- 14 июня, 22:59
- Zacks Investment Research
The global medical device industry has demonstrated strong and sustainable growth in the recent past. Banking on an aging population, increasing incidence of chronic and lifestyle diseases, increasing adoption of artificial intelligence (AI) and big-data applications, upbeat consumer sentiment and increased business investments, this sector appears to be in the pink of health.
Going by KPMG data, the medical device industry’s global annual sales is forecast to rise more than 5% a year to reach nearly $800 billion by 2030.
A CISION report says that the United States is the largest medical device market in the world at present, raking in more than $180 billion in revenues. Despite several socio-political hazards and economic dips, U.S. medical device companies have been riding high on R&D innovation, increasing consolidation, emerging market expansion and tax cuts.
Undoubtedly, it has been a very profitable investment space of late.
Here are a few major developments:
Abolition of MedTech Tax
The bipartisan two-year suspension of the Medical Device tax, which imposed a 2.3% excise tax on MedTech manufacturers, marks a temporary relief. It will be again put into effect from Jan 1, 2020.
The repeal is expected to boost hiring and investment at 9,000 America-based medical device manufacturers, thus instilling investor optimism.
The ratification of the tax-repeal amendment has encouraged massive investments in the sector.
M&A Uptrend Continues
Apart from the tax relief, the MedTech fraternity has also been riding high on the ongoing merger and acquisition (M&A) trends in the space. In fact, various reports suggest that M&A has been the key catalyst driving the U.S. healthcare space of late. Per data provided by BioSpectrum Asia, M&A activity in the MedTech space surged 50% in 2017, increasing the value of aggregate M&A to more than $200 billion.
Some of the major acquisitions in the recent past include Becton, Dickinson and Company’s (BDX) acquisition of C. R. Bard and Johnson & Johnson’s (JNJ) buyout of Actelion.
PBM-Health Insurers Consolidation
Lately, health insurers have been looking to collaborate with pharmacy benefit managers in the MedTech space to streamline costs in the drug supply chain.
Buoyed by continued capital inflow, strategic M&A policies by key medical device players have expanded customer bases, moderated leverage and enhanced cash flow. These have also alleviated pricing pressure and competition in the MedTech space.
In this regard, the latest buyout announcement of Express Scripts by Cigna (CI), which comes just three months after drug chain and pharmacy giant CVS Health Corp’s (CVS) announcement to acquire the nation's third-largest health insurer, Aetna, is important.
Digital Revolution and MedTech
Latest trends like robotic surgeries, Big-data analytics, bio printing, 3D printing, electronic health records (EHR), predictive analytics, real-time alerting and revenue cycle management services in the U.S. MedTech space are gaining prominence.
Various reports suggest that the strategic application of AI in every sphere of healthcare can provide an impetus to productivity. Companies that adopted AI technologies have witnessed a 50% reduction in healthcare costs and have also experienced improved patient outcome of more than 50%.
This along with a rise in minimally-invasive surgeries, higher demand for liquid biopsy tests and use of IT for quick and improved patient care, and the shift of the payment system to a value-based model have been driving profits at medical device companies of late.
Trade War Fears Grip MedTech
The 10 sectors that have been identified by Trump for imposition of higher tariff are now on investors’ radar. Healthcare, including medical equipment, is one of the sectors, likely to bear the brunt of the trade dispute.
Going by data provided in an article by Christian B. Jones in Mondaq, MedTech firms in the United States currently sell $4.7 billion annually to China, while the nation imports from China a total of $5 billion in medical device. U.S. exports of medical devices last year totaled $52 billion, creating a $1 billion worldwide trade surplus. Needless to say, the medical device lobby is extremely apprehensive about the proposed tariffs on Chinese products as it could significantly affect international trade.
Zacks Industry Rank
Within the Zacks Industry classification, Medical Device is broadly grouped into the Medical sector (one of the 16 Zacks sectors) and further sub-divided into four industries at the expanded level: Medical - Instruments, Medical - Products, Medical - Dental Supplies and Medical Info Systems.
We rank all 250-plus industries in the 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each.
The Zacks Industry Rank is #70 (top 27% of the 250 plus Zacks classified industries) for Medical Info Systems, #84 (top 33%) for Medical - Dental Supplies, #108 (top 42%) for Medical - Instruments and #189 (bottom 26%) for Medical - Products. Our backtesting shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Upon analyzing the Zacks Industry Rank for different Medical Device segments, it can be said that apart for certain medical product stocks, the near-term outlook for the aforementioned Medical device subsectors is overall positive.
The price performance of two major Zacks categorized sub industries, are as follows:
Over the past 30 days, while the S&P 500 has gained 2.2%, the med instruments space has risen 3.6%. Some of the stocks within this space that have been trading above the S&P are Varian Medical Systems, Inc. (VAR), STERIS plc (STE) and Edwards Lifesciences Corp. (EW).
While the Medical Product subsector’s industry rank indicated a bearish tone, the sector has increased 2.9% in this period. Some players from this space are Haemonetics Corp. (HAE), Baxter International Inc. (BAX) and Boston Scientific (BSX).
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Varian Medical Systems, Inc. (VAR): Free Stock Analysis Report
STERIS plc (STE): Free Stock Analysis Report
Johnson & Johnson (JNJ): Free Stock Analysis Report
Haemonetics Corporation (HAE): Free Stock Analysis Report
Edwards Lifesciences Corporation (EW): Free Stock Analysis Report
CVS Health Corporation (CVS): Free Stock Analysis Report
Cigna Corporation (CI): Free Stock Analysis Report
Boston Scientific Corporation (BSX): Free Stock Analysis Report
Becton, Dickinson and Company (BDX): Free Stock Analysis Report
Baxter International Inc. (BAX): Free Stock Analysis Report
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