Makers of ventilators and test kits have fared well during COVID-19, while others have seen sales shrivel due to cancelled medical procedures.
Medtronic, the world’s largest medical device company, demonstrates this duality within the healthcare subsector. The financial results it reported for the three months ending in July were gloomy: Revenues had fallen by 17% compared to the same quarter in 2019, and net income was down nearly 50%. And yet, Medtronic’s revenues and earnings were still far better than forecasted. Ventilator sales were up five-fold, breathing life into the firm’s overall revenues. Geoff Martha, who was appointed CEO of the medical technology giant in April, said he expects a return to “normal growth” within a few quarters. The same could apply to the industry as a whole.
Matt Miksic of Credit Suisse points out that medical device firms were on the upswing before the pandemic hit and entered the healthcare crisis “with the wind at their backs”. Global revenue growth was strong. Tim van Biesen of Bain notes a boom in sales of profitable devices used in orthopaedics, neurosurgery and cardiovascular procedures. In its 2019 report, Medical Devices 2030, KPMG forecasted growth in global medical device sales of 5% a year, reaching nearly $800 billion by 2030.
The Economist opines that the sustainability of this growth trajectory will depend in large part to how the pandemic plays out. Selling lucrative medical devices and associated services requires talented sales teams to close deals and provide training. In-person interaction can be key. A survey conducted by Bain before the pandemic found that 90% of medical personnel prefer to have salespeople, who serve as deep repositories of device knowledge, work with them in person. Bain finds that now, over 60% of surgeons expect restrictions on this kind of personal contact.
The impacts of potentially long-term restrictions on personal interaction with salespeople who can guide doctors through the intricacies of their firms’ medical technology must be considered. Sales to ambulatory care centres could be among the first to drop off, Biesen suggests, since they tend to be smaller, more cost-conscious facilities. Coming from a different perspective, Miksic sees the balance shifting in favour of large incumbents, whose existing relationships with specialists who rely heavily on their expertise will likely endure.