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Will Abbott Rule the Diagnostics Market by 2019?

Will Abbott Rule the Diagnostics Market by 2019?

Abbott's Architect C14100 automated analyzer


Abbott delivered better-than-expected diagnostics sales in the second quarter of 2014, and the company hopes a strong product pipeline will make that a trend going forward.

Learn more about what trends are shaping the medical device industry at the MD&M Minneapolis conference and exposition October 29–30, 2014.

Abbot’s worldwide diagnostics sales in Q2 2014 climbed 5.5% on an operational basis over the same period last year. For the first half of 2014, diagnostics sales were up 5.3% operationally.

The segment’s strong performance was bolstered by especially strong sales in core laboratory diagnostics, which posted double-digit growth in the United States. Though sales of molecular diagnostic dropped 2.1% on an operational basis, the gains in core laboratory and point-of-care diagnostics were more than enough to make up for it.

Abbott is also gearing up to continue its strong performance in the area of diagnostics. Chairman and CEO Miles White said the company is investing in new technologies across all three of its diagnostics platforms that should come to fruition in the coming years.

“There’s kind of an unprecedented number of systems in development in our diagnostics business broadly defined," White said, according to a Seeking Alpha transcript of the call.

Among the developments he touted on the call were the following:

  • Broadening and differentiating the Architect Assay menu.
  • A new family of hematology analyzers.
  • A new family for blood screening.
  • A new family for core lab immunoassay and chemistry.
  • A new program in the molecular diagnostics space.
  • A new generation of point-of-care products.

White said Abbott hopes to bring those products to market over the next three to five years.

“…[W]hen and as complete, I’d say our diagnostics business will have the most up-to-date delivery platforms in their various spaces across the board in the industry, and we’ll be very, very well positioned,” he said.

Learn more about what trends are shaping the medical device industry at the MD&M Minneapolis conference and exposition October 29–30, 2014.

Jamie Hartford, managing editor, MD+DI
jamie.hartford@ubm.com

CryoLife Hires CEO with Medtronic Experience

By Nancy Crotti

CryoLife has appointed James Patrick (Pat) Mackin, 47, as president and chief executive officer, effective September 2.

Mackin will succeed Steven G. Anderson, who will continue as executive chair of the Kennesaw, GA-based company, according to a recent company news release.

Mackin hails from Fridley, MN-based Medtronic, where he most recently served as president of cardiac rhythm disease management, the company's largest operating division. He previously served as vice president of Medtronic's vascular business in Western Europe and vice president/general manager of the endovascular business unit.

Prior to joining Medtronic in 2002, Mackin was senior vice president and general manager for the cardiovascular surgery business unit and director of sales in the surgical products division at Genzyme, Inc., Cambridge, MA.

CryoLife manufactures medical devices--including surgical adhesives and sealants, and cardiac lasers--and processes and distributes implantable living human tissues for use in cardiac and vascular surgeries.

Refresh your medical device industry knowledge at MEDevice San Diego, September 10-11, 2014.

Mackin received an MBA from Northwestern University's Kellogg Graduate School of Management and is a graduate of the U.S. Military Academy at West Point.

Nancy Crotti is a contributor to Qmed and MPMN.

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Watch: An Inventor's Novel Device for Making All Surgery Less Invasive

Watch: An Inventor's Novel Device for Making All Surgery Less Invasive

It is puncture itself that causes risk.” That is a quote from H.C. Jacobaeus, the first person to perform a laparoscopic surgery on a human. Over a century after Jacobaeus said this we are still grappling with surgical complications from punctures. Trocar insertion errors, for example, account for the largest number of complications related to laparoscopic surgery. Nikolai Begg, a PhD student in mechanical engineering at MIT, hopes that his novel device – a “flexure-based puncture access mechanism” - will take the danger out of procedures that Begg likens to drilling through a piece of wood or inserting a straw into a Capri Sun drink to his TEDxBeaconStreet talk.

 Begg's device uses a spring-loaded mechanism to retract the tip immediately after puncture. {Image via MIT / Nikolai Begg ]

 Know how when you're drilling into a wall and you suddenly plunge into it when the drill goes through? This same thing happens in surgery, only instead of an empty wall there's a body full of vital organs to worry about. Begg's device is designed to bypass this plunge issue by retracting its bladed tip immediately at the point of puncture.


In 2013, Begg's work was recognized with a Lemelson-MIT National Collegiate Student Prize.
 
Watch Begg's TED talk below where he describes his novel new medical device.
 
 
 
 
-Chris Wiltz, Associate Editor, MD+DI
Christopher.Wiltz@ubm.com

St. Jude Medical Clears FDA Issues over California Plant

By Nancy Crotti

A California plant operated by Little Canada, MN-based St. Jude Medical recently won a reprieve from the FDA over violations cited following a plant inspection in 2012. The facility manufactures the company's next-gen Durata defibrillator leads.

In its Form 483 warning letter, the FDA had cited 11 quality control and documentation issues at the Sylmar, CA, plant. According to information from an SEC regulatory filing, the company decided to ignore the warning letter.

However, the FDA notified St. Jude in a June 30 letter that the company had addressed the issues cited in the warning letter. It warned, however, that it would continue to monitor compliance at the plant.

The company had expected the warning letter and said so during its October third-quarter conference call.

The recent Riata lead recall, FDA warnings and issues at the Sylmar plant have led to a challenging business environment for the company. However, it continued to manufacture and ship products from the Sylmar plant during the warning period.

"We take our responsibility as a medical device manufacturer very seriously," Dan Starks, chairman, president and CEO at St. Jude Medical, said in a statement. "We are encouraged by the resolution of the FDA's warning letter and will continue to work to ensure the highest standards are met across our manufacturing facilities."

Refresh your medical device industry knowledge at MEDevice San Diego, September 10-11, 2014.

The recent news about the Sylmar plant comes on top of St. Jude Medical's Wednesday announcement of second-quarter sales and earnings that were up year-over-year. St. Jude earned $270 million off $1.45 billion in sales during the quarter ended June 28, an increase from $115 million in profits and $1.40 billion in sales during the similar quarter in 2013.

Nancy Crotti is a contributor to Qmed and MPMN.

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Covidien to Roll Out New Ablation System

Covidien said Wednesday that it will soon fully launch its Emprint Ablation System with Thermosphere Technology in the United States and European Union.

Emprint Ablation System

Emprint Ablation System with Thermosphere Technology (Photo submitted by Covidien).

Company officials boast that the Emprint system is able to provide a more consistent ablation zone than other devices--heating and destroying diseased soft tissue in the liver, lung or kidneys without the need for open surgery. The device is also meant to target non-resectable liver tumors. The Emprint is microwave based, relying on a 2450 MHz I100W generator, according to the FDA's summary of its 510(k) approval in April. The Covidien device directs energy through an antenna inserted into soft tissue. It circulates room temperature normal saline to cool the non-radiating portion of the antenna shaft and to provide a more consistent ablation zone. "By providing predictable spherical ablation zones, this technology gives physicians more choices in terms of approach, further simplifying needle placement and saving planning and procedure time," Chuck Brynelsen, president of early technologies at Covidien, said in a news release. The Emprint Ablation System includes three kinds of spatial energy control-- thermal, field and wavelength--to create predictable and spherical ablation zones regardless of target location, tissue type, or changes in tissue properties during a procedure, according to Covidien.
Refresh your medical device industry knowledge at MEDevice San Diego, September 10-11, 2014.

Chris Newmarker is senior editor of MPMN and Qmed. Follow him on Twitter at @newmarker.

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St. Jude Is Boldly Going Where Medtronic Has Failed Haplessly

St. Jude Is Boldly Going Where Medtronic Has Failed Haplessly

In the past few years, renal denervation has been a source of great interest and excitement given its potential to treat high blood pressure in patients whose hypertension is uncontrolled despite being on several medications.

Medtronic shelled out about $800 million plus milestone payments to acquire Ardian, the company that pioneered the Symplicity Renal Denervation System that ablates nerves to control hypertension. And then came the shocking news in January that the largest study of Medtronic's first-generation renal denervation device had failed to meet its primary efficacy end point - to lower blood pressure at the doctor's office six months following the procedure. A few weeks later Covidien announced that it was pulling the plug on its OneShot renal denervation product because of slow growth in Europe

Given that everyone was looking to Medtronic to lead this category, and the fact that it was ahead of its competition in the U.S. has largely meant that interest in this particular therapy has waned. But St. Jude Medical CEO Dan Starks likely believes it would be a mistake to dismiss renal denervation altogether.

In the company's second-quarter earnings call with analysts and investors Wednesday, Starks said St. Jude's renal denervation program is progressing and should deserve high priority, according to a transcript of the call from SeekingAlpha. 

Although renal denervation has suffered a setback due to the result of a competitor’s clinical trial, our due diligence including takeaways from the EuroPCR and input from our medical advisors convinces us that St. Jude Medical's renal denervation program can be successful and continues to deserve high priority.

But Starks was scant on the details:

We will not say more at this time for competitive reasons, but investors should know that we are continuing to move forward with planning our confidential research and development and with clinical trials in the area of renal denervation for treatment resistant hypertension.

In other words, just trust me. Where does this confidence come from?

When Medtronic announced that it had failed to meet the primary efficacy point of lowering blood pressure in the doctor’s office six months following the procedure, Starks speculated that the technology may not be up to snuff.  

“We note that the trial was done with a first-generation technology,” Starks told a room full of investors and analysts at the JPMorgan Healthcare Conference in San Francisco, in January. “It may be that, among other things, the technology was too early stage. Was the technology too hard to be used effectively in an expanded environment? Was there a placebo effect? The news raised more questions than it provided answers.” :

Even in 2012, analysts were questioning whether Medtronic would be able to keep its lead in the space with a first-generation product. The criticism revolved around the fact that Medtronic’s product being tested globally had only a single electrode with which to stimulate the renal artery. Some have said the product was hard to manipulate.

Compared to that, St. Jude Medical’s EnligHTN renal denervation has multiple electrodes. But the coast is not exactly clear for St. Jude to grab the mantle from Medtronic. There are competitors in the renal denervation space from the likes of Boston Scientific and its own Vessix renal Denervation System.

All companies in this market want a piece of the global hypertension market estimated to be in the billions.

[Photo Credit: iStockphoto.com user Palto]  

CORRECTION: A previous version of the story erroneously described renal denervation as a procedure involving an implantable device. The procedure actually involves ablation using a catheter.  

-- By Arundhati Parmar, Senior Editor, MD+DI
arundhati.parmar@ubm.com

OEMs Benefit from Accelerating M&A Activity in Medtech Outsourcing

OEMs Benefit from Accelerating M&A Activity in Medtech Outsourcing

International investment banking firm Capstone Partners has been tracking mergers and acquisitions (M&A) activity in the medtech outsourcing industry for several years now and reports a notable increase in the number of recent transactions. Several noteworthy transactions have been completed or announced so far this year, and the volume of transactions is rising. From January 2013 to May 2013, Capstone noted nine completed M&A transactions in the sector. During the same period in 2014, at least 20 transactions were completed.

In a recent Capstone poll of corporations and private equity firms with holdings or interest in the medical device outsourcing industry, buyers noted that acquisitions are an increasingly important part of their strategic plans. Many respondents suggested that before 2013 they were more concerned with internal initiatives, but now that the industry is experiencing better growth they are again looking to make acquisitions that make sense.

This uptick in activity presents an opportunity for owners of private medtech outsourcing businesses who may be looking for the chance to sell or recapitalize their company at an attractive value, but it also offers benefits for medical device OEMs.

Positive Outlook Drives M&As

The recent surge in M&A activity reflects the outsourcing industry’s positive outlook and attractive growth prospects. By all accounts, the medical device outsourcing industry is poised for solid growth, as it continues to benefit from both increased worldwide demand for medical devices as well as the continued shift in manufacturing and support services toward contract providers.

Many years ago, the medical device industry maintained a rather low level of outsourcing due to OEMs’ concerns regarding quality, delivery delays, and regulatory compliance. However, market dynamics have driven OEMs to increasingly rely on outsource providers. Healthcare reform and the excise tax on medical device sales, increased regulatory requirements and costs, higher manufacturing tolerances and the increasing complexity of medical devices, and reduced hospital budgets are all squeezing medical device OEMs. The resulting product innovation and pricing pressures require medical device OEMs to emphasize efficiency and improved outcomes in all phases of their businesses. In many cases, their processes can be improved by outsourcing some or all of their functions, and outsourcing can help lower costs, increase agility, accelerate time-to-market, and boost their returns on investment—all critical factors for success in today’s environment. Additionally, the freed up capital has allowed OEMs to focus on critical research and development as well as sales and marketing activities. As OEMs have adopted the use of contract manufacturers, they have found them to be reliable and of high quality; as a result, the acceptance of outsourcing has grown.

In addition to the increased use of outsourcing, contract manufacturers stand to benefit from a positive outlook for the medical device industry. While recent market demand was impacted by the recession in the United States and abroad, the outlook calls for improved economic conditions and employment, as well as the implementation of the Affordable Care Act, all of which should help revive demand for elective procedures. In the long-term, medical device firms expect growth opportunities to be driven by aging populations around the world who are demanding a higher quality of life.

Now that outsourcing is displaying healthier growth, including an improvement in the operating performance of both the acquiring firms and their targets, strategic players and private equity groups are eager to make complementary acquisitions in the industry.

Macro M&A Trends

In addition to the above-mentioned industry-specific factors, the M&A market in general is healthy, and these favorable conditions are supporting activity in the medical device outsourcing industry. Generally speaking, strategic players have strong balance sheets and a desire to supplement their organic growth through acquisitions. Many are also supported by rising stock prices. Meanwhile, private equity firms still have large amounts of capital to deploy (estimated at $500 billion) and are enjoying a healthy fundraising environment. For all buyer types, the debt markets remain favorable, providing available capital, low interest rates, and reasonable lending conditions.

As a result of these favorable conditions, processes are yielding multiple bidders and transaction values are healthy. The bottom line is that the current environment has all the attributes that private companies look for in a favorable M&A market, which is contributing to elevated levels of activity and valuations.

OEMs Benefit

M&A activity in medtech outsourcing is also being driven in large part by the demands of medtech OEMs, who stand to benefit from the industry’s consolidation. In fact, contract manufacturers and service providers are feeling pressure to implement new and differentiated capabilities in an effort to deepen their relationships with OEMs and offer a more compelling value proposition.

Many of the most successful outsource providers have positioned themselves not just as traditional suppliers, but as true partners to their OEM customers. These OEMs continue to require a broader range of capabilities and efficiencies as they demand one-stop solutions from their outsourced partners.

As a result, consolidation in the outsourcing industry continues, often with larger players acquiring smaller niche companies that add specific competencies to their portfolio of services. In such cases, the buyer’s goal is to develop into a significant, integrated outsource provider that can deliver not only high quality manufacturing, parts, or complete devices, but a turnkey solution that often combines engineering, product development and prototyping, regulatory and quality assurance, sourcing, packaging, distribution, and supply chain management. As companies become multidisciplined providers, they not only secure more business within existing accounts, but the increased scale also favorably positions them to add new relationships with large OEMs.

Smaller contract providers are feeling the effects of these dominating players, and many are looking to sell to a larger entity rather than be left behind. Going forward, companies with a full offering of services are expected to be best positioned to offer the cost savings, simpler supply-chain processes, and time-to-market advantages that OEMs demand.

What Buyers Want

M&A activity is healthy across medical device outsourcing segments, and we are witnessing transactions in most specialties, including EMS, precision machining, stamping, plastic injection molding, and extrusions. Capstone has also noted a number of transactions involving service providers, including those related to product design, product launch and marketing, regulatory affairs, product quality and safety, and supply chain management.

In general, strategic buyers are targeting prospects that provide specific capabilities or services that complement their core offerings. On the other hand, private-equity buyers looking for a platform holding in the segment are generally interested in the category as a whole and will consider targets within a range of specialties, as these private equity buyers cast a wider net than their corporate buyer counterparts. The industry still remains highly fragmented, making it an attractive sector for private equity.

Valuation is in large part influenced by the needs of and fit with a specific bidder. That said, there are certain attributes of medical device outsourcing companies that buyers will generally pay a premium for, or apply a discount against, relative to the pricing norms for the industry. Interestingly enough, many of these attributes align with criteria OEMs consider when choosing outsourcing partners (Figure 1).

Figure 1. Many of the characteristics that strategic suitors and private equity groups currently use to evaluate and price acquisition candidates in the medical device outsourcing space (shown above) align with criteria medical device OEMs consider in choosing their outsourcing partners.

Consolidation Will Continue

Several active buyers have noted that the availability of quality companies for sale in the industry is a bit scarce, a trend seen across the M&A landscape. Capstone attributes this to a lack of confidence among CEOs who, since the recession, have been repeatedly hit with negative economic and political developments that have kept them on the sidelines. This waiting time is coming to an end. With excellent M&A market fundamentals in place, growing demand from buyers, and (finally) more visibility into the future for business owners, we appear to be in a “seller’s market.” As a result, expect deal supply to improve in the coming year, resulting in an increase in industry transactions.

Outlook

With outstanding M&A market conditions in place, strong demand for quality companies from buyers, and rising confidence among CEOs, Capstone anticipates that M&A activity in the medical outsourcing industry is poised for continued growth in the next 12–18 months. In all, expect buyers and investors to continue to be attracted to the favorable demographic factors of the medical space and the consolidation and scale opportunities inherent in the highly fragmented medical device outsourcing industry. As the medical device industry grows and market factors support increased use of contract manufacturers, Capstone believes that M&A activity in the space will benefit in terms of both heightened buyer interest and more attractive business valuations. Medical device OEMs will continue to benefit from the trend toward consolidation as outsourcing providers become one-stop-shops offering a variety of services ranging from engineering, product development and prototyping, and regulatory and quality assurance to sourcing, packaging, distribution, and supply chain management.

Eric Williams is managing director and head of the health and medical practice at Capstone Partners, an investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors, and creditors. Reach him at ewilliams@capstonellc.com or 215-854-4065.

What Does Johnson & Johnson's CEO Think of the Medtronic-Covidien Merger?

What Does Johnson & Johnson's CEO Think of the Medtronic-Covidien Merger?

Gorsky

In Johnson & Johnson’s second quarter 2014 earnings call today, one analyst asked chairman and CEO Alex Gorsky for his take on Medtronic’s $42.9 billion acquisition of Covidien last month.  

Learn more about what trends are shaping the medical device industry at the MD&M Minneapolis conference and exposition October 29–30, 2014.

Gorsky’s response, in essence, was that J&J saw something like this coming a mile away and beat its competitors to the punch.

“…[A]s you think back to about three years ago, when we announced the Synthes acquisition—I think 2.5 to 3 years—part of the strategy rationale that we made at that time was that we definitely saw consolidation in the future simply because of the number of different participants you had in the market,” he said in a Seeking Alpha transcript of the call.

Part of Medtronic’s motivation for acquiring Ireland-based Covidien was to build scale. Gorsky believes, for the most part, J&J already has that.

“…[I]f we look at ourselves today, we think we’re clearly the broadest medical device company,” he said. “We think we’re well positioned—particularly when you consider areas like general surgery, like orthopedics, we have not only broad but also deep offerings that give us solid market positions across the number of different platforms.”

But there is one area in which the company hasn’t achieved the breadth it might need.

“We realized that in cardiovascular we’re subscale,” Gorsky said, adding that although the company’s electrophysiology business is performing well with a growth rate of 14%, cardio is an area where the company might look to make an acquisition in the future.

“We’re going to continue to watch that area very close to augment potentially onto our EP business,” he said.

Stay up to date on the goings-on at FDA by attending the MD&M Minneapolis conference October 29–30, 2014.

Jamie Hartford, managing editor, MD+DI
jamie.hartford@ubm.com

[image courtesy of JOHNSON & JOHNSON]

Boston Scientific Tries New Size for Lotus Valve System

Boston Scientific Corp. has received CE Mark for its new 25 mm Lotus Transcatheter Aortic Valve Implantation (TAVI) System, complementing the currently available 23 mm and 27 mm valve sizes.

Boston Scientific Lotus Valve
The Lotus Valve System, as shown on Boston Scientific's website.
The medical device giant--which recently finished moving its headquarters to Marlborough, MA-- announced the CE Mark and European commercial launch, on Monday. "Having the 25 mm size allows us to be more precise in selecting the appropriate valve, which we anticipate will further improve outcomes for our patients," Nicolas Van Mieghem, MD, at Erasmus Medical Center in Rotterdam, Netherlands, said in a Boston Sci news release. Before full commercialization, a limited market evaluation of the 25 mm valve Lotus Valve System took place in select hospitals across Europe and Australia. Boston Scientific says physician feedback was positive. Six-month outcomes of the Reprise II clinic study, presented in May at EuroPCR in Paris, showed sustained safety and effectiveness outcomes out to six months, according to Boston Scientific. There were no severe cases, and only 1.1% of patients saw moderate paravalvular aortic regurgitation as assessed by an independent core laboratory. The Lotus Valve System is meant to offer an effective alternative treatment for patients with severe aortic stenosis who are at high risk when it comes to conventional surgical valve replacement. It consists of a pre-loaded, stent-mounted tissue valve prosthesis, as well as a catheter delivery system for guidance and percutaneous placement of the valve.
Refresh your medical device industry knowledge at MEDevice San Diego, September 10-11, 2014.
The Lotus has been Boston Scientific's response to Medtronic's CoreValve, Edwards Lifesciences' Sapien and other smaller companies' transcatheter valve replacement technologies. Boston Scientific acquired the Lotus technology when it purchased California firm Sadra Medical in 2010 in a multi-year deal valued at up to $450 million, according to Qmed's sister device website MD+DI.

Chris Newmarker is senior editor of MPMN and Qmed. Follow him on Twitter at @newmarker.

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UPS Increases Focus on Medical Devices

UPS recently announced it has developed a network of "field stocking locations" (FSLs) meant to reduce delivery time of medical device shipments. The Atlanta-based logistics and shipment giant said Monday that 36 healthcare-capable FSL sites in United States will enable medical device manufacturers to have access to over 80% of hospital beds inside the country within four hours. FSLs are strategically-located facilities designed to support time-sensitive distribution and efficient warehousing, according to UPS. The healthcare-capable FSLs will operate under the guidance of UPS's quality assurance and compliance program, and feature temperature-controlled or monitored environments. They will offer same-day delivery services. UPS is apparently seeking to capitalize on medtech companies' need to squeeze out more profits amid tougher FDA regulations--not to mention U.S. health provider customers that have become increasingly cost-conscious amid the changes taking place under the Affordable Care Act. "Due to an increasingly complex regulatory environment and significant cost pressures, medical device manufacturers are looking to the supply chain to lower costs through inventory reduction and enhanced visibility," John Menna, UPS vice president, global healthcare strategy said in a news release.

Refresh your medical device industry knowledge at MEDevice San Diego, September 10-11, 2014.
FSLs are strategically-located facilities designed to support time-sensitive distribution and efficient warehousing of products. UPS's FSL network helps companies get products to their customers faster while better managing inventory costs, regulatory compliance and end-to-end visibility. The 36 FSLs come on top of UPS's 46 healthcare-dedicated and compliant warehousing and distribution facilities worldwide. UPS has been engaging in an expansion of its healthcare-compliant network.

Chris Newmarker is senior editor of MPMN and Qmed. Follow him on Twitter at @newmarker.

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