Originally Published MX January/February
2002
MARKET ANALYSIS
New and Current Industry Reports
Key reports devoted to different segments of the medtech industry provide a comprehensive view of the market for 2002.
Flora Nguyen
With
the new year already under way, equity analysts are busily compiling research
reports that sum up market activity in 2001 and offer projections for 2002.
Consequently, the number of market reports available at this time of year is
substantially higher than the norm. The number of reports devoted to the healthcare
sector is also higher than usual, as that sector has gained the attention of
many equity analysts in the last few months due to its status as a growth leader
in a time of economic recovery.
To sort through the voluminous amount of research available on the healthcare
sector, this article offers MX readers a selection of reports geared specifically
toward the medical technology industry. The following reports have been selected
because they provide comprehensive economic and strategic analyses of key medtech
industry segments, including coverage of major competitors and significant factors
shaping the future development of those segments.
Readers interested in obtaining any of these reports can find complete contact
information for all the market research firms listed in this article in the
commercial resources guide.
The Big Picture
Daniel T. Lemaitre
et al., Med Tech Check-Up: Industry Overview (New York: Merrill Lynch,
June 27, 2001).
Report Summary. Despite fundamentals that appear to be solid and in line with
secular unit-growth trends of 10%, the authors of this report adopt a somewhat
cautious posture on the medical technology industry. They suspect that rotation
out of defensive holdings is highly likely if the prognostications for a robust
economic recovery pan out.
Admittedly, there is not yet a consensus as to the shape or magnitude of the
economic recovery. But in the current stalemate, it appears that many investors
are simply "renting" defensive industries such as medical technology
and are at some point likely to move capital out of this sector and into cyclical
segments of the economy that are undervalued and could grow profits faster in
a recovery.
Given the authors’ more cautious posture on the medtech industry, they
limit aggressive buying to a handful of stocks where a combination of fundamental
developments that aren’t widely anticipated may trigger multiple appreciation.
Cardiology
Wade H. King, Cardiology
Update (San Francisco: Robertson Stephens, November 30, 2001).
Report Summary. Early expectations are set extraordinarily high for companies
developing drug-coated stents. A physician panel assembled at the Robertson
Stephens Annual Medical Conference in November 2001 emphasized the need for
line-item reimbursement for drug-coated stents in order to promote universal
adoption of these devices. King believes that the companies covered in this
report will see upticks in revenues based on increased indications for implantable
cardioverter-defibrillators and the availability of devices to treat congestive
heart failure. However, these gains will most likely be steady and gradual rather
than large immediate increases, and King cautions against unrealistic growth
expectations.
Clinical Standards
Wes Rishel and
Jim Klein, Concept Cluster Templates: The Next Step in Clinical Standards
(Stamford, CT: Gartner Research, November 9, 2001).
Report Summary. Current events, from bioweapon threats to Institute of Medicine
reports, serve to reemphasize the societal benefits of sharing clinical information
at a level that transcends individual healthcare organizations. For maximum
benefit, such information must be exchanged with a degree of specificity suitable
for computerized decision support for public health, evidence-based medicine,
and other clinical research.
Useful sharing of clinical information will require more-specific standards
than are now available. Health Level Seven (HL7; Ann Arbor, MI), a standards-producing
organization accredited by the American National Standards Institute, is developing
such standards using an approach that Rishel and Klein call "concept cluster
templates." Large healthcare organizations and government agencies that are
developing strategies to share fine-grained clinical data in a milieu that transcends
individual healthcare organizations should support this effort. Vendors of clinical
systems should follow and participate in the development of these standards,
and they should upgrade the capabilities of their systems as part of their normal
development cycles.
Glucose Monitoring
Daniel T. Lemaitre
et al., Diabetes Monitoring and Therapy: Opportunities for Investors on Pins
and Needles (New York: Merrill Lynch, August 24, 2001).
Report Summary. Glucose monitoring continues to be one of fastest-growing segments
of the $21 billion in vitro diagnostics market. In 2000, the U.S. diabetic population
was approximately 16 million people, with 800,000 new cases diagnosed and 200,000
deaths.
The diabetic population is estimated to continue to grow twice as fast as the
general population. Contributing factors include unhealthy lifestyles, increased
obesity, aging, a 10–12% increase in type II diabetes among children and
minority groups such as African-Americans and Hispanics, and an increased number
of insulin-pump users who monitor their blood levels up to six times a day.
Education and awareness campaigns should also lead to increased monitoring,
which will in turn lead to better glucose control and reduced complications
from diabetes. Finally, industry players enjoy abnormal margins, since manufacturers
distribute 70% of their products directly to retail channels. All told, it is
estimated that the U.S. market will grow 15% to $2.6 billion, whereas the worldwide
market will grow 12% to $4 billion, approaching $6 billion by 2004.
Healthcare Services
William B. Bonello
and Angela C. Samfilippo, Alternative Site Healthcare: Industry Outlook (Minneapolis:
U.S. Bancorp Piper Jaffray, October 1, 2001).
Report Summary. Over the past decade, there has been a major shift in the locus
of healthcare delivery away from acute-care hospitals and toward alternative
settings. This shift will continue over the next decade, propelled by advances
in technology, continued cost pressure, hospital capital restraints, reimbursement
changes, and physician and consumer demand. These factors, along with the aging
population and a stable reimbursement environment, make alternative-site healthcare
companies attractive near- and long-term investment opportunities.
Laparoscopy
Clara Tse et al.,
U.S. Markets for Laparoscopy 2002 (Toronto: Millennium Research Group, November
1, 2001).
Report Summary. In 2001, the U.S. laparoscopic device market was valued at $993.3
million, a 5% increase from 2000. It is expected to register annual revenues
of approximately $1.24 billion by 2006, representing a compound annual growth
rate of 4.4% from 2002 to 2006. Laparoscopic devices covered in this report
include laparoscopes, access devices, insufflation products, hand instruments,
laparoscopic closure devices, bipolar instruments, ultrasonic instruments, mechanical
female sterilization products, suction irrigation products, and hand-assisted
access devices.
Market segments that are experiencing strong growth include bipolar instruments,
ultrasonic instruments, and hand-assisted devices. More-mature market segments
such as laparoscopic devices are also experiencing moderate growth as they are
being used more widely in emerging procedures such as bariatic and spinal surgery.
Life Sciences Consumables
Thomas E. Hancock,
Rachel L. McMinn, and Hans P. Riegel, Reagents of Change: The Life Sciences
Consumables Marketplace (Minneapolis: U.S. Bancorp Piper Jaffray, October
1, 2001).
Report Summary. Today, high-growth opportunities for reagents and other consumables
have opened up at multiple points in the research landscape, and suppliers are
continually seeking out new prospects. This is due to the recognition that consumables
represent a unique class of products with desirable virtues: they are fundamental
tools, are a recurring revenue source, can have high margins, are not big-ticket
purchases, and can be leveraged by integrated systems.
Given these exceptional qualities, the consumables market holds considerable
potential to take on an expanded role in the overall life sciences suppliers
market. A combination of technology trends, such as the increasing focus on
proteomics, as well as industry trends—most notably, the continuing focus
on improving the efficiency of the drug discovery and development process—will
serve to bring about the realization of this potential in the years ahead. In
this report, the authors describe the key trends that will drive the consumables
market.
Mass Spectrometry
Thomas E. Hancock,
Critical Mass: An Analysis of the Mass Spectrometry Market (Minneapolis:
U.S. Bancorp Piper Jaffray, November 8, 2001).
Report Summary. Mass spectrometry (MS) is an enabling technology that has penetrated
various segments of the drug discovery industry. Beginning with preclinical
drug metabolism analysis, MS has more recently been spreading upstream to target
discovery as well as downstream to analysis of human clinical samples. While
product lines within the MS market have experienced recent weakness, the underlying
market drivers are in place for robust growth over the next several years.
In this report, Hancock provides a detailed analysis of the triple-quad and
quadrupole time-of-flight markets, discusses historical market trends, and dissects
MS contributions for leading MS suppliers Applied Biosystems, Waters, ThermoElectron,
and Bruker Daltonics.
Molecular Diagnostics
Eugenia Shen et
al., U.S. Molecular Diagnostics Market (San Antonio, TX: Frost &
Sullivan, November 19, 2001).
Report Summary. Despite the promise of molecular testing in identifying infectious
and inherited diseases, medical insurers are hesitant to reimburse these services
without adequate proof of their clinical and economic value. According to the
authors of this report, the U.S. molecular diagnostics market generated revenues
totaling $1.3 billion in 2000. It is expected to reach $4.2 billion in 2007.
Many clinical labs are integrating molecular diagnostics into their assay menus
to diagnose infectious diseases, inherited diseases, and cancer, and to assist
with forensic testing. Still, reimbursement uncertainties could discourage widespread
use of these expensive procedures.
To ensure industry success, manufacturers and testing labs must fund studies
that document the cost savings and health benefits of early detection through
molecular studies as compared with less-expensive methods. Technological advances
in the lab would also help encourage adoption of molecular testing. By automating
the tedious steps involved in conducting tests, labs can accelerate the processing
rate and reduce labor expenditures.
Orthopedics
Katherine A. Martinelli,
Daniel T. Lemaitre, and Timothy J. Lee, Orthopedic Industry: An Update and
Company Models (New York: Merrill Lynch, November 21, 2001).
Report Summary. The roughly $12 billion worldwide orthopedic industry remains
one of the fastest-growing and most profitable segments of medical technology.
The authors of this report look for revenue to increase in the 12% range, with
sales expected to compound at 11–12% annually through 2004.
The backdrop in the reconstructive market remains upbeat due to an increase
in units, a favorable mix shift, and a 3% increase in average selling prices.
Although comps will toughen in late 2002, the reconstructive market is expected
to compound in the 7–9% range for the next few years.
The $1.8 billion spinal market is positioned to compound at a growth rate of
approximately 25% annually through 2004, fueled by an expanding patient base,
an increased use of hardware per procedure, and orthobiologicals aimed at promoting
bone growth. The orthobiologicals market could be a blockbuster, with total
sales expected to reach nearly $700 million by 2004. Leading the charge is a
class of naturally occurring growth factors called bone morphogenic proteins.
Proteomics
Thomas E. Hancock,
Rachel L. McMinn, and Hans P. Riegel, Biopharmaceuticals: Proteomics: Don't
"MS" the Boat (Minneapolis: U.S. Bancorp Piper Jaffray, May 1,
2001).
Report Summary. Biopharmaceutical companies are looking to build upon the information
obtained from completion of the Human Genome Project with proteomic tools for
the express purpose of improving drug discovery. With the aid of a solid genomics
foundation created by the numerous sequencing projects, proteomics promises
to open new doors for target discovery and validation, toxicology, and pharmacology,
which serve as essential stepping stones for developing novel pharmaceuticals,
vaccines, and therapeutics.
The authors of this report identify the emerging proteomics market as an important
area in the various stages of drug discovery, which therefore deserves significant
investment attention. This report will help investors develop a feel for what
the proteomics industry looks like, and what it will likely transform into in
the years ahead. As a functional framework for discussion, companies included
in this report have been divided into five broad categories: equipment suppliers,
bioinformatics software, bioinformatics databases, emerging technologies, and
drug discovery.
Vascular Devices
Richard Burton-Williams
et al., European Markets for Peripheral Vascular Devices (Toronto: Millennium
Research Group, November 1, 2001).
Report Summary. The European peripheral vascular device market consists of peripheral
vascular stents, percutaneous transluminal angioplasty balloon catheters, AAA
stent-grafts, surgical grafts, and accessory devices in the United Kingdom,
France, Germany, and Italy. In 2001, revenues in this market were in excess
of $170 million, making it the second most valuable market in the world after
the United States.
Due to rapid growth primarily occurring in the markets for peripheral vascular
stents and AAA stent-grafts, more than $1.3 billion is projected to be earned
between 2002 and 2006. From 2002 to 2006, the peripheral vascular markets in
Germany will make the largest contribution to total European revenues, accounting
for more than 37%. After Germany, the most valuable markets are in France, Italy,
and the UK.
Despite ranking as one of the slowest-growing markets in Europe, the market
for surgical grafts will accumulate more revenues than any other segment of
the European peripheral vascular device market from 2002 to 2006. Continued
penetration of new peripheral vascular stenting indications such as the carotid
and femoralpopliteal markets will establish the peripheral vascular stent market
as the second most valuable in Europe. Rapid growth and high device costs will
drive the market for AAA stent-grafts to becoming the third-largest segment
in the market overall. Characteristically, the more-commoditized and slower-growing
markets for diagnostic and interventional accessory devices rank at the bottom
of this list.
Conclusion
Although the authors of the reports featured above expect strong growth and high gains in the medtech segments that they cover, they also caution against unrealistic growth expectations. This is perhaps the most important advice offered in all of the above reports, and should be kept in mind even as a greater number of economists step forward to announce that the healthcare sector will be a key driver of economic growth in the coming year.
Flora Nguyen is associate editor of MX.
Illustrations by Bek Shakirov.
Copyright ©2002 MX
