It certainly wasn’t a slow summer for the medical device industry. Over the past three months we’ve seen a bid for the elimination of the FDA’s workhorse clearance program, renewed interest from the private sector (and the return of the leveraged buyout), a well-intention hacker taking aim at medical devices – not to mention layoffs among some of the largest of the large-cap players and a concerted move East in search of greener pastures.
Here’s a look back at the top five MassDevice stories of the summer, according to our readers.
5. Private equity takes a shine to med-tech
The $6 billion buyout of Kinetic Concepts Inc. (NYSE:KCI) by Apax Partners LLP and a duo of Canadian pension funds was the high-water mark of a summer filled with private equity activity in the medical device space.
The mega deal, one of the largest leveraged buyouts since Lehman Brothers folded in the fall of 2008, drew plenty of interest from several big-name equity firms, including Nordic Capital and Avista Capital Partners, co-owners of KCI rival ConvaTec. That Skillman, N.J.-based wound therapy maker threw down an 11th-hour bid for KCI just before the expiration if a "go-shop" window on the Apax deal.
The KCI deal was one of the few in a welter of rumored deals to come under agreement, evidence that the barbarians are past the gate and looking to spend on the med-tech sector. For example, there’s the consortium of three equity firms that bid the price on Synthes Inc. up over the $21 billion mark for Johnson & Johnson (NYSE:JNJ). The un-named firms offered a boatload of cash, raising the ante on J&J by about 7 percent.
4. Boston Scientific cuts and cuts some more
The ink was still wet on some of the severance agreements Boston Scientific (NYSE:BSX) inked after a major restructuring in early 2010 when it announced an additional 1,400 cuts this summer. The Natick, Mass.-based device giant said the reductions are designed to “strengthen operational effectiveness and efficiencies, increase competitiveness and support new investments, thereby increasing shareholder value."
The cuts over the past two years now total more than more than 2,200 employees, as soon-to-step-down CEO Ray Elliott continues to re-shape the company two years into his tenure.
Despite the evident success of his moves to pare BSX into a leaner, more efficient operation, rumors abound that Elliott is daunted by the work still to do to effect a full turnaround – thus the early departure, according to the speculation on The Street. Elliott has repeatedly denied that speculation.
3. Medtronic’s lost summer
You could forgive Medtronic Inc. (NYSE:MDT) officials for wanting to forget a season marked by a series of high-profile public relations disasters.
The woes began in late June, when the Minneapolis, Minn.-based medical device colossus was greeted with an entire issue of The Spine Journal dedicated to problems with MDT’s Infuse bone growth protein. The journal’s probe found what it called serious and troubling discrepancies between re-examinations of clinical trial data and peer-reviewed publications of data fromt he same studies. Although the 13 industry-funded reports (published by authors who collectively received millions from Medtronic) revealed no adverse events associated with rhBMP-2, the actual rate of “frequent and occasionally catastrophic complications” of between “10 percent to 50 percent depending on approach," according to the journal’s investigation.
The foofaraw led to scrutiny from the U.S. Justice Dept. and the U.S. Senate, each of which launched their own probes into the bone morphogenetic compound and its marketing practices.
Medtronic spent much of July dealing with the Infuse headlines, but by August found itself dealing with more bad ink. Jay Radcliffe, a diabetic and cyber-threat intelligence analyst, went public with the successful hack of his Medtronic-made insulin pump.
That imbroglio generated tailwind to push itself in front of new CEO Omar Ishrak’s first shareholder’s meeting. One of the first questions the recently minted chief executive fielded from stockowners concerned Radcliffe’s hack; by August 26 Medtronic was compelled to release an official statement denying the IBM analyst’s allegations that it isn’t taking the security issue seriously.
2. IOM’s 510(k) fix: Ditch it and start over
The Institute of Medicine’s long-awaited report on the FDA’s 510(k) medical device review program didn’t fail to deliver the goods, but it might have missed the mark when it was released in late July.
The report on the IOM’s 22-month, $1 million, independent review – commissioned in 2009 by the FDA’s Center for Devices & Radiological Health – recommended that the federal watchdogs abandon the 510(k) protocol entirely in favor of an “integrated pre-market and post-market regulatory framework.”
What that framework would look like, or how it would be implemented, was outside the scope of the report; the IOM researchers offered no further guidance. But hey, noodle on it and see what happens, right?
Wrong. While the FDA said it would take the report’s findings into consideration, CDRH chief Dr. Jeffrey Shuren all but ruled out the scrapping of a program by which a majority of medical devices are cleared for market.
Not surprisingly, the report was met with near universal condemnation from med-tech circles. Covidien Plc. (NYSE:COV) CEO Jose Almeida told MassDevice that the IOM failed to deliver the goods.
“If you read what the FDA had commissioned the IOM to deliver, it did not [meet the objectives],” Almeida told us. “It’s a little disappointing that the IOM was not able to answer the questions for the FDA – and I think the FDA is as much disappointed with the results as we were.”
The reaction from industry lobby AdvaMed was even more condemning, with president and CEO Stephen Ubl saying the report’s conclusions didn’t merit "serious consideration from the Congress or the Administration."
Sen. Scott Brown (R-Mass.), who’s made a play for the hearts and minds if the Bay State’s medical device industry ahead of a 2012 re-election bid, told MassDevice he’s got his eye on the report as a possbile chip to deal in the wrangling over re-authorizing the Medical Device User Fee & Modernization Act.
“I am reviewing the IOM recommendations in the context of MDUFMA reauthorization, with a critical eye on how these recommendations could further add to the uncertainty in the FDA regulatory process for the medical device industry,” Brown wrote in an email. “I will continue to closely follow and monitor these discussions and listen to the device industry in Massachusetts about the proposed changes to the 510(k) process.”
1. Go east, young man!
The industry pulled off a "Reverse Horace Greely" this summer, as a handful of medical device companies set their sights very firmly and very publicly on the burgeoning medical device markets of the Far East.
No fewer than four med-tech giants stated their ambitions to either re-allocate or dramatically increase their footprints in emerging markets.
The most dramatic moves came from BSX, and its $150 million expansion in China, and competitor MDT, which re-shuffled its worldwide divisions as it seeks to reach 25 million patients around the world by 2020.
British orthopedic giant Smith & Nephew plc (NYSE:SNN) said it will merge two of its biggest operating units into one, looking to free up more cash to back its push into Brazil, Russia, India and China.
The moves reflect a major re-mapping of the medical device market, as it moves beyond its traditional borders in North America, Western Europe and Japan toward truly global status.