Medical Devices Are The Quiet Growth Sector by Brandon Chicotsky

Summary

The medical device industry utilizes both low and advanced technology and often employs existing consumer products like smartphones. Thus, there is expanding utility and increasing demand for innovation.

An increasing retiring population has helped motivate injections of capital into the medical device industry while propelling demand for growth.

ETFs in the medical devices industry provide both diversification and high returns.

The role of medical devices in the practice of medicine is increasing. Many companies are working to improve medical care and reduce costs through innovative designs and product launches. In many cases, companies are working to provide physicians and nurses with the necessary tools to improve their performance and efficiency. Investor opportunities are attributed, in part, to a low barrier of entry for offering improvements to the existing marketplace of devices. There is demand for innovation and growth of technology, which benefits investors wary of more volatile segments like technology and healthcare.

Medical devices encompass a wide variety of products. Examples include a simple tongue depressor used in routine check-ups, knee replacements, and $1 million+ MRI machines found in exclusive hospitals. Medical practitioners have a reputation as highly scrutinous.

Nevertheless, the adoption of new medical devices continues to expand in both numbers and capabilities. As defined by the North American Industry Classification System (NAICS) and the U.S. Census Bureau, the medical device industry is a $140 billion industry in the United States, encompassing over 5,800 companies (80% of which have 50 or fewer employees) and employing 356,000 people.

Some devices can be deemed market-ready without a rigorous approval process. However, if a device “poses a significant risk of illness or injury,” it is classified as “Class III” by the Food and Drug Administration (FDA). A testing and approval process comparable to the one found in the pharmaceutical industry is required for Class III devices. The products sometimes must go through trials that take years. Similar to newly-patented medications, the company must charge a premium to recoup the cost of development and hopefully make a profit before becoming available to competitors.

The baby boom generation’s transition into Medicare has huge demand implications for these devices, and across the healthcare industry. In the United States, the over-65 age cohort now stands at 15% of the population and is expected to grow to 20% by 2030. Additionally, the percentage of the world’s population over 65 is predicted to rise from 8.5% to 17% by 2050.

Medical devices are also increasing the quality and efficiency of healthcare, and in many cases, commandeering common consumer devices to function as medical devices. Apps on smartphones and tablets now make it possible to access medical records, drug information, and research at a physician’s fingertips. Also, patients can now utilize these devices for the physician visit itself.

A company called Teladoc (TDOC) allows patients a virtual visit to the doctor at any time of the day utilizing a laptop or mobile device, as well as medical devices such as blood pressure monitors. In many cases, patients receive a diagnosis and a prescription from this service. Basic checkups cost as little as $40 versus costs often exceeding $130 for an in-person visit at a doctor’s office. Also, Internet of Things (IoT) products and services allow for more efficient patient monitoring by performing more tasks on lower-cost devices.

Finally, from an investment perspective, the medical device industry offers both stability and growth. Revenue streams tend to show stability, companies exhibit fewer issues with patents and FDA approvals, and firms tend to be smaller, although many large companies also exist in this industry.

Though not a pure medical device play, the name in medical devices that’s arguably most familiar to consumers is Johnson & Johnson (JNJ). While Johnson & Johnson is best-known for low-tech medical devices such as Band-Aids or cotton swabs, the company is also heavily involved in pharmaceuticals and advanced technology devices less familiar to consumers. Surgery rooms utilize Johnson & Johnson’s products for procedures such as knee replacements, laparoscopic procedures, and wound care.

Another medical device company that’s a favorite of investors and ETFs alike is Abbott Laboratories (ABT). Among Abbott’s specialty areas are medical devices for diagnostics, vascular, and diabetes care. Medtronic PLC (MDT) is another leader in the medical device industry. Medtronic manufactures numerous products involved in the practices such as general surgery, cardiac rhythm, cardiovascular, and spinal/orthopedic care.

While investors can gain a better knowledge of the industry by understanding individual stocks, exchange-traded fund (ETF) returns are such that investing in individual stocks is unnecessary to achieve returns higher than the S&P 500 average. Only two ETFs exist that are pure plays in the medical device industry, the iShares U.S. Medical Devices ETF (IHI) and the SPDR S&P Health Care Equipment ETF (XHE).

IHI focuses on investment results in the U.S. medical devices sector. Medtronic, Abbott, and Thermo Fisher Scientific (TMO) are its three largest holdings, though it holds positions in familiar names such as Boston Scientific Corp. (BSX) and Baxter International Inc. (BAX) as well. The fund returned positive results in every year since 2009. In most of those years, the returns registered in the double digits, although the 2016 return stood at 9.3%.

XHE takes a similar approach, concentrating on the S&P Healthcare Equipment Select Industry Index. Its main difference from IHI is its portfolio. XHE is more focused on smaller companies and smaller positions. Its top three investments are lesser-known companies such as OraSure Technologies, Inc. (OSUR), Insulet Corp. (PODD), and Nevro (NVRO).

However, these three companies combined account for only 9% of its holdings, compared with about 28% for IHI’s top three stocks. Due to its inception date of January 26, 2011, its track record is less lengthy than its iShares counterpart. However, the ETF yielded a double-digit return in every year of its existence, producing a return of 39.45% in 2013 and 11.78% in 2016.

The medical device industry offers investors the unique opportunity of profiting from technological advances while offering the profitability associated with lower-risk healthcare sectors. The medical device industry is large and diverse, encompassing all levels of technology and company size.

It is well-suited to capitalize on the aging baby boomer population as well as providing efficiencies that benefit both patients and medical professionals. Investors have numerous choices of individual stocks and can easily diversify into ETFs that have provided returns higher than the S&P 500 index. For a combination of high returns, lowered risk, and potentially large gains, the medical device industry is an option.

The digital disruptors are making their mark in healthcare

By Stephanie Baum 6/16/2015

If anything was clear from the the panel discussion on the Internet of Things at BIO 2015, digital disruptors from outside of healthcare have contributed to a shift in the power and influence of patients and their caregivers as well as providers. Digital health has the potential to make healthcare delivery more efficient but it will be an occasionally uncomfortable transformation with plenty of push back.
One panelist was Donald Jones —the CEO and co-founder of Trial Fusion, a company that integrates digital technologies with medical product development and clinical validation, and Chief Digital Officer of the Scripps Translational Science Institute. He used a few examples to make the point.
Jones referenced a clinical trial begun earlier this year that challenges conventional wisdom of how these trials are carried out. Patients may be the ones with digital health sensors to monitor their health but the focus of the attention is on cardiologists. H described a trial designed to evaluate the ability of cardiologists to use devices to improve their treatment of patients. Jones noted that it was out to break some of the rules of healthcare.  Jones added that one goal was to address the question: “How do you get physicians to adopt therapies that are based on technologies for which they have not received training?”
In another example that illustrated the power shift driven by digital health, Jones cited the the Nightscout open source project. (MobiHealthNews highlighted the initiative earlier this year as did The Wall Street Journal.)
It came about in a push by parents of children with Type 1 diabetes to develop a remote monitoring app for smart watches using data from their kids’ continuous glucose monitors. The FDA attempted to get Dexcom to apply pressure to its customers to drop the project. The people behind Nightscout threatened to challenge the FDA on Capitol Hill and tell lawmakers how the regulator was preventing them from keeping their kids safe. The FDA backed down and that’s why we didn’t read about this story in the press, Jones said.
Allen Lalonde, a senior executive of IBM Canada Research and Development Center, noted the work of Carol McGregor, a University of Ontario data informatics professor who used a financial trading app as the precursor for an app to detect infections before clinicians do, particularly sepsis.
Jack Hidary, a member of Google X Labs Advisory Board and chairman of Samba Energy was easily identified by his fluorescent orange sneakers. He pointed out that technologies that were once laughed off, such as self-driving cars are becoming mainstream. A similar shift is happening in digital health.

What else are employees doing while on a web conference call

ICD-10 worries remain high for small practices

By Susan D. Hall 05/05/2015

What now? We think it's fair to say the level of concern for ICD-10, especially among small practices, is a little too high for comfort. We did see some small, yet positive shifts in respondents' level of concern, but there weren't any striking changes over the last three years.

The level of concern about ICD-10, especially among small practices, is "a little too high for comfort," according to a survey from NueMD, a billing and practice management software vendor.

It polled 1,000 medical practices, billing firms and other healthcare industry professionals, most from small and medium-sized medical practices.
The survey found that only 11 percent of respondents are "highly confident" their staff will be sufficiently trained by the Oct. 1 deadline to transition to the new code set, and 35 percent said they were "not at all confident" their staff will be ready, according to an announcement.

The survey was meant to gauge how respondents felt about the new coding standards and the proposed timeline for the transition. In both cases, the most common response--though from only about 30 percent of respondents--was that there should be no transition to ICD-10. Twenty-three percent said they were satisfied with the coding standards, and surprisingly, 25 percent said they were not familiar with the coding standards.

At the same time, 27 percent said they were satisfied with the transition timeline and 26 percent said the timeline should be pushed back.
More than three-quarters of the participants had major concerns that the transition would negatively affect claims processing, finances and operations. They also were concerned about software upgrade costs, payer testing, training and the compliance timeline.

Many organizations were pleased that the legislation to replace the Sustainable Growth Rate (SGR) formula did not include another delay for ICD-10. In addition, House lawmakers have opposed any further delay, saying it would be costly and time-consuming.
In March, 22 health systems and representative organizations urged lawmakers to move forward with ICD-10 without delay.
One day later, however, 100 physician groups, led by the American Medical Association, expressed concerns about the transition in a letter to Acting Centers for Medicare & Medicaid Services Administrator Andrew Slavitt. Their concerns included testing and lack of contingency planning.

Source of charts: http://www.nuemd.com/icd-10/survey/2015#top

Telemedicine by state: Examining the winners and losers

By Dan Bowman 05/04/2015

Connecticut and Rhode Island were the only two states to receive composite failing grades for telemedicine coverage and reimbursement efforts, according to an updated analysis published Monday by the American Telemedicine Association.
The analysis, unveiled as ATA kicks off its 20th annual conference in Los Angeles this week, compares telemedicine adoption in all 50 states and the District of Columbia based on 13 indicators, including parity laws (or lack, thereof) in place. Connecticut, for all but three measures, earned "Fs," with ATA noting in its report that the state's Medicaid agency won't cover information or services provided to a client by a provider either electronically or via telephone. Rhode Island's report card mirrored Connecticut's, with ATA pointing out that despite a multiyear effort to introduce legislation regarding coverage under private insurance and Medicaid, no telemedicine parity law exists.
Conversely, the District of Columbia and five states--Maine, New Hampshire, New Mexico, Tennessee and Virginia--were recognized as the most supportive areas for telemedicine policies. Of note, 25 states were highlighted for recognizing the home as an originating site for care, while 16 states were highlighted for recognizing schools and school-based health centers as originating sites.
"Regarding Medicaid regulations, states are slowly moving away from the traditional hub-and-spoke model and allowing a variety of technology applications," the report's authors said.
A second report released simultaneously examines state laws and medical board standards for telemedicine in each state. Texas and Alabama each received the lowest composite scores overall, with both states remaining "stringent" when it comes to clinical practice rules. Additionally, ATA determined that no states received a top score for their licensure policies.
"This means that every state imposes a policy that makes practicing medicine across state lines difficult, regardless of whether or not telemedicine is used," the report's authors said.
The Texas Medical Board ruled last month that doctors must examine patients in person before they may order prescriptions for them, striking a blow to telemedicine provider Teladoc. The board and Teladoc have wrangled in court since 2011, largely over the three-word phrase: "face-to-face."
A survey published in Telemedicine and e-Health in February found obtaining state medical licenses to be a time-consuming process and a big barrier to the use of telemedicine across state lines.

Video: Watch med students dissect virtual 3-D cadavers

By Neil Versel

It’s Friday afternoon. How about something fun and fascinating, not to mention, easy for us to write up and post?

At FutureMed 2013, MedCity News first got a peek at a virtual cadaver for medical education from San Jose, Calif.-based medical imaging software company Anatomage. That technology now is in clinical use, as we learned from this video produced by the University of Connecticut Health Center and shared by the Doctors Channel.

“This is an actual cadaver. There’s a male and a female that have been rendered into 3-D that the students can then manipulate so they can rotate them, they can virtually dissect them, they can essentially do the kinds of things they can do in the anatomy lab,” John Harrison, a professor of craniofacial sciences at UConn Health, said in the video.

“It allows students to visualize tissues in multiple views,” Harrison said. Students and instructors can change the depth of their cuts, zoom in and out and view parts of the body either with and without skin on the device’s tabletop touch screen.
And, best of all, med schools don’t have to wait for more people to die to get their hands on fresh cadavers. Or is the best part that there’s no formaldehyde?