- Diabetes devices, robotics and transcatheter heart valves will accelerate revenue growth for some of the leading companies in the medtech sector in the year ahead, Moody's Investors Service predicts in a new report.
- The debt rating agency's latest quarterly healthcare report predicted consolidation at a pace similar to last year's, and named Medtronic, Abbott and Baxter as device makers well-positioned to support future acquisitions.
- Slower economic growth is predicted for both developed and developing countries in 2019 and could constrain government and other payers, affecting both volumes and pricing in medtech, Moody's said.
The medtech sector has been a steady if not spectacular performer in recent years, generating revenue growth in the low to mid-single digits on average. That's in contrast to the 15% annual growth typical of the industry's boom years between 2000 and 2007, according to a recent EY report.
Where there is innovation, however, pockets of faster growth can be found. The diabetes businesses of both Abbott and Medtronic have been increasing revenue at a rate of more than 25% over the past few quarters, Moody's noted.
Medtronic is benefiting from the introduction of its MiniMed 670G insulin pump, a closed-loop system often referred to as an artificial pancreas that measures glucose levels every five minutes and adjusts insulin levels as needed. Abbott has had great early success with its Freestyle Libre continuous glucose monitor that doesn't require finger sticks. Healthy growth rates for those products continue with expanded use of the devices, Moody's said.
Moody's looks for robot-assisted surgeries to continue to expand rapidly, with Stryker and Medtronic as beneficiaries. Stryker's Mako platform has helped the company gain market share in robotics for knee and hip replacements, while Medtronic's recently acquired Mazor Robotics guidance system for spine surgeries should accelerate the medtech giant's growth in the spine implant category.
Transcatheter heart valves that replace diseased native valves can continue to grow in the mid-teen percentage range for at least the next few years, Moody's said. Expanding indications for the implants, now available for patients with high and intermediate surgical risk, will be key to maintaining the momentum. Edwards Lifesciences expects in March to present data from a study of its Sapien 3 valve in patients at low surgical risk for traditional open-heart surgery. Medtronic, Abbott and Boston Scientific also have a presence in the market.
Moody's said smaller "tuck-in" transactions dominated the M&A deal flow in medtech last year, with Stryker, Boston Scientific and Medtronic being the most active. Boston Scientific's $4.2 billion acquisition of BTG Plc was the year's largest deal. The agency expects consolidation in line with 2018's pace, with companies such as Boston Scientific and BD pausing to digest recent deals and Medtronic, Abbott and Baxter potentially using their strong cash flows and moderately leveraged capital structures for future acquisitions.
The ratings agency is forecasting slower global economic growth this year and sees emerging markets as most at risk, with growth rates in the low-double-digit range hard to sustain. Rising tariffs so far have had a negative but manageable impact on costs for companies in the sector.
Moody's is also watching possible developments with the U.S. medical device tax, the 2.3% tax on sales for most devices sold domestically. Enacted as part of the Affordable Care Act the levy is scheduled for reinstatement on Jan. 1, 2020, though members of both parties have backed repeal.
Another extension of the suspension would require legislation to be passed by both houses of Congress and signed into law, the agency noted.