As medical technology companies emerge from the economic crisis, slightly scathed but still alive, their leaders are both optimistic and wary of oncoming healthcare reform. With the potential for up to 45 million more Americans to be insured and in the patient pool, there comes opportunity. But other reform measures threaten to curtail innovation.
Four med tech CEOs confirmed the most likely of suspicions about the health of their companies and addressed their most pressing concerns in a web-based teleconference Monday sponsored by regional trade association MedTech (Syracuse, New York).
The economic downturn took a toll on each business, forcing cutbacks and layoffs, but all of the executives said their companies are already seeing recovery.
"With the complexities of healthcare reform, there's been a dramatic slowdown in terms of innovation in the industry," said Tom Hook, president/CEO, Greatbatch Medical (Clarence, New York). "It's having a chilling effect on understanding which products and innovations will be allowed to be adopted. There's a lot of uncertainty. Healthcare reform is a variable and creates a difficult environment for Greatbatch to strategize in. It's a bit of a dynamic period ... very challenging. We're staying closely linked with customers to understand what's happening with healthcare and be at the forefront of it."
Greatbatch, an original equipment manufacturer (OEM) making key components used in implantable products for cardiovascular, neuromodulation, orthopedic and radiologic applications, had about $550 million in revenues in 2008 and had managed to continue investing in R&D despite the economy because of its distributed operations, something Hook calls a "natural hedge against currency exposure" that allows the company to match where they are making products with where the demand exists.
But Joe Corasanti, president/CEO, ConMed (Utica, New York), reported a significant downturn in business as this producer of electrosurgical and other med tech products started the year. Capital sales, which represent 25% of ConMed's business, to hospitals were down.
"Hospitals froze their capital spending budgets," Corasanti said. "Some products that already went through the evaluation process didn't result in any purchase orders. Everything was on hold. Currently we're seeing a little improvement, but it hasn't come back to previous levels."
Despite that, his company reported $742 million sales in 2008, a 6.9% increase over the previous year. Yet profits were down.
"Another reason for reduced profits was the rapid strengthening of the U.S. dollar in November and December 2008," he said. "Forty-five percent of our sales are outside the U.S. in other currencies. When the dollar became stronger we saw a significant fall off in sales, adversely affecting our profits for 4Q 2008 and 1Q-2Q 2009."
To combat the problems, his company cut costs with factory consolidations, from three down to one. A distribution center was eliminated. Hiring freezes were implemented. Several locations had reduced work weeks.
"That was our immediate response," he said. "Going forward we'll continue to grow the company organically and we anticipate that at 5% to 6% via the launch of new products. Our long-term strategy is to improve operating margins."
Julie Shimer, president/CEO, Welch Allyn (Syracuse, New York), which makes products for physical diagnostics and frontline care including thermometry, scopes, blood pressure and continuous monitoring devices, reported that her company's revenue is 10% less than last year.
"We're seeing an uptick in business now," she said. "Medical devices are getting out of the doldrums. We think the impact of healthcare reform on our business is that more patients will be in the system. The increase in patient care and coverage of individuals is, we think, a positive sign for our industry."
She pointed out that changing demographics specifically older patients with chronic disease being treated in lower care facilities and older caregivers who are less educated are emerging markets that present opportunities to come up with innovative solutions. "We're very bullish on growth potential for this industry, particularly for higher tech connect devices and service that help clinicians solve patient care problems."
Dan Kerpelman, president/CEO, Bio-Optronics (Rochester, New York), runs a software company that specializes in applications to optimize workflows in healthcare. As the self-described "small kid on the block" Kerpelman said his company is actually in a healthy situation.
"We had a very concerned first quarter in the clinical trial business, but we see that bouncing back in the second and third quarters," Kerpelman said. "We've actually seen an uptick in business from VA hospitals. We saw some sluggishness in private hospitals, but we're seeing that coming back. But I think we're an anomaly. Our products deal with efficiency in healthcare. These are products that are somewhat specialized, but are modestly priced and less subjected to some of the cost cutting. So we're hanging in there nicely."
Kerpelman said the very reason his company is coping well with the economic downturn is due to the fact that his products are all about efficiency in healthcare. Still, he's careful about investing in R&D.
"Rather than invest in costly products with lofty goals that improve state of the art, we're focusing on products that enhance efficiency," he said.
Shimer, chimed in, saying that, "When we are starting to talk about innovations we're developing, we weigh heavily the healthcare reform variable. We expect a regulatory environment with higher hurdles. You're going to look to lower the hurdle to fight the regulatory and time headwinds. We won't take on the same level of breakthrough development. A more complicated environment slows down R&D."
ConMed, too, will elect to stick with developing products that perform better and provide a better value proposition rather than those that would be considered pioneering.
"We're in the midst of three significant product launches," Corasanti said, adding that one is a new shoulder repair system. Nothing new to the market, but "a better mousetrap," he said, adding that product launch is going well. "We are having a tougher time with the second product that measures cardiac output. It's a pioneering project in that it's never been done before, using a trach tube to pick up cardiac signals."
While the new cardiac monitoring device improves upon existing technology, higher cost is a major factor in sales.
Hook, of Greatbatch, said that some of proposals in healthcare reform that center on taxing medical devices and biosciences are likely to cause "significant hardship" to companies focused on innovation.
"We should be opposed to that type of funding mechanism for healthcare reform," he said.
But Shimer of Welch Allyn, said that impetus from the stimulus package combined with what's coming in reform measures put emphasis on electronic health records (EHR), opening opportunities for Welch to improve the collection of data to make it more efficient, accurate, accessible and to provide analysis of data.
"Healthcare reform will create a bigger pull in that area and Welch will benefit," she said.
As these four CEOs pondered the effects of an economic earthquake followed by the oncoming tsunami of healthcare reform, they all seemed mostly hopeful in their remarks.
"The extension of healthcare will increase the volume of care given to those 40 million to 45 million who don't currently have care," Corasanti said. "There's still a question about what will happen to pricing and reimbursement levels, but ultimately there should be a benefit to medical device manufacturers."
Kerpelman was a little more cautious in his summary: "Whenever there's reform afoot, people get confused. The process is complicated. I just hope reform and its aftermath doesn't further put healthcare professionals in a wait-and-see mode when it comes to acquisition of products."
The panel discussion was a sneak preview of topics that will be covered at the MedTech 09 conference, "Prescription for Change: Technology, risks, economics, and reform in the global healthcare marketplace" on Oct. 5 in Skaneateles, New York.
Lynn Yoffee, 770-361-4789;