The U.S. medical technology industry can thank its peers across the pond for boosting the segment’s bottom line by 11 percent last year, according to an Ernst & Young report.
Some serious belt-tightening in the face of flat revenues helped European and U.S. medical device makers post increased profits in 2009. Living lean isn’t about to go out of style, either. The consulting firm said the industry will face a raft of new challenges from the healthcare reform act and a more stringent regulatory climate.
Tight capital markets will also play a role, according to the report, “Pulse of the Industry: Medical technology report 2010.” The push for comparative effectiveness research and the 2.3 percent excise tax on U.S. device sales will also present challenges.
“The medtech industry showed impressive discipline last year by improving bottom-line performance even as revenues remained flat, but even bigger challenges lie ahead,” said John Babitt, E&Y’s Americas medtech leader. “With the financing model under enormous strain, the industry will need new ways to fund innovation. As hospitals consolidate purchasing decisions and payors look to CER, companies will need to demonstrate value as never before, and with revenues plateauing — particularly in mature markets — they will have to find new sources of growth.”
Here’s a look at how last year broke down:
- Tight belts: Revenues for publicly traded medtech companies in the U.S. and Europe grew 0.3 percent, to $294.1 billion (sales grew 11 percent in 2008, according to the report). But net income rose by 10.8 percent last year.
- Leverage: Device makers raised $13.1 billion, up 45 percent over 2008 — 88 percent in the U.S. This year total financing is up 104 percent compared to the same period in 2009.
- VC: Venture capital put $2.7 billion into the U.S. sector and $701 million into European firms in 2009, essentially flat compared to 2008. VC spent $2.4 billion during the first six months of this year, on pace for both sides of the Atlantic to beat their 2009 marks.
But VC firms where charier about where to put their cash last year, howeverm disproportionately backing late-stage businesses “at the expense of emerging medtechs that have historically driven innovation in the industry,” according to the report.
- IPOs: The U.S. and Europe tied when it came to initial public offerings last year and, so far, this year: One each per year (and the first since Q1 2008 for the Yanks). The U.S. averaged 14 medtech IPOs annually between 2004 and 2007.
- M&As: Mergers and acquisitions worth $15.7 billion went down last year, a 62 percent slide from 2008 and the lowest ebb since 2002. During the first half of 2010 there were 89 deals worth $16.9 billion. That excludes Novartis’ $28.3 billion acquisition of a majority stake in Alcon, which would have brought the six month M&A total to $45.2b).
