Medical Device Link.

Originally Published MX January/February 2004

MARKET ANALYSIS

In 2004, cardiology and orthopedics companies will continue leading the medtech pack.

Mike Varona

Figure 1. Forecast market values for selected segments in the global medical technology market, 2002–2004. Source: Millennium Research Group. (click to enlarge)

In 2003, the global medical device and technology industry was valued at close to $190 billion and grew at a rate of more than 8% (see Figure 1). Despite its heterogeneous structure, there are a few common drivers of growth in this industry.

The most important of these drivers is the continued aging of the global population and the associated increase in age-related diseases. This is particularly true in industrialized nations, where the greater availability of healthcare services improves both diagnosis rates and therapeutic options. In emerging markets, growth is driven more by the increasing affluence of these countries. Other important trends in the global medical device and technology industry include the following.

• The advent of managed care and associated pressures to decrease the cost of medical treatment.
• Increasing accessibility.
• Miniaturization of both devices and surgical procedures.
• Movement toward greater use of home healthcare.
• Growing interest in delivering products and services over the Internet.

Within the global medical device industry, some segments stand out as particularly fast-moving and developing markets (see Table I). These include, among others, interventional cardiology (IC), cardiac rhythm management (CRM), reconstructive orthopedics, and spinal implants.

Drug-Eluting Stents Keep Revenues Flowing

Representing more than $5.5 billion in revenues worldwide during 2003, the global market for interventional cardiology products will continue to see robust growth in 2004.

As anticipated, the introduction of drug-eluting stents has already had a major impact on the market. In the United States, drug-eluting stents accounted for more than half of all coronary stent revenues in 2003—and more than 80% of such revenues since the first such product was launched onto the U.S. market in May 2003. In Europe, where the adoption of drug-eluting stents has been more gradual, the market for such products will reach $200 million this year. In Japan, revenues derived from drug-eluting stents are expected to reach $460 million in 2005, their first full year of sales.

The fervent reaction to the ongoing development and approval of drug-eluting stents has been shared among patients, physicians, manufacturers, and investors alike. This response is attributed to the clinically proven ability of such stents to decrease the number of repeat revascularization procedures required due to restenosis, the renarrowing of a treated coronary artery that frequently develops as an immune system response to the trauma caused by angioplasty. When coated on a metallic stent, drugs such as paclitaxel, sirolimus, and dexamethasone have been shown to reduce restenosis following percutaneous coronary intervention (PCI) with greater success than procedures using balloon angioplasty and bare-metal stents.

Drug-eluting stents present a promising source of coronary stent market growth because, pending clinical results, they will provide the opportunity to treat an additional 10–15% of such clinically difficult cases as those involving patients with small lesions, saphenous vein grafts, long lesions, total occlusions, and diabetes. In addition to propelling the volume of PCIs, drug-eluting stents will increase the ratio of PCIs to coronary artery bypass graft (CABG) procedures. Furthermore, as drug-eluting stents gain greater acceptance among physicians, such devices will be used to treat more-complex cases—such as those involving patients with multivessel disease—resulting in a greater number of stents being placed during each procedure.

The advent of drug-eluting stents will also have ramifications for other segments of the interventional cardiology market. Those companies with diversified product portfolios and large-scale operations may cross-sell their approved drug-eluting stents with their other products. For example, accessory products for percutaneous transluminal coronary angioplasty (PTCA) may be bundled with drug-eluting stents in order to provide a more attractive buying option. Conversely, technologies such as brachytherapy—an alternative method for treating patients with in-stent restenosis—may be threatened by the widespread penetration of drug-eluting stents.

In 2003, the global market for drug-eluting stents was monopolized by the small number of manufacturers that have gained regulatory approval for their respective technologies. In the near term, such limited competition will help sustain the premium price of such devices, contributing substantially to market revenues.

Following FDA's April 2003 approval of the Cypher sirolimus-eluting coronary stent by Cordis Corp., a Johnson & Johnson company, there has been rapid adoption of the new technology in the United States. Since the introduction of the Cypher stent, the value of the coronary stent market share has rapidly increased, driven by the fast adoption of the premium-priced Cypher stent. Market competitors such as Boston Scientific, Guidant, and Medtronic, are eager to enter the lucrative U.S. market, and hope to erode the first-mover advantage that Cordis has claimed thus far (see Table II).

Overall, competitive dynamics within the interventional cardiology market will intensify as new technologies and players enter the market, and existing manufacturers strengthen their positions via strategic alliances, creative pricing strategies, and R&D breakthroughs.

Rhythm Management:
Pulsing with Innovation

Surpassing $5 billion in revenues in 2003, cardiac rhythm management promises to be a highly lucrative market again in 2004. The CRM market comprises bradycardia pacemakers, which address the health concerns posed by a heart that beats too slowly; and tachycardia treatment devices and therapies, such as implantable cardioverter-defibrillators (ICDs) and cardiac resynchronization therapy defibrillators (CRT-Ds).

The number of cardiac rhythm management procedures has grown rapidly in the United States and worldwide in recent years. Worldwide, 22 million people (including 5.5 million Americans) suffer from heart failure, with 1 million new cases each year. Consequently, the world market for pacemakers and defibrillators has seen dramatic growth.

Global demand is likely to intensify as new defibrillation technologies come to market, and as rhythm management devices are made more widely available to the medical community. This is especially true for Asia, which remains fertile ground for the makers of rhythm management products. U.S. suppliers of ICDs have already made significant investments in the rapidly changing Japanese market. Companies selling cardiovascular devices will also find lucrative markets for coronary rhythm devices in India and China. The European market for rhythm management generated $1 billion in 2003 and will continue its strong growth into 2004.

The treatment of tachyarrhythmias is indeed a profitable industry. In the United States alone, millions suffer from various forms of tachyarrhythmia. ICDs have emerged as the treatment of choice for tachyarrhythmias over drug therapy. Several trials have depicted a clear advantage of ICD use alone or in conjunction with optimal pharmaceutical therapy (OPT) over that of OPT alone for treatment of heart attack victims.

One of the most prominent trials was the multicenter automatic defibrillator implantation trial (MADIT), which definitively proved for the first time that prophylactic ICD therapy could improve survival rates among high-risk patients. The subsequent MADIT II and MADIT cost-effectiveness studies have helped to further reinforce the efficacy and cost-effectiveness of ICDs, and further expanded their availability and indications. Additionally, several trials are in progress to study a wider range of applications for rhythm-management devices. Decisive evidence from these trials could have tremendous implications for the industry, further opening the door to expanded indications for CRT-Ds and other product innovations.

Already, the transition to more high-powered ICDs and CRT-Ds continues to push prices higher in the cardiac rhythm management market. In 2003, the industry saw growth rates upward of 30%, and this trend is expected to continue into 2004. Guidant recently received expanded approval for its CRT-D system, the Contak Renewal 3, making the system more available to heart-failure patients. Medtronic just launched its InSync III Marquis ICD in Europe and recently received FDA approval of its InSync Marquis CRT/ICD system—the company's third CRT system approved by FDA in the past six months. St. Jude Medical recently had the first of its Atlas+ ICDs implanted in the United States; the Atlas+ is the highest output rate-adaptive device on the market.

The hot ICD market continues to drive overall cardiac rhythm management growth for these companies. However, CRT-Ds are quickly becoming a major ingredient in the mix, and will have a meaningful impact on the bottom line for competitors within this segment.

The three leading competitors in the cardiac rhythm management market—Guidant, Medtronic, and St. Jude Medical—control more than 90% of the global market. With such a command of the market, capturing additional market share through the acquisition of smaller competitors would only bring about marginal gains. As such, the continued growth of the industry will be determined largely by the ability of companies to innovate and leverage their technology in order to penetrate new and existing markets. Treatment goals for the next generation of devices will extend beyond saving lives to include palliative and prophylactic care—enabling patients to better perform routine activities and generally improve their quality of life.

BMPs Stimulate Spine Market

Spinal implants continue to represent the fastest-growing segment of the global orthopedic market. Valued at nearly $2.5 billion in 2003, the market has been fueled by technological advances, specifically the emergence of minimally invasive techniques that have provided surgeons with easier, less-invasive approaches to spinal fusion, and the advent of bone morphogenic proteins (BMPs). In 2003, the top three spinal implant competitors—Medtronic Sofamor Danek, DePuy Spine, and Synthes Spine—composed close to two-thirds of total market revenues. Going forward, the continued proliferation of BMPs, and the emergence of artificial disks and other nonfusion technologies will drive growth in the spine market, which is expected to more than double in the next five years.

Bone Morphogenic Proteins. BMPs and other growth-factor technologies represent one of the most highly anticipated medical device developments in years. The commercialization of growth factors for orthopedics became a reality in July 2002 following FDA approval of Medtronic Sofamor Danek's InFuse bone graft.

A recombinant human BMP-2 protein, InFuse initially received approval for use in single-level anterior lumbar interbody fusion (ALIF) procedures with a tapered metal cage. Since the product's introduction, however, sources indicate that surgeons have been very liberal in its use for other spinal indications, including two-level ALIF procedures, anterior cervical fusions, fusions using machined-bone implants, and posterior lumbar interbody fusions. Since the approval of InFuse, excitement regarding the product's high success rates has led to significant adoption by surgeons and substantial development and examination of the use of growth factors in other indications. Furthermore, in October 2003, the Centers for Medicare and Medicaid Services approved the provision of a special add-on payment for the use of Medtronic Sofamor Danek's InFuse with the company's LT-Cage, facilitating reimbursement for the device.

Over the next five years, additional growth-factor materials are expected to receive full FDA approval, including Wyeth's InductOs, Stryker Biotech's OP-1, and OrthoLogic's Chrysalin. This increase in the number of approved products, combined with adequate reimbursement and an expansion of approved indications, will drive the growth-factor market from a mere $51 million in 2002 to nearly $1 billion by 2008.

Nonfusion Technologies. Artificial disks and other nonfusion technologies represent one of the holy grails of orthopedics. The first generation of such devices is now expected to be commercially available in the United States in late 2004. Many anticipate that the devices will make possible a transition from arthrodesis to arthroplasty in the spine, much as occurred for artificial hips during the 1970s.

The commercial potential of such technologies is evidenced by the number and variety of firms investigating, developing, and acquiring nonfusion technologies. In the past year, the world's three largest spinal-implant manufacturers have acquired artificial disk technologies for substantial sums of money: DePuy acquired Link Spine Group and the SB Charité disk for $325 million in June 2003; Synthes-Stratec acquired Spine Solutions and the ProDisc for $175 million in April 2003; and Medtronic Sofamor Danek acquired Spinal Dynamics and the Bryan cervical disk for $269.5 million in October 2002.

Other companies have also recently emerged with promising technologies for the global spinal implant market. Arthrocare, known for its coblation technology, recently expanded its presence into the vertebroplasty market through the acquisition of Parallax Medical. Spinal Concepts, which was acquired by Abbott Laboratories in 2003, has been successful with its SC-AcuFix family of cervical plates. In addition, the company's Coda posterior lumbar interbody fusion cage is undergoing clinical trials in the United States. The Coda, which has been used in international markets in transforaminal lumbar interbody fusion procedures, can be expanded intraoperatively to match the curvature of each patient's lumbar spine. Blackstone Medical continues to penetrate the spinal implant market with its 3(infinity) anterior cervical plate system. PCB cage/plate and PEEK interbody products have helped France-based Scient'x become the sixth-largest competitor in the European spinal implant market.

Ultimately, the commercial availability of nonfusion technologies will likely play a significant role in changing the mind-set of the medical community toward seeking alternatives to fusion for the treatment of degenerative disk disorder. This is because such devices are directed toward preserving and maintaining both the neurological and mechanical functions of the spine. As such, nonfusion technologies will help in expanding the spinal implant market by giving younger patients who were not candidates for fusion an alternative to relieve back pain.

Joints Hip in Orthopedics

Valued at nearly $5.8 billion globally in 2003, the landscape of the global joint reconstruction market is undergoing its next evolutionary step, as physicians begin to embrace a host of new implant technologies and supporting products. The availability of minimally invasive surgery (MIS) and surgical navigation platforms for reconstructive procedures, as well as new bearing surfaces, will make up the main driving forces in the market for 2004.

In the United States, the world's largest reconstructive device market (valued at more than $3 billion in 2003), the most talked-about industry development is the linked introductions of MIS and surgical navigation platforms. This is because the procedures (utilized on knees and hips) offer short-term benefits such as quicker recovery time, due mainly to less procedure-related trauma. It should be noted, however, that MIS is a realistic option for only a small class of patients. Moreover, because of the significant amount of skill required to perform the procedures, uptake is likely to remain limited in the short term. All of the leading orthopedic manufacturers, including Biomet, DePuy, Smith & Nephew, Stryker, and Zimmer, now have programs under way for the development of MIS and navigation equipment.

Continuing to push the market forward into 2004, new bearing materials have received clear support from physicians (see Table III). It is expected that such materials may provide better products to deal with the increased activity levels and decreasing average age of implant recipients. However, no consensus exists regarding which material is superior for bearing surfaces.

In 2003, Stryker received FDA approval for ceramic-on-ceramic (COC) hip implants, which are strongly affecting the joint-replacement market in the United States. COC hip implants are harder wearing than standard polyethylene implants and thus last longer and mitigate the need for costly revision surgeries. Similarly in Europe, the latest emerging technology is metal-on-metal (MOM) resurfacing hip implants, which are conservative options for younger, active patients, a rapidly growing segment of the patient population. The volume of resurfacing procedures performed in Europe will continue to grow exponentially over the next five years.

In the United States, pricing in the orthopedic reconstructive device market remains strong and will continue to increase by 4–5% per year. In most cases, such pricing increases are possible because the purchase of implants is controlled completely by orthopedic surgeons whose decisions are not sensitive to pricing.

Mike Varona is marketing coordinator at Millennium Research Group (Toronto), a provider of strategic information to the medical device, pharmaceutical, and biotechnology industries.

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