Changes in the delivery of health care are creating pricing pressure on some of the largest medical device categories, such as hip and knees and defibrillators, and slowing the growth of these types of products dramatically, says Raj Denhoy, a Managing Director in equity research at Jefferies & Company, Inc.
“Certainly, the economy has had an impact on utilization, but there are other factors at work too. The payers and hospitals have gotten more sophisticated, and they’re looking to these things as the commodity-type products that they largely are,” he said. “You’ve also seen a whole wave of pushback on the utilization of medical technology. Lots of these categories should come under scrutiny as to whether the technologies are being overused.”
Denhoy has chosen Edwards Lifesciences Corporation (EW) as his top pick in the medical device industry, specifically in the transcatheter valve space. Despite current macroeconomic headwinds affecting the sector, he says EW is working on its third-generation devices, and it is about two years ahead of its competitors in terms of getting them on the U.S. market.
“Edwards Lifesciences is really pioneering, thus far, the use of transcatheter heart valves. That’s certainly an area that is getting a lot of attention. There is a little choppiness in the initial adoption of those products in United States, which has caused a little bit of softness in that stock, but I think the long-term prospects for transcatheter valves are enormous,” Denhoy said.
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