Medical device companies facilitate the lives of doctors and patients by providing cutting-edge technology solutions.
The growing prevalence of chronic diseases such as cancer and diabetes is the driving force behind increasing innovation in medical technology, from surgical instruments and orthopedics to diagnostics and medical imaging.
In 2020, 59 new medical devices were approved by the US Food and Drug Administration for the year, a big jump from the 46 approved in 2019.
Overall, the global medical device industry is expected to grow from US$447.63 billion in 2019 to US$671.49 billion by 2027. The two biggest trends in this sector are wearable medical devices and the integration of artificial intelligence.
Here the Investing News Network provides a brief overview of what medical devices companies do for those interested in investing in this niche sector of the life science market.
Medical device companies: Regulations and approval
As in the pharmaceutical industry, all new medical devices must go through clinical trials and regulatory approval with various agencies in the US, Europe and Asia. For example, a medical device product must be approved by the US Food and Drug Administration (FDA) to be available in the US market.
More specifically, the agency’s Center for Devices and Radiological Health (CDRH) oversees the regulatory requirements for companies that are manufacturing, repackaging, relabeling and importing medical devices to be sold in the US.
The CDRH also regulates medical and non-medical radiation-emitting electronic medical equipment such as lasers, X-ray systems, ultrasound equipment, microwave ovens and televisions.
Medical devices are classified by the FDA into three different categories:
- Class I medical devices pose low risks and don’t have many regulatory controls. These products generally do not need to submit a Premarket Notification 510(k). In other words, Class I device manufacturers don’t need to show that their device is similar to an existing product to prove its safety and effectiveness. Examples include enema kits, elastic bandages and manual stethoscopes. According to the FDA, 47 percent of medical devices are considered Class I.
- Class II medical devices have the potential to be more harmful than Class I devices and therefore require a Premarket Notification 510(K). Powered wheelchairs and pregnancy test kits are considered Class II devices, as are handheld surgical instruments and infusion pumps. Class II devices make up 43 percent of all medical devices.
- Class III medical devices are the most risky because they can cause illness or injury. Class III medical devices go through a more rigorous process and must receive Premarket Approval. Companies manufacturing these devices are required to submit clinical data to the FDA for evaluation before the product can be marketed. Class III devices include implants, implantable pacemakers and diagnostic tests.
The FDA Premarket Notification 510(k) process can take up to 90 days to determine product equivalency and then file an approval to bring the medical product to market.
Being the most risky, Class III device approvals also come at a steep financial cost. A Premarket Approval can cost as much as US$94 million, compared to the US$31 million for a Premarket Notification 510(k). It takes the FDA roughly six months to review a Premarket Approval application, which is double the length of the Premarket Notification 510(k) process.
Every step of the FDA approval process represents a major catalyst for a medical device company.
Medical device companies: Growth and innovation
Medical device companies share some of the struggles faced by their counterparts in the biotechnology and pharmaceutical sectors — namely, the astronomical costs associated with research and development, as well as lengthy testing and approval processes. As a result, many of the larger medical device companies are wary of innovation, instead opting to follow existing models or technology.
Interestingly, while innovation can prove risky for bigger companies, it is the bread and butter of smaller startups aiming to get acquired by bigger players in the sector.
That being said, in order to be a long-term global leader in the space, a medical device manufacturer must incorporate new technology and innovation into its portfolio. Familiar names in the space tend to be go-to investment options. As of early 2021, some of the top companies by total revenue in the medical device industry were Medtronic (NYSE:MDT) at US$29.36 billion, Johnson & Johnson (NYSE:JNJ) at US$25.1 billion and GE Healthcare (NYSE:TMO) at US$18.3 billion.
Technologies disrupting the medical device market include smart inhalers, robotic surgery, wireless brain sensors, 3D printing, artificial organs and health wearables.
Medical device companies: Future outlook
The global medical devices market was valued at US$456.9 billion in 2020, according to a report from the Business Research Company. The market is expected to at a compound annual growth rate of 6.1 percent to reach US$603.5 billion in 2023.
The firm attributes this growth to an increase in diseases, together with a growing aging population. Notably, chronic diseases, including cardiovascular, neurological, orthopedic and respiratory conditions, continue to require the development of medical equipment and devices for diagnosis and treatment.
Other market trends that are projected to have an impact on the growth of the medical device industry are mergers and acquisitions, an increase in innovative technologies and the entry of emerging markets such as China, India and Saudi Arabia.
Investors will surely be watching the industry with a sharp eye to see how new solutions continue to shape this exciting market.
This is an updated version of an article first published by the Investing News Network in 2017.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.