EMERGING TECH RESEARCHMedtech Public Comp Sheet and Valuation GuideQ420232Q4 2023 MEDTECH PUBLIC COMP SHEET AND VALUATION GUIDEPitchBook Data, Inc.John Gabbert Founder, CEONizar Tarhuni Vice President, Institutional Research and EditorialPaul Condra Head of Emerging Technology ResearchInstitutional Research GroupAnalysispbinstitutionalresearch@pitchbook.comPublished on January 25, 2024Key takeaways• Medtech stocks rebound: After challenging stock performance through Q3, during which medical technology (medtech) stocksunderperformed, improved market conditions and robust index performance lifted the sector in Q4 as the rising tide appeared to liftnearly all boats. The S&P 500 and NASDAQ both returned low-double-digit performance in Q4, and most medtech categories endedup with similar strong performance in the quarter—apart from life sciences, which was held down by Illumina’s -8% return in Q4, thuscontinuing the stock’s tough stretch. On a three-year basis, medtech stock performance still significantly trails the indexes as over halfthe stocks tracked in our public comp sheet have negative performance on a three-year basis.• Weight loss impact subsides: A major difference between medtech share price performance in Q3 versus Q4 was the perceivedimpact of GLP-1 weight loss drugs on existing business models. While Q3 saw glucose monitoring makers and surgical deviceincumbents experience significant stock declines, the market has now recognized that the impact will not be especially severe in thenear term. Diabetes stocks rebounded, with Insulet and Dexcom returning 36.0% and 33.0% in Q4, respectively. Data has shown thatthere may even be positive correlations by combining weight loss drugs with other technologies like glucose monitors. And despitelower demand for bariatric surgeries, robotic surgery maker Intuitive Surgical has been performing well and reported quite strong Q4earnings. At this stage, it does not appear that established medtech markets face material short-term risk from the rapid adoption ofweight loss drugs.• Looking ahead: A key question on investors’ minds going into 2024 is whether M&A and IPO activity will pick up, as we have now seentwo straight years of below-trend activity. Consensus expects higher free cash flow across all medtech categories, which bodes well fora potential rise in M&A activity as companies seek out ways to spend this extra cash. This effect could be particularly pronounced inconsumer health, a category wherein consensus expects aggregate free cash flow growth of over 20% in 2024. In contrast, estimatesfor earnings growth fall into a wide range, from 2% to 11% between various medtech sectors, compared to 2024 forecasts between9% to 14% as of the end of Q3. This indicates a potential divergence of outcomes between medtech categories. Diagnostics appear setfor a rebound year after a tough 2023, while earnings at life ...
