High Margins. Let’s face it, if there was no profit to be made, no one would do this kind of work. Getting a medical device to market may be expensive, time-consuming, and a headache to deal with FDA, but it's a good living.

Incubators and Innovation Hubs. The hubs of the medtech space—Silicon Valley and Orange County, in California; Boston; and Minneapolis have a strong foundation for innovation, and those areas cultivate start-up talent. Incubator sites across the country are creating programs to draw entrepreneurs Colorado, Ohio, Indiana, among many others, are working to create an environments that foster the medtech industry.

Regulatory Structure. Uncertainty and inconsistency plague the regulatory process. FDA has difficulty retaining reviewers and management. An ever-changing FDA translates to inconsistency with review process. Device companies must look to provide not just the minimal amount of clinical data possible but the optimal amount of data necessary to satisfy reviewers. John J. Smith, from Hogan Lovells, puts it this way: “The stringent and unpredictable nature of the regulatory process makes it much harder to raise funds and plan for product introduction.”

Superconsumers. Patients have increased access to information and will look to OEMs that can provide services (not just products). Companies able to capitalize on social media and patient outreach can increase brand recognition, which has not been typical of the device market. Design elements that promote ease of use and mimic (or are provided on) consumer devices should see success.

Design for Efficiency. Design emphasis will increasingly turn to efficiency. The goal for design and development will be to de-engineer or “undesign” medical equipment—that is strip it down to its essential parts for a portability, low power, and cost effectiveness. This is both an opportunity and a threat. Smith says, “the key is really cost effectiveness and not innovation for innovation’s sake under the [new] paradigm.”

R&D tax credits. Small and midsize businesses that employ engineers or outsource product testing can claim R&D credits. The credits have become more attractive for small companies in recent years because they’ve been simplified, can be transferred in an acquisition, and can be taken retroactively.  

Device Tax. The medical device excise tax will be levied against manufacturers to help pay for the Affordable Care Act (Healthcare Reform) starting 2013 and applied over a 10-year period. The 2.3% tax applies to the sale of most medical devices. The tax is being heavily contested by industry and key members of Congress. AdvaMed has concluded that the tax could cost 43,000 (or 10%) of jobs in this highly paid, highly skilled industry. With such an argument, and with weighty congressional support for a repeal, there is reason to expect that the tax will be significantly eased or removed altogether.

Decreases in Funding. Funding is going to more mature companies, rather than early—and riskier—start-ups. This means that it will be difficult for innovative entrepreneurs to find the funding required for big ideas. “The traditional model for the industry is that smaller companies are generally innovators with the larger companies picking up the successful ideas. Early-stage capital has been increasingly difficult to obtain with small companies given how uncertain the regulatory landscape has become,” Smith notes.

Healthcare Reform. Increases payer pressure (private insurance and Medicare) and comparative effectiveness analysis. Companies will need to provide more clinical data, both preapproval and postmarket, to FDA. Healthcare reform also fundamentally changes the customer base, which was traditionally made up of physicians. The new customer is hospital administration, which is primarily concerned with reducing costs. “The problem is that everything will be data driven, obtaining such data is costly, and there will be real pressures to keep costs low,” Smith says.