Med-Tech: Disruptive Technologies Or Simple Illusion?

2016-03-31

Med-tech, often referred to as medical technology, is increasing throughout the marketplace. Investors need to be aware of all of these technologies and determine whether they are worthy of being invested in.

Today, this sector is large enough to offer investors the possibility of investing in single stocks, single bonds, mutual funds, dedicated structured products, or in non-listed Private Equity vehicles. Investors can select mega-cap names (for example Medtronic, 110 billion USD market cap) and some smaller listed companies (for example Cerus Corp, 570 million USD market cap).

Some people view the advancements in the MedTech industry to be disruptive technologies and others say that it is a simple illusion.

Many people view MedTech as disruptive technologies for an array of reasons. The technology promises to bring in new devices that can help deliver medicines, improve diagnostics, provide new insight to genetics, and enter into various other fields of medicine. Some of the new medical technologies can cause a rethinking of the hospital's protocols; hence, facing human or financial obstacles.

In other occasions, it is shot down by pharmaceutical companies (and lobbying position), because they feel that it threatens their position and their ability to continue making money; until they recognize the benefit of this technology and simply acquire the innovating company.

Sometimes, the disruptive technology focuses on very small targets. In this case, the approval and adoption is difficult, because the deciders may not foresee the long term benefits. This would be the case if a new software has to be adopted to facilitate the workflow; the fact that it may require important training sessions may cause human refractions.

Prices can be sometimes expensive and cause a shift in the overall operating cost of a hospital.

In this case, people will prefer waiting until this technology is tested and approved by other players in the industry and that the price becomes more affordable.

In other cases, hospitals and medical centers may have already invested in R&D for a technology that looks similar to the one that has been introduced. In this case, doctors and researchers may not accept stopping what they are doing and pass by these new (performing) technologies.

The definition of a disruptive medical technology is reached when it can help to tackle the various health problems, accelerate the diagnostic, intervention or recovery's protocol and be priced below market value. Therefore, it will allow for users who wouldn't ordinarily be able to afford the medical advancements to suddenly do so.

Immunology, for example, focuses on the immune systems. There are now tests and devices that can help doctors to learn more about the immune system and work to improve the immune system of patients. Should this be done, it can help the body to fight a significant amount of bacteria and viruses it comes into contact with throughout the year – and this can ultimately lead to improved patient care.

In Cardiology, companies are introducing new valve devices. Some of them, for example, focus on the aortic valve replacement. They are called "smart replacement valves that are minimally invasive to the patient's heart. Such solution removes the need for high-risk open-heart surgery and for the need of a pacemaker post procedure.

We could least at least ten examples in the different healthcare segments.

Many of the devices and diagnostic technologies are affordable, can provide an improvement to patient care, and can be introduced into a hospital or organization with ease. Many gain FDA approval quickly and insurance companies will pay for the procedures using the technology because it will save much of their future coverage costs.

The reality is that MedTech is one of the fastest growing industries and a lot of people are choosing to invest. While some of the new projects are disruptive technologies, others are truly innovative and can make a difference.

What was seen as "disruptive" in other industries have now been seen as absolutely necessary. The automobile industry is one of them. While those who were selling carriages didn't want to consider the possibility of the car, now many of us couldn't dream of being without a car – and one day we may be saying the same thing about some of the other technology.

There is the need to improve patient care and reduce medical costs. The ideas are complementary to each other, but not mutually exclusive. The key to bringing them together is through medical innovations of one sort or another.

Mirko Visco, Chief Investment Officer

March 2016