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 the long-term life sciences 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 and medical instruments used in the treatment, mitigation, diagnosis or prevention of diseases and physical conditions. As modern medicine is rapidly advancing, medical device development must keep up.
Some medical device examples are neurostimulation devices, surgical implants, ultrasound imaging devices, robotic medical technology and insulin pumps and insulin pens for diabetes. Similar to how pharmaceutical companies are looking to help an unmet need, medical device companies are looking to do the same through their technologies.
Here, the Investing News Network breaks down how to invest in medical devices and gives a more in-depth look at what’s in store for the sector’s future.
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. Completion can be a major boost to a company’s share price.
Often medical device companies will seek to show investors that their products are ready to enter the market and will be in demand right away — be it by having a large demographic or by targeting a specific ailment in the population.
The sector is dominated by a handful of big medical device manufacturers, such as Johnson & Johnson (NYSE:JNJ), Abbott Laboratories (NYSE:ABT), Stryker (NYSE:SYK) and Medtronic (NYSE:MDT). That means investors interested in large-cap companies will have no trouble finding what they’re looking for. Investors will also find smaller-cap companies amid the heavyweights — it’s just a matter of deciding where your risk appetite lies.
Another aspect investors need to keep an eye on while investing in medical device companies is the timeline 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 the US Food and Drug Administration or an equivalent 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 deal to expand the reach of its device.
Invest in medical devices: ETFs
For those who prefer to mitigate risk factors, exchange-traded funds (ETFs) give investors a safer way to put money in the market. With exposure to various companies, any potential decrease in one stock won’t significantly drive down returns for the ETF as a whole. 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: 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 devices sector is the iShares US Medical Device ETF (ARCA:IHI). This ETF has a focus on US companies that manufacture and distribute medical devices. It also provides investors with targeted access to domestic medical device stocks. This passive ETF tracks the Dow Jones US Select Medical Equipment Index.
There are 57 holdings in the ETF; the five biggest holdings in its portfolio are Abbott Laboratories, 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 (ARCA:XHE), which tracks the S&P Health Care Equipment Select Industry Index. Out of 68 holdings, the top holdings are Mesa Laboratories (NASDAQ:MLAB), STAAR Surgical (NASDAQ:STAA), Becton Dickinson, Steris (NYSE:STE) and Integra Lifesciences Holdings (NASDAQ:IART).
Invest in medical devices: Market outlook
According to a report from Technavio, the global medical devices market is projected to grow at a compound annual growth rate (CAGR) of 5 percent between the forecast period of 2018 to 2022.
Driving that growth will be an increase in diseases, particularly cardiovascular, neurological, orthopedic and respiratory diseases, which are most notably on the rise due to age. Technavio estimates that the world’s aging population is increasing, as is the average life expectancy.
As of 2017, there were 650 million people who were at least age 65 or older, with that number projected to cross 810 million people by 2025.
A report from Evaluate estimates that the medical technology industry will cross revenue of almost US$585 billion by 2024, growing at a CAGR of 5.6 percent during the forecast period of 2017 to 2024.
The firm anticipates that in vitro diagnostics will lead annual device sales at US$79.6 billion and hold 13.4 percent of the medical device industry. However, Evaluate projects that neurology will be the fastest-growing area of the medical technology industry, reaching revenue of US$15.9 billion by 2024 and representing 9.1 percent of the market’s growth between 2017 and 2024.
In short, there are many opportunities when it comes to investing in the medical technology industry. With the future growth of the market anticipated to be in the billions, perhaps there has never been a better time than now to make an investment.
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, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.