Moody’s: Enhanced FDA Scrutiny Could Pressure Device Makers

Heightened Food and Drug Administration surveillance for problems with products already on the market could pressure medical-device makers by boosting research-and-development costs and the risk of negative news, according to Moody’s Investors Service.

Manufacturers of high-tech devices such as drug-coated stents – which are made by Boston Scientific Corp. (BSX), Johnson & Johnson (JNJ), Medtronic Inc. (MDT) and Abbott Laboratories (ABT) – appear to be most vulnerable to the increased scrutiny, Moody’s said in a recent report.

The credit ratings firm examined the impact of an FDA plan announced in May, called “Sentinel”, that aims to comb health databases from a variety of sources to identify product issues more quickly.

“The increased scrutiny could lead to greater volatility in sales and profitability, or even a prolonged downturn in credit fundamentals, for some medical device companies,” Moody’s said.

The FDA’s focus on so-called post-market studies, or often lengthy and costly studies that companies must perform once a new product is approved, will push up R&D costs for device makers over time, Moody’s said. While the FDA’s increased scrutiny also affects drug makers, Moody’s that that clinical trials for new drugs before and after approval already represent a large portion of development expenses.

In the device sector, Moody’s noted that the FDA has required long post-market studies of recently approved drug-coated stent heart devices, which prop open clogged arteries, from Medtronic and Abbott. Those devices entered a market that was rocked in 2006 by safety concerns regarding older devices.

Meantime, pharmaceutical companies have the same exposure as device makers to fallout from bad product news when it erupts, Moody’s said.

The ratings firm believes that over the long haul, the FDA’s efforts could create greater consumer confidence that could help sales if medical devices prove safe and effective.

“That said, more negative reports on medical devices could emerge, making the government’s postmarket monitoring efforts more of a risk than a benefit for the sector over the next several years,” Moody’s said.

The firm said that key issues will include how companies deal with higher R&D costs, how data on products are analyzed and reported, and the extent to which such information is used to guide FDA actions.

SOURCE: Dow Jones Newswires