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
Between the mockups and specs produced by analysts, and resulting applications built by developers, there exists a gulf where projects fail, costs spiral, and applications disappoint. Methodologies like Agile attempt to address this with intensified communication, with partial success but many limitations. In his session at 18th Cloud Expo, Charles Kendrick, CTO & Chief Architect at Isomorphic Software, will present a revolutionary model enabled by new technologies. Learn how business and devel...
SYS-CON Events announced today that Peak 10, Inc., a national IT infrastructure and cloud services provider, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Peak 10 provides reliable, tailored data center and network services, cloud and managed services. Its solutions are designed to scale and adapt to customers’ changing business needs, enabling them to lower costs, improve performance and focus inter...
You think you know what’s in your data. But do you? Most organizations are now aware of the business intelligence represented by their data. Data science stands to take this to a level you never thought of – literally. The techniques of data science, when used with the capabilities of Big Data technologies, can make connections you had not yet imagined, helping you discover new insights and ask new questions of your data. In his session at @ThingsExpo, Sarbjit Sarkaria, data science team lead ...
So, you bought into the current machine learning craze and went on to collect millions/billions of records from this promising new data source. Now, what do you do with them? Too often, the abundance of data quickly turns into an abundance of problems. How do you extract that "magic essence" from your data without falling into the common pitfalls? In her session at @ThingsExpo, Natalia Ponomareva, Software Engineer at Google, will provide tips on how to be successful in large scale machine lear...
If there is anything we have learned by now, is that every business paves their own unique path for releasing software- every pipeline, implementation and practices are a bit different, and DevOps comes in all shapes and sizes. Software delivery practices are often comprised of set of several complementing (or even competing) methodologies – such as leveraging Agile, DevOps and even a mix of ITIL, to create the combination that’s most suitable for your organization and that maximize your busines...
Struggling to keep up with increasing application demand? Learn how Platform as a Service (PaaS) can streamline application development processes and make resource management easy.
In his session at @ThingsExpo, Chris Klein, CEO and Co-founder of Rachio, will discuss next generation communities that are using IoT to create more sustainable, intelligent communities. One example is Sterling Ranch, a 10,000 home development that – with the help of Siemens – will integrate IoT technology into the community to provide residents with energy and water savings as well as intelligent security. Everything from stop lights to sprinkler systems to building infrastructures will run ef...
Whether your IoT service is connecting cars, homes, appliances, wearable, cameras or other devices, one question hangs in the balance – how do you actually make money from this service? The ability to turn your IoT service into profit requires the ability to create a monetization strategy that is flexible, scalable and working for you in real-time. It must be a transparent, smoothly implemented strategy that all stakeholders – from customers to the board – will be able to understand and comprehe...
Machine Learning helps make complex systems more efficient. By applying advanced Machine Learning techniques such as Cognitive Fingerprinting, wind project operators can utilize these tools to learn from collected data, detect regular patterns, and optimize their own operations. In his session at 18th Cloud Expo, Stuart Gillen, Director of Business Development at SparkCognition, will discuss how research has demonstrated the value of Machine Learning in delivering next generation analytics to im...
In the world of DevOps there are ‘known good practices’ – aka ‘patterns’ – and ‘known bad practices’ – aka ‘anti-patterns.' Many of these patterns and anti-patterns have been developed from real world experience, especially by the early adopters of DevOps theory; but many are more feasible in theory than in practice, especially for more recent entrants to the DevOps scene. In this power panel at @DevOpsSummit at 18th Cloud Expo, moderated by DevOps Conference Chair Andi Mann, panelists will dis...
See storage differently! Storage performance problems have only gotten worse and harder to solve as applications have become largely virtualized and moved to a cloud-based infrastructure. Storage performance in a virtualized environment is not just about IOPS, it is about how well that potential performance is guaranteed to individual VMs for these apps as the number of VMs keep going up real time. In his session at 18th Cloud Expo, Dhiraj Sehgal, in product and marketing at Tintri, will discu...
Unless you don’t use the internet, don’t live in California, or haven’t been paying attention to the recent news… you should be aware that self-driving cars are on their way to becoming a reality. I have seen them – they are real. If you believe in the future reality of self-driving cars, then continue reading on. If you don’t believe in the future possibilities, then I am not sure what to do to convince you other than discuss the very real changes that will roll out with the consumer producti...
Up until last year, enterprises that were looking into cloud services usually undertook a long-term pilot with one of the large cloud providers, running test and dev workloads in the cloud. With cloud’s transition to mainstream adoption in 2015, and with enterprises migrating more and more workloads into the cloud and in between public and private environments, the single-provider approach must be revisited. In his session at 18th Cloud Expo, Yoav Mor, multi-cloud solution evangelist at Cloudy...
There is an ever-growing explosion of new devices that are connected to the Internet using “cloud” solutions. This rapid growth is creating a massive new demand for efficient access to data. And it’s not just about connecting to that data anymore. This new demand is bringing new issues and challenges and it is important for companies to scale for the coming growth. And with that scaling comes the need for greater security, gathering and data analysis, storage, connectivity and, of course, the...
This is not a small hotel event. It is also not a big vendor party where politicians and entertainers are more important than real content. This is Cloud Expo, the world's longest-running conference and exhibition focused on Cloud Computing and all that it entails. If you want serious presentations and valuable insight about Cloud Computing for three straight days, then register now for Cloud Expo.