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

Xconomy National — 

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.

—The IPO market was basically flat-lining, with medical device companies raising a puny … Next Page »

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7 responses to “Medical Device Startups Getting Squeezed by Recession, Lawmakers, Says E&Y Report”

  1. Luke,

    As usual, your reporting is insightful, and in this case, also sobering. Thank you. What is your thought on substituting, at least temporarily, government “stimulus” and SBIR/STTR funding for some portion of private capital? Is this a viable? Please see our thoughts @ MedTech-IQ on “non-dilutive” government funding for translating medical technology from lab to market – “West Coast Venture vs. East Coast Stimulation … Time to Bridge the Gap?…”,

  2. Nick Poulios, PhD says:

    Reimbursement VP level with 15 years of experience in major pharma/biotech available for full time position with start up biotech and/or medical device company. Direct interaction w/upper management (CEO, SVP). The industry is squeezed on the reimbursement front and now is the time to engage the reimbursement strategies to provide patient access.

  3. | Acneguy says:

    I think we are also seeing some signs of recovery from the Economic Recession. Of course, we have no idea of how long it will take to completely recover, but some say it’s going to be longer than for the other recessions in decades. I also scanned an article yesterday that said business owners need a new set of tactics to do well during recovery.

  4. With most innovation coming from the start ups that feed the gloiaths of our industry, we struggle with raising capital with a decent valuation with so much un certainty that comes from politicians that do not understand the basic principles of this industry. Healthcare is a topic for us all to be concerned with, but start ups that bring innovation cannot overcome the burden of taxes and increased legislative “Red Tape” that they are considering to increase. They will Squeeze the life out of innovation with the plans they are lobbying to enact. May Capitalism Prevail!