2 Medical Device Stocks Positioned to Benefit from Baby Boomers

Brittney Barrett  |

With many of the approximately seventy-six million baby boomers approaching old-age and facing the health problems that period of life entails, the market for medical devices is widening. The heightened demand for prosthetics, fluid delivery devices and thousands of other innovations that help humans stay healthy longer, will directly benefit the companies that produce them.  For reasons ranging from product diversity to pricing and current performance,  some of these device producers appear better positioned to gain, and help investors gain, from the climbing percentage of elderly stateside and in developed nations internationally.

Atrion Corporation (NASDAQ: ATRI)

Atrion is an international developer and manufacturer of ophthalmology, cardiovascular and fluid delivery devices for medical applications.  The company has a tremendous range of products despite being on the smaller end of medical device operations. Within their repertoire, Atrion develops the LacriCATH line of balloon catheters employed in the treatment of nasolacrimal duct obstruction, contacts, contact sanitation casing, the MPS2 Myocardial Protection System, which delivers fluids and medications to the heart during open-heart surgery; cardiac surgery vacuum relief valves and silicone vessel loops. They also create inflation devices for balloon catheter dilation, stent deployment, and fluid dispensing; and Clean-Cut rotating aortic punch and PerfectCut Aortotomy System, both of which are employed in heart bypass surgery.

Manufacturing wise, they create a laundry list of products from valves, to fluid delivery devices and even equipment for marine exploration. They also provide contract manufacturing services for other original equipment manufacturers of medical devices; and own and maintain a steel pipeline leased to an industrial gas producer that transports gaseous oxygen to its customers. If that list wasn’t long enough, it would be possible to go on, but its purpose was to illustrate that the company has their hands in a range of areas both within and outside of medical device making, helping to minimize their risk and maximize total demand for their products.

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Couple this with the huge increase in the elderly population and Atrion is positioned for a climb. Whether from the growing elderly population or other stimulus, the positive trajectory has already begun this year. First quarter revenue increased 14 percent for the company.  Atrion’s revenue for the quarter was $30,589,000 compared with $26,902,000 in the same period a year earlier. Net income in the current year quarter totaled $6,858,000 compared to $4,697,000 in last year's first quarter. On a diluted per share basis, earnings for the period increased to $3.38 as compared to $2.31 in the first quarter of last year.

In addition to the healthy quarterly news, the company has a longer history of good healthy and a balance sheet that boasts $10.6 million in cash. Additionally, with 392 patents in their name, some of which extend as long as 16-years from now, the company is well protected from replacement devices overtaking their market share.

Right now the company appears to be somewhat fairly prices, but with the increases by way of demographic, an investor who bought now, may benefit from higher demand helping the business to grow in the coming years.

Johnson & Johnson (NYSE: JNG)

Johnson& Johnson is not exclusively a medical device maker, but to the surprise of many, that is the division of its company that accounted for the largest percentage of its profits in 2010. Increasingly the company has been focusing on this end of its business, largely because, the market for that end of its business is growing. J&J is now the largest medical devices and diagnostic company internationally. Their present domination; however, isn’t inspiring any laziness.

In late April, J&J announced the purchase of Swiss medical device leader Synthes. Synthes is a global leader in orthopedic device making and once the deal is final, that power will go to Johnson & Johnson.  Synthes will provide J&J with hip screws, plates, surgical power tools and instruments intended for treatment of spinal and soft-tissue injuries. That part of their business brought in $3.69 billion in sales last year, and would help J&J to become the world leader in the area. If the area itself grows, the profit levels can be expected to follow. Already, J&J is the leading producer of artificial hips but together they will be able to innovate and produce more and better orthopedic devices, which will become of mounting importance. Bill Weldman, the CEO of J&J called Synthes a “growth driver” in what he referred to as the “growing $37 market” of orthopedics.

The market certainly is growing, at least according to PhD Sunny Kim who wrote in “Arthritis Care & Research,” in 2009 that between 2000 and 2004 the number of hip/knee joint replacements nationwide grew by 53 percent to 432,000 surgeries. In her research she found that should that trend continue, nearly 600,000 hip replacements and 1.4 million knee replacements will be performed in the year 2015.  By 2030, 1 out of 5 people in the United States will be elderly. The need is growing and Johnson & Johnson is looking to meet it.



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