Analysts See Medical Device Sector Slowing

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Hot new cardiology products and a steady stream of aging baby boomers with clogged arteries and creaky joints have helped medical device companies outperform the broader market for the past five years.

But some on Wall Street believe much of the big money in medical technology has already been made.

“Med-tech stocks have been fabulous performers over the last three or four years, so expecting a repeat of that is asking a lot,” said Michael Barr, health-care equity analyst for Victory Capital Management.

Barr said the rally was driven by new device-based treatments for congestive heart failure and the rapid adoption of drug-eluting stents, an improved treatment for clogged heart arteries that reduces the need for repeat procedures.

“I don’t really see that kind of big product cycle ahead in the next year,” he said.

Top executives from the world’s biggest medical device companies will discuss their views on future growth at the Reuters Medical Devices Summit in Chicago this week.

In 2004, Boston Scientific Corp. launched its most successful product ever, the Taxus drug-coated stent, and sales increased by 62 percent.

The sector was also home to the largest health-care merger of the year as Johnson & Johnson cut a deal to buy cardiology specialist Guidant Corp.  for $24.5 billion.

Analysts say investors can still find value in medical device companies, but they’ll have to be more selective.

Growth at large-cap medical device companies will come in part from expanded Medicare reimbursement policies for implantable cardioverter defibrillators, or ICDs, which shock racing heartbeats back to normal rhythm. Analysts expect at least 20 percent annual growth in ICDs for the next few years.

That should help to sustain growth at Medtronic Inc., St. Jude Medical Inc.  and J&J/Guidant.

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