What Do Medical Device Companies Do?

A primer on medical device companies and what investors need to know.

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By: Chelsea Pratt

An electronic implant that mitigates migraine pain, a needleless way to measure glucose levels and non-invasive alternatives to biopsies: it may sound like the stuff of science fiction but this is the ongoing work of medical device companies—the same sector behind now familiar products like sutures or pacemakers.

 

Medical devices and the life sciences sector

Medical device companies develop instruments to diagnose, treat or prevent various medical conditions. But unlike pharma or biotech products, these instruments do not work through pharmacological, metabolic or immunological methods—at least not primarily. Compare birth control pills and condoms. Both prevent pregnancy, but only the latter is classified as a medical device.

Medical device companies share some of the struggles faced by biotech and pharma—namely, the astronomical costs associated with research and development (R&D), as well as a lengthy testing and approval process for products. As a result, many of the larger medical device companies are wary of innovation, instead opting to iterate on existing models or technologies.

In other words, you’re more likely to see large cap medical device companies designing a better pacemaker than taking on innovative ventures like those described above.

Clearance vs. approval

“Once the low-hanging fruit dries up, then they’ll address the bigger projects,” R&D Engineer Giridhar Thiagarajan told MDDI’s Device Talk, explaining why some large cap medical device companies shy away from pioneering projects. Reinventing an existing product—or picking that “low-hanging fruit”—is less risky.

That’s because the FDA ‘clears’ rather than ‘approves’ these copy-cat products. A company need only demonstrate that their product is similar to one that’s already been approved—and that means their product can be brought to market far more quickly. Of course, it also takes less research to iterate on a tool than it does to develop disruptive new technology.

Early-stage innovation

Nevertheless, innovation does exist in the medical device industry, especially when it comes to small cap companies. Echo Therapeutics (OTCMKTS:ECTE), for example, is developing that needle-free technology for diabetics mentioned above: their product reads blood chemistry through a non-invasive biosensor.

Meanwhile, BioSig Technologies (OTCMKTS:BSGM) has created the Pure Ep system, which detects previously unreadable cardiac signals. Interestingly, the Pure Ep system is considered similar enough to existing products that it will only need to be cleared, not approved, by the FDA—proving innovative technologies can be fast-tracked too.

Acquisitions over organic growth

Nevertheless, large cap medical companies remain wary of anything too cutting edge. Their tendency to ‘play it safe’ has led to another major industry trend: growth through mergers and acquisitions (M&A) rather than organic revenue. According to a recent report from Kalorama Information, 2015 and early 2016 saw over 150 major acquisitions involving medical device companies.

M&As are how large cap companies come to own more groundbreaking technologies. Medtronic (NYSE:MDT), for example, acquired Covidien (NYSE:COV) in January 2015—and along with it, the HET Bipolar system. This innovative technology allows for non-surgical treatment of hemorrhoids.

Bottom line for investors

The M&A growth method is working. The American medical device market is currently valued at US$148 billion and is projected to reach US$155 billion by 2017, according to SelectUSA stats. The global market continues to grow as well, with Brazil, Russia, India and China investing more in researching and developing medical devices over the past few years.

The fact that the medical device sector is dominated by small or medium sized enterprises is further good news: with so many startups in the space, there is plenty of opportunity to buy low.

Don’t forget to follow us @INN_LifeScience for real-time news updates.

Securities Disclosure: I, Chelsea Pratt, hold no direct investment interest in any company mentioned in this article. 

Editorial Disclosure: BioSig Technologies is a client of the Investing News Network. This article is not paid-for content.

Related reading:

5 Medical Technology Innovations You Need to Know About

Top Medical Device Trends for 2016

 

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