Telemedicine and the “Zoom effect” boost big-cap medtech

In the second half of 2020 medtech began a tentative – and possibly short-lived – recovery.

Quarterly shareprice performance

A look at large-cap medtech stocks’ performance at the half-year point revealed a stark delineation between those companies whose devices were of use in treating or diagnosing Covid-19 and those whose businesses had suffered from the pandemic and its associated lockdowns. 

Six months on and the picture is blurrier, though Covid-19 was still a huge influence on device makers. Overall the more established end of the sector is in a better position than it was in the summer, with the most successful big-cap companies seeing their share price more than double. It cannot be denied, however, that some groups have suffered alarming losses of value. 

Indices of medical device stocks point to the broader recoveries occurring across stock markets. They do not show the sorts of gains medtech companies saw in pre-pandemic 2019, but the second half of 2020 allowed a palpable improvement from the first.

Stock index  % change in 2020
Thomson Reuters Europe Healthcare (EU) 6%
Dow Jones U.S. Medical Equipment Index 22%
S&P Composite 1500 HealthCare Equipment & Supplies 17%

Of all the big-cap companies, Teladoc saw its share price increase the most – indeed, it was not even in the big cap cohort at the start of 2020. The various quarantine measures put in place starting from the spring of 2020 ensured that demand for the remote health consultation services Teladoc provides soared. In the fourth quarter of 2019, before the pandemic’s effects were manifest, Teladoc saw a 44% year-on-year increase in the number of appointments booked via its platform. In the second quarter of 2020, with Covid-19 raging, the year-on-year increase was 203%. 

The acquisition of Livongo in August – at $18.5bn, last year’s largest medtech deal – prompted Teladoc’s stock to fall slightly (Teladoc bets $18.5bn that Covid-19 will change the world for good, August 6, 2020). But the group soon recovered as investors digested the possibilities of adding a company whose business model signs up entire companies at a swoop. Livongo’s own share price had grown by 200% across the first half of 2020.

Added to Teladoc’s earlier $600m acquisition of Intouch Health, its purchase of Livongo helped the group’s market cap to swell by an astonishing 381% across last year.

Align Technology’s stock jumped 35% when its third-quarter earnings came in more than four times higher than analysts had been expecting. 

The Covid-19 angle here, chief executive Joseph Hogan explained, was the “Zoom effect”. People working remotely, staring at their own image in videoconference software, took more notice of their dental imperfections – and, because these white-collar workers had hung on to their jobs but spent less on holidays, commuting and socialising, they had the cash to do something about it.

Large cap ($10bn+) medtech companies: top risers and fallers in 2020
  Share price 12-mth change Market cap at Dec 31 ($bn) Market cap 12-mth change ($bn)
Top 5 risers      
Teladoc Health ($) 139% 29.0 23.0
Novocure ($) 105% 17.6 9.2
Align Technology ($) 92% 42.1 20.1
Abiomed ($) 90% 14.7 6.9
West Pharmaceutical Services ($) 88% 20.9 9.8
       
Top 5 fallers      
Boston Scientific ($) (20%) 51.5 (11.6)
Becton Dickinson ($) (13%) 68.6 (5.0)
Smith & Nephew ($) (12%) 18.5 (2.5)
Hitachi (¥) (12%) 37.4 (4.0)
Dentsply Sirona ($) (7%) 11.4 (1.1)
Source: EvaluateMedtech.

The effect of Covid-19 can also be seen by the diverging fortunes of the two cardiovascular specialists in the movers. Abiomed, the maker of temporary heart pumps, became the only company to receive an emergency use authorisations for a therapeutic cardiovascular device for Covid-19, with its Impella RP and later all its Impella devices being authorised to provide ventricular support to patients undergoing ECMO treatment and who develop pulmonary oedema or myocarditis. 

Boston Scientific, however, makes the wrong kind of devices for a pandemic. Demand for its pacemakers and stents fell as non-urgent procedures were put on the backburner. It suffered a blow unrelated to the coronavirus in November, when it canned its flawed transcatheter artic valve, Lotus Edge (Boston deadheads its Lotus, November 17, 2020).

Despite the promise of newly-approved vaccines, the coronavirus continues to spread at a horrifying rate in many areas. Quarantine measures are once more being instituted, and hospitals and doctors’ offices, close to capacity, are putting off less urgent surgeries and appointments. The first half of 2021 could be another difficult period for medtechs.

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