Fireworks among the small and mid-cap device makers

Smaller medtechs saw impressive share price growth in 2018, but not quite as good as the year before.

Encouragingly for the medtech sector, many of the small and mid-sized medical device companies that have seen the most enthusiasm from shareholders can attribute their valuation rise to the successful development of new products. Little M&A activity has occurred here so far in 2018 – with one exception – meaning that innovation has in many cases been rewarded.

That said, these companies often have to prove themselves on the market before reaping these rewards. A new product is launched to great acclaim, allowing its maker to record decent quarterly sales and in some cases raise guidance; it is this that prompts shareholders to pile in. Even so, it has been a solid period for most of these groups, and a truly staggering one for Tandem Diabetes Care (see analyses below).

No prizes for guessing what caused Foundation Medicine’s share price to double in the first half. In late June Roche bought the 44% of the sequencing company it did not already own for $2.4bn – $137 per share – in a bid to gain a drug development edge by bringing Foundation’s technology in-house (Roche hopes to lay a Foundation for growth, June 19, 2018).

This is the only bizdev-type move to be reflected in the mid-cap movers. Elekta and Dexcom, for instance, were up on positive quarterly results. Both posted better than expected orders for newly approved innovative technologies; Elekta’s Unity radiotherapy system was CE marked in the dying days of the second quarter, and Dexcom’s G6 blood glucose meter got the nod in the US in March.

Mid-cap ($2.5-10bn) medtech companies: top risers and fallers in H1 2018
  Share price (local currency) Market capitalisation ($bn)
  6mth chg H1'18 6mth chg
Top 5 risers
Foundation Medicine 100% 5.1 2.6
Ambu* 94% 7.7 3.9
Elekta 74% 5.1 2.1
Dexcom 65% 8.4 3.4
Inogen 56% 4.0 1.5
Top fallers
Dentsply Sirona  (34%) 10.0 (5.2)
BTG  (32%) 2.8 (1.1)
Nuvasive  (11%) 2.7 (0.3)
Cantel Medical  (4%) 4.1 (0.2)
*Ambu carried out a 5:1 stock split in January. Source: EvaluateMedtech. 

Dexcom unveiled a classic beat-and-raise in May based on impressive orders for the G6, though concerns about pricing of the sensor remain. Intriguingly Elekta posted a larger percentage share rise than Dexcom over the first half despite its positive third-quarter results coming with a sting in the tail – orders for Unity and organic sales growth beat expectations, but Ebita margin missed. Still, shareholders boosted the stock 13% on March 2, the day the third-quarter figures were released.

Another sign of the appeal of mid-cap medtechs is that only four companies suffered a drop in their stock over the first half.

As with Zimmer Biomet in the large-cap cohort, the curse of the megamerger has made itself felt, with Dentsply Sirona guiding lower by 1.5% when it reported its first-quarter results in May, partly owing to US inventory pressure. The other factor in this group dropping a third of its value is that in the US it competes with Align Technologies, and has been forced to put a lot of cash towards a market push for its tooth aligners against the market leader.

Cloud nine

The 833% rise in in Tandem Diabetes Care’s stock price, from just $2.36 at the end of last year, might well have industry watchers casting about for new terminology – is there such a word as “ninetuple”?

Small cap ($250m-2.5bn) medtech companies: top risers and fallers in H1 2018
  Share price (local currency) Market capitalisation ($m)
  6mth chg H1'18 6mth chg
Top 5 risers
Tandem Diabetes Care* 833% 1,102 1,078
Transenterix 126% 889 504
Natera 109% 1,026 543
Staar Surgical 100% 1,290 652
Cerus 97% 871 485
Top 5 fallers
Mimedx Group  (49%) 710 (690)
Cyberdyne  (33%) 1,656 (704)
Getinge  (32%) 2,450 (1,247)
Viewray  (25%) 520 (105)
Nipro  (23%) 2,039 (499)
*Tandem carried out a share issue in February. Source: EvaluateMedtech.

The insulin pump maker’s meteoric ascent from the nano-cap territory it occupied last year was boosted by the US approval of its t:slim X2 device, allowing it to compete better with Medtronic, at least in a technological, if not a commercial, sense.

A substantial share offering in the first half complicates the picture around Tandem's market value climb, but it is the share price increase that is impressive – at least until you compare it with where Tandem was 18 months ago. In early October 2016 the company was trading at around $80 a share, before being hit hard by the US approval of Medtronic’s 670G hybrid closed-loop insulin delivery system (High sugar bloodbath for Tandem and Dexcom, November 3, 2016).

With the exception of Tandem the performance of mid and small-cap medtechs repeats the pattern seen with the largest groups: good, but still a retreat from the extraordinary growth in 2017. Rewards have – arguably – accrued to the companies that deserve them.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizVantage on Twitter

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