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The "new opportunity" of the medical device industry in the epidemic crisis


According to the British "Economist" report, the new crown epidemic has caused an economic downturn, and the medical equipment manufacturing industry bears the brunt. The epidemic is raging, and the medical procurement process that requires sophisticated medical equipment has collapsed, which has dealt a huge blow to 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, you can take Medtronic as an example. On August 25, the American giant Medtronic with a market value of $138 billion announced its financial results for the quarter ended July. Judging from the financial report, the performance was terrible: revenue was only 6.5 billion US dollars, down 17% year-on-year, and net profit fell nearly half. The company refused to predict future revenue on the grounds of the epidemic.

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

Medtronic's recovery may herald a larger-scale recovery of medical device companies. Matt Mikicic of the investment bank Credit Suisse pointed out that these companies were in crisis when they were "driving against the wind." The strong growth of global income has become the driving force behind their recovery. In 2020, consulting firm KPMG predicts that global sales in 2030 will increase from USD 371 billion in 2015 to USD 795 billion. Tim Van Bisson of Bain Consulting pointed out that before the outbreak, sales of high-profit equipment used in orthopedics, neurosurgery, and cardiovascular surgery surged. As a result, in the past five years, its stock price has exceeded Big Pharma and the S&P 500 index (see chart).

Screenshot of the British "The Economist" report

Whether this unexpected performance can be sustained depends largely on the direction of the new crown epidemic. In order to promote lucrative equipment and related services, medical device manufacturers rely on a team of well-trained sales representatives to win over doctors and train them. A Bain survey found that before the emergence of the new coronavirus, 9 out of 10 medical staff wanted to communicate with equipment sales personnel in person. Van Bisen said that when performing complex operations, many surgeons value the advice given by the top representatives because they know their own company¡¯s cutting-edge technology better than doctors. Some doctors even rely on these representatives to rank their preferred tools before surgery. Now Bain has found that more than 60% of surgeons expect such face-to-face communication to be restricted.

Long-term restrictions on communication may affect the medical device industry in unexpected ways. Bisen believes that large companies may lose 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 obsessed with high-priced brands and sales representatives. Mikicic believes that in professional fields like spinal surgery, high-level on-site services are common, and 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," then these achievements are all due to the sales of old equipment.