Sales in Johnson & Johnson’s medical devices unit fell by one-third in the second quarter as the deferral of procedures due to COVID-19 torpedoed demand.
In second quarter results released Thursday, J&J said every subsegment of its medical device unit suffered a double-digit decline in revenue in the U.S. and internationally. The U.S. vision surgery business, highly vulnerable to delayed care, fared worst, chalking up a 65% drop in sales in the quarter.
Still, as the first major medical device maker to report second quarter earnings, the results offer a level of optimism not seen a few months ago. Sales rebounded strongly in China during the quarter and recovered in the U.S. and other markets throughout the three-month period, causing J&J to improve its worst-case scenario for 2020 device sales by $1.75 billion.
J&J warned investors COVID-19 could wipe up to $7 billion off full-year medical device sales when it reported its first quarter results in April. At that time, J&J was coming off a quarter in which medical device sales fell 8%. However, as that quarter only featured a few weeks of COVID-19-driven surgery deferrals in Western markets, J&J expected its next set of financials to be considerably worse.
That prediction has come to pass. Overall, medical device sales came in $2.2 billion below revenues one year ago. Sales are down $2.7 billion over the first six months of the year. The biggest hit came in the U.S., where medical device sales fell almost 40% in the quarter.
However, there are signs the medical device unit may fare better than feared for the full year. Chris DelOrefice, VP of investor relations, said on Thursday morning's conference call the company saw a “strong rebound” at its Chinese medical device business and improvements in other territories throughout the quarter.
Those trends caused interventional solutions to return to growth of 3% in June. Double-digit growth in China was key to the recovery, but J&J also returned to growth in the U.S. in the last month of the quarter. The U.S. recovery was underpinned by the return of electrophysiology procedures. U.S. electrophysiology procedures hit 91% of pre-pandemic levels in the final two weeks of the quarter.
Biosurgery also returned to growth in June. U.S. orthopedic sales were down less than 8% in June, as high-single-digit growth at the hip unit was mitigated by flat trauma revenues. The turnaround in June meant that, having gone into the quarter expecting to miss its prior guidance by 40% to 60%, J&J ultimately fell 35% short.
The pace of the recovery emboldened J&J to increase its outlook for the year. J&J now expects the virus to reduce full-year medical device sales by $3.75 billion to $5.25 billion, an improvement over the $4 billion to $7 billion hit it predicted in April. The forecast reflects a belief sales will fall 10% to 25% in the third quarter, compared to the prediction of 15% to 35% given for that quarter three months ago.
A return to lockdown conditions in major markets in response to increases in COVID-19 cases could cause J&J to miss those targets. However, Gorsky thinks healthcare systems are unlikely to need to repeat the mass deferrals of procedures that happened in March and April. Gorsky’s stance is built on a belief that “the world is much better prepared” for COVID-19 than it was at the start of the outbreak, in part because large-scale testing capabilities are now in place.