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

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

Financial performance: United States

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

Public company data 2011 2010 % change
Revenues $204.3
$196.4 4%
      Conglomerates $76.3 $71.5 7%
      Pure-play companies $128.0 $124.9 2%
R&D expense $9.9 $9.6 2%
SG&A expense $41.5 $40.0 4%
Net income $13.7 $11.5 19%
Cash and cash equivalents and short-term investments $32.7 $32.4 1%
Market capitalization $303.8 $326.6 -7%
Number of employees 439,800 431,100 2%
Number of public companies 254 264 -4%

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

For the second consecutive year, US public medtechs produced positive growth across the majority of financial indicators, albeit at a lower rate than the prior year.

Overall US revenues rose 4% in 2011, versus 6% in 2010, and were led by conglomerates that produced a growth rate of 7%. Prior to the economic downturn that began in 2008, the US medtech industry would typically generate double-digit top-line growth rates. However, since the recession, single-digit growth has become the norm as the industry continues to grapple with the mounting financial pressures of payers and considerable regulatory uncertainties. While top-line growth was modest in 2011, it could have been worse in the absence of a weak US dollar. Based on public company disclosures, we estimate that nearly 40% of the revenue growth by the top 10 US pure-play companies was the result of favorable foreign exchange rates. In the absence of the F/X impact of just these 10 companies, the overall US industry’s growth rate would have been 3% instead of 4%, while the revenues of pure-play companies would have been below 1%. R&D expense grew by 2% — about half the growth in the top line. The increase might have been modest, but it was widespread — two-thirds of pure-play medtech companies increased their investments in R&D in 2011. In addition, three-quarters of companies increased their headcounts.

Net income increased by a solid 19%. However, this increase was boosted by the fact that companies such as Boston Scientific, Alere and Hologic incurred significant merger-, impairment- and litigation-related charges in 2010. After normalizing for the skewing impact of these charges, the industry’s net income growth drops from 19% to just 2%.



US commercial leaders and other companies, 2010–11
(US$b)

  2011 2010 % change
Commercial leaders
Revenues $108.1 $105.1 3%
R&D expense $7.6 $7.3 3%
Net income (loss) $14.3 $11.8 22%
Number of employees 358,600 350,600 2%
Other companies
Revenues $19.4 $19.4 0%
R&D expense $2.3 $2.3 0%
Net income (loss) $(0.7) $(0.2) -186%
Number of employees 79,000 78,700 0%

Source: EY and company financial statement data.
Commercial leaders are pure-play companies with revenues in excess of US$1 billion.
Numbers may appear to be inconsistent due to rounding.

While the overall US growth story might have been somewhat weak in 2011 — particularly relative to the industry’s past track record — the story was even worse for small medtech companies. As shown in the accompanying chart, all of the growth in revenues and R&D expense came from just 30 commercial leaders. The contrast was even more stark on the bottom line. While the net income of commercial leaders increased by an impressive 22%, the rest of the industry moved deeper into the red in 2011.



Selected US medtech public company financial highlights by region, 2011
(US$m, % change over 2010, except market cap over 30 June 2011)



Region


Revenue

Number of
companies
Market
capitalization
30 June 2012


R&D


Net income

Cash and cash
equivalents


Total assets
Massachusetts $29,570
7%
29
0%
$45,055
-22%
$2,085
3%
$1,849
338%
$3,635
2%
$69,350
10%
Minnesota $22,391
0%
18
0%
$56,097
-8%
$2,329
3%
$3,986
-4%
$3,836
-18%
$40,720
8%
Southern California $14,478
-15%
35
-5%
$47,821
-18%
$1,540
-8%
$856
-27%
$6,327
28%
$28,647
5%
New Jersey $11,919
7%
12
-20%
$26,552
-13%
$731
7%
$1,634
-13%
$2,350
-8%
$15,962
12%
Northern California $10,609
9%
31
0%
$48,054
17%
$1,106
9%
$1,038
4%
$4,260
-3%
$15,805
10%
Pennsylvania $9,572
29%
9
0%
$10,168
37%
$379
34%
$1,535
26%
$3,421
22%
$19,086
46%
Michigan $8,411
13%
3
0%
$21,184
-8%
$480
21%
$1,278
1%
$3,436
-22%
$12,513
13%
Indiana $6,409
6%
4
0%
$13,577
-12%
$327
9%
$891
23%
$1,467
29%
$10,456
8%
New York $2,913
8%
23
-4%
$4,761
-15%
$215
10%
$84
-14%
$696
26%
$4,556
5%
Texas $2,379
-43%
10
-9%
$5,149
-41%
$120
-43%
$129
-72%
$556
-23%
$3,066
-47%

Source: EY and company financial statement data.
Data shown for pure-play companies only.



Change in US therapeutic device companies’ revenue and net income by disease category, 2010–11


Source: EY and company financial statement data.
Chart excludes companies that are cash-flow positive.

The combined revenues of US therapeutic device companies reached US$76 billion in 2011, an increase of 5% over the previous year, and accounted for nearly 60% of all US pure-play company revenue. All six of the largest disease categories saw their top lines increase in 2011, as well as 14 of the 16 disease categories in total. Among the top six, orthopedic generated the biggest top-line expansion, of US$1.7 billion (9% growth). This was driven in large part by Stryker and the positive impact of its acquisition of Boston Scientific’s neurovascular group in early 2011. Multiple was up 4% (US$893 million) and was led by Intuitive Surgical (+27%; US$344 million), which continues to have phenomenal success with its da Vinci Surgical System.

Similar to the top line, each of the six largest disease subsegments also improved its bottom line in 2011. In particular, cardiovascular was responsible for 86% of the overall therapeutic device increase, and nearly all of that was the result of a host of impairment, transaction and litigation charges that had negatively impacted Boston Scientific’s bottom line in 2010.

As for the results of the other major medtech product segments, imaging led the group with 8% revenue growth in 2011, followed by therapeutic devices, and then non-imaging diagnostics and other, which both increased their top lines by 4%. Only research and other equipment realized a decline, at -6%.



Selected fast-growing US medtechs by revenue growth, 2007–11
(US$m)

Companies 2007 2011 CAGR
NuVasive $154 $541 37%
Alere $767 $2,387 33%
Life Technologies $1,282 $3,776 31%
Intuitive Surgical $601 $1,757 31%
Illumina $367 $1,056 30%
Hologic $738 $1,789 25%
Corning Life Sciences $305 $595 18%
Thoratec $235 $423 16%
Greatbatch $319 $569 16%
ResMed $716 $1,243 15%

Source: EY and company financial statement data.
Companies in italics have made significant acquisitions between 2007 and 2011.
CAGR = Compounded Annual Growth Rate.

Since we first published Pulse of the industry back in 2008 (using 2007 figures), a number of medtech firms have seen their revenues grow significantly. It is notable that 6 of the 10 fastest-growing companies over the period 2007–11 — led by spinal device company NuVasive and Intuitive Surgical (maker of the da Vinci Surgical System) — expanded their top lines mostly through organic growth and without the assistance of sizeable mergers or acquisitions. Corning Life Sciences was the only conglomerate to make the top 10 list.



US public medtech cash index


Source: EY and company financial statement data.
Chart excludes companies that are cash-flow positive.



US medtech industry trailed the broader market
US market capitalization, 2011–H1 2012


Source: EY and Capital IQ.


Small caps outperformed other medtech segments
US market capitalization, 2011–H1 2012


Source: EY and Capital IQ.

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