Originally Published MDDI December 2001
EDITOR'S PAGE
Healthcare Flexes Its Muscle In A Flagging Economy
Ten years ago, many feared an expansion of the healthcare sector of the economy. Now they are welcoming it.
Beginning
on page 37 of this month's issue, we present our annual Industry Snapshot, one
of the most popular features of the year. Our goal in these 11 pages is to give
readers a concise but comprehensive overview of the medical device industry.
Statistics are all very well, of course, but they cannot adequately describe the overall state of the industry, particularly in comparison with the economy as a whole. As noted in the introduction to the Snapshot, these statistics are being presented in a highly uncertain time in the world economy, in the midst of a recession and an unprecedented war against terrorism.
As an industry, should we be worried? Probably not. As any regular reader of the financial press can attest, the healthcare sector is now widely seen as the main engine of growth in the U.S. economy. As noted in a November 11 article in the New York Times, this would once have been seen as a problem. Back in 1990, when healthcare spending accounted for 13% of the gross domestic product, few people outside of the industry wanted to see that number go any higher.
Despite predictions that healthcare's share of the GDP would reach 20% by the end of the decade, the number remained flat. This seeming success was gained in large part through the imposition of managed care. (Many in the medical device industry would argue that the increasing efficiencies of their technologies had something to do with containing costs as well, but this point of view is unfortunately rare among the pundits.)
At the start of the new century, predictions are that the healthcare share of the GDP will grow to 16% by 2010, and to more than 20% by 2040. Once, this possibility would have set off all kinds of alarms. Now, however, views about the dominance of healthcare in the economy are changing. Consumer products are fine, the argument goes, but if you had to choose, which would you rather have—a better computer, or better healthcare? If we spend more of our money on increased longevity, is it such a bad thing?
The spread of this new outlook may be one reason why the initial public offerings for two medical equipment makers last October were received so enthusiastically. Given Imaging, the maker of a "camera-in-a-pill" that travels through the intestines, and TheraSense, manufacturer of blood glucose monitoring devices, were the first IPOs to come to market in seven weeks, the longest period without one since 1976. More medical IPOs are on the way. According to one estimate in October, of 55 companies preparing for IPOs, 35 were related to healthcare.
These trends are good news for manufacturers of medical technology. But the industry must be careful not to repeat the mistakes of the dot-com era, when many weak business ventures were wildly overvalued in the general enthusiasm for the technology. To avoid a backlash, the healthcare sector must continue to focus on profitability, not just promising technologies.
Copyright ©2001 Medical Device & Diagnostic Industry
