Medtech manufacturers continue to feel the pinch of supply chain disruptions and other macroeconomic challenges.

Integer, a medical device outsource manufacturer, is the latest to report a negative impact from the current supply chain environment. The Plano, TX-based company said its third quarter sales took a hit of about $15 million, primarly due to deteriorating delivery performance and missed commitments from three suppliers.

Integer also said its third-quater preliminary operating income has been negatively impacted by about $12 million from lower sales volume ($8 million) and higher manufacturing costs ($4 million). Manufacturing costs are higher due to increased wages, freight, and adding 5% more direct labor in the third quarter in an effort to deliver the high end of July's sales gudiance, the company noted.

“We are further intensifying our focus on supplier management and, to address the impact of higher manufacturing and direct labor costs, we recently reduced SG&A costs by approximately $8 million on an annualized basis,” said Joseph Dziedzic, Integer’s president and CEO. “Also, we continue to raise prices with customers to pass through inflationary costs and expect year-over-year price to be flat or slightly positive in 2023, versus a typical 1% to 2% reduction.”

The medtech manufacturer updated its full year guidance to incorporate a reduction of roughly $35 million in sales of neuromodulation devices, complex catheters, and non-medical batteries due to these three suppliers’ delivery challenges. Full-year operating income is expected to be negatively impacted by about $25 million from lower sales volume ($17 million) and higher costs ($8 million). Full year manufacturing costs are expected to be higher due to increased wages, freight, and the additional direct labor.

"The fundamentals of our growth strategy remain strong, and we are confident that we are well positioned to capitalize on an environment where our customers are focused on consolidating their supplier base with trusted partners," Dziedzic said. "Looking forward to 2023, our preliminary sales outlook is 7% to 9% growth, supported by end-market demand, a strong backlog, and continued new product introductions. We remain focused on executing our operational excellence and product line growth strategies and are confident we will address these short-term challenges to deliver for our customers and the patients they serve.”

Almost a year ago, Integer announced its $220 million acquisition of Oscor. The deal boosted the company's portfolio by adding Oscor's catheters, introducer kits, fixed-curve guide sheaths and steerable guide sheaths used to facilitate vascular access for interventional cardiology, radiology, vascular surgery, oncology, and peripheral needs.

Medtech investors are paying attention

Given that manufacturers across every industry are wrestling with supply chain constraints and related inflation pressure, it's no surprise that investors are tuned in to what management teams are saying about these challenges. What is a bit surprising though, is that commentary about the supply chain and inflation concerns seem to be carrying more weight with investors this year than other factors.

Take Intuitive Surgical, for example. In April surgical robotics pioneer reported 19% procedure growth in the first quarter (well above analyst's expectations). Ordinarily, such positive news would have had a favorable impact on the company's stock price. Instead, investors seemed to be more concerned about the macroeconomic headwinds mentioned during the company's earnings call, which included the capital spending environment at U.S. hospitals as well as supply chain disruptions.

Masimo, GE, and 3M (just to name a few) have also noticed negative impacts this year from supply chain and other macroeconomic challenges this year.

For a broader look at the global supply chain crisis, including strategies that leading manufacturing companies are exploring to mitigate these challenges, check out this special episode of Let's Talk Medtech:

Transcripts of the podcast episode can be found here.