Medical Device Market Navigates Through Obesity Drug Disruption and Eyes Robust Recovery: PRISM MedDevice Spotlight

The medical device market, a vital sector in healthcare, is navigating through a period of adjustment and recovery. Medical device companies, encompassing a wide range of products from basic tools like tongue depressors to advanced MRI machines, form an essential part of healthcare delivery. The United States alone accounts for over 40% of the global medical device market, highlighting its significant role.

Impact of Obesity and Diabetes Drug Market

Recently, medical device companies have faced challenges due to the rise of diabetes and obesity drugs such as Ozempic. The initial panic is subsiding as companies recover, though they still confront shifting market dynamics. For example, Lilly’s shares, initially projected to rise by about 8% at the beginning of the year, have exceeded expectations with over 50% growth, adding nearly $200 billion in value.

Challenges for Medical Technology Companies

Conversely, medical technology firms like Insulet Corp. and Baxter International Inc. have faced setbacks. The growth of obesity and diabetes drugs, particularly Novo’s Ozempic and Wegovy, has threatened the demand for products ranging from insulin pumps to knee surgery. This trend, along with the challenges faced by Pfizer Inc. and Moderna Inc., has positioned the US healthcare sector for its first consecutive annual loss in over two decades.

Future Outlook and Political Risks

Political risks, high-interest rates, and the development of weight-loss drugs are set to maintain a volatile environment for investors. According to Jared Holz, a strategist at Mizuho Securities, most stocks in this sector are fairly priced, leaving limited room for significant undervalued opportunities. However, with device makers recovering approximately 30% from their lows, the worst-case scenarios seem to be off the table.

Potential for Recovery

Despite underperforming compared to the S&P 500, there is optimism for healthcare stocks to regain ground. With the hype around obesity drugs potentially cooling, investors like Shams Afzal, a portfolio manager at Carnegie Investment Counsel, foresee a more balanced market. Companies such as Lilly are currently trading at high earnings multiples, indicating heightened expectations.

Emergence of Biotech and Device Stocks

There’s an anticipation of a rebound in medical-device stocks and biotechnology firms. Health-care specialist Mike Perrone from Baird suggests that these sub-sectors have significant potential for improvement. Additionally, the highest interest rates in decades and poor clinical trial outcomes have adversely impacted biotech companies, though recent policy shifts hint at a potential recovery.

PRISM Emerging MedDevice Index Focus

The PRISM Emerging MedDevice Index, which tracks small and micro-cap stocks involved in the development or marketing of medical devices, has identified three key stocks to watch:

TELA Bio, Inc.

Tela Bio, Inc (TELA) is a medical technology company, focuses on the design, development, and marketing of tissue reinforcement materials to address unmet needs in soft tissue reconstruction. Most recently the company announced that it will be featured in the new documentary series Connecting The Dots that will highlight the use of its product OviTex^®. The stock is down 46% YTD. 

InspireMD, Inc.

InspireMD, Inc. (NSPR) is a medical device company, focuses on the development and commercialization of proprietary MicroNet stent platform technology for the treatment of vascular and coronary diseases in Europe, Latin America, the Middle East, and Asia. Most recently the company announced the issuance of a key U.S. patent covering its SwitchGuard™ Neuroprotection System. The stock is up 123% YTD.

Mymo, Inc.

Mymo, Inc. (MYO) is a wearable medical robotics company that offers improved arm and hand function for those suffering from neurological disorders and upper limb paralysis. Last month the company reported third quarter earnings citing record authorizations and product revenues up 28%. The company is up 730% YTD.