Medical device companies may be the newest victim of Congress' power. And contrary to what you might think, that's probably a good thing.
I've written before that advertisements for medical devices such as Johnson & Johnson's (NYSE: JNJ ) drug-eluting stent, Cypher, don't make a whole lot of sense. And nothing I've seen since has made me change my mind.
The Senate Aging Committee is currently investigating medical device companies' direct-to-consumer advertising campaigns. Unlike the ads from their pharmaceutical brethren, these ads don't have to equally weigh the benefits with the risks. Probably just as well. It'd be a real downer if they did because death is a potential risk of almost any surgery.
Even if the worst happens from the viewpoint of the companies -- a complete ban on advertisements -- I still don't think it would really have that big of an effect on medical device makers like Medtronic (NYSE: MDT ) , Boston Scientific (NYSE: BSX ) , or Abbott Labs (NYSE: ABT ) .
In contrast, pharmaceutical companies should be very worried about increased clamoring to protect patients from the "vicious" heath-care companies. Pfizer (NYSE: PFE ) , Eli Lilly (NYSE: LLY ) , Merck (NYSE: MRK ) , and the rest need the advertisements to get patients to talk to their doctors about their high cholesterol or erectile dysfunction. While they certainly boost sales, they also get patients talking to their doctors. And that's good.
However, medical device makers are in a business where the doctors are most likely to make the decision to use a particular device. I mean if you need a knee replaced or a stent put in, you're probably already talking to your doctor about various options.
Are patients really going to convince their doctors to cut them open just because they heard about a procedure on television? And even then, is the doctor more likely to use the device that patient heard about on television or the one the doctor is more comfortable using? The doctors are the ones who the medical device companies should focus their promotion dollars on, not the patients.
Smart investors should keep an eye out for advertisements and invest in companies that aren't throwing profits down the tube.
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