large number of giant companies.
A presentation at MIT in November 2004 about the medical device industry provided some good insights into the inner workings of this industry. Some of the big Midwest leaders in this field include:
Like its drug counterpart, the medical device industry is a vast and diverse industry. So let’s start with a definition: What is a medical device?
One definition of a medical device is anything used for therapeutic and/or diagnostic purposes in humans or animals that’s not a drug. When we use the word “drug” here, we refer to something that’s dependent on being metabolized in the body to achieve its intended purpose or use.
Here are some examples of the wide range of medical devices:
• Coronary stents
• Prosthetic limbs
• Medical lasers
• CT scanners
• Magnetic resonance imaging
• Artificial hips/knees/discs
• Artificial organs
• Surgical instruments
• Neural stimulators
Though smaller than its pharmaceutical counterpart, this industry crossed over an important threshold in 2004: $100 billion in annual sales (and growing at least 9 percent per year). Major segments of this industry include:
• Cardiovascular devices: $40 billion
• In vitro diagnostics: $20 billion
• Orthopedic devices: $16.4 billion (with a $2.2 billion spinal devices segment)
• Biomaterials: $8.8 billion
• Minimally invasive surgery: $8 billion
• Woundcare: $7.2 billion
• Ophthalmology: less than $1 billion (but growing rapidly)
Though smaller than its pharmaceutical brethren, the medical device industry is growing in importance particularly with the increasing trend of “drug-device interface.” Some examples of this interface are pumps used for pulsing drugs into the body as well as drug-coated stents. Like its pharmaceutical counterpart, this is a profitable industry.
Though gross margins aren’t as high as drugs (new drugs command 90 percent to 95 percent gross margins versus 60 percent to 80 percent gross margins for devices), R&D expenses are typically less than half at 6 percent of sales versus the 15 percent that’s the norm with drugs. Medical device clinical trials are usually about one-third to one-half as long as that of drugs.
The FDA hurdles for a device approval are much less than that of a drug.
The FDA classifies medical devices to assess a level of scrutiny required by the FDA before the device can be introduced into the marketplace using a class system: Class I device, Class II device and Class III device. Under this system, the class level determines the amount of risk to the patient as a result of using the device and determines the level of regulation applied to the device.
In summary, the medical device industry will continue to be a growth industry due to several key trends:
• The accelerated aging of the U.S., European and Japanese populations (particularly age groups older than 65).
• The accelerated integration of drugs and device (devices will be increasingly used as drug-delivery vehicles).
• The interface of the nanotechnology and medical device industry, which is reducing the size of many devices and enhancing patient quality of life.
• The expanded use of diagnostics to customize therapeutic regimens on a patient-by-patient level and prediction of disease onset at an earlier stage, which is allowing for earlier and more effective treatment.
The Midwest is well poised to capture this industry momentum given its large and diverse medical device base. In fact, the Midwest is in a stronger position in this industry than it is in the conventional pharmaceutical and biotech industries. See you next week!
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