The medical device industry may be in an interesting era of both more innovation and regulation. With the upholding of the Patient Protection and Affordable Care Act, manufacturers will face a 2.3 percent excise tax on all devices they produce. This has some in the industry nervous about what will happen; others, including Bob Kinsella, president of Kinsella Group, think it could spur innovation.

1. Trends to Track in the Medical Device Industry
The medical device industry may be in an interesting era of both more innovation and regulation. With the upholding of the Patient Protection and
Affordable Care Act, manufacturers will face a 2.3 percent excise tax on all devices they produce. This has some in the industry nervous about what
will happen; others, including Bob Kinsella, president of Kinsella Group, think it could spur innovation.
Kinsella Group is a boutique investment bank that represents medical device contract manufacturers, branded product IP holders and marketers as
sellers and buyers. Here, Mr. Kinsella discusses nine trends he sees in the industry.
1. Focus on entrepreneurial manufacturers with FDA-approved products. There's been a shift away from internal new product
development in larger companies toward sourcing opportunities for new products from small entrepreneurial companies in the industry, Mr. Kinsella
says.
"Large companies are interested in products from smaller entrepreneurial manufacturers that are patented with FDA approval, reimbursement
established and clinical experience beyond that of the physician inventor," Mr. Kinsella says.
Smaller entrepreneurial companies aren't relying as much on sales to physicians who invented the device, Mr. Kinsella says.
He notes a comparison to what's happening in the medical device industry to what's been happening in pharmaceuticals: a trend toward
entrepreneurial development and reducing large companies' internal risks.
2. U.S.- Europe product introduction swap. European companies are interested in tapping into the U.S. medical device market, Mr. Kinsella
says. The regulatory process is less strenuous in Europe and many companies seek approval there before beginning the process in the United States,
even if the company is based in the U.S.
"We see smaller U.S. companies with innovative products going to Europe to get easier to obtain "CE mark" approval and generating clinical
experience in Europe prior to seeking US FDA clearance, " Mr. Kinsella says. "Smaller companies products gaining regulatory approval and market
acceptance in Europe will have enhanced prospects for approval and reimbursement in the US."
Mr. Kinsella says he sees larger companies are increasingly interested in products with clinical experience, FDA approval and patents, and that U.S.
companies going over to Europe could help the U.S. medical device market.
"We think this is going to help provide continued flow of new products into larger U.S. companies who will in turn distribute the acquired products in the
US and abroad," he says.
3. China emerging as a medical device player. There is an expanding market for medical devices in China. Chinese companies are acquiring
FDA-approved products to bring back to China and sell. They may also be manufacturing products to introduce in the U.S, particularly medical
diagnostic equipment, or acquiring U.S. manufacturing "know how" to help increase the quality of their production in China for Chinese and other
developing market distribution, according to Mr. Kinsella.
"Some medical device manufacturers in China are interested in gaining a foothold in the U.S.," Mr. Kinsella says. "I think this will increase competition
for the acquisition of US contract manufacturing operations, as well as the orthopedic and spinal branded product IP holders and marketers."
He notes several examples of Chinese manufacturers acquiring U.S. manufacturers and says the influx of Chinese companies in the medical device
industry brings about the realization of a global medical device market.
"I'm not persuaded that we will see orthopedic implants imported on a large scale from China into the US, but I think we will see Chinese business
acquirers increasingly coming into Europe and the U.S to make company and product line acquisitions," he says.
4. Brazil medical device market attractive to U.S. and European device makers. Brazil has been a surprise market over the past few
years, becoming a bigger player to the worldwide device industry. "We're hearing a lot of interest in Brazil," Mr. Kinsella says. "It seems that major
companies have recognized the country as welcome market for orthopedic and spine products. There is a significant interest on the part of large
companies to acquire smaller U.S. manufacturers who have made an effort to get approval and distribution in Brazil."
However, companies may want to tread lightly when working on device approval in Brazil or other countries. Earlier this year, medical
manufacturer Biomet had to pay more than $22 million for bribing government-employed physicians in Brazil, Argentina and China.
5. Government interest in physician- owned distributors. Mr. Kinsella says ambulatory surgery centers and independent surgeons may want
to keep tabs on the Government’s interest in PODs.
"There's some $500 million in implant revenues that flow through PODs and some observers insist some PODs may be partaking in illegal distribution
under Stark Laws," he says.
While Mr. Kinsella acknowledges they are perfectly legal entities — as with any business, there are right and wrong ways to go about running PODs —
he says a lot of highly placed industry observers are having doubts about some PODs.
"If I were running an ASC, I'd be very careful about how much of my business was going through PODs," Mr. Kinsella says. "Those distributorships
could be in jeopardy given the regulatory climate in Washington."
6. Medical device volume will increase. With the Patient Protection and Affordable Care Act providing for insurance coverage for millions of
more Americans, the volume of medical devices is bound to go up, Mr. Kinsella says. Even if Mitt Romney is elected and repeals the healthcare law,
the direction has been set: there will be more people who have access to traditional healthcare services than have had access in the past, according to
Mr. Kinsella.
7. Medical device manufacturers may feel a squeeze but may innovate. While the volume of medical devices being sold will likely
increase, budget constraints and additional taxes may have device manufacturers feeling in a bit of a squeeze. The American Economic forum predicts
the 2.3 percent medical device tax, written into law in the PPACA, will strip the medical device industry of thousands of jobs.
Mr. Kinsella doesn't dispute that. However, he predicts the tax and budget constraints may usher in an era of greater efficiency and even spur
innovation.
"We all know the medical device industry provides products for use by very smart people — physicians and surgeons," Mr. Kinsella says. "They are
creative and come up with new ideas. That's why this is industry is so exciting. I believe the pressures brought by the device tax and budget will spur
innovation and products that provide greater benefits to patients."
He adds that more innovative products that are less invasive, decrease time spent in hospital or reduce readmissions and recovery times will reduce
the overall cost of medical care.
8. Generics are becoming more popular. Some in the medical device industry feel that generic products, such as generic hips and knees, won't
be sold legitimately by major companies for many years; Mr. Kinsella disagrees.
"I think there's going to be pressure which will move generics more quickly along a timeline of introduction into the industry," he says.

2. He adds that generic medical devices could save ASCs, hospitals, insurers and the government a lot of money. While generics require an appropriate
regulatory and compliance infrastructure as well as product liability insurance coverage they do not require the expensive sales and distribution models
now employed by the major providers of branded products resulting in lower average selling prices for the generics.
He predicts major companies will look at generics as a result of the PPACA and major reforms in the industry. While surgeons may maintain loyalties to
certain sales representatives and their products an increasing percentage of surgeons are becoming hospital employees yielding purchasing decisions
to hospital administrators more concerned with costs than surgeon loyalties.
9. Continued emergence of products for minimally invasive surgery. "This has been a trend that has broad applications." Mr. Kinsella says.
He predicts minimally invasive techniques will continue to gain acceptance in orthopedics and other areas of surgery. In turn, the medical device
industry will create products tailored to what's need for minimally invasive procedures.
"When we talk to surgeons about this, we're seeing an increasing interest in and acceptance of MIS procedures," Mr. Kinsella says.
The U.S. market for spinal implants is projected to reach $7.6 billion by 2018, and the market for minimally invasive spinal devices may top $2.6 billion
by 2018, according to projections from Research and Markets.
Source : DeviceResearch..
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