By Bob Marshall, Chief Editor, Med Device Online
Who could have known a year ago that Becton Dickinson would purchase C. R. Bard for $24B or that Abbott would acquire St. Jude Medical for $25B? Who would have guessed the long-awaited new medical regulations would be enacted in Europe? Those positioned as leaders within the industry would be most likely to have seen those types of things coming, since they are heavily involved in what is going on and often connected to the ones making those decisions. I asked the following medtech leaders what changes they expect to see as we move forward into 2018.
WHAT WILL THE FUNDING CLIMATE LOOK LIKE FOR THE MEDICAL DEVICE INDUSTRY IN 2018?
Doug Bernstein: Foregoing any big jolts to the market, I don’t see a huge change to the funding climate. I think the main driver is going to be the maturing of certain technologies (e.g., transcatheter valves); however, some of the segments that have consistently been exciting but early (e.g., tissue engineered devices) I continue to see as early. I think it remains to be seen how some of the large-scale consolidations, such as Abbott/St. Jude, BD/ BARD, or LivaNova, are going to affect the industry, but we may still be waiting through the next year to see major effects. We could see more of a scramble to compete in certain segments such as the transcatheter mitral valve space (to an extent we already are), and that could be fairly interesting.
Pete DeComo: It will continue to be challenging. The earlier the stage of the company, the more challenging it will be. VCs have become more like growth-stage investors not wanting to take the early risk associated with product development and regulatory approvals.
Matt Kesinger: The regulatory environment for med devices in the U.S. is improving. The pendulum has swung back. Med device investors started leaving the industry as the regulatory burden increased and clearance became less certain. Now that clearance times are decreasing, I think investment will start making a comeback.
WHAT DEVICE SEGMENT WILL BE GETTING ALL OF THE ATTENTION IN 2018? WHY?
Maria Bennett: I believe neurostimulation is becoming a critical game changer in the field of pain relief/management. In 2018, you can expect more doctors and patients to adopt and use devices specifically designed to preferentially activate target nerve fibers, delivering sustained, significant pain relief without opioids, surgery, permanent implants, or tissue destruction. The popularity of neurostimulation is, and will continue to be, driven by the tremendous need to offer the millions of pain sufferers worldwide nonnarcotic therapies for pain relief. Look no further than the ongoing opioid crisis, which has been devastating in my home state of Ohio (and beyond), for the need for innovative pain relief therapies such as neurostimulation to become treatments of first, not last, resort.
David Groll: Digital health will remain strong because of the lower regulatory barriers and potentially faster exits.
Maureen Mulvihill: Digital medtech is going to continue to be big news next year. This is such an exciting and dynamic area in healthcare right now. We’ve seen an explosion of wearables that provide individuals personalized healthcare information, and as researchers across the world work to harness Big Data to find healthcare solutions for entire patient populations, digital health is transforming how we think about and deliver healthcare every day.
WILL MEDICAL DEVICE M&A ACTIVITY INCREASE, DECREASE, OR STAY THE SAME IN 2018? WHY?
DeComo: Stay the same. Acquirers are waiting longer to acquire, attempting to mitigate as much risk as possible. FDA approval is almost a must-have, and some commercial traction is strongly desired.
Groll: It will stay the same; the innovation pipeline is going to remain constrained because of lack of early- stage funding. This will impede acquisition activity. If the economic expansion ends, there could be consolidation (mergers) among the large companies.
Mulvihill: I expect M&A activity to increase slightly in 2018. We are seeing evidence of truly innovative products (e.g., premarket approval [PMA] and de novo pathways) generating greater up-front multiples and quicker times to exit than the more iterative traditional devices (e.g., 510(k) path). Large companies also are opening up to more earlier-stage strategic partnerships, as previously discussed, which could drive greater M&A activity. However, continued consolidation in the industry and the overall environment for medtech investing are limiting factors.
WHAT CHANGES MIGHT WE EXPECT FROM THE FDA IN 2018?
Bernstein: I think a lot of focus has been on how regulatory changes elsewhere are going to affect the industry (i.e., revision of the Medical Device Directives in Europe is the big one, but also changes coming to India’s regulations and elsewhere). There has been so much speculative noise with the new administration that it is difficult to predict how potential changes may play out (or even if potential changes will be made at all). However, it seems more likely that we may see assessment of medical devices in Europe via the CE mark come more into line with 510(k) clearance, and if that happens it would have a significant impact on markets. Groll: Difficult to say. On the one hand, there seems to be some effort to integrate new technologies into the FDA framework in a sensible way. On the other, the agency seems to be even more arbitrary when it comes to enforcement in some of its traditional areas.
Maria Fagan: In general, the FDA has been trying to become more transparent and more responsive to industry. Statistics have shown a reduction in review times for both 510(k) and PMA devices, providing evidence of the movement in this direction, and the FDA is much more helpful when it comes to resolving issues. The use of the presubmission process has been very helpful to fully understand the FDA expectation well in advance of a submission so that companies can align on what is needed. Additionally, the FDA has several initiatives to improve innovation, some stemming from the 21st Century Cures act passed in December of 2016. Overall, I think there is movement toward more responsiveness and reasonableness and the use of real-world data to assist with FDA clearances and approvals. In contrast to the FDA, where they are becoming more reasonable, the release of the EU medical device regulations in May 2017 indicates the seriousness of the EU’s concern with the safety of their devices. The changes are expected to tighten down on notified bodies (organizations designated by an EU country to assess the conformity of products before being placed on the market) and, consequently, to ensure the intent of the regulation is upheld. During the transition time of the EU MDR (medical device regulations), there will be confusion, and companies will likely hesitate to enter the EU unless really needed.
WHAT ARE SOME UPCOMING CHANGES RELATED TO CLINICAL TRIALS FOR MEDICAL DEVICES?
Bernstein: It will be interesting to see how some of the high-profile trial spaces play out. Enrollment alone is a big question for the more disruptive spaces, and all of the companies scrambling to start only make that harder. Couple the large amount of uncertainty of outcomes with a new type of device, and I think we have an uncertain picture. One big trial failure could have a ripple effect, whereas I think it will take years to build the type of evidence that will start to bring confidence.
DeComo: It is for real. In our case, we were approved in Canada and the EU in 2013. Based on the FDA requirement that we conduct a PMA trial, we most likely will not be in the U.S. market until late 2019. Should it really take the U.S. seven or more years for the FDA to be convinced a device is safe and effective?
Mulvihill: Certainly the proliferation and sophistication of data collection is going to be a trend to watch when it comes to clinical trial evidence. As part of the new user-fee agreement signed into law, the medtech industry committed to funding several premarket pilot projects for the agency’s National Evaluation System for health Technology, or NEST, to explore whether use of real-world evidence could help the FDA determine whether a device could be eligible for an expanded indication for use and other premarket activities. There could be some very exciting opportunities regarding the use of real-world evidence, and the industry looks forward to working with the FDA and the NEST Coordinating Center to implement and evaluate these pilots as efficiently as possible. The FDA also released final guidance on the use of real-world evidence, which should provide helpful information to firms on the potential benefits of real-world evidence for premarket uses.
WILL MEDICAL DEVICE COMPANIES OUTSOURCE MORE OR LESS IN 2018? WHY?
Bernstein: I don’t see a strong trend toward bringing manufacturing in-house short of some major legal/regulatory changes. Especially for small companies, I think there is a lot of danger in growing infrastructure too fast, and I don’t see the current uncertainty changing that. Still, I think the status quo is always a strong argument for highly regulated devices given the time and cost of making changes, so I don’t necessarily see there being a strong trend to try to outsource more either. I think the recent bout of large-scale consolidation is not indicative of a substantial appetite for risk right now, so I wouldn’t think we’ll see major changes either way.
Groll: More outsourcing. There is a long-term trend toward specialization that encourages companies to outsource any noncore activities.
Mulvihill: The FDA’s recent increased levels of scrutiny and rigor will likely decrease outsourcing of medical- device components and assembly to countries with low levels of compliance. Wage increases in countries such as China further lower their competitive advantage over U.S. manufacturing. However, there is an opportunity for low-labor-cost markets as end-product cost competition continues to intensify, if compliance can be improved. Companies will continue to balance capital investment and development costs against peritem costs and speed-to-market in the make/buy decision. Smaller firms must also carefully consider product life cycle and the potential for future products in the pipeline to utilize in-house capabilities.
WILL THE MEDICAL DEVICE INDUSTRY BE ABLE TO FIND THE TALENT IT NEEDS TO GROW?
Bernstein: I know that we find it difficult to an extent. The medical device industry requires all the talents of any other tech industry but without some of the “sexiness” of the currently popular ones. Since this has been the case for some years, I do think there is a bit of a shortage.
DeComo: To a certain extent it is region-dependent. Where there are larger anchor companies employing engineers and there are schools of engineering, it is not too challenging. However, seasoned engineers are generally hard to find and attract. We need to do more to encourage students to enter the engineering field, and the fact is, we are falling behind globally.
Mulvihill: Yes, because it offers greater purpose and industry stability. Millennials are driven by greater purpose; they seek to make an impact in the world. To attract the best and brightest, medtech execs need to showcase how their companies make lives better. Staff can also be found from the other three generations that are looking for a company where they have purpose and stability. These senior people have significant expertise and experience. By focusing on education and mentoring, the millennials will stay engaged as they are learning and growing, and their senior peers will stay engaged as they are valued for their experience and expertise.