MDDI Online is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

7 Reasons for Medtech to Be Thankful This Year

It's easy to get caught up in the doom and gloom, but in the spirit of the U.S. Thanksgiving holiday, this week we recognize the trends and events that the industry can be thankful for.

  • 1. Tax Reform

    Tax reform is likely to be on the minds of many U.S. executives as they head into the Thanksgiving holiday. While the outcome remains uncertain, lawmakers are considering certain cuts and incentives that could ultimately benefit the medical device industry. 

    One way tax reform could potentially benefit some medtech companies is through a repatriation tax holiday that would give companies with cash held abroad a way to bring those funds back to the United States at a tax rate well below the corporate tax rate. A lot of medtech companies could potentially benefit from such a holiday.

    Some lawmakers have also proposed incentives that would encourage investment in startup medtech companies, which is something that AdvaMed Accel's Executive Direct Ashley Wittorf has expressed support for. "As Congress continues work on broad tax reform, inclusion of a federal innovation investor credit would promote the administration’s goals of boosting economic growth and job creation, while helping ensure the U.S. maintains its position as the world leader in medical advancement," Wittorf said.

    Finally, lawmakers are considering a permanent corporate tax rate reduction from 35% to 20%, which would be a clear benefit to all businesses in the industry.

  • 2. Medtech Valuations are Soaring

    Analysts have noted in recent reports that medtech that medtech stocks across the board (large, mid-, and small-caps) are trading at the high end (or just above) historical peak valuation levels. Multiples have, for the most part, trended higher throughout 2017, according to Canaccord Genuity's Jason Mills.

    "In general, we are scratching our heads at current valuations," he wrote in a July 10 note to investors.

    Mills recommended in that note, and again in a Sept. 14 note, that investors look for "pullback opportunities" to build bigger positions in stocks with differentiated, leading technology positions in robust markets with multi-year growth trajectories and expanding margins.

  • 3. Making a Notable Difference

    One of the biggest pros of working in medtech is knowing that your work has a positive impact on patients' lives. This year, FDA approved Abbott's FreeStyle  Libre glucose monitoring system as a replacement for blood glucose monitoring for adults. The approval was considered a major win for Americans with diabetes because it eliminates routine finger sticks, which have been the standard of glucose testing for more than 40 years.

     For the industry as a whole, the milestone served as a reminder of why so many people are drawn to the medtech field.

  • 4. Value-Based Care Still Matters 

    Despite indications that CMS may pullback from a mandatory bundled payment model, Brian Chapman, principal at ZS, told MD+DI that support for value-based care remains strong at medical device companies. Providing valuable therapies and services will remain essential for patient care, though the exact ways this is done may change.

    In a recent interview with MD+DI, Jill Anderson, CEO of Cinna Medical, also emphasized the importance of developing products that address value-based care criteria. Cianna's Savi Scout reflector, an implantable device designed to help breast surgeons locate tumors without using wires, has a 99.9% approval rate by hospital value analysis committees. The technology improves workflow and patient outcomes, and reduces the need for repeat surgery, Anderson said.

  • 5. Medtech Helping Medtech

    Leading device companies are beginning to partner with startups to help address the early-stage funding gap commonly known as death valley. This was one of the key suggestions in a recent Deloitte-AdvaMed report based on research with more than 20 medtech leaders.

    “I think overall, when we went out and surveyed some of the larger companies that would have conversations with these smaller startups . . . they were indicating that much more is needed," Pedro Arboleda, managing director of medtech strategy at Deloitte, told MD+DI. "There’s some scale factor involved that hasn’t happened.”

    The Deloitte-AdvaMed report notes that partnering would help not only the early-stage medtech companies, but also the larger firms. “Large companies would benefit from a robust, early-stage medtech innovation ecosystem, as it provides opportunities to acquire new products and services that could anchor a growth platform,” the authors wrote. Partnering could involve licensing agreements, joint ventures, and marketing or developing a technology together.

    Unlike venture capitalists, larger companies don't depend as much on high returns from such investments, so they can accept lower return rates, according to the report authors.

    Charlie Attlan, senior vice president of corporate strategy and business development at Boston Scientific, said Boston Scientific sees this as an opportunity to participate in early-stage investments in a way that hasn't always been possible because startups were concerned that having a strategic partner would lock them up.

    “We have capital, the know-how, and we have a bit of a different perspective when we invest . . . It’s a bit longer term, and it’s a more strategic purpose,” Attlan said.

    Anne Sissel, vice president and head of Baxter Ventures at Baxter Healthcare Corporation, said Baxter Ventures' approach to early-stage investing lends itself to taking on risk. The firm evaluates investment opportunities on a portfolio basis, she explained.

    “If we have a couple of wins overall . . . the law of large numbers works in our favor in venture and really allows us to invest across all these different types of risks, take on some of those esoteric risks that a venture capital firm may not have in a smaller portfolio.”

    It takes two to tango, of course, so medical device startups must also be willing to work with large companies and venture capitalists. Sissel said that because of lower capital needs in the early phases, there seems to be more digital health and diagnostics companies actively seeking partnerships and other joint opportunities.

  • 6. Under-Tapped Market Opportunities Abound

    In a July note to clients, Canaccord Genuity's Jason Mills called attention to three clinical areas that present big market opportunities for medtech: structural heart, peripheral vascular disease, and stroke and atrial fibrillation (AF).

    Structural heart will be one of the most robust medical device markets in the world over the next decade, Mills said, noting that device-based treatment for heart failure could also fall into this bucket.

    Peripheral vascular disease also represents a huge opportunity for device companies, Mills said, as there are more than 20 million people living with peripheral artery disease or peripheral vascular disease in the United States alone, and more than $300 million spent to treat these diseases every year. 

    Mills said AF remains one of the most prevalent, under-treated diseases globally, and has been proven to contribute to ischemic stroke.

    globally and has been proven to be a primary contributor to ischemic stroke. Both disease states can be seen as key drivers of the medtech market both near- and long-term, he said.

  • 7. M&A Accelerates

    The story of consolidation across the medtech universe is not new by any stretch, but some analysts have noted in recent reports that M&A activity seems to be accelerating even more lately. Canaccord Genuity's Jason Mills said in a Sept. 4 note to investors that medtech M&A is one of the most discussed topics in meetings with public companies, private companies, venture capital investors, private equity investors, board members, and even physicians.

    "M&A has had a major impact on our coverage universe over the nearly 20 years doing this job but has seemingly throttled into a new gear of late," Mills said. "We expect more M&A going forward as strategics increasingly look toward acquisitions to accelerate top-line growth rates as well as to augment operating margins via scale, synergy and pricing power, while also helping to diversify the large players away from mature, price-sensitive markets."

    According to Mills, M&A activity accelerated last year, with 61 deals compared to 58 in 2015. The trend of blockbuster M&As may be slowing a bit, however, as the deals announced this year have primarily been smaller, tuck-in acquisitions. That trend is expected to continue into 2018, the analyst noted.

    Some examples of smaller, albeit notable tuck-ins include Boston Scientific's acquisition of Symetis, Philips' acquisition of Spectranetics, and Stryker's acquisition of Novadaq.

Medtech companies have shown a remarkable amount of resilience in a year filled with uncertainty. This week, in the spirit of Thanksgiving, we identified these seven reasons for medtech to be thankful this year.

500 characters remaining