BBI Executive Editor
NEW YORK – The medical device industry's outlook for 2000 is built on existing large technology platforms that have proven themselves in the marketplace, but new technologies are emerging that will energize the sector in both the near and longer terms.
That was the outlook espoused by the medical technology analyst team at U.S. Bancorp Piper Jaffray, which held its 12th annual health care conference at The Pierre hotel early last month. The annual gathering is the largest such presentation of a largely medical technology nature, with about 120 device, health care services and biotech companies participating.
Thomas Gunderson, Piper Jaffray senior medical technology analyst, said the sector's short-term outlook involves continuing to work from ongoing big platforms – coronary stents and implantable defibrillators among them – plus a variety of technologies promulgated by what he termed "one trick ponies," such as refractive ophthalmic surgery, arterial puncture closure and certain diagnostic tests. Gunderson also cited emerging near-term platforms in peripheral stenting, plus longer-term new platforms in congestive heart failure, atrial fibrillation, orthobiologics, and neurological and urological applications. He said they will start to impact the sector in 2001 and beyond.
Another key factor impacting the device sector in 2000 will be what he termed "the continuing slowdown at the FDA." The average time for approval of PMAs in 1999, for instance was 12.5 months, up from 12.4 months in the previous year, despite the fact that there were fewer PMA submissions last year than in 1998. "We consider the FDA to be in a stressed mode," Gunderson said, citing such factors as a new director of the Center for Devices and Radiological Health, the shifting of upper-level managers in other divisions and, in general, "too few people and too little budget." The hope is that the FDA will "return to normal by year-end," he said, but until then delays in the approval process "will continue to have a financial impact on device companies."
Managing director Archie Smith, whose focus at Piper Jaffray is on small-cap cardiovascular and diversified device companies, noted how well small-cap firms have been doing over the past several months. Through January "and measuring back to mid-1999, small-cap device companies showed growth of about 20%, compared to a decline of about 10% by large-caps."
Smith said the sector will continue to be marked by mergers-and-acquisition activity in 2000. This is an industry that is consolidating "at a blinding speed," he said, noting that deals done last year featured prices "among the richest ever paid." In such deal-making, "integration [of acquired companies] is still an issue," he said.
Also an issue is risk-taking from a technological perspective – or lack of it. "Big buyers [of smaller companies] are willing to leverage their marketing expertise, but almost nothing else," Smith said. "They don't want to take technology risks." So, as in the recent past, deals will hinge on new technologies buoyed by proven clinical results.
Scott Davidson, new to Piper Jaffray's medical technology analyst team, cited reimbursement issues as being "a big deal, both domestically and internationally." Some companies, he said, "are either going to live or die on reimbursement questions."
He also cited as a growing trend the blurring of the lines between drugs and devices, which has grown from general drug delivery to combined drug/device systems to the point where "single, indivisible products" are showing better clinical outcomes, as well as impacting corporate development priorities.
Interest in new technologies was reflected in substantial attendance by investors at during an afternoon of presentations by emerging private device companies at the Piper Jaffray gathering.
Those companies included:
Kyphon (Santa Clara, California). Gunderson minced no words in his introduction of Kyphon and its president and CEO, Richard Murdock, saying that this company's particular focus "may be the single biggest unmet need in orthopedics – perhaps in all of medical technology." Kyphon's area of emphasis is treatment of spinal fractures caused by osteoporosis, via what it calls the Spine system that facilitates a new procedure dubbed Kyphoplasty. The KyphX Inflatable Bone Tamp, already FDA-cleared, provides a minimally invasive way to treat such fractures through the use of inflatable balloons delivered inside compressed bones that, when deployed, move the outer bone and compress the inner bone, creating a cavity that can be filled with an as-yet-unspecified biomaterial. Upwards of 700,000 such vertebral compression factors occur each year in the U.S. That number climbs to perhaps 1.2 million when all other sites (hip, knee, etc.) are included, and increases to more than 3 million on a worldwide basis. Kyphon is conducting what it describes as "a controlled market launch" in the U.S. It plans a full launch of the KyphX system for the U.S. this year, along with a controlled launch in Europe.
PercuSurge (Sunnyvale, California). "There's a lot of talk about this [emboli protection] sector," said Gunderson, "and the name you hear most is PercuSurge." The company's GuardWire Emboli Containment system is designed to allow cardiologists to capture clots and plaque released during interventional procedures in saphenous vein grafts or carotid arteries, and in patients suffering acute myocardial infarction. The particles are removed using PercuSurge's aspiration catheter. CEO Peter Rule cited the company's ongoing development efforts, which he said will result in "a cascade of revenue-generating products" for the company over the next two-plus years. PercuSurge has a joint co-promotion alliance with Boston Scientific (Natick, Massachusetts) in high-risk carotid artery procedures in Europe.
IntraTherapeutics (St. Paul, Minnesota). Like PercuSurge, this company has been making a name for itself in certain device circles, and will have an eventful 2000, with CEO John Erb saying it will introduce seven new products this year. The company, Erb said, "is about designing specific stents for very specific applications." He called IntraTherapeutics "the only pure-play company in peripheral stents," with products that are commercialized "and a sales ramp that is growing rapidly." So rapidly, in fact, that Erb said the $11 million in revenues seen for fiscal 2000, ending March 31, are forecast to grow nearly three-fold to $31 million in FY2001.
VNUS Medical Technologies (Sunnyvale, California). CEO Brian Farley described his company as operating in "a really different market segment" than the lifesaving technologies that are the usual focus of cardiovascular firms. VNUS is directed toward the treatment of venous disease, and its Closure system and procedure offer an alternative to the surgical stripping of varicose veins. The Closure procedure, which received FDA approval in March 1999, is a less-invasive procedure featuring catheter delivery of RF energy to close the problem vein. It is done on an outpatient basis, with minimal recovery time, and stands in sharp contrast to the rigorous and long recovery time of traditional vein stripping. The potential market is substantial, with Farley noting there are more than 1 million vein stripping procedures done worldwide each year and 1.6 million persons seeking venous disease treatment in the U.S. annually, offering what he called "a population of patients who are very motivated." He too forecast sharp sales growth, from an estimated $2.9 million in 2000 to $11.8 million in 2001.
VascA (Tewksbury, Massachusetts). This company developed the LifeSite Dialysis Access system, which CEO Thomas Glover described as answering the complications from existing techniques, or "the highway to infection." The market in dialysis alone is in the range of $3 billion worldwide each year, he said, and the LifeSite access system, which is implanted in the chest, "greatly improves the quality of life for dialysis patients."