Medical devices on the firing line of healthcare reform

27 Oct Medical devices on the firing line of healthcare reform

CHICAGO – Advamed 2009: The Med Tech Conference (www.advamed.org) was held in Washington, D.C. a few weeks. Advamed, or the Advanced Medical Technology Association, is a young association – only a few years old, yet is the BIO of the medical device world. The Advamed conference is much like the BIO conference of some 10-12 years ago, with only a few thousand attendees.
By holding this conference in Washington, D.C. the organizers are able to attract a number of well-known politicians and other world leaders. This year’s conference featured former president Bill Clinton – last year’s featured Hillary still as a candidate for the presidency. Bill Clinton still has that old charisma. Back in 1993 at the beginning of 1993, Bill and Hillary initiated Healthcare Reform but gained little traction although certainly had the pharmaceutical world very worried for many months. This time around the industry has rushed to embrace the Obama program early, with hopes that with an FDA biosimilars (bio-generics) program in the making that the industry will stave off price controls on drugs. This time around the medical device industry, which did not jump into the fray early on, is threatened with a $40 billion potential sales tax.
Clinton’s message to the medical device industry was that the current plan, while flawed, is a step in the right direction, and that healthcare reform is not about getting it all right now but a continuous improvement plan. Echoing these sentiments, the Chief of Staff to the French Minister of Health, reviewed, remarkably in a few clear and illustrative powerpoint presentation, how the French had improved their own healthcare system over a 20 year time period via a series of reforms.
Like the BIO show, accounting firm Ernst & Young has taken the leadership to track the development of this industry, if at least not globally yet – in great detail in the U.S. and Europe.
During the Advamed conference, they released their new report “Pulse of the Industry: Medical Technology Report 2009”. Like its biotech cousin, this report is chock full of good info.
According to E&Y, the U.S. & European med tech industry had 2008 sales of $289.4 billion and grew 11%.
Medical Device Industry Results – 2008 ($Billions)

Source: E&Y: “Pulse of the Industry: Medical Technology report 2009”
If there are some 3500 biotech companies in the U.S. and Europe, E&Y estimates that there are 1,700 medical companies in those two regions of which 460, or 27%, are publicly-traded and another 1,247, or 73%, are funded by venture capital. Some 292, or 63%, of these public companies are in the U.S. with the remaining 168 companies in Europe. Of the VC-backed companies, 54% are in the U.S. and 46% in Europe.
Although the medical device industry generates revenue far quicker than the biotech industry due to the shorter product development time and quicker path through the FDA, it still also faces similar issues in raising money to fuel development.
According to E&Y, the medical device industry raised $9.2 billion in 2008 which represented a decline of 37% over the prior year.
Medical Device Industry Financing – 2008 ($ billions)

Source: E&Y : “Pulse of the Industry: Medical Technology Report 2009”
Similar to the biotech world, financing for the medtech industry was, not surprisingly, substantially down during 2009. Not shown above is a key column which E&Y shows with their biotech report: deals between Big Medtech and the smaller companies
A key piece of info from E&Y is the location of medtech companies. My first intuition would have been Minnesota, but according to E&Y, this region ranks 4th. Let’s take a look:
Leading Regions for Medtech – U.S. (2008)

Source: E&Y Medtech Report 2009
The surprising thing here is that places like Illinois with companies like Abbott Diagnostics, Siemens Diagnostics, Hospira and Baxter, and Indiana with companies like Depuy, Biomet, Zimmer, Cook, and others are not even listed in the top 10 medtech regions
Medtech, unlike biotech, has to do deal with the world of reimbursement, a type of price control. Price reimbursement is a separate process independent of the FDA, and takes a few years to happen, particularly if it is necessary to achieve a new reimbursement code. Reimbursement is most likely coming to the world of drugs, so biotech and pharma companies take heed!
Congratulations to E&Y for taking on the tracking of this key industry – I look forward to seeing data on Japan, and other Asian countries.
See you soon!
Recent columns by Michael Rosen

• A breath of fresh air – the Colorado Pulmonary System
• Japanese Pharma on the move again
• Global Medical Device Industry: Solid Growth, with Midwest Companies Leading the Way!
• VC Investments improve during the second quarter but a shadow of former self
• Global biotech industry: Close to profitability