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Report: Demand, Revenue Rising for Device Makers

The aging population will continue to create demand for the medical device industry in Orange County and elsewhere, according to a report from Los Angeles market forecaster IbisWorld Inc.

As Americans grow older and live longer, there will be greater public and private spending on healthcare, which should allow hospitals and other providers to upgrade their equipment.

“Areas of strongest growth will be in medical devices that treat age-related illnesses,” the report said.

The report noted that the number of Americans who are 60 years of age or older is expected to increase at an average rate of 3% a year from now to 2015, which will bring that number to about 65.7 million people. By contrast, the average annualized growth forecast for the total population during that period is 0.9%

The growth rate in seniors should drive up demand for certain medical devices by hospitals, which make up 45% of medical device buyers, according to the report.

The report expects increased ordering of electromedical equipment, electrotherapeutic devices and medical imaging instruments. It also expects growth in heart devices, orthopedic devices and devices to fight obesity-related illnesses.

Overall, the report projects device industry revenue to grow at an average annualized rate of 4.8% to $50.7 billion from now until 2015, outpacing the expected 1.8% growth rate on average for the country’s gross domestic product during the same period.

Revenue growth will be carried by demand from hospitals and other healthcare providers for devices, providers’ need to replace aging equipment, electromedical technology advances and research and development.

“The future of the medical device manufacturing industry will be shaped by the same factors that affected revenue over the previous five-year period,” the report said.

Besides aging, the report touched on other factors affecting medical devices.

Consolidation in the industry is expected to continue. The report said although numerous startup companies are expected to enter the medical device industry each year, many of those will in turn be bought by large companies that want to acquire medical technology or to broaden their product ranges.

OC has seen several device deals this year, including the sale of Aliso Viejo-based LenSx Lasers Inc. to Alcon Inc. for $362 million, and Murray Hill, N.J.-based C.R. Bard Inc.’s $213 million buy of Irvine breast cancer diagnostic device maker SenoRx Inc.

The report also weighed in on a pending 2.3% tax on medical device makers’ revenue to pay for healthcare reform that starts in 2013 and is expected to raise $20 billion in a 10-year period.

It will be “a challenge for the industry and may encourage some consolidation of firms; however this is unlikely to affect the industry substantially until 2013,” the report said.

Sun’s Breakup Work

Sun Healthcare Group Inc., an Irvine nursing home company that’s preparing to split itself in two, said late last month that it netted $224.8 million in proceeds from a public offering of some 26.8 million shares of stock.

The company said that it would use the proceeds to repay a portion of outstanding debt under its existing credit line before the split.

Sun is set to spin off its real estate holdings as Sabra Health Care REIT Inc. in the fourth quarter, perhaps around late October, according to Richard Matros, Sun’s chief executive and Sabra’s future chief. Sun is splitting the company in a bid to create value on Wall Street for its real estate.

A debt offering for both Sun and Sabra is set for as early as this month.

Matros told analysts and investors on Sun’s recent second-quarter earnings call that Sabra would “be ready to go at any given time. It’s just a function of looking at the market conditions and picking what we think is the most optimal time to do it.”

Bits and Pieces

A pair of law firms that specialize in class-action shareholder suits said roughly two weeks ago that they would “investigate” Irvine drug maker Allergan Inc. after it said it would pay $600 million to settle a federal probe of its marketing practices for its flagship Botox drug. Allergan declined to comment … UC Irvine Medical Center, a teaching hospital in Orange, said that the Joint Commission, a Washington, D.C.-based standard-setting and accrediting organization, gave UCI a full three-year accreditation. UCI also said that the commission identified several “best practices” at the hospital ranging from anesthesia services to medication management and medical records … NextGen Healthcare Information Systems Inc., a wholly owned subsidiary of Irvine healthcare software maker Quality Systems Inc., said that it successfully collaborated with clients who received assistance through a bureau of the New York City health department …. McGladrey Capital Markets LLC, a Costa Mesa-based investment bank, said its healthcare unit represented Solara Healthcare’s recent sale to Cornerstone Healthcare Group, which both are in Dallas. Solara and Cornerstone are long-term acute care hospital operators.

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