How to Invest in Medical Devices

- March 21st, 2018

What is the best way to invest in medical devices? The sector can be intimidating, but for interested investors it’s worth looking into.

Investors interested in long term healthcare market should be interested in the medical device industry as devices continue to play a prominent role in every level of healthcare.

This market covers a wide range of health or medical instruments used in the treatment, mitigation, diagnosis or prevention of a disease or physical condition. As modern medicine is rapidly advancing, medical device development must keep up.

The growth of the medical device market is expected to increase 5.93 percent per year to $828.6 billion in 2026, according to a report called “Global Surgical and Medical Devices Market Forecast 2017-2026”—meaning the growth potential for investors is huge. The need for devices is critical for multiple reasons, but mostly they have proven to help streamline and reduce costs in the healthcare system.

Some medical devices examples include: neurostimulation devices, surgical implants, ultrasound imaging devices, and robotic medical technologies. Similar to how pharmaceutical companies are looking to help an unmet need, these medical device companies mirror this theme through their technologies.

Here, the Investing News Network (INN) breaks down how to invest in medical devices, and a more in depth look at what’s driving the industry today.

Invest in medical devices: What to know

Medical device companies regularly go through extensive tests and trials for their technologies, which serves as a regulatory way to confirm their findings, or find elements that need refinement before fully entering the market. The completion of these can be a major boost to a company’s share price.

These companies will often seek to show investors that their products are ready to enter the market and will be in demand right away—be it by a large demographic or by targeting a specific ailment in the population.

The medical device sector is dominated by a handful of big players: From Johnson & Johnson (NYSE:JNJ), to Medtronic (NYSE:MDT), investors interested in large-cap companies will have no trouble finding what they’re looking for. Investors will also find smaller cap companies amidst the heavyweights—it’s just a matter of deciding where your risk appetite lies.

Some medical device companies in the micro-cap range include: iCAD (NASDAQ:ICAD), Presbia (NASDAQ:LENS), Restoration Robotics (NASDAQ:HAIR), and Fonar (NASDAQ:FONR).

Another aspect investors need to keep an eye on while investing in medical device companies is that the time of trials and the possibility of a share price bump once data from these tests is released. A company’s stock can have a big splash in a day, for example, when announcing positive results from a recent trial with regulatory agencies like the US Food and Drug Administration (FDA), or a similar agency in Europe or Asia.

Patentability also plays a big role in a medical device company’s plans. Once a product has been patented the company controls its every move and can choose to license it or make another type of deals to expand the reach of its device.

Invest in medical devices: Change in population leads to higher need of devices

A key aspect in the medical device sector is the need from an aging population. Thanks to this rise, more varied types of devices are needed and companies experience growth thanks to that demand.

“We have a lot of baby boomers right now getting older, so you could say medical devices, in general, are good to invest in because the age population and demographics are demanding that,” Meghan Alonso CEO of Imua Services, a resource center for medical device companies looking to grow in the market, told INN in late 2017.

It’s important for investors to pay close attention to the plans of medical device companies and compare the possibility of growth through a device that would be in high demand depending on the type of population or leading diseases in the world.

Invest in medical devices: ETFs

ETFs give investors a safer choice to put money on the market. With a pool of companies collectively making the ETF, any potential decrease wouldn’t significantly drive down the returns compared to placing a large investment with only one company. ETFs hold assets like stocks, commodities and bonds, and trade close to their net asset value.

Typically, ETFs track an index. For medical devices, investors have two indices that can be followed, including the S&P Health Care Equipment Select Industry Index (INDEXSP:SPSIHE) and the Dow Jones US Select Medical Equipment Index (INDEXDJX:DJSMDQ).

The largest ETF in the medical device space is the iShares US Medical Device ETF (NYSEARCA:IHI). This ETF offers investors with exposure to US companies that manufacture and distribute medical devices. It also provides investors with targeted access to domestic medical device stocks. This passive ETF aims to track the Dow Jones U.S. Select Medical Equipment Index.

The fund’s top five biggest holdings include Abbott Laboratories (NYSE:ABT), Medtronic, Thermo Fisher Scientific (NYSE:TMO), Danaher (NYSE:DHR) and Becton Dickinson (NYSE:BDX)

The other ETF for investor consideration is the SPDR S&P Health Care Equipment ETF (NYSEARCA:XHE), which tracks the S&P Health Care Equipment Select Industry Index. The fund’s top holdings include DexCom (NYSE:DXCM), Glaukos (NYSE:GKOS), Insulet (NASDAQ:PODD), Penumbra (NYSE:PEN) and Integra LifeSciences (NASDAQ:IART).

Invest in medical devices: The market today

Despite the unpredictability of US president Donald Trump, medical devices have a steady path ahead thanks to the aging population. A market report published in 2016 by Lucintel indicated the global medical device market will each a whopping $343 billion by 2021.

“The major drivers of growth for this market are the growth in healthcare expenditure, increasing health awareness, and aging population,” read a release from the market research firm.

A market report from the US Department of Commerce released the same year indicated the healthcare industry was critical for the American economy overall, claiming investment in these has doubled in the last decade.

After low research funds prior to 2010, the wheels have slowly begun turning in the opposite direction. The report states that between 2013 and 2020, “larger medical device companies” are expected to raise their budgets by approximately three percent.

“Despite uncertain economic conditions in key markets around the world, large and small players in the U.S. medical device industry show adaptability and tenacity, and companies are optimistic about the future,” the report continues.

“Medical device companies have found new opportunities for development in the face of uneven international economic growth and continually changing regulatory systems.”

Even though the Trump administration appears to be instilling fear in the medical device sector, breath easy, investors: there’s still plenty to be optimistic about.

This is an updated version of an article originally published by the Investing News Network in 2017. 

Don’t forget to follow us @INN_LifeScience for real-time news updates.

Securities Disclosure: I, Gabrielle Lakusta, hold no direct investment interest in any company mentioned in this article.

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