Recall the Boom?

Remember back in the ‘90s when biphasic waveform defibrillator technology first started getting noticed? The new technology used lower power while outperforming the standard monophasic machines. Sparks were flying. Startups began popping up within new markets and streamlined defibrillator designs. The FDA started handing out approvals for new devices marketed to hospitals, first responders, and a totally new user - anybody. The potential market growth was immediately apparent, and all players, big and small, wanted in on the action. Well, it's 2005 now and the hot growth still attracts investors to the flames, but success has not proven guaranteed.


Total Recall

Even though the public is gradually accepting the benefit of AEDs, great risk remains for the small player. Case in point: Access Cardiosystems. As of 2003, Access was one of two noted entries to the U.S. defibrillator market. That did not last long however. Many readers may recall the news story that ended Access: two individuals on a charter boat, one with a history of heart disease, the other with a defective defibrillator. The result was a total recall of Access Cardiosystem's previously-FDA-approved defibrillators. Top that off with a little Vioxx and Celebrex and you have an FDA that's ready to reevaluate its history. A few FDA complaints have already been issued at other companies, and limited voluntary recalls quickly followed. The consequences of device failure clearly place some of these battery-operated, automated devices in the high-risk category, but the potential growth benefits are enough to overcome the challenge for most companies.


Recall, the Big Buyouts

Much of the headway in current industry and public acceptance can be traced back to some early acquisitions. Physio-control went early to Medtronic, followed by Agilent's Healthcare Solutions to Philips. Backed by their tremendous marketing resources and distribution pipelines, the companies were able to apply leverage at federal and state levels to get several critical pieces of legislation passed. This early legwork also paved the way for the smaller companies to gain some ground. Even the start-ups jumped in on the acquisition wagon. Cardiac Science, for example, gained its core AED technology through the purchase of Survivalink. Recently, though, the buyouts of defibrillator companies have slowed. Trends favor OEM and distribution partnerships because of the stiff competition. Such distribution agreements are often disguised through smoke-and-mirror labeling techniques such as Smith & Wesson's new AED launch via an unnamed US manufacturer. The essentially one-product manufacturers are now forced to prove themselves in the open market.


What Will We Recall Next?

So what will be old news tomorrow? Will the one-product companies fall to competition and consolidation, or will the start-ups entrench themselves in the market? Maybe both. Cardiac Science has trimmed a few product lines to start getting out of the red, but Zoll appears to be going strong with several diversifying acquisitions in resuscitation technology. Niches created big opportunities for the small players to compete, like Heartsine and Defibtech, but even there the competition is rapidly building. Through its acquisition of MRL, Welch Allyn is poised to take some market share in the emergency medical services market with their full product catalog including everything from defibrillators to laryngoscopes to penlights. Philips' success in getting the HeartStart prescription free may also be tough to beat in the home market. The AED market will likely prove the most small-guy-friendly with its price-bound nature and as-yet untapped potential.


Frost & Sullivan's Call

At the end of the day, some consolidation is likely. GE Medical Systems has stepped in as an OEM for international markets but has otherwise limited itself to distribution in the US. As market shares become consolidated, those manufacturers left without their piece will quickly lose revenue, and some valuable patents may end up going to the highest bidder. With projected total revenue of over $1 billion for the US external defibrillator market in 2006, it would seem difficult for the larger vendors to stay out of the mix.

Despite everything, the market remains highly dynamic. Medicare's recent announcement regarding coverage of implanted defibrillators for 500,000 beneficiaries, could create just the opportunity for Zoll and others to entrench themselves without drawing too much attention. When so much of the market hinges on price, never doubt the impact of the little guys.

www.medicaldevices.frost.com