Smith & Nephew and Quidel published preliminary third-quarter results Thursday that may point to how the broader orthopaedic and COVID-19 diagnostics, particularly antigen testing, sectors are performing lately.
Both businesses fared better than the companies predicted. Quidel expects third-quarter revenue of around $475 million, well up on a July low-end forecast of $375 million. At the same time, Smith & Nephew limited the losses seen earlier in the year due to a rebound at its orthopaedics unit.
The preliminary results are a positive sign for other orthopaedics businesses such as Johnson & Johnson and Stryker and COVID-19 antigen testing businesses including Abbott and BD, all of which stand to benefit from the trends behind the results for Smith & Nephew and Quidel.
The uncertainty created by the COVID-19 pandemic has turned the first companies to report results in a quarter into crucial bellwethers for the markets they target. For example, in the second quarter, a relatively positive set of results from J&J was an early indicator that sales across the broader medtech industry had recovered faster than anticipated.
This time around, Smith & Nephew and Quidel have shared an early signal of how the medtech industry, specifically the orthopaedic sector and diagnostics space, have coped with the opportunities and challenges created by COVID-19 over the past few months.
Quidel's results point to a big quarter for companies exposed to the COVID-19 testing sector. In the second quarter, Quidel generated $56.3 million from its point-of-care antigen test and $52.7 million from its molecular test. Demand for the tests contributed to second-quarter sales of $201.8 million and emboldened Quidel to predict third quarter revenues of at least $375 million.
The third quarter went better than expected. Quidel expects sales of $475 million to $477 million. With demand for antigen and molecular tests still high, and efforts to increase manufacturing output advancing, Quidel is predicting fourth quarter sales of upward of $800 million. By comparison, Quidel's sales in the fourth quarter of 2019 were $152.2 million.
An anticipated 400%-plus increase in Quidel's fourth quarter sales bodes well for other producers of COVID-19 antigen tests, such as Abbott, BD and Roche, and manufacturers of molecular diagnostics and reagents including Thermo Fisher Scientific. Quidel will share full third quarter results toward the end of this month and will host an investor day Nov. 12.
While the pandemic has been a big net positive for Quidel's sales, COVID-19 has created headwinds across Smith & Nephew's business. The deferral of elective procedures in the second quarter caused Smith & Nephew's sales to slump by 29%, although sequential improvements over the three-month period suggested it may be on the road to recovery.
Smith & Nephew reinforced that impression on Thursday when it said it expects revenues to fall just 4% in the third quarter. Shares in Smith & Nephew ticked up in the hours after the trading update.
In a brief statement, Smith & Nephew said orthopaedics experienced the strongest recovery "as global levels of elective surgery continued to recover." The comment suggests J&J, Stryker, Zimmer Biomet and other manufacturers of orthopaedic devices, plus the far larger group of companies that provide products for use in elective procedures, could soon reports sales improvements from the lows of the second quarter.