The Future of Medical Devices: Two Strong Buys You Can't Miss

Key Points

• The medical device market is poised for growth, driven by an aging population, rising healthcare costs, and technological advancements.
• Companies are strategically expanding their market reach through acquisitions, strategic partnerships, and product innovation.
• While risks are inherent in the medical device sector, companies with a solid commitment to innovation and improving patient outcomes are attractive to investors.

The medical device market, a powerhouse sector, is projected to exceed $600 billion by 2025. This growth is fueled by a combination of factors, including an aging population, rising healthcare costs, and rapid technological advancements powered by advanced artificial intelligence (AI) and biotechnology. These innovations are leading to the development of increasingly sophisticated devices capable of diagnosing and treating a more comprehensive range of conditions with greater precision and effectiveness. This promising growth presents a wealth of opportunities for investors in the medical device sector. 

Tactile Systems Technology: Redefining At-Home Lymphedema Care

Tactile Systems Technology NASDAQ: TCMD was founded in 1995 and is a medical technology company focused on developing and marketing at-home therapies for people with chronic disorders, including lymphedema and chronic pulmonary disease. Tactile Medical's portfolio includes the Flexitouch Plus system for lymphedema treatment, the Entre Plus System for venous disorders, the Kylee mobile app for patient support, and AffloVest for managing pulmonary secretions.

The company recently launched its next-generation lymphedema therapy platform, Nimbl™. The device received 510(k) clearance from the FDA in June 2024 and PDAC approval from the Centers for Medicare & Medicaid Services (CMS) in September 2024. Nimbl™ is 40% smaller and 68% lighter than previous generations and connects with the Kylee™ digital application, allowing patients to track therapy progress and share results with their care teams.

Tactile Systems Technology earnings report for the second quarter of 2024  showed a total revenue of $73.2 million, representing a 7% increase compared to the same period in 2023. The company's adjusted EBITDA for the second quarter of 2024 was $9.1 million, a 49% increase year-over-year. Net income for the second quarter was $4.3 million, or $0.18 per diluted share, compared to a net loss of $0.1 million, or $0.00 per diluted share in the second quarter of 2023.

Tactile Medical is well-positioned to benefit from the expanding lymphedema market. The company is focused on expanding its sales force, increasing marketing efforts targeted at healthcare professionals and patients, and developing a pipeline of innovative products to address the needs of this growing market.

Tactile System’s analyst community strongly endorse the company for several reasons. Their dominant market position in a high-growth sector, coupled with a commitment to product innovation and demonstrated financial strength, make them a compelling choice for investors. The current analyst consensus for Tactile Systems is a “Strong Buy” with a price target offering a healthy 60% upside. 

InfuSystem Holdings: Expanding Beyond Infusion

InfuSystem Holdings NYSE: INFU is a leading national healthcare service provider focused on facilitating outpatient care for medical device manufacturers and healthcare providers. The company specializes in providing infusion pumps and related products and services.

InfuSystem recently entered into an exclusive distribution agreement with ChemoMouthpiece, LLC, for the Chemo Mouthpiece®, an oral cryotherapy device used to reduce the incidence and severity of oral mucositis in patients undergoing chemotherapy. The agreement provides InfuSystem access to approximately 3,000 cancer centers throughout the United States, leveraging its existing oncology sales team. The company also announced a new distribution agreement with Smith+Nephew, a global leader in medical technology, expanding its product portfolio in wound care.

Infusystem’s earnings report for the second quarter of 2024 revealed revenue of $33.7 million, a 6% increase compared to the same period in 2023. This growth was driven by solid performance in its Patient Services segment, partially offset by challenges in the negative pressure wound therapy (NPWT) pump market. Net income for the second quarter of 2024 jumped 64.8% to $0.7 million, or $0.03 per diluted share, demonstrating improving profitability.

InfuSystem Holdings is focused on pursuing strategic partnerships and acquisitions to broaden its market footprint and enhance its product and service offerings. The company's recent joint venture with Sanara MedTech Inc. to develop transformative technologies for wound care and skincare is a testament to its commitment to innovation. Infusystems’ analyst community is optimistic about InfuSystem's prospects, citing its diversified approach, strategic partnerships, and focus on product innovation. The current consensus rating for InfuSystem is a "Strong Buy" with a price target of $13.00, representing over an 85% upside for the stock.

A Balanced Perspective

While both Tactile Systems Technology and InfuSystem Holdings are set up for growth in the medical device market, investors must carefully consider the risks associated with investing in these companies. Tactile Systems Technology faces competition from other medical device companies offering lymphedema therapy. The company is also subject to potential regulatory delays, as the FDA approval process can be lengthy and unpredictable. The company's reliance on third-party payers for reimbursement exposes it to the risk of policy changes or reduced coverage, which could impact profitability.

InfuSystem Holdings faces similar challenges, including competition in the infusion pump market. The company is also vulnerable to changes in reimbursement policies, as its revenue is dependent on third-party payers. In addition, the company's strategy of expanding into new markets, such as wound care, comes with risks, including the need to establish new partnerships and secure market share.

However, both companies are addressing these risks through a combination of strategic partnerships, product innovation, and a focus on expanding their market reach. They are also strategically navigating the regulatory landscape and working to mitigate the potential impact of reimbursement changes.

While investors should be aware of these potential risks, both companies represent compelling investment opportunities. Their commitment to innovative technologies and improving patient lives makes them companies worth watching in the medical device sector.