Thursday, October 22, 2009

Investors Are Hanging on to their Cash!

On October 13th, AdvaMed held a Med Tech Conference in Washington, DC. By the looks of it, the medical device industry is battening down the hatches when it comes to the future. The global recession and regulatory changes are creating uncertainty for companies and investors alike. With changes to the 510(k) program that will inevitably increase time. cost, and risk in receiving product clearance , reimbursement uncertainties witness, along with legislation requiring full disclosure of industry payments to surgeons the industry is in desperate need of redefining itself.

When it comes down to capital, investment modeling will in all likelihood mean forecasting more capital than ever before, which in turn will mean having to give up more equity. These changes are going to impact the investors' return and likely lead to more scrutiny by investors. That's a good thing! The global recession is here, and its not going away regardless of what happens on Wall Street. Companies with top heavy salaried executive management teams will have to demonstrate financial efficiency if they are to survive. Meaning you cannot pay yourselves like if you were running Synthes or Danek!

With the inevitability of healthcare reform, companies are going to have to come up with innovative products, that cost less to manufacture and sell. The old way of doing things will not stand up to the test. It will take creativity. Investments for the first six months in 2009 in comparison to 2008 is down by 59%. IPO's are scarce, considering that the medtech sector has not had an IPO since QI of 2008.

So what does this mean? The industry will continue to be led by the Spine Cartel meaning that there will be incremental improvements in technology considering that most of these Elephants don't have the wherewithal to organically design their own products. But opportunities will exist for investors' to gobble up some of these smaller companies at fire sale prices. Even though our industry has fared a little bit better, we still have a long way to go. And remember what my mentor once taught me; "It's better to get something than nothing in return for your investment." TSB wants to know what its readers think?

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