US MARKET
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Finding the next blockbuster
Soaring industry growth rates between 1990 and 2005 meant that there was no shortage of funding for new product development and ideas. However, all the new technologies with higher prices compounded costs for payers. Since 2000, it is believed health insurance premiums have increased by 87%, which far exceeds general inflation. As those costs were passed on to corporate America, health care costs began to affect profit margins, more so than most production costs. Recently, this backlash has led the industry to witness next generation technologies that are rushed to market, only to receive a tepid response from customers and limited market adoption after product launch. Has the industry reached saturation point? This question is weighing heavily on the minds of manufacturers as they develop their business plans for the next 10 years.
Reasons for a market slump
Listening to investors instead of customers results in market slump. During the past twenty years the health care industry has witnessed astronomical growth, making it one of the most profitable and robust industries in the United States (US). While other sectors have been prone to recession and fluctuations in demand, in the health care industry there has been a confluence of some of the most innovative advancements in technology and surging patient demand, which has created an environment of unlimited potential. Each year financial analysts continued to raise their estimates, and each year the industry continued to surpass those lofty expectations. Companies in turn based their planning and expectations for revenue on those financial experts, instead of a more scientific clinical market valuation.
Heightened competition from generics and low cost providers, expiring patents, weak product pipelines, a changing regulatory environment and restrictions in reimbursement have all culminated in a breaking point for an industry showing its first signs of weakness. The Wall Street analysts whose positive praise propelled industry investment, have now curbed investment with their tempered market projections.
In the US medical device industry, the two largest segments are orthopaedic and cardiovascular products, sales accounting for 30% and 19% of industry revenues, respectively. The two products that account for the majority of cardiovascular device sales are implantable cardioverter defibrillators and drug eluting stents. Both markets, which had been viewed as being nearly limitless, have stalled over the past two years. Issues such as clinical trials that question the clinical or cost efficiencies of a new treatment over the current approach, product recalls and market consolidation have crippled a number of product sectors. In many cases these market events have led to several questions regarding the fate of the industry. Will revenues continue to stagnate or are there opportunities to revive growth? Are manufacturers developing products that have prices that far exceed what customers are willing or able to spend?
It may be impossible to say which specific product will be the next major blockbuster to recharge growth, yet it is possible to identify the factors that will influence the rise of such a product. The market trends that will affect next generation products are defined below.
Patients want their lives back
The primary goal of the health care industry has always been to save lives. In the past, patients who survived a life threatening trauma were generally resigned to accept disability as a compromise for their survival. Moving forward, the industry has increasingly shifted its attention to a mantra of quality of life. Quality of life products account for a significant allocation of research resources for the industry and represent some of the most promising product pipelines.
The baby boom generation has been the focus for the majority of heath care companies for years. This group is characterised as being more active than previous generations at the same age, with deeper pockets at the time of retirement and a more demanding perception of health care. It is looking for treatment solutions that enable and enhance an active lifestyle.
This growing trend is evident in the development of next generation orthopaedic products. Artificial ankles, knees and hips that merely provide support are no longer sufficient. Improved flexibility, advances in material and surface design and polymer drug matrices to stimulate healing are among the advances in technology enabling creative product offerings.
Where do industry experts believe payment will come for these products that are a “nice to have,” but not necessarily critical? These products are not expected to gain universal adoption, but will be designed for a high end clientele with premium insurance carriers or for those who are willing to pay from their own pocket. Analysts believe there is a changing market dynamic, whereby Americans are more accepting of spending disposable income on health care technologies.
Technologies designed with restoration and recovery in mind will be a significant influencer in adoption of new technologies.
Enabling doctors
The practice of medicine is a complicated science where certain symptoms can have a countless number of causes. Clinicians are interested in devices that can give them greater confidence in their diagnosis. Any refinement of procedures or devices that can expedite the time a doctor is able to give to a patient without sacrificing accuracy or thoroughness will be seen as a significant advancement.
Personality profiling
Understanding the customer, including his/her likes and dislikes, is essential for marketing any product. In the health care industry the direct user and beneficiary of products is not necessarily the decision maker. Knowledge of who has the majority of influence on product selection can help to determine the types of technologies that will thrive in that market. This is well recognised, but what is often ignored is the identification of the personality profiles among clinical specialists. Doctors, surgeons and different specialists each represent subgroups of the clinical community. Although each individual has his/her own personality, it can be assumed for the most part that the individual has selected that speciality because of a specific challenge or lifestyle. Specialities that are well known for employing innovative gadgets and technology are typically more active in identifying and learning about new devices. Conversely, the specialists who prefer a more traditional approach are more resistant to change.
Often, manufacturers with an innovative product idea move forward on the recommendation of a select few clinicians and fail to understand the wider clinical perspective. These select few who serve as advisors or members of a company’s executive board can often misguide the true market value of a new technology. That is not to say the device is faulty or even that their advice does not have value. Early customer research from a wide sampling of clinicians is essential in the design and scoping of any product.
It is good that the patient knows more
The information age provides patients with access to the majority of sources of information on the latest clinical procedures on which medical professionals rely. Having information on the latest technologies arms patients with the ability to conduct open discussions with their doctors. Aggressive direct to consumer marketing, although a contentious issue in the industry, when utilised correctly, it helps patients understand the full range of available treatment options. In the past, patients may have only been informed of the procedures and treatments that their health care facility was equipped to perform. If patients start flocking to the health centre in another town because it performs a new procedure, then the hospital without those resources is at a significant competitive disadvantage. This means manufacturers can utilise patients to instigate market adoption of new forms of therapy.
There is also a negative side to the information age for manufacturers. Patients and doctors can quickly respond to sensational news items such as a device recall or failure. In those cases, massive declines in usage can occur within a short period, even before the industry is able to provide a well developed rebuttal.
Understanding the delicate difference between overzealous marketing and solid research based information allows manufacturers to reach patients without raising the ire of clinicians.
Is the product a luxury or a necessity?
Limitations in reimbursement spending require that manufacturers ask questions about where their device fits in the clinical landscape. From a clinical standpoint there are essentially three types of products: those that are a luxury, accessories, and those that are a necessity. Each category has its benefits and drawbacks and it is important to consider these issues before initiating the launch of a new product line.
Luxury items are expensive equipment or product features that offer noticeable advantages over standard forms of treatment. That is not to say that there is not a significant market for these products. They have core niche applications and when targeted at the right consumer they can be among the most profitable sectors of the industry.
Accessory products bolster or enhance an existing core clinical approach. As that therapeutic approach continues to grow in prominence, so do sales of its accessories. Manufacturers are able to quickly adapt to the market and develop profitable products without the high overhead research costs associated with introducing a new form of therapy.
Products that can be classified as necessities are self explanatory. Any device, regardless of cost that is able to vastly improve clinical outcomes over previous forms of treatment will undoubtedly force market adoption. As necessities, these products almost dictate that reimbursement is provided. The main challenge in developing products at this level is being able to markedly prove a vast clinical benefit over alternate approaches.
Endless combinations for the future
Companies need to make themselves aware of the features that will best serve the market in six to seven years time. For example, the market has no need for another drug eluting metallic stent, but it is curious about the applicability of biodegradable stents. Because of the accelerating influx of patients, time constraints and the tightening controls on reimbursement dollars, the health care industry is facing a great challenges. Being able to design solutions that maximise the number of patients they can treat with clinical and cost-effectiveness are the most sought after approaches.
There are still a great number of opportunities for the forward thinking. As the industry shifts its focus from rehabilitation to prevention, the landscape for the industry is poised to significantly evolve during the next 20 years. Integration of technologies such as information systems, imaging, pharmaceuticals, devices and diagnostic tools provide an endless possibility of combinations. The total number of dollars the health care industry has available to spend may not be changing drastically, but the types of technologies and therapies they wish to spend those dollars on will be.
Venkat Rajan is Industry Manager Medical Devices at Frost & Sullivan, 400 San Antonio, Texas 78229, USA, tel. +1 210 247 2427, e-mail: venkat.rajan@frost.com, www.frost.com.
To read the full length unabridged version of this article, go to Medical Device Technology’s website: www.devicelink.com/mdt.
