Well, so much for dreams of a bountiful new year. An investment bank industry analyst predicts a big surge in medical device M&A in 2013, plus accelerated restructuring and cost cutting. What's even more ominous, according to the Leerink Swann report's predictions, is that smaller companies in the sector will face a much harder time reaching profitability in 2013.
Why such a sobering prediction, you might ask? The report blames a bad global economy, health care reform, the resulting cost pressures caused by the new law and the device tax slated to begin on Jan. 1, 2013.
The report envisions Abbott ($ABT), Johnson & Johnson ($JNJ), Boston Scientific ($BSX), Covidien ($COV), Stryker ($SYK) and others as actively pursuing acquisition targets in order to boost their own top line growth. The tax, almost universally targeted by the industry as a job and innovation killer, will lead to an escalation of restructuring initiatives beyond plans already announced by J&J, St. Jude Medical ($STJ), Stryker and others. And as a result of said tax, the Leerink Swann report predicts, small-cap medical technology companies will now face a longer path to profitability--a move of the goal post that could lead many of these companies to seek a buyer with deep pockets rather than remain standing alone.
During 2012, the Leerink Swann report notes, medical device companies faced a number of outside factors leading to major pricing pressure, from austerity in the European Union to high U.S. unemployment, which led to fewer medical procedures. That, and continued push-back from governments and insurers around the world to reduce costs will likely continue in 2013, the report concludes, with new threats from CMS' push for bundled payments and other health care payment changes that could affect sales levels.
The Leerink Swann analysis isn't all gray. It sees an accelerated push into "faster-growth" emerging markets as one important solution that's likely giving device companies a new income source as markets in developed countries continue to stagnate.
- read the full report (pdf)
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