The 3 Greatest Threats and Opportunities Facing the Medtech Industry

The medical device industry in the United States faces a perfect storm of pressures. Funding in the sector is down, domestic hospital spending is tight, regulatory scrutiny is increasingly stringent and sometimes inconsistent, and competition from foreign device makers is stiffening. While a number of companies have experienced growth in this harsh economic and regulatory environment, a significant number continue to face revenue challenges, releasing poor earnings statements and announcing continued layoffs. The following article explores some of the greatest threats faced by the U.S. medical device industry. While these three areas will certainly remain a challenge for device makers, they also represent opportunities for device makers that are willing to adapt and devise new ways of doing business that are both clinically sound and cost-effective.

Healthcare Reform

The Affordable Care Act has created a tremendous amount of uncertainty. Last year, however, with the Supreme Court's decision to uphold the legislation's individual mandate did give those involved an incentive to start more-detailed planning for healthcare reform--as did the re-election of Obama. "I think the industry is in a position [following those events] where they have to move from abstract planning and understanding to practical actions," explained Todd Evans, a director in PricewaterhouseCoopers Pharmaceutical and Life Sciences Advisory Services Group. While the medical device tax provision of the Affordable Care Act has received undue attention, many in the industry continue to decry the tax as a job-killer that stifles innovation. For smaller medical device startups, costs associated with the medical device tax can stymie industry growth, they argue. In any case, the tax, along with regulatory uncertainty, is inspiring a growing number of firms to create products that are outside of FDA's purview. The digital health sector, for instance, has thrived in recent years. Many of the products in that industry do not require traditional regulatory approval. Still, FDA approval is obviously still valuable, as AgaMatrix co-founder Sridhar Iyengar Ph.D. has stressed. The company has developed a number of FDA-cleared, cloud-connected medical devices.

Increasing Regulatory Scrutiny

In 2012, FDA sent more warning letters to medical device companies than it had in each year from 2004 to 2011. That finding, which was based on FDA data, was released in a recent Emergo report, which predicts "stepped-up FDA inspections to continue" in the coming years.

It seems FDA is in the process of re-evaluating how it should regulate medical devices and, in the process, releasing details of its plans. Recently, for instance, the agency released guidance concerning medical device hacking, a subject that continues to receive widespread attention. As medical device companies look for ways to integrate their products into the lives of patients, software and hardware vulnerabilities can become a significant problem. For example, many biometric feedback tools available today provide integration with iOS / Android mobile devices. While integrating healthcare data on one of these devices can be a beneficial practice, it can open up data to all the vulnerabilities found on the host device. As systems continue to increase in complexity, manufacturers will have to be vigilant when securing hardware and software. In addition, they will also have to accommodate growing pressures from FDA for tighter supply chain controls, more clinical data, and so forth.
Globalization

Growing economies like Brazil, Russia, India and China offer great opportunities for international medical device manufacturers. Indeed, increasing their market share in emerging markets is one of Medtronic's chief strategies and one of CEO Omar Ishrak's favorite talking points. But even Ishrak admits that doing business in places like China and India is more challenging than he expected.
Despite the creation of national health insurance programs in places such as China, reimbursement rates in emerging markets can be a challenging. For example, India recently cut reimbursement rates for some stents. In addition, India has sided with generic pharmaceutical manufacturers in several stent spats with Western manufacturers. In part, India takes this stance to ensure that its population has access to the medical technologies it needs. Because of this, ensuring the safety of a patent in India may be a challenge.

Other regulatory environments can pose difficulties as well. In China, competing against state-owned companies can be daunting. Since state-owned companies have strong ties to the government, it can be difficult to ensure that international firms have access to all the resources available to domestic companies.

For many U.S.-based device companies, China has lost much of its luster as a place to make goods. As Chip Starnes, the co-owner of Specialty Medical Supplies who was recently held hostage at his Chinese factory recently explained: "I think there is a dirty underside of doing business in China. I don't think that is a secret [in the United States]." The New York Times recently published an article while also acknowledge the tremendous market potential in China.
For now, the medtech industry in the United States continues to be the largest in the world. However, it seems that the domestic industry must become increasingly agile to hold onto that title as device makers in Europe and Asia gain market share.