Medical device companies facilitate the lives of doctors and patients by providing cutting-edge technology solutions.
Medical device companies play a vital role in the medical landscape by producing and innovating on the latest technologies available to medical physicians and patients.
Medical device companies develop instruments to diagnose, treat or prevent various medical conditions. Often medical device products will make doctors’ lives easier by providing cutting-edge technology such as gadgets or machinery. Companies in this industry develop everything from surgical instruments and orthopedics to diagnostics and medical imaging.
Many medical device companies will try to find an untapped niche to step into, or will innovate on current methods or devices and make major profits. Technological innovation helps keep this industry on its toes with a constant need for updates.
Here, the Investing News Network provides a brief overview of what medical devices companies do for those interested in investing in this niche sector.
Medical device companies: Regulations and approval
All medical device companies must go through trials and approval processes with various regulatory bodies in the US, Europe and Asia. As in the pharmaceutical industry, medical devices must be approved and regulated by the US Food and Drug Administration (FDA) in order to be available in the US market.
More specifically, the agency’s Center for Devices and Radiological Health (CDRH) takes care of the regulation process 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, which 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 devices, which 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 makes up 43 percent of all medical devices.
- Class III devices, which are the most risky, because they can cause illness or injury. Class III medical devices go through a much 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.
It can take up to 90 days for the FDA to examine a Premarket Notification 510(k) to determine product equivalency and then file an approval. After this, companies can then sell their product on the market.
For Class III devices, 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 receiving approval from the FDA is crucial for medical device companies, with most of them celebrating even being part of an FDA trial for their equipment.
Medical device companies: Growth and innovation
Companies in the medical device sector share some of the struggles faced by the biotechnology and pharmaceutical sectors — namely, the astronomical costs associated with research and development, as well as lengthy testing and approval processes for products. 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 absorbed by bigger players in the sector.
That being said, in order to be long-term global leaders in the space, medical device companies must adopt new technology and innovation to their portfolios. Familiar names in the space tend to be go-to investment options. As of 2019, some of the top companies by revenue in the medical device industry were Medtronic (NYSE:MDT) at US$29.9 billion, Johnson & Johnson-owned (NYSE:JNJ) DePuy Synthes at US$27 billion and Thermo Fisher Scientific (NYSE:TMO) at US$24.4 billion.
Technologies disrupting medical products as of 2019 include smart inhalers, robotic surgery, wireless brain sensors, 3D printing, artificial organs and health wearables.
Medical device companies: Future outlook
Data from a research report from Technavio estimates that the global medical device market will experience growth of roughly US$120 billion from 2018 to 2022, increasing at a compound annual growth rate of over 5 percent.
According to the report, factors behind this growth include 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 on the Investing News Network in 2017.
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Securities Disclosure: I, Jocelyn Aspa hold no direct investment interest in any company mentioned in this article.