Analysts at RBC Capital Markets are reassured that the medical device sector is equipped to weather an economic downturn as the industry's latest earnings season comes to an end. However, medtech companies are still facing challenges like hospital staffing shortages and supply chain constraints that have been ongoing for several quarters.
Mixed results: There was no single narrative in the latest quarterly results. As in other quarters since the start of the pandemic, the results of diagnostics companies diverged from those of procedure-reliant companies, and there was further variation within those two overarching groups.
There was some consistency in the diagnostic space, where rising demand for core diagnostics offset better-than-feared falls in COVID-19 test sales at Hologic, Thermo Fisher Scientific and Qiagen. Meanwhile, the surgical sector fragmented based on product types and exposure to headwinds such as lockdowns in China, shortages of hospital staff and contrast agents, inflation and supply chain disruption.
The factors help explain why Edwards Lifesciences lowered its full-year guidance in response to delayed transcatheter aortic valve replacement procedures, while Zimmer Biomet raised its revenue forecast after seeing sales of its knee and hip implants bounce back from the omicron-affected first quarter.
Resilience: One question going into the quarter was whether the recovery of medtech companies will be snuffed out by a recession. Analysts at RBC Capital Markets exited the quarter reassured that the sector is equipped to manage through a downturn.
“We are less concerned about the impact of an economic slowdown on procedure volumes than we were going into Q2 earnings. Nearly all of the management teams with whom we spoke believe that they can withstand an economic downturn,” the analysts wrote in a Sunday note to investors.
The confidence of management teams reflects a belief that broader healthcare coverage has made their businesses more resilient than in the prior recession and that the economic downturn will be brief. The analysts expect foreign exchange rates and inflation headwinds to continue into 2023 but think financial forecasts now reflect that outlook.
Capital sales cycles: There are signs the economic slowdown and recession risk are elongating capital sales cycles. While finding that smaller deals are going ahead, the RBC analysts said “larger capital appears to be under more scrutiny.” The trend could affect big-ticket items such as surgical robots.
Intuitive Surgical noted tighter spending by hospitals and told investors to expect the situation to drag on.
“I don’t think this is a one- or two-quarter resolution answer, it’s certainly going to be something longer than that,” CEO Gary Guthart said on an earnings call.
The orthopedic space did not report the same slowdown as Intuitive. Stryker and Zimmer Biomet said that hospitals were still spending money on their robotic surgery systems, although more hospitals were choosing leasing or financing options over upfront payments.
Here is a collection of MedTech Dive’s latest earnings coverage.
This article corrects that the RBC Capital Markets note was released Sunday and not Monday.