What lies ahead for the medical device sector in 2015?
MassDevice.com posed that question to analysts from Morningstar, Needham & Co. and Canaccord/Genuity. Here are their views on what technology and market trends to look for in the coming year, and whether Congress will repeal the medical device tax:
1. Which technologies do you think we’ll be hearing about the most this year?
Debbie Wang, Morningstar: There is a great deal of interest in experimenting with 3-D printing for personalized orthopedic implants, spinal devices, and even new organs. Immunotherapy is very hot in the pharmaceutical space right now. And we see more efforts by various entities to crack big data analytics in healthcare for better clinical decision-making. We think genomics will become a more widely used technology in the diagnostics area, especially as the cost of sequencing the whole genome or exome continues to fall. We have seen momentum build behind the consumerization of health care, which will likely continue in 2015 as more apps allow for patients to play a more central role in their own healthcare through the electronic devices they already use (smart phones, tablets, etc.).
Mike Matson, Needham & Co.: Orthopedics: robotics, total ankles; cardiovascular: wireless monitoring, drug-coated balloons; diagnostics: multiplex molecular testing, sample-to-answer testing.
Mark Massaro, Canaccord/Genuity: Genetic sequencing, personalized medicine genetics and informatics, targeted and pan-cancer oncology diagnostics, and multiplex infectious disease diagnostics.
2. The med-tech IPO market was red hot in 2014. Do you see the trend continuing or tapering off this year?
Wang: The robust increase in med-tech IPOs during 2014 came off 1 of the worst years ever in 2013. With market conditions more conducive to this exit strategy, we would not be surprised to see more investors take advantage of the environment to exit in 2015.
Matson: As long as the stock market holds up, I expect a significant number of medtech companies to elect to go public.
Massaro: Continuing. Green light.
3. Do you think we’ll see more or less consolidation in the sector this year? Any more mega-mergers like Medtronic/Covidien?
Wang: We anticipate a steady march toward more consolidation in medtech, especially as the largest competitors bulk up in reaction to consolidation by their hospital customers. We think Smith & Nephew (FTSE:SN, NYSE:SNN) will be purchased, and believe Stryker (NYSE:SYK) is the most likely buyer.
Matson: Given high stock prices, low interest rates, and receptive investors, I expect a similar amount of M&A in terms of the number of deals, if not the dollar volume. I think there could be more mega-deals, though perhaps fewer than 2014.
Massaro: Maybe about the same amount, which I think is a lot.
4. Do you think Congress will repeal the medical device tax? Do you see any modifications being made to the tax?
Wang: We think it remains unlikely that the medical device excise tax will be repealed, mainly because the healthcare horse is out of the barn and now we must pay for it. However, if the Supreme Court rules that patients insured through the federal exchange are not allowed to access subsidies, then we think the chances of repealing the device tax will rise.
Matson: I think there is a good chance it is repealed given some significant Democratic support. However, Obama might veto particularly if the bill were to contain other provisions that he disagrees with.
Massaro: I don’t have a lot of visibility on this right now, but my thinking is no, and no.
