|From the Editor|
Albert Einstein once cautioned about making predictions, saying, “One need only think of the weather, in which case the prediction even for a few days ahead is impossible.” So asking people, even industry experts, for predictions is akin to asking them to be wrong—publicly. It’s unfair, I’ll admit.
But still I wanted some concrete ideas about what to expect this year. So I asked a regulatory expert, a financier, an industry analyst, and a designer to give me some perspective. Provided you don’t follow the Mayan calendar, there is much to look forward to in 2012, and, as always, some things to watch out for.
Without further ado, here are some of the weather patterns in play in 2012:
Nancy Singer, president, Compliance-Alliance
Pitfall: Cutting the wrong expenses. Cut expenses to improve efficiency, but don’t cut training. The effectiveness of your people depends on them understanding quality and regulatory requirements. They need to be exposed to innovative approaches and encouraged to integrate new ideas into their practices to be efficient and effective.
Opportunity: Get involved in shaping the industry’s regulatory requirements. Support a national or regional trade association. Comment on proposed regulations and guidances. Attend town hall meetings and meet the regulators so they can be heard.
Michael Matson, senior analyst for medical supplies and devices, Mizuho Securities USA Inc.
Pitfall: Device companies need to be extra cautious with regard to their business in Europe. The financial crisis there has intensified, and there are a number of potential risks for medical device companies including currency fluctuations (particularly if the euro zone were to fail), potentially uncollectible European receivables, and a lack of financing available for stocking distributors.
Opportunity: There is a significant opportunity for mergers and acquisitions. Valuations have become a lot more reasonable, and interest rates are extremely low. Many firms are have low debt and have cash sitting on the balance sheets. Companies have been doing acquisitions to get into higher growth areas, but there are increasing opportunities for consolidation and cost cutting.
Steve Wilcox, founder Design Science
Pitfall: Failing to fully digest the changing FDA requirements. Two things have fundamentally changed: the release of “Applying Human Factors and Usability Engineering to Optimize Medical Device Design” draft guidance and a dramatically increased vigilance on the part of FDA. Despite the heartburn that these changes have caused, there’s an advantage that I can see: a more level (although admittedly tougher) playing field and a more consistent and transparent set of requirements. Expecting business as usual, especially in device development and FDA submissions, is a recipe for disaster. Expect increased delays and costs if you fail to meet the requirements after a device has been developed.
Opportunity: Development for a global market. Many companies still seem to expect to develop a device with an exclusive focus on the U.S. market but then to sell the device globally. Obviously, this can work to a point, depending on the device. However, it’s much better to have a geographically broader focus throughout the device development process if you plan to compete globally.
Eliot Lazar, president and owner, elCon Medical
Pitfall: The medical device industry is shrinking. We are seeing consolidation in the venture world, and some VCs are deciding not to be in healthcare. The recession is now catching up to the device market and there are more questions than answers, particularly with how the regulatory climate will shift and how payers, such as CMS, will choose to cover devices.
Opportunity: Consolation has left an opening for people to make wise investments and take advantage of untapped opportunities. We can reemerge as a much stronger sector. Smart people with experience in industry have opportunities as prices come down. In a way, the slowing of the market will have a Darwinian effect. It will help get rid of technologies that FDA and CMS don’t find useful, as well as the people who shouldn’t be in this space.
Pete Masloski, principal, ZS Associates
The main issue in 2012 will be how companies plan for the impending device excise tax currently scheduled to take effect in 2013. In fact, we are already seeing companies implement restructuring to prepare for the new tax (Stryker). Panicked companies could try to implement across-the-board restructuring this year to prepare for the levy in a knee jerk reaction to the tax, or rush into a cost cutting program without being fully prepared. Other firms might place their bets that the tax will be delayed or rescinded, and be caught under-prepared. The best course of action is for executives to thoughtfully identify and plan for ways to fundamentally improve their effectiveness and efficiency to minimize the impact of cost cutting. A well planned and executed effort includes selective restructuring, avoids cutting in critical customer facing functions, leverages outsourcing for support functions and explores low-cost go-to market models.