The medical devices industry, which was once acclaimed for its high-paying jobs and research and development opportunities, has been subject to the much controversial 2.3% medical device excise tax. The MedTech fraternity is leaving no stone unturned to permanently do away with the dreadful tax — but has not been able to.

Interestingly, the year 2017 has been quite an eventful one, courtesy of a series of socio-political occurrences that favored the space. The year witnessed the much talked-about election wherein Donald Trump took over the nation’s charge as President. Not only were the new administration’s health schemes thoroughly criticized but the reforms that were brought in taxation schemes became a much talked-about subject. Needless to say, these developments kept investors on their toes.

Standing at the threshold of 2018 it is imperative for the investors thus to find the means which can dilute the macroeconomic woes and help them gain more. But before guiding you to make prudent investments for the year let’s take a look at the various developments that have taken place within the space and see what awaits the investors in the coming year.

Health Policy Qualms to Continue in 2018:It has already been a year since trump became the President.However, his policies continue to be the most debated issue in the space. The new administration’s Obamacare ‘repeal & replacement’ effort through Congress and the latest ‘Executive Order’, which apparently has been designed to provide quality healthcare to the nation at affordable rate, has already posed a serious threat to the healthcare community.

Per critics, this order, forsaking the consideration of pre-existing health conditions has been designed to push people into “junk” insurance plans. The American Hospital Association has put forward an extremely bearish view on the executive order related to promote health care choice and competition. The association apprehends that the executive order will solely allow health insurance plans that cover fewer benefits and give lesser consumer protections.

Tax-Reform May Hit Hard in 2018: According a report by Business Insider, the Republican tax plan repeals an itemized deduction that applies to healthcare expenses. If the new bill gets implemented, families with high healthcare expenditure will be impacted as these expenses will no longer be deducted from their taxes. Hence, people will no longer be interested in expensive healthcare or MedTech procedures.  

A report by The Hill says that the Section 4303 of the Republican tax bill plan imposes a 20% excise tax on goods manufactured overseas by subsidiaries of U.S. companies. Under the U.S. tax code, Puerto Rico is considered a foreign land which implies that U.S. parent companies will have to pay excise taxes if they purchase from their subsidiaries in the island. In this regard, the FDA recently found that around 30% of Puerto Rico’s gross domestic product was driven by pharmaceuticals and medical devices in 2016. Undoubtedly, the latest tax plan has created an uproar among MedTech players who might witness a huge reduction in their turnover with the approval of the bill.

Medical Device Tax Returns in 2018: The medical community was extremely hopeful about Trump’s regulatory agenda as it promised to abolish the infamous 2.3% medical device tax that was first was included in the 2010 health care reform law.

The dreaded tax, imposed on the selling price instead of net profit and amounting to a stupendous sum, wiped out almost a quarter of the profit of medical technology companies. Realizing this, the U.S. House and Senate temporarily suspended it for two years at the beginning of 2015.

Going by the available data, it is quite evident that this partial two-year repeal of the medical device tax has benefited the sector’s development. Per data provided by the medical device trade group (in a Ken Blackwell article published by The Daily Caller), within this period, there was roughly an 83% rise in research and development (R&D) investments by MedTech players.

The Republicans however have tightlipped on this tax raising the probability of its return in 2018. Undoubtedly, its comeback will be an additional burden for the MedTech fraternity, largely discouraging R&D activities. Per an article by Matt Murphy in wbur, sectors which are going to be hampered most by reimposition of this levy are X-ray and MRI machines, surgical instruments and pacemakers.

Use of ‘PRO’ Concept May Delay Regulatory Process in 2018: The Center for Devices and Radiological Health’s (CDRH) strategic priorities have been recently published where it has elaborately discussed the Value and Use of Patient Reported Outcomes (PROs) in Assessing Effects of Medical Devices. According to a Medcitynews article by John Speer, CDRH, the umbrella organization at the FDA, talked about a plan that would entitle patients to have access to high-quality, safe and effective medical devices. PRO basically means a patient’s assessment of their own health status or quality of life.

This is especially impactful because the majority of medical devices in the United States are cleared by FDA via the 510(k) premarket submission where patients have no voice as such. With the new PRO concept, this is no longer going to be valid. Per the report, “given the expected behavior of the FDA by industry, it might increase the time taken to get through the regulatory process and increase costs to produce Class II devices.” This is because, now they will have to conduct some sort of PRO study if this becomes a requirement. Also they will need additional funding to support the study activities.

FDA User Fee Increase, May Pose a Threat: Per an Emergo Group report, the FDA’s 2018 user fees, established by the Medical Device User Fee Amendments of 2017 (MDUFA IV), will increase for all registration-related categories, including a sizeable fee increase for 510(k) premarket notification submissions by larger companies. In addition, FDA Establishment Registration fees will jump 37% to $4,642 for the 2018 fiscal from $3,382 in 2017. This implementation may pose a huge burden for the digital health industry and small companies in the medical device space.

4 Stocks to Brave the Threats

In such a tumultuous scenario, to save investors from the time-taking process of identifying the powerful MedTech stocks who may brave the industry threats in 2018, we have taken the help of the Zacks Stock Screener.

Here we have highlighted four MedTech stocks with market cap of $500 million or more with a  Zacks Rank #1 (Strong Buy) or 2 (Buy) and positive estimate revision trend of more than 5% for fiscal 2018. Based on strong fundamentals and positive vital metrics, these stocks have ample credential to return more to shareholders amid eco-political threats.(Looking for the Best Stocks for 2018? 

Bio-Rad Laboratories, Inc. (BIO - Free Report) : Over the years, this $7300 billion market-cap stock has successfully demonstrated solid top-line growth driven by strong sales of Droplet Digital PCR instruments and consumables, cell biology and food safety products in the life science group. Additionally, the company has a strong cash balance that enables it to carry out share repurchases and provide solid returns to investors. The expansion in gross and operating margin also buoys optimism. The company is also constantly investing in R&D for product innovation.

Based on this bullish sentiment, over the past four weeks the company’s EPS estimate for the upcoming fiscal has improved 6.08%. The stock sports a Zacks Rank #1. 

Bio-Rad Laboratories, Inc. Price

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Mazor Robotics Ltd. (MZOR - Free Report) : Market is particularly upbeat about the company’s CE Mark approval for its Mazor X Surgical Assurance platform. The approval will allow Mazor Robotics and its partner Medtronic to commercialize, co-promote and market the Mazor X platformin countries that recognize CE Mark. This development should get reflected in Mazor’s 2018 performance. This $1384 billon stock has a Zacks Rank #2. Over the past month, estimates for the company have moved 9.57% north for the next fiscal.

Mazor Robotics Ltd. Price

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Tactile Systems Technology, Inc. (TCMD - Free Report) : This $522-billion company develops and markets at-home therapy devices that treat lymphedema and chronic venous insufficiency. The company’s offering includes advanced, clinically proven pneumatic compression devices, as well as continuity of care services provided by a national network of product specialists and trainers, reimbursement experts, patient advocates and clinical staff.

Meanwhile, the figures for Tactile Systems’ next year are quite promising, with one estimate moving higher in the past month, compared to none lower. The consensus estimate trend has also seen a 40.4% rise over the said frame. The stock flaunts a Zacks Rank #1.

Tactile Systems Technology, Inc. Price

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DexCom, Inc. (DXCM - Free Report) : DexCom has collaborative agreements with several companies, which should not only bring in cash in the form of milestone payments and royalties but should also help expand its product portfolio. In this regard, DexCom announced its collaboration in September 2017 with leading wearables brand Fitbit (FIT) to develop and market products for better management of diabetes and get a clearer picture of overall health with easy-to-use mobile tools.

In November 2017, the company partnered with Eli Lilly and Company (LLY). Per the agreement, DexCom’s flagship continuous glucose monitoring system will be added to Lilly’s Connected Diabetes Ecosystem.

This Zacks Rank #2 stock with a market cap of $4.93 billion is a valuable pick for 2018.Over a month, estimates for the company have moved 9.76% north for the next fiscal.

DexCom, Inc. Price

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