Medical Device Industry is Changing

The medical device industry in the twin cities area is changing. This used to be the hot bed for medical innovations. In the last decade, two of the most important medical technologies for cardiac and vascular diseases, cardiac resynchronization therapy and drug-eluting stent, made Medtronic, Boston Scientific and St. Jude the champion of medtech industry, a combined revenue today of $29B. The last several years, things have been different; the 2011 year-on-year growth was 3%, compared with the 15-20% 10 years ago.

These changes are surprising given the trend of an aging population and the pandemic of obesity still underlying clinical needs for treating cardiovascular diseases. Some of the obvious causes of the downward trend were not surprising. All three companies were plagued with quality issues that were highly publicized since 2004. These issues are significant for the cost of doing business but not for revenue. Most products in question are all life-saving therapies, the alternative of not receiving therapy is unacceptable for most patients. The second cause of the downward trend were reflected in reports of device overuse, including ICD and drug-eluting stent. This is a sign that the adoption of these therapies is high, and early high growth in a under-penetrated market is now replaced with a steady demand from the incidence of cardiovascular events. The most important reason for lack of high growth is the lack of new medical innovation.

In the last 7 years, there is not a single large first-in-kind product released from the three companies. Instead, there were many new products with incremental improvement, smaller, easier to use and more features. These reflect the internal research and development focus from the early 2000s. It was difficult to move away from a winning strategy that has been working for years in a high growth market. There are changes in the last several years. The most obvious one seems to be reducing internal R&D. In 2012 alone, there were approximately 800 engineers laid off in the twin cities among the three companies. This trend is similar to what happened to the pharma industry – out sourcing R&D. Instead of focusing on internal development, large corporations drive growth by acquiring technologies that have already shown reduced clinical and regulatory risk.  All three companies have made significant purchases in the last 2-3 years. Lutonix, a local startup that has developed a drug-eluting balloon, was one of the notable acquires last year.

I am excited for a future of the medical device industry in the twin cities that is similar to the IT industry of Silicone Valley. We have industry titans that have a solid foundation for market development and penetration. The industry as a whole can work together with FDA and payers to maintain a sustainable structure for regulation and reimbursement. We are building a vibrant start-up community here that can be stronger. There are several local startups are in the midst of Phase III trials. The rich talent pool will help to create new ventures. In addition to large acquires, I hope the three companies also make many small investments for early high risk projects. This will help to keep the talents here and in the medtech industry. I believe the next high growth in the medical device industry will come from another medical innovation that changes people’s life, and I hope it will come from one of the twin cities startup medical device companies.