Wednesday, May 27, 2009

Medtronic – Harbinger for the Industry?

These days, I enjoy blogging because there’s a lot going on. First, the global economy is in a tailspin which only recently has been showing signs of pulling out. Next, the financial services industry which holds the global economy together is under strains not seem since the Great Depression while causing the US’s dominant global financial position to be called into question. Finally, potentially seismic changes in the US healthcare system arising from a new administration in Washington, D.C. and an American public simultaneously becoming increasingly more fearful and angry about the cost of healthcare poses serious challenges to the long, dominant healthcare industry, again, particularly in the US.

With this in mind, I read a recent article in the May 18, 2009 edition of Barron’s written by Neil A. Martin about Medtronic (MDT), the medical device manufacturer. The article is well written and fairly balanced. Neil goes over the issues facing the company and what its chances are going forward. He quotes several analysts who follow the company and who seem favorable. Although, I had a feeling of déjà vu reading their comments. We’ve heard it all before from other commentators for other companies. What’s different this time? We don’t get into the fundamentals. New products are good. But, will there be a risk of more recalls? How will these be paid for? Will patients continue to postpone surgeries judging it elective if they can’t afford it?

My purpose in this blog is not to hammer Medtronic or Neil A. Martin. What I’m about is how the fundamental issues seem to be being missed here. The financial industry is looking at healthcare companies like it has for years. Like it used to look at the US automobile industry for years. The proverbial ostrich with its head in the sand.

I want to go back to one of my recurring themes, the overcapacity in the US healthcare industry. Martin’s article contains a chart listing Medtronic with its major competitors, St. Jude Medical (STJ), Boston Scientific (BSX), Johnson & Johnson (JNJ), and Abbott Laboratories (ABT). I’ve blogged about the latter earlier this year. I think enough has already been said about the long suffering Boston Scientific. And, the remaining two go about their business. This is my point.

If I stick my neck out and forecast President Obama being reelected in 2012 then the world we’ll all inhabit when he finally leaves office in 2017 will be very different than the one we live in today. It has to be. The economic and social problems that we’re currently experiencing will only get worse with outside help (OK, OK, I’m really not a laissez-faire kind of guy, so, sue me). Also, I tend to be an optimist, things will get better. So, today’s players need to change, or, they will be changed. Now, the question is what will those changes be? Stay tuned, Larry and I hope to explore those changes.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin

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