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Diving Brief:
- According to analysts at William Blair, medical device companies are successfully managing macroeconomic “headwinds” and in many cases are at least partially insulated from recession risks.
- First-quarter sales for most companies beat expectations, even amid the COVID-19 outbreak earlier in the year. This has led analysts to give a positive assessment of how medical technology companies are coping with challenges such as supply disruptions, staff shortages, inflation and currency issues.
- Analysts expect demand for technologies covered by reimbursement and used in non-elective procedures to be ‘sustainable’, although they see risks for products used in procedures that can be delayed and devices focused on consumers if the economy falls into recession.
Overview of the dive:
In their first-quarter review, analysts at William Blair found that 82% of the companies they cover beat sales forecasts by an average of 4%.
“Medical device supply chains have largely weathered the continued disruptions” and management teams “are optimistic” that hospital staffing shortages will be manageable even if they remain a challenge in 2022, the analysts wrote. With inflation built into the 2022 forecast, analysts concluded that most medical device companies are “managing these headwinds relatively well.”
For companies that missed first-quarter revenue guidance, analysts attributed it to “macro factors like chip shortages and volatility around COVID demand boluses.” This was also reflected in earnings per share results, which were 3% below expectations on average, they added.
Faced with these challenges, medical device companies that beat expectations in the quarter mostly stuck to their full-year revenue guidance, suggesting that “the initial momentum has not carried over into the rest of the year.” of the year,” the analysts said.
For their part, analysts at William Blair see positive signs for the rest of the year as most of the companies they cover have already secured supplies for at least this year and expect shortages of hospital staffing are easing throughout 2022. Urgent and semi-urgent procedures such as stroke and transcatheter aortic valve replacement, respectively, are expected to be the least affected by staffing, officials said. analysts, adding that there is a “slightly elevated risk” of elective procedures being slowed down.
“In this environment, we believe that companies with solutions that can help improve results while reducing [length of stay] and readmissions may be the main winners: Edwards, Abiomed, Penumbra and iRhythm. We also note that several of our businesses with large recurring revenue bases (such as DexCom and Insulet) will be less impacted by these staffing shortages,” the analysts wrote.
The split between the performance of companies focused on elective and non-elective procedures may also apply in a recession, analysts said, adding that the medical technology industry fared better than other sectors during from the bursting of the dot-com bubble in the early 2000s and the Great Recession of 2007-2009.
In the event of another downturn, analysts expect “minimal impact” on reimbursed devices used in non-elective procedures and greater risks for products used in procedures that may be delayed.
