The Republican healthcare bill, American Health Care Act (ACHA), which was released earlier this month with the target to repeal the Affordable Care Act (ACA), hasn’t found favor with the masses. This has come as a sigh of relief for the healthcare fraternity.

While the industry is rejoicing at this Republican ‘defeat,’ many market analysts believe that it is too early to come to any conclusion. In fact, they believe the president’s budget blue print is a clear indication of his extremely bearish attitude toward expenditure of the healthcare industry.

What the Blueprint Says?

The document titled “America First: A Budget Blueprint to Make America Great Again” puts forward some big changes in government spending for the fiscal 2018. It plans to allocate $69.0 billion for the Department of Health and Human Services (HHS). According to the blueprint, it is a $15.1 billion or 17.9% decrease from the fiscal 2017 annualized level.

This includes steep cuts in biomedical research in order to reduce discretionary spending at this department. The budget slashed the National Institutes of Health’s (NIH) funding by $5.8 billion to $25.9 billion.

Notably, NIH – the federal agency of HHS – is responsible for providing major biomedical research funds to non-NIH research facilities through its Extramural Research Program. It ranks as the world’s biggest fund contributor for biomedical and med-tech research. NIH grants help medical device companies carry out research and development to meet patients’ needs.

The move has drawn huge criticism from bio research agencies and academic institutions around the U.S. They feel that Trump’s budget fails to recognize the major role that the NIH had played in saving millions of American lives. This has also hurt recent advances in biomedical research and medical breakthroughs against diseases like cancer, Alzheimer's and cardiac ailments.

NIH’s funds for research, in addition to finding cures for diseases, stimulate job creation. Many research startups have been launched in the medical device sector recently. These companies offer jobs and generate tax revenues that in turn bolster the economy.

Apart from the cut in NIH funding, the document proposes a hike in U.S. FDA medical product user fees, raising the amount to over $2 billion in 2018. This becomes a matter of concern for companies in the medical device space.

The extent to which this budget proposal will be relaxed is not clear yet. Economists are still skeptical about the consequences within the healthcare space even though it’s a partial change from the earlier legislation under the Obama administration. Not to forget, it marked a golden era in the healthcare space when the NIH funding reached its maximum. The NIH received a funding boost in fiscal 2016, and its budget was supposed to be bumped up by $1 billion to $2 billion in fiscal 2017.

Who’s Bearing the Brunt?

We want to caution you against five stocks in the medical device space, which may suffer the most owing to this uncertainty within the space. Their business structure, limited geographical expansion and unfavorable Zacks Rank #4 (Sell) or #5 (Strong Sell) indicate that they may underperform grossly in the near term.

Steris Plc (STE Quick QuoteSTE - Free Report) : Headquartered in Ohio, Steris develops, manufactures and markets infection prevention, decontamination, microbial reduction, surgical and gastrointestinal support products and services.

For the majority of the last three months, this Zacks Rank #4 company has been trading below the Zacks classified broader Medical - Instruments sub industry. The stock gained 1.3%, lower than the industry’s 8% addition over the same timeframe. The company’s estimate revision trend for the current year is also unfavorable with three downward revisions versus no upward revision in the last 60 days. The same can be observed in the magnitude of the estimate revision trend with earnings estimates moving down to $3.73 from $3.89 over the same time frame.

Varian Medical Systems Inc. : Palo Alto, CA-based Varian Medical is a global provider of radiotherapy, radio surgery, proton therapy and Brach therapy for treating cancer and other medical conditions. It is also a premier supplier of X-Ray tubes for medical, scientific and industrial applications.

This Zacks Rank #5 stock has been underperforming the Medical-Instruments sub industry in the last three months. The company generated a return of 0.6%, compared to the industry’s increase of 8%. In terms of estimate revision, three analysts cut their earnings estimates for the current year, while no analysts revised their estimates upward over the last 60 days. The Zacks Consensus Estimate for the current quarter fell from $4.93 per share to $3.83 in the same time frame.

ConforMIS, Inc. : It is a Bedform, MA-based medical device company which develops, manufacture and sells joint replacement implants. The company's iFit technology platform consists of iFit Design, iFit Printing and iFit Just-in-Time Delivery.

For the last three months, ConforMIS has been trading below the broader sub industry. The stock lost 41.5%, comparing unfavorably with the industry’s gain of 8%. The company’s estimate revision trend for the current year is also discouraging with six downward revisions and no movement in the opposite direction over the last 60 days. Thus, the consensus estimate slipped from a loss of $1.14 to a loss of $1.40 per share. All these factors justify its present Zacks Rank #4.

Ekso Bionics Holdings, Inc. (EKSO Quick QuoteEKSO - Free Report) : Based in Richmond, CA, Ekso Bionics is engaged in designing, developing and selling wearable robots or exoskeletons for the medical, military, industrial and consumer markets. The company currently carries a Zacks Rank #4.

Ekso Bionics underperformed the Medical instruments sub industry in the last three months. The stock lost 7.3% compared to the sub-industry’s 8% gain. Its current year estimate revision trend has not been encouraging as well with two analysts slashing their estimates compared to no upward revision in the last 60 days. This caused the consensus estimate to trend lower, sliding from a loss of $1.04 to a loss of $1.14.

Cogentix Medical Inc. (CGNT Quick QuoteCGNT - Free Report) : It designs, develops, manufactures and markets proprietary technologies for the urology market. The company operates primarily in Orangeburg, NY, and has a Zacks Rank #5.

Over the last three months, Cogentix lost 13.1% compared to the sub-industry’s 8% gain. Its current year estimate revision trend is also unfavorable with one downward revision compared to no upward revision over the last 60 days. The consensus estimate slid from a couple of cents earnings per share to a loss of a couple of cents per share.

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