The Cardio Market: Recession Resilient?

The foremost topic on the mind of manufacturers in any industry is the state of the economy. Historic unemployment rates, a lending crisis, and overall uncertainty for the future have cut into consumer spending. Even in the robust medical device sector, industry participants see the ramifications.

April 1, 2009

7 Min Read
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Investments in emerging technologies, hospital purchasing trends, patient preferences for care, and even the types of care provided are all potentially affected by the economic recession. Although the majority of medical device technologies are not tied to consumer spending, unemployment and the subsequent loss of employee-sponsored insurance plans are a major concern for medtech developers. Another concern is how the lending crisis hinders hospitals from securing the appropriate financing to improve their infrastructure and purchasing high-end capital equipment. Furthermore, all indicators show that overall investment into the medical devices sector—venture capitalists (VC) or otherwise—has decreased, hampering the development of emerging companies.

Of the specific sectors within the medical device space, the economic crisis expects to have a somewhat minimal impact on the cardiovascular devices sector. Although there is no universal health plan in place for the United States, unlike certain western European nations, all life-saving procedures are paid for one way or another regardless of insurance. As such, cardiovascular technologies are projected to fare better than other therapeutic devices such as orthopedics, sports medicine, novel quality-of-life treatments, and aesthetic surgery spaces.

Acute versus Planned Care

One major effect of the economy that has already been reported by several U.S. hospitals is that while fewer patients have been scheduling screening and check-ups, there has been a significant influx of patients coming through the emergency rooms. The way patients seek care can oftentimes have an effect on the type of care and, ultimately, on which devices are used.

For a certain procedure in which disposable products are used, it could be difficult to capture whether fluctuation in procedures is due to lack of screening, lack of insurance, or other factors.

To capture the ultimate effect on certain disposable supplies, each type of disposable must be evaluated on a case-by-case basis. A good starting point for comparison could be to look at a specific procedure and see whether the acute treatment is drastically different from a procedure performed in a scheduled setting. If the approach is comparable in an acute or planned setting, that device should not be affected drastically. On the other hand, for certain peripheral vascular diseases, interventional treatments are conducted in a planned setting where there is time to clear a clot or seal an aneurysm, while acute care typically results in more-invasive approaches including possible amputation.

Overall, the lack of patients being seen for regular check-ups is more of a worry for pharmaceutical companies, because this means that clinicians are not able to diagnose and prescribe medications for patients. In fact, there are some industry observers who believe this could lead to an overall increase in devices and consumables used, as more patients are not managing their disease and are at risk of an acute event.

Investment Sector: Low Risk, High Reward

As banks, hedge funds, and VC firms face tough times in light of the financial crisis, the cash flow into start-ups and emerging companies is becoming more tempered and is completed with higher scrutiny.

Under the new market climate, those investors could be less likely to take risks on ventures that they don’t quite comprehend in concept. Ventures also under the microscope include those with long developmental cycles, especially Class III type technologies, which could take several years before realizing revenues. The restricted flow of funding could adversely affect the development and growth of those emerging companies, hindering development of truly novel approaches in care. Investors are more likely to turn their focus to more low-risk products, products that could provide a quicker return on investment, and products that fall outside the stringent regulatory and reimbursement approval process.

However, with the restriction of revenue from investors, and no initial public offerings on the horizon for 2009, companies increasingly look to larger market participants as an exit strategy.

Already in 2009, Medtronic has made a significant move, spending nearly $1 billion on two companies in the transcatheter valve space. It is likely that there will be more mergers and acquisitions activity to come. However, it is highly unlikely that those deals will be on the scale of the nearly $27-billion acquisition of Guidant in 2006.

Companies see this market as an opportunity to buy bargains and bolster their long-term product pipeline. Companies often identify a product or technology that might bring value to their existing product lines, but in certain cases, they are making the purchase to keep that technology from cannibalizing their existing products or falling into the hands of a competitor. Any move in the current market climate will have a high degree of scrutiny to evaluate how soon a solid return on investment could be realized.

Growth Spotlight: Transcatheter Valve Approach

The medical device industry increasingly transitions toward minimally invasive technologies that reduce risks of complications, allow faster recovery times, and make treatments more accessible. Certain treatment sectors are developing new technologies that provide a significant advantage over existing treatments. These sectors have the opportunity to offer significant growth.

One such technology that has seen a great deal of focus is transcatheter valve repair and replacement. Just as the development of the first mechanical valves or tissue-based valves revolutionized treatment options, the market is now poised to realize the next evolution in treatment. Transcatheter valve technologies have the potential to bring a minimally invasive approach to valvular repair and replacement, thereby minimizing issues that have restricted patient care in the past.

As mentioned, one of the most significant industry transactions in 2009 to date involved Medtronic allocating $1.03 billion to acquire two privately held companies developing transcatheter heart valves for treating aortic valve disease. This acquisition gives Medtronic access to a valve delivered by the transfemoral approach developed by CoreValve Inc., and another transapical system developed by Ventor Technologies Ltd. CoreValve’s ReValving System received CE mark in 2007 and has been implanted in more than 1000 high-risk patients in Europe. The market leader in artificial heart valve repair, Edwards Lifesciences, has already received CE approval for its transcatheter valve and transcatheter delivery systems. The market opportunity for this paradigm shift in care has given rise to a number of smaller emerging firms seeking to develop and refine their own unique approach to minimally invasive heart valve treatments.

Although the majority of clinical research regarding long-term efficacy of these systems is still ongoing, they have the potential to affect the market in the same way that stenting technologies overtook open-heart bypass procedures in acute coronary care.

Stimulus Plan Boost

A number of industry observers are curious as to what potential effect certain healthcare-specific spending provisions of the stimulus package could have on the industry. Specific to hospital relief, there are significant funds being allocated to the construction and upgrade of outdated military hospitals and potential upgrades of run-down community hospitals.

Overall, the stimulus plan should help the industry with money being allocated to hospitals to reduce the burden placed on them for treating uninsured patients and allocations to extend COBRA or state Medicaid services for the unemployed. Those actions should help hospitals improve their cash flow and ultimately allow them to deliver care more effectively.

For an even broader perspective, stimulus funds being allocated to banks and lower interest rates intended for bank loans could provide a boost to hospitals. Once the financial sector is able to provide more loans, hospitals should have more access to funds and financing to purchase capital equipment or make any necessary renovations.

It is currently difficult to capture what specific medical device products will directly benefit from the influx of stimulus spending. The only specific allocated funding is for electronic health records, which would obviously be an instant boost to companies that provide those capabilities.

Conclusion

While the cardiovascular devices market is not poised to realize double-digit growth rates in the short term, this market expects to be fairly stable and, for the most part, unaffected by the recent economic crisis. New technologies, and long-term gradual expansion into underpenetrated segments, such as peripheral vascular disease, should provide growth opportunities for product developers.

Venkat Rajan is the industry manager for Frost & Sullivan’s medical device team in North America. As an analyst, he examines the cardiovascular device markets, including medical catheters, vascular stents and stent grafts, neurovascular devices, pacemakers, implantable cardioverter defibrillators, cardiac ablation systems, mechanical heart valves, thrombectomy devices, atherectomy devices, and other interventional therapies.

Stimulus Plan Provisions

Healthcare Facility Construction Renovations

  • $3.75 billion in construction of new Department of Defense (DoD) medical facilities.

  • $445 million to renovate existing DoD medical facilities.

  • $950 million to complete repairs and upgrades to Veteran Affairs facilities.

  • $1 billion to complete renovations and modernize primary care clinics.

  • $550 million to improve Indian Health Service facilities.

Investment in Healthcare

  • $20 billion to computerize health records.

  • $3 billion to improve wellness and preventative medicine programs.

  • $500 million to help community care facilities pay for care of uninsured patients.

  • $600million to invest in training primary care providers.

Expand Insurance Coverage

  • $30.3 billion to extend COBRA healthcare for unemployed.

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