This is the second article in a series that looks at the top trends and topics for the medtech industry in 2022. The first article looked at the top trends for diagnostic companies.
As the coronavirus pandemic enters its third year, the medical device industry is likely to face another year of challenges, as procedure volatility and hospital staff shortages are already rising in 2022.
Six months ago, medtechs recovered from the first year of the pandemic as vaccination rates increased, procedure volumes rose steadily and hospital operations normalized.
Subsequently, the delta variant turned recovery plans on its head, forcing companies to brace for another wave and postpone calls for a return to normal, only to be hit again in late 2021 by the rapid spread of the highly transferable omicron. -tribe.
The emergence of multiple variants, and possibly others, has calmed recovery talks for medtechs in 2022 and reintroduced the questions the industry has been asking for the past two years: When will proceeding volumes return to normal? How do hospital staff influence operations? And, if, or when, will the next peak occur?
“This concept of a recovery trade in medtech that we had in 2021 – for part of 2021 – where medtech was doing relatively well…I just think that’s out the window at this point,” said SVB Leerink analyst Danielle Antalffy .
While all eyes are once again on the impact of the pandemic, topics such as another merger and acquisition of expenses and procedures that continue to move into ambulatory surgery centers (ASCs) are other top medtech trends to watch in 2022.
Volatility of the volume of the procedure
Surgery volumes fluctuated throughout 2021 and this year may be no different. After Medtech CEOs at the JP Morgan Healthcare conference earlier this month were relatively silent about the impact of omicron on their businesses, Intuitive Surgical and Johnson & Johnson reported on recent earnings calls that volumes are likely to fall in the first quarter of the year, if not the first half.
As more companies report on their most recent quarter in the coming weeks — a glimpse of the early impact of omicron and the lingering impact of delta — experts are projecting more pressure on proceedings.
“Had we had this conversation a month ago — at the end of 2021 and before omicron really started picking up — I would have suggested Q1 would be in a recovery mode with gradual improvement, albeit limited by the fact that many hospitals are limited by staff,” said BTIG analyst Ryan Zimmerman. “All of that is still true, and that is true for the rest of 2022. But of course, Omicron threw a curveball.”
Companies recently warned that omicron is limiting non-emergency procedures in the first quarter of the year, and as the variant sees a surge in the closing weeks of the fourth quarter and the opening weeks of the first, it could take months for the industry to realize the full impact of the variant.
Because of this unpredictability, companies are likely to release conservative 2022 forecasts or suspend full-year forecasts, according to both Antalffy and Zimmerman.
Mayuri Shah, a partner of Bain & Company, said that, as has been the case for the past two years, procedures such as orthopedics will be more effective than others, such as cardiac procedures, because they are considered more delayable.
Still, Shah said cardiac procedures are generally “meaningful,” raising questions about whether surgeries traditionally viewed as more up-and-coming will also come under pressure this year.
SVB’s Antalffy said a company like Edwards Lifesciences, which performs cardiac procedures for more life-threatening conditions, is “more resilient” to the pandemic, while questions remain about when revenues from the procedures will be posted. Some heart procedures are labor-intensive and can be delayed by a quarter or two, according to the analyst, no matter how necessary they are.
Edwards CEO Michael Mussallem said at the JP Morgan conference that January “started slower than we originally planned,” but that the situation at the time wasn’t bad enough for medtech to back up its 2022 forecast of 12% to 15% revenue growth. for the transcatheter aortic valve replacement business.
Analysts agreed that the ongoing COVID-19 outbreak, and potential increases ahead, are slowing down how quickly companies can clear backlogs in procedureswhich Medtechs continually pointed to in 2020 and 2021 as a positive sign for future earnings, as most procedures must eventually be performed.
Over the past two years, non-emergency care has been shut down on several occasions to save hospital resources and keep beds available for COVID-19 patients. However, this most recent increase may contain a new element.
With proceedings volumes falling again, Bain’s Shah said that “this is the first time we’ve seen staff shortages play such a big role as well.”
Labor shortages in hospitals
Staff shortages have been a challenge for hospitals and other healthcare facilities for much of the past year and tThe issue appears to have grown as multiple industry executives have pointed to staff shortages that are slowing companies down on their most recent revenue calls.
During Tuesday’s earnings call with investors, J&J CFO Joseph Wolk continuously pointed to hospital staff shortages as the cause of limited procedure volumes in the fourth quarter and said the company will likely be hit throughout the year.
As labor shortages are cited as the main reasons for the pressure of procedure volumes in the coming year, any new increase could exacerbate the problem of worker burnout or fatigue. In addition, smaller staffing limits the number of procedures an institution can perform, even when a hospital is not experiencing a COVID-19 wave.
“This is not an easy solution. Hospitals are trying to operate as best they can with fewer staff and/or pay traveling nurses a lot of money,” Antalffy said. “I think that’s going to be the problem we’ll be talking about in six months.”
BTIG’s Zimmerman said that because of the nature of the pandemic, with multiple spikes putting pressure on hospital staff and possibly more spikes, staff shortages could get worse before they get better.
“It’s not just about a nurse who has graduated from nursing school or someone who is an ultrasound technician — those people get technically proficient over time, and then they get really productive in some area,” Zimmerman said. “The fact that these are skills gaps that have been lost over the past 18 months or two years is a problem and it will take time to resolve.”
While labor shortages have been exacerbated as a result of COVID-19, it is a long-standing, complex problem that is unlikely to be resolved by an easing of the pandemic.
M&A began this year with Stryker’s nearly $3 billion purchase of Vocera Communications. However, since the announcement of the Stryker deal, spending has slowed compared to the 10 deals announced in January 2021.
That probably won’t happen. Medtechs still have cash in store due to more conservative spending habits during the pandemic, and while mergers and acquisitions have been a big theme for medtechs in recent years — with the exception of 2020 — analysts expect deal-making to continue for companies across the industry. .
“We know that valuations in the medtech sector are reaching all-time highs, and they are still happening. But companies need to grow, and while there are assets that are expensive, companies in the space are still acquiring assets for creative growth.” said Truist Securities analyst David Rescott. “We don’t necessarily expect a high-level slowdown.”
Stryker’s Vocera announcement didn’t spark a series of releases in January, though the deal continued a larger trend of medtechs stepping out of their typical lines of business and investing in digital healthcare.
The $3 billion purchase of the orthopedics company follows Baxter’s $10.5 billion acquisition of Hillrom last year, which was motivated by Baxter’s expansion of its digital health and connected-care offerings.
While medical tech companies could also use mergers and acquisitions to branch out into digital markets, Rescott said it’s “probably a five-year story, as opposed to something we’ll see right away in 2022.”
Bain’s Shah said category leadership will continue to be a key driver of mergers and acquisitions.
“Category leaders have more commercial strength in terms of their relationships with physicians and facilities, they generally have more clinical expertise in the categories they play in and, most importantly, relationships with key opinion leaders there,” Shah said, adding that companies then have the opportunity to further invest in those spaces.
Along with an increase in deal activity, 2022 could be another big year for medtech IPOs after hitting a five-year high last year, Rescott said.
Growth for ASCs
A byproduct of hospital shutdowns is the migration from surgeries to ASCs — a trend that started before the pandemic but has since taken off, forcing companies to rethink their business strategies.
ASCs provide alternative care locations for specific procedures, allowing hospitals to open beds and conserve resources. In recent years, CMS has enabled Medicare to cover more procedures in ASCs, and medtechs such as Stryker, J&J, and Zimmer Biomet have focused more on these facilities.
BTIG’s Zimmerman said other factors during the pandemic, such as staff shortages and preventing patients from being infected by the virus, have all fueled the procedure movement.
“It was like bringing gasoline to a game,” said the analyst.
Companies no longer just use ASCs to replace procedural volumes as they were in the early days of the pandemic, but now tailor products to the specific facility. Bain’s Shah said orthopedic companies are marketing their robotic surgical systems – Zimmer with Rosa; Stryker with Mako; J&J with Velys – as value propositions specific to ASCs, a trend that is likely to continue.
An important question is how much of those volumes will go back to hospitals as the pandemic improves. Stryker CEO Kevin Lobo said in January 2021 the move is permanent and will only accelerate, a prediction that could prove correct as the pandemic continues.
“There is a world where some of [the complex cases] continue to live in the hospital environment for the most part,” Shah said. “But the incremental time, the added time, in which ASCs improve in delivering these procedures will strengthen them as an important part of this ecosystem.”