Stocks in medical device companies have done well this year, besting both the overall market and general health indexes. The iShares Medical Devices ETF is up 32.8% in 2019, versus the broad-market S&P 500’s 29.3% advance and the Health Care Select SPDR’s 16.4% increase. Overall health stocks have had a relatively bumpy ride due to Democratic pols’ talk of Medicare for all and Washington plans to rein in medical costs.
Why the disparity between medical devices and the rest of the health sector? Most of the controversy has been directed at issues unrelated to the hardware that ranges from artificial joints to surgical saws to heart monitors. Further, given the aging of the population, with 10,000 baby boomers turning 65 every day, the need for more medical equipment will obviously keep climbing.
For investors, the trouble is that buying device shares can be expensive. Take Intuitive Surgical, the kingpin of robotic surgery gear: Its stock is up 25.3% year-to-date, and sports a weighty 54.3 price/earnings ratio.
But how can you get aboard the medical device trend without paying top dollar? The answer is to look for the value plays. You have plenty of choices: There are 71 device stocks that are publicly listed on Nasdaq (a handful of the larger ones are on the New York Stock Exchange). That’s a fraction of the 5,500 U.S. medical devices companies, most of them small and unprofitable; these can be invested in via venture capital funds.
Among the publicly traded firms, the key is to find an outfit that, while usually not profitable, has a very promising niche and good science behind it. One such choice is Sensus Healthcare, producer of a non-invasive, radiation-based method of eradicating common skin cancers, which are an increasingly common blight. Skin cancer has traditionally been treated with surgery.
And skin cancer treatment is a burgeoning business, the unfortunate product of many people’s zest for tanning. Time was when sitting in the sun was thought to be good for you. Not only did you gain “a healthy tan,” but sunshine-stimulating vitamin D was thought to be an overall health tonic. Back in the 1970s and 1980s, solar radiation was popularly known as the “beneficial rays.” That was before today’s explosion in skin cancer.
The deadliest skin malignancy is melanoma, with just a 19% survival rate for the worst cases. Less-serious and four times as prevalent are the non-melanoma variety (six million new cases projected to be diagnosed by 2020). Most of the time these aren’t fatal, although they can develop into a very serious problem if not removed.
For decades, the standard treatment for basal cell carcinomas and the other non-melanoma afflictions has been Mohs surgery, named after the surgeon who developed it in 1938, Frederic Mohs. With the Mohs method, a surgeon removes a layer of skin and it’s examined for cancer cells. The layer extraction continues until the cancer indications are gone.
The problem is that the resulting cavity often takes weeks to heal, is unsightly with lots of bleeding and stitching, and may require plastic surgery. Since most outbreaks occur on unclothed parts of the body, like the head, surgical scarring is often noticeable. Think about a large, permanent wound on your nose.
The chief alternative to Mohs is superficial radiation therapy (SRT), which beams low-dose radiation that penetrates five millimeters beneath your skin and targets the cancer cells, not the good ones. Three visits weekly for three weeks, in general, completes the SRT treatment, which lasts just 40 seconds per session. It is painless and leaves little trace, other than perhaps a slight reddening of the skin.
SRT has been around, in some form, for a century, and only now with better technology is it gaining ground. Some dermatologists believe Mohs is more effective, although a recent study found that Sensus’ products have a 98.9% cure rate. The cost of Sensus’ therapies to the healthcare system is comparable or less than Mohs. “Medicare is always looking for ways to save money,” notes Joseph Sardano, Sensus’ CEO.
The leader in the SRT field—and the most accessible to U.S. investors—is Sensus, founded in 2008. The firm has been publicly traded since 2016 on Nasdaq. The other three major makers of SRT devices aren’t skin-cancer pure plays and only one is publicly traded, Sweden’s Elektra, on the Stockholm exchange.
Sensus is not profitable, but it carries no long-term debt and its revenue trajectory, aside from a few wobbles, is rising. While its market penetration is small, at 2% of skin physicians, the revenue growth argues that it is making headway, with lots of sales prospects available. In addition to skin cancer, Sensus’ machines are great at eradicating keloids, benign tumors that blight people’s faces, often found among African-Americans.
At $3.38 per share, the stock is cheap at half its initial public offering value, which is typical for money-losing biotechs. The smart money has faith in Sensus, though. The company’s institutional shareholders include some of the behemoths of value investing, such as Vanguard Group and Dimensional Fund Advisors.
That all spells decent odds for a good future with Sensus stock. While the culture of sun worship is in decline, beaches are hardly empty in the summer, which means the skin cancer problem will persist. ”People sit in the sun and sizzle,” CEO Sardano says. It’s good to know that upcoming victims have better and better treatments from the wizards at Sensus. Chances are the market eventually will notice.
"Skin" - Google News
December 29, 2019 at 10:13PM
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Doing Good And Doing Well: How Curing Skin Cancer Is A Value Play - Forbes
"Skin" - Google News
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