NCPA - National Center for Policy Analysis


January 27, 2006

The future of the medical device industry looks bright indeed. It is one of the most innovative and profitable segments of the economy and is expected to grow by double digits for years to come, as more and more baby boomers enter their prime health care spending years, says the New York Times.

That trend could explain the current bidding war between Boston Scientific and Johnson & Johnson for Guidant.

  • The market for defibrillators, now valued at $10 billion, is expected to expand by 15 percent annually for the next five years.
  • In addition, the $7.6 billion market for the devices used to clear blood vessel blockage and for stents will reach $10 billion by 2010.

According to the Times, the "enthusiasm for medical devices is a bright contrast to the currently cloudy outlook for many traditional drug companies and biotechnology start-ups."

  • Device manufacturers have an advantage because unlike drug makers, they can constantly make improvements to products to justify price increases.
  • Devices can also be made with electronic components that allow them to be monitored remotely, and device manufacturers often obtain regulatory clearance to sell new products more easily than drug makers.
  • However, there is concern that some of the industry's innovations are "being marketed too aggressively" and that their products are being approved on short-term evidence of benefits that might not justify costs in the end, the Times reports.

With a 30 percent increase in U.S. residents over the age of 60 in the next eight years, spending on health care for people between the ages of 60 and 70 will be more than it was for all their previous decades combined. By the time baby boomers are 85, they will be spending more than $16,000 annually on health care, says the Times.

Source: Barnaby J. Feder, "Medical Devices Are Hot, Which Is Why Guidant Is," New York Times, January 21, 2006.

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