Medical Device Link.

Originally Published September 1999

MARKET ANALYSIS

The Medical Device Market Today

Modest and sustainable growth marks the overall market for medical technologies—but some market segments offer hot opportunities for rapid growth.

Tracy A. Schaaf

The U.S. medical device and supplies market, valued at more than $61 billion in 1998, is composed of a myriad of market segments devoted to the diagnosis and treatment of virtually every disease or disorder that can affect the human body. The United States is among the top three markets for medical devices, followed by Europe and Japan, which had approximately $39 billion and $21 billion in 1998 sales, respectively. The total worldwide market reached $145 billion last year; thus, U.S. manufacturers control approximately 42% of the world market for these devices.

Despite continuing pressure to contain costs, reimbursement challenges, mergers and acquisitions, and the economic crisis in Asia, the U.S. market for these products is growing at a 6% compound annual growth rate. According to the Health Industry Manufacturers Association (HIMA), this growth appears to be sustainable for at least the next two years.

Growth rates for the medical technology markets in other countries with expanding economies—including Brazil, China, Korea, India, Taiwan, and Mexico—are higher than that of the United States, at approximately 15% overall (China is the world's fastest-growing medical device market, with 28% annual growth in recent years). By the year 2000, the world's emerging markets are expected to represent 17% of total medical sales, rising to approximately 25% by 2005. The total medical device market in 2006 is expected to be $260 billion.

Products included in the medical device category include disposable medical supplies such as medical kits and trays, infusion and related supplies, diagnostic and lab products, and wound-management supplies, as well as capital equipment, instrumentation, and other related products. In general, the markets for all medical products with application to the growing elderly population in the United States and the world, as well as markets offering products that improve outcomes while reducing costs, are growing and offer great opportunities for success for manufacturers.

In Vitro Diagnostics

As an example, the worldwide in vitro diagnostics (IVD) market is one of the largest in the medical instrumentation field, valued at more than $22 billion in 1998 (this total includes the research, industrial, and animal health segments). Several emerging sectors in this market—such as molecular diagnostics and nucleic acid probes, blood glucose monitors, and point-of-care tests—are forecast to show solid growth into the next century (see Table I). As a result of the discovery of new disease markers, the immunoassay market will also contribute to further market expansion, albeit more modestly.

Longer term, market drivers point to increasing—if not accelerating—demand. The volume for worldwide IVD testing will grow because of several fundamental driving forces, some of which are rather predictable. Current demographic trends in industrialized countries (the aging population) and a gradual rise in healthcare spending in emerging markets will increase demand for diagnostic testing. Also driving demand are the growth of alternate-site care and the associated expansion of secondary markets, such as the home and physician's office. The new economic reality of managed care, with its emphasis on early detection and treatment of illness, is creating additional demand for patient knowledge that will translate into a need for more diagnostic testing. This demand ties in with another driver: the growing interest of pharmaceutical companies to team up with diagnostic firms in order to create larger markets for drugs.

The two wild cards among the demand drivers—new and "returning" diseases that are difficult and costly to treat and the emergence of gene therapy—provide interesting opportunities to integrate or position new clinical diagnostic tests at the center of a patient knowledge—based therapeutic approach.

Diabetes Management

Diabetes, a glucose metabolism disorder that can cause a variety of severe complications involving virtually every major organ system, is one of the most costly and debilitating diseases. Worldwide, more than 130 million people were afflicted with diabetes in 1995; this number is predicted to reach 154 million by the year 2000, then double by 2025.

The quest for improved care (and ultimately, a cure) for the affected population is fueling a diabetes management products market that was valued at about $10 billion worldwide in 1998 and is growing at 12—15% per annum. Several factors are responsible for this high growth rate, among them the aging populations in industrialized nations and escalating Western dietary and cultural influences in developing countries, which are contributing to an increase in the number of persons afflicted with this chronic disease. In addition, the belief and partial evidence that maintaining optimal blood glucose levels can postpone—or even eliminate—many diabetic side effects is increasing the intensity of diabetes care, and with it the utilization of specialty medical products and drugs. Diabetes is the leading cause of heart disease, kidney failure, nerve damage, stroke, blindness, skin ulcers, impotence, and amputations. Once these complications develop, they are difficult, if not impossible, to reverse.

In the United States, the treatment of diabetes-related complications accounts for about 55% of the nearly $100 billion associated with diabetes management, the remainder being direct treatment expenses. The tremendous cost implications of diabetic side effects are demonstrated by the fact that although (confirmed) diabetics make up only about 11% of the population over the age of 65, elderly diabetics consume 40% of skilled nursing days, 29% of home-health visits, 26% of emergency room visits, and 21% of office consultations. Diabetics of all ages have a 1.5 times greater risk of being hospitalized, and they remain in the hospital an average of 2.8 days longer than nondiabetics with the same conditions.

Coronary Stents

Another large medical device market is the market for coronary stents, a technology that has revolutionized interventional medicine. The worldwide market for these devices is forecast at $2.1 billion in 1999, up from $1.9 billion in 1998. The United States will comprise approximately $1.5 billion of the total 1999 market. This young market is forecast to reach $4.8 billion by 2002, driven by increasing competition in both the United States and Europe.

Forces that continue to provide momentum in the coronary stent market include the development of smaller stents (permitting a larger group of patients to be treated) and new adjunctive therapies, such as radiation and statin drugs, that are showing promising results in reducing the plaguing problem of restenosis.

Orthopedics

Orthopedic surgery is another large device opportunity. Ripe with new developments in bone, cartilage, and soft-tissue regeneration that may offset single-digit growth rates in the market for total joint implants, the musculoskeletal (MSK) surgery marketplace could exceed $8.7 billion in global sales this year. Just over half of all revenues (approximately $4.7 billion) will be generated in the United States (see Table II). The overall market is projected to increase at a 4.5% compound annual growth rate from 1998 to 2002, with niche segments such as spine surgery, arthroscopy/sports medicine, and fracture fixation the most promising areas for future expansion, mainly as a result of new developments in biomaterials.

Recently, companies have turned their attention to one of the most exciting areas in the MSK industry: biologically attuned implants that can mimic the body's own natural repair processes, potentially expedite the healing process, and overcome many of the problems associated with metallic devices. Most major orthopedic manufacturers are tapping into the high-growth arthroscopy/sports medicine, trauma, and spine segments, either through acquisition or the formation of strategic partnerships with biomaterial developers. Because biomaterials may be used to repair or regenerate most MSK tissues, including bone, cartilage, meniscus, ligaments, tendons, and even spinal disks, their applications cross the boundaries of traditional orthopedic segments. The potential market for orthopedic biomaterials approaches $2 billion in the United States alone.

Transplantation

Organ and tissue transplantation is a promising market for the future. The remarkable success achieved with organ transplantation over the past two decades has created a burgeoning demand for transplant procedures. This demand has, in turn, provided the impetus for the development of a range of new transplant-related drugs, devices, and specialty services. Drug and technology advances are already credited with transforming solid organ transplantation from a very risky to an almost routine procedure, with one-year survival rates that now average 70% or more for most organs.

Meanwhile, intensifying competition for the limited number of donor organs is creating some ethical and clinical challenges. Efforts to resolve these issues will shape the course of this industry well into the next century. In the coming months and years, new organ allocation and donation rules will come into play, advanced life-saving technologies (some potential alternatives to transplantation) will be introduced and adopted, and disease management strategies will increasingly be applied to help control costs.

For the more than 270 U.S. hospitals that collectively participate in nearly 900 programs, organ transplantation is a lucrative business. Despite the seemingly high costs of a kidney transplant ($48,000 in charges during the first year and $12,000 annually thereafter), a successful procedure pays for itself within five years through savings on dialysis treatments and complications of the disease. Kidney transplantation is deemed by urologists to be the most cost-effective treatment for end-stage kidney disease. Medicare, the single most important payer, currently pays for more than 90% of all kidney transplants performed each year. The majority of private insurers cover heart, kidney, liver, skin, and cornea transplantation.

Diagnostic and monitoring products also have an important role to play in transplant patient management. For example, the potential U.S. market for transplant cytomegalovirus (CMV) monitoring tests alone is estimated at $20 million—$25 million. Antirejection drugs represent an annual U.S. market of more than $1 billion.

Information Technologies

Healthcare information systems (HIS) represent another lucrative medical technology market for the future. The U.S. market for these products—including patient care, clinical data, financial, laboratory, radiology, pharmacy, and other segments—is valued at more than $4 billion. Issues such as year-2000 conversion, increasing demand for point-of-care (POC) information, and the proliferation of Internet use represent new challenges as well as opportunities for the medical products industry.

Internet-based electronic commerce (e-commerce) will have far-reaching implications for medical device manufacturers and providers alike, forever changing the way they communicate and interact. The HIS market is part of the total consumer and business-to-business e-commerce market, which totaled approximately $22 billion in 1998 and will grow to around $350 billion by 2002. This explosive growth represents a global "cyber mall" that gains new stores and shoppers daily.

The increased reliance on information technology (IT) from a clinical perspective is being driven, first and foremost, by the need to provide remote access to diagnostic information and patient records. This can be explained by the ongoing reorganization of the U.S. healthcare system from stand-alone acute-care sites to multifaceted integrated networks that operate across the entire spectrum of inpatient and ambulatory care. Many of these networks represent virtually integrated systems—in essence independent entities that have common quality and cost goals and are tied together via information systems. Extending diagnostic services to caregivers in remote locations (that are part of an integrated health delivery network) and providing caregivers with remote access to patient records are highly valued by clinicians and other caregivers. Remote access is also the major driver that increases providers' reliance on IT.

Stroke Management

Stroke diagnosis and treatment is a field in dire need of cost-effective technology, as the incidence of this disorder and treatment costs continue to grow. Stroke is the third leading cause of death in the United States (after heart disease and cancer) and is the leading cause of long-term disability and nursing home admissions. The direct clinical and indirect economic costs of stroke are estimated at about $43 billion. This is considerably greater than the $23 billion—$30 billion cost estimates released just two years ago. Worldwide, total stroke management costs are estimated at more than $100 billion.

The staggering cost of stroke rehabilitative care—up to 40% of victims are left with moderate to severe disabilities—is necessarily focusing much of the current clinical research and technology development on ways to prevent the disease. However, there is also a keen interest in optimizing the acute treatment of stroke to improve patient outcomes and reduce morbidity and long-term disabilities. Devices that fall into the stroke prevention and acute-treatment categories—such as implantable atrial pacemakers and defibrillators, carotid stents, least-invasive clot removal/dissolution devices (for ischemic stroke), and novel embolization products (for hemorrhagic stroke)—are likely to have the greatest long-term potential.

The U.S. market for stroke prevention and acute-treatment devices could potentially reach at least $2 billion. Up to one-third of this potential could be realized within the next five years (depending on technology approval), resulting in a global market of approximately $1 billion by 2005 (see Table III). This market growth assumes the use of improved and lower-cost diagnostics (e.g., imaging, clinical tests) to identify and confirm persons at risk of stroke.

Arrhythmia Management

The global arrhythmia management device market is also growing rapidly, as the world's population ages and the cost-effective diagnosis and management of heart rhythm disorders grows in importance. The total market for these devices (valued at about $4.5 billion in 1998) includes external manual and automated defibrillators ($450 million in worldwide sales), traditional bradycardia pacemakers (about a $2.5 billion global market in 1998, growing at about 5% per annum), and implantable cardioverter defibrillators to treat tachycardias and various forms of fibrillation ($1.3 billion, with 25% annual growth). Electrophysiology and catheter ablation products represented about a $250 million market in 1998, growing at 12–15% per year.

Wound-Care Products

The U.S. wound-care market is a $3.7 billion industry dominated by surgical sutures and staples and conventional bandages and dressings. While these conventional products will continue to generate the majority of sales for the foreseeable future, their growth rate is rather low (see Figure 1).

Figure 1. Estimated 1998 U.S. wound management market. Category of "other products" includes artificial skin and skin replacements, scar therapy products, and pharmaceuticals (excludes sealants, growth factors, and other biotechnology products). Source: Medical Data International.

Recent advances in biotechnology, biomaterials, and tissue engineering are driving the development of a new generation of advanced products that, although hardly on the map today, may dominate wound management early in the next century. The wound-care community has been frustrated for years by a lack of effective treatment options for chronic wounds and by the high cost of care for these patients, who often require a year or more of expensive, weekly outpatient visits before their condition improves.

New product manufacturers hope to capitalize on these concerns by offering products designed to improve healing rates, and in some cases even to prevent wound formation in high-risk patients. New products include bioengineered artificial skin, biosynthetic dressings, wound healing devices, and genetically engineered topical drugs. The stage is already set for the rapid adoption of wound-care products with proven outcomes that can easily fit into the growing number of cost-based disease management programs being initiated by providers for their patients with chronic wounds.

This trend toward cost-effective, highly managed care places a strong emphasis on prevention and early intervention, an emphasis that is expected to continue to sweep the wound-care community in the years ahead. Sales of advanced-technology wound-healing products, including drugs, totaled less than $50 million last year, but this is expected to change dramatically in the years ahead, provided clinical outcomes are positive and products can demonstrate cost-savings potential. Artificial skin sales will be central to realizing this opportunity.

Tracy A. Schaaf is managing editor of MedPro Month at Medical Data International (Santa Ana, CA), a business knowledge company serving the information needs of executives in the medical device and diagnostics industries.

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