Some companies are being more conservative than others. Baxter International Inc., Becton Dickinson and Company, and Zimmer Holdings Inc., for example, expect sales and revenue growth to hover in
Biotechnology and Medical Devices Funding Trends Source: PricewaterhouseCoopers |
the single digits this year. Wall Street analysts, however, have higher expectations for these firms, even companies such as Zimmer, which has lost revenue over the past year as job losses and economic instability forced people to defer elective procedures (hip and knee replacements, for example).
The Warsaw, Ind.-based orthopedic firm forecast full-year 2010 sales growth of 4 percent to 6 percent. Adjusted earnings per share (EPS) are projected to be between $4.15 and $4.35. Analysts though, expect a more robust growth rate of 6.6 percent from Zimmer this year, projecting that a strengthening global economy will lead to an increase in joint replacement procedures.
Zimmer executives share the same rosy outlook for the global economy and number of elective procedures performed, but they remain cautious about their overall prospects for 2010.
“Foreign market assumptions coming out of the fourth quarter are that in 2010, knee and hip procedures will grow in mid single digits within the Americas and Asia Pacific markets and remain flat to slightly positive in the Europe, Middle East and Africa markets,” James T. Crines, Zimmer’s chief financial officer and executive vice president of finance, told analysts during a fourth-quarter earnings conference call. “We anticipate modest price pressures in other markets such as the United States. We expect another year of moderate price erosions of minus 1 percent to minus 2 percent, and we expect the gross margin ratio to be slightly lower in the first half of 2010 as compared to the second half.”
Zimmer reported forth-quarter 2009 net sales of $1.11 billion, a 7.5 percent increase compared with its fourth quarter 2008 sales figures. Diluted EPS amounted to 74 cents reported and $1.12 adjusted, an increase of 12 percent compared with the prior year.
Baxter executives forecast cash flow from operations to total $2.9 billion this year. They also expect earnings per diluted share to range between $4.20 and $4.28 (before special items) and sales to grow between 5 percent and 7 percent.
“Our 2010 guidance reflects balance across the businesses, continued global expansion, and the ability to deliver sustainable growth,” Robert M. Davis, corporate vice president and chief financial officer, said when the company released its fourth quarter earnings report. “It is aligned with our long-range strategic and financial objectives as we remain focused on delivering growth while making appropriate investments for the future.”
Based on its fourth-quarter and full-year earnings reports, Wall Street analysts believe Baxter will most likely have to adjust its 2010 guidance throughout the year. The company—which manufactures intravenous drug pumps, blood therapy products and devices used for kidney dialysis—reported $572 million in net income and $3.5 billion in global sales during the final quarter of 2009, increases of 1 percent and 11 percent, respectively, compared with the last quarter of 2008. Earnings per diluted share in the fourth quarter rose 3 percent to 94 cents.
Baxter’s full-year net income totaled $2.2 billion, a 9 percent increase compared with the $2 billion the company reported in 2008. Earnings per diluted share jumped 14 percent to $3.59, while global sales climbed 2 percent to $12.6 billion.
With such sound growth last year, some Wall Street analysts expected Baxter’s 2010 guidance to be more liberal. Company executives, however, were hesitant to issue a higher guidance for the year due to flat pricing and a “modest softening” in market demand. “Baxter largely has been relatively unimpacted by the macro environment. But given how expensive therapy is, individuals losing insurance—things like that—I think [those things] have had somewhat of a softening effect in terms of the underlying market growth in 2009,” Robert L. Parkinson, Baxter chairman and CEO, said during the company’s fourth-quarter and full-year earnings conference call.
The lower guidance didn’t surprise some analysts, though. JP Morgan’s Weinstein said Baxter has traditionally been conservative with its initial outlook, but usually exceeds its own expectations by the end of the year. Leering Swann analyst Rick Wise agreed, telling Reuters, “We are inclined to think Baxter’s generally conservative management team has set the bar low, setting the stage to beat and raise EPS guidance throughout the year.”
That same kind of thinking may be behind lower-than-expected earnings forecasts at Becton Dickinson as well. Becton Dickinson reported $1.917 billion in revenues during the first fiscal quarter of 2010, a 12 percent increase compared with the same period last year. Diluted EPS amounted to $1.30, a 4 percent rise compared with the first fiscal quarter of 2009. Yet the Franklin Lakes, N.J.-based firm expects revenues to increase only 7 percent this year, with diluted EPS falling somewhere between $5.05 and $5.15. A Morgan Stanley analyst said the outlook “reflects some conservatism…”
Investment in Life Sciences Sector Outpaced Overall Venture Capital in 2009
Call it survival of the fittest.Companies in the life sciences sector attracted more venture capital last year than any other industry, despite a 22 percent drop in funding, a new report shows.
In a testament to its relative strength during the economic downturn, the life sciences sector—which includes the biotechnology and medical device industries—accounted for 34 percent of all venture capital dollars invested last year, compared with 28 percent in 2008, according to findings from a MoneyTree report by PricewaterhouseCoopers LLP and the National Venture Capital Association (NVCA), based on data from Thomson Reuters.
“Venture capitalists see real opportunity for growth within the sector,” said Tracy T. Lefteroff, global managing partner of the Venture Capital practice at PricewaterhouseCoopers. “As the worldwide population ages and more people enter their years of greatest healthcare need, demand for new pharmaceuticals, diagnostics and medical devices has the potential to go higher than we’ve ever seen.”
The anticipation of such an ascent may help explain the surge in venture capital during the final three months of 2009, though Lefteroff noted that acquisitions and IPOs (initial public offerings) attracted investors as well. That combination of factors helped the life sciences sector attract one out of every four deals in the fourth quarter, according to the Pricewaterhouse-Coopers report, “Under Recovery.”
Those same factors also most likely contributed to the sector’s strong performance throughout 2009. Though funding was off considerably last year, venture capital in the life sciences sector outpaced overall funding since the third quarter of 2008. Venture capitalists invested $6 billion in 715 deals last year, a 23 percent decrease compared with the $7.8 billion investors poured into the sector in 884 deals in 2008.
While significant, the life sciences funding shortfall was notably less severe than the overall loss suffered in all sectors last year compared with 2008. According to the report, venture capital funding in 2009 plunged 37 percent to $17.7 billion. Deal volume fell 30 percent to 2,795 transactions.
“The weak exit environment resulting from an unstable public market combined with a challenged limited partner base sent a strong message to the venture community to pull back the reins—and the VCs listened,” said Mark Heesen, NVCA president. That deceleration affected all sectors, too. Deal activity in the life sciences sector fell to the lowest point in six years in 2009, and the average deal size shrank 15 percent, going from $10 million in 2007 to $8.5 million last year. Like most other sectors, funding for life sciences firms has fallen steadily since 2007, when investments were at an all-time high.
That year, investors poured $9 billion into the sector in 899 deals. Since then, funding has dropped 33.3 percent, and the number of deals has dwindled 20.4 percent, according to the report.
Within the life sciences sector, the investment split between biotechnology firms and medical device companies last year was consistent with 2008 and 2007. Biotechnology captured 59 percent of sector investments in 2009, while medical device firms garnered 41 percent. The device industry attracted 44 percent of the investment split in 2008 and 42 percent in 2007, the data showed.
Medical therapeutics, which historically has attracted the most venture capital funding in the device industry, took a hit last year as well. Investments in this subsegment began to decline about halfway through the year, falling from $455 million in the second quarter of 2009 to $439 million in the quarter ended Dec. 31. Two categories within the medical therapeutics subsegment, however, posted gains: Surgical lasers attracted $77.6 million in venture capital investments, a 58 percent increase compared with 2008, while surgical instrumentation and equipment garnered $864.9 million, the report stated.
The two other subsegments in the medical device/equipment division posted robust gains in 2009 and ended the year on a particularly strong note. Investment in the medical and health products subsegment more than doubled in the fourth quarter, while funding in the medical diagnostics subsegment jumped 35 percent. The increases helped overall medical device division investments grow 14 percent in the final quarter of 2009 compared with the same period in 2008.
The pace of venture capital investments became frenetic in the second half of 2009, with funding for medical and health products more than tripling between the third and fourth quarters, and investments in medical diagnostics more than doubling between the second and fourth quarters. Medical and health products funding swelled from $34 million in the third quarter to $116 million in the fourth quarter, while medical diagnostics funding went from $65 million in the second quarter to $164 million in the final quarter of 2009. Early-stage and startup funding was far more prevalent last year than late-stage and expansion investments. In the final quarter alone, startup/seed funding nearly quadrupled, and early-stage funding more than doubled compared with the same quarter in 2008.