- Medical device companies are successfully managing macro "headwinds" and in many cases are at least partly insulated from recession risks, according to analysts at William Blair.
- First-quarter sales for most companies exceeded expectations even amid the COVID-19 surge at the start of the year. That led the analysts to give a positive appraisal of how medtech firms are coping with challenges such as supply disruptions, staffing shortages, inflation and foreign-exchange challenges.
- The analysts expect demand for technologies that have reimbursement coverage and are used in nonelective procedures to be “durable,” although they see risks for products used in procedures that can be delayed and consumer-driven devices should the economy slip into recession.
In their review of the first quarter, the William Blair analysts found that 82% of the companies they cover beat sales forecasts by 4% on average.
“Medical device supply chains have largely been resilient through ongoing disruption” and management teams “are optimistic” that hospital staffing shortages will be manageable even as they remain a challenge in 2022, the analysts wrote. With inflation baked into 2022 forecasts, the analysts concluded most medical device firms are “managing these headwinds relatively well.”
For companies that missed revenue forecasts in the first quarter, the analysts attributed it to “macro factors like chip shortages and volatility around boluses of COVID demand." This also was 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 retained their full-year revenue forecasts, suggesting that “the early momentum was not passed through the remainder of the year,” the analysts said.
For their part, the William Blair analysts see positive signs for the rest of the year as most of the companies they cover already have secured supplies for at least this year and expect hospital staffing shortages to ease throughout 2022. Urgent and semi-urgent procedures such as stroke and transcatheter aortic valve replacement, respectively, should be the least affected by staffing, the analysts said, adding that there is a “slightly elevated risk” of a slowdown in elective procedures.
“In this environment, we think companies with solutions that can help improve outcomes while also reducing [length of stay] and readmissions can be key winners: Edwards, Abiomed, Penumbra, and iRhythm. We also note several of our companies 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 nonelective procedures also may apply in the event of a recession, the analysts said, adding that the medical technology industry fared better than other sectors during the dot-com bubble burst in the early 2000s and the Great Recession in 2007-2009.
In the event of another recession, the analysts expect “minimal impact” on reimbursed devices used in nonelective procedures and bigger risks to products used in procedures that can be delayed.