This quick update on my comments from last week on the way medtech stocks have been pummeled by the success of the miracle weight loss drugs. Since then, I continue to be fascinated by the trading in these stocks… This chart, of the SPDR S&P Health Care Equipment ETF (XHE)
With new anything optimism always way overshoots reality. I expect that to be true here, and I bet medtech is going to have lots of bargains. That said I hope it’s the miracle people think it is. The positive knock of effects for healthcare spending, and by extension federal budgets would be dramatic, but that is going to be a decades long project. A magic pill won’t fix the baked in effects of being overweight for 40 years.
I think we all hope it's the miracle it appears to be, Brett. That's why I wonder if it'll take at least a good generation for the positive impacts to ripple through the rest of healthcare, especially the med devices.
I sincerely hope too good to be true doesn’t turn out to be the end result. Magic pills don’t sound too different from magic beans and who can forget fen phen? Does the bit below seem familiar?
It’s in an article about fen phen titled
“The new miracle drug”
“Just three months after the introduction of Redux, doctors are writing 85,000 prescriptions a week. Says David Crossen, an analyst for Montgomery Securities in San Francisco: "What we have here is probably the fastest launch of any drug in the history of the pharmaceutical industry. Our projection is that this product will hit $1 billion in sales in five years."
Montgomery Securities - blast from the deep past! The thing with these drugs, is that earlier incarnations have been pretty well tested, so there is a history. But as with anything, there are always tradeoffs.
Great post Herb. I believe what we are seeing is a product of a typical hype cycle, which is creating the carnage is medtech, and also in other industries such as consumer staples where weight loss drugs claim to shift consumer spending/consumption patterns. I would be curious to hear what management of these medtech companies say in regards to their revenue outlook in earnings calls, and if it surprises on the upside, the carnage may very well be overdone and about to reverse, assuming we don't have a general valuation compression from other factors.
A lot of hype and destruction, but I expect it to get even bigger and more extreme. The drugs are approved for diabetes, just wait for them to be approved for weight loss (I know they are being used off label for weight loss).
Right. I think we are pretty early into the hype with a massive part of the general population not knowing these drugs even exist. I expect the reality will be much different than the hype leaving some great opportunities in the medtech space, but its a falling knife at the moment.
Right, ABT makes all sorts of various med devices. So the current downdraft in the stock is based on the angle that GLP-1 drugs will obviate the need of things like GCMs, stents, CRM and Heart Failure devices, etc.
Then I read other articles that claim GLP-1 use will actually increase the need for GCMs. All very interesting. I have a personal stake in this, which is why I have high interest in your article.
P.S. I've followed your work here and there since the dot.com days and on TheStreet.com. Absolutely glad to read your work, it taught me a lesson in 2000-01 and helped me be skeptical in following years.
Very interesting thesis.... I know overweight people are much more likely to have sleep apnea, but lots of other people have it too (and need cpap machines). And even if the overweight take the magic pill and lose lots of weight, will the sleep apnea go away? I don't know but I tend to doubt it. It's just weird how people think this magic pill will reduce by a lot the demand for all other things medical. You mention MRIs and other imaging equipment, there must be many others. (I think stay away from Philips until the lawsuits from the defective CPAP machines have run their course).
Yeah! One of my family members has sleep apnea and when I read about it I grilled her about what kinds of cpap machines she has used. I think she would notice if all kinds of crud collected in the tube and mouthpiece. The problems were pretty obvious.
With new anything optimism always way overshoots reality. I expect that to be true here, and I bet medtech is going to have lots of bargains. That said I hope it’s the miracle people think it is. The positive knock of effects for healthcare spending, and by extension federal budgets would be dramatic, but that is going to be a decades long project. A magic pill won’t fix the baked in effects of being overweight for 40 years.
I think we all hope it's the miracle it appears to be, Brett. That's why I wonder if it'll take at least a good generation for the positive impacts to ripple through the rest of healthcare, especially the med devices.
I sincerely hope too good to be true doesn’t turn out to be the end result. Magic pills don’t sound too different from magic beans and who can forget fen phen? Does the bit below seem familiar?
It’s in an article about fen phen titled
“The new miracle drug”
“Just three months after the introduction of Redux, doctors are writing 85,000 prescriptions a week. Says David Crossen, an analyst for Montgomery Securities in San Francisco: "What we have here is probably the fastest launch of any drug in the history of the pharmaceutical industry. Our projection is that this product will hit $1 billion in sales in five years."
https://content.time.com/time/magazine/article/0,9171,136544,00.html
Montgomery Securities - blast from the deep past! The thing with these drugs, is that earlier incarnations have been pretty well tested, so there is a history. But as with anything, there are always tradeoffs.
Great post Herb. I believe what we are seeing is a product of a typical hype cycle, which is creating the carnage is medtech, and also in other industries such as consumer staples where weight loss drugs claim to shift consumer spending/consumption patterns. I would be curious to hear what management of these medtech companies say in regards to their revenue outlook in earnings calls, and if it surprises on the upside, the carnage may very well be overdone and about to reverse, assuming we don't have a general valuation compression from other factors.
I suspect most will say it's premature to predict what the impact will be, some will say there will be no impact and some will be ostriches!
In the year 2525......
...if man is still alive!
A lot of hype and destruction, but I expect it to get even bigger and more extreme. The drugs are approved for diabetes, just wait for them to be approved for weight loss (I know they are being used off label for weight loss).
Lots of people who aren't obese will use them to squeeze into whatever it is that used to fit!
Right. I think we are pretty early into the hype with a massive part of the general population not knowing these drugs even exist. I expect the reality will be much different than the hype leaving some great opportunities in the medtech space, but its a falling knife at the moment.
Wouldn't ABT be in this space as well?
Not weight loss drugs, but diabetes and coronary - with its continuous glucose monitors and new heart valve technology.
Right, ABT makes all sorts of various med devices. So the current downdraft in the stock is based on the angle that GLP-1 drugs will obviate the need of things like GCMs, stents, CRM and Heart Failure devices, etc.
Then I read other articles that claim GLP-1 use will actually increase the need for GCMs. All very interesting. I have a personal stake in this, which is why I have high interest in your article.
P.S. I've followed your work here and there since the dot.com days and on TheStreet.com. Absolutely glad to read your work, it taught me a lesson in 2000-01 and helped me be skeptical in following years.
https://x.com/drronaldhoffman/status/1713700073115132031?s=61&t=PHw_uwJPgu_EiRms4Oe2Sw
Very interesting thesis.... I know overweight people are much more likely to have sleep apnea, but lots of other people have it too (and need cpap machines). And even if the overweight take the magic pill and lose lots of weight, will the sleep apnea go away? I don't know but I tend to doubt it. It's just weird how people think this magic pill will reduce by a lot the demand for all other things medical. You mention MRIs and other imaging equipment, there must be many others. (I think stay away from Philips until the lawsuits from the defective CPAP machines have run their course).
That Philips situation is insane.
Yeah! One of my family members has sleep apnea and when I read about it I grilled her about what kinds of cpap machines she has used. I think she would notice if all kinds of crud collected in the tube and mouthpiece. The problems were pretty obvious.