Med tech companies gain from Big Pharma's pain over drug price increases

Hillary Clinton

The rising cost of prescription drugs has just about everyone up in arms, with lawmakers, presidential hopefuls such as Hillary Clinton and the public criticizing companies' prices hikes for certain meds. As the chorus of discontent reaches a crescendo, devicemakers are benefiting from the noise.

As Reuters reports, shares of med tech companies such as Edwards Lifesciences ($EW), Boston Scientific ($BSX) and Becton Dickinson ($BD) have outperformed pharma and biotech shares over the past two months as drugmakers face increased scrutiny for drug pricing. Other devicemakers including Medtronic ($MDT), Baxter ($BAX) and Abbott Laboratories ($ABT) and diagnostics companies such as Thermo Fisher Scientific ($TMO) have also posted solid gains as investors look for safer bets.

While the med tech sector "may not be completely safe," there is "less risk with the device companies than with the big biotech and pharma companies," George Strietmann, a portfolio manager at Cincinnati-based investment advisory firm Bahl & Gaynor told the news outlet, saying that he favors stocks in companies like Medtronic, Stryker ($SYK) and Becton Dickinson.

Things really heated up for med tech companies after Democratic presidential candidate Hillary Clinton tweeted in September that she would target pharma "price gouging." The S&P 500 Health Care Equipment index, which includes large medical devices companies, jumped more than 5% since Clinton's tweet, Reuters points out. The Nasdaq Biotechnology index fell more than 5% during the same period, and the NYSE Pharmaceutical index fell more than 2%, bogged down by poor performance from companies such as Valeant Pharmaceuticals ($VRX), which has come under fire recently for its pricing practices.

Still, there are other factors that could be playing into med tech's recent gains. Devicemakers are benefiting from an aging U.S. population and growing middle classes in emerging markets, with companies such as Medtronic and Zimmer Biomet ($ZMH) striking deals to expand their reach.

Plus, prices for some medical devices continue to fall as branded drug costs continue to increase. Prices for commonly used branded drugs more than doubled from 2008-2014, but prices for medical devices such as stents, knee replacements and pacemakers have dropped 2% to 3% each year over the past 5 years, Reuters reports.

And some investors see the trend fizzling out after a while. The issue of rising drug prices is "more of a headline risk than a real risk," Jason Ware, CIO at Salt Lake City-based Albion Financial Group, told the news outlet. Ware said that his company still prefers the outlook for biotech companies such as Gilead ($GILD) with its next-generation hep C treatments over the med tech sector.

- read the Reuters story