- Medical device pricing will be “one of the most important positive narratives” of next year and drive “modest upside” to sales and margins, according to analysts at Goldman Sachs.
- Recent pricing improvements “should only be the beginning,” the analysts wrote, with medtech companies set to make more gains as multi-year purchase contracts catch up with prior inflation.
- The analysts tipped Zimmer Biomet and Boston Scientific to be among the biggest beneficiaries but expect most companies, with Baxter being an exception, to benefit from the pricing trend.
Historically, medical device companies have faced pressure from customers to keep prices low. However, as inflation increased this year, companies succeeded in securing higher prices in larger contracts. In inflation-adjusted terms, pricing deteriorated but the successful renegotiations resulted in a smaller hit than the analysts forecast going into 2022.
Becton Dickinson led the way, using its “prowess and market share strength to drive a virtually unprecedented 220 [basis point] improvement in price during their most recent fiscal year,” according to the analysts, Most companies in the space have also improved pricing.
The analysts expect the positive pricing trends to continue in 2023, noting that their recent talks with medtech management teams “have been very encouraging as it relates to successful pricing actions, particularly for implantables within cardio and ortho that have in the past been the categories facing the most headwinds.”
Based on the talks, the analysts expect “pure plays” such as Zimmer, and cardiovascular players including Boston Scientific, to benefit most. The analysts singled out Baxter as likely to be “an outlier for lack of price improvement in 2023.”
The analysts are forecasting overall price improvements despite the shift to value-based pricing in China. The program has already reduced the prices of drug-eluting stents and orthopedic devices there, and the analysts expect it to extend to electrophysiology, renal, neurovascular and general surgery.