Medical Device Startups Getting Squeezed by Recession, Lawmakers, Says E&Y Report

Medical Device Startups Getting Squeezed by Recession, Lawmakers, Says E&Y Report
Luke Timmerman 10/13/09

People who make a living creating innovative medical devices—whether it’s an ultrasound diagnostic tool, a stent to prop open clogged arteries, or an MRI machine—are an unhappy bunch these days.

Let us count the ways, as described in the second annual medical device industry analysis being released today by Ernst & Young. Because unemployment is up, people are losing their employer-sponsored health insurance. That means patients are postponing elective medical procedures, and hospitals and government payers are tightening their budgets. A powerful U.S. Senator, Max Baucus, wants to raise $40 billion in taxes on the medical device industry; healthcare reformers like President Obama are talking about comparative effectiveness studies that would add time and expense to device development; and lawmakers are considering whether to require companies to disclose all gifts and payments to doctors who help develop and buy their products.

Those are the megatrends medical device companies have to deal with in this recession, but what does the data say about how they’re being affected? Here are some highlights that caught my eye in this 60-page report:

—Despite the recession, revenues of publicly traded medical technology companies in the U.S. and Europe actually climbed 11 percent to $289 billion (although the growth was only about half that much when factoring out foreign-exchange rate fluctuations and acquisitions).

—While Johnson & Johnson, Medtronic, and Boston Scientific appear to be performing fine, that’s not so much the case for the smaller players that create most of the innovations the big boys acquire to keep growing. U.S. and European medical technology companies saw total industry financing drop 38 percent in 2008—although when E&Y subtracted two big European deals, the numbers looked a lot worse, with financing down 44 percent in Europe and 53 percent in the U.S. “One area where the growing chasm between medtech’s haves and have-nots is most visible is in fundraising,” the report says.

—Mergers and acquisitions, which are usually the only way medical device startups can make returns for their investors, showed a big-time decline in 2008. There were just 79 deals in 2008, down about 41 percent from the prior year.

**READ MORE**