Since the onset of the COVID-19 pandemic, medical supplies and technology have dominated both media headlines and the health care frontlines. Medical supplies such as personal protection equipment (PPE), once primarily for healthcare workers and patients, have become critical for common citizens as well. Lockdowns and quarantines have altered traditional patient care delivery models. From the start of the pandemic, patients have had to forego or delay elective and less acute procedures. So, how do these unusual times result in increased investment for medical supply companies?
Time to Fasten Seatbelts: Disruption, Innovation, Megatrends
Disruption and innovation are here as longer-term megatrends are underway. The outbreak of COVID-19 triggered unprecedented disruptions in the delivery of health care services. Tele-visits and e-medicine is exploding. Also, according to Frost & Sullivan, the $5 billion point-of-care testing (POCT) infectious diseases market will continue to drive global changes in service models since traditional models of in vitro diagnostics (IVD) testing are unable to meet demand moving into the COVID-19 era.
Important global trends continue to prevail during the COVID-19 pandemic. The global population aging process is fueling the “Silver Economy,” which further drives health care technology and demands for innovation that can save costs and improves outcomes.
COVID-19 Climate Changes: Investment & Regulatory
Data has revealed an initial dip in revenues for global medical devices and diagnostics rebounding during 2020, then surpassing pre-COVID-19 levels in 2021 forecasts. Rebounding trends are similar in the USA for leading surgical procedure volumes.
It has also been noted that a number of medical technology stocks now have a bullish Composite Ratings. During the first six months of 2020 some medical stocks appear to outperform, while other industries such as brick-and-mortar retailers have suffered as a result of the pandemic. Additionally, investing in health care funds during this time has proven a lower-risk path to investing in health care stocks, according to returns reported in “Invest in the Health Care Revolution” in Kiplinger’s Personal Finance.
According to recent S&P Global Ratings COVID-19 Weekly Digest, the U.S. health care industry’s drop in demand at the beginning of the pandemic has bottomed out and a recovery is well underway. Subsequently, S&P has shortened expected recovery timelines for several subsectors. In the Wall Street Transcript research analyst Dr. Vijay Kumar states that “it’s a good time to invest [in medical devices] but again, like everything, be aware of the risk of the second wave.” He notes that companies most likely to lag due to COVID-19 are those offering purely elective procedures, but these are also coming back online as things are opening up.
Changes during 2020 in the regulatory climate may influence the investment climate for medical supply companies. Since the public health emergency was declared in February, the Food and Drug Administration (FDA) issued several updates to the Emergency Use Authorizations (EUAs) to expedite development and availability of medical products to combat the COVID-19 pandemic. This includes the Public Readiness and Emergency Preparedness Act (PREP Act) for Medical Countermeasures Against COVID-19.
To date, the FDA has issued numerous authorizations for device EUAs to diagnose, treat and prevent the spread of the disease. The list of these medical supply companies continues to expand: blood purification devices, in vitro diagnostics (e.g., molecular diagnostics, antigen, and serology tests), decontamination systems for PPEs, infusion pumps, PPEs (e.g., N95 and other respirators, disposable filtering face piece respirators, face shields), ventilators and accessories, remote or wearable patient monitoring devices, and other medical devices.
Another interesting regulatory development is the FDA’s newly formed Digital Health Center of Excellence which “empowers digital health stakeholders to advance health care by fostering responsible and high-quality digital health innovation.” It aims to facilitate efficient medical device regulatory approaches that “are least burdensome while meeting FDA standards.” The organization will also involve international harmonization. This may hold promise to streamline time-to-market processes for customized, integrated medical devices involving software such as advanced imaging, real-time visualization for diagnostics and surgical procedures, artificial intelligence, and machine-learning.
In summary, climate changes – investment and regulatory — for medical supply companies are increasingly favorable.
For the 2020s decade, Merrill Lynch suggests the need for a better understanding of disruptions. Investors may need to shift from focusing on short-term gains and consider a broader investment focus around longer-term global trends.
Although we may yet experience more waves of COVID-19 outbreaks, each region will rise to cope to its best ability. Health care economist Prof. Peter Hilsenrath notes that the pandemic is a watershed event. In its wake, it leaves more people both working and getting their healthcare at home. There will be an acceleration of miniaturization and monitoring health conditions remotely via one’s cellphone or mobile device, with sensors placed elsewhere. Depending on political climates, there may be more public funding for health insurance; and there may be more market power on the part of government to lower prices. In any case, the cost/performance value of medical supplies and innovations to improve patient outcomes will continue to be crucial for investments — through the current pandemic into the post-COVID-19 era.
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