Some smaller medical device makers are worried about the effects of a $20 billion, 10-year tax on the industry to help pay for recently enacted healthcare reform.
Matt Dolan, a senior research analyst with Roth Capital Partners LLC in Newport Beach, recently wrote a report on the bill’s potential implications for small device makers. It was based on interviews he did with executives at device makers with an average market value of $300 million.
“After many questions around whether or not this legislation would pass (remember the senatorial election in Massachusetts?), we feel comfortable now providing some general conclusions and pontificating on the bill’s potential implications,” Dolan wrote.
Respondents said they expect healthcare reform likely will increase the number of insured patients, but “the negative impact of an additional medical device tax probably outweighs this benefit” for smaller device makers, Dolan said.
The tax, which is a little more than 2% of device makers’ revenue, “represents more than 20% of operating income using our coverage universe.”
As a response to the tax, Dolan anticipates some device makers are going to cut costs internally, such as on research and development, as well as pass the cost on to hospital customers through price hikes.
Dolan also expects to see more acquisitions of smaller device makers.
“Countering this effect as growth slows, we suspect that M&A within the medical device industry will remain active and could strengthen, particularly as larger players look for growth opportunities from new, innovative companies,” he said.
Besides the tax, many device makers are worried about regulatory reform, according to Dolan’s report.
“We assume that more clinical data will be required for product approvals, but a more predictable process should also offer better visibility into the approval cycle,” Dolan said.
Companies mentioned in Dolan’s report included Aliso Viejo-based Clarient Inc., a cancer testing provider, and ICU Medical Inc., a San Clemente maker of connectors for intravenous devices.
Dolan also talked to executives from companies such as Align Technology Inc. of Santa Clara, of which Orange-based Sybron Dental Specialties Inc. took a 10% stake in last year after a lawsuit settlement, and Synovis Life Technologies Inc., a Minnesota-based maker of tissue products that bought the assets of Irvine startup Pegasus Biologics Inc. last year.
E-Records Overhyped?
Electronic medical records, key products of Irvine-based Quality Systems Inc. and one of the linchpins of health reform, may not be all they’re cracked up to be, according to a report by the Center for Studying Health System Change.
The study said that electronic medical records both help and hinder doctors’ communication with patients and other clinicians.
On the plus side, the study found that electronic medical records assist doctors with communicating during office visits because they give them immediate access to information rather than making them look through paper records.
On the other hand, some doctors reported that the electronic medical records made them communicate less with their patients when patients weren’t visiting.
“One of the hospitalists yesterday said, ‘This is great, I used the (electronic medical records) before I came here. I was able to sit down with my bagel and coffee and do my rounds before I even got in,’” an interviewed doctor said.
Orange County is one of 12 communities that the center, a nonprofit funded by the Robert Wood Johnson Foundation, looks at as part of its work.
Clarification
Here are some clarifications to my April 11 story “Device Maker Raises $14M, Eyes Revenue” on Irvine-based Reverse Medical Corp.
Reverse makes devices that are designed to restore blood flow in people who have had strokes. So far, the company hasn’t obtained Food and Drug Administration clearance for its devices as treatments for stroke patients.
The company’s ReCruit microcatheter is cleared by the FDA for removing objects such as broken catheter tips or coils in people who have had neurovascular interventions to treat vascular diseases of the brain. ReCruit isn’t approved specifically for clearing blood clots in stroke patients.
Reverse’s ReStore microcatheter, which is designed to remove blood clots in stroke patients, has preliminary FDA clearance for a U.S. clinical study, which the company plans to do.
Bits and Pieces:
Peregrine Pharmaceuticals Inc., a Tustin drug developer, said four studies of its bavituximab drug candidate and other antibodies would be presented at the 101st annual meeting of the American Association for Cancer Research, which takes place this week in Washington, D.C. … Irvine-based ChromaDex Corp. said it purchased the right to develop a botanical compound found in small fruits and the bark of some trees from the University of Mississippi and the Agricultural Research Service, part of the Department of Agriculture. ChromaDex, which makes research tools for dietary supplements and the food and beverage industries, said that the compound, called pterostilbene, has shown promise for improving heart health, blood sugar levels and cognitive function … Joel Portice, cofounder of Enclarity Inc., an Irvine-based healthcare software maker, now is chief executive of Intellimedix, a Lakeland, Fla.-based healthcare data storage and analysis company. Portice also is a member of the board of advisers for the Center for Health Care Management and Policy at the University of California, Irvine’s Paul Merage School of Business.
