12% Annual Growth Seen for Medical Devices

Medical devices continue to experience high and sustainable operating margins and are expected to have compounded annual growth rates averaging 12% over the next few years, according to Kurt H. Kruger, medical device and supplies analyst at Banc of America Securities. Cardiology, orthopedics, and neurology will experience sustained growth to 2005. Neurology--the fastest growing--is projected to have annual growth of 40%, due to the increasing use of electrical stimulation for debilitating diseases such as epilepsy and Parkinson's disease.

Comparing medical products with the pharmaceutical sector, Kruger noted that many of the larger medical device companies are just as attractive as the drug companies. While drug companies are facing generic substitution and increasingly dilutive direct-to-consumer advertising, the device companies have built powerful franchises that block competition and provide durability. Furthermore, it is unlikely that devices will ever be marketed directly to consumers--selling to professionals is a more profitable endeavor.
Although acquisition activity is not as brisk as it has been, there are some major potential acquisitions for sale.

Kruger made his comments at the 30th Annual Banc of America Securities Investment Conference in San Francisco. Banc of America Securities is a subsidiary of Bank of America, which provides international corporate financial services for more than two million businesses conducting transactions in 190 countries.