For providers and medtech manufacturers alike, the decade ahead will be a time of coming to terms with digital technologies and integrating new methods of payment. Quality of service delivery remains the market entry criterion, but companies will have to adapt to evolving health care delivery models. The stakes are implausibly high. Will they be able to capitalize on the changes in a market that is more competitive and unpredictable than ever?
A MEDTECH INDUSTRY READY FOR A NEW DECADE Source: Shutterstock
The patient is increasingly the focus of the combined efforts of health care stakeholders, dictating more and more how the broad concept of value must be integrated into health care delivery. Digital technologies will expedite the process. Yet critics unfairly claim health care is too slow to transform. 2020 will be the year when the industry shake-out from the EU Medical Device Regulation will become fully visible; until now, it has mainly been silence and speculation. The MDR has united medtech executives on one thing: it must not slow down access to innovation for patients. But is it a failure in waiting? Innovation will remain the spine of the industry, but disruptive forces are telling manufacturers the old business model will not suffice.
“Digital is no longer a vertical, it cuts across all sectors. It is a horizontal.” Andy Fish of AdvaMed was explaining to the press in late fall 2019 that, in medtech, companies will come to incorporate digital as a means to an end, not as an end in itself. “Digital is now the coin of the realm,” he said, explaining the rationale behind the US industry’s decision to invest time and resources in a new Center For Digital Heath.
It is a further recognition of the health care value of digital, now and in the future, and another step on the road to the integration of modern methods of care delivery. It is also a reflection of the transition in health care industries from supply push to demand pull.
Innovation tends to spawn early adopters with their own jargon, but they are not the real market for medtech companies of any size. Delegates were reminded of this truth at the French annual medtech start-ups meeting, in spring 2019. In such a fast-moving climate, there can be a tendency to overplay the early prospects of a technology – digital or “traditional.” Later in its lifecycle, the continual, incremental and perhaps less visible changes that make a real difference tend to be underplayed.
This applies to the value-based health care arena too, where much is happening, even if progress here is not as fast or as major as expected. That is the view of Boston Scientific’s Eric Thépaut who gave In Vivo a brief tour in mid-2019 of how health care will change in the future. VBHC, he said, “is a long-term initiative, and a step-by-step approach is needed.” It is a delivery concept that one day will become more mainstream, similar to how once disruptive medical tools like nanotechnology, molecular diagnostics, POCT and telehealth are now part of the medtech routine.
Elsewhere for the medtech industry, some routines are changing fast. 2020 will see the biggest change to EU medtech regulation since the 1993 Medical Device Directive (93/42/EEC), when the EU Council’s Medical Device Regulation (MDR, 2017/745) comes fully into force. That is the promise. But as the clock ticks down to implementation day on May 26, the magnitude of the task has been starting to cause a few jitters. Will there be realization at EU level that, while the MDR is generally welcomed, it is coming too soon? It is certainly the right thing to do, but it is arriving too fast, so it is the wrong thing to do, to paraphrase ResMed CEO Mick Farrell during MedTech Europe’s MedTech Forum panel discussion, in Paris, in May 2019. There are still not enough notified bodies accredited to do the work required by the MDR (seven under the MDR, and two under the IVDR, as of November 8, 2019). Under the previous EU directives, there were latterly 58 such organizations. This prospective shortage of resources makes the new regulation work against high-quality patient care – the very thing the MDR promises to strengthen.
The first signs of a more flexible European Commission approach were seen in October 2019, when talk emerged of some Class I products additionally being able to use the MDR’s four-year grace period, remaining under MDD oversight until 2024. There was also a proposal for a two-year delay in Eudamed. These moves open the door to possibly further concessions from the commission in 2020, which would suit most of industry very well. Brexit – delayed for a third time in October 2019 ̶ throws a considerable spanner in the works, and may yet be the catalyst that allows the commission to do a more concerted rethink on MDR timetables without sacrificing the EU policy line.
Favorable Demographic Trends Are There To Be Exploited
On a broad scale, the outlook for medtech business is good, with global health care expected to benefit from continued favorable demographic trends. The world’s population is anticipated to grow by more than 1 billion by 2030. The number of people over the age of 60 is forecast to rise by 500 million, to 1.4 billion, with the prevalence of cancer, cardiovascular (CV) diseases and other long-term conditions rising in tandem. Health care spending is expected to increase annually by 4% to 5% on average through to 2021 when around half of all health care spending – some $4 trillion – will be targeted at cancer, and CV and respiratory diseases, according to Deloitte’s Global Healthcare Sector Outlook.
This is good news for medtechs, but there is a complication: innovation is changing. Big-scale innovations in the traditional device areas are becoming fewer. An increasing amount of innovation is coming from digital iterations and advances. For example, Abbott’s Merlin 10.0 app (CardioMEMS HF sensor system), which keeps heart failure patients out of hospital and allows physicians to communicate directly with patients.
The US FDA is fully behind mobile apps, which can help individuals manage their own health and wellness, and gain access to useful information when and where they need it. The US, arguably the most fertile and receptive market for medtech innovation, is once again leading the way in a new cornerstone of the industry, just as in did in fall 2013 when it broke the turf on device UDI implementation.
It seems mobile apps are being adopted almost as quickly as they are developed: in 2017 alone, 325,000 health care apps were available on smartphones, according to FDA-reported industry estimates. The agency posted an updated Policy for Device Software Functions and Mobile Medical Applications Guidance (MMA guidance) in fall 2019.
Into The Data-Driven Era Of The 2020s
Apps are where the medtech and digital confluence is at its most obvious. Digital is prompting a rethink among those medtechs who are reviewing whether they should be targeting consumers and wellness, or patients and sickness. The simplistic view is that there is a clear marketing advantage, at least, to seek consumer/wellness branding, as ZS principal Brian Chapman explained to In Vivo. But as a rule, medtech has yet to view patient-consumers as its real customers; its efforts are still focused largely on provider systems. (Also see "MedTech Forum 2019: Consumers And Wellness, Or Patients And Health Care? " - In Vivo, 17 Jul, 2019.)
Nevertheless, medtech is “truly beginning to acquire the tools and capabilities that will allow it to enter a data-driven, personalized new era,” said Kevin Lobo, chair and CEO of Stryker, and the current AdvaMed chair. EY’s latest annual Pulse Of The Industry report (2019) quotes Lobo as saying that data-driven medical devices will be at the forefront of health care’s transformation. Digital and AI are currently the standout features in an industry that has seen “generally conservative activity” in the past year.
Boston Scientific’s Thépaut agreed, there was no changing course now. “Digitization is going to completely transform health care, albeit later than has happened in the consumer world,” he said, alluding to the type of criticism often flung in health care’s direction. But there are clear reasons for this to be so. “We are focusing on patients in a highly regulated industry, and health care will always be unique.” Commoditizing it would not be good for the ecosystem or the patient; however, it will evolve significantly.
Patients were arguably already “at the center,” but now they are going to be even more so, with device-derived information more fluid and available more quickly. At present, the European industry remains focused on products and therapeutic value, but what is required, in Thépaut’s view, is a very open dialog with patients. FDA guidance seems to acknowledge this shift. Indeed, at the 2019 MedTech Forum, it was sobering to find both that the medtech industry was unable to define precisely the benefits that “digital” could bring; and that it was open about that.
Digital Is ’Blurring Everything’
The medtech industry is still very much at the digital learning stage, as underlined by AdvaMed with its rebooted Center For Digital Heath (CDH). The center will look at adoption, regulation and reimbursement of digital tools across the industry. In the UK, the BIVDA diagnostics industry association is going along the same path. BIVDA chair Darren Stenlake (Sysmex) told an association meeting in early October that “digital is blurring everything,” and highlighted the UK industry’s plans to focus a new working group on IT infrastructures, cybersecurity and malware.
AdvaMed has highlighted that digital cuts across the whole medtech industry, and digital products are not the rare commodities they were just three years ago. Hence the need to pool resources in one center. The big medtech names and certain software manufacturers are already members of the CDH. How its membership changes and grows, and how its agenda shifts will be very telling in terms of how health care will be delivered in the 2020s, and by whom.
Digital will continue to hog the headlines in 2020, but not to the total detriment of traditional medical technologies.
Indeed, innovation levels are currently at seldom-reached heights, to judge from activity at the FDA, which broke its new novel medical devices approval record in 2018: at 106 new devices (PMS, panel-track supplements, de novos, breakthrough 510(k)s; and HDEs.) Generally, as an investment proposition, medtech is currently perceived as less favorable than biopharma, and the intense competition means a clear run on innovation does not last for very long. However, the appetite for and pace of innovation in medtech cannot be matched, as seen, for example, in …
Minimally Invasive Technologies
The consensus is that massive opportunities are available in medtech, as seen in Abbott’s significant breakthrough with MitraClip. Abbott’s structural heart franchise rose strongly to $1.2bn in 2018. The next-generation MitraClip percutaneous mitral valve repair system was perhaps the single most eye-catching “traditional” medical technology in 2018. A rich year for Abbott, 2018 also yielded the HeartMate 3 LVAD as a destination (long-term use) therapy, and the XIENCE Sierra drug-eluting stent system. The group was able to boast healthy cardiovascular sales, and is now the fifth-leading medtech group by sales, after Medtronic, Johnson & Johnson, Philips and GE Healthcare.
Patient Centric Care
Indeed, devices for minimally invasive procedures will likely gain increasing momentum in the more patient-centric 2020s. PAD micro-catheters, small incision radiation-therapy devices in breast cancer therapy, and urology drainage catheters that significantly reduce UTIs are the types of technologies touted for future success. Thus, a clear driving theme is becoming visible for medtech R&D departments, which are now able to more rapidly determine if their technology has what it takes to gain acceptance in the value-based era.
Fellow cardiovascular company Edwards Lifesciences Corp. expects revenues from its transcatheter mitral and tricuspid valve therapies to double to $80m in 2020. The global market for mitral and tricuspid repair and replacement therapies will reach $3bn by 2024 – but it will not stop there, according to Edwards’ CEO Michael Mussallem. The Sapien TAVR system will continue to drive the group’s revenues – by 20-25% to over $4bn in 2019.
More recent technology breakthroughs that will continue to command attention in 2020 and beyond include diabetes technology group Senseonics’ implantable Eversense CGM. The group has become the third to receive the non-adjunctive indication, which allows a CGM to be used for insulin dosing in place of a fingerstick glucometer.
Connected Health Creates New Markets
The global market for hearing aids is expected to grow to $11bn by 2023, a CAGR of 7.4%, according to Informa's Meddevicetracker. This is on the back of the rising aging population worldwide experiencing hearing loss, and a younger population looking for more sophisticated devices. Into this market will come Bose's direct-to-consumer hearing aid, a device that does not need to be fitted by physicians, and can be sold online. This is a disruptive challenge to the majors, like Sonova, William Demant and GN Store Nord.
And of course, Apple’s every move in medtech is scrutinized, and never more so than when the de novo-classified Apple Watch gained FDA approval in fall 2018 for an app that functions as an electrocardiogram (ECG).
Medtech For Where Pharma Cannot Succeed
There is a consensus that light-therapy-based devices will attract more market interest in the coming years. Philips’ VitalSky delirium-recovery technology, which will challenge traditional pharma approaches for a condition that costs $150bn per year in the US alone, is one such technology. It does not attract greater direct reimbursement, but it helps reduce in hospital stay length, and thus generates a secondary reimbursement effect.
It is another example of the value-based, holistic care approach that will be the subtext of medtech providers in the coming decade.
M&A And Start-Ups
A cautious mood has settled in regarding M&A targets, especially given the strong valuations at present. In our annual table of major M&A, the list of purely medtech-focused $1bn+ acquisitions is shorter than usual. It is a cautious environment at present that will extend into 2020, but this will be seen negatively by start-ups, which provide the traditional fuel for the majors’ medtech innovation.
The EU MDR will also have a telling effect on those who succeed, which companies will be acquired and when, and which companies will decide to bite the bullet and cut programs and products. Companies are now increasingly expected to gain reimbursement before they can make an exit. And all this against an environment of overall industry financing levels declining for the second consecutive year in 2018, according to data from EY. However, venture capital continues to flow into medtech.
A good indication of where there are new seams to be exploited is provided by Cleveland Clinic Innovations in its Top 10 Medical Innovations, the annual showcase from the US hospital group that was voted US News & World Report’s “2019-20 Best Hospital.” CCI predicted in fall 2019 that the following technologies, procedures and trends would gain ground in 2020:
> Minimally invasive mitral valve surgery. This will further expand in the US, to individuals with secondary or functional MR, despite optimal medical therapy. The mitral valve is defective in around 1 in 10 individuals over the age of 75, causing regurgitation, so this is seen as an important new treatment option.
> Closed-loop spinal cord stimulation. Chronic pain is a reason for prescription of opioid medication, but spinal cord stimulation also provides electrical stimulus to the spinal cord. Closed-loop stimulation allows for better communication between the device and the spinal cord, and can reduce unsatisfactory outcomes due to subtherapeutic or overstimulation events.
> Biologics in orthopedic repair. Cells, blood components, growth factors, and other natural substances are increasingly finding their way into orthopedic care, allowing for the possibility of expedited improved outcomes. To facilitate biologics license approvals, the FDA has opened new pathways to expedite reviews.
> Antibiotic envelopes for cardiac implantable device infection prevention. Some 1.5 million patients receive an implantable cardiac electronic device every year. Antibiotic-embedded envelopes can encase these cardiac devices, effectively preventing infection or even potentially life-threatening complications.
Investments In Digital Health
US investment in digital health start-ups was up 16% at over $11bn in 2018, according to a new Top 150 Investments report and interactive research briefing from CB Insights (New York). Genomics company Grail secured a total of $1.6bn, disease diagnosis company 23andMe, $795m, and health care services delivery company Babylon Health, $635m. The big rounds went to companies innovating across health insurance ̶ Clover Health raising $500m in a series E, and genomics company Ginkgo BioWorks, $290m (series E), for instance.
Notable in this list of 150 was how many Chinese firms occupy top rankings. The world’s second-largest economy is investing significantly in health care, a national priority as the population ages and demands better options. The Chinese health care market is growing at 17% CAGR, according to the World Health Organization.
The report showed that China’s tech giant Tencent was a top three investor in digital health start-ups (based on the number of portfolio companies), alongside Google and Microsoft – these three representing over 70% of digital health deals made by the key big tech companies. Google is the undisputed leader in digital health investment, according to CB Insights, mainly in genomics, clinical research, and insurance and benefits. Its subsidiaries and investment vehicles include Alphabet, Google Ventures, CapitalG, Gradient Ventures, Verily Life Sciences, and incubators such as Google Launchpad Accelerator. In November 2019, Google said it was acquiring FitBit for $2.1bn, boosting its presence in the wearable technology market. Intel, Samsung, Alibaba, Amazon, and Comcast have likewise reached household-name status in digital health care.
These groups’ top targets are not medtech per se, but data management, wellness, diagnostics, remote patient monitoring, drug delivery, telemedicine and chronic disease management, as well as genomics and the other leading targets listed by Google (above). The clinician expertise resides in the major medtechs, which the big techs do not have access to, and maybe do not want. But there is no hiding from it: these developments show how the health care delivery model is undergoing huge change.
Rising Role Of Genomics In Health Care Management
The awakening of minds to the potential of genomics is arguably the biggest single positive development in the success of targeted therapy in the decade ahead. Genomics is one of three new industries (alongside digital and diagnostics) that the UK Life Sciences Industrial Strategy (LSIS), and NHS England’s second “sector deal” aim to establish in the coming years. (Also see "UK Plugs Into ‘Golden Period’ For Medtech Innovation" - Medtech Insight, 17 Jun, 2019.)
The LSIS was authored by Sir John Bell, Regius Professor of Medicine at Oxford University, who is a champion of genomics and of the power it brings to identify at-risk individuals with greater precision. Genomics is expected to have a profound impact on the development of diagnostics and on new ways of treating disease, he said. The biggest genomics company, Illumina, which has built its genomics reach around the 2007 purchase of UK DNA sequencing firm Solexa, is of the same mind.
Illumina CSO David Bentley told In Vivo that if genetic testing followed the trend of wearables, becoming readily accessible and filling in gaps like phenotypes and medical indicators, such as pulse and blood sugar level, it will become very popular. (Also see "Illumina CSO Bentley Paints A Vision For The Future Of Precision Medicine" - In Vivo, 2 Sep, 2019.)
Many key genomics organizations already use Illumina technology, such as 23andMe and Grail, illustrating its pivotal role in individuals’ health care management. Things to come for Illumina include the completion of the$1.2bn acquisition of Pacific Biosciences of California Inc. (PacBio), giving it both long- and short-read technologies; and projects on sudden cardiac death and neurological diseases.
Elevating Early Diagnosis
Improved patient outcomes and cost-savings for provider systems have long been the obvious yet all-too-easily overlooked benefits of IVDs and other diagnostics technologies. Conditions such as cancer, stroke, heart disease and diabetes can be supported or prevented through early and regular use of diagnostics. But despite widespread recognition of their value, diagnostic services have suffered from chronic underinvestment in health care systems, and slow or even non-availability of IVD tests in mainstream medicine.
The message of “the earlier and the more targeted, the better” has become more understandable with the success of AI and machine learning, and the power of big data. Diagnostics’ true value is thus becoming more visible, and the importance of early diagnosis is being elevated in initiatives like the NHS Long Term Plan (LTP) in the UK. Technologies are being developed faster too. The LTP states that by 2021, pathology networks will deliver quicker test turnaround times and improved access to more complex tests at less overall cost.
IVDs are the biggest subsegment of the world medtech market (including dental and ophthalmic) of $426bn in 2018. IVDs accounted for almost 13% or $55.4bn. By 2021, the overall IVDs market will have risen to $70bn, according to IQVIA Medtech in a 2019 global IVDs industry outlook white paper.
M&A Deals In Medtech
M&A spending increased in the 12 months to June 2019, according to EY, but the uplift came from a larger number of smaller deals. The 2019 batch of major disclosed deals reveal significant spending from a limited number of acquirers.
The eye-catching deal-makers were: 3M, with $7.7bn-worth of spending in two major deals; Stryker, whose deal to buy Wright Medical for $4bn will combine the third and ninth largest orthopedic groups in 2020; and Exact Sciences, a colorectal cancer diagnostics and services company, in purchasing Genomic Health. Exact Sciences had sales of just $1.8m in 2014, rising swiftly to $454m in 2018, spurred by an ACS recommendation that colorectal cancer screening should begin at age 45, not 50.
But while deal numbers are smaller on average, valuations are getting higher. Medtechs are seemingly prioritizing tuck-ins and portfolio optimization, rather than opting for larger, more adventurous targets. The largest M&A deals in the first ten months of 2019 were as follows:
*CORRECT AS OF NOVEMBER 8, 2019; DEAL VALUE $450M AND ABOVE
||Auris Health (US)
||GE's Biopharma business
||Drug discovery tools
|Smith & Nephew
||Regen-med - wound care
||Orthopedics - spinal implants
||Clinical Trials Software (mainly pharma)
||Pharma deal, incl. medical aesthetics
||Cancer diagnostic tests
|Cantel Medical (US)
Source: In Vivo & Medtech Insight
Robotics Market Growth Tempts Innovators
Competition in robotics is picking up, as many want a bigger piece of the action that the robotics pioneer Intuitive Surgical has done so much to create. They also know that space is limited in a market with very high entry barriers, hence the rapid attention to targeted M&A in the past two to three years. CMR Surgical, Verb Surgical, Olympus Corp., Samsung, TransEnterix Inc. and Wego Holding Co., all serious contenders, now have even greater competition from Medtronic, with its Hugo RAS system that will rival Intuitive’s Da Vinci system in gynecologic, urologic, cardiothoracic surgery, head and neck and general surgery. The market for robotic minimally invasive surgery systems is growing at some 20% annually and is worth about $4bn, according to Medtronic. The global market for RAS systems is expected to reach $5.3bn by 2021.
Medtronic also markets the Mazor robotic system for spine surgery. NuVasive Inc. and Globus Medical are now developing orthopedics platforms, and Auris Health is also expected to compete with Intuitive in the area of robotic-assisted bronchoscope devices, by means of its endoluminal system for minimally invasive biopsies in the peripheral lung. It follows DePuy Synthes’ purchase of Orthotaxy's robotic technology for orthopedics in 2018, which some saw as a belated entry into the sector.
Siemens and Johnson & Johnson made the largest robotics M&A deals in 2019. Stryker was in there too, with an imaging robotics purchase (Moebius). This large-scale move into robotics is a further illustration of how medtechs in 2019-2020 are becoming immersed in disruptive technologies and practices that go beyond the technology alone.