Led by Tandem, small-cap medtechs pump up the value in 2018

The fastest share price growth in medtech is always recorded by small-caps, but Tandem reached a new extreme last year.

A new standard has been set; a new champion has emerged. Tandem Diabetes Care has achieved a 12-month percentage share price growth of unprecedented and almost incredible proportions, and has set a record that must surely stand for years to come. The price of the insulin pump maker’s stock rose by more than 1,500% in 2018. 

Among the mid-cap groups increases were more modest. The leader, Haemonetics, recorded an increase of just 75%, a slower rate of growth than the big cap medtechs (The fourth quarter sell-off hurt big medtech less than big pharma, January 10, 2018). Perhaps this mid-range cohort might get more interesting next year – after all, Tandem might well be among them by that time.

Haemonetics makes products to help blood donation centres and hospitals manage donated blood, from software to track samples to large plasmapheresis systems. It was the latter that was responsible for the group’s steady progress throughout 2018 – until the fourth quarter, anyway, when the broader market fall took a toll.

Sales of Haemonetics’ NexSys plasmapheresis machine were better than expected in the second quarter, with over 2,000 of the systems being placed, allowing the group to raise its guidance. 

Mid cap ($2.5-10bn) medtech companies: top risers and fallers in 2018
  Share price 12-mth chg Market cap at Dec 31 ($bn) Market cap 12-mth chg ($bn)
Top 5 risers
Haemonetics ($) 72% 5.2 2.1
Novocure (£) 68% 3.1 1.3
Elekta (SKr) 55% 4.3 1.2
Nihon Kohden (¥) 37% 2.8 0.7
Penumbra ($) 30% 4.2 1.0
       
Top 5 fallers
Dentsply Sirona ($)  (43%) 8.3 (6.8)
Sysmex (¥)  (41%) 9.8 (6.6)
Convatec ($)  (33%) 3.6 (1.7)
Cantel Medical ($)  (26%) 3.2 (1.1)
Biomérieux (€)  (23%) 7.8 (2.6)

As for the small caps, a number of factors contributed to Tandem’s rise, though it is arguable whether any can be said actually to explain it. The June approval of the group's t:slim X2 insulin pump in the US was its most significant achievement in terms of its products, and pushed its share price up by 25% (Tandem comes out the winner of the diabetes device approvals, June 22, 2018).

The t:slim X2 incorporates an algorithm, Basal-IQ, that enables interoperability with Dexcom’s G6 blood glucose sensor, and this increased its appeal to patients and drove Tandem’s second-quarter sales to a level that emphatically beat the street’s expectations. Dexcom, of course, was the leader of the big-cap medtech risers.

Tandem also benefited, as did many diabetes device developers, from Johnson & Johnson closing its Animas insulin pump business in October 2017. J&J chose Medtronic as its preferred partner in an agreement that saw former Animas patients given the option to transfer to a Medtronic pump – even so, the appeal of the t:slim X2 allowed Tandem to poach an estimated 3,000 of the 15,000 US Animas patients.

Perhaps the main factor is that the company is springing back from a low point. In November 2016 the approval of Medtronic’s MiniMed 670G, a basic artificial pancreas, knocked 60% off Tandem’s stock (High sugar bloodbath for Tandem and Dexcom, November 3, 2016). Even with 2018’s 1,500% rise the company has still not regained its ground. 

Small cap ($250m-2.5bn) medtech companies: top risers and fallers in 2018
  Share price 12-mth chg Market cap at Dec 31 ($m) Market cap 12-mth chg ($m)
Top 5 risers   
Tandem Diabetes Care ($) 1,509% 2,178 2,154
CareDx ($) 243% 1,025 815
Glaukos ($) 119% 2,024 1,137
Staar Surgical ($) 106% 1,408 770
Veracyte ($) 93% 510 288
       
Top 5 fallers
Cyberdyne (¥) (75%) 591 (1,769)
Accelerate Diagnostics ($) (56%) 623 (828)
El En (€) (51%) 281 (309)
IBA Group (€) (46%) 444 (397)
Nevro ($) (44%) 1,173 (873)

Cyberdyne, the Japanese robotic exoskeleton maker that shares its name with the cybernetics company in the Terminator films, had an appropriately dystopian year. The group shed three quarters of its value on poor sales of its Hal product range, partly caused by the expiry of a Japanese government subsidy programme for the lumbar support version of Hal.

2018 was a quiet year for M&A, and as such generally allowed listed companies to rise or fall based on their underlying performance. Perhaps in the coming year inorganic moves might play more of a role. 

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