Natus Medical Incorporated (BABY) is a provider of healthcare products used for the screening, detection, treatment, monitoring and tracking of common medical ailments. The company makes these products under three divisions that focus on specific segments of the market: newborn care, hearing, and neurology.  Although most of the products that Natus makes are not over-the-counter, the company must go through the long and difficult process of having its products approved. This is a source of uncertainty and concern throughout the healthcare industry.
Since healthcare products are bought out of necessity rather than luxury, the healthcare products industry is less susceptible to recessions such as the 2008 Financial Crisis. However, the industry is subject to the rapid rise in demand following recessions. Although Natus Medical improved its revenue and operating income between 2008 and 2009 by a nominal amount, the company improved its revenue by 31% between 2009 and 2010.
Developing a new product is a time-consuming and costly endeavor. For healthcare products, hundreds of thousands of designs and prototypes must be screened to identify a handful of potential successes. Even fewer of these candidates are found to be acceptably effective at identifying a disease. The equipment must then pass strict safety standards in several series of clinical trials. Throughout this process, any number of failures can occur. In particular, if the FDA disapproves a certain product, the company's stock may plummet immediately since the Research and Development Expense might have potentially have 0% return on investment or even cause substantial losses.
Changes in health care coverage may impact sales. If an insurance program changes its policies and removes coverage for a certain treatment, less patients will elect to obtain treatment, reducing demand for healthcare equipment and reducing sales for Natus. In general, insurance programs are more likely to cover essential expenses, such as heart disease medication, and less likely to cover nonessential expenses, such as sleep disorders.
Natus has a niche in the healthcare product industry, focusing on creating equipment that detects problems most pertinent to infants. However, there is still some competition from bigger manufacturers such as JOHNSON & JOHNSON (JNJ) that make a wide variety of products. There are also a variety of smaller companies such as Welch Allyn and Astro-Med (ALOT) that compete more directly with Natus.