Device Stocks up 3.8% in Second Quarter 2003

Originally Published MDDI November 2003

NEWSTRENDS

Erik Swain

The medical device segment trailed the overall stock market in the second quarter of 2003, but shows promise for the near future, according to a report.

The stocks tracked in the device industry rose an aggregate of 3.8% during the quarter, compared to the 
14.9% gain in Standard & Poor's (S&P) 500, according to a report by investment bank Houlihan Lokey Howard & Zurkin (Chicago). 

However, cardiovascular device companies outperformed the market. Leaders there included Boston Scientific Corp. (Natick, MA), up 49.9%, and St. Jude Medical Inc. (St. Paul, MN), up 17.9%. 

For the 12 months ending June 2003, according to the report, device company stocks rose 9.4%, led by firms in the cardiovascular, ophthalmology, respiratory, aesthetics/urology, and instrumentation/diagnostics sectors. This bested both the S&P 500, which gained 0.6% during that time, and the healthcare services sector, which lost 28.4%. 
The cardiovascular segment also leads the device industry in earnings before interest, taxes, amortization, and depreciation (EBITDA), with a multiple of 21.9¥. Orthopedic/neurology was second with 18.3¥, and the industry average was 11.6¥. 

Houlihan Lokey sees promise in the drug-eluting stent market, which had grown larger than Wall Street estimated at the time of the report's publication. It also expressed optimism for companies entering the transdermal drug-delivery market, which could grow to $5.7 billion by 2009. 

The quarter saw much activity in mergers and acquisitions. The report said the device sector was the most active in the healthcare industry with 45 transactions, accounting for 20% of healthcare transaction volume and 9% of healthcare transaction value.

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