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Print Edition StoriesFriday, November 20, 2009
Medical device firms show cautiously optimistic outlook
By Julie M. Donnelly
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Medical device company CEOs and other top executives are expressing some optimism about the near-term business outlook, according to a new survey commissioned by the industry group MassMedic.
Almost two-thirds of those executives surveyed — 40 in total — said they expected their business to improve overall in the next 60 days. More than one-third thought financing conditions would improve during the same time period, and one-third expected to make hires in the next 60 days.
Their outlook may not be just wishful thinking: One-third of companies reported business had already begun to improve over the past 30 days.
The survey was conducted by the Atlanta-based executive services firm Tatum LLC and is the first of several quarterly reports MassMedic has planned to give a snapshot of the industry in Massachusetts. The survey represented a wide swath of the industry — almost 60 percent of the companies had sales of between $5 million and $20 million, and more than 20 percent had revenues of more than $100 million.
“I would say overall the tone was one of cautious optimism,” Javier Jimenez, who conducted the research for Tatum.
One indicator of the caution that remains is that 76 percent of respondents did not expect to increase capital expenditures in the next couple of months. When asked what action companies plan to take first as conditions improve, the largest number said they would make hires, then increase capital expenditures.
Very few companies planned to build inventory or raise prices. The majority of executives said sluggish consumer spending was the biggest challenge to the recovery.
“People still aren’t going on vacation, so if you think about it, there are fewer sports and travel-related injuries, and that impacts our business,” said Mike Frazzette, president of Andover-based Smith & Nephew Endoscopy.
Frazzette said that while consumer spending remains constrained, hospital spending is starting to loosen up. For instance, Frazzette said one of the company’s financing partners, GE Healthcare, had all but shut down lending over the past year but is now starting to fund capital purchases again. He said that a cost-reduction plan launched in late 2006 has blunted the effects of the downturn to some degree.
The company is currently hiring for 45 to 50 positions worldwide.
Some startups that are looking for financing are also finding the landscape to be brightening.
“When big pharma starts spending more money, its a good sign,” said Maggie Pax, vice president for business development at Bedford-based MicroChips.
Pax’s company, which produces long-term implantable devices targeting diabetes and osteoporosis, inked a partnership with a large undisclosed pharmaceutical company during the past quarter.
MicroChips also recently entered a deal to create a spin-off with a large medical device firm, focused on ophthalmology. The company has 20 employees and plans to hold steady with that number for now.
One important caveat is that the surveys were done before both chambers of Congress rolled out health overhaul proposals that include taxes on the medical device industry.
“This survey is part of what we will use in advocating for the needs of the industry at the state and federal level,” said Tom Sommer, the president of MassMedic. Sommer expects some of this survey’s nascent optimism may be curtailed next quarter.
Frazzette also sees new taxes as a potential cloud on the horizon. “One of two things is going to happen: Either it is going to hit our bottom line, and that would affect hiring here, or companies are going to pass along the costs to the patients and hospitals,” he said.
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