• SERVICES
  • INDUSTRIES
  • PERSPECTIVES
  • ABOUT

    • Who We Are

      We support businesses in their strategic decisions on growth and optimization

      Who We Are

    • Connect With Us

      let’s connect to discuss how we could support your intelligence needs

      Contact

    • Work With EOS

      We are researchers – curious, knowledge-hungry, and eager to solve problems

      Work With Us
  • Search
  • ENGAGE

MEDICAL DEVICES

Home MEDICAL DEVICES Page 2

by EOS Intelligence EOS Intelligence No Comments

EU New Medical Device Regulations: Cause of Ache for Medical Device Players

953views

Circling around patient care and improving overall healthcare services, the European Parliament has set new requirements for medical device and in vitro diagnostic manufacturers that distribute products in the EU. However, medical device manufacturers have realized that they are bound to face many challenges in order to make their products market-ready, not to forget the gigantic task of implementing new protocols in a timely manner, which will not be easy.

Need for a comprehensive updated medical device regulatory system

EU’s Medical Device Regulation (MDR) and In Vitro Diagnostic Medical Devices Regulation (IVDR) were made official in May 2017, with transition period of three years (fully applicable from May 26, 2020) for the former and five years (fully applicable from May 26, 2022) for the latter. These regulations will replace EU’s previous directives: Medical Device Directive (MDD), Active Implantable Medical Devices Directive (AIMDD), and In Vitro Diagnostic Directive (IVDD).

The need for new regulations of medical devices in EU arose from the growing demand for technologically advanced medical products which necessitated more stringent monitoring of these devices to ensure a high level of efficacy and safety among patients.

Unlike earlier version of the regulations where the main focus revolved around the pre-approval stage of medical device manufacturing, the new regulatory guidelines promote an overall product-life cycle approach, focusing on both device safety and performance.

Enhanced supervision, easy documentation of devices, more stringent clinical evidence requirement, and increased supervision on part of authorities providing medical device certifications are some of the key changes in MDR as compared to the EU’s previous directives.

Bumpy road ahead for medical device manufacturers

Reclassifying existing product line-up

Based on the risk factor, changes have been made to the way medical devices are classified. Under MDR, the number of classification rules has expanded from 18 to 22 intensifying the task of product re-classifications by the manufacturer.

For instance, products using software for monitoring purposes being implanted in the body has been reclassified to higher-risk class (from Class I to Class III) which would now require conformity assessment by a notified body (NB – an organization that assess the conformity of medical devices before they are placed on the market), unlike earlier, when Class I products did not require assessment via a NB. This is going to burden players with increased operational costs; thus, it is imperative that the manufacturers familiarize themselves with the classification changes and study the impact on their product portfolio.

New products are also being added to the list of medical devices that earlier were not part of the medical device regulatory framework. For instance, products manufactured utilizing human tissues or cells and devices incorporating nanomaterial, under new regulations, will be considered medical devices. Manufacturers of such products have work cut out for them – from conducting clinical investigations, preparing technical documentation and evaluation processes, to product certification. Though such products could only form a very small percentage of the company’s product range, the task to make them available in the market is great, especially under current circumstances.

Manufacturers who do not comply with the new regulations will no longer be able to market their products in Europe. Thus, a robust strategy in terms of resource allocation, time management, and budget is an absolute must for manufacturers to make this transition possible.

EU MDR Cause of Ache for Medical Device Players - EOS Intelligence

Distress over notified bodies

Strict parameters are also being applied on NBs. Since all devices will require new certification from a NB, only designated NBs will be able to certify a device. The designation process is a complex procedure as it involves audits and corrective actions (once a NB expresses interest). However, while the medical device manufacturers have been in the process of switching to newer protocols since mid-2017, the first designated NB (BSI United Kingdom, the national standards body of the UK) was announced in January, 2019, almost 18 months after the regulations were announced and 14 months into the formally started designation process.

Such time-consuming process raises concern among medical device companies about the ability to complete the necessary conformity assessments within the allotted time. The huge task of recertifying medical devices with only a handful of designated NBs is a cause of worry for companies, as it could potentially result in significant backlogs as the last date approaches. However, there is only so much companies can do – even though they are proactive to comply with the new regulations much ahead of the deadline, poor process planning and lack of supporting bodies (notified bodies in this case) results in a long halt for these players.

The companies are heavily dependent on NBs for auditing and product certification, and the insufficient number of designated bodies adds to the risk of many devices being non-compliant according to new regulations. As of May 2019, less than 40 NBs have filed application for designation procedure (out of 58 designated NBs under the directives); only two have actually received a designated status – BSI UK and Germany based TÜV SÜD Product Service GmbH Zertifizierstellen (certification received in May 2019). With very little time at hand to reassess and rectify issues (if any), this could jeopardize the product availability in the market, resulting in not only risking the patients’ life (due to non-availability) but also in huge financial losses for the players.

Detailed clinical evaluation of medical devices

Owing to reclassification of product categories, many devices will require changes to their existing clinical evaluation reports, another challenge for medical device manufacturers. Manufacturers that have not previously been required to perform clinical testing will have to do so now. For instance, mechanical heart valve sizers will be moved up from Class I to Class III, and unlike in MDD where clinical evaluation was based on literature analysis, new evaluation of valve sizers will require clinical investigation. This will require a huge deal of additional time, money, and expertise, further burdening the device manufacturers.

Medical devices already in the market that remain untouched by the reclassification criteria will still require reassessment of clinical data. If the data do not meet the new requirements, devices will need to undergo additional testing to be recertified, increasing the expense for manufacturers.

MDR also calls for inclusion of risk management within the clinical evaluation expecting clinical risks to be addressed in clinical investigations and evaluation studies – adding another task to the long list of activities to be accomplished before MDR fully rolls out.

Explore our other Perspectives on medical devices markets

Comprehensive demonstration of equivalence data

Unlike MDD, where device manufacturers were able to use clinical data of an equivalent device for their own product registration, under MDR, equivalence is going to be less accepted, particularly for higher risk devices.

There are two ways out – manufacturers can either conduct their own trials not having to deal with the equivalence commotion or they can demonstrate that they have access to the equivalent device (with respect to technical and clinical properties) data. The latter is highly unlikely to happen considering equivalent device would typically belong to a competitor unwilling to grant such access. Thus, with stern requirements for comparative evaluations, more effort, planning, money, and resources will be needed for device manufacturers to demonstrate product safety and performance.

As new medical devices are developed, multiple small incremental improvements (minor changes in design, addition or subtraction of small hardware parts such as bolts or screws) happen over time. Once the device is already in the market, it is practically impossible to conduct a re-trial to gain approval for such small changes. An expected solution to this would be a provision to accept such minor changes through pre-clinical evidence or prior trial results. However, with equivalence testing being reduced drastically under MDR, unless a solution for such cases is offered, manufacturers will have to conduct re-trial and re-document everything, which would result in significantly increased cost. Another issue that could arise from such situations is the reduction in R&D activities inclined towards product improvement.

Trouble galore for SME’s

While making amendments and prioritizing to comply with new regulations seems to be the top most priority for medical and diagnostic device manufacturers, it seems SMEs will be dramatically more impacted than large players – in Europe, a small-sized company employs less than 50 people and has a turnover of less than or equal to €10 million while a medium-sized company employs less than 250 people and has a turnover of less than or equal to €50 million. Owing to the increase in cost, time, and resources associated with the process, the new regulations may put smaller companies under pressure, possibly resulting in altering (such as merging with or being acquired by larger companies) the European medical device market structure, currently dominated by SMEs – there are nearly 27,000 medical technology companies in EU, 95% of which are SMEs.

SMEs also need to be more vigilant when it comes to being associated with a designated NB as not all currently functioning NBs are expected to get a designated status. With their already dwindling numbers married with an increased demand for their services, once the new regulations roll out, it is quite possible that small manufacturers are orphaned since NBs could be partial towards larger players and prioritize them over other small and medium players.

Smaller players will not only have to hire additional personnel for dealing with regulatory issues but also employ clinical trials specialists (for documenting insights to be presented and approved by the NB) for launching products in the market which means higher costs. Adjusting budgets to keep costs under control would hamper other critical business operations, e.g. reduce R&D activities or cut the number of products being launched in the market.

As a step to overcome these issues, players with limited financial resources should strategically study their product portfolio to determine which products are worth investing in for MDR compliance. For doing this, they should lay out a detailed plan for each product and decide whether to remediate, transition, or divest.

It is also advised that SMEs should devise a clear step-by-step approach plan to ensure compliance. As an alternative to hiring transition specialists, they could engage employees from various functions within the organization to take responsibility for specific processes thus keeping costs in check.

EOS Perspective

The changes and revisions required to be carried out under MDR are company-wide and require significant investment to plan and execute. This will lead to players devising a business strategy based on assessing risk associated with product portfolio (whether some products need to be pulled out from the market and what effect it would have on future revenue) or looking for acquisition partners. Based on these decisions, the medical device market topography in EU is expected to see some major changes in the coming years – small companies looking for partners to get acquired or for new partnership with a service provider (specializing in regulations compliance). This will also result in organizational restructuring, revamping design processes, and systems implementation.

Companies have to make crucial decisions around the product portfolio. For some of the already existing products, if reclassified, the cost of compliance could be much higher than actual market returns. In such cases, manufacturers may be compelled to pull away such products from the market resulting in high healthcare costs and ultimately burdening the patients, who (theoretically) form the center point of the MDR. Though this is unlikely to happen at a large scale, since there are always alternative products available, it cannot be denied that this may be a major loophole in MDR requiring immediate attention.

Since SMEs drive the EU medical device market, as an immediate consequence, MDR is not likely to have any positive effect on these players other than distorting their business operations. However, it can only be anticipated that, with time, MDR may adapt and amend to offer some relaxation in provisions especially for small and medium-sized players. Nonetheless, MDR also brings an opportunity for such players to audit their current offerings and come out with an enhanced product portfolio, which could be an opportunity to be capitalized on in the distant future.

Modifications being made in the functioning of NBs are also likely to have an impact on the device manufacturers. For high risk devices, manufacturers may expect deeper scrutiny of design records and data files leading to providing more credentials, in case any query arises. This, along with long wait time for product review (due to reduction in the number of designated NBs) and limited availability of resources (again on account of NBs), could lead to unknown delays for obtaining product re-certification. Thus, companies need to chalk out their market strategies very effectively and be prepared to address any concern that rises during product reviews.

The aim of implementing new regulations is to bring a transparent and robust regulatory framework for medical devices. However, there is no assurance that the new regulations are completely accurate and will apply seamlessly to live case scenarios. Therefore, once implemented, there is a possibility that MDR may see revisions in the initial months of coming into action.

These changes, though certainly positive from a healthcare point of view, are enormous. Transitioning to meet the new standards within the stipulated time frame is challenging for manufacturers. Not adapting to the changes is not a choice for manufacturers as non-compliance could result in losing license to operate in the EU market. And for players fearing stringent scrutiny in the future, operating in the European healthcare market will not be easy once the new regulations come into force.

Surgical Robots – Marrying Cost-efficiency and Innovation
by EOS Intelligence EOS Intelligence No Comments

Surgical Robots – Marrying Cost-efficiency and Innovation

2.4kviews

Robotic-assisted surgeries, being minimally invasive, have been an excellent alternative for conventional open surgeries for quite some time now. Surgical robots use small incisions with broader 3D visualization of the operating area and precision-guided wrist movements. Players in the industry aim to develop solutions that combine medical device technology with robotic systems to provide patients with rapid post-surgery healing and reduced trauma. As surgeons perform an increasing number of procedures worldwide using these robots, the surgical robots market is growing along with the popularity of minimal-invasive surgeries.

Robotic-assisted surgeries have been rapidly adopted by hospitals in the USA, especially since 2000, when the Food and Drug Administration (FDA) approved the da Vinci Surgery System by Intuitive Surgical for general laparoscopic surgeries.

The system excelled its predecessors, such as PUMA 560 robotic surgical arm, which was used for non-laparoscopic surgeries in the late 1980s, by its 3D magnified high-resolution imaging and one centimeter diameter surgical arms to move freely inside the operating area.

These and other variants of surgical robots started to enter the market, enabling surgeons to operate complex minimally-invasive surgeries with improved precision, superior operative ergonomics, enhanced adroitness, and visualization compared to traditional laparoscopy.

Surgical Robots – Marrying Cost-efficiency and Innovation - EOS Intelligence

Robotics adoption focused on selected specialties

Even though robotic surgeries have been performed for quite some time, are still in the early stages of adoption in surgeries.

The adoption rate of robotic systems is uneven across various specialties with most robotic surgeries being performed in urology, gynecology, and general specialties. These fields also enjoy the fastest rate of adoption, example of which has been found in a 2017 study, in which researchers at Stanford University School of Medicine (California) analyzed data compiled by 416 hospitals on kidney removal procedures from 2013 to 2015. According to the study, robotic-assisted surgeries accounted for just 1.5% of all kidney removal surgeries in 2013, ration that increased to 27% by 2015.

Competition strengthens, challenges the market leader

In 2017, according to international market research and consulting firm, iData Research, surgical robotic systems market was valued over US$2.4 billion with over 693,000 robotic-assisted procedures performed in the USA alone. US-based Intuitive Surgical has long dominated the robotic surgery market with more than 4,800 da Vinci units installed around the globe, and approximately 877,000 surgical procedures performed with the da Vinci Surgical System in 2017. Intuitives’ da Vinci System is the only surgical robotic system which has been approved by FDA for various surgeries in gynecology, urology, cardiothoracic, thoracoscopic, and general surgeries.

In comparison, Intuitive’s competitor TransEntrix’s Sehnhance Robotic Surgical system received a nod from FDA in 2017 specifically for inguinal hernia and gall bladder removal laparoscopic surgeries, while also in the same year a robotic system for spinal surgeries, Mazor X by Mazor Robotics received FDA clearance.

Though Intuitive Surgical is the market leader, other players are not far from getting their products FDA-approved, a fact that has the potential to affect Intuitives’ leadership position.

Cost remains the main challenge for adoption

One major challenge for the robotic systems manufacturers is to convince hospitals to purchase their systems costing millions. For instance, a single da Vinci Surgical System costs around US$0.5 million to US$2.5 million, with additional disposable instruments whose costs range from US$700 to US$3,500 per procedure. Apart from the initial cost, there are other associated costs such as installation, service, and training fees that a hospital has to bear.

Players in this market started to realize that in order to strengthen their position and competitiveness, cost-effectiveness of their systems is the key requirement. Recently, several companies have increased their focus on developing cost-effective surgical robots, attempting not to compromise system’s performance.

Players in this market started to realize that in order to strengthen their position and competitiveness, cost-effectiveness of their systems is the key requirement

Examples of products competing on cost-effectiveness include Titan Medical’s SPORT surgical robotic system that is designed to perform various surgeries such as gynecology, urology, and general surgeries. At the outset, the system costs approximately US$0.95 million (da Vinci: ~US$1.8 million). Further the company claims the robotic system is cost-effective by driving down annual service and per procedure cost by increasing the number of times its disposable and reusable components can be used for various surgeries.

The market leader, Intuitive, also understands the costs pressures and has already established its presence with its low-cost robotic surgical system, da Vinci X, that costs approximately US$1.42 million, which is around US$780,000 cheaper as compared with Intuitive’s most advanced surgical robotic system da Vinci Xi which comes at a price of around US$2.2 million.

Other players are also entering the space, with Alphabet (Google) partnering with Ethicon (a subsidiary of Johnson and Johnson) to manufacture lower-cost surgical robot, planning to introduce it into the market by 2020.

Hospitals’ limited budgets trigger simpler products development

Considering that cost burden is the key challenge to robotics adoption even in large healthcare institutions, small hospitals are generally completely outside of the potential customer base, due to far lower budgets they have to work with.

At the same time, small hospitals feel the pressure to retain surgical patients, and in that they often want to turn to robot-assisted laparoscopic surgeries. As a result of this need paired with limited budgets, certain low-cost substitutes start to arrive to the market, at times indirectly challenging systems offered by the leading players in this area.

Examples of this include Olympus’ ENDOEYE FLEX 3D camera system and FlexDex, tools used for minimally invasive surgeries that allow for wristed-laparoscopy, giving robot-like dexterity without computers and no annual maintenance services.

According to a case presented at SAGES’ World Congress of Endoscopic Surgery in 2018 by Dr. Kent Bowden from Munson Cadillac Hospital, USA, contribution margin (portion of hospital revenue remaining after the variable cost to pay off hospital salaries, service contract, and other fixed costs) for a ventral hernia using da Vinci was US$ 8 per procedure while when using FlexDex it was US$2,605. For an inguinal hernia the contribution margin using da Vinci ranged from US$596 to US$698 whereas by using FlexDex, hospital contribution margin increased to US$1,601-US$1,115 per procedure.

Another example of such a substitute system is the FreeHand robotic arm produced by UK’s OR Productivity. FreeHand is a system that allows the surgeon to hold and control the laparoscope using his own head movements and a foot pedal. The system was developed to provide a range of benefits (stable image, reduced staff count, high precision) at an affordable installation and running cost. The producer promises a fixed per-procedure cost, whose rough estimation points to around US$197 per procedure (unachievable for procedures conducted with advanced systems).

It is clear that these simpler systems are not able to fully replace the higher-end products. However, these substitutes claim to be dexterous, cost-effective robotic solutions sufficient for certain procedures, thus can be perceived as an alternative (and competition) to expensive robots in some cases.

These substitutes claim to be dexterous, cost-effective robotic solutions sufficient for certain procedures, thus can be perceived as an alternative (and competition) to expensive robots in some cases

Robotic surgeries offer many advantages both for surgeons and patients, however, the equipment comes with certain challenges and limitations, which, apart from cost, include increased operating time in some cases, lack of tactile feeling for the surgeon, large space requirement, and long set-up time required for the robotic system. Having said that, cost-effectiveness is (and will continue to be) the main challenge players face while developing and marketing their systems.

EOS Perspective

Advancements in surgical robots are emerging by adding intelligence into the robotic systems with refined haptic feedback and versatility in robots’ arms. Companies are diving deep in this industry by improving their products and coming up with next-generation surgical robotic systems that could perform different types of minimally invasive surgeries.

Nevertheless, huge investment is needed for development of advanced and multi-skilled robots. Gaining investment for such projects is difficult, hence for the time being, it can be expected that the existing players are likely to consider forming partnerships to improve their products and increase their market share.

Gaining investment for such projects is difficult, hence for the time being, it can be expected that the existing players are likely to consider forming partnerships to improve their products and increase their market share

On the other hand, the market might see arrival of new systems based on existing technologies and solutions. They can be sourced from several of Intuitive’s patents that expired in 2016. These included some basic robotic concepts implemented in the robotic system, such as robotic arms control and imaging functionality. Several other patents developed by the company are expected to expire by 2022 (under the US patent law, a solution is protected for a relatively short period of time, generally 20 years).

Such availability of patent-free solutions will encourage other players in the industry to enter the market with similar products, probably at lower price points. This is likely to intensify the competition, which is already tightening, as Senhance robotic systems by TransEntrix got FDA received approval in 2018 for hernia repair and gallbladder removal, while SPORT by Titan Medical is expecting its approval in 2019, giving competition to da Vinci. Furthermore, a new partnership by Google and Johnson & Johnson is on the horizon, likely to bring some form of cost-effective alternative to the existing, more expensive systems, further adding pressure on the solutions offered by existing players.

Such availability of patent-free solutions will encourage other players in the industry to enter the market with similar products, probably at lower price points

The outlook for the robotic systems looks promising with mergers and partnerships among players that could drive innovation in this industry. Collaborating with hospitals to invest in training and application of robotic systems in growing number of procedures should also remain in the competitors’ focus area, as high number of robot-assisted procedures performed regularly provides opportunities for increasing the cost-efficiency and generating revenues that could be directed towards further R&D.

Players in the market need to focus on such high-volume procedures that will be likely to ultimately increase their sales, and allow them to focus on improving their products to deal with current challenges such as cost-effectiveness, limited portability and complex controls of the robotic systems, improving of which can help producers gain a competitive edge.

However, the players in this industry also need to identify new growth avenues – targeting areas where traditional laparoscopic surgeries are still predominantly performed but where robotic assistance could find its place, such as in colorectal and cholecystectomy procedures. There is still a considerable space in the market with opportunities. They can be tapped by putting emphasis on continuous investment in R&D aiming to innovate and develop new solutions that would find application in under-served therapeutic areas or offer new functionalities in order to cover as many therapeutic subsegments of the market as possible.

Medical Devices
by EOS Intelligence EOS Intelligence No Comments

India and China Make Space for Domestic Medical Devices

1.5kviews

Medical device industries in India and China have long been dominated by international players, especially when it comes to high-end devices. High investment requirement, long gestation period on ROI, limited support from the government, and relatively low demand and awareness about medical procedures have resulted in limited domestic investments. However, the industry has been evolving as more and more local players are realizing the scope of this high-potential market that is still in its nascent growth stage in India and China. Moreover, increased government support is further expected to boost indigenous production in the industry.

Similar market structures, a whopping difference in size

While the medical device sector in China is far ahead of that of India (with respect to sales, number of players, and investment), they both have a similar market structure, i.e. being dominated by large multinational players, who have built strong relationships with large hospitals, healthcare organizations, and influencers.

Very few local players have had any significant presence in this industry, and those that did hold some share in the market, limited their focus to the low-investment, low-price product range. However, with healthcare spending in the two countries rising significantly, more and more domestic players are entering and expanding into this space.

India’s healthcare industry is poised to reach US$280 billion by 2020 registering a CAGR of 15% during 2016-2020, while China’s healthcare spending is projected to reach US$1 trillion by 2020, growing at a CAGR of about 12% during the decade.

The rise in healthcare spending in both countries is underpinned by rising disposable income, availability and growing awareness about medical care, expansion of health insurance coverage, rising burden of lifestyle diseases and increased stress levels, as well as ageing population (especially in China).

In addition to this, the governments in both countries are providing instrumental support to companies interested and engaged in medical device manufacturing on domestic soil.

Government takes initiative to promote Indian domestic manufacturing

India’s medtech market, which was valued at close to US$4 billion (INR 260.5 billion) in 2015 is expected to reach about US$8 billion (INR 550.4 billion) by 2020, registering a CAGR of 16.1% during 2015-2020, which is significantly higher than the global industry growth of about 4-6%.

Although about 65-70% of the market value is characterized by imports, the current government’s initiatives in the sector (including the Make in India initiative) are expected to reduce the country’s dependency on imports in the medium-to-long term. Some of the initiatives undertaken by the government include allowing 100% FDI in the sector, setting up medical technology and devices parks across selected states to bring down indigenous manufacturing costs by as much as 30%, developing two testing and quality certification labs aimed at monitoring and improving quality of manufactured devices, and issuing Medical Device Rules 2017, which promote domestic manufacturing.

Before the Medical Device Rules 2017, medical devices were regulated as drugs and this resulted in several regulatory bottlenecks with regards to medtech manufacturing. The new set of rules ease the process of obtaining licenses and undertaking clinical trials, encourage self-compliance, and promote a single-window digital platform for the processing and easy tracking of applications and licenses for import, manufacture, sale/distribution, and clinical investigation of medical devices. In addition, the new medical device rules classify medical devices into four categories based on the risks these devices may pose, in line with global standards for classifying and registering medical devices.

In addition to this, the government also corrected the inverted tax structure faced by the industry in the past (i.e. import of finished goods attracted lower duty compared with import of raw materials for domestic manufacturing). Under the 2016-2017 budget, the government relaxed import duty on components and raw materials required to manufacture medical devices to 2.5% and provided full exemption from additional customs duty (SAD). Further, it increased duty on import of finished medical devices from 5% to 7.5% (in addition to imposing an additional duty of 4% on medical devices by withdrawing exemptions.)

While the move of reducing duty on raw materials has been appreciated by the industry, the rise in duty of imported medical devices has met with mixed reviews. India is highly import-dependent with regards to medical devices and a rise in duty on most categories will make medical care more expensive for the consumer.

Further, in June 2017, the union cabinet announced a US$250 million initiative as a part of the National Biopharma Mission to fund bio-tech start-ups in the field of medical devices, bio-therapeutics, etc. The government is also looking to encourage innovation in this space by setting up R&D incubation centers in association with leading research institutions in this field.

Apart from easing the supply side, the government’s initiatives, such as Free Diagnostics Service Initiative also play a vital role in boosting the demand for medical devices (especially in-vitro devices) in the country. Through this initiative, the government, under the National Health Mission aims at providing a minimum set of diagnostics to the underprivileged population in the country.

In addition to this, the program has worked on devising an integrated approach to combat prevalent non-communicable diseases such as hypertension, diabetes, and cancer by undertaking year-round screening and testing. This will result in large government orders for IVDs and other medical devices.

Another initiative undertaken by the government to both support the domestic industry and ensure a more widespread reach of medical devices has been price capping of coronary stents and orthopedic implants. Observing the huge distributor margins on these medical devices, the government undertook a bold step to cap the prices at which stents and knee implants can be sold in India.

Prior to the price control, the average retail price for a bare metal stent was about US$700, while that for a drug-eluting stent was about US$1,800-2,000. In February 2017, the government fixed a ceiling price of ~US$106 (INR 7,260) for bare metal stents and ~US$431 (INR 29,600) for drug-eluting stents.

In a similar move, the government capped prices for knee implants in August 2017. Knee implants, which ranged from ~US$2,308-US$13,121 (INR 158,300 – 900,000) were limited to ~US$791-1,661 (INR 54,270-113,950). In mid-2017, the government published a list of 19 medical devices (including catheters, heart valves, other orthopedic implants, etc.) that will be monitored for pricing, thus similar price capping may be expected for other devices as well.

Large players may withdraw their latest generation products from India, while Indian players will focus only on cost-effective products instead of innovations.

While the intent for the price capping is noble and will provide a boost to the domestic manufacturers who are better equipped at producing low-priced products, several leading international companies, such as Abbott Vascular and Medtronic, have criticized the decision and submitted applications to increase the ceiling price for the premium quality products or allow them to withdraw the products from the Indian market (as per the government’s rules, no manufacturer can withdraw their products from the market for a period of 12 months from the date of the price ceiling without prior approval from the government). This may be detrimental to the overall industry as large players may withdraw their latest generation products from India in the long run, while Indian players will focus only on cost-effective products instead of innovations.

Indian domestic players might go beyond high-volume low-end products

The Indian medical device market is largely import driven with a very fragmented domestic players landscape. While there are around 800 local medical device manufacturers across the country, only 10% have a turnover of more than ~US$7.3 million (INR 500 million).

The small-scale domestic players focus primarily on the consumables and disposables segment of the medical device industry, which include high-volume low-end products such as syringes, needles, and catheters.

The patient aids segment, including mostly hearing aids and pacemakers, is largely import dependent.

While the equipment and instruments segment and the implants segment are largely dominated by foreign players, they have recently seen an influx of local players that have customized their offerings to the Indian market. Karnataka-based Remidio Innovative Solutions has come up with a retinal imaging system, wherein the fundus of the eye connects to a mobile phone camera to take pictures of the retina to detect diabetic neuropathy. The device can also be used in remote areas and the images and results can be shared in real time on the treating doctor’s phone. Similarly, Karnataka-based Tricog Health Services has developed a cloud-based ECG machine for faster diagnosis. Several other players include Sattva, Cardiotrack, Forus Health, etc.

Understanding the needs and price-sensitivity of the Indian market, several leading global players have also created customized offerings for Indian consumers. For instance, GE Healthcare has come up with a compact CT scanner, which consumes less power, while Skanray Technologies has developed affordable X-ray imaging systems to meet the Indian needs.

We can expect a transition in the domestic sector, which will not only focus on high-volume low-end products but also look at entering the high-end innovative segment offering more affordable and locally customized solutions.

 Since the Indian government has fixed the inverted duty structure and provided other instrumental support to the domestic sector, we can expect a huge transition in the industry, which will not only focus on high-volume low-end products but also look at entering the high-end innovative segment offering more affordable and locally customized solutions. This may eventually result in a phase of consolidation, with foreign market leaders absorbing several innovative Indian start-ups and established players.

Medical Devices – India and China Make Space for Domestic Players

Chinese government also focuses on aiding local producers

China’s medical device market is the third largest globally, after the USA and Japan, and is expected to surpass Japan to become the second largest by 2020. In 2017, the industry was valued at US$58.6 billion, maintaining a double-digit growth over the previous three years.

Similar to the Indian market, the Chinese medical device sector continues to be dominated by foreign players through imports or their locally manufactured products. However, the market is also characterized by the presence of several local players (though smaller in size), especially in the drug-eluting stents, IVDs, and orthopedics segments.

While the foreign players hold the major chunk of innovative medical devices, the government has been taking several and significant steps to promote local companies. The government requires international players to have local legal entities in China for registration and licensing, thus China cannot serve only as an export market.

Another such major step is the regulatory proceedings under Order 650, which mandate clinical trials in China for all class II and III medical devices, with few exceptions. This prolongs the period for obtaining a license to 3-5 years and adds close to US$1-1.5 million (CNY 7-10 million) in costs. However, it has introduced a shorter channel, called the Green Channel, which provides a fast track review option. While the government introduced this to foster domestic innovation, foreign players can use it too. To be eligible for the Green Channel, the device must have a Chinese patent and it must be an innovative product with design progress and records. Products qualifying for the Green Channel are given priority in the registration review and are exempt from the US$90,000 registration fee.

In 2016, the government introduced a second priority review system for certain breakthrough products. Under this fast track channel, the need for a lengthy pre-qualification application process was further eliminated.

The government’s guidelines in its new healthcare reform called The Healthcare Reform 2020 also aim at reducing the share of imported medical devices and promoting locally produced counterparts. Several state-based medical tenders differentiate between local and imported products, giving preference to the former. Moreover, in some tenders a further distinction is made between domestic and foreign-owned local manufacturers. Thereby foreign companies that buy-out local companies to get an easier access into China are also considered as foreign players.

Under its Made in China 2025 plan, the government has also focused on domestic development and manufacturing of high-end and innovative medical devices. These devices include imaging equipment, medical robots, fully degradable vascular stents, and other high-caliber medical devices. The government aims to boost local production of such innovative and high-value devices by supporting the R&D infrastructure and manufacturing capabilities of local players. The government also provides extension of tax benefits for a period of three years if the investment made is used towards the development of medical devices.

Moreover, under the initiative, the government has aimed at increasing the use of locally produced devices by hospitals to 50% by 2020 and 70% by 2025. To pursue this goal, in September 2017, the Sichuan province mandated the use of locally-made devices in hospitals across 15 categories including respirators, PET, and CT scanners.

Just like India, China is also focusing on combating high distribution costs of medical devices, which in turn will make their prices more affordable for the general population. However, instead of capping prices, the government has introduced a Two Invoice System. The system limits the number of invoices between a supplier and the hospital to only two – the first invoice would be from the manufacturer/trading company to a government-appointed supplier/distributor (GAS) and the second invoice will be from the supplier to the hospital. This will eliminate most links in the non-transparent and fragmented distribution network in the Chinese medical device sector, which encompassed several distributors, sub-distributors, agents, etc. (the sub-distributors were engaged due to their personal and long-standing relationships with a set of hospitals). This new system is expected to reduce the corruption level by reducing the number of intermediaries and in turn improving efficiency and reducing prices for the patients.

Chinese players dominate several narrow industry segments

China’s medical device industry is dominated primarily by international players, especially with regards to high-end and innovative devices. Having said that, there are a lot of upcoming local players, although, most of them are still limited to the high-volume low-technology segments.

However, local Chinese players have managed to dominate several narrow industry segments, such as drug eluting stents, which is dominated by three domestic companies, namely Biosensors International, Lepu Medical, and MicroPort. Similarly, local players have managed to capture a significant share of the digital x-ray market, which was dominated by foreign players a few years back.

The orthopedic sector is also characterized by the presence of several large and small local players while a few dominating local players (Trauson, Kanghui, and Montage) have also been acquired by leading international players (Stryker, Medtronic, and Zimmer, respectively). Mindray and Microport, two of the largest Chinese medtech players (who have also successfully internationalized), have strong hold on the country’s patient monitoring equipment and orthopedic segment, respectively.

Moreover, while foreign companies enter the Chinese market to cater to the grade-3 hospitals and the high-end segment, the local players focus primarily on the grade-2 hospitals’ value segment (i.e. products that may not have as many functionalities but serve the basic need). The products in the value segment are more localized in terms of both need and pricing. Several international companies, such as Siemens, Philips, and GE, have also modified their product offerings and have come up with a lower-end range of devices to capture this market (as per experts, the value segment has the potential of becoming much larger in comparison with the high-end segment over the coming years).

Leading Chinese medical device companies are investing heavily in their R&D to move up the value chain with more innovative and high-segment products. Therefore, in the coming years, one can expect intense competition in the Chinese medical device sector.

Similarly, leading Chinese medical device companies are investing heavily in their R&D to move up the value chain with more innovative and high-segment products. Therefore, in the coming years, one can expect intense competition in the Chinese medical device sector, which may also lead to some consolidation. With growing government support to local companies as well as their ease to localize, it is expected that the domestic players will provide a stiff competition to international players unless the latter take action soon.

 

EOS Perspective

While the governments in both countries are taking significant and constructive steps to increase the reach of the medtech industry as well as boost domestic manufacturing, it is too far-fetched to believe that this will uproot the leading global players from the market. However, that being said, in case global companies such as GE, Siemens, and Philips do not continue to customize and localize their offerings as per the changing needs of these markets, they will definitely lose market share to domestic players.

If global companies do not continue to customize and localize their offerings, they will definitely lose market share to domestic players.

Moreover, with the upcoming regulatory changes, support to local production, and overall surge in demand (especially from tier-2 and tier-3 cities in India and grade-2 hospitals in China), the sector is likely to undergo a phase of consolidation in both countries.

by EOS Intelligence EOS Intelligence No Comments

Modicare: Which States Matter the Most?

1.2kviews

Dubbed as ‘Modicare’ (named after the Indian prime minister), India’s National Health Protection Scheme (NHPS) is being considered as the world’s largest government funded healthcare scheme. The scheme is expected to benefit 500 million people by providing them with cover for secondary and tertiary care hospitalization. While the recent press around the scheme focuses largely on the implementation and funding challenges, we are looking at Modicare from the perspective of opportunities it will bring to the table for healthcare industry players.

Announced during the 2018 union budget, NHPS is a government-funded secondary and tertiary healthcare plan aimed at 100 million financially vulnerable families, referred to as Below Poverty Line (BPL) families, in India. Expected to be launched on 2nd October 2018, NHPS will replace the existing central-government-operated Rashtriya Swasthya Bima Yojana (RSBY), which provides an annual insurance cover of INR30,000 (~US$460) for a family of maximum five members, and is operational in only 15 (out of total 29) Indian states. The new scheme will offer insurance cover of INR500,000 (~US$7,700) per family.


NHPS is expected to provide secondary and tertiary healthcare access to more than 40% of the Indian population, which was earlier deprived of it due to financial constraints. This will create a new healthcare market, giving boost to the entire healthcare ecosystem in India. Companies across the entire healthcare value chain, including medical education providers, healthcare service providers, construction firms, pharmaceutical and medical devices companies, etc., are expected to witness ample growth opportunities. One can expect increased investments in the Indian healthcare sector by private companies as well as foreign investors.

Since the scheme is aimed primarily at making healthcare affordable and accessible for BPL population, opportunities will be up for grabs for companies to tap and expand their reach in areas where the BPL population resides in India. Based on the currently available scheme details, we have tried to identify top five states in India that are ripe for opportunities with the expected launch of the new scheme.

EOS Perspective

Taking into account various factors, including red tape, electricity supply, political stability, etc., as well as the current state of healthcare infrastructure and BPL population, we project the states of Uttar Pradesh (UP), Bihar, Telangana, Madhya Pradesh (MP), and West Bengal (WB) will be most attractive for healthcare industry players.

Uttar Pradesh offers greatest opportunities on the basis of a large BPL population residing in it. The state boasts of a robust road infrastructure and a stable political climate. UP has legacy issues related to administrative challenges, however, the state has taken major steps in cutting the red tape.

Madhya Pradesh is the leading state in India in terms of ease of doing business. The state has electricity surplus, with good road infrastructure, and reasonably priced real estate (as compared with the remaining four states), making it an ideal destination to invest.

One of the largest BPL populations resides in Bihar, a fact that makes it one of the most attractive markets expected to be created after the introduction of NHPS. However, the administrative bottlenecks and lack of infrastructure (as compared with the other four states) may act as constraints for the market players in realizing the full potential.

Telangana, a newly formed state, offers excellent opportunities due to a reasonably large BPL population. The state has performed well on administrative reforms front, and it is expected to improve infrastructure (including electricity availability) in the future, to make it more attractive.

West Bengal has shown remarkable improvement in the field of administrative reforms (in cutting of the red tape), to make it one of the most attractive destinations for any industry. It has to focus more on further improvement in the infrastructure to make it a natural choice for the industry players to invest in the state.

In the end, the realization of the opportunities will depend on smooth as well as quick implementation of the scheme across India. At the outset, NHPS offers promising future for healthcare industry across the nation in general, and the five highlighted states in particular.

Ranking Methodology

  • EOS assessed attractiveness (in terms of opportunities for healthcare industry players) of all Indian states on the basis of a scorecard

  • States were ranked on selected parameters, i.e. size of the market and other factors (termed as ‘market enablers’) that are likely to influence decision-makers to prefer one state over another while planning to invest to tap the opportunities created post the launch of NHPS

  • Maximum score (awarded for first rank) for each parameter was fixed based on its relative importance (weightage); scores awarded for subsequent ranks (on each parameter) were a percentage (decreasing in accordance with the rank) of maximum score

  • The final score (and hence the overall rank) was the summation of individual scores on all parameters

by EOS Intelligence EOS Intelligence No Comments

MedTech in APAC – Harmonizing Hazards and Rewards for Rapid Expansion

1kviews

Being the third largest medtech market in the world, Asia-Pacific (APAC) is becoming an investment hub for medical technology companies globally. Owing to the economic growth of the region and increasing income of the local population, healthcare affordability and quality are on the rise. These are the ground reasons that drive medtech companies to focus on APAC for growth and business expansion. But having access to many local markets in this vast and diverse region seems a hard nut to crack for the medical device businesses. Singapore, with its favorable business environment, which vigorously defends intellectual property rights, currently seems to be the geography being eyed by major medtech companies. Though Singapore is well-positioned as a gateway to region’s medtech sector, entering other markets in the region is still challenging. With differences in the regulatory frameworks bundled with lack of clear reimbursement strategies, medtech companies find it strenuous to meet the requirements of the regional markets. In order to witness growth, it is imperative for medtech companies to focus on the growing opportunities for industry-wide collaboration, intending to create strong platforms for growth in APAC.

In 2015, APAC was the third largest medtech market in the world, after the USA and EU, accounting for over 22% of the global revenue which stood at US$398 billion. The region’s medtech industry is expected to be one of the fastest growing globally and is forecast to surpass EU by 2020 to become the second largest market behind the USA.

The high potential of APAC is fueled by the highly populated south-east Asian countries (China and India, the world’s two most populous countries, have a combined population of 2.8 billion), aging population (by 2050, Asia population will constitute 25% of the world’s elderly aged 60+), strong economic growth, increased spending power of the middle class, and reduced costs by manufacturing medical devices in the region rather than importing. The medtech revenue generated in the region was US$88 billion in 2015, expected to reach US$133 billion by 2020, achieving a compound annual growth rate (CAGR) of 8.6% over the period of five years.

Companies want to seize APAC’s potential for rapid development of medical devices by investing in the right geography that would support their expansion plans. One such location that offers the right environment for medical device players to grow is Singapore. In Asia, Singapore is the innovation center for medtech players due to its business-friendly regulations.

Companies want to seize APAC’s potential for rapid development of medical devices by investing in the right geography that would support their expansion plans.

The country brags of presence of leading medtech companies such as Medtronic, Baxter International, AB Sciex, Becton Dickinson, Biotronik, Hoya Surgical Optics, and Life Technologies that set up their manufacturing plants and R&D units here due to strong patent laws and easy policies to set up and manage a business. For instance, in 2011, Medtronic, one of the world’s largest medical devices manufacturers, opened its first pacemaker and leads manufacturing facility in Singapore, which was the company’s first Asian site manufacturing cardiac devices. As the number of heart patients in APAC rapidly increases, Singapore is a perfect base to offer modern medical facilities to patients across emerging Asian markets.

Medtech in APAC

The medtech sector in Singapore is growing mainly due to government schemes that focus on investing in the sector. With initiatives such as Sector Specific Accelerator (SSA) Program that identifies and invests in high-potential medical technology start-ups (an amount of US$70 million has been committed for the formation and growth of such businesses) and EDBI, the corporate investment arm of the Singapore Economic Development Board that invests in innovative healthcare IT, services, devices, and therapeutics companies, the Singapore government supports the growth of medtech innovation in the country.

The medtech sector in Singapore is growing mainly due to government schemes that focus on investing in the sector.

Apart from setting up committed bodies, the Singapore government in 2015 announced that it would invest US$4 billion in biomedical sciences research for the period between 2015 and 2020 to strengthen the county’s position as Asia’s innovation center.

While Singapore is a favorable location for medtech manufacturing and R&D, it is still a young market that is witnessing problems similar to the ones seen in other APAC countries. Many countries in the region are also capable of contributing to the technological health innovation but face challenges in broadening their reach and lack assertiveness to develop innovative ways to reach a broader range of patients.

Medical device regulations are the key challenge faced by device manufacturers in the Asian region. Med tech industry is regulated by strict guidelines through each phase of product or service development. In several Asian markets, there are no clear guidelines for device manufacturers that classify medical devices as simple or complex, or even mention how to handle them. Irregularities in clearly laid guidelines for introducing and using such products often create problems for companies to come up with advanced solutions in new geographies of the APAC region. Each country has different regulations for quality control, product registration, and pricing, and these are frequently unclear and inconsistent. This is a considerable concern for medtech players planning to set up a shop in the APAC region.

Medical device regulations are the key challenge faced by device manufacturers in the Asian region.

Another hiccup that the manufacturers face is the lack of definitive reimbursement structure. With new innovations in the healthcare domain, expenditure on medical technology is expected to grow but lack of transparent compensation schemes is a major hindrance. Medical device firms, across APAC region, face the challenge of limited clarity on payment structure of technological products and services. For instance, for medical products such as pacemakers and heart valves that are readily available, the reimbursement cost is generally available, but for progressing techniques or products like LVAD (left ventricular assist device), no coverage guidelines have been established. With this lack of clarity on the structure and level of reimbursement on such advanced products, medtech companies find it difficult to place their products in the market at a competitive price.

With unclear regulations and reimbursement policy structure, the medtech companies face a hard time in the APAC region. Competition from local players also add concerns for these players to survive in these markets. Partnerships of local medtech companies with funding firms and other players are on the rise. Domestic companies often partner with private equity firms that invest in and support the local players to innovate and expand. For instance, Huami Corporation, a manufacturer of wearable fitness monitoring devices, attracted investment from American venture capital firm Sequoia Capital and Xiaomi, a Chinese smartphone player, to develop a device that monitors health (tracking the number of steps walked, number of sleep hours, calories consumed, etc.) selling at a sober price of US$15 as compared to the average price of more than US$150 of its competitive brands including Apple and Samsung.

With unclear regulations and reimbursement policy structure, the medtech companies face a hard time in the APAC region. Competition from local players also add concerns for these players to survive in these markets.

Challenges for entering such a diverse market will take time to overcome, but companies are on the lookout for growth platforms and seem to be willing to leave no stone unturned to capture new opportunities. One such opportunity that multinationals can use to their advantage is partnering with regional stakeholders to access the APAC market. These collaborations are not limited to medtech companies or players in the healthcare domain, but are extended to a broader range of players including regional governments, regulatory bodies, educational institutions, insurance companies, and other technology companies.

Med tech companies are partnering with pharmaceutical players to access local market and widen their network. For instance, in India, Roche, a Swiss healthcare company dealing with diagnostic devices, got into a marketing partnership with Indian drug manufacturer Mankind Pharma, to extend the availability and market penetration of its blood glucose monitors, Accu-Check Go, in tier 2 and tier 3 towns making use of Mankind’s extensive local distribution network. Partnerships are critical for multinational players to rapidly and efficiently increase their geographic presence in the APAC region.

Another opportunity that medtech companies can seize to grow is the appointment of local staff in the regional management. Local people have a better market understanding and know how the system works. The decision making capabilities, if lie in the hand of local leaders, can work in favor of the companies as these leaders better understand the way the market functions. Balancing the availability of local talent and brand’s global assets, medtech players can be successful in developing products as per market needs. A mix of local resources and international talent in crucial to oversee operations in unstructured and fragmented markets such as APAC.

EOS Perspective

Correct assessment of the market needs is critical for any business to be successful. For medtech companies, APAC has been a challenging landscape due to fragmented market, as well as unstructured and complex regulatory environments. But with the focus being shifted to the dynamic and fast growing economies of APAC, the medtech market is positive to grow as the region offers scope of development and growth mainly due to aging population and growing income of middle class.

With challenges unique to each geography in APAC, medtech companies are focusing on partnering and collaborating with local medtech players and other stakeholders in the region. With strategic partnerships, global medtech players can reduce the intensity of competition faced from local companies. Collaborating with the right partner in different aspects of product development ensures growth, right product placement, and speedy market expansion. Association with regional entities are expected to increase, witnessing strong growth of the players in the medtech space.

The regulatory landscape in the region is highly fragmented and needs restructuring. Independent organization such as Asia Pacific Medical Technology Association (APACMed), formed in 2014, assigns itself to strike a balance between medtech companies wishing to enter the APAC market and other regional agencies aiming to improve the standard of healthcare offered to patients. Efforts such as these may bring coordination in the regulatory landscape, but it will take long to come to general consensus on similar laws of conducting business in this field.

by EOS Intelligence EOS Intelligence No Comments

Generic Medical Devices: Can They Breach the Branded Wall?

513views

Multinational companies such as J&J, GE, and Siemens have dominated the medical devices industry thanks to product innovation and lack of competition from cheaper alternatives from generic manufacturers. Though local competition has emerged in some of the larger markets such China, most domestic companies remain small-sized, focusing on less complex Class I and Class II type medical devices, such as orthopedic accessories, catheters, wound solutions, and inhalers.

Most emerging countries rely heavily on imported devices such as stents, pace-makers, artificial joints, biologics, etc., as there are very limited alternatives available in their domestic markets. For instance, India imports about 80% of the required medical devices. This is where generic devices come into play.

Generic medical devices are copies of those branded devices that are not patent-protected. While the quality of such medical devices is at par with branded products, the price can be up to 50% lower. So far, only a few generic products, such as asthma inhaler (1995) and Pulse-Oximeter (2003), have caught market attention. The recent addition being a range of orthopedic products, including plates, rods, and screws by Emerge, a company started by former employees of Swiss-based Synthes (now acquired by J&J).

Currently, the market for generic devices is predominantly US-driven, where regulations do not differentiate between a branded device and its ‘substantially equivalent’ design. It is expected that more generic devices may enter the market as branded devices go off-patent. Other branded devices, which are similar in function and not manufactured through proprietary process, may also face generic competition.

Generic Medical Devices

Generic devices may be the answer to various governments’ aim of minimizing healthcare cost without compromising on quality. However, the market for generic devices is still fragmented and geographically constrained vis-à-vis branded ones. Much would depend upon the ability of generic manufacturers in containing costs (to remain competitive) and in breaking the hold of established players over sales and distribution channels.

Top