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In which direction is the digital health wave moving, how are established medtech companies evolving their business models, and what's the view on impending regulatory changes and the impact of Brexit? FirstWord Medtech asks some experts to look into their crystal balls to see what are some of the interesting trends to emerge in 2019.
Digital therapies make tracks
Even before 2018 had ended, the level of venture funding in digital health companies in the first nine months of last year had already surpassed that for full-year 2017. According to the digital health-dedicated VC, Rock Health, startups in this field raised some $6.8 billion by the end of September 2018, well over the $5.7 billion raised in all of 2017. This appetite for digital health is unlikely to wane in 2019, especially if key market growth drivers like reimbursement start coming through this year.
New medical technologies entering the market are more likely to be digitally enabled than not and even pharma companies are recognising the benefits of incorporating some digital component - such as sensors to monitor medication intake - into their drug offering.
However, a persistent challenge in this space is getting reimbursement coverage for digital health products, with companies still battling to convince insurers to pay for these innovations that improve patient outcomes, according to Chuck Gammal, a partner in the life sciences practice of global strategy and marketing consultancy Simon-Kucher & Partners.
That said, Gammal predicts that 2019 could be a tipping point for those in the area of prescription digital therapeutics (PDTs), a class of products designed to either replace or augment standard of care (which could encompass drug therapies) and which are developed and clinically assessed in the same way as traditional medical devices and drugs.
Last year saw Pear Therapeutics become the first company to bag FDA clearance for two PDTs - the reSET app for treating substance use disorder and reSET-O for opioid use disorder. While underlining that it is still early days for the recently-launched products, Gammal believes that Pear is well-positioned to "really break through the ceiling" and win wider reimbursement coverage for PDTs. This is, in part, due to Pear having "invested properly in clinical trials, akin to what you would do as a pharmaceutical company," and obtained good data from these trials to demonstrate their products' ability to improve patient outcomes, said Gammal. Additionally, with opioid abuse in the US being deemed a national crisis, "payers and providers are really hungry for something to try," he told FirstWord Medtech.
Mature product makers innovate in value segment
Innovation often comes at a premium price, but Gammal predicts that in certain product areas, where the technological improvements have so far only been iterative and the underlying platform - once considered state-of-the-art - plateaus and becomes increasingly commonplace, companies are likely to "grow down" and target the value segment-end of the market. "Innovation is possible by developing less complex products that still drive good clinical outcomes," he said. These products would meet the needs of specific customer populations. For example, a company that is "innovating by growing down could serve a niche market by creating a less expensive hip-joint replacement for a more senior patient demographic, or for patients in developing/emerging markets where the cost of a state-of-the-art hip-joint replacement could preclude the procedure from being performed at all," Gammal continued. "There are patient segments who do not need the latest and greatest technology. They can use something that works very well; it may not have the latest technical advancements, but for the purpose of that patient, their characteristics, their lifestyle, having [an older model of that device] would not make a difference in terms of their day-to-day quality of life."
This is a trend that is already evident in Asia, where the success of local value segment players have been helping to drive growth of the region's medtech sector, according to research by EY. In an earlier article by FirstWord Medtech highlighting these findings from EY, Abhay Bangi, partner at the consultancy's life sciences practice, had pointed out Asian value segment companies such as China's Mindray Medical, Wego, Sinocare and Lepu Medical recorded high double-digit CAGRs over the last three years and are taking share away from multinationals in key markets like orthopaedics, patient monitoring and cardiology.
Gammal agreed that there have not been many value brands launched by multinationals in developing markets. Instead, these large players still think along the lines of taking to those markets the same products they had launched earlier in the US - and are now seeing the adverse consequences of that strategy in terms of government price caps on expensive imported products.
Medtech players moving beyond product pushing
Another trend that is already under way, but will become more apparent in 2019, is the shift towards solution-selling, rather than just product-selling.
Gammal believes that medical device manufacturers will become involved not just in the delivery of the product to the patient, but also in the implantation of the device - especially with more complex, disruptive innovations - and even in post-procedure care. "Some medtech companies are buying up healthcare provider institutions or opening offices in hospitals and embedding personnel into the OR, outpatient, long-term care, and skilled-nursing facilities to ensure their devices are properly deployed using protocols they've developed for improved efficiency and better clinical outcomes," said Gammal, adding that Medtronic has been the most notable among the medtech companies to be taking this approach.
Of course, only companies with deep pockets like Medtronic would have the resources necessary to invest in this capability and Gammal acknowledged that running a dedicated facility is probably "the extreme end of the spectrum," adding "there are some steps in-between, where manufacturers are getting closer to the customer than they have traditionally been before, with embedded training and having more of a physical presence at the provider site."
The flip side of this trend is that with companies taking ownership of their innovations, this could limit the number of device options available for patients.
Regulation gets knottier
Regulation has always been a minefield for medical device companies, but with the regulatory frameworks in medtech's two key markets in flux, Eric Rambeaux, founder of French consultancy e4e6, believes this year might prove too much of a strain for some less well-resourced companies.
2019 marks the mid-way point of the three-year transition period for medtech companies to comply with the EU's Medical Device Regulation, which officially came into force on May 25, 2017 and replaces the Medical Devices Directive. During this transition period, manufacturers have to update their technical documentation and processes to meet the new requirements. In addition to "the mess" that Rambeaux said "the MDR is creating in the EU with the recertification of thousands of devices," companies also have to contend with the impending changes to the FDA's 510(k) pathway.
The agency's plan to revamp the 510(k) premarket notification system is not new news, but at the end of last year, the FDA disclosed more details about what these changes might be - coincidentally, straight after the release of the Implant Files, a damning dossier of articles by the International Consortium of Investigative Journalists. The changes to the 510(k) system include getting companies to use more modern predicate devices, and making public those products that had been cleared using predicate devices older than 10 years. The agency indicated more updates on its Medical Device Safety Action Plan and the 510(k) overhaul will be coming this year.
"For companies that operate on both sides of the Atlantic, especially the [earlier-stage, less established] firms, having to cope with two major regulatory changes pretty much at the same time may be extremely difficult to handle," said Rambeaux, who went as far as to suggest that this could ring the death knell for some players.
In the UK, 2019 is all about Brexit and even at this late stage, with just three months to go until the March deadline for UK to bid its farewell to the EU, the political situation is still far from clear.
As if the MDR isn't already enough to contend with, UK companies also have to deal with the uncertainty of where they stand in terms of having their products regulated, according to Oliver Sexton, investment manager at Midven, a UK-based fund. That said, he believes when it comes to VC financing, 2019 will see limited impact from Brexit. "The drop in the pound sterling makes UK companies cheaper and most healthcare companies are operating globally, so they have access to a range of VCs," he told FirstWord Medtech, adding that he has noted an increasing presence of US investors over in the UK.
However, non-dilutive grants from EU initiatives like Horizon 2020 may not flow as freely as a result of Brexit, Sexton cautioned. "The lack of certainty over access to EU grants will start to hit, with funding drying up and a decline in university [research] output," he said. And with EU aid disappearing, this might change the way that UK government bodies fund young companies. The biggest funding gap though is not at seed or late-stage rounds, but at series A. "[UK initiatives like] EIS and VCT fill the seed stage very nicely, while large corporates fund later stages. This is likely to continue in 2019... As ever, if the money is on the table, take it," Sexton advised.
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