April 2023 issue, BioElectRx Business Report
April 30, 2023 | The global cardiac rhythm management industry, or more generally the field of cardiac bioelectronic implantable devices (CBID), offers an interesting showcase for examining the field of bioelectronic medicine. The evolution of the cardiac device industry can provide insights regarding dynamics that drove growth and altered competitive landscapes. If we examine this market and some of its inflection points this can inform us about opportunities and challenges faced today within bioelectronic medicine. These observations, while not exhaustive, are made from more than 15 years of my own field experience with cardiac devices and thousands of hours working with cardiologists.
CRM Background
A key development in the genesis of the modern CBID industry was intracardiac readings from paced and sensed events to gain a better understanding of cardiac conduction and arrhythmias. So as is often the case, sensing and diagnostic functions are important precursors to the development of therapeutic applications.
The heart is quite simply an electromechanical pump that is driven by a tiny cluster of pacemaker cells controlled by the autonomic nervous system. While the heart does have some elegant redundancies, a number of issues can inhibit performance. Pacemaker cells can pace too slowly. Diseased myocardial tissue can block efficient signal transmission. Damaged tissue can create re-entrant circuits that result in chaotic electrical signals and flutter/fibrillation. Atrial fibrillation can be dangerous over the medium/long term and immediately life threatening in the case of ventricular fibrillation.
A cardiac pacemaker can effectively treat signal transmission issues and facilitate a more natural contraction. Transvenous and “leadless” pacemakers come in both single- and dual-chamber models, with dual chamber being the bulk of the market. In cases of fibrillation, there is no point in trying to pace the atrium–instead a single chamber ventricular pacing is appropriate. A variety of technologies are available for attempting to mimic physiological demand in pacing. A heart beating steadily at 60 bpm can certainly be a big improvement from long pauses or rates in the 30s, but it is far from optimum. Accelerometers, minute ventilation, and closed loop stimulation are a few of the most important approaches for proper rate modulation.
An AICD is used to shock the heart in the same way as an external defibrillator may be employed. All AICDs are also pacemakers. Critical to the effectiveness of the AICD is the sensing and discrimination of normal vs arrhythmic events. The algorithm must be 100% sensitive and as highly specific as possible to avoid unnecessary shocks. The system must be able to deliver enough energy to fully depolarize the heart. The AICD is also available in both single- and dual-chamber models for similar reasons as pacemakers.
Both pacemakers and AICDs are available in cardiac resynchronization (CRT) models. Candidates for CRT devices are generally the most compromised of patients but also often see the most dramatic benefit from device therapy. When combined with optimal medical therapies and device optimization, these can be a true miracle for many recipients.
Cardiac disease continues to be a leading cause of death globally with heart failure management taking a massive toll on health systems. From humble origins in the 1960’s, CBID devices now generate some $18 billion in annual sales, with growth rates in the high single digits projected long term. CBID as a field continues to create adjacent opportunities with developments such as Implantable loop recorders, wearable cardioverter defibrillators, electrophysiology diagnostics and others. Implant techniques, platform technologies, leads, delivery systems, and batteries developed over the decades directly contribute to the development of current devices and practices in bioelectronic medicine space.
Each year, about 200,000 AICDs and CRT AICDs are implanted at a cost of more than $12 billion and roughly 700,000 pacemakers are implanted at a cost exceeding $5.5 billion. Due to the expense of AICD therapy, it has been adopted primarily in the EU and North America, but utilization is growing rapidly in Asia and the developing world. Pacemakers are much more widely used as a therapy, with the lower cost being a significant factor in driving availability. As in other areas of medicine, costs per unit are generally significantly higher in the U.S. than other countries.
The AICD market would likely be larger, if not for advances in the treatment of HF and the introduction of medications such as Carvedilol. Demographic trends, aging, and progression of cardiovascular disease comorbidities such as obesity, diabetes, hypertension, and atrial fibrillation will continue to drive volumes well into the future. The management of HF must continue to improve and CBIDs will continue to play an important role.
Vendors
Five companies now represent the bulk of the CBID market, with Medtronic having the largest share. The other participants are: Boston Scientific, Abbott, Biotronik, and LivaNova. Each of the competitors has contributed important advancements that are found on almost every device in use today. One important example was Biotronik’s creation of wireless home telemetry in the early 2000s. This provided tremendous benefit in the early detection of breakthrough arrhythmias or system issues, and reduced in person clinical follow up burdens. Innovations undertaken by one competitor are generally quickly adopted by the other participants, so a long-term differentiation on technology merits is difficult.
Product development cycle times have decreased and competitors can use earlier approvals to speed their own FDA authorizations. Responsiveness to clinician inputs, practical focus on patient benefit and–in my opinion–listening to the field sale force, are critical to product development and enhance market share and profitability. One example of benefit driving share was the Medtronic’s Revo MRI conditional pacemaker released in 2011. This was followed by all industry participants having their own MRI conditional versions in the 2014 to 2016 timeframe, but Medtronic gained an important advantage over that time. Useful new technology provides an opportunity to increase access and/or enhance margins through contract carve-outs and other mechanisms.
Device Safety
Device safety has also played a role in the current composition of market participants. Several companies have had near-death experiences due to safety recalls while others have not survived. One prominent example was during the 1980s when an innovative Australian firm called Telectronics, which had achieved #2 market share, was undone by the acquisition of Cordis and the recall of the Cordis 801 J-style Atrial lead. The device developed a repetitive motion shear and fracture resulting in the lead lacerating the myocardium. Leads have generally been considered the weak link in the CBID system and have created the most liabilities for industry participants. Another issue is capacitor defects in AICDs that resulted in widespread early battery depletion and large safety recalls or advisory notices.
Market Factors
In the 1980s and 1990s, the CBID market enjoyed near-perfect conditions for fostering growth. There was a large and growing patient population, favorable reimbursement climate, open access to facilities, tremendous product innovation, expansion of indications via clinical trials, increasing numbers of surgeons being certified to implant devices, and a healthy competitive environment. Several of these factors are worth discussion.
In the earliest days of the industry, often due to device size and implantation methods, implantation procedure was the dominion of general surgeons and cardiothoracic surgeons. In successive transitions, the implantation “turf” was claimed first by surgeons, then by electrophysiologists, and finally overtaken by interventional cardiologists to implant first pacemakers and then AICDs. This involved a contentious interaction between surgical associations and the CBID industry, with inputs from device vendors and KOLs along with hospital committees. The process was often quite political and companies that had the strongest relationships with incumbent implanters had to navigate such changes carefully. Rapid addition of implanters certainly increased implant volumes and reduced the bottlenecks effect with regards to device choice.
Pricing and access are increasingly decided upon at the corporate level and with the exception of physician administrators—local relationships play more limited roles in the process. The hospital industry is undergoing a wave of consolidation and bargaining power with payers and vendors is an important driver. The result is a more complex contracting process, reduced pricing, and reduced access. While the market has grown in volumes, pricing has withered. Many facilities are paying less for a pacemaker device than they did 10 to 20 years ago. Advances in manufacturing and economies of scale have likely mitigated overall impact on gross margins to some extent.
One contracting strategy widely utilized is the so called “dual vendor” arrangement that device manufacturers develop with hospitals and hospital groups. The rationale being that working with all vendors is too complex to manage and the advantageous pricing offered in exchange for the relative exclusivity directly benefits the hospital. Large, multi-line vendors hold a distinct advantage in this situation even without offering lower pricing, because they can leverage multiple other product lines such as stents, equipment, valves, and other technologies. Therefore, a technological or clinical advantage, or favorable reimbursement decision by CMS, are not a guarantee of access to a given hospital system. Niche providers may be well served to find a large ally in trying to penetrate this market.
Regulatory Issues
The marketing regulatory environment has changed dramatically and at times for good reasons. Like every industry, CBID relies on the development of strong relations with their customers, in this case implanting physicians, referring physicians, and KOLs. This effort was sometimes taken to excess and regulations such as the Sunshine Act and the self-regulatory body AdvaMed were created to prevent such abuses. While many industries enjoy great autonomy in efforts to woo customers, medical device representatives and the companies they work for have very little discretion left. This will in theory reduce the impact of close personal relationships on device selection. It will also make the process of educating and establishing relations with cardiology fellows, having good high level corporate contracting relations, and solid clinical strategies that drive both patient benefit and cost savings at multiple levels increasingly important.
Field sales and service forces are very expensive. Innovations like remote telemetry will allow device checks to be made from a central location, eliminating the need for physical presence at facilities and reducing delays in follow up. The U.S. will likely move toward a more EU-like business model in which hospitals have their own staff trained for implantation and follow-ups, while the role of company representatives is limited.
In response to reduced access and lower physician reimbursements, along with the fact that implantation techniques have been refined and made safer over decades, some organizations are cultivating ASCs as implanting centers. This will open up potentially hundreds more implantation sites nationally and the trend is likely to ramp up in the coming years.
These are some of the dynamics at play within the CBID industry as it continues to make a large positive impact on healthcare and drive innovation that influences the bioelectronic medicine space. The transfer of technological and operational expertise from CBID to bioelectronic medicine will hasten product development, improve safety, and guide clinical strategies. Many novel and capital-constrained bioelectronic medicine startups will likely be absorbed into existing CBID competitors who all have neuromodulation divisions and IP. A relentless focus on safety, patient benefits, and cost effectiveness will be essential for long term success.
