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Long-term MedTech investors are clear in their expectations. They don’t just want the companies they invest in to remain in business. They understand how all sorts of factors, from inherent to environmental, all influence potential market winners and losers.
Such investors only see a narrow timeframe to create a strategy that can provide huge, long-term success. However, it’s possible that such strategic bets could carry a lot of risks, making it even more important that they choose the right ones. We examined this recent Orthogonal article which goes deeper on Medtech investor expectations in the current economic climate.
The saying goes that you should never let a crisis go to waste. There has never been a time more relevant than today where this stands true.
Of course, investment managers aren’t the only people looking at the MedTech industry. That said, they deserve attention for two reasons: they have a lot of influence in the market and they have achieved that influence through having the right insights as to where industry trends maneuver.
Ever since the economic crisis came to fruition, BCG conducted the COVID-19 Investor Pulse Check Series surveys. These surveys were designed to monitor the opinions of MedTech investment managers who, as a collective, are responsible for more than $4 trillion in assets.
The data collected from these surveys certainly provide an interesting read.
Most of the participants see 2020 as a complete write-off in terms of the economy. They do not expect to generate large returns on investment throughout the rest of the year and understand some firms may struggle to accurately forecast results for the coming quarters.
With expectations so low, investment managers are only interested in seeing companies do the following to ensure success, including for the remainder of 2020 and into 2021 and beyond:
MedTech investors expect companies to raise a lot of cash for a massive war chest in order to play the long game. These firms can then leverage their cash as a way to have more freedom over their strategic and proactive decisions.
This goes beyond managing company expenses and such. Firms can use their financial instruments to raise funds, such as by offering new shares or issuing new debt.
MedTech investors see high liquidity as very valuable amid the current crisis – so much so that it’s one of their top priorities.
Once they’ve built the war chest, investors expect companies to use it to strategically move into a position for long-term, consistent success. This is opposed to using funds to just try and stay in business or prioritizing such-term profits over long-term goals.
In the words of BCG, “Investors want financially healthy companies to invest to create an advantage.”
In other words, don’t get too worked up about solutions that are no longer relevant to customers.
Now, two questions asked in the aforementioned survey highlighted the possibility of tension arising in such firms; decision-makers must decide between keeping a reserve in case of even harder times or using the funds to make strategic bets that place them in a better long-term position.
MedTech investors believe that building opportunities is vital for many aspects of being a successful business, including driving future growth and being able to bounce back in a downturn, even if that requires delivering below key estimates.
Investors have the mindset that healthy companies must focus even more on preserving their liquidity, even if it means they are unable to invest and increase their advantage in the market.
Therefore, MecTech leaders and other industry influencers must be strategic in their approach. There are many unknown factors that will impact the decision-making process. Further, such key decisions must balance the impacts on short, medium, and long-term goals.
With focus shifting from the overall financial market to specifically the MedTech industry, the story has remained daily consistent. However, certain nuances show how MedTech firms are feeling the effects of the economic downturn and how they must be positioning themselves in 2020 and into the years beyond.
Orthogonal found what they describe as “the most concise and timely analyses” about MedTech capital markets from JMP Group.
The insights discovered were as follows:
The healthcare sector has always been seen as “recession-proof”. Further, the driving factor behind the economic downturn can be stopped by solutions generated by these same industries ie healthcare and life sciences.
It doesn’t come as a surprise to see that, after the initial panic, both MedTech and biotech stock prices are doing very well when compared to the market as a whole. In fact, some stocks in these two sectors are competing well against their performance before the crisis.
In terms of a larger market trend, larger MedTech firms are receiving more attention from investors than smaller businesses. This is most likely because investors believe that nigger, more established organizations are more able to deal with shocks to the system and still be able to position themselves well in the market regardless.
MedTech firms can benefit from a great deal of available cash. Investors are interested in ensuring enough capital for their existing portfolio. There has also been a strong market in new MedTech stocks and convertible securities.
While the crisis only really came into full force in March earlier this year, Q1 provided some intuitive results for MedTech firms. For example, the sale of products like orthopedic implants, and even things like basic supplies, have all seemed to have declined.
The same goes for supplies that relate to regular visits to the office, preventative care, and diagnostics.
On the other hand, sales in ICU care, PPE, infectious disease diagnostics, and equipment related to dealing with respiratory conditions have all increased.
Due to clinical trials being put on hold, there is expected to be a delay in new product revenues. Firms waiting for FDA approval are also only going to wait longer as FDA staff are switching their attention to deal with the current crisis.