Dive Brief:
- A stable-to-improving environment characterized by falling inflation, low unemployment and the easing of hospital staffing pressures position medtech companies for a better year in 2024, BTIG analysts wrote in a note to investors.
- This year, “choppy supply-chain dynamics,” rising interest rates and fears about the impact of GLP-1 drugs dragged on the industry, causing stocks to underperform the S&P 500 despite companies benefiting from the conversion of procedure backlogs that built up during the pandemic.
- The BTIG analysts expect some of the factors that held medtech back this year to ease in 2024, and for Zimmer Biomet, Abbott Laboratories, Glaukos and iRhythm Technologies to be among the stocks that outperform.
Dive Insight:
Supply chain problems, hospital staffing shortages and other challenges that defined 2022 were largely resolved or minimized during 2023, the analysts said in a note to investors. Some companies have called out staffing as “a gating factor to growth” and “hospital executives have continued to point to shortages at various investor conferences,” the analysts wrote. Yet, the BTIG team believes the issue has “stabilized and dissipated to a large extent.”
While the challenges that defined 2022 eased in 2023, medtech companies still “had various fires to put out throughout the year.” The analysts named the March banking crisis, rising interest rates and growing mainstream awareness of GLP-1 drugs as challenges faced by the industry this year.
As 2024 approaches, the analysts foresee “improving supply chains, fewer inflationary headwinds and less pronounced pricing headwinds.” The trends inform an upbeat view of the industry’s prospects in the year ahead.
“We are optimistic that after a string of rough years for medtech, strong sector fundamentals like robust procedure volumes and capital equipment order backlogs, a sharpened focus on profitability, and continued topline growth, paired with reduced inflation and a better financing environment, can power medtech back to stock outperformance,” the analysts wrote.
The rise of GLP-1 receptor agonists is one trend that will continue into 2024; however, the analysts rebutted the concerns about their impact on various parts of the industry. The analysts see the drugs as complementary to continuous glucose monitors and questioned the view that they will be “a material headwind” to orthopedic companies such as Stryker, Zimmer and Johnson & Johnson.
“As patients elect to take a GLP-1 and lose weight this doesn’t equate to an equal removal of patients from the ‘funnel’ across all BMI classes as weight is shed,” the analysts wrote. “There are other reasons we think that the impact may prove less than feared, i.e. knee cartilage doesn’t regenerate and osteoarthritis is degenerative and far more directly related to age.”
