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MedTech Industry Outlook - July 2017

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There is plenty of uncertainty about the final shape of the Trump administration’s Obamacare ‘repeal & replace’ effort through Congress. But the overall expectation is that the legislative change will result in lower taxes and regulation for the industry as a whole.

To that end, the industry is looking forward to an end to the 2.3% medical device tax. Also, there is a big possibility that the Medical Device fraternity will be exempt from the highly unpopular Cadillac tax (40% excise tax on high-cost healthcare plans).

According to MedTech majors, the abolition of these taxes would directly address issues like lack of opportunity for research and development, innovation, pipeline development and increase investments needed to accelerate patient and provider access to innovative health care products. This will also help in boosting job creation and improving quality of patient care.

However, the latest revelation by some moderate senators to 'keep some of its taxes,' is once again creating quite a stir in the medical device space. Also, the Trump administration has proposed to raise the U.S. Food and Drug Administration (FDA) user fee for medical device in 2018. The U.S. medical device industry mostly consists of small manufacturers that would be substantially affected by higher FDA fees.

Boon or Bane for the Medical Device Community?

Overall, there is a mixed sentiment in the medical device community. The medical device trade association AdvaMed is one of the few that is in favor of the replacement policy. According to AdvaMed, the entire MedTech fraternity is looking forward to new policymakers, who will be working on improving the FDA regulatory process, repeal of the medical device tax, and ensuring that the coverage process gives patients access to the latest innovations.

However, data from CBS discussed above is a dampener. While the White House and Capitol Hill responded to the forecast as ‘just absurd,’ they have yet to justify their stance. This apart, a shrinking customer base indicates an impending slash in the demand for expensive medical procedures and devices. Economists worldwide are divided on this proposal. If it materializes, a major supply/demand disequilibrium within the medical device niche may be created. 

Zacks Industry Rank

Within the Zacks Industry classification, Medical Device is broadly grouped into the Medical sector (one of 16 Zacks sectors) and further sub-divided into four industries at the expanded level: Medical - Instruments, Medical - Products, Medical - Dental Supplies and Medical Info Systems.

We rank all the 250-plus industries in the 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each. To learn more visit: About Zacks Industry Rank.

The Zacks Industry Rank is #178 (bottom 30% of the 250 plus Zacks classified industries) for Medical - Instruments, #112 (top 44%) for Medical - Products, #99 (top 39%) for Medical - Dental Supplies, #156 (bottom 39%) for Medical Info Systems. Our back-testing shows that the top 50% of the Zacks ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Upon analyzing the Zacks Industry Rank for different Medical Device segments, it can be said that the outlook for these aforementioned MedTech subsectors is overall unclear.

Price Performance

The price performances of these Zacks categorized sub industries however indicate a bullish market sentiment.

Year-to-date, while the S&P 500 Market Index has gained 10.4%, the med instruments space has outperformed the trend with a rise of 15.8%. Some of the stocks within this space that have traded above the S&P Index are Varian Medical Systems, Inc. , Inogen, Inc. (INGN - Free Report) and  Edwards Lifesciences Corp. (EW - Free Report) .

Medical Product stocks grew a substantial 20.9% in this period. Some players from this space are ABAX, Orthofix International N.V. (OFIX - Free Report) , Meridian Bioscience, Inc. (VIVO - Free Report) and INSYS Therapeutics, Inc. .

Another small subcategory medical info systems was not an exception either. The sector has also surpassed the market index with 33.1% growth rate. One of the stocks that has contributed to this outperformance is Cerner Corp. .