GAO: Medtech’s profits jumped 44% in a decade

Profits for medical device companies rose 44% between 2004 and 2014 on 43% sales growth, according to the U.S. Government Accountability Office, which tallied the results from 102 medtech firms at the request of Senate minority leader Harry Reid (D-Nev.).

Profits for the companies included in the report (which excluded firms like Johnson & Johnson (NYSE:JNJ) that make products other than medical devices) rose from about $11.4 billion in 2005 to about $16.5 billion in 2014 at an average annual increase of roughly 4%. Profits declined during 3 periods, according to the report, falling from $11.4 billion to $9 billion from 2005 through 2006, from $14.0 billion to $10.4 billion from 2007 through 2009, and from $17.5 billion to $13 billion from 2011 through 2012.

The companies reviewed also saw the top line rise from a collective $95 billion in 2005 to about $136 billion in 2014, also an average annual rate of increase of about 4%. But the largest players dominated, with the 30 largest companies accounting for at least 95% of the total in each year of the study. Thirty-five medium-size companies accounted for 4%, with 37 smaller firms taking about 1%, the GAO said.

“Much of the growth in reported net sales from 2005 through 2014 was driven by large- and medium-sized medical device companies, which experienced average annual rates of increase in net sales of about 4% and 6%, respectively. Specifically, net sales increased for large-sized companies from $90.8 billion to $129.3 billion (about 42% over the period) and increased for medium-sized companies from $3.5 billion in 2005 to $6.1 billion in 2014 (about 72% over the period). In contrast, small-sized companies experienced a decrease in net sales, with an average annual rate of decrease of about 1% and a decrease in sales from $700 million in 2005 to $616 million in 2014 (about a 12% decrease over the period),” according to the report, which Reid requested to help gauge the impact of the medical device tax enacted as part of Obamacare.

Similarly, the larger companies took the lion’s share of the profits, with the 35 medium- and 37 small-sized companies posting net losses each year. The large firms’ profits rose about 43%, from $11.8 billion to $16.9 billion, an average annual rate of increase of about 4%.

“The extent of the reported net loss decreased for medium-sized companies over the time period from a net loss of $267 million in 2005 to a net loss of $191 million in 2014 (about 28% over the period), an average annual rate of decrease in net losses of about 4%. The extent of the net loss reported for small-sized companies increased from a net loss of $112 million to a net loss of $155 million (about 38% over the period), an average annual rate of increase of about 4% in net losses,” according to the report. “The net losses reported for both medium- and small-sized companies fluctuated between 2010 – when PPACA was passed – and 2014, but they decreased overall from 2010 through 2014.”

The report found that profit margins varied from a low in 2006 of 9% to a high of 14% in 2011.

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