04 Nov Midwest dominant in medical device industry, but will it last?
Chicago, Ill. – I’m just back from Zurich, Switzerland, where I had a chance to get some insights on the Swiss medical device industry. As I was asked to talk about the U.S. medical device industry and entry strategy into the U.S., a good look into the worldwide medical device industry helped me prep for the conference. It’s worth sharing with you.
The medical device industry is composed of a broad array of different types of products. These range from imaging, in vitro diagnostics, wound care products, infusion therapy, home health care, orthopedic devices (spinal and multiple joints), dental devices, surgical devices, and the fast-growing area of cardiovascular devices (including stents, cardiac arrhythmia management, and valves).
Like the drug industry, the growth of the cardiovascular device industry is fueled principally by the aging populations in the U.S., Europe, and Japan. All three regions have an accelerating segment of the population who are 65 years or older. They require significant amounts of healthcare, ranging around 12 percent of their total populations. This is expected to reach 25 percent or more within the next 10 or so years.
According to the July/Aug. 2008 edition of the medical device journal Medical Product Outsourcing, the medical device industry had sales of about $220 billion in 2007. While this is up 8 percent over 2006, it may well be underestimated and could be as high as $275 billion.
American share
The U.S. share of this market is $75.6 billion, or 34 percent. This also may be underestimated and could be as high as $95 billion or 40 percent of the market. This market compares with the more than $600 billion market for drugs. Some of the major differences between the two markets are:
1. The medical device industry has few “blockbusters.” A blockbuster is defined as a product with $1 billion or more in annual sales. This, however, is changing with the advent of stents (and particularly the group of drug-eluding stents).
2. The longer development time, expense, and risk associated with drug approval.
3. The need for a separate reimbursement process in addition to the normal FDA approval process. Medical devices require identification of a CPT (current procedural terminology) code that guides hospitals, clinics, physicians, and insurance companies on a price for the service provided by the device.
4. Different branches of the U.S. Food and Drug Administration to approve drugs.
The differences between the two industries are rapidly diminishing as they are converging with new drug device combinations. Also, both industries have demonstrated substantial merger and acquisition activity to supplement product portfolio gaps and internal R&D issues.
Drugs and devices
Some of the major companies involved in the medical device industry are also very much involved in drugs. These companies include market leader Johnson & Johnson along with other giants such as Abbott Labs, and Baxter International. According to Medical Product Outsourcing, the leading medical device companies follow.
Interestingly enough, 16 of the top 20 companies are of U.S. origin (actually 17 if one includes Covidien). Ten of the top 20 companies have their headquarters in the Midwest, with another four companies with significant operations in the Midwest. However, medical device industry growth is measured by other parameters.
One of these measures is patent activity. In an analysis done by the Patent Board (a Chicago-based patent advisory firm), the U.S. remains the dominant player in medical device technology patents. There is also significant growth, though, in other countries in this area. Here are the leading geographic centers or clusters in the U.S. for these patents.
While the Minneapolis area is the leader in numbers of patent inventors, California is the leading state with 2,062 with the Midwest a very close second with 1,840. Another part of the Patent Board study focused on patent innovation quality and industry impact of patent assets (including current impact and science linkage).
The current impact score indicates the extent to which a company’s patents serve as a foundation for industry patents and technologies developed subsequently. According to this assessment, Boulder, Colo. replaced Minneapolis/St. Paul as the top-ranked area.
Columbus, Ohio also ranked high in this assessment. I believe this has to do with the presence of Battelle in Columbus, which is a huge R&D engine for medical device technologies.
Losing ground
Though the U.S. is the clear leader in this field of medical device technology development, one important conclusion reached by the Patent Board in its assessment is that it’s beginning to lose ground to other countries. Having traveled to Israel, Japan, and Switzerland in 2008 and personally witnessed this phenomenon, I can attest to this conclusion. See you soon!
Recent article by Michael Rosen
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. The article is not meant to be a stock recommendation.
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