Must-know: Current medical devices risks and opportunities

Q3 results

Abbott Labs (ABT), Philips Healthcare (PHG), and Johnson & Johnson (JNJ) all released financial results recently. Abbott beat Q3 profit expectations and raised its dividend 57%. Philips’s overall sales dipped, but its medical device division had its EBITDA (earnings before interest, tax, depreciation, and amortization) rise 7.1%. Johnson & Johnson boosted its Q3 profit with sales up 3.6%. Overall, though, JNJ’s boost was largely driven by its pharmaceutical division.

The industry looks to be weathering the Obamacare storm, yet there are still a couple key reasons to be wary of the industry over the coming months.

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Risks

The government shutdown and attempts to delay Obamacare did nothing but delay confidence in the medical device industry. FDA (US Department of Agriculture) delays and uncertainty around healthcare policies will undoubtedly delay investment and purchasing decisions.

Although Obamacare ignited growth in the healthcare industry, analysts say healthcare construction will be down 2% this year, which isn’t good news for manufacturers.

Patient procedure volume growth is growing slower than expected. Following a drop in elective procedures after the recession, procedure volume has struggled to grow significantly and patients are still proceeding slowly.

Although India and China are shining stars driving global market growth, developed markets in Europe are softening with tough healthcare markets. Similar to the US, countries like Germany and France aren’t expected to pick up growth through the end of 2013. Russia and the Middle East are similar, showing minimal growth.

Post-2013 outlook

Reports are showing significant growth in the consumer medical device market. IMS Research estimates the market will increase almost 4%, possibly reaching $8.2 billion next year. This growth will be driven by increasing prices and a growing elderly population. The report predicts that the industry will continue to grow between 5% and 9% annually, reaching approximately $10.6 billion by 2017. Along with a greater proportion of elderly people driving growth, analysts cite increases in the incidence of cardiovascular diseases among the entire population and government initiatives in place for preventative care.

The end story is that the medical device industry is growing and will continue to grow through the next couple years, but the question at the end of the day is timing.