The coming years will be good ones for the medical devices industry, predicted David Cassak, senior correspondent on medical devices for publishing house Windhover Information Inc. His comments at last week's Israel Life Sciences Industry (ILSI) ILSI-Biomed 2008 come at a time of pessimism at Israel's medical devices industry.
Medical devices have always been at the forefront of Israel's life sciences industry, and has been a source of both pride and exits. However, a cloud of uncertainty has darkened the industry lately as global trends has made investment in the industry less safe and extended the average time from investment to exit.
Cassak does not deny the challenges facing the industry, but he has a different perspective: the US has discovered medical devices. As a result, more attention is being paid to the industry and a lot more money is flowing into it, which may create opportunities for Israeli companies.
Cassak has covered the medical devices industry for over a decade. At a special event hosted by Rainbow Medical Ltd. at ILSI Biomed 2008, he talked about the emerging US medical devices market. He said that the sector began attracting both private investors and venture capital only a decade ago, and the public market emerged even later.
Cassak said, "In the late 1990s, the industry was really stagnant. It was very hard to get financing, and it's possible to understand why. What would you do if you had an opportunity to invest in Merck - a classic pharmaceutical company with a promising pipeline, proven track record and highly regarded management - or CR Bard Inc., which had just recovered from a period of bad news and was engaged in the grey market of medical devices marketed to hospitals at low profit margins and in a competitive environment? There was almost no dilemma at all. But 5-6 years later, investors in Merck discovered that they'd lost money, while the investors in Bard had gotten a return of 150%.
"Life looks a little different for younger companies. Among those that have gone public, almost none have been able to meet investors' expectations, and they vanished. They faced consolidation of companies that sell to hospitals. They offered a basket of products that was too small and they were financially unstable."
Cassak said that these processes signaled the onset of a golden age of mergers and acquisitions in the medical devices market. The big companies were cash-rich and wanted to buy in order to grow, while the new companies needed to be bought to survive.
Cassak notes the problem of the growing demand of companies to conduct comparative studies in order to persuade doctors that the new products are better than current ones. The market is demanding these studies even for products that the US Food and Drug Administration (FDA) has approved the device under its 510 (k) abbreviated procedure. These studies are expensive and results are not always materially significant, which means that the studies can actually reduce a company's chance of survival.
Another factor burdening the medical devices industry, one that is less known to Israeli companies, is concern in the US about conflicts of interests among doctors carrying out the clinical studies and the companies.
Cassak is nonetheless optimistic. He notes that since the acquisition of Guidant by Boston Scientific Inc. (NYSE: BSX), a deal that took two potential buyers out of the market, the number of transactions and overall business have actually increased. What has changed is that, now, mid-sized companies are the buyers.
Published by Globes [online], Israel business news - www.globes-online.com - on June 4, 2008
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