Trends that mattered for medtech in 2017
The medtech industry saw its transformation accelerate in 2017: Whether it’s the roster of largest companies, business models or the regulatory environment, times are changing.
Competition is also heating up in areas including diabetes care and robotic surgery. Here are some trends that especially mattered for the medical device industry this year.
1. The M&A frenzy continued
This was another year of big M&A deals in the medical device industry. New payment models have U.S. health providers merging, and medtech companies, in turn, are combining to better compete. Companies supplying and consulting with the OEMs are merging, too.
Will the larger companies remain innovative? Will it become even more difficult to start a medical device company because there are fewer prospective future buyers out there? Time will tell.
The year’s most significant deals included:
• Cardinal Health in April closed on its $6 billion purchase of the medical supplies business Medtronic picked up when it paid $50 billion for Covidien in January 2015.
• Abbott in January completed its $25 billion buy of St. Jude Medical. (Abbott later wrapped up its $5.3 billion buy of diagnostics giant Alere.)
• Boston Scientific announced in October that it had inked an up-to-$300-million deal to purchase Apama Medical and its radiofrequency balloon catheter system designed to treat atrial fibrillation.
• Private equity giant Kohlberg & Co. bought specialty plastics manufacturer Pexco and merged it with its PPC Industries holding to create Spectrum Plastics Group.
2. Are we about to revolutionize diabetes treatment?
It’s no coincidence that out of the 10 medical device companies spending the largest portion of their budgets on research in 2017, two were in the diabetes space. San Diego–based Dexcom boasts that its G5 Mobile continuous glucose monitoring system gives users glucose readings every 5 minutes and provides them with a trend arrow so they can see where they’re heading, while Insulet seeks to expand the use of insulin pump therapy for diabetes through its Omnipod insulin management system.
The diabetes treatment space seems on the verge of disruptive innovation – especially when it comes to creating a combined glucose sensor, control algorithm and insulin infusion device that could effectively act as an “artificial pancreas.” Medtronic appears to be ahead in the race; its MiniMed 670G was the 1st hybrid closed-loop system to win FDA approval. But a host of upstarts including Bigfoot Biomedical – which has a partnership with Abbott – think they could do even better. Instead of simply selling its system, California-based Bigfoot is looking to market it as a service with a monthly fee.
3. Hurricane Maria
The medical device industry is not immune from extreme weather events such as hurricanes, which are predicted to intensify in coming decades thanks to climate change caused by greenhouse gases. Puerto Rico is still recovering from Hurricane Maria in September. The U.S. territory is home to facilities for Johnson & Johnson, Pfizer, Amgen, Merck, Medtronic, Abbott, Stryker and dozens of others.
FDA commissioner Dr. Scott Gottlieb noted in early December that many firms continue to run on generator power; their production levels cannot return to baseline levels.
4. Tax reform and the medical device tax
Congress delivered a major tax overhaul bill to President Donald Trump’s desk before Christmas. But it surprisingly didn’t include an item that the medical device industry had been craving: Permanent repeal of the 2.3% medical device excise tax that was part of the Affordable Care Act. Congress in January ended up suspending the device tax for another two years – ending a period of limbo for the industry.
Although Trump and congressional Republicans failed to dismantle Obamacare this year, the new tax bill repeals the individual mandate – undermining the economics behind the ACA. And the medtech industry appears to have dodged a bullet with the tax reform: The R&D tax credit is still intact, though it appears to now be an amortization deduction over five years.