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Medical Devices: Invasive vs. Non-invasive
Medical supplies are not all equal. Indeed, medical devices vary greatly, and are typically classified according to the degree of invasiveness associated with a procedure and the role they play in it. Non-invasive procedures are those that do not involve a break in the skin. There is no contact with the mucous membrane or internal body cavity other than through a natural or artificial body orifice. Procedures used to evaluate health and/or detect presence of a disease such as taking a pulse, listening to the sounds of the heart and lungs, gauging blood pressure, and performing an oral exam, are all considered non-invasive, as are the instruments used to perform them. Infrared imaging of the body, X-rays, and electrocardiography (EKG), as well as patient-monitoring systems for such conditions as diabetes or cardiovascular disease, are among the more-advanced non-invasive methods in modern medicine that are used to make diagnoses. Radiation therapy, radiosurgery, and defibrillation (to restore normal heart rhythm) are examples of non-invasive treatments of diseases and conditions.
A vast number of companies make up the non-invasive medical supplies space. Standouts include Hologic (HOLX), which manufactures diagnostic and medical imaging systems geared towards women’s health. The equity is a good momentum play and offers solid appreciation potential to 2014-2016, too. Industry giant Johnson & Johnson (JNJ - Free Johnson & Johnson Stock Report) makes a broad range of consumer, pharmaceutical, and medical device and diagnostic products, the latter of which represents some 40% of total sales. This good-quality, dividend-paying blue-chip stock would make a fine addition to most portfolios. With about 220,000 brandname medical and surgical supplies distributed to acute-care facilities and hospitals, Owens & Minor (OMI) is no stranger to the non-invasive medical supply arena. A decent dividend payout is this player’s main appeal. ZOLL (ZOLL) has carved out a niche in this space, too. The maker of defibrillators and other non-invasive resuscitation devices has much to offer, and investors have taken notice. We’d wait for a pullback here, though, as the stock has surged of late.
On the other side of the spectrum are manufacturers that make medical supplies for invasive procedures. Invasive procedures generally refer to surgery—penetration or breaking of the skin or entrance into a body cavity. Although open surgery is the main aspect of this segment, invasive procedures can involve perforation, incision, catheterization, and other direct entry into the body. Minimally-invasive procedures are a gray area, as they refer to procedures that are less invasive than open surgery, but can involve some form of surgery. Laparoscopic devices and remote-control instruments capable of allowing indirect observation of internal areas of the body are often used for these types of procedures. Value Line largely houses these companies in the invasive medical supply industry.
St. Jude Medical (STJ) is among the invasive medical supply manufacturers. The Minnesota-based company offers a line of pacemakers and other cardiology-related implantable devices. Based on its growth prospects out to mid-decade, the issue stands to reward investors willing to exercise patience. Stryker (SYK) develops an array of orthopedic products, such as hips, knees, spinal, trauma, and craniomaxillofacial implants. Long-term investment appeal is not bad here. Similarly, Zimmer Holdings (ZMH) makes a range of reconstructive joints. The company seems positioned to do well three to five years out, making this a particularly compelling buy for the long haul. Another name that lives in this space is NuVasive (NUVA), which offers minimally-invasive tools for spine surgery. It also makes cervical and motion preservation implants, as well as bone graft products. The earnings growth we envision suggest the stock will rise substantially over mid-decade.
Investors should realize that most medical supplies manufacturers (and their stock prices), regardless of the category they belong to, are impacted by a number of common factors. In fact, besides macroeconomic conditions, the fortunes of these companies are often dictated by procedural volume, hospital-related capital spending, and insurance reimbursement rates. The healthcare reform law that was passed recently will also affect business for medical supply manufacturers, invasive and non-invasive alike.
At the time of this writing, the author did not have positions in any of the companies mentioned.