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The Medtech Marketplace in 2008

Industry experts provide insights into the trends driving key medical device sectors.

MARKET ANALYSIS

Each new year brings fresh challenges and opportunities for the medical device industry, with obstacles and prospects varying largely by sector. For sectors such as cardiology—which saw its share of challenges last year—2008 represents an opportunity to renew confidence and reinvigorate sales in waning product segments. Meanwhile, emerging sectors, such as neurotechnology, are only beginning to capitalize on potential therapeutic applications.

The orthopedics sector, which enters 2008 with a record level of private equity under its belt, continues to benefit from aging populations in the United States and most other industrialized nations. Likewise, established imaging segments are being driven by proven clinical benefits and the trend toward portability. Meanwhile, the in vitro diagnostics (IVDs) sector promises to continue its journey toward personalized medicine following a significant restructuring of its competitive landscape in 2007.

This article takes a look at these and other developments on the horizon for some of medtech's key sectors this year and beyond.

Neurotechnology Sector Poised for Growth

(click to enlarge)
Figure 1. Estimated revenues for the worldwide neurotechnology market, 2008-2012, by segment. Source: The Market for Neurotechnology, 2008-2012 (San Francisco, Neurotech Reports, 2007).

The neurotechnology sector, which includes manufacturers of electronic devices that interact with the nervous system, represents one of the most promising sectors of the medtech industry. According to a recently released market research report, the sector is expected to grow from $3.6 billion in worldwide sales in 2008 to $8.8 billion in 2012 (see Figure 1).1

The largest segment of the neurotechnology sector is made up of neuromodulation devices such as spinal cord stimulation systems, deep-brain stimulation systems, and vagus nerve stimulators. This segment will grow from $1.7 billion in 2008 to $4.6 billion in 2012 thanks to new market opportunities for treating disorders ranging from stroke, to morbid obesity, to major depression.

The neural prostheses segment, which includes cochlear prostheses and other functional electrical stimulation systems that restore lost neurological functions, will grow from $855 million in 2008 to $2.1 billion in 2012. New applications in this category include retinal implants, respiratory prostheses, and neurally controlled prosthetic limbs.

Neurosensing systems such as electroencephalography (EEG) devices, brain analysis systems, and brain-computer interfaces, will reach $1.2 billion by 2012.

Finally, the neurorehabilitation devices segment, including implanted muscle stimulators, neurorobotic training systems, and cognitive rehabilitation tools, will grow from $289 million in 2008 to $914 million in 2012, according to the study.

Many of the new therapies and product categories that will fuel this upcoming growth were discussed at a meeting of the International Neuromodulation Society (San Francisco) in December 2007. The three dominant players in the neuromodulation industry—Medtronic, Boston Scientific, and St. Jude Medical—each had a major presence at the meeting. Also on hand were representatives of several newer and start-up neurotech firms, including Northstar Neuroscience, which is developing a cortical stimulation system to treat stroke and other disorders; Intelect Medical, which will be targeting the traumatic brain injury market with a deep-brain stimulation system; and Victhom Human Bionics, a Canadian firm that is developing an implanted foot-drop stimulator.—James Cavuoto, editor, Neurotech Reports (San Francisco)

Branded Cardiology: Selling Stents like Sneakers

In 2007, most Americans spent Thanksgiving Day following the time-honored pursuits of football and food. While grabbing second helpings of mashed potatoes or pecan pie, many moved one helping closer to the onset of coronary artery disease and diabetes. But some may also have taken special note of the dawning of a new era in medical device marketing, with the launch of the first direct-to-consumer (DTC) television marketing campaign for drug-eluting coronary stents.

A number of factors led to the development of the trendsetting campaign, which was produced for Cordis Corp. (Miami Lakes, FL), a Johnson & Johnson company. Key factors influencing the company's decision to use television as a marketing tool included physician concern over the safety of drug-eluting stents, a slump in sales of Cordis's Cypher drug-eluting stent, the potential market entry of new competing products over the next several months, and fierce market-positioning battles with competitors. The need to address so many intractable issues at once led Cordis to take the battle straight to the patients themselves.

J&J's campaign isn't exactly revolutionary. Earlier in the year, competitor Medtronic launched a DTC marketing campaign for its line of implantable cardioverter-defibrillators (ICDs). The two products that account for the majority of cardiovascular device sales are ICDs and drug-eluting stents. While both of those markets were previously viewed as having nearly limitless growth ceilings, both of them stalled in 2006 as a result of market factors.

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Figure 2. Decline of U.S. markets for key cardiovascular devices, implantable cardiverter-defibrillators (ICDs) and drug-eluting stents (DES), 2004-2007. Source: Frost & Sullivan (San Antonio, TX).

In 2007, sales of ICDs and pacemakers continued to stagnate. Meanwhile, sales of drug-eluting stents plummeted (see Figure 2). In the third quarter of 2007, market leader Boston Scientific saw sales of its Taxus device drop by 32% over the year-ago period. Not to be outdone, J&J, the only other company with an FDA-approved drug-eluting stent, saw its sales drop by 42%.

The adoption of a DTC marketing approach by J&J and Medtronic raises questions about the meaning of this approach for the cardiovascular device sector and the medical device industry as a whole. Are the campaigns desperation moves on the part of two large medical device manufacturers trying to revive stagnated product lines? Or do they represent an early sign of where medtech marketing is headed?

A number of large competitors have found it a tricky proposition to market to clinicians. Those companies feel that surgeons and doctors are too easily swayed back and forth by the latest sensationalized findings published in a clinical journal, leading to huge dips or rises in the market. But marketing directly to potential patients enables companies to establish brand recognition, potentially giving them an edge over competitors. When dealing with mature industries with a market potential of $5 billion-$10 billion, a market share shift of just 4–5% translates to $200 million-$400 million in gains or losses.

Moving forward, the device industry has increasingly shifted its focus toward restoring quality of life. As a result, therapies congruent with an active lifestyle continue to increase in prominence. If there is a common theme in the DTC marketing campaigns of Medtronic and J&J, it is their emphasis on safety and quality of life.

It remains to be seen whether such aggressive DTC marketing strategies will help to revive these stagnated markets. It is equally possible that such a DTC strategy could backfire, angering clinicians by inundating them with patients who believe they are equipped to offer advice about device selection. Companies may rightly counter that their aim is to raise awareness and not to dictate treatment, but it's easy to see how the two issues overlap.

It's clear that the context of medtech advertising will be very different in 2008 and beyond. In the future, device manufacturers will no longer be content to sit passively and permit the news media to define how their products are viewed in the public arena—on Thanksgiving or any other day.—Venkat Rajan, industry analyst, medical devices, Frost & Sullivan (San Antonio, TX)

IVDs Move into the Limelight

Diagnostic laboratory technology is changing dramatically. The major beneficiaries of ongoing transformations are patients and the emerging era of personalized medicine. According to a 2006 report in The Scientist, 7% of U.S. drug expenditures (approximately $21 billion) is used to treat adverse drug reactions.

Big Pharma, Personalized. A key ongoing trend in the diagnostic marketplace is the creation of new tests to help physicians choose the therapeutic options that fit best with each patient's medical problems and minimize adverse drug reactions.

This development of what is known as personalized medicine is most obvious in cancer treatment. But it is also beginning to have an impact in psychiatry, coagulation, diabetes, and cardiac disease. Some diseases whose treatment may involve a genetic component include Alzheimer's disease, bone marrow disorders, cystic fibrosis, hemachromotosis, lupus erythematosus, osteoarthritis, and sickle cell anemia. Pharmaceutical companies are investing in personalized medicine as a key path for future growth, helping to make up for the diminishing number of blockbuster drugs in the pipeline.

Making Drugs Safer. Current statistics suggest that it can cost as much as $1.5 billion to bring a new drug to market. Moreover, as many as nine out of 10 drug candidates fail late in the development process, when they are being tested in humans.

In light of these and other measures suggesting trouble in the drug discovery process, FDA has launched a Critical Path Initiative that aims to improve the efficiency and safety of the development processes for drugs and other medical products.

Pharma industry economics are also a driving force for changing the drug discovery process. With the current tough regulatory and reimbursement environment, pharma companies must reduce their development costs and risk in the very early phases.

This is where IVDs come in. Pharma companies realize that gene and protein biomarkers offer a way to develop better and safer drugs. Pharmacodiagnostic tests using such biomarkers are now being used in drug development to perfect target selection, patient segmentation, and drug dosing. Biomarkers help pharma companies design drugs that are more effective and result in fewer adverse drug reactions. Such biomarkers can increase the efficacy and reduce the risks associated with drug development, and can also reduce the time and cost of Phase 1 and Phase 2 clinical trials. More and more pharma companies are looking to IVD companies for biomarker tools.

Kalorama Information estimates the 2006 world market for biomarkers in clinical trials was $427 million. In 2010, this market is expected to grow to more than $1 billion.

Investment Players. These trends and others have brought in vitro diagnostics to the attention of the investment community and resulted in an injection of much-needed company capitalization. Small and medium-sized IVD companies such as Cytyc, Digene, Luminex, Nanogen, Quidel, Third Wave, Trinity Biotech, Ventana Medical Systems, and others are capitalized to the tune of as much as 100 times revenues.

Large IVD companies are also looking for more innovation in their menu and product pipelines. This trend is evident in the ongoing saga of Roche's bid to acquire Ventana Medical Systems; in the growing stable of companies belonging to Inverness Medical Innovations, now including BBI, Biosite, Cholestech, Hemosense, Matritech, Panbio, and others; and Qiagen's entry into mainstream IVDs with its acquisition of Artus and Digene.

Another result of renewed interest in the IVD sector is increased market consolidation, as large players buy IVD companies, and small companies move into the top 10 (see Table I). In both 2005 and 2007, the top 10 IVD companies account for some 75% of total IVD sector revenues. But in the intervening period, the top-10 landscape has changed dramatically.

Company
Headquarters
2005
2007
Roche Diagnostics
Switzerland
6,182
6,747
Siemens Diagnostics
Germany
a
5,800b
Abbott Diagnostics
United States
3,756
3,160
Ortho-Clinical Diagnostics
United States
3,317
3,956
Beckman Coulter
United States
1,890
2,116
Becton Dickinson
United States
1,506
1,486
BioMérieux
France
1.298
1,280
Bio-Rad
United States
625
976c
Inverness Medical
United States
400
970d
Sysmex
Japan
700
850
Bayer Diagnostics
Germany
2,310
a
Dade Behring
United States
1,650
a
Diagnostic Products Corp.
United States
473
a
Total
 
24,107
27,341

aNot applicable.
bIncludes Bayer, DPC, and Dade Behring revenues.
cIncludes DiaMed revenues.
dIncludes BBI, Biosite, Cholestech, Hemosense, Matritech, and Panbio revenues.
Table I. Revenue of the top 10 in vitro diagnostics companies for 2005 (actual) and 2007 (estimated). All revenues reported in $ millions.
Source: Kalorama Information (New York City), company reports.

While Roche Diagnostics remains the world's largest IVD company, the 2007 list shows the entry of a new player—the Siemens Medical conglomerate—now solidly in second place. Meanwhile, the 2007 list also shows a growing gap in sales revenues between the top two companies and the next eight. Finally, Inverness's buying spree increased revenues to nearly $1 billion, giving the company a definite place in the top tier of IVD companies.—Shara Rosen, senior analyst, Kalorama Information (New York City)

Orthopedic Innovation Attracts Capital and Propels Growth

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Figure 3. Profile of the musculoskeletal device sector in 2007 (estimated), by anatomic focus. Source: Viscogliosi Bros. LLC (New York City).

A flurry of innovation in hip, knee, and spine implants—plus a sudden spurt in devices for hands, arms, and feet—kept the orthopedic sector on track in 2007. Estimates are for at least a 10% sales increase in 2007 (over 2006) to around $34.3 billion worldwide (see Figure 3).

Perhaps more indicative of the sector's health in 2007 was the fact that private investors injected more than $3 billion into developmental and start-up ortho companies—well ahead of the record $2.69 billion invested in 2006.

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Figure 4. Doctor visits related to orthopedic and musculoskeletal complaints in 2006 (estimated), by anatomic focus. Source: National Ambulatory Medical Care Survey, Viscogliosi Bros. LLC (New York City).

Money aside, 2007 featured the introduction of successful testing of implants, biologics, and less-invasive (and less costly) methods of repairing the big bones and joints. Also, something quite new in the current growth phase, there was a revival in news, views, and innovation in the treatment of smaller bones and joints in the extremities (see Figure 4).

There is no mystery to this kind of growth. With aging populations in the United States and most other industrialized nations, the incidence and associated costs of arthritis command a lot of attention from patients and third-party payers. Artificial hips and knees represent the bulk of sector sales, along with other therapies to alleviate back pain, and to treat diseased feet and hands.

The annual bill in the United States for arthritis-related treatment and loss of productivity is thought to have grown to more than $200 billion. The latest official figures from the Centers for Disease Control estimated the cost at $126 billion in 2003.

Another dark cloud is the even greater incidence of diabetic feet, associated with obesity, which can lead to amputations unless foot and ankle doctors reach patients in time. Treatment can make use of technologies designed to salvage the limb and regrow or even lengthen the bone.

The latest hip replacements are being done using a resurfacing technique that preserves more of the original bone, making both the procedure and rehabilitation less arduous. One new resurfacing system, for example, has already been implanted in nearly 80,000 patients in 26 countries. The maker says it lets younger patients undergo hip resurfacing while preserving all future surgery options, including a primary hip replacement.—Anthony G. Viscogliosi, principal, Viscogliosi Bros. LLC (New York City)

X-Ray and Ultrasound: A Bright, Portable Future

(click to enlarge)
Figure 5. Estimated worldwide revenues and market growth for ultrasound imaging technologies, 2006-2008. Source: InMedica (wellingborough, UK).

While market growth is predicted to be stronger for ultrasound than for x-ray imaging equipment this year, the markets for both modalities present exciting opportunities for future growth (see Figures 5 and 6). For 2008, development of both the x-ray and ultrasound markets focuses on the provision of new machines that will increase the operating efficiency and productivity of hospitals and clinics. In an environment where the cost of healthcare is outpacing government spending, enhancements in work flow and increased patient throughput will be necessary to ensure the survival of many hospitals and clinics globally.

For x-ray, the adoption of digital technology has fueled growth in all areas of the global x-ray equipment market, with the most dramatic growth achieved by the proven clinical value of digital breast screening in mammography. There is an apparent trend toward digital compact and portable x-ray equipment, which is being used increasingly in a number of specialized applications such as emergency medicine, operating theaters, and intensive care units. This equipment allows a greater degree of positioning freedom and flexibility, enabling radiologists to perform a far wider range of exams and providing benefits for work flow and patient care. Furthermore, emerging technological trends such as the development of computer-aided diagnosis, tomosynthesis, and the multifunctionality of equipment are also fueling growth in this market.

(click to enlarge)
Figure 6. Estimated worldwide revenues and market growth for x-ray imaging technologies, 2006-2008. Source: InMedica (Wellingborough, UK).

The 'compact revolution' represented by portable and hand-carried systems in the ultrasound market continues to fuel the use of this modality in newer applications such as emergency medicine and anesthesiology. Moreover, it is also driving higher growth for ultrasound in its traditional markets such as cardiology and obstetrics and gynecology. Ultrasound is also finding increasing use in applications such as breast imaging, real-time image guidance, and screening for pathologies such as abdominal aortic aneurysm. Elastography, harmonic imaging, and volume imaging are also key developmental areas. Changes in the ergonomic design of transducers will also be noticeable in 2008.

Finally, there is an ongoing change in the way that ultrasound equipment is being used, not only in hospitals but also in clinics and private practices; the share of procedural, diagnostic, and physical examinations that include ultrasound is increasing.

Both imaging modalities are seeing developments in diagnostic performance and ergonomic design, and an increasing number of features and functions are becoming available at lower cost. The cost-effectiveness, ease of use, and flexibility of equipment for both x-ray and ultrasound have contributed to their increased use in comparison with other imaging modalities. As a result, the future remains very bright for both x-ray and ultrasound imaging equipment markets.—Diane Wilkinson, market analyst, InMedica.

Reference

1. The Market for Neurotechnology: 2008-2012 (San Francisco: Neurotech Reports, 2007).

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