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Investment and Growth in US Medical Technology Industry Continues Despite Challenging Public Markets
Date:9/22/2008

Ernst & Young Releases its inaugural 2008 US Medtech Report

WASHINGTON, Sept. 22 /PRNewswire/ -- Private investment in the US medical technology industry has remained strong over the past 18 months, despite a precipitous drop in public equity funding this year due to the global credit crunch. At the same time, the 301 US-headquartered, publicly traded medical technology companies produced solid growth in revenues and earnings, driven by continued innovation and heightened demand brought by emerging medical and demographic trends. These and other findings are highlighted in Pulse of the industry: US medical technology report 2008, Ernst & Young LLP's first-ever report on the industry's performance, released today at the AdvaMed 2008 Medical Technology conference in Washington, D.C.

"While the credit crunch has depressed public equity financing, venture capital and deal activity remain solid," said Richard Ramko, Ernst & Young's US Medical Technology Leader. "The industry is poised for growth in the years ahead due to aging populations, the wider prevalence of chronic diseases, and an expected surge in demand for companion diagnostics to accompany new generations of targeted therapies."

Key industry findings described in the report include:

-- Financing. The US medtech industry had its second consecutive strong financing year in 2007, led by solid investment on the venture capital (VC) and public equity fronts. US companies raised nearly US$10.7 billion, a 2% increase over 2006 and a 165% increase over capital raised in 2005. However, in the first half of 2008, capital raised by the industry fell to $3.2 billion, largely because of declining funding from public investors.

-- Venture capital. Medtech companies attracted record amounts of venture capital in 2007 and sustained that pace in the first half of 2008. Total VC funding reached US$3.7 billion in 2007, a 37% increase over the previous record-setting year of 2006. Through June 2008, the US industry raised approximately US$1.7 billion, putting it on track to equal or surpass the average from the two previous years.

-- IPOs. While 13 initial public offerings (IPOs) were successfully completed in 2007, only three were completed in the first half of 2008. Total 2007 funding through IPOs rose to US$1.1 billion, a 54% increase over 2006. The average valuation at the time of the IPO swelled to US$405 million, a 94% increase over 2006.

-- IPO performance. Eight out of the 13 medtech companies that went public in 2007 saw gains from their initial IPO valuations during the year, which led to an average return of 24% for the year. However, these companies were significantly impacted by the challenging market conditions this year, with an average return of minus 4% through June 2008.

-- Booming deal space. The medtech M&A environment continues to be strong in 2007 and the first half of 2008. The total value of M&As was $49 billion in 2007, an 83% increase over 2006 after adjusting for the skewing impact of three mega mergers in 2006. Through the first half of 2008, the total value of M&A in the sector was approximately US$19 billion, a slightly lower pace than 2007, but still strong relative to years prior.

-- New generations of buyers. In addition to high deal volume, the base of buyers in medtech M&As has broadened. Many of the biggest medtech acquisitions in 2007 and the first half of 2008 were driven by two nontraditional participants: globally diversified conglomerates and private equity funds. While medtech-medtech mergers still represent the bulk of deals (through June 2008, these deals represented 81% of all M&A deals, or 54% of total deal value) mid-tier medtech buyers have become increasingly visible, supplementing the large cap medtech firms that have traditionally dominated.

-- Financial performance. Revenue for "pure-play" medtech companies increased by 6% in 2007 from the previous year, to US$111 billion, and net income rose by 2%. Total revenue for all publicly traded medtech companies in the US, including medtech divisions of conglomerates, reached over US$180 billion in 2007.

The Pulse of the industry report also identifies emerging risks and challenges that could negatively impact development cycles and capital requirements for medtech companies in the near future. These include growing pricing pressures from governments and third-party insurers, increased regulatory oversight, product safety concerns and new regulations, which are limiting traditional methods for cooperating with physicians on product development and refinement.

"With approximately two-thirds of all medtech revenue coming from products two years old or less, company innovation has long been an essential requirement for success in the industry," remarked John Babitt, Senior Manager, Transaction Advisory Services. "As medtech companies tackle a growing litany of challenges, they will need to apply an innovative approach in rethinking traditional elements of the medtech business model and in demonstrating the true value of their products in an environment of increased scrutiny and regulation."

About Ernst & Young's Global Biotechnology Center

Today's rapidly changing biotechnology and medical technology industries are delivering new levels of health, prosperity and sustainability. But they are also facing unprecedented challenges. Ernst & Young's Global Biotechnology Center brings together a worldwide team of professionals to help you achieve your potential -- a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help you meet your goals and compete more effectively. It's how Ernst & Young makes a difference.

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 130,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential.

For more information, please visit http://www.ey.com.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

This news release has been issued by Ernst & Young LLP, a U.S. client-serving member firm of Ernst & Young Global Limited.

Samantha Sims Greg Kelley

Ernst & Young Americas PR Feinstein Kean Healthcare

+1 212 773 0542 +1 617 761 6775

samantha.sims@ey.com gregory.kelley@fkhealth.com


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