2012's biggest trends in devices and diagnostics
|Mark Hollmer||Damian Garde|
We've reached the last 2012 edition of FierceMedicalDevices. Thanks for reading, and don't forget to check your email on Jan. 2, 2013, for our first newsletter of the New Year.
In the interim, there are a few things to reflect on.
This was an eventful 12 months for the devices and diagnostics industries, with the emergence of exciting new care and industry trends, but also the continuation of some depressing sales numbers in sectors (cardiac rhythm management in particular), where a lagging economy led to fewer implant procedures and a continued drop in revenue. And politics clashed with device-company entrepreneurs in an extremely powerful way.
Some of the major events that affected devices and diagnostics this year include:
The medical device tax blared. As part of the Affordable Care Act, a 2.3% excise tax is slated to kick in on Jan. 1. Through 2012, industry fought the tax feverishly, and ex-Massachusetts Gov. Mitt Romney even pledged his opposition to the tax during the 2012 presidential campaign. Romney lost, of course, and congressional efforts to repeal the tax--and healthcare reform as a whole--have stalled out in the Democrat-controlled Senate. Lawmakers from both parties have offered support to the idea of delaying the charge, but President Barack Obama isn't on board with the idea. Some observers expect the fight to continue in 2013, but others expect the tax to remain on books.
Venture fundraising declined. At the 2012 third quarter, medical device investing dropped 37% in dollars and 27% in deal volume, with just 65 medical device companies attracting $434 million in funding, the lowest level since 2004, according to numbers compiled by the National Venture Capital Association and PricewaterhouseCoopers in their most recent MoneyTree report. This was also the third consecutive quarter in which medical device investing declined. How could this be? Wendy Hutton, an active NVCA member and general partner with the investment firm Canaan Partners, blames the downward trend on a number of factors, including continued FDA regulatory delays, reimbursement struggles and corporate caution because of the hated medical device tax.
Renal denervation exploded. The race was on this year for the development of devices that can relieve drug-resistant hypertension by ablating nerves in the renal artery. All the major players are now developing products in the space, including Medtronic ($MDT), St. Jude Medical ($STJ) and Covidien ($COV). Medtronic and Covidien got into the space by buying innovative startups, and so did Boston Scientific ($BSX), which jumped into renal denervation with a vengeance in early November with its $425 million purchase of Vessix Vascular, a 2012 Fierce 15 winner developing its own twist on the technology. Other up-and-comers remain, such as Kona Medical, which recently closed a $40 million Series C to fund development of its renal denervation device that relies on ultrasound waves from outside the body to deaden nerves without using a catheter.
CRM plunged. The excitement over renal denervation and its multi-billion-dollar market projection makes a lot of sense in the context of what's happened in the world of cardiac rhythm management devices. CRM was once a major cash cow for industry giants, but demand and--more importantly--sales have tanked of late, and the likes of Boston Scientific, St. Jude and Medtronic shed thousands of jobs in 2012. And it's not likely to improve. Millennium Research Group says the global CRM market is far too crowded and will post basically flat growth through 2016. However, though sales of pacers and ICDs kept tanking all the way through Q3, devicemakers haven't totally resigned to sopping up middling profits, as Boston Sci got FDA approval for the novel, minimally invasive S-ICD, and Medtronic has developed an MRI-safe pacemaker it is marketing around the world.
Diagnostics blossomed. With the surge in personalized medicine, most of the Big Pharma companies are committing to the development of companion diagnostics for some of their biggest pipeline drugs. Diagnostics companies are drawing hard-to-get VC funding, and the top 10 diagnostics companies are all anticipating healthy sales hikes for 2012. The sector is poised for continued, accelerated growth, and many emerging companies have become alluring acquisition targets.