A half-year medtech review by business intelligence firm Evaluate described the first six months of the year as largely disappointing.
The factors for this are manifold: low venture investing activity, fewer mergers and acquisitions, and a steep decline in first-time PMAs granted.
But it could have been worse. Opponents of the medical device tax had painted a dystopia of mass layoffs, plant closings, and a general downfall of a strong industry, none of which has borne out even though the industry has paid more than $1 billion in this new tax in 2013. The report rightly concludes that these dire consequences of the tax haven't materialized.
Even so, there is a real existential threat to the business models of medical device firms built around the fee-for-service model that Obamacare seeks to dismantle over the next few years.
So far, there were some winners in the first half in terms of stock price increases.
The top five medtech companies in this regard were:
On the losing side of the large-cap medtech companies were:
Smaller companies that also saw a fall in stock prices include Edwards Lifesciences and Volcano.
On the flip side, Boston Scientific, which has struggled in the past few years, saw the beginnings of a turnaround take hold as investors showed confidence, sending its stock higher by a whopping 81% to $9.27. The dramatic rise also shows how far the company's stock price had fallen.
While the large-cap sector showed strength, the report found that private investors had less affection for smaller startups. In fact, venture capital activity in medtech has been largely muted in the first half of 2013, especially compared with biotech and pharma investments. The report noted that between the first quarter and second quarter of this year, venture investments in biotech and pharma skyrocketed 189%. The same period brought a measly 1.2% increase in investments into medtech startups.
The fact that the industry is not feeling VC love could be attributed, in part, to the regulatory landscape. FDA granted only 9 PMAs in the first six months, compared with 19 in the same period in 2012.
Mergers and acquisitions have been affected, too. In fact, the report author concludes that the "value of the mergers completed in the first half of 2013 is so low, that if the rate does not improve, 2013 is on track to be the most disappointing year since 2003."
So, given the market dynamics, regulatory environment and investing landscape, how can companies fare better in the future? One term - not particularly liked by the industry - can provide the key: comparative effectiveness.
Medtech companies can win only if they can prove that their product works better and lowers cost for providers.
[Photo Credit: iStockphoto.com user Imabase]