The medical device sector could hit a snag this year amid several headwinds, according to a report from Chicago-based Morningstar Research Inc.
“Put simply, we don’t expect much out of medical device firms in 2012,” Morningstar said. “After several years of treading water during this weak economic environment, uncertainty has reared its ugly head once again.”
Morningstar noted European economic uncertainties and cut growth expectations for many established device players. It also cut some ratings, citing regulatory and reimbursement pressure.
“However, we think the market already appears to have priced in the worst-case scenarios for many device firms, and we suspect that returns during the next several years could be attractive off recent lows in this healthcare niche,” Morningstar said.
The investment-research provider devoted a good deal of attention in its report to Edwards Lifesciences Corp., the Irvine heart valve maker.
Edwards’ “revolutionary innovation” of the Edwards Sapien less-invasive heart valve “could steal the show” in 2012, Morningstar said.
But it also cautioned that “several risks that we think could be significant do not seem to be reflected in current prices.” Morningstar said it’s keeping an eye on the rollout of Sapien to medical centers across the country.
The researcher said formulating and cultivating teams of interventional cardiologists and cardiac surgeons will take time “and will depend heavily upon how individual institutions approach and defuse issues of turf.”
Another concern: reimbursement.
“With the retail price of Sapien around $30,000, we are watching Medicare’s approach to coverage very carefully,” Morningstar said.
The firm said regulators would likely issue reimbursement guidelines that could possibly limit the potential of Sapien to penetrate the pool of traditional heart surgery patients.
As for Morningstar’s “best device ideas,” the firm cited three firms that have Orange County units—Medtronic Inc. and St. Jude Medical Inc., both based in Minnesota, and Covidien PLC, a medical conglomerate that operates out of Massachusetts but has a tax-friendly headquarters in Bermuda.
Covidien’s “revenue growth in the device segment remains strong, particularly in energy and vascular where (it) continues to gain market share,” Morningstar said.
Covidien made a big jump into devices for vessel diseases back in 2010, when it bought Ev3 Inc., a device maker with roots in Irvine, for $2.6 billion.
Real Estate Buys
Newport Beach-based Griffin-American Healthcare REIT II Inc. has signed deals to buy 11 properties used by healthcare entities for $174.3 million. There are 10 nursing homes and one medical office building in the group of properties.
The properties are located in Texas, Georgia, Tennessee, Louisiana and Alabama. They combine for 454,000 square feet of space.
Griffin-American’s new nursing homes have 1,364 beds between them. They range in size from 20,000 square feet to 77,000 square feet, with an average size of 45,000 square feet. They were built between 1969 and 1999 and are master leased through 2027 by affiliates of Roswell, Ga.-based Wellington Healthcare Services LP.
Sierra Providence East Medical Plaza I in El Paso, Texas, has 60,000 square feet of space, three stories and multiple tenants. Sierra Providence was built in 2008 and is on the 42-acre campus of Sierra Providence East Medical Center, which is owned by Dallas-based Tenet Healthcare Corp. The building’s 90% leased to 13 tenants, the largest of which is Tenet.
Griffin-American was previously known as Grubb & Ellis Healthcare REIT Inc. It buys hospitals, medical office buildings that house doctors, assisted living facilities and nursing homes, along with buildings that have medical-related tenants.
Terumo Buys Irvine Device Maker
Terumo Americas Holding Inc., a subsidiary of Japan’s Terumo Corp., said earlier this month that it acquired Irvine-based medical device maker Onset Medical Corp. A purchase price wasn’t disclosed.
Onset is making minimally invasive medical devices used in cardiology and urology procedures. The company said that its devices can be used for procedures such as transcatheter aortic valve implantation, endovascular aneurysm and aortic repair, and percutaneous nephrolithotomy in removing kidney stones.
Buying Onset is “a good acquisition. There’s very little overlap both in terms of products, and infrastructure and people,” James Rushworth, senior vice president and general manager at Terumo Medical, told news website NJBiz.com.
Onset’s investors included the MedFocus Fund, which was created by serial medical device entrepreneur Michael Henson.
Terumo has $4 billion in sales and operations in more than 160 countries. Its MicroVention unit, which makes devices to treat cerebral aneurysms, is located in Tustin.
Bits and Pieces
NextGen Healthcare Information Systems Inc., a wholly owned subsidiary of Irvine software maker Quality Systems Inc., signed a deal with Iasis Healthcare LLC of Franklin, Tenn., to use the NextGen Practice Management and NextGen Practice Solutions products in 19 Iasis hospitals across seven states. … Prime Healthcare Services, an Ontario company with four OC hospitals, said that Thomson Reuters recognized it as a top 15 health-system list based on care quality, efficiency and patient satisfaction. Prime owns Garden Grove Medical Center, Huntington Beach Hospital, La Palma Intercommunity Hospital and West Anaheim Medical Center.
