Medical Materials Industry Review

Report Highlights

INTRODUCTION

Despite an extended Enron-like ice bath from Imclone and others that compounded pipeline problems in biotech/pharma —freezing investments for most of 2002—the chill was somewhat held off for the year in the hospital and medical device markets by sunny supply and demand conditions. Reimbursement and regulatory bugs aside, the more temperate regions of the medical industry were warmed by the expanding health needs of aging Americans — needs that translated to nearly 15% of the national economy for the year —up from 13% last year, according to the government. Based on the demographic trend, and a year-ending rebound for biotech, analysts say the medical arena should do as well or better in 2003.

BIOTECH

In the tight economy, scores of biotech companies made cuts in research projects and staffing during the second half of the year. Even so, biotech raised more than $10 billion, with more venture capital flowing into the industry in 2002 than ever, a record $2.6 billion. As investments returned in the fourth quarter, hopes were raised that the biotech bottom had been struck. Market capitalization for the industry rose from $219 billion at the end of October to $225 billion as of December 9 —an increase of 3% for the month and a half.

HOSPITALS

Overall, the hospital sector continued to benefit from large admissions and high demand in 2002. According to Merrill Lynch, the increasing ailments of middle aged and older Americans fueled 20% to 60% returns for hospital management companies. Such returns should continue in the coming year and beyond, with the 55 year-old to 64 year-old age group increasing by 54% between the years 1996 and 2006. When patients enter that group, their average healthcare spending increases dramatically — for males in particular the spending doubles from the previous group, according to PricewaterhouseCoopers Partner David Chin. However, superannuated Boomers are proving tough customers, pressuring hospitals to provide more advanced services, including the latest in pharmaceutical and medical technologies.

MEDICAL DEVICES

The growing patient population and their insistence on the latest and most advanced technology has not hurt the device industry. Previously overlooked by investors, the sector found itself squarely under the speculative spotlight in 2002. More money than ever was committed to device companies for the year, based on a surprising solidity in bad times. The sector lost a mere 2% in valuations, a pittance compared to losses in other industries such as high tech and biotech, according to a VentureOne study.

This anthology keeps you informed of key developments affecting companies worldwide that rely on high-technology materials to develop economical new treatments and devises.