Financial Myths: “The Guns, Thank God, The Guns” — Part III

Michael McTague |


Since Part II of this series appeared, North Korea has been a nearly constant headline. The threat appears to be ebbing and the reason appears to be that the offensive threat posed by North Korea does not match the defensive capability of the US, an argument made in our previous entry. Myth Buster followers can at least agree that military defense spending will continue to hold a favored position.

This myth is showing timely and thorny qualities. In this third segment, the focus shifts to the individual soldier. Great advances have been achieved in treating battlefield wounds, a major achievement on all levels of military history. The Korean War takes credit for wide use of the Mobile Army Surgical Hospitals (MASH). The idea is to transport soldiers experiencing medical trauma quickly to a mobile hospital where operations can be performed. Speed of transport proves critical as well as the necessary skill and equipment at the medical site.

Plasma and Gauze

Vietnam built on these advances to improve the speed of transport together with a focus on rapid blood vessel repair. Recent conflicts continue the attention to stop severe bleeding, long a cause of battlefield deaths. Estimates suggest 90% of soldiers killed in combat die from blood loss. While it sounds simple, the tourniquet is an excellent means of stemming massive blood flow and is more widely used in today’s military. During the Vietnam period, as the Myth Buster knows from personal experience, carrying plasma represented a significant advance. All of these advances aim at stopping or restoring blood loss.

Hemostatic gauze ranks among the medical trauma leaps of recent years that save lives. The purpose of the gauze is to reduce bleeding with special attention to sealing the wound. Celox stands out as a prominent manufacturer. Celox Gauze is used by the UK and is now recommended by the US military Committee on Tactical Combat Casualty Care. The product uses Celox granules laminated onto a dense gauze, which can be quickly and easily packed into bleeding wounds. The hemostatic gauze is especially useful in challenging battlefield conditions -- wind, rain or poor visibility. The website also states that in a recent Department of Defense study, Celox Gauze achieved the least overall blood loss, the highest observed survival and the best overall hemostasis of all products tested. Celox is a British product, made by MedTrade Products Ltd., a private company.



Johnson & Johnson (JNJ) has been a medical gauze manufacturer for decades. Its website refers to Wound Closure as a major topic, based on the idea that human tissue is not all the same and demands particular treatments. Skin, fascia and organs have their own specialized functions and needs. Ethicon, a J&J division, is working on new products for wound closure. The Myth Buster has run many programs at the Johnson and Johnson Learning Center in New Jersey and was impressed by the exhibits showing J&J products in use.

Helicopters have moved forward considerably since the Korean War during which 18,000 casualties were transported from the battlefield. This summer Sikorsky, a division of Lockheed Martin (LMT), signed a five-year contract for 257 H-60 Black Hawk helicopters. The contract value for expected deliveries is approximately $3.8 billion and includes options for an additional 103 aircraft, with the total contract value potentially reaching $5.2 billion. The Black Hawk performs as the workhorse utility and medical evacuation (MEDEVAC) helicopter. These modern machines are equipped with integrated MEDEVAC Mission Equipment Package (MEP) kits, providing day/night and adverse weather emergency evacuation of casualties. It can carry up to six patients on litters. The modern helicopter’s advances over its Korean War ancestor includes an oxygen apparatus for patients and improved handling in night time conditions. Today’s helicopters are also bigger and faster. A “flight medic” is part of the crew, as compared to earlier decades when the crew tried to lend what assistance they could to their wounded passengers.

Vaccines and Tourniquets

Beyond its obvious suppliers – Boeing (BA), Lockheed-Martin, Raytheon (RTN) -- the US military purchases products and services from many medical suppliers. Humana (HUM) (to be acquired by Aetna (AET)) is a massive supplier of services to the military. Cardinal Health (CAH) has secured a $1 billion contract with the United States Department of Defense (DoD) to provide medical devices and supplies to U.S. military services and federal civilian agencies. Medtronic PLC (MDT) is the largest medical device company, holding market capitalization of $103 billion. The firm garnered more than a 40% revenue growth in the last twelve to fifteen months. The company acquired Covidien. Weatherhaven, a private company, manufactures mobile hospitals, now a staple of military preparation. Under the heading of being ready for the unexpected, a document from the Centers for Disease Control (CDC) states that plague vaccine is manufactured by Greer Laboratories, Inc., a private company. A few cases appear each year and the military is prepared.

Rudyard Kipling’s line has allowed us to look at a variety of issues related to the defense industry. Massive issues including very expensive offensive weapons and extremely sophisticated stealth jets combine with simple techniques such as the humble tourniquet to play their respective roles. (The Red Cross sells tourniquets for less than $24.00.) Even an industry that appears to be built on destruction places a very high value on defense, on saving life and on speed.

In the next piece, we will take up a new myth to examine.

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Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
LMT Lockheed Martin Corporation 308.54 0.53 0.17 1,018,588 Trade
RTN Raytheon Company 184.69 -0.35 -0.19 1,187,106 Trade
JNJ Johnson & Johnson 131.39 -0.36 -0.27 4,334,862 Trade
HUM Humana Inc. 239.09 0.45 0.19 1,343,101 Trade
MDT Medtronic plc. 79.70 0.17 0.21 4,593,164 Trade
AET Aetna Inc. 153.57 0.18 0.12 3,404,871 Trade
BA Boeing Company (The) 256.45 0.41 0.16 3,475,566 Trade
CAH Cardinal Health Inc. 66.66 -0.11 -0.16 2,181,051 Trade

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