How to Invest in Medical Devices

What is the Medical Device Industry?

Investing in the medical device industry sets investors at the forefront of a transformative time in the global fight against cancer and other diseases. At first glance, this industry may seem intimidating; after all, even medical experts can’t always predict which medical innovation will make its way to market after lengthy clinical trials and regulatory approvals. However, mutual funds and ETFs that focus on the medical device sector give investors a less risky way to put their money to work for better healthcare for all (1).

From personal protective equipment to ventilators, the COVID-19 pandemic highlighted the critical role medical devices play in global health. The array of medical devices runs the gamut from simple tongue depressors to sophisticated brain sensors and next-gen bio materials, not to mention health monitors, disposable latex gloves, and 3D prosthetics. Essentially, if the instrument, implant, tool, or machine uses physical, structural, or mechanical means to diagnose, prevent, alleviate, treat, or cure an illness or disease—check the box: it’s a medical device.

What makes the medical device industry so challenging—and rewarding?

A lengthy R&D process. Companies that create new medical devices undergo a lengthy R&D process. Apart from developing the device, the company has to work out how to produce the device efficiently and jump through the hoops of regulatory approvals. A company may not be profitable for years, but in the end, the lifesaving product they create may make it worth an investment.
Vulnerable to trial and approval results. Positive—or negative—results from a trial or regulatory body can impact share prices (and a shareholder’s portfolio, unless they have managed risk through diversifying).
Patent opportunities. Once a company patents its medical device, the company can make deals to license it and grow its reach, which of course benefits shareholders as well.
Relatively short product lifespan. Many medical devices have a relatively short lifespan, because they’re often replaced by a newer version every 18 to 24 months (2). This shortens their payback period, potentially affecting profitability.
Vulnerable to supply chain issues. While the COVID-19 pandemic spurred a surge in demand for medical devices, it also exacerbated the factors that caused shortages of this equipment around the globe.

What’s driving growth in the medical device industry?

After taking a hit during the pandemic, in 2021, the medical devices market was valued at $492 billion, and is predicted to grow to nearly $965 billion by 2030 (3). In part, this growth is driven by the increasing sophistication of technology. Medical devices are becoming smaller and smarter than ever, performing increasingly complex and constantly improving functions. Moreover, escalating healthcare costs, a rise in chronic diseases, and a growing aging population are all pushing demand for new products and services.

North America holds the largest market share, partly due to the prevalence of chronic diseases such as cancer and Alzheimer’s while the Asia-Pacific region is the fast-growing segment of the market, thanks to improvements to health care and government funding to support the burgeoning aging population (4). Globally, an increase in in-home care also has opened up opportunities for the medical device industry to supply wheelchairs, wearable and remote monitoring devices, and more to assist this population to get care at home with loved ones.

Compounding the rise in chronic diseases and the growing aging population are escalating healthcare costs, compelling health care providers to seek out new, more efficient care models. From 3D printing human tissues to monitoring patients according to their specific clinical needs after they leave the hospital, innovative medical devices are meeting that need.

You don't need to be an expert to invest.

Why Invest in Medical Devices?

For investors, the medical device industry holds the best of both worlds: innovative technologies like biotech are fueling market growth, while an aging global population supports long-term value.

There are several trends for investors to track and invest in, depending on their preference for risk and their individual financial plans.

Wearables. Wearables can offer real-time patient data to health care providers. And, when they connect with artificial intelligence-based programs, they not only collect information, but also analyze it against big data. Wearables can be used for everything from pre-surgical planning to gene sequencing, medical imaging, and senior care, making their health and investment opportunities plentiful.
Brain Sensors. New brain sensors have moved beyond implants. They are also placed in the brain to measure temperature and pressure. However, these sensors then dissolve—negating the need for surgery to remove them and limiting the risk of infection and complications associated with long-term implants. Other sensors are designed to track function as it relates to chronic diseases and early stage neurodegeneration. Still others are more consumer oriented, such as headsets that act as a brain fitness tool, measuring and tracking brain activity.
Artificial Organs. Artificial organs, whether printed or made otherwise, offer a lot of promise, providing millions waiting on donor organs an alternative. For example, a total artificial heart is meant to be a bridge until a biological donor becomes available.
3D Printing. Not only does 3D printing allow for the creation of more patient-specific devices, it permits more specific variation in medical tools. Rather than buying large quantities of a tool, providers can print them on demand. Similarly, prosthetics and orthopedic implants can be customized, improving outcomes for patients.
Bioprinting. Bioprinting uses carefully designed bio inks made of biomaterials and cells to 3D print living obstacles, such as tissue or organ. Scientists have gone as far as to develop a prototype of a handheld bioprinter designed specifically to help skin regenerate in areas affected by large wounds. Beyond skin, scientists have succeeded in bioprinting an artificial pancreas, a synthetic ear, a meniscus made in space, and even bone tissue. Researchers are even working on bio-printed ovaries for women suffering from infertility.
Artificial Intelligence. Especially for radiology, an area that has been digitized for some time, the algorithms of AI are already delivering better outcomes in detection and triage. AI applications are growing; the FDA authorized 91 AI or machine-learning-enabled medical devices just in 2022, including an atrial fibrillation feature for the Apple Watch (5).
Internet of Things. Bridging the challenges of collecting critical health data and accessing it quickly, monitors and sensors empower patients and doctors to keep track of glucose levels, heart rate, depression, and even hand hygiene.

How to Invest in Medical Devices

As with any emerging industry, investing in medical devices directly can be risky. However, a search on Magnifi indicates that there are a number of ETFs and mutual funds available to give investors broad exposure to this industry without concentrating their bets on any one company:

References:

Mutual Funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
“An overview of the medical device industry,” chapter 7 in Report to Congress: Medicare and the Health Care Delivery System, June 2017, MedPac.gov, link.
“Medical Devices Market: Information by Device Type (Drug Delivery Devices (Metered Dose Inhaler Devices, Infusion Systems, Others), Diagnostic Devices (Laboratory Based Diagnostic Devices (X-Ray, CT (Computed Tomography), PET (Positron Emission Tomography), Others), Wearable Diagnostic Devices (Vital Signs Monitors, Fetal and Obstetric Monitoring Devices, Others), Others), Invasive Devices (Implants and Stimulation Devices, Defibrillators, Pacemakers, Others), Respiratory Therapeutic Devices (Ventilators Oxygen Concentrators, Resuscitators,” October 2022, Market Research Future, link.
“Medical Devices Market,” October 2022.
Reuter, Elise, “5 takeaways from the FDA’s list of AI-enabled medical devices,” November 7, 2022, MedTechDive.com, link.