|By PR Newswire||
|August 27, 2014 09:30 AM EDT||
CHICAGO, Aug. 27, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the MedTech, including Zimmer Holdings (NYSE:ZMH-Free Report), Medtronic Inc (NYSE:MDT-Free Report), Covidien plc (NYSE:COV-Free Report), Stryker Corporation (NYSE:SYK-Free Report) and Smith & Nephew plc (NYSE:SNN-Free Report).
A confluence of several factors over the past few years has created ferment in the medical device market the world over. The investment climate for the medical device majors has become increasingly difficult due to the global economic downturn resulting in growing regulatory and budgetary pressures, cost escalation and resource constrictions.
The medical devices industry, which was once acclaimed for its high-paying jobs and research and development opportunities, has been subject to the much controversial 2.3% medical device excise tax since its enactment beginning 2013. Sequestration-related spending cuts have also undermined the medical devices industry's prospects. In fact, this has significantly hindered the industry's bottom-line improvement last year.
Does the 2015 HHS Budget Set a Positive Trend?
Healthcare spending has been projected to grow at a rate of 5.8% from 2012 to 2022. However, with the sluggish economic recovery, difficult capital spending environment and weak growth for Medicare and Medicaid, the growth rate in 2013 was pretty low.
However, the $1 billion or 3.5% boost to its fiscal 2014 budget, from the prior-year post-sequestration level, received by the National Institutes of Health (NIH) comes as a slight reprieve. Appropriators say that this hike, though insignificant, is expected to result in 385 million new grant opportunities for researchers compared to 2013. We note that the sequestration, which resulted in a 5.5% cut in the NIH fiscal 2013 budget, led to 640 fewer grants last year.
Apart from NIH, the National Institutes of Standards and Technology, The National Science Foundation (NSF), health professions and nursing workforce development programs are some of the others to gain from this bill in 2014. The U.S. Food and Drug Administration (FDA) has also managed to get $2.552 billion through this omnibus spending package, a $166 million (7%) increase over the fiscal 2013 post-sequestration funding level. The Centers for Disease Control and Prevention (CDC) received a $370 million or 6.8% increase over the year-ago post-sequestration funding level.
Nonetheless, the prospects for 2015 still remain bleak. Despite the expected improvement in economic conditions, the expansion of the Affordable Care Act (ACA) coverage and not to forget an aging population, the Budget for the Department of Health and Human Services (HHS) promises a total of $1 trillion in outlays and $77.1 billion in discretionary budget authority for fiscal 2015 – this is a reduction of $1.3 billion from the current fiscal. Going by this budget, estimated savings over the next 10 years will be as much as $355.6 billion.
However, the budget promises $4.6 billion for health centers, of which $3.6 billion has been financed by the Affordable Care Act's Community Health Center Fund, to serve approximately 31 million patients in 2015. This will lead to the establishment of 150 health centers in new areas of the country.
Besides, $14.6 billion of strategic investment will be made in three key areas: $4 billion in expanded funding for the National Health Service Corps (in addition to $100 million in discretionary funding and $310 million in current law funding for 2015), $5.2 billion for a new Targeted Support for Graduate Medical Education program and $5.4 billion for enhanced Medicaid reimbursements for primary care.
For the second time in a row, NIH managed to increase its budget funding. Although not so significant like it was in the earlier year, the fiscal 2015 budget includes $30.4 billion for the NIH, an increase of $211 million over 2014 reflecting that the government's focus on investment in advanced medical research has not been shaken even in its drive to stimulate economic growth.
For the FDA, the 2015 budget included $29 million for improving the protection of human and animal health through integrated monitoring of antimicrobial resistance. Besides, the budget added $1.5 billion, up $273 million over fiscal 2014, to boost the efforts of the FDA and CDC for implementing the Food Safety and Modernization Act. For the Centers for Medicare and Medicaid Services (CMS), the budget allocation is $897.3 billion in mandatory and discretionary outlays, a net increase of $54.3 billion above the previous fiscal.
Real Picture Remains Cloudy
Even more than six months after the Senate passed the Omnibus Appropriations bill, the research funding scenario does not look very encouraging. Most economists are of the opinion that with cost of research rising astronomically, the slender boost to the budget can hardly bring any respite. While the additional funding for NIH will help sustain current projects and begin funding for new research grants, this is still short of NIH's pre-sequestration budget.
NIH expects the sequestration (expected to last till 2021) to turn harsher in the coming years leading to serious consequences like delaying progress in medical breakthroughs, deterioration in job creation and tempering of economic growth. An NBC news article recently noted that many new researchers, who were trained with the U.S. taxpayers' money, may have to move to Europe and Asia where government funding for medical research is on the rise.
Moreover, the 2.3% medical devices excise tax, which is imposed on the sales price instead of net profit, amounts to a sizable sum, wiping out almost a quarter of the profit at the med instrument owners.
To weather the squall, medical device companies are coming up with efficient capital allocation and ingenuous business model innovation. In this regard, they are working on reducing fixed costs, conducting research and development prudently and extracting strategic value from intellectual property. The companies are also trying to focus on strategic mergers and acquisitions (M&A), emerging market expansion or are reducing operations in order to weather the tax burden.
MedTech M&A continues unabated in 2014. Wary of an uncertain economy, MedTech giants have resorted to the acquisition route to harness their strengths and diversify offerings.
Following Zimmer Holdings' (NYSE:ZMH-Free Report) $13.35 billion mega acquisition plan of Biomet, Inc., the leading U.S. medical device major Medtronic Inc (NYSE:MDT-Free Report) came up with its plan to buy Irish rival Covidien plc (NYSE:COV-Free Report) for $42.9 billion in cash and stock. This has off late become a common ploy for medical stocks to dodge the steep U.S. corporate tax rate by shifting its tax base overseas. Zimmer, on the other hand, expects the successful completion of the Biomet acquisition to help capture the $45 billion musculoskeletal industry.
In addition to these major impending takeovers, Stryker Corporation (NYSE:SYK-Free Report) has once again made it to the headlines with rumors of its bid to acquire London-based orthopedic major Smith & Nephew plc (NYSE:SNN-Free Report) surfacing again. The investors are still hopeful and expect the acquisition of Smith & Nephew to further boost Stryker's competitive position in the hip and knee replacement market following the $1.65 billion MAKO acquisition.
Besides, Stryker closed the $375 million acquisition of Small Bone Innovations' North American assets in August and acquired the German surgical tools firm, Berchtold Holding in April. On the other hand, In May, Smith & Nephew acquired Arthrocare Corporation for $1.7 billion in order to expand its product line in sports medicines.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Click here for your free subscription to Profit from the Pros.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
SOURCE Zacks Investment Research, Inc.
Continuous processes around the development and deployment of applications are both impacted by -- and a benefit to -- the Internet of Things trend. To help better understand the relationship between DevOps and a plethora of new end-devices and data please welcome Gary Gruver, consultant, author and a former IT executive who has led many large-scale IT transformation projects, and John Jeremiah, Technology Evangelist at Hewlett Packard Enterprise (HPE), on Twitter at @j_jeremiah. The discussion...
Nov. 27, 2015 04:15 AM EST Reads: 704
Too often with compelling new technologies market participants become overly enamored with that attractiveness of the technology and neglect underlying business drivers. This tendency, what some call the “newest shiny object syndrome” is understandable given that virtually all of us are heavily engaged in technology. But it is also mistaken. Without concrete business cases driving its deployment, IoT, like many other technologies before it, will fade into obscurity.
Nov. 27, 2015 04:00 AM EST Reads: 321
With all the incredible momentum behind the Internet of Things (IoT) industry, it is easy to forget that not a single CEO wakes up and wonders if “my IoT is broken.” What they wonder is if they are making the right decisions to do all they can to increase revenue, decrease costs, and improve customer experience – effectively the same challenges they have always had in growing their business. The exciting thing about the IoT industry is now these decisions can be better, faster, and smarter. Now ...
Nov. 27, 2015 04:00 AM EST Reads: 211
In his General Session at DevOps Summit, Asaf Yigal, Co-Founder & VP of Product at Logz.io, explored the value of Kibana 4 for log analysis and provided a hands-on tutorial on how to set up Kibana 4 and get the most out of Apache log files. He examined three use cases: IT operations, business intelligence, and security and compliance. Asaf Yigal is co-founder and VP of Product at log analytics software company Logz.io. In the past, he was co-founder of social-trading platform Currensee, which...
Nov. 27, 2015 04:00 AM EST Reads: 180
The Internet of Things is clearly many things: data collection and analytics, wearables, Smart Grids and Smart Cities, the Industrial Internet, and more. Cool platforms like Arduino, Raspberry Pi, Intel's Galileo and Edison, and a diverse world of sensors are making the IoT a great toy box for developers in all these areas. In this Power Panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, panelists discussed what things are the most important, which will have the most profound...
Nov. 27, 2015 02:30 AM EST Reads: 450
Discussions of cloud computing have evolved in recent years from a focus on specific types of cloud, to a world of hybrid cloud, and to a world dominated by the APIs that make today's multi-cloud environments and hybrid clouds possible. In this Power Panel at 17th Cloud Expo, moderated by Conference Chair Roger Strukhoff, panelists addressed the importance of customers being able to use the specific technologies they need, through environments and ecosystems that expose their APIs to make true ...
Nov. 27, 2015 02:00 AM EST Reads: 514
In today's enterprise, digital transformation represents organizational change even more so than technology change, as customer preferences and behavior drive end-to-end transformation across lines of business as well as IT. To capitalize on the ubiquitous disruption driving this transformation, companies must be able to innovate at an increasingly rapid pace. Traditional approaches for driving innovation are now woefully inadequate for keeping up with the breadth of disruption and change facin...
Nov. 27, 2015 01:30 AM EST Reads: 461
The cloud. Like a comic book superhero, there seems to be no problem it can’t fix or cost it can’t slash. Yet making the transition is not always easy and production environments are still largely on premise. Taking some practical and sensible steps to reduce risk can also help provide a basis for a successful cloud transition. A plethora of surveys from the likes of IDG and Gartner show that more than 70 percent of enterprises have deployed at least one or more cloud application or workload. Y...
Nov. 27, 2015 01:00 AM EST Reads: 458
PubNub has announced the release of BLOCKS, a set of customizable microservices that give developers a simple way to add code and deploy features for realtime apps.PubNub BLOCKS executes business logic directly on the data streaming through PubNub’s network without splitting it off to an intermediary server controlled by the customer. This revolutionary approach streamlines app development, reduces endpoint-to-endpoint latency, and allows apps to better leverage the enormous scalability of PubNu...
Nov. 27, 2015 01:00 AM EST Reads: 307
Microservices are a very exciting architectural approach that many organizations are looking to as a way to accelerate innovation. Microservices promise to allow teams to move away from monolithic "ball of mud" systems, but the reality is that, in the vast majority of organizations, different projects and technologies will continue to be developed at different speeds. How to handle the dependencies between these disparate systems with different iteration cycles? Consider the "canoncial problem"...
Nov. 27, 2015 01:00 AM EST Reads: 421
Growth hacking is common for startups to make unheard-of progress in building their business. Career Hacks can help Geek Girls and those who support them (yes, that's you too, Dad!) to excel in this typically male-dominated world. Get ready to learn the facts: Is there a bias against women in the tech / developer communities? Why are women 50% of the workforce, but hold only 24% of the STEM or IT positions? Some beginnings of what to do about it! In her Day 2 Keynote at 17th Cloud Expo, San...
Nov. 27, 2015 01:00 AM EST Reads: 555
Apps and devices shouldn't stop working when there's limited or no network connectivity. Learn how to bring data stored in a cloud database to the edge of the network (and back again) whenever an Internet connection is available. In his session at 17th Cloud Expo, Ben Perlmutter, a Sales Engineer with IBM Cloudant, demonstrated techniques for replicating cloud databases with devices in order to build offline-first mobile or Internet of Things (IoT) apps that can provide a better, faster user e...
Nov. 27, 2015 12:45 AM EST Reads: 393
Container technology is shaping the future of DevOps and it’s also changing the way organizations think about application development. With the rise of mobile applications in the enterprise, businesses are abandoning year-long development cycles and embracing technologies that enable rapid development and continuous deployment of apps. In his session at DevOps Summit, Kurt Collins, Developer Evangelist at Built.io, examined how Docker has evolved into a highly effective tool for application del...
Nov. 27, 2015 12:00 AM EST Reads: 332
I recently attended and was a speaker at the 4th International Internet of @ThingsExpo at the Santa Clara Convention Center. I also had the opportunity to attend this event last year and I wrote a blog from that show talking about how the “Enterprise Impact of IoT” was a key theme of last year’s show. I was curious to see if the same theme would still resonate 365 days later and what, if any, changes I would see in the content presented.
Nov. 26, 2015 10:00 PM EST Reads: 397
Cloud computing delivers on-demand resources that provide businesses with flexibility and cost-savings. The challenge in moving workloads to the cloud has been the cost and complexity of ensuring the initial and ongoing security and regulatory (PCI, HIPAA, FFIEC) compliance across private and public clouds. Manual security compliance is slow, prone to human error, and represents over 50% of the cost of managing cloud applications. Determining how to automate cloud security compliance is critical...
Nov. 26, 2015 04:00 PM EST Reads: 384