Smaller medtechs suffer, but not from Covid-19

Emergence from lockdown is the driving force behind many – but not all – of the small and mid-cap share price moves.

Quarterly shareprice performance

The improving pandemic situation in the West has been the main driver of the largest share price rises among small and mid-cap medical device companies in the first half of the year. Groups whose products are used in elective surgeries are soaring on increased demand as lockdown measures lift.

Interestingly, the biggest share price declines among these two cohorts have nothing to do with the pandemic, instead being attributable to a partnering bust-up and a reimbursement catastrophe.

For the Swedish group Getinge, the pandemic has given and taken away. The medical equipment manufacturer benefited from the vaccine rollout, since its aseptic transfer products, which allow the movement of material in and out of a sterile zone without breaking containment, were widely used in Covid-19 vaccine manufacture. This fuelled 38% year-on-year growth in its life science business in the first quarter. 

Its acute care therapies business achieved 13% organic growth in the first quarter, driven by sales of ventilators, extracorporeal membrane oxygenation (Ecmo) machines and the gradual recovery of its elective procedure business.

But a drop in sales could be on the way. Getinge’s first-quarter order book was down 23% owing to falling demand for ventilators for Covid-19 patients.

Mid cap ($2.5-10bn) medtech companies: top risers and fallers in H1 2021
  Share price 6-mth change Market cap at Jun 30 ($bn) Market cap 6-mth change ($bn)
Top 5 risers
Getinge (SKr) 68% 9.8 4.3
Penumbra ($) 57% 10.0 3.6
Atricure ($) 43% 3.6 1.1
Envista ($) 28% 7.0 1.6
Caredx ($) 26% 4.8 1.2
 
Top 5 fallers
Haemonetics ($)  (44%) 3.4  (2.6)
Asahi Intecc (¥)  (29%) 6.4  (2.9)
Quidel ($)  (29%) 5.5  (2.1)
Invitae ($)  (20%) 6.7  (0.7)
Nihon Kohden (¥)  (17%) 2.6  (0.7)

Penumbra and Atricure both make catheter-based devices for cardiovascular procedures; the former specialises in thrombectomy and embolisation, and the latter in cardiac ablation and similar techniques. As hospitals reopen for non-urgent procedures these companies have seen their sales, and in tandem their stock, rise. 

It is a similar story with the dental care company Envista and transplant diagnostics specialist Caredx. The latter group also did a handful of acquisitions, all of software developers. In January it bought Transchart, which provides electronic health record software to US transplant centres, and in a related deal TX Services, which makes a cloud-based system that allows nephrologists and dialysis centres to refer, follow and assist patients awaiting liver transplants. 

Additionally Caredx bought BFS Molecular, a software company focused on sequencing-based patient testing, in March. No financial details were released for any of these transactions. 

Haemonetics is one of the rare medtechs that cannot blame its misfortunes on Covid-19. The company, which makes technology for blood plasma collection, was deserted by its partner CSL Plasma, a subsidiary of CSL Behring, a biotech focused on plasma protein biotherapeutics.

In April CSL told Haemonetics it would not renew the agreement under which it uses Haemonetics’ PCS2 plasma collection devices and buys disposable plasmapheresis kits in the US after the current agreement expires in June 2022. The agreement had brought in $117m for Haemonetics in fiscal 2020 – 12% of its revenues. Haemonetics’s shares dropped 36% overnight, and have not recovered. 

Uplift

The ending of various lockdown measures is the driving force behind the two biggest risers in the small cap cohort. Sientra and Cutera are both active in medical aesthetics – the former makes breast implants and the latter technologies that claim to do everything from repairing sun-damaged skin and scarring to removing tattoos and melting fat.

Sientra posted the highest quarterly revenues in its history for the first three months of 2021. Its chief executive, Ron Menezes, attributed this to people working from home putting their extra discretionary income towards breast augmentation. 

Small cap ($250m-2.5bn) medtech companies: top risers and fallers in H1 2021
  Share price 6-mth change Market cap at Jun 30 ($m) Market cap 6-mth change ($m)
Top 5 risers
Sientra ($) 105% 459 263
Cutera ($) 103% 880 455
Castlight Health ($) 102% 316 162
Stereotaxis ($) 89% 689 314
Misonix ($) 76% 383 166
 
Top 5 fallers
Irhythm Technologies ($)  (72%) 1,850  (4,999)
Nanosonics (AUS$)  (30%) 1,321  (401)
Quotient ($)  (27%) 372  (154)
Intersect ENT ($)  (25%) 611  (138)
Avanos Medical ($)  (21%) 1,721  (474)

Irhythm Technologies suffered a shocking decline in fortunes in the first half of this year. It had been one of the top risers of last year, its shares climbing 248%, but has now dropped out of the mid-cap cohort entirely to lead the small-cap fallers. 

This is all to do with a sharp cut in reimbursement for Irhythm’s wearable cardiac monitor, Zio XT, a stick-on designed to detect irregular heartbeat. In late January a Medicare contractor called Novitas published new reimbursement codes for long-term electrocardiogram use, cutting the price from more than $300 to around $40-80. Irhythm lost a third of its value.

Eventually Novitas was persuaded to increase the reimbursement figures, but not by enough. In April Irhythm said it would discontinue Zio XT sales under Medicare; its stock sank 39%. At the half-year point Irhythm was $5bn poorer than it had been at the end of 2020, a neat illustration of a nightmare scenario for a one-product company. 

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