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Companies developing molecular and specialty diagnostics are poised to outperform other sectors of medical technology in the coming years, according to an article that ran over the weekend in the Milwaukee Journal Sentinel.

“The reason they work is they’re very steady in their performance, and many generate cash and have good barriers to entry,” Quintin Lai, a research analyst with Robert W. Baird & Co., tells the paper.

Lai says increasing demand for quicker, more accurate tests has made molecular and specialty diagnostics one of the best performing healthcare sectors in the last two years, delivering a 30% average annual return compared with a 13% return for traditional diagnostics.

“As we see demand grow for more sensitive, more accurate tests with quicker turnaround times, we’re seeing an opportunity for a lot of these life sciences tools and diagnostics companies to rise in prominence,” says Lai, who notes that molecular diagnostic companies tend to be relatively unaffected by issues like inflation, higher interest rates and unemployment. He also points out that these types of companies are less vulnerable to changes in government reimbursement programs like Medicare.

Some of Lai’s top picks from companies working in this space include the following:

Cepheid (NASDAQ:CPHD), a Sunnyvale, CA, company whose technology performs genetic analysis for applications in the infectious disease, cancer and biothreat testing markets. Its SmartCycler and GeneXpert systems perform a range of genetic tests that include identifying infectious organisms and evaluating at-risk populations for the early detection of disease.

“Here’s another case of a platform technology no one else has that can go into places where no other provider can provide tests,” Lai says. “When you have those barriers to entry, you can get great revenue growth.”

Gen-Probe
(NASDAQ:GPRO), a San Diego-based company that makes DNA probe technologies for diagnosing sexually transmitted diseases and microbial infectious diseases, and for screening blood.

“That technology is very hard to replicate, and they have strong intellectual property,” Lai tells the Journal Sentinel. “If they can develop this market, they can own it.”

Immucor (NASDAQ:BLUD), based on Norcross, GA, specializes in pre-transfusion diagnostics. The company makes products that are used by hospital blood banks, clinical laboratories and blood donor centers to identify certain properties of human blood prior to patient transfusion.

Lai tells the Journal Sentinel that Immucor and Ortho Clinical Diagnostics (a Johnson & Johnson (NYSE:JNJ) subsidiary) are the only two companies in the U.S. that do blood typing and grouping.

Third Wave Technologies (NYSEARCA:TWTI) is a molecular diagnostics company based in Madison, WI, whose chemistry-based technology identifies genetic mutations. It’s currently developing a test for HPV, which it hopes to submit to FDA by the end of this year.

Source: Four Molecular Diagnostics Companies With An Edge