Medical devices as a sub-sector of the biotech industry have been performing well in recent months a...
Medical devices as a sub-sector of the biotech industry have been performing well in recent months as investors look for alternative areas to drug companies.
Over the 12 months to 13 July, the S&P drugs index fell 11.51% in dollar terms, the S&P 500 fell 16.88%, whereas the S&P medical products index had dropped by 6.64%. Since May, the S&P medical products index posted a slight gain at 0.64% but this compares to the continued fall on the S&P drugs index of 11.49%.
Antony Milford, fund manager of Framlington Health, says that he has done better in the device sector than any other part of his fund's portfolio. He says that orthopaedics has been a very good area, while cardiology companies have not been as good.
Gordon Crofts, senior investment manager at Aegon Asset Management, says that the trend in the market is towards the companies that have a diversified stream of earnings.
Crofts says an area of concern is with companies which make devices to monitor the heart, like Medtronic and Guidant. The two have not performed well, with Medtronic falling 13.18% in dollar terms since the start of the year, while Guidant is down some 46%.
Crofts says: 'People are concerned on the return of capital these companies are making. Guidant received a non-approval letter from the FDA recently, while Medtronic got an approval, so Medtronic is seen as the company that is leading in this area at present.'
Crofts says he does not own either Medtronic or Guidant. Medtronic has been making acquisitions to add to its bottom-line growth, but Crofts says there is concern that it won't be able to continue doing this for too long.
Felix Wintle, investment manager at City Financial Asset Management, whose CF Biotech Fund is up 267.6% over five years to 16 July, says that the problem at present, especially in the US, is the FDA not allowing many drugs to go through onto the market. Several drugs have been rejected so many drug discovery companies are finding it very hard going. He says there is currently a massive backlog of applications for approval and, while there is a genuine concern for safety, this is not helping the drug companies.
Andrew Clark, portfolio manager of Finsbury Life Sciences Investment trust, says that with no FDA commissioner currently in place the feeling within the industry is that the organisation has become much more risk adverse, and sentiment across the whole life-sciences sector has been affected as a result.
Wintle says that on the back of this, however, orthopaedic companies, which do not need to obtain FDA approval before their products go onto the market, have been doing well. Stryker, which makes hips and knees is up 11% year to 16 July and Biomet is up 13%.
Crofts says the quality he looks for in companies is clear visibility in earnings. Two examples of companies he likes are Baxter and Abbot Labs. Baxter specialises in Factor 8, a blood clotting agent, it has a large global market share and stable visible earnings.
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