The State of the US Medical Device Manufacturing Sector

According to a recent report published in 2012 by US-headquartered business consultancy Ernst & Young, (E&Y) Pulse of the Industry: Medical Technology 2012, revenues generated by publicly listed US medical technology firms grew by 4% in 2011 to US$204.3 bn from US$196.4 bn in 2010. Of this total, conglomerates—with a share of 37% of 2011 revenues—increased by 7% to US$76.3 bn. Pure-play companies, with the remaining 63% share, rose by 2% to US$128 bn.

Net income generated by these companies expanded by a significant 19% from US$11.5 bn to US$13.7 bn while spending on R&D rose by 2% to US$9.9 bn. However, the report points out that this increase was “boosted by the fact that Boston Scientific, Alere and Hologic incurred significant merger-, impairment-, and litigation-related charges in 2010”. Normalising these charges puts net income growth at 2%, bringing it back in line with revenue growth.

In 2011 the public companies involved in medical technology employed a total of 439,800, up by 2% from 431,000 in 2010. The total number of public companies fell by 4% to 254.

The report assesses the impact of the economic downturn which began in 2008. It states that before 2008, the US medtech industry would typically generate double-digit increases in revenue but since 2008 single-digit growth has become the norm. The reasons given for this are: the industry “grappling mounting financial pressures of payers” and “considerable regulatory uncertainties”.

The report also states that 2011 revenues were helped by a weak US dollar. Indeed, E&Y estimate that nearly 40% of revenue growth by the top ten US pure play companies was the result of favourable foreign exchange rates. Without these exchange rates, total revenue growth by all public companies would have been 3%, not 4% while the rise in revenues of pure play companies would have halved to below 1%.     

On April 29, 2013, two leading US politicians—Senator Amy Klobuchar of the Democrats, who represents the state of Minnesota, and Congressman Erik Paulsen of the USA’s Republican party (both pictured), who represents Minnesota’s 3rd district—spoke to the US device manufacturing community about their success in March in persuading 79 senators to vote to repeal the 2.3% device tax.

John Eckberg, director of media relations at the Cook Group and Stephan Ogilvie, vice president of corporate development, at NuVasive also spoke. The four formed an open panel answering questions from the floor of conference delegates. A recording of the session is available at: http://bit.ly/1974gQ3.

The conference organiser, Joe Hage of the Medical Devices LinkedIn Group

(http://linkd.in/MDGroup), asked the politicians: “After your success with the 79 to 20 Senate vote, the The Wall Street Journal characterised the vote as largely symbolic. What do you say to that?”

Amy Klobuchar responded with: “When we first started our debate a number of years ago about repealing the device tax people would look at us with blank stares because they thought they didn’t have any medical device companies in their state or district.

She added: “The senator from Indiana and I were some of the only ones standing up on the Democratic side saying “you don’t tax manufacturing like this—putting it on a revenue as opposed to profit will especially hurt the small start-up companies”.”

She went on to say: “We were able to get the tax halved, from US$40 bn to US$20 bn. And with help from Erik Paulsen, who has been a staunch supporter of the device tax repeal, we managed to get 18 democratic senators on a letter saying it should be delayed for a year. That was a major step forward and a surprise to the [Obama] administration.”

The vote in the Senate took place in March when 79 senators voted in support of repealing the tax.

In April, a writer in US business magazine Forbes described the vote as a “feel good vote”, acknowledging the tax as “stupid” but boldy saying the road to repeal was “more potholed and twisted than many medical device manufacturers think”.

In March The Wall Street Journal posted along a similar vein. It stated that while the vote was a “boost” for repeal supporters, “the search to replace the nearly US$30 bn the levy provided to fund other parts of the law will impede efforts to unwind it”. Apparently the Democrats who voted for the repeal said they would only pass it into law if the cash could be found elsewhere.

The WSJ also noted that “Strikingly, 34 lawmakers who caucus with the Democrats signed onto the repeal, including many who created the tax by voting for the 2010 Affordable Care Act.” This is noteworthy because the tax is part of President Obama’s healthcare act, who is himself a Democrat.

Obama’s healthcare act, also known as “Obama Care”, is intended to make the USA’s healthcare services more accessible to America’s poor.