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Te 10 largest publicly traded medical device companies


generated approximately $55.9 billion in revenues for the latest 12-month period, a figure which remained roughly flat from 2011. Average Cost of Goods Sold (COGS) for these companies represented 32% of revenue, which was in line with recent levels. Despite this consistency, manufacturers are likely to see increased margin pressure as a result of the medical device tax, which may lead to increased reliance on contract manufacturers to gain cost savings and operational flexibility. Another key metric to analyze is average days in inven-


tory as this information can be used as a proxy for evaluat- ing short vs. long-term contracts. Average inventory days remains at the high end of the 10-year range at approxi- mately 171 days as of September 30, 2012. Therefore, while the top 10 companies will continue to submit orders that will increase overall inventory, in general, it is unlikely large orders will be made in the near-term to restock de- pleted inventory shelves. Spending trends on Research & Development are oſten


predictive of longer-term revenue growth for the major mar- ket participants. In the 12 months ending September 30, 2012, $4.6 billion, or 8.3% of revenue, was spent on Research & Development by the 10 largest public medical device compa- nies. While R&D spending as a percent of revenue has trended slightly downward for the past several years, this figure is still


regulatory process. Many Class I devices are exempt from the premarket notification and/or the QSR requirements, though they still have to comply with the other general controls. A device is exempt if the FDA determines that it presents a low risk of illness or injury to patients. Class II—Class II devices are the largest category of medi-


cal devices. Examples range from powered wheelchairs to implants used in knee, hip, or spinal surgery. Forty-three percent of medical devices fall under this category. Class II in- cludes devices that pose a moderate risk to patients, and may include new devices for which information or special controls are available to reduce or mitigate risk. Special controls may include labeling requirements, mandatory performance stan- dards, and postmarket surveillance. Currently 15% of all de- vice types classified in Class II are subject to special controls. Although most Class II devices require premarket notification via the 510(k) process, a few are exempt by regulation. Class III—Tese are devices usually designed to sustain or


support life, are implanted, or present potentially unreason- able risk of illness or injury. Examples of Class III devices include implantable pacemakers and breast implants. Ten per- cent of medical devices fall under this category. New devices that are not classified as Class I or II by another means, are automatically designated as Class III, although the manufac- turer may file a request or petition for reclassification.


Manufacturers are likely to see increased margin pressure as a result of the medical device tax, which may lead to increased reliance on contract manufacturers to gain cost savings and operational flexibility.


well in line with the 10-year historical average of 8.5%. Tis suggests that, despite the concerns of the medical device tax and lengthening timeframes for 510(k) approval, companies have yet to dial back on new product development.


Regulatory Approvals: A Review As discussed in prior updates, access to the largest medi-


cal device markets requires regulatory approval by specific government agencies. Below is a discussion of (1) the US classification system for medical devices, (2) the two pathways to receiving clearance in the United States, and (3) historical device review activity. Class I—Tese devices present minimal potential for


harm to the user and are oſten simpler in design than Class II or Class III devices. Examples include elastic bandages and tongue depressors. Forty-seven percent of medical devices fall under this category and 95% of these are exempt from the


510(k) Pathway—Medical devices that are classified as


Class II, and which can be proven to have a predicate device already commercialized, generally require 510(k) clearance. Te 510(k) pathway requires significantly less paperwork and data when compared to the PMA pathway, and therefore requires considerably less time and cost. Te number of 510(k) clearances has remained relatively


flat from 2007 to 2012, growing at a CAGR of 1.0%. 510(k)s submitted with Summaries represent approximately 90% of all submissions. A 510(k) Summary includes information upon which a claim of substantial equivalence is based. Te 510(k) Statement is a certification that the 510(k) owner will provide safety and effectiveness information supporting the FDA find- ing of substantial equivalence to any person within 30 days of a written request. It appears that medical device companies have determined to provide more rather than less information to the FDA to avoid potential issues in the future.


Medical Manufacturing 2013 15


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