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rules, some healthcare companies have refocused their at- tention on small cap and mid-cap domestic transactions.


Regulatory Approvals: A Review


As discussed in prior updates, access to the largest medi- cal device markets requires regulatory approval by specific government agencies. 510(k) Pathway


Medical devices that are classified as Class II, and which


can be proven to have a predicate device already com- mercialized, generally require 510(k) clearance. The 510(k) pathway requires significantly less paperwork and data when compared to the PMA pathway, and therefore requires con- siderably less time and cost.


The number of 510(k) clearances has remained rela- tively flat from 2009 to 2014 growing at a CAGR of 0.8%. The 510(k)s submitted with Summaries represented ap- proximately 92.4% of all submissions. A 510(k) Summary includes information upon which a claim of substantial equivalence is based. The 510(k) Statement is a certification that the 510(k) owner will provide safety and effectiveness information supporting the FDA finding of substantial equiv- alence 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. PMA Pathway Devices that are permanently implanted into the human body or may be necessary to sustain life and do not have a substantially equivalent device on the market are generally considered Class III devices and are required to pass more stringent hurdles. Receiving a PMA for a device can take sev- eral years and cost tens of millions of dollars. Upon approval however, there are typically considerably fewer competitive devices on the market, making the process potentially quite lucrative.


The number of PMAs bottomed in 2009, with 15 original PMAs approved throughout the year. 2010 marked the first increase in year-over-year approvals since 2006. Subsequent increases in 2011 and 2012 returned approvals to more favorable historical levels before a dramatic decline in 2013 to 18 original PMAs approved. 2014 saw an increase to 23 PMAs approved, however activity is still significantly below levels seen in 2011 and 2012.


Mergers & Acquisitions


In terms of transaction volume, 2014 was an active year with 579 deals announced, the highest level of activity since


2007. This represents a 15.3% increase in transaction volume from 2013.


As of Dec. 31, 2014, the 25 largest pure-play medical device companies mentioned earlier in the article held over $22.9 billion in cash on their balance sheets. Much of the “balance sheet” use for this cash has been to fund mergers and acquisitions, which could fuel industry consolidation in order to effectively allocate resources to mitigate the effects of the many issues discussed in this overview. These com- panies may be holding onto cash in order to look for future consolidation opportunities, so the outlook on M&A activity among medical device companies is positive.


Venture Capital In 2014, venture capital investments in medical de- vices and equipment represented 5.5% of the total dollars invested. This represents a significant decline from 7% in 2013 and 9.1% in 2012. The increase in absolute dollars invested in medical device start-ups from 2013 to 2014 is also significant, amounting to $2.7 billion, or a 27% increase in funding. This is consistent with overall venture capital investment, which increased by 61.4% over the same time period. Although the amount of investment dollars increased in 2014, the sector’s share of the total venture capital market decreased over the same period. Venture capital investment by developmental stage, including


seed, early, expansion, and later stage, is another important data point of the industry to monitor in order to gauge sentiment of start-up activity. The overall mix of investments per stage stayed relatively flat from 2013 to 2014, with expansion stage compa- nies attracting the most investments in 2014, at 40.9%.


Conclusion The underlying regulatory framework established by the


Affordable Care Act and other developed economies contin- ues to enhance a value-based healthcare system, whereby the cost of a product is based on the value of care provided. Despite the impact of regulatory pressure from the medical device excise tax and increased scrutiny and regulation of tax inversions, buyers have continued their consolidation activity as they adjust to the new environment. Ultimately, larger market participants who have the resources to cope with industry-wide changes will have to come up with ways to become more nimble and maintain industry growth and innovation. The medical device market is expected to see consistent growth over the next five years, driven primarily by technological advancement, consumer demand and positive macroeconomic trends.


15 — Medical Manufacturing 2015


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