Welcome!

News Feed Item

Zacks Industry Outlook Highlights: Zimmer Holdings, Medtronic, Covidien, Stryker and Smith & Nephew

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).

Zacks Investment Research, Inc., www.zacks.com

Industry: MedTech

Link: http://www.zacks.com/commentary/34109/

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.

M&A Activities

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.

About Zacks

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.

Get the full Report on ZMH- FREE

Get the full Report on MDT- FREE

Get the full Report on COV- FREE

Get the full Report on SYK- FREE

Get the full Report on SNN- FREE

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.

Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
[email protected]
http://www.zacks.com

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.

Logo - http://photos.prnewswire.com/prnh/20101027/ZIRLOGO

SOURCE Zacks Investment Research, Inc.

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
Is advanced scheduling in Kubernetes achievable? Yes, however, how do you properly accommodate every real-life scenario that a Kubernetes user might encounter? How do you leverage advanced scheduling techniques to shape and describe each scenario in easy-to-use rules and configurations? In his session at @DevOpsSummit at 21st Cloud Expo, Oleg Chunikhin, CTO at Kublr, will answer these questions and demonstrate techniques for implementing advanced scheduling. For example, using spot instances ...
With major technology companies and startups seriously embracing Cloud strategies, now is the perfect time to attend 21st Cloud Expo October 31 - November 2, 2017, at the Santa Clara Convention Center, CA, and June 12-14, 2018, at the Javits Center in New York City, NY, and learn what is going on, contribute to the discussions, and ensure that your enterprise is on the right path to Digital Transformation.
SYS-CON Events announced today that Yuasa System will exhibit at the Japan External Trade Organization (JETRO) Pavilion at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Yuasa System is introducing a multi-purpose endurance testing system for flexible displays, OLED devices, flexible substrates, flat cables, and films in smartphones, wearables, automobiles, and healthcare.
SYS-CON Events announced today that CAST Software will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 - Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. CAST was founded more than 25 years ago to make the invisible visible. Built around the idea that even the best analytics on the market still leave blind spots for technical teams looking to deliver better software and prevent outages, CAST provides the software intelligence that matter ...
SYS-CON Events announced today that Daiya Industry will exhibit at the Japanese Pavilion at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Ruby Development Inc. builds new services in short period of time and provides a continuous support of those services based on Ruby on Rails. For more information, please visit https://github.com/RubyDevInc.
When it comes to cloud computing, the ability to turn massive amounts of compute cores on and off on demand sounds attractive to IT staff, who need to manage peaks and valleys in user activity. With cloud bursting, the majority of the data can stay on premises while tapping into compute from public cloud providers, reducing risk and minimizing need to move large files. In his session at 18th Cloud Expo, Scott Jeschonek, Director of Product Management at Avere Systems, discussed the IT and busine...
SYS-CON Events announced today that Evatronix will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Evatronix SA offers comprehensive solutions in the design and implementation of electronic systems, in CAD / CAM deployment, and also is a designer and manufacturer of advanced 3D scanners for professional applications.
As businesses evolve, they need technology that is simple to help them succeed today and flexible enough to help them build for tomorrow. Chrome is fit for the workplace of the future — providing a secure, consistent user experience across a range of devices that can be used anywhere. In her session at 21st Cloud Expo, Vidya Nagarajan, a Senior Product Manager at Google, will take a look at various options as to how ChromeOS can be leveraged to interact with people on the devices, and formats th...
First generation hyperconverged solutions have taken the data center by storm, rapidly proliferating in pockets everywhere to provide further consolidation of floor space and workloads. These first generation solutions are not without challenges, however. In his session at 21st Cloud Expo, Wes Talbert, a Principal Architect and results-driven enterprise sales leader at NetApp, will discuss how the HCI solution of tomorrow will integrate with the public cloud to deliver a quality hybrid cloud e...
DevOps at Cloud Expo, taking place October 31 - November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 21st Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to w...
DevOps is under attack because developers don’t want to mess with infrastructure. They will happily own their code into production, but want to use platforms instead of raw automation. That’s changing the landscape that we understand as DevOps with both architecture concepts (CloudNative) and process redefinition (SRE). Rob Hirschfeld’s recent work in Kubernetes operations has led to the conclusion that containers and related platforms have changed the way we should be thinking about DevOps and...
SYS-CON Events announced today that Taica will exhibit at the Japan External Trade Organization (JETRO) Pavilion at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Taica manufacturers Alpha-GEL brand silicone components and materials, which maintain outstanding performance over a wide temperature range -40C to +200C. For more information, visit http://www.taica.co.jp/english/.
When it comes to cloud computing, the ability to turn massive amounts of compute cores on and off on demand sounds attractive to IT staff, who need to manage peaks and valleys in user activity. With cloud bursting, the majority of the data can stay on premises while tapping into compute from public cloud providers, reducing risk and minimizing need to move large files. In his session at 18th Cloud Expo, Scott Jeschonek, Director of Product Management at Avere Systems, discussed the IT and busine...
SYS-CON Events announced today that SourceForge has been named “Media Sponsor” of SYS-CON's 21st International Cloud Expo, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. SourceForge is the largest, most trusted destination for Open Source Software development, collaboration, discovery and download on the web serving over 32 million viewers, 150 million downloads and over 460,000 active development projects each and every month.
Enterprises have taken advantage of IoT to achieve important revenue and cost advantages. What is less apparent is how incumbent enterprises operating at scale have, following success with IoT, built analytic, operations management and software development capabilities – ranging from autonomous vehicles to manageable robotics installations. They have embraced these capabilities as if they were Silicon Valley startups. As a result, many firms employ new business models that place enormous impor...