The MedTech Group: 2017 Top Picks And Catalysts

Over the past year, the gap between MedTech stocks and the S&P index has narrowed significantly, and these are currently trading near parity as compared to the ~12 percent premium at which MedTech names traded a year earlier, BTIG’s Sean Lavin said in a report.

MedTech stocks have been impacted by more disappointing Q3 results and “potentially the beginning of normalizing volumes,” and investors seem to have markedly exited bellwether names in this segment, Lavin mentioned.

Looking Ahead

At least the first half of 2017 would be tough for MedTech companies, Lavin stated. There are uncertainties related to the new administration taking over. Multiple interest hikes could result in funds flowing into bonds.

“Within healthcare specifically, easing scrutiny on drug prices could drive greater interest into drug channel stocks and away from MedTech, especially given the current valuation difference,” the analyst wrote. He added that there could be further volatility driven by the debate on the repeal of the Affordable Care Act ("ObamaCare") and what will replace it.

Top Picks For 2017

Lavin mentioned three top picks for 2017. He explained, “While we are generally nervous about med tech and especially large cap med tech for the reasons we list above, we think these stocks have a strong chance of succeeding in 2017. They come from our small/mid cap coverage and are generally names that have pulled back recently or at least not seen a large recent run.”

ABIOMED, Inc. ABMD: Buy, $170

In 2017, Abiomed would likely be in an “enviable position of experiencing continuing momentum within its existing markets, having no real direct competition, penetration into a new market (Japan), and benefiting from more favorable reimbursement,” the analyst commented.

Catalysts include:

• Clarity around Impella rollout and reimbursement in Japan.
• Update on trial design and enrollment for STEMI study.
• Presentations at TCT Conference.

Entellus Medical Inc ENTL: Buy, $25

While the company would likely continue to exhibit strong execution in 2017, reimbursement changes “may well accelerate this growth,” Lavin said.

Catalysts include:

• Revised 2017 revenue and expense guidance, AFX CE Mark ruling, AFX2 manufacturing fix in the United States, AFX2 launch in Japan.
• Ovation Alto launch in Europe 2H17 - Nellix ChEVAS in Europe launch.
• Submit two-year Nellix data to the FDA, confirmation of panel on Nellix and timing.
• ChEVAS IDE
• Expected FDA panel on Nellix.

Tactile Systems Technology Inc TCMD: Buy, $26

Tactile Systems Technology has generated meaningful revenue growth of ~35 percent year-to-date. The stock is “a relatively inexpensive and straightforward growth stock,” the analyst noted.

Catalysts include:

• Formal full-year guidance on the year-end 2016 call.
• Flexitouch patent expiration.
• Sales force expansion, sustainability of revenue growth rate.

Other Companies With Meaningful Catalysts

Boston Scientific Corporation BSX: Rated Neutral

• Initial 2017 guidance.
• Update on resumption of Lotus Edge shipments in the EU.
• ASAP trial enrollment to commence for patients contra-indicated to warfarin (WATCHMAN).
• NANS Meeting (post-market data on Precision Spectra.)
• Launch of Lotus 21Fr valve in EU.
• Presentation of U.S. data on Lotus Edge (REPRISE III) at EuroPCR.
• Analyst Day H1.
• Initiation of RESPOND IV (Lotus Edge vs. SAPIEN 3) intermediate-risk trial.
• Initiation of RESPOND V (Lotus Edge vs. surgery) low-risk trial Mid-2017.
• Launch of 29Fr valve in EU.
• MRI-safe ICD approval in United States.
• Expected U.S. launch of Lotus Edge.
• Lotus France reimbursement.

EXACT Sciences Corporation EXAS: Buy, $22

• Commercial payor ramp.
• Initial read-out on lung and pancreatic cancer data.

Insulet Corporation PODD: Buy, $42

• Dash platform 510K submission.
• Medtronic launch of 670G system.
• Dash platform launch, completion of enrollment for U-500 clinical trial with Eli Lilly and Co LLY
• Horizon AP program IDE clinical trials enrollment and pre-pivotal trials, sustainability of margin improvements through ocean freight.

Intuitive Surgical, Inc. ISRG: Neutral

• Q4 2016 earnings and 2017 guidance.
• Clinical studies could include potential data on single site nephrectomy, trans-oral robotic surgery of the pituitary gland, time efficiency studies in a variety of applications and other key areas.
• Management has not determined a launch date for SP. Product iterations could to be announced as they come.
• Any updates from potential competitors.

Medtronic PLC MDT: Neutral

• Launch of AZURE wireless pacer in the EU.
• Launch of Stealth Midas for spine H2 in the United States.
• U.S. reimbursement of Micra (leadless pacer).
• Launch of CoreValve Evolut R XL (34mm) in the EU.
• Two-year data on SURTAVI trial for intermediate risk.
• Launch of MiniMed 670G in the United States.
• Launch of CoreValve Pro (external skirt) in the EU and the United States.
• EU launch of Endurant with Aptus EndoAnchor (short neck) in the EU.
• Launch of Resolute Onyx DES in the United States.
• U.S. feasibility study enrollment ongoing for Intrepid mitral valve.

Organovo Holdings Inc ONVO: Buy, $5

• Additional signed contracts for preclinical testing, additional plans for therapeutic use of tissues.