New York, November 02, 2009 -- As the introduction of new products becomes increasingly important to the growth of medical device companies, obstacles to innovation appear to be mounting, said Moody's InvestorsService in a new report.
"New product launches will continue to buoy the sector, but the process of bringing new products to market may prove more difficult," said Moody's Senior Credit Officer, Diana Lee. The sector is facing new challenges such as additional regulatory pressures and healthcare reform initiatives that could further hinder future efforts to bring new products to market.
Stronger oversight from the Food and Drug Administration (FDA) has already led to more stringent post-market requirements to help the U.S. government monitor the safety of medical devices and side effects of
drugs after the general population has begun using them, the report said. Now, the FDA is reviewing its 510(k) clearance process, which may result in higher costs or delays in launching new medical products.
"Companies that face slowing growth trends due to competitive pressures or that depend on more mature products will be particularly vulnerable to new regulatory constraints," said Lee.
In addition, healthcare reform initiatives such as comparative effectiveness studies and a possible sector fee could raise product development risk or constrain margins in the sector. "These challenges may force high-tech companies to be even more selective about their R&D spending," Lee commented.
Meanwhile, the new pressures could also further burden the lower-tech companies that have already ramped up their spending rates to support sales growth. Obstacles to new product development could lead to more
acquisition activity to help companies supplement their organic growth.
The full report, titled, "Medical Product Innovation Faces New Hurdles," is available at www.moodys.com.
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Diana Lee
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
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John Diaz
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