Monday, July 13, 2009

The Future is Still Bright! But..........

Recently an article was penned by Tony (aka Mr. T., even though I like calling him the Golden Oracle) Viscogliosi in Medical Device Link. In this article he discussed a number of scenarios that could potentially affect the future of the Orthopaedic/Spine Industry. He cautioned that the future is still bright, but, that there could be black clouds on the horizon. Despite the recessions of the 1981, 2002, and the recent economic meltdown, our industry has been able to sustain itself and weather the storm. Mr. T (he would look funny in bling) bases his analysis on favorable pricing versus the future of pricing and reimbursements, along with an aging population debilitated by arthritis and diabetes but still yearning for youth (if only we could find that fountain), and the unknown of a national healthcare program (if only Congress could stop pandering to special interests and do their job).

But does the future look bright for our industry? Yes and No! Considering that the median drop in orthopaedic stock was 33%, could it be that our industry like the real estate and stock markets was over-valued and inflated? In 2008, one of the top five orthopaedic practices in the US reported record earnings based on more than 17,000 surgeries. 13,000 or 76% of these surgeries were elective. I would argue that unemployment rates had still not peaked (are they still going up), and the threat of losing one's job and healthcare coverage had not become a reality (do I need my job or surgery), retrospective data does not compare to what the current state of affairs are in our economy. That was then and this is now. In addition, one cannot base an analysis on the findings of one of the busiest practices in the country. But I'm not here to split hairs with "The Analyst", besides when you raise $144 million (kudos during this downturn), $25 million coming from a Malaysian investor with a commitment to develop and manufacture in Asia, how do I stand a chance?

Unless Mr. T. is dialed into the Obama Administrations healthcare plan, it is quite evident that it still is the objective of this President to rein in Medicare and general healthcare cost. Yes, the future is still sunny, but pricing and margins are about to experience a major decline witnessed by the surge of capitated contracts, the increase cost of manufacturing in the States, (oh yes, you can go to Malaysia, India, Ireland, Mexico and China you loyal US Corporations, you Freidman disciples), and the increase in competition. Those smaller companies do tend to be a pain in the derriere for the Spine Cartel, constantly gnawing at there feet.

Considering that it takes 5-7 years at a minimum to bring an emerging technology to the market (IDE), not only does this hurt the patient (if the technology is legit) it could ring a death knell for some of these pre-revenue companies as we have already witnessed. Investors are becoming much more judicious in their due diligence, meaning that they are not throwing capital at anything that breathes. The start-ups and early-stage companies will have to weather a weakening economy that could potentially go on for a year to a year and a half., along with a DOJ watchdog that truly does need to throw some people into jail. The Spine Blogger sees an economic rebound around the time of the next elections. The question remains do these entities have the financial reserves, revenue and fortitude to weather the storm?

As for Mr. T., not only do you have to admire his analytical acumen, but you have to laud his salesmanship. The article starts out as a snap-shot or the industry and turns into the promotion of the S.T.A.R. System. Polo anyone?

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