MedTech Dive Outlook 2022

After the coronavirus pandemic upended regulatory plans for the last two years, COVID-19 is poised to remain the top U.S. regulatory priority in 2022 at the FDA. The rapid spread of the highly contagious omicron variant in December and January drove home once again the unpredictable nature of the virus.

It's a lesson that the FDA's Center for Devices and Radiological Health has learned repeatedly during this public health emergency as it has struggled to keep up with an unprecedented workload. Entering 2022, the CDRH was receiving more than 100 emergency use authorization requests per month and expected more than 1,000 in-vitro diagnostics (IVD) pre-EUA and EUA submissions for the year.

The FDA "is going to have challenges with the workload. They are still highly overburdened with all the COVID-related reviews that they need to do," said Blake Wilson,a partner at law firm Hogan Lovells. "We're still going to be seeing delays."

Nonetheless, there are indications the CDRH will move back to some sense of normalcy.

In January, the center began accepting pre-submissions requesting feedback for in-vitro diagnostics that require a premarket approval application or De Novo filing, ending a multi-month hiatus with hopes of accepting all IVD pre-submission requests by the late spring or early summer.

However, the FDA said the reviews may take longer than usual, with the goal of transitioning "toward normal [Medical Device User Fee Amendments (MDUFA)] timelines during the course of 2022." The CDRH is more optimistic on non-IVD medical devices, which it expects to "transition back to most of the MDUFA review timeframes" in 2022.

The new year got off to a shaky start with the omicron surge and the FDA failing to send the final MDUFA V agreement to Congress by the Jan. 15 deadline. The missed deadline follows months of talks that signaled the agency and industry were at odds over critical elements of the MDUFA program.

Another area of uncertainty is whether former FDA head Robert Califf, President Joe Biden's nominee, will be confirmed by the Senate and return to the agency as its commissioner. Bloomberg reported last week that Califf's confirmation is being "stymied by Democratic skepticism of the longtime cardiologist's regulatory track record and a new GOP push to kill his nomination."     

Here's what to expect in 2022 as the FDA grapples with both pandemic and non-COVID-19 workloads.

Product review delays

Throughout the pandemic, the FDA has been forced to prioritize COVID-19 work while also managing normal operations. The dual workload has pushed the agency to the limit, as CDRH chief Jeff Shuren has publicly stated multiple times.

One casualty of the pandemic workload has been delayed product reviews. Insulet's Omnipod 5 insulin pump is a high-profile example of the delayed timelines. After originally being expected in the first half of 2021 and touted as a big product for the industry, the pump was delayed throughout last year and wasn't cleared until last week.

Shuren has also recently warned that review timelines for non-COVID-19 IVDs will remain extended this year as the agency continues to struggle with the coronavirus workload.

In 2022, while the agency may be looking to get back to normal, extended product reviews likely will remain a challenge for the industry. The FDA's ability to reach and sustain "normal" review times this year will depend on adequate resources and the future course of the pandemic, according to Shuren, who flagged the emergence of additional COVID-19 variants of concern as a potential wildcard.

Ryan Zimmerman, a BTIG analyst, said that expectations for product approval now have been elongated and the delays have "certainly been priced into the sector."

"I think you have to be cognizant of the fact that there could be delays here," Zimmerman said. "Some of it could be because there are fundamental concerns, and there's just a change — I don't want to say more scrutiny — but there's just more time spent analyzing the applications relative to maybe the previous FDA under the previous administration."

Zimmerman added that there's been a lot of public attention focused on the FDA recently with COVID-19 testing and vaccine reviews in addition to topics like the Alzheimer's drug debate, all of which "put some sand in the gears, if you will, of the agency's ability to move through its backlog."

The longer review timelines come as the industry overall is set to launch fewer products. Danielle Antalffy, an SVB Leerink analyst, said that there are about 11 new major products expected to be launched in 2022 into new and/or high-growth markets, likening a new, major product to last year's Abbott Laboratories' Amulet cardiac device. Antalffy added that 11 new products would be down from the 15 to 22 range that has been typical for the last five years.

"[2022] feels like a little bit of a lull from a new product cycle perspective for medtech," Antalffy said. "These companies did continue to invest, but are we seeing some of the side effects of having to deal with this pandemic?"

Enforcement, inspections to rise

FDA warning letters to medical device manufacturers plummeted by almost 90% between 2015 and 2019. And 2020's rate of typical warning letters was roughly in line with 2019 numbers. Still, 45 warning letters were issued in 2021 and experts contend such letters are set to rebound in 2022.

Hogan Lovells' Wilson sees an increase in such FDA enforcement activities as part of the agency's "getting back to normal process" and resuming operations. 

"Industry is preparing for warning letters coming back," Wilson said. "You're seeing this pendulum effect. We were already in a low period before the pandemic." 

A December warning letter to Medtronic's diabetes group cited the medtech company for not appropriately classifying patient risks for faulty MiniMed insulin pump devices and for not initiating a recall despite tens of thousands of medical device reports made to the agency over three years.

Dennis Gucciardo, a partner at law firm Morgan Lewis, contends that the medical device industry should prepare for increased compliance enforcement at the agency in 2022.

"We already saw some pretty significant public enforcement activities going on last year, whether it be the Medtronic warning letter or the ongoing Philips recall," Gucciardo said. "Clearly, FDA is not shying away." 

With regard to Philips's recall of more than 5 million ventilators and sleep-apnea devices, Jefferies analysts in a note last month wrote that they "are now less confident a [FDA] warning letter can be avoided." 

Pamela Forrest, a partner at law firm Covington & Burling, notes that so far in fiscal year 2022 there have been eight quality system warning letters and just five for all of fiscal 2021.

"It's a little early to judge if it's a trend or a blip," Forrest said. "The next six months or so will show us where things may be going."     

The FDA also is poised to ramp up for-cause and routine inspections, according to Gucciardo, who noted that in the fourth quarter of 2021 routine inspections "came back with a roar."

In May, the FDA shared its plan for restarting facility inspections, while warning the backlog will persist into 2022. More recently, the agency postponed inspection activities in response to the omicron surge through early February, as well as the planning of prioritized surveillance foreign inspection assignments that were scheduled to begin this month.

Now that omicron cases are starting to drop, Gucciardo is confident the FDA's inspection "cadre is ready to go and will be out there" domestically as well as in foreign inspections.

"Once countries start opening up and allow it, the routine foreign inspections are going to increase," Gucciardo added. "Assuming we get through this wave, in the second half of 2022, FDA will make significant progress on foreign inspections."

The industry may see a draft later this year of a long-awaited set of requirements for medical device quality management systems, which will be subject to evaluation in FDA inspections. The FDA's proposed rule to harmonize the agency's medical device Quality System Regulation with the 2016 standard, which has been going on since 2018, has been completed and is currently under review by the Office of Management and Budget.       

CDS, post-pandemic guidance

The FDA in October released its list of proposed draft and final medical device guidance documents for fiscal year 2022. The list is heavy on documents related to software, including the long-awaited final guidance on clinical decision support (CDS) software.

The CDS document has been five years in the making, with the first draft version released by the agency in 2017 and a revised draft in 2019. It outlines how the FDA will regulate software tools, such as sepsis alerts, which are reviewed by clinicians. The FDA's second draft was better received by the medtech industry for taking a risk-based approach after the first draft drew a multitude of complaints.

"With regard to decision support, I anticipate that FDA will come out with its final CDS guidance in the not-too-distant future," said Bradley Merrill Thompson, an attorney at Epstein Becker Green. "I hope it will be different from the proposal, but we shall see. They have been overreaching in trying to discourage CDS that addresses higher risk diseases and conditions."   

Kyle Faget, co-chair of the healthcare and life sciences practice group at Foley & Lardner, said if the issuance of the final CDS software guidance were to occur this year, as the FDA intends, it would be "huge" for developers of technology in that space who require more regulatory clarity.

"The risk-based approach to enforcement that FDA issued previously is not easy for developers to follow," Faget said. "FDA needs to provide more clarity for developers as to where the boundaries are for each one of those categories."    

The FDA in late December issued draft guidance on the agency's COVID-19 transition plans for medical devices authorized under an EUA, communicating their intention to give holders of EUAs 180 days notice of its intent to terminate their emergency authorizations. The document is currently open for comment. 

Another draft guidance, Plan for Medical Devices That Fall Within Enforcement Policies Issued During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency, was also released in late December. The document provides "recommendations and expectations to manufacturers of devices that fell within enforcement policies to transition back to normal operations when the public health emergency expires."

Morgan Lewis' Gucciardo believes that once medical device manufacturers "start transitioning from EUA or enforcement policies to 510(k), there will be some slowdowns and folks should manage for that."

Still, exactly when the U.S. public health emergency will end remains an open question, though 2022 doesn't seem likely, Gucciardo added.

As the coronavirus pandemic heads into year three, the medical device industry is likely to face another year of challenges as procedure volatility and hospital staffing shortages already are ramping up in 2022.

Six months ago, medtechs were recovering from the first year of the pandemic as vaccination rates increased, procedure volumes steadily climbed and hospital operations normalized.

Then the delta variant upended recovery plans, forcing companies to brace for another surge and delay calls for a return to normal, only to be hit again in late 2021 by the rapid spread of the highly transmissible omicron strain. 

The emergence of multiple variants, and others to possibly come, has quieted recovery talks for medtechs in 2022 and reintroduced questions the industry has been asking for the last two years: When will procedure volumes return to normal? How will hospital staffing impact surgeries? And, if, or when, will the next surge happen?

"This concept of a recovery trade in medtech that we had in 2021 — for a portion of 2021 — where medtech did relatively well … I just think that's out the window at this point," said SVB Leerink analyst Danielle Antalffy.

While all eyes are once again on the impact of the pandemic, topics such as another M&A spending spree and procedures continuing to move to ambulatory surgery centers (ASCs) are other top medtech trends to watch in 2022.

Procedure volume volatility

Surgery volumes fluctuated throughout 2021 and this year may be no different. After medtech CEOs at the J.P. Morgan Healthcare Conference earlier this month were relatively quiet about the impact of omicron on their businesses , Intuitive Surgical and Johnson & Johnson reported on recent earnings calls that volumes likely will decline in the first quarter of the year, if not the first half.

While more companies will report on their most recent quarter in the next few weeks — providing a glimpse at the early impact of omicron and the continuing impact of delta — experts are projecting more pressure on procedures.

"If we had this conversation a month ago — at the tail end of 2021 and before omicron really started to pick up — I would have suggested that the first quarter would be in a recovery mode with gradual improvement, although, limited by the fact that many hospitals are constrained by staffing," BTIG analyst Ryan Zimmerman said. "All that is still true, and all that holds true for the balance of 2022. But omicron, obviously, threw a curveball."

Companies have recently cautioned that omicron is limiting nonemergent procedures in the first quarter of the year, and because of the variant driving a surge in the final weeks of the fourth quarter and the opening weeks of the first, it may be months before the industry realizes the full impact of the variant.

Because of this unpredictability, companies likely will release conservative 2022 forecasts or suspend giving full-year guidance, according to both Antalffy and Zimmerman.

Mayuri Shah, a partner with Bain & Company, said, as has been the case for the last two years, procedures like orthopaedics will see more of an impact than others such as cardiac procedures as they are considered to be more deferrable.

Still, Shah said that cardiac procedures overall are "down meaningfully," spurring questions about whether surgeries traditionally viewed as more emergent are going be under pressure this year as well.

SVB's Antalffy said that a company like Edwards Lifesciences, which does cardiac procedures for more life-threatening conditions, is more "resilient" to the pandemic, while there are still questions about when revenue from the procedures will be booked. Some cardiac procedures are labor intensive and can be deferred a quarter or two regardless of how necessary they may be, according to the analyst.

Edwards CEO Michael Mussallem said during the J.P. Morgan conference that January was "starting slower than we originally planned," but at the time the situation was not bad enough for the medtech to alter its 2022 forecast of 12% to 15% sales growth for the transcatheter aortic valve replacement business.

Analysts agreed that the continuing COVID-19 outbreak, and the potential surges ahead, are curbing how fast companies can work through procedure backlogs, which medtechs continually pointed to throughout 2020 and 2021 as a positive sign for future revenue as the majority of procedures have to be performed eventually.

Nonemergent care has been shut down at various times over the past two years to conserve hospital resources and keep beds available for COVID-19 patients. However, this most recent surge may have a new element.

As procedure volumes are dropping again, Bain's Shah said that "this is the first time where we're seeing the staffing shortages also playing such a big role."

Hospital labor shortages

Staffing shortages have been a challenge for hospitals and other healthcare facilities for much of the last year and the issue seems to have grown as multiple industry executives have pointed to staffing shortages slowing businesses on their most recent earnings calls. 

J&J CFO Joseph Wolk on Tuesday's earnings call with investors continually pointed to hospital staffing shortages as a cause for limited procedure volumes in the fourth quarter and said that the company likely will be affected throughout the year.

As labor shortages are being called out as top reasons for procedure volume pressure in the coming year, each new surge may exacerbate the problem of worker burnout or fatigue. Furthermore, smaller staffs limit the number of procedures a facility can perform, even when a hospital is not going through a COVID-19 surge.

"This is not an easy fix. Hospitals are trying to work as best they can with shorter staff and/or paying traveling nurses a ton of money," Antalffy said. "I think that's going to be the issue that we're talking about in six months."

BTIG's Zimmerman said that due to the nature of the pandemic, with multiple surges straining hospitals' staff and possibly more surges to come, staffing shortages may get worse before they get better.

"It's not just taking a nurse who graduated from nursing school or someone who's an ultrasound technician — those people become technically proficient over time, and then they become really productive in a specific area," Zimmerman said. "The fact that these are skill gaps that have been lost over the past 18 months or two years is a problem, and it's going to take some time to fix."

While labor shortages have been exacerbated due to COVID-19, it is a long-term, complex issue that likely won't be solved by an easing of the pandemic.

Another M&A spree

M&A this year kicked off with Stryker's almost $3 billion purchase of Vocera Communications. However, since the Stryker deal was announced, spending has slowed compared with the 10 deals announced in January 2021.

That likely won't continue. Medtechs still have cash stored because of more conservative spending habits throughout the pandemic, and while M&A has been a big theme for medtechs in the last several years — excluding 2020 — analysts expect dealmaking to continue for companies across the industry.

"We know that valuations are nearing all-time highs in the medtech space, that is still occurring. But companies have to grow, and even though there are assets out there that are expensive, companies in the space still are acquiring assets to drive creative growth," Truist Securities analyst David Rescott said. "We don't necessarily expect a slow down from a high level."

Stryker's Vocera announcement didn't spur a run of spending in January, even though the deal continued a larger trend of medtechs stepping out of their typical business lines and making digital-health investments.

The orthopaedic company's $3 billion purchase follows Baxter's $10.5 billion acquisition of Hillrom last year, which was motivated by Baxter growing its digital-health and connected-care offerings.

While medtechs may also use M&A to branch out to digital markets, Rescott said it's "probably a five-year type of story as opposed to something that we immediately see in 2022."

Bain's Shah said that category leadership will continue to be a key driver of M&A.

"Category leaders have more commercial strength in terms of their relationships with physicians and facilities, they generally tend to have more clinical expertise in the categories in which they play and then, importantly, relationships with the key opinion leaders there," Shah said, adding that companies then have the ability to further invest in those spaces.

Along with an increase in deal activity, 2022 could be another big year for medtech IPOs after hitting a five-year high last year, Rescott said.

Growth for ASCs

A bi-product of procedure shutdowns at hospitals has been the migrations of surgeries to ASCs — a trend that started before the pandemic but has taken off since and forced companies to rethink their business strategies.

ASCs provide alternative sites of care for specific procedures, allowing for hospitals to open up beds and conserve resources. In the past few years, CMS has allowed Medicare to cover more procedures in ASCs, and medtechs like Stryker, J&J and Zimmer Biomet have focused more on these facilities.

BTIG's Zimmerman said that other factors during the pandemic such as staffing shortages and preventing patients from being infected by the virus have all fueled procedure movement.

"It was like taking gasoline to a match," the analyst said.

Companies are not just utilizing ASCs more to replace procedure volumes as they were in the early days of the pandemic, but are now tailoring products to the specific facility. Bain's Shah said that orthopaedic companies are marketing their robotic surgery systems — Zimmer with Rosa; Stryker with Mako; J&J with Velys — as value propositions specifically for ASCs, a trend that likely will continue.

A key question is how much of those volumes will move back to hospitals when the pandemic improves. Stryker CEO Kevin Lobo said in January 2021 that the move is permanent and only going to accelerate, a prediction that may turn out to be correct the longer the pandemic goes on.

"There's a world in which some of [the complex cases] continue to live largely in the hospital environment," Shah said. "But the incremental time, the added time, where ASCs are improving on delivering these procedures will cement them as a key part of this ecosystem."

This is the first article in a series looking at key trends and topics for the medtech industry in 2022.

What a difference a couple of months makes. In that space of time, omicron rapidly surged past the delta variant to become the dominant coronavirus strain in the U.S., and in the process caused demand for COVID-19 tests to skyrocket.

"We all saw this Thanksgiving, Christmas, very big surge in testing," Abbott Laboratories CEO Robert Ford told last week's virtual J.P. Morgan healthcare conference. "We've obviously had a pretty strong last couple of months of testing, and we expect that to continue here in the more immediate future."

It was a whirlwind development that coincided with the holidays and quickly strained America's testing capacity, catching the Biden administration flat-footed in its response. During a Wednesday press conference, President Joe Biden acknowledged that his administration could have been quicker to boost the supply of tests.

"Should we have done more testing earlier? Yes. But we're doing more now," Biden said.

The federal government on Wednesday began offering 1 billion rapid COVID-19 tests through a website where Americans can order them for free and have them mailed to their homes. Abbott, iHealth Lab and Roche last week were awarded Department of Defense contracts for a combined 380 million over-the-counter antigen test kits in support of the president’s omicron response plan.

Janet Woodcock, the FDA's acting commissioner, said in testimony last week before a Senate committee that two of the agency’s recent emergency use authorizations for Roche and Siemens alone may result in up to 400 million additional at-home tests available monthly to American consumers by early 2022. 

Ramping up manufacturing

The U.S. is currently producing 300 million rapid at-home tests per month but the country is facing significant shortages. Manufacturers are scrambling to keep up with the overwhelming demand for at-home tests, including Abbott, which continues to ramp up its manufacturing capabilities.   

Ford told the J.P. Morgan healthcare conference last week that Abbott has "plenty of capacity" to support U.S. and international demand, with current manufacturing capacity of more than 100 million tests per month globally. Domestically, the diagnostics maker said it will manufacture 70 million BinaxNOW rapid tests this month in the U.S., with plans to increase that output.  

At the same time, Ford said it's difficult for Abbott to forecast how long the strong demand for tests will continue. 

"The challenge here is just going to be, how does this play out over time throughout the year?" Ford added. "Testing will eventually ramp down, but there will be a portion that will be sustained."

Compared to the company's polymerase chain reaction (PCR) line of test products, Ford said rapid testing is the "more sustainable" part of Abbott's business and "if there was going to be a decline, it would be the platform that would decline later."

Abbott is scheduled to report its fourth-quarter 2021 financial results on Jan. 26. Ford said at the J.P. Morgan conference that testing guidance for 2022 will be provided to coincide with the release of the latest quarterly earnings.

"I think it was good to watch and see how testing has evolved over this last month, month and a half. And I think having that information is going to allow us to have a better sense as how we're going to guide for 2022," Ford said. "We'll have to kind of get comfortable with a number or a range of what we think is a pretty comfortable number here, and that doesn't mean conservative. It just means visibility and understanding. And then from there, kind of be able to update it as we go along throughout the year."

Quidel earlier this month reported preliminary fourth-quarter revenues falling in the $633 million to $637 million range, beating analyst expectations and far exceeding $509.7 million in the third quarter. COVID-19 tests alone generated $510 million in the fourth quarter based on sales of approximately 65 million QuickVue antigen tests and over four million Sofia antigen tests. However, the company did not provide 2022 guidance.

To meet the surge in testing demand, CEO Doug Bryant last week told the J.P. Morgan conference that Quidel has increased its manufacturing capacity and by mid-February will produce 70 million tests per month. However, Bryant warned that it has become "increasingly more difficult to hire people" and the company had to increase its base wage rate "in order to attract the talent that we needed," while about 10% of Quidel's workforce is "out at the moment" due to the spread of omicron among employees.

"We're trying to ramp up and increase production at a time when we've got people falling out from time to time," Bryant said.    

Bryant sees the potential for COVID-19 to ultimately change over from a pandemic to an endemic "just like the other seasonal respiratory viruses" with a corresponding decrease in need for testing, although Bryant didn't provide a timeframe for that transition or a business forecast. "We do see flu popping up," the CEO added. "I don't know what that will mean for the next couple of quarters but we are making both more flu and the combo products."  

Quidel will report full financial results for the fourth quarter and full year 2021 sometime in February. 

Becton Dickinson CEO Tom Polen last week told the J.P. Morgan conference that the company's professional and at-home tests are in higher demand relative to previously communicated guidance. In November, when BD announced fourth fiscal quarter and full year 2021 results, the company provided fiscal year 2022 guidance that assumed approximately $200 million in COVID-19-only diagnostic testing revenues.

Asked to provide further comment on the stronger than expected at-home test sales in the quarter, Polen said "certainly we're exceeding our guidance" as omicron "has boosted up demand - of course, at what pace omicron ends up trailing off and what it looks like in the back half of the year is still unknown."      

At the same time, Polen noted that while antigen test pricing is in line with BD's expectations, it is "much lower than when testing first launched and there's now over 40 rapid antigen tests with EUAs in the U.S. market." The CEO also warned that the pandemic "remains a fluid situation" and BD continues to closely monitor the volatile business environment, including ongoing supply chain pressures.    

BD on Feb. 3 is slated to report financial results for its first quarter of fiscal year 2022.