"Don't Let the Biotech Buzz Drown Out the Other Medical Revolution"
thestreet.com
By John Rubino
Special to TheStreet.com
2/2/01 12:03 PM ET
With all the buzz over biotech, it's easy to forget that there are two medical
revolutions taking place. And the other one -- in medical devices -- might
actually be more interesting.
I've been keeping a file on the subject, and it's full of amazing stuff. To take
just a couple of examples, the Food and Drug Administration recently
approved a bionic implant that the maker describes as "a treatment for
deafness." And a small private company just introduced a new endoscopic
spinal fusion procedure that cuts blood loss by 90% and recovery time from
months to days.
For a sense of how much money there is to be made as such things spread
through the global health care system, pull up the price chart of Medtronic
(MDT:NYSE - news), a well-run medical device maker. You'll see an arc that
reminds you of Cisco's (CSCO:Nasdaq - news), with one big difference:
There's no crash in late 2000. Why? Because while most areas of technology
rise and fall with the business cycle, med tech is in a secular, or long-term,
bull market, for a variety of reasons.
Crash-Resistant
Medtronic held steady last year
while the tech sector crashed
Source: BigCharts.com
The first, obviously, is that most people carry health insurance even through
economic downturns, so demand for treatment doesn't fluctuate the way it
does for, say, high-end servers.
And as baby boomers age, we're demanding treatment for all the ailments
that are suddenly, unreasonably, starting to appear. The world, meanwhile, is
getting richer. As China and India create middle classes numbering in the
hundreds of millions, they're increasingly able to pay for state-of-the-art health
care.
But be careful here. This field is crowded, and most of the coolest-sounding
devices will never make money. So look for either new products from
established businesses, or emerging companies with devices that have a
clear, decisive edge in today's (not tomorrow's) marketplace. For example:
MiniMed (MNMD:Nasdaq - news) makes external insulin pumps that allow
diabetes patients to dispense with syringes. A diabetic friend -- by necessity
an expert in the field -- says that until someone finds a way to grow him a new
pancreas, his MiniMed pump will never leave his side. Not surprisingly, he's a
heavy buyer of the stock.
MiniMed's earnings are growing by 40% a year, while its stock is down by
60% from its recent high. Looking further out, it recently began human trials of
an implantable glucose sensor, which, when connected to an implanted
insulin pump, might function as an artificial pancreas, effectively curing some
forms of diabetes.
Visible Genetics (VGIN:Nasdaq - news) has a blood analyzer that provides
accurate results in less than 15 minutes. It sells to both the veterinary and
medical markets, and should do well in emergency rooms and medical
centers. It's also awaiting FDA approval for a genetic testing kit for HIV, the
AIDS virus. The kit provides a genetic profile of the virus in a patient's body,
allowing the doctor to prescribe drugs tailored to that specific strain. It was
recently approved in France, and since the FDA usually fast-tracks AIDS
treatments, it should be on the market here within a few months.
Visible Genetics' sales are growing at about a 15% annual rate. It's debt-free,
with about $88 million of cash on hand, and its stock is down about 60% from
its 2000 high.
Photoelectron (PHX:Amex - news) has a device that generates X-rays from
the tip of a long, needlelike probe that can be inserted directly into a tumor.
The radiation is absorbed into the tissue immediately surrounding the probe,
minimizing risk to healthy body tissue. The company claims this is the only
system on the market capable of delivering radiation treatment directly to
cancer cells.
Photoelectron ran though a lot of cash while developing its technology, and its
balance sheet shows it. But orders are coming in, and, assuming the device
works as advertised, the financial corner could be turned in the next couple of
quarters.
Candela (CLZR:Nasdaq - news) just introduced a cosmetic laser with a
wavelength that penetrates the first few layers of skin to stimulate collagen
production, filling in wrinkles and making skin look younger. The result: a
face-lift on your lunch break.
Because this is a cosmetic procedure, it's not covered by insurance. So with
this one, you have to take the economy into account. If you think the Fed's
rate cutting will reignite growth and give people the cash to pay for better
looks, then it's a good short-term bet. Longer term, it's a good demographic
play on aging-boomer vanity.
This barely scratches the surface, but it does give a sense of how fast things
are moving in this market. For more, check out Medical Device Link, an
industry portal that culls breaking news from various trade journals and
company press releases. If you're really serious, try MedBroadcasting, which
records presentations at medical conferences and makes the video available,
giving the rest of us a chance to see cutting-edge research being presented
before it filters through to stock prices. |
