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  1. Deals Analysis
September 2, 2020

Medtech looks towards recovery after tumultuous Q2 2020

The Covid-19 pandemic left many medtech companies worse for wear at the end of Q2, but reports indicate optimism for recovery as elective and non-emergency care resumes. Verdict Medical Devices investigates what we can expect for Q3.

By Chloe Kent

Q2 2020 was, unsurprisingly, a financial quarter defined by Covid-19 – particularly so in the medical technology sector, an area of business situated well within the financial and economic blast radius of the pandemic. While areas such as ventilator and personal protective equipment (PPE) production saw a boom in demand, others virtually evaporated during Q2.

Multinational conglomerate 3M, for example, was able to make a fairly healthy profit, despite its shares taking a hit when its Q2 results came up slightly short. The company made profits of $1.3bn, or $2.22 per share, on sales of $7.2bn between April and June, a 14.5% bottom-line gain on a sales decline of -12.2%. Earnings per share were $1.78, 2¢ behind Wall Street, where analysts were looking for sales of $7.3 billion.

As a major PPE producer, 3M was able to weather the storm of the pandemic far more successfully than most. The company still delivered a robust cash flow, even if it did fall short of initial expectations as other revenue streams dried up.

Medical device manufacturer Boston Scientific, meanwhile, made a huge loss of $153m in Q2, compared to its net income of $154m in Q2 2019 – both figures working out to about 11¢ per share. Net sales for the quarter declined 23.9% to $2bn from last year, and analysts polled by Thomson Reuters expected the company to report a loss of .02¢ per share on net sales of $1.73 billion for the quarter. Effectively, the company had lost all the money it made in the previous year.

Elective surgery cancellations cause havoc for medtech manufacturers

Boston Scientific is a much smaller company than 3M, but this isn’t the only reason the former has made a loss where the latter has made a profit. Boston Scientific makes specialist medical devices for use during procedures like endoscopies or cardiac surgery – procedures which effectively ground to a halt during the peak of the pandemic and have only begun to return to normal levels. However, Boston Scientific and other companies with a heavy focus on elective medical treatment may find their revenue streams bounce back in the coming months.

“Electives have been hard hit,” says GlobalData director of therapy research and analysis Andrew Thompson. “They will probably recover revenue through pent up demand, although some revenue will be lost because either the patients have died or are no longer operable.”

Hospital capacity will be a significant factor in this elective surgery bounceback, as the demand for these procedures from patients who’ve already faced extensive delays far outstrips the capacity of many healthcare institutions to treat them all.

“Most of Western Europe, pre-Covid, ran at 90-95% bed capacity. Canada is worse at 120% capacity, meaning there isn’t much provision with existing resources to allow a surge in capacity,” says Thompson. “Conversely, the US, while it ran at high capacity for the early 80s, is typically now at 65-70%, so there is potential capacity to meet pent up demand.”

Great uncertainty about a second wave

Covid-19 related increases in demand have helped keep several companies afloat during Q2, aside from 3M. Manufacturers of in-vitro diagnostics (IVDs) for example, have been kept afloat because of Covid-19 testing, even as routine blood tests decreased.

Thermo Fisher and Abbot saw reagent sales rise because of Covid-19 testing, but instrument sales fall, as their existing user bases were exclusively ordering more Covid-19 tests. Conversely, Hologic saw sales of both reagents and test kits up, alongside sales of its Panther platform.

“Hologic will increase its market share, as customers switch to Hologic tests run on Hologic machines,” says Thompson.

Ventilator suppliers also did well due to the huge demand for the devices early on in the pandemic, with many big name manufacturers partnering with the automotive industry to supply them. However, these partnerships are winding down and the demand for ventilators has, fortunately, drastically decreased on a global scale as fewer patients are presenting with severe symptoms.

Thompson says: “I would not be surprised to find that the margins are much slimmer than before, and that hospitals will start to defer 2021 purchases, as they have updated their inventory.”

The same can be said for companies involved in drug delivery and dialysis, such as Baxter and Fresenius, which were well positioned to take advantage of increased clinical need for infusion sets and renal dialysis equipment. They were able to keep their Q2 revenues slightly up on Q2 2019, but may now see a dip in demand due to reduced Covid-19 cases.

“In our market models, which were updated in June, we expect for most sectors a two- to three-year recovery,” says Thompson. “Q3 I expect to be better than Q2. There is great uncertainty about a second wave, and the outcome of the US election might have diametrically different effects on medtech, whether there will be a sharp lockdown imposed to try and snuff out cases, rather than the piecemeal approach to date.”

Related Companies

Verdict deals analysis methodology

This analysis considers only announced and completed deals from the GlobalData financial deals database and excludes all terminated and rumoured deals. Country and industry are defined according to the headquarters and dominant industry of the target firm. The term ‘acquisition’ refers to both completed deals and those in the bidding stage.

GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.

More in-depth reports and analysis on all reported deals are available for subscribers to GlobalData’s deals database.

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