Small Fish in a Big Pond: Medical Devices in the Internet
- gongchao7668
- Nov 25, 2022
- 10 min read
Introduction
In recent years online shopping has grown by leaps and bounds. Due to the rapid development in the network technology field, online shopping has become the choice of many. Isn’t it a nice thing to lie on your bed and have access to a variety of products from a variety of places, and then just wait for someone to deliver this merchandise to your door? This pace of growth was only accelerated during the pandemic
Looking at this commercial complexity in the moment, who would have thought that “Amazon” was once just a simple online bookstore? Today’s Amazon is far from the humble beginning when the company was founded in 1994. Its business contains an operating online shopping platform, offering cloud computing, and producing actual physical products
As a result of the popularity and profitability of Amazon other platforms have appeared, most notably Alibaba. However, online shopping is not limited to giants such as Amazon and Alibaba. Other industries began to imitate their operations on a smaller scale. While it might appear that they are in direct competition with these huge sales platforms in reality they are not. Many of these companies offer specific products that would have no competitors for them on sites like Amazon and Alibaba. The unique nature of these products allows them to exist even in the shadows of these giants.
Among the most popular product sites are those for clothing. Sites such as eShakti and Shoptagr allow consumers to search clothing items specific to them in a way that is more personal than what they can find on the larger platforms. Cosmetics is another area where consumers can shop online without getting lost in the maze of products offered on the larger sites. Individual companies have their own product lines online, while sites like Bluemercury offer products from many companies, including smaller newcomers to the market
One area where online shopping has grown rapidly since the pandemic is Health Care. In the United States health care was 18% of GDP and growing as the population ages. While people were reluctant in the past to meet with medical professionals online, the Covid pandemic changed the opinion of many. Patients have become more willing to make online transactions for things like prescriptions, and it is now common for meetings with doctors to be held online. This change has been particularly evident in rural areas where patients may need to drive hours to meet with their physician in person.
The specific nature of medical devices and the increased willingness of patients to make online transactions in general spurred the growth of the online sale of these devices. While here is similarity with Amazon and Alibaba in that some of these companies are much larger than others, there is one significant difference. While the growth of Amazon and Alibaba has come at the expense of smaller competitors, this is not the case for medical devices. The specific nature of these products means that the growth of one company does not necessarily mean that producers of other devices are threatened. We will look at three companies of varying size to see how their different circumstances have influenced their.
Medtronic
edtronic was founded in 1949 and is the largest medical device company in the United States. The history of Medtronic is strongly related to the history of open-heart surgery. In 1957, Dr. C. Walton Lillehei, a pioneer of open-heart surgery at the University of Minnesota Medical School came to Medtonic and asked them to design a battery-powered pacemaker. Within a few years, these pacemakers were widely applied, and Medtronic made its reputation as a forerunner in biomedical engineering devices.
Medtronic reached several milestones during the 1970s. The company surpassed $100 million in annual sales in 1975, and in 1977 Medtronic stock was listed on the New York Stock Exchange. Globally Medtronic commanded a market share of 35 percent in the pacemaker category. By the end of the decade, Medtronic's annual sales exceeded $200 m.
Medtronic has expanded its product line to include many other devices. One of their growth lines has been in the area of diabetes. Sales of diabetes equipment rose at an annual rate of 8%, from $1.8 billion in 2015 to $2.4 billion in 2019. However, in the recent year sales dipped slightly due to a recall in a diabetes pump and competition from other product lines. These fluctuations only serve to highlight the changing landscape facing even large com
Medtronic was ranked the largest medical technology company by revenue in 2021 with an annual revenue of $301 billion. According to MarketWatch the company/s stock price at the end of the third quarter of 2022 was $97.78 and it currently operates in more than 370 locations in 160 countries globally with its headquarters in Minneapolis, and its executive office in Ireland
Shockwave
Besides major corporations like Medtronic, there are some promising new starters, and Shockwave is one of them. This young company, formed in 2009 occupies a place in the medical device market similar to Medtronic. However, Shockwave is a much smaller company than Medtronic, with 2021 sales of $237.1 million that are dwarfed by those from Medtronic. When they started, the founders intended to introduce new treatment methods to therapy for calcified cardiovascular disease, by introducing the means in breaking kidney stones to calcified cardiovascular treatments. All their efforts paid off, as the cracking-stone technology is now being adopted around the globe, bringing hope to patients and setting a new standard in the industry.
According to the latest news, Shockwave’s coronary IVL catheter earned the approval of the Japanese regulatory administration in March of 2022. Shigeru Saito, the Director of the Department of Cardiology and Catheterization Laboratory at the Shonan Kamakura General Hospital in Kamakura commented that the catheter “Coronary IVL has clearly demonstrated the ability to safely and effectively treat severely calcified coronary lesions in the Japanese population,”. From Shockwave’s point of view, the CEO of the company Doug Godshall also expressed his enthusiasm toward this approval. “We are delighted to be partnering with the Japanese Association of Cardiovascular Intervention and Therapeutics (CVIT) to make this therapy available to the expert cardiologists in Japan,” said Godshall. “With Japan’s worldwide leadership in the adoption of intravascular imaging and systematic approach to optimizing lesion preparation, we are confident that CVIT will be the perfect partner to help ensure that coronary IVL will play a vital role in the future calcium treatment algorithms of Japanese physicians.”
The impact of the cooperation described above was no doubt positive for Shockwave and this has been reflected in the stock price. The price per share on March 30 th 2022 ,was $194.88. Since then it has risen and was trading at a value of $296.44 on (Se
Nuvasive
Another new but powerful competitor on the market is a company who is focusing on developing and manufacturing spine surgery devices and procedures called NuVasive. NuVasive was founded in July 1997, their idea was straight forward—improving current surgery in every aspect, and the crew was loyal to this mission. Some of the company’s main inventions deal with an approach to Minimally Invasive Surgery (MIS). It was a new surgical platform called Maximum Access Surgery (MAS). The flagship procedure is the XLIF (eXtreme Lateral Interbody Fusion) procedure, a minimally disruptive procedure that allows spine surgeons to have direct access to the intervertebral space from the side of the body, as opposed to the front or back. Nuvasive’s 2021 sales of $1.14 billion place it somewhere between those of Medtronic and Shockwa.
Due to the new techniques developed by NuVasive, spine surgery was modified into a less invasive version, but in some, they were an upgrade based on previous devices, which resulted in some patent litigation from technologies appearing a little too similar to existing products. For instance, in 2008 Medtronic Spinal sued NuVasive for their XLIF (lateral lumbar interbody fusion) surgical technique for appearing too similar ro Medtronic’s product. NuVasive responded by arguing Medtronic was the one who had infringed on their patents. The case was concluded in 2011, with dsan unfavorable verdict against NuVasive regarding several Medtronic patents, and one favorable verdict. Monetary damages of $101.2 million were awarded to Medtronic (which both companies appealed), and the funds were put in escrow for a future verdict. The second phase of the case, which involved a Medtronic cervical plate patent, was resolved in 2013. NuVasive received a license to practice various patent families collectively representing a majority of Medtronic’s patent rights to cervical plate technology. NuVasive made a one-time $7.5 million payment to Medtronic. The case finally closed in June of 2016, with NuVasive paying Medtronic $45 million, and all parties released each other from ongoing patent litigation. After settling this litigation, NuVasive stock fell by a third and didn’t rebound to it’s previous high of $81.11(7/20/2017) per share until 1/14/2020, the price that day was $81.13, when it once again fell dramatically. Since, it has fluctuated around a price of $40 per share (with the lowest price of $32.82 on 03/18/2020).
Firm Data
Employment
Medtronic
Since Medronic is much larger than Nubasive and Shockwave, we have produced separate employment graphs which allow us to compare better their employment patterns. In addition, given these differences in size, we will compare growth rates rather .
Medtronic, being one of the industry leaders, had employment levels that grew steadily from about 41,000 in 2009 to 49,000 in 2014. However, employment nearly doubled to 92,000 in 2015. Since then, it has been relatively stable, with employment of 95,000 in 2021.
Nuvasive
Nuvasive, as a company that is newly established, is experiencing a period of somewhat more rapid expansion. In 2009, Nuvasive employed only 665 workers. Since, employment has grown steadily reaching 2,900 workers by 2021. There are two worthwhile comparisons between Medtronic and Nuvasive. While Medtronic employment is about 2.5 times greater in 2021 than in 2019, almost all this growth occurred in 2015, leaving employment almost stagnant since. Over this time, employment at Nuvasive was more than four times greater in 2021 than in 2009. In addition, the growth at Nuvasive has been much steadier, continuing through 2021, indicating a trend of potentially higher employment moving forward.
Shockwave
Shockwave, is such a young company that it has only four years of available data (2018-2021). Although we cannot make any proper long run anticipation or conclusion based on that small amount of data, this rapid growth is consistent with the expansion of a typically new company
Profits
Medtronic
Medtronic has seen a fairly consistent and rapid growth in profits over the period 2009-2021. In 2019, profits were $2,070 million. 2021 profits were $5,039 million. This represents an overall rate of growth of 243%, or 7.7% per year on an annual basis. This rate of growth was much greater than that of overall corporate profits for the U.S. economy, which grew at an annual rate of about 3% over this period. While Medtronic profits fell between 2012 and 2014, they began a new period of growth in 2015, which is consistent with the large increase in employment for the company during that year.
Nuvasive
Looking at the data for Nuvasive the first impression must be the company’s profits were everything but stable. Generally, they made some profit, ($169 million over 2009-2021 but they took a hard hit from the COVID-19 epidemic. After making positive profits in each year from 2015-2019, their profits fell drastically in 2020-2021, dropping from 65 million dollars in 2019, to a loss of 37 million dollars in 2020, then to 64 million dollars in 2021. This is in contrast to Medtronic which saw an increase in profits even from 2019-2020. It is unclear whether NuVasive can reverse the trend of negative profits moving forward.
Shockwave
Again, the lack of data of Shockwave is too small to make any long-term conclusions. But it is still visible that being a new company during the pandemic was difficult. But unlike NuVasive, Shockwave has recovered and nearly broke even in 2021. It will be interesting to see if this trend toward positive profits will continue in the future.
Industry Data
Employment
In order to put the performance of our three firms into perspective, we will compare their performance to that of the medical device industry as a whole. We will do this by looking at the output and employment for the medical devices industry over the past
First, we look at overall employment in the medical device industry. In 2001 there were 98.7 (thousand) people working in the industry. By 2021, this grew to 105.2. thousand. This represented a 6.58%, growth rate for the industry over this period. The maximum growth rate was 2.94% in 2006 but employment fell by 2.2% in 2004.
Compared to the overall economy, employment in the medical device sector has lagged. Total private sector employment grew from 132.7 million jobs in 2001 to 149.7 million in 2021. This is a total increase of 12.8% nearly doubling the 6.58% growth for the industry. While there was a sharp decrease in overall employment due to the pandemic in 2020, most of this was reversed in 2021.
Industry Output
Total output for the medical device industry was $22,628 (million) in 2001 and grew to $29,363 million in 2021. Overall, the growth rate was about 29.8%. Unlike employment, the 2021 level of output wasn’t the highest over this period. Industry output reached a maximum of $34.17 million in 2010. After that, the output started to decrease and fell to $27.51 million in 2017 but has since bounced back. Like employment, output growth in the medical device sector has lagged that of the overall economy. Over the period 2001 – 2021, U.D. GDP grew 49.1%, far outpacing the 29.8%. growth of the industry.
Conclusion
The overall performance of the medical device industry presents a number of surprising results. First, overall industry output increased from $22,628 million in 2001 to $29,364 million in 2020, a 29% increase. At the same time, employment in the industry increased from 98.7 thousand workers in 2001 to 105.2 thousand in 2020, an increase of 6.6%. This means that the growth rate in output was more than four times that of employment, which represents a significant increase in efficiency.
With regard to our three firms, there are also some results of note. Employment at Medtronic has been relatively stagnant over the past 20 years. The exception to this is the large increase in 2015. One possible explanation is that Medtronic moved their corporate headquarters to Ireland in 2015, allowing them to make a large reduction in their tax liability. At the same time, Medtronic profits reversed a negative trend in 2015. Since 2015, Medtronic profits have grown steadily, from $2675 million in 2015 to nearly double in 2021.
For Nuvasive, the relationship between employment and profits is a bit of a mystery. Between 2014 and 2019, Nuvasive showed significant profits. But this has changed over the last two years, where Nuvasive has lost money. At the same time, employment at Nuvasive has shown a steady increase over the entire 20-year period from 2001 to 20.
Conclusions regarding Shockwave are more difficult to interpret since only a few years of data are available. After an initial loss in 2020, (very likely due to the pandemic), Shockwave showed a profit in 2021. Over the same time, Shockwave employment has increase.
The overall conclusion is that even under the shadows of big online shopping platforms like Taobao or Amazon, there are companies that can live well by themselves. One way that a corporation can have a good and independent life is to specialize in one specific field and protect itself from the competition of the large online retaile.
References
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