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Changes Are Afoot in U.S. Medical Device Regulations

Orthopedics remain at risk, but shares are priced below worst-case scenarios.

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For the past couple years, the Food and Drug Administration has been reviewing the regulatory process that most medical devices use to reach the U.S. marketplace, the 510(k) pathway. After delaying decisions last year on its own hot-button recommendations until the Institute of Medicine released its (very controversial) report this summer, the FDA recently made plans to decide on potential 510(k) changes by early October.

If the FDA makes relatively modest changes to the 510(k) process, the regulatory uncertainty weighing on medical device stocks may dissipate, giving medical device shares an upward catalyst. However, if the FDA decides to create a new moderate risk category with different qualifications for approval, Congress may need to get involved, which could significantly lengthen the timeline and reinforce the uncertainty surrounding potential changes. Of note, the FDA currently is seeking comments in public meetings where medical device makers, among others, are weighing in on the potential changes. Also, we plan to attend the AdvaMed Conference in late September, where we expect to gain more insight on this regulatory topic and many other issues facing medical device firms today.

Julie Utterback does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.