Back to top

Image: Shutterstock

4 Stocks to Watch as FDA Action Plan Stresses MedTech Digitization

Read MoreHide Full Article

The pandemic has made us overlook many interesting facts, one of which is definitely the FDA’s latest “Artificial Intelligence/Machine Learning (AI/ML)-Based Software as a Medical Device (SaMD) Action Plan”. Launched in late January 2021, this is a groundbreaking initiative in favor of MedTech digitization.

The investment world is looking forward to this decision and anticipates it to potentially alter the trend of investing money in the MedTech space.

Let us delve deeper.

Evolving Importance of Digitization in MedTech

Thanks to the more-than-a-year long pandemic-triggered healthcare commotions, automated and computer-assisted medical procedures are the need of the hour. This has, in a massive way, accelerated the pace of progress of MedTech digitization.

During the pre-pandemic era, while many other sectors were fast grasping the concept of smart healthcare, MedTech took tinier steps, and partially adopted the advancements and benefits of smart healthcare.

The importance of AI and ML has been particularly felt since the month of April last year, when majority of the countries went for total or limited lockdowns, halting their non-essential and/or non-COVID-19 healthcare operations for an indefinite period.

A study by Research and Markets released in November 2020, just on the eve of the second wave of the pandemic showed that this market is projected to witness a 37.1% spike in 2021 and thereafter, will continue to grow to reach $508.8 billion by 2027. Per the report, from telemedicine to remote patient monitoring and management, this new service delivery platform has been adopted at lightning speeds. There has been a 60% slump in “Doctor near me” searches, while online consultations and online pharmacy sales have skyrocketed 350% and 600%, respectively.

There is undoubtedly a counter argument noting that with higher chances of COVID-19 easing out gradually, this trend might get disrupted any time in 2021.

However, with the emergence of new strains of coronavirus that are claimed to be 56% more contagious, the need of remote MedTech support is unlikely to fade any time soon. At this point of time, the FDA action plan’s roll-out on AI/ML-based SaMD is definitely implicative.

What the Action Plan Says?

Traditionally, the U.S. regulatory body reviews medical devices through an appropriate premarket pathway, which comprises a premarket clearance (510(k)), De Novo classification or a premarket approval. Nonetheless, this traditional system of medical device regulation was not designed for adaptive artificial intelligence and machine learning technologies.

In 2019, FDA published its proposed regulatory framework for modifications to AI/ML-based SaMD. This discussion paper described the FDA’s potential approach for premarket review of artificial intelligence and machine learning-driven software modifications. In February 2020, FDA announced its marketing authorization, through the De Novo pathway, of the first cardiac ultrasound software that uses artificial intelligence to guide users.

Following this breakthrough development, in September 2020, FDA announced the launch of its Digital Health Center of Excellence within the Center for Devices and Radiological Health (CDRH). This has been considered as an important step in furthering the agency’s efforts to the advancement of digital health technology, including mobile health devices, SaMD, wearables when used as a medical device, and technologies used to study medical products.

The latest action plan announced this January is consistent with the mission of the recently-launched Digital Health Center of Excellence. This plan has five parts focused on SaMD and works for the development of Good Machine Learning Practice (GMLP) through additional FDA participation in collaborative communities and consensus standards development efforts.

What Should Investors do?

Based on the evolving nature of healthcare needs, the FDA is gradually taking initiatives to develop a regulatory framework for AI/ML-based SaMDs. Needless to say, by now investors should understand the above indications well and start focusing on the digitization-centric MedTech investment.

4 Stocks in Focus

One-Year Price Performance

Abbott Laboratories (ABT - Free Report) : The company’s most recent digital health developments include two cardiac rhythm defibrillation products under the Gallant brand that consist of Bluetooth capabilities to align with the strategy in remote monitoring and digitally connected care. It has also developed and rolled out a digital solution Navica that pairs with the company’s BinaxNOW and Panbio tests, which enable people to receive and display test results on their mobile devices.

This Zacks Rank #2 (Buy) company has a long-term expected earnings growth rate of 14.1%. For 2021, the Zacks Consensus Estimate for revenues indicates an improvement of 22.6% from the year-ago period.

Over the past year, Abbott’s shares have gained 44.1%, outperforming the industry’s rally of 18.4%.

Johnson & Johnson (JNJ - Free Report) : The company is currently developing an end-to-end digital ecosystem across three robotics platforms, and achieved a significant milestone January 2021 with the FDA clearance for VELYS Robotic-Assisted Solution.

This Zacks Rank #2 company has a long-term projected earnings growth rate of 7.7%. For the current year, the Zacks Consensus Estimate for revenues suggests an increase of 18.1% from the year-earlier period.

Over the past year, JNJ’s shares have rallied 7.8%, outperforming the industry’s rally of 13.2%.

Masimo Corporation (MASI - Free Report) : Amid the pandemic , the company has come up with a number of digital healthcare solutions, including Masimo SafetyNet-Open (designed to help businesses, governments and schools manage employee and student health and safety better during the COVID-19 crisis), and UniView, an automation and connectivity solution (it leverages the Masimo Hospital Automation platform to aggregate and showcase relevant patient information on a digital display just outside each patient’s room).

This Zacks Rank #3 (Hold) company has a long-term historical earnings growth rate of 17.7%. For the ongoing year, the Zacks Consensus Estimate for revenues calls for 5.1% year-on-year growth.

Masimo’s shares have appreciated 28.8%, outperforming the industry’s rally of 23% in a year’s time.

Medtronic plc. (MDT - Free Report) : With hospitals investing more and more in capital equipment through the last few months, Medtronic saw record numbers of placements of its Mazor robot this time. With Mazor, the company currently estimates that it will continue to significantly outsell its nearest competitor, Globus Medical (GMED), in the spine robotics space.

This Zacks Rank #3 company has a long-term estimated earnings growth rate 7.6%. For fiscal 2022, the Zacks Consensus Estimate for revenues indicates an improvement of 8.5% from the prior-year period.

In the past year, Medtronic’s shares have gained 15.1%, outperforming the Medical industry’s rally of 5.5%.

Time to Invest in Legal Marijuana

If you’re looking for big gains, there couldn’t be a better time to get in on a young industry primed to skyrocket from $17.7 billion back in 2019 to an expected $73.6 billion by 2027.

After a clean sweep of 6 election referendums in 5 states, pot is now legal in 36 states plus D.C. Federal legalization is expected soon and that could be a still greater bonanza for investors. Even before the latest wave of legalization, Zacks Investment Research has recommended pot stocks that have shot up as high as +285.9%

You’re invited to check out Zacks’ Marijuana Moneymakers: An Investor’s Guide. It features a timely Watch List of pot stocks and ETFs with exceptional growth potential.

Today, Download Marijuana Moneymakers FREE >>


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Johnson & Johnson (JNJ) - free report >>

Medtronic PLC (MDT) - free report >>

Masimo Corporation (MASI) - free report >>

Abbott Laboratories (ABT) - free report >>