Large-cap medtech rises driven by smart buys and new tech

Data Insights

Next-generation sequencing, renal denervation and companion diagnostics: the large and medium-cap companies whose share prices rose the most in the first half of 2013 are active in some of the most innovative and fastest-growing areas in medtech.

While the large-cap firms are firmly based in the traditional heartlands of the US and Europe, the mid-cap players are further flung. Japanese investors’ appetite for medtech is growing, with three of the top five mid-cap risers listed on the Tokyo exchanges (see tables).

Stock index % change in H1 2013
Thomson Reuters Europe Healthcare 11%
Dow Jones U.S. Medical Equipment Index 18%
S&P Composite 1500 HealthCare Equipment & Supplies (US) 13%

Thermo Fisher Scientific, the company that pulled off the most heavily trailed buyout of the year so far, leads the field of large -cap risers in the first half, and leads it by a decent margin.

Its acquisition of the gene sequencing specialist Life Technologies in April was the biggest purchase the sector has seen this year at $13.6bn (Thermo Fisher spends $14bn to finally get a Life, April 15, 2013). Life is a hot property: Thermo Fisher had to pay a 12% premium over Life’s share price to beat offers from Sigma-Aldrich and a consortium including Blackstone, Carlyle, KKR and Temasek Holdings.

The acquisition will not close until early next year, which explains Life’s presence in the mid-cap risers, with a 51% jump.

Large cap ($30bn+) medtech companies: top risers and fallers in H1
Share price (local currency) Market capitalisation ($bn)
Rank Top 5 risers YE 2012 H1 2013 Change YE 2012 H1 2013
1 Thermo Fisher Scientific $63.78 $84.63 33% 22.80 30.48
2 Medtronic $40.79 $51.47 26% 41.44 51.85
3 Roche SFr184 SFr235 24% 170.72 216.38
4 Johnson & Johnson $70.10 $85.86 22% 194.77 241.17
5 3M $92.85 $109.35 18% 63.80 75.47
Rank Top fallers
1 Allergan $91.64 $84.24 (8%) 27.52 25.91
2 Siemens €82.20 €77.70 (5%) 93.29 89.16

The contrast with the third-highest riser, Roche, is marked. The diagnostics player made a bid for the gene sequencing firm Illumina at around the $8bn mark, but Illumina instead chose to make a buy of its own (Illumina splurges $450m on Verinata after Roche walks out, January 8, 2013). Roche’s failure here has not slowed its shares; as befits the leader of the safe-haven IVD sector its growth is measured but more than acceptable.

Both of the large-cap fallers are conglomerates. Allergan, down 8% this half, is considering taking a step away from medtech; its Lap-Band weight loss device has been performing poorly for some time, and the company has been attempting to shed it to free itself to pursue its more profitable pharma business (Allergan could undergo Lap-Band removal, November 2, 2012).

How you play it

Japanese life science stocks have been on an astonishing ramp for many months and it appears that the biotech bubble might also be inflating medtech stocks. The IVD company Sysmex leads the mid-cap risers with an astonishing 168% increase; imaging giant Olympus and home healthcare and sensor developer Omron appear at the second and fifth positions, with 81% and 46% rises respectively.

It will be interesting to see whether shareholders in Tokyo-listed medtech companies will hold their nerve and continue to inflate prices in the same way as have biotech investors.

Mid cap ($2.5-30bn+) medtech companies: top risers and fallers in H1
Share price (local currency) Market capitalisation ($bn)
Rank Top 5 risers YE 2012 H1 2013 Change YE 2012 H1 2013
1 Sysmex ¥2,425 ¥6,490 168% 2.64 6.87
2 Olympus ¥1,665 ¥3,015 81% 5.29 9.43
3 Boston Scientific $5.73 $9.27 81% 5.29 9.43
4 Life Technologies $49.03 $74.00 51% 8.45 12.75
5 Omron ¥2,041 ¥2,979 46% 4.89 6.92
Rank Top 5 fallers
1 Edwards Lifesciences $90.17 $67.2 (25%) 10.31 7.59
2 Cochlear AUS$79.10 AUS$61.71 (22%) 4.26 3.65
3 Orion €22.05 €17.96 (19%) 4.06 3.31
4 Samsung KRW53,400 KRW46,100 (14%) 3.79 3.14
5 Getinge SKr220.00 SKr203.80 (7%) 7.95 6.99

Boston Scientific’s place in the top five mid-cap risers is an encouraging sign from a company that is working hard to turn itself around after a difficult few years with investments in leading-edge technologies such as renal denervation and heart valves (Boston Scientific gatecrashes renal denervation market with Vessix buy, November 9, 2012).

However, proving that it is not the hand you are dealt that matters so much as how you play it, another cardiovascular specialist heads the fallers. Edwards Lifesciences, which leads the heart valve sector, has had a tough time of it in the first six months of 2013, posting disappointing first-quarter sales and lowering its full-year guidance, causing its shares to crash 10% in late April.

The larger medical technology developers are often seen as safe bets for investors, and the relatively modest growth seen in the medtech indices bears this out. The large-cap risers, with the exception of Thermo Fisher, are conservative multinationals following a slow and steady strategy, but it is worth bearing in mind that that exception was the only large-cap company to significantly outpace the best-performing medtech index.

This is an updated version of a story first published on July 17, 2013.

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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