Medical device stocks did well in 2018, courtesy of favorable exposure to Artificial Intelligence (AI)-based applications along with medical mechatronics and big-data applications, encouraging demographics and increased business investments.
Broadly speaking, the U.S. economy has benefited from rise in consumer spending, improvement in labor market, higher customer confidence and increase in wages. Additionally, three interest rate hikes by the Fed, indicating inherent economic stability, have boosted investors’ confidence.
The Medical – Products Industry within the broader Medical Sector has outperformed the Zacks S&P 500 Composite year to date. While stocks in the industry have collectively declined 1.8%, the Zacks S&P 500 Composite fell 2.7%.
What’s Benefiting Medical Device Stocks?
Going by a CISION report, the United States is the largest Medical Products market in the world, raking in more than $180 billion in revenues a year. Thus, it has been a very profitable investment space of late.
The sector benefits from favorable consumer behavior, growing prevalence of minimally-invasive surgeries, demand for liquid biopsy tests, use of IT for quick and improved patient care along with the shift of the payment system to a value-based model.
The latest Tax Cuts and Jobs Act, which among many other changes, slashed corporate tax rates to 21% from the earlier 35%, has provided impetus to the market.
This apart, the U.S. medical device companies are currently riding high on R&D innovation, courtesy of the 2.3% Medical Device tax abolition earlier this year. According to an article published in Xtalks, the Medical Device tax was responsible for a $34-million reduction in R&D spending by companies. The bill also delays the Cadillac tax, a 40% tax on employer insurance, until 2022.
AI Opening Up New Avenues
The U.S. Medical Products industry has turned 2018 into ‘the year of inventions’.
With a series of developments like the human-brain pacemaker, electronic skin that displays vital signs of the body, needle-free injections and many more, the medical fraternity has been hogging the limelight through the year.
Furthermore, this sector is seeing increased use of cloud-based applications and AI. Companies like Veeva Systems VEEV and athenahealth’s ATHN focus on cloud-based services deserve a special mention here.
Per research by LEGACY MEDSearch, the global medical device technology market is expected to see a CAGR of 4.6% to reach a value of $563,886.5 million by 2025.
Can We Expect the Momentum to Stay?
Despite an eventful year, the medical device space is confronted by short-term hurdles associated with the U.S.-China trade war. According to a survey conducted by the Medical Imaging & Technology Alliance (MITA), the tariffs will cost medical products companies nearly $138 million every year.
Thus, companies will be compelled to reduce workforce and investments in R&D to meet this ‘new and unnecessary expense.’ This also increases the chances of costs being passed on to end users, making healthcare more expensive.
There have also been regulatory hurdles. For instance, the Unique Device Identification (UDI) system by the FDA has been quite costly and difficult to implement for medical product manufacturers.
Adding to the woes, the medical-device tax repeal amendment is a temporary relief for manufacturers. The tax will be back in effect on Jan 1, 2020.
The latest inversion of the ‘Treasury Yield Curve’ is another factor to fret about, as analysts apprehend an economic recession in 2019. Not to forget, the yield curve last inverted in 2008, just before the Great Recession. Also, fresh data from IMF shows that the economy will maintain its slow pace in 2019 and 2020.
4 Significant Gainers of 2018
As the curtains roll down on 2018, let us do a quick recap of the four well-performing Medical Product stocks of 2018.
These stocks have more than doubled so far this year. They also have a favorable Zacks Rank #1 (Strong Buy) and market capitalization of more than $1 billion. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our first pick is DexCom, Inc. DXCM — a leading manufacturer of glucose monitoring systems (CGM) with a market cap of $10.72 billion. The stock also has a Growth Score of A.
Year to date, the Zacks Rank #1 stock has rallied 110.2% compared with the industry’s 9.6% rise.
Dexcom recently announced the launch of the CLARITY mobile app. The Dexcom CLARITY Diabetes Management Software is a cloud-based solution that simplifies CGM data reporting and facilitates the secure sharing of data between physicians and patients. Additionally, the company announced an amendment to its license deal with Verily, the life sciences unit of Alphabet GOOGL. With this deal, DexCom is expected to come up with the next-generation CGM platform by 2020-end. (Read More: DexCom Amends Deal With Verily to Launch Advanced CGM by 2020)
Next on our list is Amedisys, Inc. AMED. The provider of home health and hospice services throughout the United States has a market cap of $3.96 billion and a Growth Score of A.
Since the start of the year, the Zacks Rank #1 stock has skyrocketed 135.7% against the industry’s 7.7% decline.
The company recently announced a definitive agreement to acquire Compassionate Care Hospice, a national hospice care provider headquartered in Parsippany, New Jersey. The company is striving to improve the quality of care as well as implement disease management programs catering to the needs of patients in hospitals. The company also continues to benefit from the aging demographics of the U.S. population and the need for higher acuity patients to be taken care of in a home nursing environment.
Investors may also choose STAAR Surgical Company STAA. This developer, manufacturer and provider of implantable lenses for the eye, and delivery systems to deliver the lenses into the eyehas a market cap of $1.52 billion and a Growth Score of A.
Year to date, the Zacks Rank #1 stock has rallied 122% against the industry’s 5.2% decline.
STAAR Surgical has been gaining significantly from its Implantable Collamer Lens (ICL), which includes the EVO Visian ICL product line. In the third quarter, ICL registered extremely remarkable growth in the international market with strength in Asia-Pacific markets. In terms of number of units sold, China grew 100%, Japan rose 95%, India climbed 27%, and the rest of Asia-Pacific grew 38%.
Last but not the least, BioTelemetry, Inc. BEAT is a mobile and wireless medical technology company, providing cardiac and mobile blood glucose monitoring (BGM), centralized medical imaging, and original equipment manufacturing services for the healthcare and clinical research industries. The company has a Zacks Rank #1 and a Growth Score of A and a market cap of $2.15 billion. The Zacks Consensus Estimate for fiscal 2018 earnings indicates year-over-year growth of 55.7%. The company has average positive earnings surprise of 30.9% for the trailing four quarters.
Year to date, the Zacks Rank #1 stock has rallied 115.8% compared with the industry’s 21.1% rise.
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Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Veeva Systems Inc. (VEEV) : Free Stock Analysis Report
athenahealth, Inc. (ATHN) : Free Stock Analysis Report
DexCom, Inc. (DXCM) : Free Stock Analysis Report
BioTelemetry, Inc. (BEAT) : Free Stock Analysis Report
Amedisys, Inc. (AMED) : Free Stock Analysis Report
STAAR Surgical Company (STAA) : Free Stock Analysis Report
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