Healthcare
October 27, 2021
During the quarter just ended September 30, 2021 (3Q21) there was some handwringing among investors and analysts over questions of hospital resource allocation to COVID patients during the Delta variant surge and how it may have impinged on medical device utilization and growth. Several companies, toward the end of 3Q21, issued revenue expectations adjustments accordingly to communicate to public markets.
We had been tracking hospital bed utilization via Johns Hopkins and the investment bank Cowen which did show a material uptick in both regular and ICU beds taken by COVID patients with the onslaught of the Delta variant.
But are we concerned about overall medical device industry growth? No.
Firstly, although ICU and normal bed utilization dedicated to COVID climbed throughout 3Q21 (e.g. diverting capacity from surgeries that require medical devices), the beginning of September saw the maximum. ICU and regular bed utilization had peaked at 31% and 14% respectively (both well above average) by early September. We saw this then rapidly decline on a weekly basis in September down to now 24% (ICU bed utilization for COVID) and 8% (normal bed utilization for COVID) by mid-October. The trend continues to tick down which is good for medical devices.
Secondly, several public companies have started to report their results. Among them is stalwart Johnson & Johnson (JNJ) which is a helpful read through on the rest of the industry. JNJ did see disruption in their elective device-intensive procedures (e.g. spine), but mainly in the USA. In non-elective procedures and in other areas of the world JNJ was less effected. Overall, JNJ reported of 7.6% y-o-y growth and up about 4% versus pre-pandemic levels in medical devices despite Delta variant surges. Abbott (ABT) also just reported revenue growth in medical devices at the 16% level and increased guidance driven by performance in diabetes and cardiovascular.
We still have to consider our earlier point that many companies in the space issued mid or late 3Q21 guidance on revenue headwinds. This challenge is well understood and, in the medical device industry, procedures aren’t “nice-to-have”, they are mainly “must have” and so the 3Q21 procedures impacted by the Delta variant are more likely to be deferred than lost.
We saw this pent-up demand phenomenon in 2020 and, ceteris paribus, we see the 3Q21 bed utilization data in the USA as a setup for strong industry growth in 4Q21 and beyond.
John C McCormick, Managing Director at InnovaHealth Partners, LP
