A few months down the line, the Republicans will complete a full year in power. Unfortunately, since the political power change, the healthcare community hasn’t had many opportunities to rejoice.
A survey report by Gallup Analytics last month revealed that U.S. adults cited healthcare as the second major problem faced by the country under the new presidential administration. In fact, the debate over repealing the Affordable Care Act (ACA) or Obamacare has been raging for a while now. Per the report, it peaked when it reached the Congress in August. Considering the prevailing uncertainty in the implementation of the health policy, any respite from it in the near term seems unlikely.
MedTech in the United States: A Blurred Picture
Needless to say, the current crisis in the U.S. MedTech industry, an integral part of the broader healthcare space, shows no signs of abating. A few months back, companies in the space were hopeful about the promised cancellation of the 2.3% MedTech tax of Obamacare under the new government. Unquestionably, the latest political developments have landed the MedTech space in an uncertain territory.
Investors are mulling over whether they should retain their existing MedTech stocks or forego their holdings in favor of companies in other industries to boost their financial resources. That said, in spite of what the future may hold, we believe investors should stick to the MedTech space as it has shown signs of prosperity in recent times globally.
Yes, you read that right. Even considering the dull performance of the U.S. medical device market (that still holds the leading position with almost one-third of the world market share) on rising regulatory and legislative uncertainty, global growth has been quite encouraging. In 2016, this industry grew 5%, a pace last seen before the financial crisis.
Emerging Markets Hold Immense Promise
The uncertainty in the United States along with the worsening economic condition in Europe automatically shifted the focus to emerging geographies like China, India, Latin America and others.
These emerging economies are seeing a rise in the uptake of medical devices largely due to growing medical awareness and economic prosperity. An aging population, increasing wealth, government focus on healthcare infrastructure and expansion of medical insurance coverage make these markets a happy hunting ground for global medical device players. Add to it, rising healthcare spending and improving healthcare infrastructure, this growth should continue in 2017 and beyond.
Going by a recent BCG report, the share of emerging markets, which is currently less than a quarter of global MedTech revenues, is likely to increase to nearly one-third of revenues by 2022. The MedTech market in China, currently the second largest in the world, is projected to grow about 13% annually from 2015 through 2022. India’s Medtech market, the fifth largest in the world, is currently demonstrating 17% annual growth. If this continues, India may give good competition to Japan and Germany by 2022.
Among other emerging geographies, Latin America, even in the face of general economic stagnation, holds enormous potential. Per a January 2017 report by MedTech Intelligence, the Central and South American nations significantly increased per capita spending on healthcare in the period between 2008 and 2014. According to World Bank data, Guatemala increased spending by 27%, Brazil 31%, Chile 54%, Colombia 58%, Uruguay 95%, Paraguay 115%, Bolivia 138%, and Ecuador 139%. Lower domestic production in Latin America has made it as an open market for U.S. exporters.
Investment in Emerging Market Players Looks Sensible
In such a scenario, we believe it will be wise of investors who are keen on MedTech stocks to keep an eye on companies who have turned the emerging markets into a happy hunting ground with their expertise and network. No wonder, these stocks, cashing in on the enormous growth potential of these emerging geographies have perfectly shielded themselves from the political turmoil within the United States.
Let us look at a few MedTech players with significant emerging market presence.
Given the huge potential in these regions, long back, Johnson & Johnson (JNJ - Free Report) had set up manufacturing and R&D centers in Brazil, China and India. The company’s medical device segment of emerging markets is growing three to four times faster than the developed markets. It has been doing business in China for nearly 30 years and is expanding further here on the back of the Synthes acquisition.
Abbott (ABT - Free Report) continues to lead the emerging market investment trend with about 50% of sales from this region. In recent quarters, sales in key emerging markets were up in double digits, driven by strength in BRIC as well as strong growth in several countries throughout Latin America, including Colombia, Mexico, Peru and Argentina.
At Medtronic (MDT - Free Report) , in the last-reported first quarter of fiscal 2017, businesses in China, Latin America, and Southeast Asia showed sustained strength, growing in double digits. Overall, Medtronic remains confident about its long-term outlook for emerging markets. The company is focused on developing new public and private partnerships as well as executing channel optimization strategies.
Boston Scientific’s (BSX - Free Report) emerging markets business registered 14% organic growth in second-quarter 2017, a significant increase from 8% growth in 2013. Business in China was once again remarkable (up 20% year over year). The company is currently looking forward to much better performance ahead in China, banking on the recent approval of SYNERGY in China.
Thermo Fisher (TMO - Free Report) too is leaving no stone unturned to expand its presence in emerging markets. The company garnered 20% of total revenue from the high-growth Asia-Pacific and emerging markets in 2016 from 10% in 2006.
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