Before an hour had even passed, last night’s State of the Union address was already being analyzed and scrutinized in many different ways from a political standpoint.  Taking a closer look at the comments made by President Obama, it is interesting to see the implications this speech has for the continued health of the Medical Device sector.  Among the many issues discussed, two stand out as factors contributing the most to our industry.  Namely these are the continued economic weakness, and concerns over pending changes in health care policy.

The President addressed the economic climate, specifically the credit markets.  He cited that, “financing remains difficult for small business owners across the country, even those that are making a profit.”  This is especially telling if we consider that  most of the new products in the medical device industry come from small and medium sized companies.  Statistics and reports from GlobalData reveal that 56% of medical devices in the R&D pipeline are being developed by small businesses in the United States.   These small businesses need strong capital markets in order to survive and deliver cutting-edge therapies to the market.  These economic pressures combined with stronger regulatory enforcement, were cited in last week’s post as causes for a weaker VC market in the wake of  a proposed medical device tax.  Innovation needs a strong financial backing to survive.  Unfortunately, the President did not relate this to the medical device industry.  Instead, he focused more on the politically charged area of renewable energy.  Clean coal and other green energy technologies seem to be where the President is most interested in seeing new developments.  He stated, “And no area is more ripe for such innovation than energy…It means continued investment in advanced biofuels and clean coal technologies”  This leave some room to wonder where the medical device industry fits into President Obama’s overall plans to strengthen small business and innovation.  The medical device tax was not explicitly mentioned, but the President did discuss his health care reform initiative.

President Obama reiterated his vision for changing America’s health care system, and contended that, ” We are closer than ever to bringing more security to the lives of so many Americans”.  Both parties can agree that some form of restructuring is needed.  The President went so far as to state,

“By the time I’m finished speaking tonight, more Americans will have lost their health insurance. Millions will lose it this year. Our deficit will grow. Premiums will go up. Patients will be denied the care they need.”

Part of the cost for this proposed health care policy would be offset by the controversial “medical device tax”.  It would seem that this tax has a good chance of being reduced and maybe even eliminated in the final bill.  Most political analysts agree that with the recent Senate victory by Republicans in Massachusetts, the President will have to make some concessions in order to get a bill passed.  If that is the case, it certainly would ease some of the pressures in the Medical Device market.

The State of our industry is difficult, but it is starting to strengthen.  Several leading companies, like Medtronic, GE and, Boston Scientific are forecasting 10-12% sales growth and up to 15% annual earnings growth for 2010.  If real progress can be made in the area of the economy, the only concern remaining is regulatory reform.  Federal workloads should be easing as the FDA ramps up its operations.  In the past 2 years, the agency saw its budget  increase by 30%  to $3 billion and hiring grew by 20% to over 8,550 employees.  If the industry is able to influence changes in the 510(k) process to make it more efficient, then increased growth can be achieved.  However, the FDA has made it clear that they intend to tighten regulations.  It remains to be seen how this plays out, but indeed the fate of the medical device industry hangs in the balance.   If the spirit of the medical device industry and the country can be summed up, perhaps the President ended well saying, “We have finished a difficult year. We have come through a difficult decade. But a new year has come. A new decade stretches before us. We don’t quit.”