The unknowns still outnumber the knowns, but recent business updates provide some clarity around how the medical device industry is fairing during the COVID-19 pandemic. First and foremost, it is clear that companies are hurting in the areas of elective procedures, which are being deferred. But there may be some silver linings hidden amongst the bad news.
Needham & Co. medtech analyst Mike Matson estimates that medical device sales across the industry will continue to drop by an average of 40% to 50% until the economy begins to reopen and hospitals start to resume elective procedures.
Matson's estimate excludes companies like Carlsbad, CA-based GenMark, which was quick to deliver much-needed testing tools for the new virus. Earlier this month GenMark preannounced first-quarter revenue of about $38.7 million, representing an increase of about 80% over the company's first quarter of 2019.
The analyst also noted that it is extremely difficult to forecast revenue trends in the industry right now as many pure-play medical device companies are pulling 2020 guidance due to the unprecedented lack of visibility. But Matson said that management commentary during first-quarter earnings calls may offer some insight. Hopefully.
'The underlying fundamentals of the market remain intact'
Johnson & Johnson executives did, in fact, provide some of those hoped-for insights during its first-quarter earnings call on Tuesday. While J&J's consumer and pharmaceuticals businesses are going strong, the medical device segment is feeling the pinch from COVID-19. The New Brunswick, NJ-based company saw its first-quarter medical device sales drop 4.8% (on a constant currency basis) compared to the first quarter of 2019.
"That said, medical devices has historically been a strong market and we believe the underlying fundamentals of the market remain intact," Gorsky said.
Gorsky noted that J&J is using its supply chain delivery 3D-printing expertise in collaboration with Greenville, SC-based Prisma Health to manufacture and distribute Prisma's VESper ventilator expansion splitter device, which addresses the acute ventilator shortage during the COVID-19 pandemic and at no cost to healthcare providers. Additionally, Gorsky said, the company continues to support and share product availability to healthcare workers, hospital systems, and surgeons in areas like trauma, stroke, and other life-saving surgeries that cannot be deferred.
Looking ahead to the end of the year, J&J CFO Joe Wolk said the company is assuming the most significant negative impact (in medical devices) from COVID-19 will occur in the second quarter, followed by a lingering impact in the third quarter (but with signs of stabilization), and then some recovery in the fourth quarter.
NuVasive, Merit Medical Systems, Invacare, and Cardiovascular Systems.
As MD+DI has previously reported, orthopedic device makers are experiencing a particularly heavy revenue impact from COVID-19. On Tuesday after the stock market closed, spine surgical device company NuVasive withdrew its 2020 guidance and revealed that it expects first-quarter revenue to be down about 5% compared to the first-quarter of 2019. The San Diego, CA-based company plans to release final first-quarter results on May 6.
On Tuesday, Needham & Co. held its annual healthcare conference in a virtual format, which included fireside chats with executives from Merit Medical Systems, Invacare, and Cardiovascular Systems. Matson shared some key takeaways from those discussions in separate reports.
South Jordan, UT-based Merit Medical Systems manufacturers disposable medical devices and surgical kits used in a variety of interventional procedures. The company previously estimated that COVID-19 would reduce its first-quarter revenue by about $14 million to $19 million.
"[Merit] is seeing increased demand in its critical care products because of the pandemic, which includes increased sales of certain catheters and monitors," Matson said. "Management noted that its supply chain has not seen any material disruption to date. Importantly, management noted that they are being told that some hospitals are going to resume elective procedures in May which could help mitigate the pandemic's impact on [Merit's] results."
Elyria, Ohio-based Invacare, a homecare and long-term care equipment maker, has had a rough go of it in recent years but had been showing signs of a turnaround as of October 2019. Matson reported that COVID-19 is having a mixed impact on Invacare. On one hand, the company is seeing a modest demand boost for its respiratory products like oxygen concentrators, and its lifestyles products like long-term care beds. On the other hand, that strength is being offset by a slowdown in its mobility and seating business because of things like personal contact limitations at its institutional customers and reduced sales force access to customers.
St. Paul, MN-based Cardiovascular Systems also appears to be seeing a mixed impact from the pandemic. Matson reported that procedures using the company's devices to treat patients with coronary artery disease and peripheral artery disease (PAD) with critical limb ischemia are less likely to be postponed, but procedures using the company's devices to treat PAD patients with claudication are more likely to be postponed. The company also has had to pause enrollment in its ECLIPSE coronary trail due to restricted access to healthcare systems. The trial, designed to compare vessel preparation with orbital atherectomy to conventional balloon angioplasty for vessel preparation, had enrolled about 1,300 patients as of the end of March. The company originally expected to enroll a total of 2,000 patients. Matson noted that, if successful, the ECLIPSE trial could lead to guideline changes in favor of orbital atherectomy.
The key to winning in the COVID-19 economy is communication
"Tackling COVID-19, like any other crisis, requires effective communication and flow of both facts and ideas, realities and aspirations," said Jason Mills, a medtech analyst at Canaccord Genuity, who offered insights into what is happening in the industry via two separate reports published April 13. In one of those reports, Mills shared his strategies for evaluating medtech stocks based on some reimagined commandments, as he put it.
"First, the crisis is forcing companies to change the way they interact with and serve their customers (physicians). Moreover, hospitals are suffering significantly from loss of profitable, revenue-generating elective procedures, so the 'winning' companies will not only be the ones who stay close to their customers but provide the strongest relative value/cost proposition vis-à-vis their product offerings once elective procedures resume," Mills said.
He added that now is the time for forward-looking companies to reevaluate the portfolio of current devices as well as future product pipeline to ensure the firm is positioned in areas of the greatest patient need and among the highly prioritized physician/provider procedure categories. "Consequently, we think firms must be vigilant and aggressive (albeit responsible) in fortifying their balance sheets and reassessing external growth opportunities," Mills said.