A rising tide lifts all boats--that might be the most oft-repeated cliché to sum up market sentiment in the life sciences for the past few years. Biotech performance has been very, very good for three years, and med tech performance, while nowhere near as stellar, has been on its own upward trajectory as investors look for a safer way to make money in healthcare.
Investors open to the life sciences are looking more to med tech, particularly for IPOs where there have been a slew of recent diagnostic and device filings. There's a broad perception that the quality of biotech IPOs is becoming more uneven and that medical devices and diagnostics, which have had an almost nonexistent IPO market for years, could provide high-quality alternatives.
More broadly, established med tech companies have also been in line for market gains. For the past three years, the iShares U.S. Medical Device ETF ($IHI) has posted double-digit increases. It added 22% during 2014, following on a staggering 35% for the year prior. An ETF, or exchange traded fund, is a basket of stocks that are bought and sold together under one ticker. This ETF in particular tracks 52 of the biggest medical device and research tools companies.
Its largest holdings include Medtronic ($MDT) (10.39%), Abbott Laboratories ($ABT) (9.89%), Thermo Fisher ($TMO) (7.98%), Covidien ($COV) (7.46%), Baxter ($BAX) (6.38%), Stryker ($SYK) (4.94%), Becton Dickinson ($BDX) (4.83%), Zimmer Holdings ($ZMH) (3.81%), Boston Scientific ($BSX) (3.74%) and Intuitive Surgical ($ISRG) (3.61%).
ETFs are a popular way for investors who don't specialize in healthcare to invest in the sector or subsegments thereof. So, share prices of companies that are included in ETFs, particularly the largest ones with billions invested, can be swiftly affected, either positively or negatively, as investors rotate en masse in or out of healthcare.
We pulled the data for the top medical device and diagnostic company performers, but we limited it to those with a valuation of more than $2 billion to assess those that are most relevant to major investors.
The result was a list of performers who were up anywhere from 27% to 133%. It includes rapidly growing, innovative companies such as colorectal molecular diagnostics player Exact Sciences ($EXAS) and connected continuous glucose monitor maker DexCom ($DXCM), as well as mega caps like Illumina ($ILMN) that have consistently performed as a leader in next-generation sequencing.
Covidien ($COV) made the list, largely as a result of its acquisition by Medtronic ($MDT). That win for investors means that they will be watching closely for more med tech megamergers to cash in on. Heart valve and hemodynamic monitoring company Edwards ($EW) had a turnaround year in 2014--breaking well out of the same range it had stayed in for the three prior years.
All the excitement of the JP Morgan Healthcare conference has the sector continuing on an upswing so far; the iShares Medical Device ETF is up 2% in just the first few weeks of the year. -- Stacy Lawrence (email | Twitter)