Observations on Growth in the Medical-Device Industry
MedSun: Newsletter #7, September 2006
This past spring, Boston Scientific, a large manufacturer of medical devices, successfully outbid Johnson & Johnson, an industry giant, to purchase Guidant Corporation. Now The New England Journal of Medicine, in its July 27, 2006, edition, builds on the Guidant acquisition to survey the issue of consolidation in the device industry and its ramifications for patient care.
In his Perspective article “The Price of Growth in the Medical-Device Industry,” Alan M. Garber,
M.D., Ph.D., notes that “Consolidation in the medical-device industry, like consolidation in the pharmaceutical industry, has multiple and sometimes unpredictable effects.” Although there is broad consensus that both industries will grow as baby boomers age, and profitable companies are more likely than unprofitable companies to invest in research and development that will lead to novel and beneficial devices, “industry consolidation is not an unmixed blessing for patients or their physicians. Diminished competition usually means higher prices—and possibly limited treatment options.”
Dr. Garber, director of the Center for Health Policy at Stanford University and a staff physician at the Veterans Affairs Palo Alto (California) Health Care System, analyzes the setting in which acquisitions such as that of Guidant by Boston Scientific occur:
For many small companies, the expense of sponsoring or conducting high-quality clinical trials is an insuperable barrier, and few have the experience to market their products effectively. Large companies can finance trials that are large enough to demonstrate efficacy, and they have broad marketing capabilities. By deterring small firms from entering the market with products that are similar or superior to their own, large companies protect their market share—hence the growing domination of the device industry by a small number of companies.
The author concludes his discussion on a cautionary note: “If the strategy of growth by acquisition permits the device industry to turn scientific advances into effective treatments for patients, it will ultimately succeed in the marketplace. But if this strategy brings about high prices without corresponding benefits, for patients as well as manufacturers, the price of growth will surely have been too high.”
The full text of Dr. Garber’s article appears in the July 27, 2006, edition of The New England Journal of Medicine.