A tougher Food and Drug Administration approval process and increasingly cost-conscious hospitals are pushing medical suppliers and devicemakers to pursue buybacks, dividends or acquisitions to appease shareholders in the wake of slow sales growth, according to a Moody's Investors Service report.
Late News: Suppliers look to buybacks in wake of slow growth
Diana Lee, a senior credit officer for Moody's, said in a news release that the ratings agency expects manufacturers to engage in “shareholder-friendly initiatives” over the next year and a half to satisfy shareholders and encourage growth. Acquisition opportunities will be limited because of the difficulties involved in finding deals that make strategic sense and agreeing on the value of the assets, Moody's said.
The companies most likely to pursue acquisitions, buybacks or dividends are those that manufacture products considered vulnerable to consumer demand, such as orthopedic implants, and companies dealing with product concerns about safety, efficacy and appropriate use. Several manufacturers, including Boston Scientific Corp., Medtronic and St. Jude Medical, have been hurt by a federal investigation into the use of implantable cardioverter defibrillators, Moody's said (April 25).
Also, hospitals are increasingly coordinating with physicians to cut costs on expensive items preferred by physicians, such as stents, ICDs and orthopedic implants. “Devicemakers have relied on product innovation to sell premium products that can garner higher pricing than existing products,” Moody's said. “We believe that it will become tougher for this strategy to succeed.”
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