Top trends affecting middle market medtech companies

ARTICLE | July 12, 2022

Authored by RSM US LLP

Experts say that even after the immediate emergency of the current COVID-19 pandemic passes, the health care industry won't return to business as usual. And while biopharma was at the center of the pandemic response, medtech companies were equally impacted and are shifting their ways of working in response.

Following is an overview of some of the top trends and challenges ahead for middle market medtech companies.

A regulatory process in need of updating

As the pace of innovation increases and the number of novel devices brought to market continues to grow, keeping up with reviews remains an ongoing challenge for the U.S. Food and Drug Administration. The pandemic had significant impact on the medical device regulatory review process. In December of 2021 the FDA stated that there would be a gradual transition to normal review timelines in 2022. We noted in our 5 things to know in life sciences earlier this year that the FDA had temporarily paused factory inspections due to the recent surge of COVID-19 cases. Consequently, we expect this recent wave will further shift the return of normal processing times to the latter part of 2022, with the potential to spill into 2023 if additional challenges arise.

Another compliance area of note, the 510(k) process, established in 1976,  allows for the approval of new medical devices if companies can successfully demonstrate substantial equivalence to another legally U.S. marketed device. The FDA has announced that it is taking new steps to modernize the medical technology approval process, or 510(k).

Fierce competition for investment dollars

The investment market has gotten competitive for companies across industries in recent months, including many in the medtech sector. The path to profitability for many early stage medtech companies requires significant upfront capital to develop, manufacture and distribute product. During times of high volatility in the capital markets, both private and public investors seek investments that limit risk and return capital quickly.  Stakes are especially high for middle market medtech companies looking to introduce new product offerings into the hospital setting.

“The cost of medical device research and development is high, and investors are often looking to make decisions based on fully developed products, leaving the burden of development costs with the medtech entrepreneurs and developers,” says Kristin Keating, a partner and medtech sector leader at RSM US LLP. “Middle market medtech companies need to showcase their innovation and ability to execute to attract attention in this highly competitive space.”

Continued focus on cyber risk mitigation strategies

There has been exponential growth in types of medical devices that are connected to smart devices like mobile phones, tablets and wearables that also run medical applications and software. Medical devices, like other computer systems, can be vulnerable to security breaches, potentially impacting the safety and effectiveness of the device, exposing sensitive user data or losing control of the device itself.

Post market guidance from the FDA recommends manufacturers implement a process for assessing cybersecurity risk to the device’s essential clinical performance by considering the exploitability of the cybersecurity vulnerability and the severity of the health impact to patients if the vulnerability were to be exploited.

“It is important that middle market medtech companies keep cyber risk mitigation strategies top of mind as a part of the device development process before and after commercialization, says David Stuart, RSM senior analyst for the life sciences industry. “If research and development efforts are rushed to get a device to market without a primary consideration for cybersecurity, the manufacturer may encounter regulatory holds or other security, privacy or operational issues.”

Maintaining supply in uncertain times

Medtech companies worked hard to maintain supply of important raw materials and components during the pandemic. With a heavy reliance on natural resources and continued uncertainty around the globe, producing technology components outside of the United States introduces risk of not meeting delivery timelines or regulatory standards.

“Major market events like the pandemic, the great resignation and global conflicts have many middle market medtech companies rethinking how to manage their supply chains,” says Stuart.“ Many manufacturers are considering shifting away from a global supply chain and into a more local supply chain to eliminate expensive delays in obtaining components, in regulatory reviews and in product delivery. This shifting could move faster in the medtech sector than in biopharma due to the nature of the products.”

As companies plan for the future and work to mitigate risk at all points along the supply chain, they are thinking about challenging events like climate change and natural disasters, geopolitical conditions that effect trade policy and regulatory changes, cybersecurity and intellectual property concerns.

More focus on direct-to-consumer marketing than ever before

Historically, many medical devices were obtained by the patient and then reimbursed through medical insurance.  This drove marketing and sales efforts to be primarily targeted at the health care professionals who could prescribe them. This paradigm has shifted over time with many medical devices becoming more consumer-facing.

Many newer medtech products and offerings do not require a prescription and are marketed and sold directly to consumers. A few examples of this are devices for pelvic floor health, hearing assistance and personal health monitoring.

Some medtech products still require a prescription but are being advertised directly to consumers. One of the first categories to adopt this approach was diabetes treatments. Given the lifestyle components of living with diabetes manufacturers of insulin delivery systems and other diabetes products began to offer insulin delivery systems that improve patient quality of life and apps to monitor diet and exercise. These are often advertised directly to patients through mediums including social media, television and radio.

This shift also means new pricing models. In addition to standard reimbursement, medtech companies are looking at pricing models that are based on device cost as well as possible ongoing service subscriptions or other add-ons.