Global Medtech Industry Holds Steady Amidst Recession

New funding and regulatory challenges emerge for the sector, according to
Ernst & Young

WASHINGTON, Oct. 13 /PRNewswire/ -- Revenues for the US and European medical
technology industry grew 11% in 2008 despite the global recession. Revenue
growth flattened out in the first half of 2009 and the industry will face
significant challenges as it seeks to maintain long-term momentum, including a
stubborn funding drought for early-stage companies and a changing global
regulatory and reimbursement environment. These and other findings are
highlighted in Pulse of the industry: medical technologyreport 2009, Ernst &
Young's annual report on the industry's performance, released today from
AdvaMed 2009, the medtech conference.

"While the medtech industry has not been immune to the effects of the global
economic crisis, it has fared better than most industries and the fundamental
drivers for long-term growth in the sector remain intact," said Scott Sarazen,
Markets Leader, Ernst & Young's Global Life Sciences Center. "We expect that
the industry's long-term prospects will be bolstered by fundamental trends,
including an aging global population, an expanded pool of patients in both
emerging markets and traditional geographic strongholds, and new product
innovations."

Key industry findings described in the report include:
-- Financial performance. Revenues for publicly traded medtech companies
in
the US and Europe grew 11% in 2008 to US$289 billion, driven by a
combination of organic growth, acquisitions and favorable
exchange-rate
related gains of US companies. Revenues through the first half of 2009
have remained flat compared to the same period in 2008. Net income
decreased by 11% in 2008 to US$11.4 billion, primarily because of
special charges associated with major acquisitions and asset
impairments
at a few large companies. Absent these expenses, global net income
would
have increased instead of falling.
-- Financing. Capital raised by US and European companies in 2008 totaled
US$9.2 billion, a 38% decline from the previous year. This trend has
continued into the first half of 2009, with the amount of financing
raised in this period down 59% from the same period in 2008.
-- Venture capital (VC). While medtech public financing was down sharply
in
2008, venture capital flowing to the sector held relatively steady. In
the US, total VC funding reached US$3.6 billion in 2008, 10% shy of
the
US$4 billion record set in 2007. European medtechs received US$772
million in VC financing in 2008, a decrease of 20% as compared to
2007.
For the first six months of 2009, VC investment in the sector for both
the US and Europe totaled US$1.6 billion -- a decrease of 38% from the
comparable period in the prior year.
-- IPO performance. The US medtech industry has not had an IPO since the
first quarter of 2008, the longest dry spell since 2003. In Europe,
there were only two IPOs in 2008.

-- Deal space. The total value of mergers and acquisitions (M&As) in the
industry in 2008 was US$41 billion, a 33% decline compared to 2007.
Through the first half of 2009, only 44 deals with an aggregate value
of
US$6.7 billion have been announced.

New challenges loom
The Pulse of the industry report also identifies emerging challenges that
could create new sources of opportunity and uncertainty for companies and
investors:

A changing reimbursement environment: Healthcare reform in the US --the
world's largest healthcare market -- and elsewhere could have a profound
impact on the global medtech industry. It is likely that reimbursement for
devices will change significantly in the years ahead, as payors adopt some
form of comparative effectiveness in making reimbursement decisions.

Product approval uncertainty: The US Food and Drug Administration (FDA) is
currently considering restricting the types of medtech products eligible for
510(k) marketing clearance, which requires that a product be substantially
equivalent to a device cleared by the FDA or marketed before 1976. Changes to
the approval process could increase the time and expense of bringing new
products to market.

Medtech business model under strain: Financial and regulatory developments are
placing increased strain on the traditional medtech emerging company business
model, which is based on a streamlined regulatory pathway that allows for
rapid innovation cycles and relatively quick exits for investors. In addition
to potentially longer product approval timelines and increased reimbursement
uncertainty, reduced levels of capital across the global financial markets
will result in less capital invested in medtech and likely a drop off in M&A
exits in the sector. This will create new challenges for companies to fund
their innovation and provide adequate returns for their investors.

"While the industry faces financing and other challenges, it has successfully
used its ingenuity to overcome similar issues in the past," remarked Heinrich
Christen, Ernst & Young's Medtech Leader for Europe, Middle East, India and
Africa. "Within this challenging environment, companies will need to be nimble
and creative in tackling a host of challenges simultaneously, including: using
capital more efficiently, adapting business strategies for a changing
regulatory environment, finding new methods to demonstrate product value, and
embracing innovation in their business models as much as they do with their
products."

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SOURCE Ernst & Young

Samantha Sims of Ernst & Young LPP, +1-201-872-1683, Samantha.sims@ey.com; or
Greg Kelley of Feinstein Kean Healthcare, +1-617-761-6775,
gregory.kelley@fkhealth.com