Mention healthcare stocks and most investors will be looking at biotech for the best returns – make-or-break companies which will strike it rich if their drugs under development get through the FDA approval process. Income investors know the appeal of Astrazeneca and Glaxosmithkline, huge pharmaceutical companies with massive portfolios of relatively mature drugs.
Neither as risky as biotech tiddlers, nor as boring as the big drugmakers, the healthcare equipment stocks are stuck in the middle – and don't get a lot of attention. But they can get the same kind of growth rates as the biotechs – while several of them have the kind of earnings record that would make a big-pharma finance director nod in approval.
This week saw news that one in six NHS patients suffer misdiagnosis [1] . While technology can't solve every health problem, diagnostic technology has become increasingly accurate – and cheap; so I thought it would be a good time to take a look at some of the diagnostics stocks. There are quite a few.
Diagnostics appears to be relatively resilient in tough economic times. Testing is increasingly seen as a way to help manage healthcare costs, by identifying diseases early and addressing them before major intervention is required.
I particularly like the fact that some of these companies are establishing good barriers to entry. That's something Warren Buffett always looks for – he calls it a 'moat' around the company – and it could help the companies sustain their competitive advantage in the long term, which isn't always possible with drugs. Once the company has its equipment in the surgery, its future revenue stream of diagnostic tests is safeguarded, as it's not economically sensible to change the system
There are also opportunities for cross-selling new products using the same equipment at the point of care. For instance, Axis-shield now has over 5,000 of its Afinion systems installed worldwide for testing for diabetes. This year, it's announced that it is going to start marketing a new test on the same platform, this time for diagnosis of patients who might benefit from being prescribed statins to prevent cardio-vascular disease (the test picks up CRP - high-sensitivity C-reactive protein).
Axis-shield was formed in 1999 by the merger of Norwegian company Axis Biochemicals and UK based Shield Diagnostics, and still has a dual listing in Oslo and London. Revenues rose…
