January 5, 2011

3 Min Read
Medical Device Industry Outlook for 2011: Better Than Last Year

We ushered in a new year and bid a fond farewell to 2010. So, now what? Now is the time for surveys to abound and for experts to come out of the woodwork and weigh in on the medical device industry's prospects in 2011. For your reference, MPMN has consolidated some of these prognostications into a brief industry outlook cheat sheet. Let the speculation begin!

  • Growth on the Horizon. Analysts at Kalorama Information forecast that the global medical device market will exceed $300 billion in 2011, with estimates at about $312 billion. In its report, "The Global Market for Medical Devices," the group foresees growth of about 4 to 6% in the next few years.

  • Merge. Acquire. Repeat. In light of the still-struggling economy, more merger and acquisition activity is expected by industry insiders. "Medical device valuations have gotten beaten up pretty badly. They are starting to come back a little bit, but it might be a long time before valuations get back to pre-2006, 2007 levels. So now might be a pretty good time to sell," Michael Neuberger, head of the healthcare banking group and managing director at BMO Capital Markets, advised attendees at the Reuters Health Summit in November. Luckily, many of the 'big guys' are looking to buy in an effort to broaden their portfolios. Johnson & Johnson, Abbott Labs, Baxter International, and Medtronic are among the companies that experts predict will be on the lookout for acquisitions. Diagnostics and ophthalmology have been cited as potential areas for diversification.

  • Uncertainty in VC Investment. Venture capitalists (VCs) and VC-backed CEOs expressed mixed opinions on VC spending in 2011 in a survey conducted by the National Venture Capital Association and Dow Jones. When asked how U.S. VC investment dollars for medical devices in 2011 would fare, 35% of respondents predicted that they would stay the same, 30% thought they would decrease, and 35% forecasted they might increase.

  • Medtronic: Still as Mighty? While medium-sized companies are expected to grow, industry giants like Medtronic are no longer expected to deliver spectacular growth, John C. Thompson, chief executive and portfolio manager at Vilas Capital Management Inc. told the Milwaukee, Wisconsin, Journal Sentinel. "[Medtronic has] been underperforming the market for a decade, even though earnings are growing nicely," he said. But despite facing the challenges of a recession and the high-risk nature of many of its products, the company will likely fare well in the coming year, Thompson says. He speculates that the company's shares could trade as high as $88 in the next three years; shares have traded in a 52-week range of $30.80 to $46.66, the paper reports. He also adds that growth will be found elsewhere. "Mid- and small-cap have outperformed, which attracted money into those mutual funds, which means there's buying power in those funds."

  • Cautious Optimism. This year promises to be challenging, but it will likely be better than 2010 for medical device manufacturers, according to William Blair & Co. analyst Matthew O'Brien. He predicts that while revenue growth will increase, revenue for orthopedic implants and some other devices could take a hit owing to increased pressure to reduce prices. In addition, more regulatory red tape could result in fewer new products entering the market, O'Brien noted. In addition, global regulatory organization The Emergo Group expressed the general attitude of the industry as 'cautious optimism' for 2011 as determined by a recent survey.

Do you think 2011 will be better than 2010? What are your predictions for 2011? Let us know in the comments section. --Shana Leonard

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