Medical Devices & Supplies

In previous bear markets, investments in medical device stocks were a good way to play the downturn. Unfortunately, many medical device companies have been also negatively impacted by the current economic slowdown. Medical device companies have been more sensitive to this economy as a result of the additional impact from the credit crunch.

As a result of the tightening of credit markets and concerns regarding the availability of credit, particularly in the United States, uncertainty exists in the extent of healthcare providers’ ability to purchase capital equipment. Thus, the credit crunch may have a significant impact on the ability of customers to secure adequate funding to buy medical device products or might cause purchasing decisions to be delayed. Consequently, revenues of medical device companies may be negatively impacted from the inability of customers to purchase products, ability of customers to purchase a limited quantity, or the result of customers delaying purchase.

OPPORTUNITIES

As a result of the continued problems in controlling healthcare costs, we expect demand for products in the diagnostic testing market to continue to grow. The diagnostic testing market is highly labor intensive and time consuming. Many companies like Immucor (BLUD - Analyst Report) seek to automate the process or reduce diagnostic testing time, which is expected to reduce testing costs, patient care costs, and improve test accuracy. Thus, technological advances in diagnostic testing from R&D investments can play a role in helping to reduce healthcare costs and improve the quality of care.

WEAKNESSES

Cost pressures and uncertainty from the economic slowdown and credit crunch have been resulting in patients canceling or delaying healthcare. As a result healthcare providers have been experiencing a slowdown in surgical procedure volumes from reduced elective procedures or those that do not fall in the category of medically necessary to live. Thus, medical device companies that provide products for these procedures have been experiencing reduced demand for its products.

Tom Park is a senior analyst covering the medical devices & supplies industry for Zacks Equity Research.