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Pulse of the industry: medical technology report 2012 - Financial performance - EY - Global

Pulse of the industry: medical technology report 2012 – Industry performance

Financial performance

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Medical technology at a glance, 2010–11
(US$b, data for pure-play companies except where indicated)

Public company data 2011 2010 % change
Revenues $331.7
$313.9 6%
      Conglomerates $142.3 $132.8 7%
      Pure-play companies $189.4 $181.0 5%
R&D expense $12.6 $12.1 4%
SG&A expense $60.3 $57.4 5%
Net income $19.9 $17.4 14%
Cash and cash equivalents and short-term investments $39.2 $39.4 -1%
Market capitalization $436.1 $465.9 -6%
Number of employees 725,900 702,200 3%
Number of public companies 411 423 -3%

Source: EY and company financial statement data.
Numbers may appear to be inconsistent due to rounding.
Data shown for US and European public companies.
Market capitalization data is shown for 30 June 2011 and 30 June 2012.

Despite lingering financial and regulatory uncertainties, US and European publicly held medtech companies delivered another strong performance in 2011. For both conglomerates and pure-play companies, revenue growth in 2011 outpaced 2010 growth rates. Net income increased by 14% — the third consecutive year of double-digit growth, and certainly impressive in today’s challenging economic climate.

So far, the medical technology industry appears to be weathering a period of slower global economic growth. However, for an industry that was accustomed to double-digit revenue growth, considerable margins and a predictable sales-andregulatory environment, the long-term future may still be turbulent. The industry’s financial performance will likely continue to be challenged by low economic growth in developed markets, the prospect of austerity measures in many countries, a looming Eurozone debt crisis and an imminent 2.3% medical device tax in the US. And while the US Supreme Court’s upholding of the Affordable Care Act has removed some of the uncertainty in the US, the regulatory environment continues to grow ever more complex around the globe.

As payers tackle runaway health care costs, medtech will face rising pricing pressures and expanded use of comparative effectiveness — making organic growth in western markets more challenging. Efforts to heighten disease management and preventive care, and other efforts to drive efficiency within the health care system, may impact both product utilization and profitability. The cost of not adapting the traditional medtech business model to stay ahead of these trends could be disastrous.

Medtech companies — long known for innovation, reinvention and risk-taking in product development — will need to apply the same principles to business model development. These trends and implications are discussed more fully in this year’s point of view article.



US and European commercial leaders, 2007–11


Source: EY and company financial statement data.
Commercial leaders are pure-play companies with revenues in excess of US$1 billion.

The medical technology industry has seen a series of high-profile acquisitions of commercial leaders (companies with revenues exceeding US$1 billion) in recent years, including the purchase of Beckman Coulter (by Danaher Corp.) and Kinetic Concepts (by a consortium of private equity firms) in 2011. Yet, new commercial leaders continue to emerge to replace those that have exited. In fact, the ranks of commercial leaders have increased by 25% since 2007 — a figure that was aided by the induction of five companies (Amplifon, Illumina, Sartorius, Sorin Group and Teleflex) in 2011.

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