Mr. Dolan: In general, the industry is beginning to contemplate the implications of Obama's new budget proposal, with $630 billion potentially being spent on healthcare reform. Right after the election in November, we surveyed around two dozen medical device company CEOs to obtain their thoughts on the changing White House Administration and how that might impact the medical device industry. At that point, feedback essentially indicated that the economic downturn overshadowed most concerns surrounding potential new policies, and considering that view, the ability to implement significant healthcare policy reforms was at least two to four years away. However, with Obama appearing to be more aggressive in his new budget initiative, sentiment is beginning to consider that a new environment for medical device companies could be a reality sooner rather than later. As a result, we suspect that management teams of medical device companies are beginning to contemplate possible outcomes of a new policy, whether it be socialized medicine or some other proposed variation of this. We believe today's major medical device industry issues surround cost and reimbursement levels, the FDA's approval process for medical technologies, and patent protection, among others. For example, pricing transparency is a concept that could require companies to report the price of a particular medical device to the Centers for Medicare & Medicaid Services (CMS). If this is the case, competitive bidding could ultimately result in reduced ASPs on certain products, thereby lowering their revenue and profit margin potential. Additionally, other bills are evaluating the ability of certain intellectual property to protect smaller medical technology innovators, which could impact the underlying value of patents surrounding certain applications. If either of these scenarios plays out, the potential long-term implication could be a reduction in the motivation for the medical technology industry to innovate in an aggressive way. If pricing and therefore profit margins are limited in the long term or if the value of IP is undermined, one might anticipate the level of innovation to be pressured accordingly.
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