3 Medical Instrument and Supply Companies You Don’t Want to Miss
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The U.S. is the world’s leading medical device manufacture. Becton Dickinson (NYSE: BDX), Baxter International (NYSE: BAX), Covidien (NYSE: COV) are amongst the top ten manufactures for medical devices. The U.S. medical device industry is expected to grow at CAGR 6.3% for the period of 2011-2018. The medical device market revenue is projected to increase from $102.1 billion in 2011 to $156.8 billion by 2018. Expansion in the current market, introducing new products, and expanding geographically are the top three elements generating maximum revenue for medical device manufacturers.
Let's find out what the growth opportunities are for these three medical instrument companies, and how investors can profit from them.
Launch of new pen needle in the U.S.
Around 26 million U.S. residents live with diabetes, and it has now become a growing health concern. Insulin is a life-saving drug for patients with diabetes. There has been a growing demand for a pen needle that reduces the pain of injection and allows for easier self-injection. Last month, Becton launched its BD Ultra-Fine Nano 4mm Pen Needles with EasyFlow Technology, under its medical segment, in the U.S. Compared to other pen needles, Becton’s new insulin injector has EasyFlow technology with the thinnest, shortest needle, requiring less thumb force. This makes it faster and easier for diabetes patients to administer their daily insulin injections. The company has also increased the space inside the needle, which increases the flow rate. With the launch of the new pen needle, Becton’s medical segment revenue is expected to increase from $983.4 million in the first quarter to $1.08 billion in the fourth quarter of this year.
Bordetella pertussis, or ‘whooping cough,’ is a highly contagious respiratory disease that is most prominently observed in infants and young children. Europe observes nearly 30-50 million cases of Pertussis yearly. Timely detection with the help of polymerase chain reaction, or PCR, testing is required to prevent the spread of disease. Therefore, Becton’s diagnostics segment, along with Diagenode SA, a Belgium-based biotech company, has a launched a Europe-only Diagenode Bordetella pertussis/parapertussis real-time PCR kit for the use in the BD MAX System. The BD MAX system is fully automated and standardized for the extraction process, ease-of-use, and is cost effective in nature for molecular tests. The use of the PCR kit in the BD MAX system will enhance the range of molecular tests in laboratories to meet current and future clinical needs. The new system is expected to boost the company’s diagnostics segment revenue from $651.9 million in the first quarter to $679.8 million in the fourth quarter.
New remedy for Hemophilia B
In the last month, the FDA has approved Baxter’s ‘Rixubis,’ a new rFIX remedy to control excessive bleeding and Hemophilia B, a blood clotting disorder. This medication will be used for patients with Hemophilia B who are of age 16 years and above for twice weekly dosing. It can also be used for perioperative management, providing better condition to the patient before surgery, during the surgery, and after the surgery. This is the first drug in the form of a therapy for patients affected by Hemophilia B. According to the National Hemophilia Foundation, there are around 3,300 U.S. residents suffering from Hemophilia B, and around 25,000 across the world. The approval will benefit physicians and patients with an option to reduce or prevent the frequency of bleeding. With this drug, rFIX sales of $375 million are expected this year, $386 million in 2014, and $398 in 2015 in the U.S.
In order to expand its kidney-equipment business, Baxter entered into an agreement to acquire a leading Swedish dialysis product maker, Gambro AB, for $4 billion in the end of 2012. The deal is expected to close in this year. The acquisition will open a global platform for dialysis offering for the company as there are around 2 million patients receiving treatment. New technology will help Baxter to improve its manufacturing techniques and supply of dialysis around the world. Gambro is spread across nine countries with 13 production facilities, and it serves customers based in 100 countries. Baxter will gain a strong market that will grow in the long run. Gambro reported $1.6 billion in sales from its portfolio that consists of hemodialysis devices. With the help of this acquisition, $300 million in cost synergies will be generated annually from 2015.
FDA approval for Nellcor Pulse Oximetry Motion Claims
In May 2013, Covidien received approval from the FDA for Nellcor Pulse Oximetry Motion Claims. It is the first company to receive approval from the FDA for a motion-tolerance bedside pulse oximeter. The devices are used to measure arterial oxygen saturation which gives an early warning of hazardous respiratory complications. This enables clinicians to detect and deal with critical conditions of patients sooner. To provide an accurate reading, these devices completely depend on cardiac-based signals. The motion-tolerant pulse oximeter prevents readings that can be inaccurate due to patient movements and provides comfort and safety to the patients. The company has an opportunity to expand its devices segment as the global pulse oximetry market is expected to grow at a CAGR of 5.55% over the period of 2011-2015. With this approval, revenue from its medical devices segment is expected to increase from $8.11 billion in 2012 to $8.4 billion by the end of this year.
Also, Covidien’s Nellcor Pulse Oximeters got an approval from the FDA to be used in screening of Critical Congenital Heart Disease, or CCHD. In the U.S. nearly 7,200 infants are born every year with CCHD disease and account for 30% deaths caused by CCHD. Every year nearly 1 in 3 infants with CCHD in the U.S are discharged without diagnosis and 100 to 200 fall victim to the disease. The Nellcor pulse oximeter provides quick facilities that can be used for noninvasive screening, a technique that does not need any insertion into the skin. The device is approved for CCHD screening used by physicians for accurate screening. The introduction of Nellcor in CCHD screening will help physicians to diagnose newborns easily and save more lives. With the approval and adoption of this device, U.S. sales are expected to increase from $929 million in the first quarter to $960 million by the fourth quarter of this year.
The introduction of its new nano pen needle and the use of PCR kit in the BD MAX system will boost Becton’s medical segment and diagnostics segment revenue.
Baxter’s Rixubis will control excessive bleeding episodes and Hemophilia B which will eventually boost rFIX sales in the U.S. Additionally, the acquisition of Gambro will help the company to expand its dialysis market and generate high revenue.
Covidien’s Nellcor pulse oximeter device will boost its medical device segment’s revenue. There will be increase in the adoption by physicians for Nellcor in CCHD screening, which will lead to increase in the U.S. sales.
Therefore, I recommend a buy for all three stocks.
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Shweta Dubey has no position in any stocks mentioned. The Motley Fool recommends Becton Dickinson and Covidien. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!