Smith & Nephew Exec: Medical Device Firms Face Scrutiny

The government is likely to pressure medical device companies to make sure third-party companies that distribute their devices in other countries don’t pay bribes, an executive with medical device maker Smith & Nephew said.

“There’s going to be a big scrutiny on how we do business outside the US, and frankly–I’m speaking for everyone–in general, the device industry has not done well on monitoring distributor operations outside the US,” said Mark Augusti, president of Smith & Nephew’s new biologics unit.

Greater federal pressure on foreign business dealings would have a significant impact in Memphis, TN, where even the smallest medical device companies often sell products overseas.

The Securities and Exchange Commission has already subpoenaed Smith & Nephew and several other medical device companies under the Foreign Corrupt Practices Act, which bans giving bribes in foreign countries.

The companies have said they’re cooperating with the investigation.

Jon Serbousek, a former Medtronic executive who is now orthopedics president at Biomet Inc., said good results have come from the federal government’s settlement with five orthopedic companies, which paid a combined $310 million and let in federal monitors to put to rest allegations that they bribed doctors to use their products.

“What’s occurred in this industry is healthy,” Serbousek said.

He said it’s possible to follow the law while paying doctors to help develop new products.

Experts have offered a glum outlook for small companies seeking money to expand.

Venture capitalists try to earn back the money they invest in small companies by selling them off to larger companies or through a public stock offering.

But venture capitalists appear reluctant to invest today because they might not earn back their money for a very long time.

The current turmoil in financial markets makes it hard for small companies to sell themselves to the public and pay back investors.

And executives said big companies like theirs will likely be more cautious about acquiring small companies, given the difficulty of integrating corporate cultures and the risk that a purchase turns sour.

Small companies might want to seek cooperative partnerships with bigger companies rather than seeking buyers, said Shawn McCormick, vice president of business development at Medtronic.

The tough environment means startup companies should concentrate on creating valuable products, said former venture capitalist Ted Davis, who scouts potential acquisitions for Arlington-based Wright Medical Group.

“Focus on the fundamentals,” he said.

The economic climate doesn’t mean small companies with good products can’t succeed, he said, but if you’re running a company that is imitating someone else’s idea, “you’re in trouble.”

SOURCE: TradingMarkets.com

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