The Economist August 29th 2020 pp50 |Health care | “Left to their own devices”. “Covid-19 has been a mixed blessing for makers of medical equipment”
With the shutdown of elective medical procedures, as a result of the Covid-19 pandemic, many medical device companies experienced a sudden fall in sales and profits. Others benefited or balanced their portfolios by meeting the demand for ventilators and testing kits. Using Medtronic as an example, “revenues fell by 17%...and net income plunged by nearly half.” “And yet investors and analysts cheered. One reason is that they had feared worse…”
Like other industries, device-makers entered the pandemic in strong financial condition. Sales in this sector increased from $371bn in 2015 to an estimated $795bn in 2020. Much of the growth has been in high-margin devices “used in orthopedics, neurosurgery and cardiovascular procedures.” Consequently since 2015 the “Dow Jones Select Medical Equipment” index has progressively outpaced the S&P-500 Index and the S&P-500 Pharmaceutical Index. When considering or using these innovative devices physicians rely partly on highly-trained sales executives. A top-notch representative helps keep these specialist physicians apace of the company’s innovative devices. “Some even depend on those reps to lay out preferred instruments before operations.”
Concerns consequently arise, for these makers, from restrictions on face-to-face meetings during the Covid-19 era. Could these limitations reduce sales, could there be a shift in patient preference to using more low-cost centers less compelled to use leading brands? Alternatively, could these limitations further entrench incumbent device firms and reduce innovation by start-ups?