The New Machine of Medical Device Industry in the Epidemic Crisis

The "New Machine" of Medical Device Industry in the Epidemic Crisis

According to the British Economist, the COVID-19 has led to the economic downturn, and the medical equipment manufacturing industry bears the brunt. The epidemic situation was rampant, and the medical procurement process in demand for precision medical equipment collapsed, which had a huge impact on sales. At the same time, the epidemic crisis has also created business opportunities for manufacturers of ventilators and testing equipment.

To illustrate the changing process of this trend, take Medtronic as an example. On August 25, Medtronic, an American giant with a market value of 138 billion US dollars, announced its quarterly financial results as of July. From the financial report, the performance was extremely bad: the revenue was only 6.5 billion US dollars, down 17% year on year, and the net profit fell by nearly half. The company refused to forecast future revenue on the grounds of the epidemic.

However, investors and analysts cheered for it, one of the reasons being that their previous expectations were even worse: Medtronic's revenue and earnings easily exceeded expectations. Another reason is that the sales of ventilators have increased fivefold, which is the foundation of the overall income. Jeff Martha, CEO of Medtronic, expects the company to return to "normal growth" in the next few quarters.

The recovery of Medtronic may indicate a larger recovery of medical device enterprises. Matt Mikhisic of Credit Suisse, an investment bank, pointed out that these enterprises were in crisis under the condition of "going against the wind". Their recovery was driven by the strong growth of global income. In 2020, KPMG, a consulting company, predicted that the global sales in 2030 would increase from 371 billion dollars in 2015 to 795 billion dollars. Tim Van Bison of Bain Consulting pointed out that before the outbreak of the epidemic, the sales of high profit equipment used in orthopedics, neurosurgery and cardiovascular surgery surged. As a result, in the past five years, its share price has exceeded the Big Pharma and S&P 500 index (see chart).

Screenshot of the Economist report

The sustainability of the above expected performance depends largely on the trend of the COVID-19 epidemic. In order to promote profitable equipment and related services, medical equipment manufacturers rely on a team of well-trained sales representatives to attract doctors and train them. A survey by Bain found that before the emergence of COVID-19, 9 out of every 10 medical staff wanted to communicate with the device sales staff in person. Van Bisen said that many surgeons attach great importance to the suggestions given by top representatives when performing complex operations, because they know more about the cutting-edge technology of their own enterprises than doctors. Some doctors even rely on these representatives to arrange the preferred tools before surgery. Now Bain found that more than 60% of surgeons expect this face-to-face communication to be restricted.

Long term restrictions on communication may affect the medical device industry in unexpected ways. Bison believes that large enterprises may lose their outpatient services. The scale of these clinics is usually not as large as that of hospitals, and they pay more attention to cost, and they are not so dedicated to high priced brands and sales representatives. Mikhisic believes that in professional fields such as spinal surgery, high-level on-site services are common, while non-contact communication may protect current practitioners, but it will hinder new entrants. This week, Medtronic announced that its largest business is gradually gaining market share. If, as Martha said, the company is "seeking to develop new equipment", these achievements should be attributed to the sales of old equipment.