Mad Hedge Biotech and Healthcare Letter
November 12, 2024
Fiat Lux
Featured Trade:
(BONE OF CONTENTION)
(AMGN), (NVO), (LLY), (PFE), (VKTX), (GPCR), (AZN)
Posts
Mad Hedge Biotech and Healthcare Letter
November 12, 2024
Fiat Lux
Featured Trade:
(MEDTECH’S TRUMP CARD)
(RMD), (STE), (TNDM), (JNJ), (BDX), (MDT), (BSX), (SYK), (ZBH)
After seeing Trump sweep back into office, my phone's been ringing off the hook with one question: "What happens to my portfolio now?"
Look, I've been around this circus since covering Reagan in the White House press corps, and I can tell you that market hysteria rarely matches reality.
But this time, we need to pay attention - especially in the $567 billion medtech industry that's about to face some serious disruption.
What's different now? Trump's not just talking about those 10% to 20% blanket tariffs anymore - he's dead serious about slapping a potential 60% tariff on Chinese imports.
And after spending years watching supply chains twist themselves into pretzels during COVID, this is going to hit different.
To understand just how big this could be, let's look at what's really at stake here.
In vitro diagnostics makes up 18% of the medtech industry, and cardiology devices are sitting at $75 billion in 2024, expected to hit $95 billion by 2028.
Those aren't just numbers on a page - they represent real money that could take a serious hit. If these tariffs go through, we're looking at a 3.2% hit to S&P 500 earnings per share in 2025.
And it gets worse - add another 1.5% drop if our trading partners decide to play hardball with retaliatory tariffs.
Given all this, where should you put your money? The answer lies in looking at who's already ahead of the curve.
Well, established players like Johnson & Johnson (JNJ) and Becton Dickinson and Co. (BDX) are looking increasingly shrewd with their local-for-local manufacturing strategy.
They might not give you the same adrenaline rush as scaling Mount Everest, but they're solid holds in this environment.
But they’re not the only companies securing their positions. ResMed (RMD), for instance, just posted third-quarter sales up 11% to $1.22 billion, with adjusted earnings jumping 34% to $2.20 per share.
That's not just good numbers - that's a company that knows how to execute regardless of who's in the White House.
In the same vein, Steris deserves attention. Their "front-shoring" strategy in Malaysia isn't just smart - it's prescient. After years of covering Asia for The Economist, I can spot smart positioning when I see it.
Now, let's talk about some of the bigger players in the room. Medtronic (MDT), our industry giant, is giving me pause.
Sure, they're a global leader, but their heavy reliance on Chinese manufacturing and components is about to become a serious headache under these new tariffs.
Same story with Boston Scientific (BSX) - they've got manufacturing facilities in China that could turn from assets to liabilities pretty quickly.
Stryker (SYK) and Zimmer Biomet (ZBH) are in the same boat, but with a twist. Both companies have been smart enough to spread their supply chains globally, but they're still catching enough Chinese exposure to make me nervous.
When those tariffs hit their component costs, watch their margins. This isn't just about bottom lines - it's about how much wiggle room these companies have to absorb higher costs without passing them on to hospitals and patients.
On the flip side, I'm watching companies like Tandem Diabetes Care (TNDM) with growing concern.
Their heavy Asian supply chain exposure under Trump's trade policies is going to be about as comfortable as my MIG-25 flight at 90,000 feet - and trust me, that wasn't comfortable at all.
But, what’s really telling is where the smart money is flowing.
Keep your eyes on three key trends that are reshaping the industry: supply chain resilience, M&A activity (now up 18% to $57.7 billion), and digital transformation.
About 30% of medtech companies are getting serious about digitizing their operations - and they're the ones to watch.
So, here's my bottom line: Trump's return is going to shake up medtech, but not every tremor is an earthquake.
The winners in this new landscape will be companies that have already diversified their manufacturing outside China, built up strong balance sheets to absorb these tariff impacts, and proven they can adapt - like ResMed and Steris have shown us.
The real champions will be those making serious investments in digital transformation. These are the companies that won't just survive Trump's trade policies - they'll thrive under them.
And if you're still holding onto companies with heavy Chinese exposure?
Well, let's just say it might be time to look for higher ground - and I'm speaking as someone who's made that call at both 20,000 feet on Everest and during the 2008 crash.
The medtech industry isn't going anywhere - people will always need medical devices. But which companies thrive under Trump's second term? That's going to depend on who's prepared for the storm and who's still standing in the open.
Now, if you'll excuse me, I've got some vintage wine to open. Making sense of these markets is thirsty work.
Mad Hedge Biotech and Healthcare Letter
March 1, 2022
Fiat Lux
Featured Trade:
(THE FUTURE OF SURGERY)
(ISRG), (MDT), (SYK), (ZBH), (JNJ)
The healthcare sector is one of the biggest and most intricate industries in the stock market.
It’s a multi-trillion dollar area that offers investors with virtually unlimited opportunities to build a life of financial freedom via sound long-term investing.
This industry has several quality stocks—businesses that offer to cure diseases, develop revolutionary medical devices and treatments, or even just to offer personal care items you purchase from drugstores.
One of the most lucrative sectors of the field is surgery.
Surgery dates back centuries and is one of the oldest practices in the field of healthcare and medicine. Thankfully, its technology has evolved since then.
The surgical robotics market is projected to expand exponentially, and ISRG is in a prime spot to reap the rewards from this impending growth.
So far, approximately 15% of surgeries are already conducted via robots, showing a massive room for expansion as the technology gains traction among the medical experts and patients.
Robotic assistants are gradually entering the mainstream market, opening another revenue stream. Overall, the anticipated market for this field is calculated to rise at a range somewhere from 9.5% to 19.3% from 2022 to 2032.
The growth won’t likely stop there considering the myriad of benefits that robotically assisted surgeries offer compared to traditional surgeries, such as shorter recovery periods and alleviated discomfort among patients.
These advantages make these systems attractive to healthcare providers, especially considering the way the technology optimizes the recovery process of their patients and delivers more precise and safe surgical results.
Today, one of the emerging leaders in this sector of the healthcare community is Intuitive Surgical (ISRG).
Basically, ISRG is a company that focuses on medical devices, specifically on minimally invasive robotic systems that perform surgeries. Its flagship platform is called the “Da Vinci” system.
To date, it has installed roughly 6,700, with revenue climbing by 12% annually over the past decade.
Since the launch of the da Vinci platform, ISRG has expanded at quite a rapid pace. Its revenue climbed from $1.8 billion in 2011 to $5.7 billion in 2021.
In terms of expanding its services, ISRG recently announced a new platform called Ion. This is a lung biopsy robot, which is projected to become yet another remarkable revenue stream for the company.
The more da Vinci units ISRG ships out, the stronger its competitive edge becomes.
Aside from raking in profits from their surgical robotic units, which typically cost roughly $500,000 to $2.5 million depending on the complexity of the machine, the da Vinci units require a considerable time investment to master its operation.
This leads to high switching expenses, which all but guarantees retained and returning clients for ISRG’s business.
To put this into context, system revenue for ISRG was recorded at $1.7 billion in 2021. This indicates that about 70% of its $5.7 billion total revenue came from recurring products and services.
Thus far, ISRG has been the dominant leader in this cutting-edge space in healthcare and has shown incredible growth since its IPO. More importantly, the company has an impressive cash flow and cash balance.
Moreover, ISRG is an industry leader. As with every company in this position, ISRG has captured the lion’s share of the market.
At this point, the company currently controls 80% of the market and is expected to increase this dominance as it continues to make headway.
Considering the massive potential of this market, it comes as no surprise that more and more companies are working to topple ISRG.
Other companies have already started introducing their own specialized robots.
Medtronic (MDT) launched a spine and brain robot, Stryker (SYK) created one for knee and hip replacement, and Zimmer Biomet (ZBH) introduced a competitor in the spine and knee procedures space. Even Johnson & Johnson (JNJ) entered the fray with its lung biopsy robot.
Overall, ISRG is a brilliant company.
It possesses technological superiority over its rivals and a virtual monopoly of a rapidly growing market. These factors make ISRG an excellent long-term healthcare stock to buy and forget.
