For the medtech industry, 2014 is unlikely to be a year full of surprises as companies grapple with a health care market wary of big-ticket procedures and items. The largest gains will likely involve digital health and other technologies that save the system money, which is a goal of Obamacare and many other government health system reforms around the world.
It is little wonder that executives at large medical device companies such as Medtronic now talk about delivering devices, therapies, and services that provide “value and outcomes.”
“The world is changing, where we are still very focused on our physician customers that are clearly the clinicians that are implanting the devices, but we are also recognizing that the hospital administration and payers and providers are going to be an important part of this process going forward,” Gary Ellis, Medtronic’s chief financial officer, said last month during an Oppenheimer Healthcare conference call transcribed by Seeking Alpha.
In 2013, Medtronic decided to move into the remote-patient monitoring space with the acquisition of disease-management firm Cardiocom. The move could enable the company to profit from growing pressure from the government and consumers to control healthcare costs. If anything, the push to slow the growth of healthcare costs will likely grow more intense in 2014.
Another medical device company branching out is Stryker, which announced on New Year’s Eve that it will pay about $120 million to acquire Patient Safety Technologies, which has a bar coding technology called Surgicount meant to prevent the accidental leaving of sponges in a patient post-surgery.
Says Leah Binder in Forbes: “Believe it or not, the idea that preventing such horrors could be profitable is a market breakthrough.”
Medtronic and Stryker may be followed by other device companies in 2014, which are questioning the long-term viability of their traditional business models. PwC’s report, titled “Top Health Industry Issues” notes that a growing number of healthcare firms, among them insurers, pharma companies, and hospitals, are all planning on diversifying their business.
Not every major medical device company is buying into the trend of diversification.
“We think companies like us have the most value for patients, for physicians and for investors when we truly innovate patient care. That's what we're focused on. We're able to manage those risks by staying close to home, in fields that we understand, and we're fortunate to be the leader in structural heart disease and critical care,” Edwards Lifesciences CEO Mike Mussallem said during a December investor conference transcribed by Seeking Alpha.
It is worth noting, though, that the value of Edwards’ stock has fallen nearly 30% over the past year as investors question the long-term prospects of its business.
The traditional medical device industry will likely see tepid growth this year, according to Standard & Poor’s Cheryl Richer. Overall, she expects the industry to see single-digit growth.
Of course, some sectors of the traditional medtech industry will see better performance than others. Sluggish market segments could include spinal products and drug-eluting stents, while products projected to have stronger growth include endovascular, atrial fibrillation and neuromodulation products.
Especially hot is the domain of connected medical devices, which according to Transparency Market Research, is projected to grow at a CAGR of 38%. This field could expand eight fold in seven years.
Factors driving this growth include growing demand for networked devices that can transmit data wirelessly and growing use of electronic health records. This trend is being spurred by a push to shift a growing amount of healthcare delivery from outside of costly environments such as hospitals and clinics to the home.
San Diego–based telecommunications giant Qualcomm, through its Qualcomm Life subsidiary, is essentially playing a role in almost every piece of the digital health revolution, and helping to shift a significant share of healthcare away from the expensive acute care environment in the process.
The irony is that a growing volume of data suggests that the Affordable Care Act, at least for now, is doing little to control U.S. healthcare costs at large. This is bad news because costs already account for nearly 20% of the country’s GDP. One recent piece of evidence that Obamacare is having problems on this front: a study of 10,000 previously uninsured Oregon citizens who were granted Medicaid coverage visited ERs 40% more frequently than uninsured patients.
Harvard economist Katherine Baicker believes that expanding Medicaid coverage to some of the uninsured, which is one of the health reform’s initiatives, drives up healthcare expenditures between 25–35% per patient.
Growth in the United States and Europe is likely to continue to slow while expanding in Asia.
RnR Market Research predicts that China’s medical device sector will be worth $53.5 billion by 2020, more than doubling from $20 billion in 2012.
"We have said that clearly our expectation is that the emerging markets has the potential to grow 20% combined going forward … for the next four to five years,” Medtronic’s Ellis said in the recent conference call.
Ellis noted that such expansions into overseas markets aren’t without hitches: “we ran in just a couple of issues in India, for example, whether there were some price decisions based on what the government had done and that we had to work through. There were some distributor terminations and change-outs that occurred. Latin America, the same time we have bought out a few distributors and as the transition occurred, had buybacks and inventory, those types of things.”
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