As advances in cloud computing and AI enable precise monitoring of biometric data and precise, robot-assisted surgery, the medical devices theme is set to grow by over $420bn within the decade. Companies like Dexcom, a manufacturer of continuous glucose monitors, are poised to benefit from the theme’s tailwinds.
- New surgical robot line drives 20.7% growth in Stryker’s knee business.
- Exact Sciences announces positive results from new cancer test trials.
- How to invest in medical devices: the SPDR S&P Health Care Equipment ETF offers exposure to stocks within medical devices, and is up 3% in the past six months.
Technological innovations in biotechnology, robotics and artificial intelligence (AI) are reconfiguring curative and preventative approaches to healthcare. While wearable devices from Fitbits to continuous glucose monitors (CGMs) empower their users to take greater control and responsibility for their own wellbeing, futuristic technology is radically enhancing patient outcomes in the operating theatre.
A June report from Quince Market Insights sees the global medical devices market growing at a CAGR of 6.4% from $557.19bn in 2023 to $977.43bn in 2032.
With the rise of big data technology, minute and disparate data can be compiled and stored in the cloud. AI technology is able to analyse this information and diagnose health conditions, often in real time. Meanwhile, advances in robotics, computer vision and other aspects of AI allow robots to perform and assist in complex, high-stakes surgical procedures.
The potential of the theme to improve human life is illustrated by advancements in prosthetics. Robotic prosthetics that can perform dextrous manipulative tasks, like gripping, are commercially available through companies like COVVI Robotics, whose COVVI Robotic Hand is manipulated via remote control.
That may just be the start, though. Research funded by the US Department of Defence has created robotic prosthetics that respond to the nervous system itself — allowing them to be controlled by human brain signals, similarly to a biological hand. There are still technical challenges to overcome, notably the tendency for scar tissue to form where the prosthetic’s electrodes meet the nervous system, which limits the activity of electrodes at their sites. However, the technological foundations of a world where amputees can be offered fully functional prosthetics are already in place.
Devices with backbone
Surgical robots are a key sub-theme within medical devices.
Strategic Market Research estimated in May 2022 that 1,638 surgical robots would be used worldwide that year. With the segment set to grow in value from $5.16bn in 2021 to $20.98bn by 2030 at a CAGR of 16.84%, that number is likely to go up.
One of the companies at the forefront is Stryker [SYK], the maker of the Mako SmartRobotics range — robots that can assist surgeons in hip or knee joint operations. With the latest knee treatment in the range, Mako Total Knee 2.0, having been released in March, Mako contributed to 20.7% growth in Stryker’s US knee business in the first quarter of 2023.
However, Stryker’s customers are showing a preference to rent units rather than buy them outright. Stryker’s chief financial officer Glenn Boehnlein attributed a 14.8% decline in the company’s US orthopedic segment to “the impact of deal mix changes, specifically more rentals related to Mako installations”.
Stryker’s board is unfazed, however, with vice president of investor relations Jason Beach saying that “a large percentage of these rentals [will] flip to purchases”.
A new entrant to the robotic surgery segment is Alphatec Holdings [ATEC], commonly known as ATEC Spine, a manufacturer of equipment for spinal surgery. One of ATEC Spine’s leading lines is EOSedge, a 3D imaging tool used by surgeons to model their patients’ spines in detail.
In April, ATEC Spine acquired a 2D and 3D robotic surgery navigation system for $55m from developer Fusion Robotics, in order to integrate navigation and robotics into its spine surgery workflow.
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Diagnostic devices
Advances in wearables and other diagnostic devices are set to improve the treatment of chronic and terminal conditions.
“IoT devices such as wearables like smartwatches and fitness trackers, and home health monitoring devices like blood pressure monitors and glucose meters, have become more affordable,” Arelis Agosto, senior healthcare analyst at Global X Funds, told Opto. Real-time data collection and sharing through such devices “allows for early detection of health issues, personalised interventions, and remote consultations through telehealth services”.
DexCom [DXCM] is one of the major players in CGMs, and its product expansion drive was boosted on 5 July when its G7 CGM was approved for sale in Canada. While CGMs are a revolutionary step in monitoring glucose levels for diabetics in their own right, their commercial potential might be even more far-reaching: CGMs are being adopted for a wide range of non-diabetic purposes, from preventing exercise-induced hypoglycemia to achieving weight loss.
Elsewhere, diagnostic devices are facilitating earlier cancer diagnoses: Exact Sciences [EXAS] revealed a 30% lower false positive rate for its latest colon cancer test Cologuard compared to its previous model.
“Next-generation Cologuard will set a new performance standard” in non-invasive cancer detection, said Exact Science chairman and CEO Kevin Conroy in a press release.
A theme for the ages
Demand for health services is also set to rise over time thanks to demographic trends towards longer life spans. Between 2015 and 2050, the proportion of the global population aged 60+ is expected to double, and an older population creates greater demand for health services of all types.
Technological tailwinds will help meet this challenge. Analysts at UBS believe that generative AI poses a major tailwind for the medtech sector. In a note to clients seen by Proactive Investors, the investment bank stated that generative AI could “increase the accuracy of diagnostic technologies”, as well as make these diagnoses earlier in the process than previously possible, thereby improving patient outcomes.
Additionally, the rise of the technology presents a tailwind for surgical robots, with UBS predicting that “generative AI may increase the accuracy of surgical robots and may be able to provide real-time insights to surgeons to improve surgical procedures”.
You’re only as old as your gut feels
Over recent years, the role that the gut microbiome plays in overall health, including prevention of diseases from cancer to Alzheimer’s, has been increasingly better understood. Companies like Viome Life Sciences are capitalising on this development by producing gut health diagnostic kits, which can offer users personalised insight into their gut microbiome and the foods that will improve or impair their gut health.
Viome founder and CEO Naveen Jain told Forbes that, “using Viome’s tools, which tell me what to eat and why and what to avoid and why”, he had, over the course of two years, taken ten years off his body’s physical age.
How to invest in medical devices stocks
ETFs, or exchange-traded funds, offer an economical and diversified way to invest in a variety of stocks within a particular theme.
Fund in focus: the SPDR S&P Health Care Equipment ETF
The SPDR S&P Health Care Equipment ETF [XHE] tracks the S&P Health Care Equipment Select Industry Index, which in turn comprises the healthcare equipment segment of the S&P Total Market Index. As of 10 July, 79.75% of its sector exposure is to healthcare equipment while 20.25% is to healthcare supplies. XHE is up 3.3% in the past six months.
Alternatively, investors can select the First Trust Indxx Medical Devices ETF [MDEV]. MDEV invests 80% of assets into stocks comprising the Indxx Global Medical Equipment Index. Healthcare equipment and supplies account for 77.83% of fund exposure, followed by life sciences tools and services (17.37%), biotechnology (2.90%) and healthcare providers and services (1.90%). MDEV is up 3.4% over the past six months.
The iShares U.S. Medical Devices ETF [IHI] tracks the Dow Jones US Select Medical Equipment Index, and offers exposure to the healthcare equipment industry (82.05%), as well as to life science tools and services (17.46%) and healthcare supplies (0.22%). The fund is up 2.7% in the past six months.
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