Brian DeChristopher, managing partner at Chordant Capital Partners LLC, has stints as an analyst at Putnam Investments and Arthur D. Little under his belt. He spent a good chunk of that time researching firms in the device industry, but that’s not his most important qualification for us here at MassDevice — DeChristopher also went to high school with co-founder and editor Brad Perriello.
Though they lost touch after those halcyon days, Perriello and DeChristopher recently re-connected via an investor presentation by Abiomed Inc. (NSDQ:ABMD). We asked DeChristopher to peg what’s hot (and what’s not) from the perspective of a potential device investor. Here’s what he came up with:
In terms of what is hot from the perspective of an investor, I’ll focus here on the trends and competitive interest in those trends.
MassDevice New Year’s Special P/review
- P/review: Introduction
- P/review: Paul LaViolette
- P/review: Stephen Ubl
- P/review: David Lucchino
- P/review: Euan Thomson
- P/review: Brian DeChristopher
- P/review: Christopher Delporte
- P/review: Don Hardison
- P/review: Brent Hudson
- P/review: Hamid Tatabaie
- P/review: Patrick Dentinger
- P/review: Nancy Briefs
- P/review: Brian Concannon
- P/review: Ryan Howard
- P/review: Ed Berger
- P/review: Top stories of 2010
What was hot:
- Percutaneous Valves
- Vascular Imaging – FFR and IVUS
- Structural Heart
- Endo- and Neuro-vascular Devices
- Second-generation Insulin Pumps and Continuous Glucose Monitors
What was not hot:
- Ortho & Spine
Looking forward, I’m focused on areas that either improve efficiency or improve appropriate device utilization. A prime example of this is intravascular ultrasound (IVUS), fractional flow reserve (FFR) and the emergence of optical coherence tomography (OCT). The government is investigating stent over-utilization, a problem these technologies help solve by better locating precisely where and how stents should be placed and providing hard data for physicians to use to justify the implant in the first place.
Given the pricing and utilization pressures on more developed device markets (stents, ICDs, orthopedics and spine), the larger companies in these areas will remain very focused on expanding beyond these markets. A resurgent and successful Boston Scientific (NYSE:BSX) is very dependent on this strategy, as is Medtronic (NYSE:MDT), which will likely go through a larger restructuring with a new CEO. I don’t expect spine companies to buck the broader orthopedic trends and I also don’t expect them to be bailed out via acquisition — the Medtronic/Kyphon deal seriously damaged that route.
Any areas with a potential target on them related to comparative effectiveness are less interesting to me. An example is robotic surgery. The technology has done extremely well in prostate and parts of the hysterectomy market. Adoption could hit a wall with the combined forces of EU austerity, low robot utilization and questions about cost versus differentiated clinical outcomes beyond the currently served markets.
Second-generation insulin pumps and continuous glucose monitors should continue to advance in the market. They’re generally a low-ticket item that improves compliance, outcomes and disease management/progression and have taken hold in younger patients — a very positive sign.
Percutaneous valves will clearly remain hot. The larger question is how competitive the market will become and how far the technology can penetrate the core valve market. Because of the potential market size and solid advances to date, I expect further competitive developments in this area and intense focus from many companies and entrants.
I’m lukewarm on left ventricular assist devices (LVAD). The market potential on paper is significant and the data are positive. However, beyond the initial bolus of patients that were implanted post-FDA approval of Thoratec’s (NSDQ:THOR) destination therapy indication, I’m concerned about how deep the market really is and how much effort, time and resources it will take to develop. There are some who believe a fully implantable LVAD will be needed to significantly increase market penetration, which is years away. Secondarily, the cost-per-quality-adjusted-year is trending down, but is still significantly higher (~$200,000) than other, very expensive therapies like ICD/CRTDs or even dialysis. In absolute terms, the market is small and not likely an immediate target for comparative effectiveness studies.
I’d like to see the industry embrace some of the change on the regulatory front — build cost-effectiveness into their business models from the start. Healthcare has been an industry in which price has been stable-to-up on similar items but generally has gone up with newly introduced products. Most other industries see lower prices over time with improved quality because of innovation. The winds have shifted. Hopefully, that will yield innovation as well as attention to cost-effectiveness, as an important measure of the strength of a business model or idea.