Health care and medical technology businesses were not immune to the widespread volatility produced by the economic downturn. Tightened credit availability, reduced consumer spending and, perhaps most importantly, rising unemployment and the subsequent loss of health care insurance for millions of workers presented a complex set of challenges for the medical equipment industry.

As stability returns and the med tech sector's financial performance continues to improve, the focus is increasingly shifting toward ways to sustain long-term profitability.

Reflecting a stance of "cautious optimism," Ernst & Young's Pulse of the Industry: Medical Technology Report 2009, released last month, noted that the med tech industry has weathered the downturn fairly well and its fundamental growth factors remain strong despite continuing challenges.

According to the report, publicly traded medical technology companies in the United States and Europe saw total revenues increase by 11 percent in 2008, reaching $289 billion, while net income fell by 11 percent. In the first half of 2009, revenues declined by less than 1 percent from the same period the previous year.

The stagnant growth in 2009 was largely due to decreasing demand for medical services motivated by the significant number of employees who lost health insurance coverage, the report explained. As more patients postponed elective procedures and levels of uncompensated care and hospital debt rose, buyers were forced to delay or cancel their capital equipment purchases. Similarly, reduced tax revenues from government-sponsored health programs and elevated pricing pressures contracted new orders for major equipment.

Despite these setbacks, revenues for the U.S. med tech industry grew by 9.1 percent in 2008, rising to over $188 billion, with research and development expenditures climbing by 4.9 percent, according to the report. Net income for U.S. firms, however, dropped by 21.9 percent, falling to $6.5 billion, while shedding 0.5 percent of the med tech workforce.

The prospect of legislative health care reform in the U.S. has also raised some uncertainty, but it may nonetheless yield positive results for the med tech industry.

"What is the prognosis for medical technology in all of this? I am convinced that whatever shape health reform takes, the unique and essential role that medical technology plays in health care will become increasingly important," Stephen J. Ubl, president and CEO of the Advanced Medical Technology Association, said in the Ernst & Young report.

In terms of financing and profitability for med tech companies, the outlook remains more challenging, as reduced financing and the higher cost of capital seem likely to put a damper on the rate of new business deals.

Between March 2008 and March 2009, the Dow Jones Medical Equipment Index contracted by 43 percent, driving down private valuations and slowing down sales, the Massachusetts Medical Device Journal (MassDevice) reported.

"This is not business as usual. In the past, we thought that if we brought a better mousetrap to the market, we would get funding, FDA approval and reimbursement. We need to re-orient our view about what society will pay for," David Blumberg, advisory sector leader for life sciences at accounting firm KPMG LLP, told an audience at the Massachusetts Medical Device Industry Council (via MassDevice).

The need for reevaluating the selling points for med tech products reinforces the idea that new devices and technological innovations will continue to play a key role in driving growth in the medical equipment industry. One major area of innovation covers the intersection between medical devices and pharmaceutical applications.

According to a September report from Cambridge Consultants, "devices with advanced electronic functionality are expected to take an increasing share of the systemic delivery market in the next few years, constituting a major growth opportunity for innovative companies."

Achieving higher rates of positive outcomes for patients by integrating complex electronic technologies into a wider range of medical practices, particularly drug delivery processes, will be a significant focus for the medical tech industry, the report claims.

"The result of this will be a renewed effort to make health care expenditure go further, which will mean a renewed focus on efficient systems that deliver better patient outcomes. The future leaders in this new market may be those companies that capitalise on the opportunity to significantly improve patient outcomes through enhanced device functionality," Andrew Diston, head of global med tech at Cambridge Consultants, was quoted in Medical Device Technology Magazine's medtechinsider blog.

Increased coordination between pharmaceutical and medical device manufacturers may someday become a standard feature of company expansion within the health care sector, as profit opportunities for both industries continue to converge.

"Pharmaceutical companies are collaborating with the device manufacturers to take combination product offerings to the market, and to offer more comprehensive solutions to their customers," Dave Caldwell, vice president of the pharmaceutical division at sales and marketing firm Maritz, said in an interview published in Future Pharmaceuticals magazine.

"The ability to bring sales forces together," Caldwell added, "train them on new products and new messaging, and bring customers together to appropriately educate them on products is extremely important."

Related: Medical Device Makers Warn Proposed Tax Would Harm Innovation

Resources

Pulse of the Industry: Medical Technology Report 2009
Ernst & Young, 2009

Medical Devices: A Safe Harbor in the Economic Tsunami?
by Davin Wilfrid
The Massachusetts Medical Device Journal, Mar. 30, 2009

Technology is Key for the Future of Drug Delivery, Says Panel of Industry Experts
Cambridge Consultants, Sept. 8, 2009

Technology is the Key to Future Drug Delivery
by Annie Ellerton
medtechinsider (Medical Device Technology Magazine), Sept. 10, 2009

Driving the Industry Forward
by Michael Capaldi and Dave Caldwell
Future Pharmaceuticals, April 1, 2009