The medtech tax will be repealed, and other predictions for 2014

As we put a ribbon on 2013, another tumultuous year for the medical device industry, it’s time to check the tea leaves for what medtech might expect in 2014.

These predictions are based on the 2,500 or so stories we’ve written this year about the medical device space, as well as conversations we’ve had with hundreds of industry leaders about their thoughts, concerns, annoyances and triumphs.

Prediction #1: The medical device tax will not survive 2014

The 2.3% medical device excise tax barely survived the budget battle this fall with an amendment to repeal the onerous levy making it all the way to the final reconciliation before being yanked out at the last minute.

Might the tax have suffered a mortal blow by being dragged into the fray? Public support to repeal the tax is still high and the industry continues to score points on the jobs argument. Yet the industry is still writing checks to the IRS, so it’s still only a moral victory.

Yet there remain several good signs that the tax could be repealed in the coming year.

First, the author and godfather of the medical device tax, Sen. Max Baucus, is retiring this year and is likely off to China as the next ambassador for the U.S. As we’ve noted in the past, the Big Sky State’s senior senator looms large over the medical device tax debate because of the considerable power he yields over the purse strings of the federal government as chairman of the Senate Finance Committee.

While it’s unlikely that he’ll have a true "come to Jesus" moment on the tax he helped spawn, without his stewardship it’s not out of the question that Democratic support for the tax will wilt as he moves into full lame duck status.

Second, while Obamacare enrollment numbers have grown since the disastrous roll-out of the healthcare reform act in October, they’re still well below the threshold the government anticipated.

HHS said in early December that about 365,000 Americans had signed up for insurance through state and federal marketplaces and another 803,000 had been determined eligible for Medicaid or CHIP.

The Congressional Budget Office has estimated that more than 7 million Americans will enroll in healthcare plans through state and federal exchanges during the enrollment period from October 2013 to March 31, 2014, with an additional 8 million receiving health insurance through Medicaid and CHIP. That works out to about 14 million previously uninsured people who will have health insurance in 2014. To meet the CBO’s estimate, roughly 1.4 million Americans would have to sign up for the exchanges each month. An additional 1.5 million would have to enroll through Medicaid and CHIP in order for the Feds to meet their anticipated goals.

Regulators are still woefully behind on their enrollment targets and, while there’s still time to save face, it’s highly unlikely that there will be an additional 14 million Americans added to the health insurance rolls as a result of Obamacare by 2014.

With election-year mentality and low enrollment numbers cutting a huge hole in their "windfall" argument, Democrats may look to mitigate the damage of Obamacare by jettisoning the politically unpopular tax that many consider unnecessary to the survival of the law.

Prediction #2: Pelvic mesh settlements could rival metal-on-metal hips

Five medical device companies that make pelvic mesh implants have more than 30,000 pending lawsuits in the U.S., according to a Bloomberg report.

Endo Health Solutions (NSDQ:ENDP) subsidiary American Medical Systems agreed in June to pay $54 million to settle personal injury lawsuits filed over its pelvic mesh products. Also this summer, in a verdict against C.R. Bard (NYSE:BCR), a plaintiff was awarded $250,000 in compensatory damages and $1.75 million in punitive damages.

Bloomberg cites anonymous sources suggesting the following companies are participating in a potential group settlement: C.R. Bard (12,000+ cases),  Boston Scientific (NYSE:BSX) (12,000+ cases), Endo Health Solutions (13,500 cases), Cook Medical and Coloplast (1000 cases combined).

Healthcare giant Johnson & Johnson (NYSE:JNJ) agreed to a $2.5 billion settlement to close the books on one of the multi-patient lawsuits over recalled metal-on-metal hip implants made by subsidiary DePuy Orthopaedics in November.

If the settlement numbers come anywhere near that level, the pelvic mesh cases could be even more significant. Either way, we won’t have to wait long for an answer, as Bard’s bellwether trial is set for January 10, 2014.

Tell us what you think the results of the pelvic mesh lawsuits will be

Prediction #3: Med tech stocks will come back to earth

The medtech industry had a banner year on Wall Street in 2013, with share prices for some 39 publicly traded medical device makers rising an average 44.8% as of Dec. 17, out-pacing the Dow Jones Industrial Average (up 21.1% this year), the S&P 500 (+24.9%) and the NASDAQ index (+29.8%).

Several medtech makers posted triple-digit gains this year, including Retractable Technologies (NYSE:RVP), (NSDQ:DXCM), AtriCure (NSDQ:ATRC) and NuVasive Inc. (NSDQ:NUVA).

Other notable gainers include 1-time cellar-dweller Boston Scientific (NYSE:BSX), up 95.2% from $5.86 per share at the beginning of the year to $11.44; Abiomed (NSDQ:ABMD), which saw share prices rise 93.0% from $13.69 apiece to $26.42; and Unilife (NSDQ:UNIS), up 82.4% to $4.25 apiece as of Dec. 22, from a $2.33 start.

Those are some pretty gaudy numbers, even if former high flyers like Edwards Lifesciences (NYSE:EW) watched share price slide 31.8% to $62.73 as of market’s close Dec. 17, from a $91.92 start Jan 2. Intuitive Surgical (NSDQ:ISRG) also suffered, with share prices falling to $355.93 apiece as of Dec. 22, down 29.7% from the $506.50 mark logged on the 1st day of trading in January. And fellow robotic surgery company Hansen Medical (NSDQ:HNSN) slid 24.5% to $1.63 per share, from $2.16 apiece at the beginning of 2013.

While some think 2014 will be a big year for IPOs, color us a little skeptical that the rally can last.

After all, how much of the medtech boom was based on performance and how much was based on outside factors such as the billions of dollars in share repurchases by medtech companies and the Federal Reserve’s quantitative easing, which has bolstered Wall Street for a year now?

Our crystal ball says the returns come back to earth by the end of 2014.

That’s all we have for now, but keep reading in 2014 to find out if we were right.

Happy new year.

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