Innovation ever more important for mid- and small-cap companies

The story of the most and least successful mid-cap medtech companies across the first half of 2015 is one of technology. Those that have seen the greatest share price growth have done so thanks to approvals of innovative products or through being active in hot, high-margin areas.

Conversely, those that have fallen tend to be involved in areas of increasing genericisation, with little to differentiate their products from their rivals’. Legal woes and currency fluctuations have had a hand too.

Success with US regulators is the main reason Abiomed has seen its shares more than double in the last six months. A January approval for its Impella RP temporary heart pump caused a stock bump of 32%, and a further win came with the re-approval of its flagship Impella 2.5 device, allowing it to claim improved outcomes in revascularisation procedures.

Approval in this hard-to-serve market has massively expanded the potential patient population for Abiomed, leading some more optimistic analysts to predict future sales of $3bn a year.

And the group has plans to further extend the Impella franchise by submitting PMA supplements for the Impella 5.0 and CP devices. If this strategy comes off and it continues to grow its market Abiomed could become a regular in the risers column – unless, as some have predicted, a larger company steps in and buys it out.

First ever

DexCom too achieved an impressive FDA approval: the group is responsible for the first app to be regulated as a medical device. The Share Direct Secondary Displays permit carers and doctors to track a patient’s blood sugar levels (DexCom's FDA app nod is just in time for the Apple Watch, January 26, 2015).

The company’s shares have been rising steadily for some time; stock in the glucose monitor specialist has more than doubled in the last 18 months. Diabetes device makers are attracting more and more attention and investment as the much-vaunted artificial pancreas projects progress. DexCom is involved in at least two artificial pancreas collaborations and investors know that success here will repay them handsomely.

Mid-cap ($2.5-15bn) medtech companies: top risers and fallers in H1 2015
Share price (local currency) Market capitalisation ($bn)
Top five risers YE 2014 H1 2015 Change H1 2015 6M change
Abiomed $38.06 $65.73 73% 2.7 1.2
DexCom $55.05 $79.98 45% 6.3 2.1
Hologic $26.46 $38.06 44% 10.7 3.3
Alere $38.00 $52.75 39% 5.1 1.4
Sysmex ¥5,390.00 ¥7,300.00 35% 12.7 2.3
Top 5 fallers
Sonova SFr146.9 SFr126.4 (14%) 8.8 (1.5)
Coloplast DKr465.9 DKr439.1 (6%) 12.8 (4.1)
Dentsply International $53.27 $51.55 (3%) 7.2 (0.3)
Olympus ¥4,270.00 ¥4,230.00 (1%) 12.1 (1.4)
Steris $64.85 $64.44 (1%) 3.8 (0.0)

Sonova had its largest single-day fall in January when the Swiss franc was unpegged from the Euro; the hearing aid company’s stock dropped 15%. According to analysts from Citi, around 1% of Sonova’s sales are in Switzerland compared with 12% of employees, plus the majority of its R&D operations.

Lacklustre results reported in May hit the shares too, with Sonova pleading increased competition. Hearing aids have been the subject of huge competition on price – last year Sonova permitted US chain Costco to heavily discount certain products, enabling it to gain a large share of Costco’s hearing aid retail business.

Even the more innovative cochlear implants are beginning to face cost pressures as payers seek to cut reimbursement.

Innovative vs generic

Coloplast puts a great deal of emphasis on the patient-friendly design of its incontinence and wound care products as a selling point compared to the bog-standard offerings from similar companies. But there is only so much you can do to jazz up a colostomy bag, and while the markets for Coloplast’s products are growing as the population ages, pricing pressure on this kind of essentially generic technology is intense.

Poor UK sales thanks to clampdowns in the NHS led to the company slashing its revenue and profit forecasts last month, causing an 8% one-day drop in its shares.

The Danish firm also has a more specific problem contributing to its share price fall: a whistle-blower lawsuit in the US alleging improper sales practices and kickbacks to distributors as part of its Coloplast Care programme. This is a patient support programme that keeps patients supplied with the products they need and ensuring they remain reliable customers.

The company is sure it can bring the litigation to a satisfactory conclusion without having to change its sales practices, but shareholders are wary.

Small-cap ($250m-2.5bn) medtech companies: top risers and fallers in H1 2015
Share price (local currency) Market capitalisation ($m)
Top five risers YE 2014 H1 2015 Change H1 2015 6M change
InVivo Therapeutics $1.32 $16.15 206% - -
Iradimed $12.90 $23.27 80% 255 116
IBA Group €14.34 €24.42 70% 766 250
Intersect ENT $18.55 $28.63 54% 779 346
Foundation Medicine $22.22 $33.84 52% 1,160 530
Top 5 fallers
OraSure Technologies $10.14 $5.39 (47%) 304 (264)
Elekta SKr79.7 SKr52 (35%) 2,219 (1,835)
OvaScience $44.22 $28.93 (35%) 786.8 (289)
Spectranetics $34.58 $23.01 (33%) 975 (474)
GenMark Diagnostics $13.61 $9.06 (33%) 382 (186)

InVivo Therapeutics leads the small cap risers with its share price tripling over the first six months of the year after a 4:1 reverse stock split is accounted for. On April 16 the company uplisted to the Nasdaq and saw its shares spike but then decline. However the stock price has increased pretty steadily since on mounting excitement around the company’s Neuro-Spinal Scaffold product.

This biodegradable implant is designed to aid nerve regrowth in patients with complete traumatic acute spinal cord injury. There are no treatments available to meaningfully improve quality of life after injury and the pilot trial of the scaffold is attracting much interest; the five patients in the trial are being treated sequentially, and each release of data following patient treatment is greeted with a spike in the stock.

Shares in diagnostics group OraSure Technologies halved over the year as enthusiasm for its collaboration with AbbVie dissipated. AbbVie and OraSure have been co-promoting the latter’s OraQuick HCV Rapid Test in the US but the hepatitis C diagnostic had a rather slow sales ramp, disappointing shareholders.

For mid- and small-cap medtech companies in an increasingly commoditised market, innovation is being rewarded by investors. If this sort of encouragement means that patients get better therapies, the industry would seem to be working as it is supposed to.

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

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