The first week of earnings for the medical device industry provided an early look at how companies weathered the omicron surge in January, which was yet another complication for the sector's pandemic recovery.
Johnson & Johnson and Intuitive Surgical reported that procedure volumes continued the recovery trend that began in the second half of 2021, with certain businesses inching closer to or eclipsing 2019 levels.
And while there continue to be questions around COVID-19 testing as demand fluctuates, Abbott Laboratories and an early report from Quidel on April 7 showed that at least for the first quarter, coronavirus testing was a top revenue driver.
Pandemic pressure may be easing for some companies, but Wall Street is keeping an eye on China's current rise in COVID-19 cases and subsequent lockdowns.
J&J told investors that businesses in China will be hit through May, and Abbott and Intuitive said that the impact to procedures continued into April, but the companies did not speculate as to when volumes would improve.
"The disruption from China has been impactful, but so far not as bad as thought," J.P. Morgan analysts wrote in an April 20 note. "However, this is the area we're still concerned and keeping a close eye on as we don't expect a fast resolution."
Procedure trends
J&J’s medtech business continued its recovery in the first quarter as procedure volumes returned in U.S. markets and further built back in international markets, particularly for the orthopaedics unit.
The results provided a bit of clarity after 2022, once again, started off with questions as to how the pandemic will impact nonemergency procedures.
“Given the considerable COVID-related uncertainties impacting MedTech, [J&J's first quarter] performance clearly offered investors encouragement that recovery is underway, and that 2H22 should be stronger than 1H22,” Stifel analysts wrote.
Ashley McEvoy, worldwide chairman of the medtech business, told investors April 19 that procedure volumes in ambulatory surgery centers helped fuel the company’s growth for the orthopaedic unit. While ASCs make up less than 20% of volumes, McEvoy said, it’s still one of the fastest-growing aspects of the medtech group.
As procedures have migrated to ASCs — a trend accelerated by the pandemic — J&J has restructured its business model to cater to the facilities, which provide an option for patients that are hesitant to return to hospitals.
“We've done a lot of work recently to modify our business model to make it a capital-efficient flow, if you will, on inventory management, on the personalization of care, using digital assets to make your pre-op and your post-op experience less full of friction,” McEvoy said. "I'm optimistic that this channel will continue to evolve. I do think that we've increased our competitiveness there."
The company reported growth across the company as well, not just orthopaedics. Most notably, interventional solutions grew by 15% compared to the prior year’s quarter, and the vision business’s surgery segment grew globally by roughly 20%.
J&J reported Q1 growth across its medtech business
| Interventional Solutions | Orthopaedics | Surgery | Vision | Total | |
|---|---|---|---|---|---|
| Reported Sales (YOY change) |
$1.1B (15.1%) |
$2.2B (3.5%) |
$2.4B (2.6%) | $1.3B (9.8%) | $7B (5.9%) |
SOURCE: Johnson & Johnson's first quarter earnings report
Meanwhile, Intuitive had a similar recovery for procedures, growing both year over year and above pre-pandemic marks. Stifel analysts wrote that the robotic surgery maker’s first-quarter results were “better-than-expected in virtually every aspect.”
However, placements of the company’s da Vinci systems came in below expectations and supply chain struggles also hit in the first quarter. CFO Jamie Samath told investors during an April 21 earnings call that Intuitive struggled to keep up with customer demand last quarter and on-time delivery performance was the lowest it has been during the pandemic.
“In Europe, recently we have experienced some geographically limited delays in fulfilling orders for some da Vinci instruments and accessories,” Samath said. "These delays were due to a combination of the global supply chain and logistics issues ... While these constraints did not have a material impact to our Q1 financial results, risks associated with potential disruption to our manufacturing operations and our ability to supply certain products to our customers remains significant."
Truist Securities analysts acknowledged the supply chain struggles but noted that they were not as severe as previously thought. The analysts wrote: “We think this is a relatively manageable and muted impact relative to what we believe some might have feared into the quarter.”
Still, Intuitive’s stock took a hit in after-market trading Thursday and continued to drop Friday.
BTIG analysts wrote that “bearish commentary on the capital spending environment at U.S. hospitals and supply headwinds weigh on-demand” likely contributed to Intuitive's drop.
Abbott’s Amulet update
One of last year’s top product releases was Abbott’s Amplatzer Amulet left atrial appendage occluder device. Amulet upended a monopoly held by Boston Scientific with its Watchman product, and questions of how much market share Amulet could steal quickly followed its approval.
Abbott CEO Robert Ford told investors on an April 20 earnings call that after being challenged in the first part of the quarter, the Amulet team “definitely had a really strong exit to Q1.”
Amulet had worldwide growth of about 170% last quarter, with a double-digit share position in the U.S., according to a J.P. Morgan note.
Ford said that as the new technology in the market, Abbott needs to work with physicians to learn how Amulet is used and how it is implanted, and continue to grow use with early accounts.
“I think we'll be looking at, not only expansion into new accounts, but also utilization in existing accounts, and that's the piece that I'm actually getting very excited about,” Ford said. “As we've looked at the accounts that we started back in September and October, we're starting to see nice share movement over there. So, that's very exciting for us.”
Whether Amulet has had a noteworthy effect on Watchman may be answered on Wednesday, when Boston Scientific reports first-quarter results. During a February earnings call, CEO Michael Mahoney acknowledged that the device will likely lose some share to Amulet but called Watchman “a significant growth driver” for 2022 and beyond.
In 2021, revenue brought in from Watchman totaled $830 million, beating Wall Street’s expectations by about $100 million.
Stock movement
After seeing a boost to their stock prices mid-week, each company that reported experienced a drop at the end, some dropping by more than others.
J&J, Abbott and Intuitive's daily change in stock prices after reporting earnings last week
| 4/18 | 4/19 | 4/20 | 4/21 | 4/22 | |
|---|---|---|---|---|---|
| Johnson & Johnson | -1.25% | 3.05% | 0.44% | -0.29% | -0.99% |
| Abbott Laboratories | -1.19% | 3.17% | 2.22% | 0.60% | -3.02% |
| Intuitive Surgical | -1.20% | 6.70% | 2.73% | -2.75% | -14.34% |
SOURCE: Seeking Alpha
Companies across the industry — such as Quidel, Edwards Lifesciences, Boston Scientific, Dexcom and Medtronic — had similar stock movement last week as well. Although, none had as big of a drop as Intuitive.
The dip in stock prices for medtechs occurred as both the S&P 500 and Dow Jones Industrial Average dropped by 2.8% Friday.
Looking ahead
J&J and Intuitive may be an early sign that procedures across the industry were not largely impacted by the omicron surge earlier this year and the industry will continue to recover throughout 2022.
Analysts from Stifel and Evercore wrote that J&J’s results are likely a positive sign for companies that will report in the coming weeks, such as Boston Scientific, Stryker and Zimmer Biomet. However, SVB Leerink analysts cautioned that the recovery could be J&J-specific.
“It’s important to note, however, that this confidence and 1Q22 strength from [J&J] could be a product of the company’s uniquely diversified business model, and because of that, direct read-throughs from the quarter and recovery commentary to MedTech companies broadly are tough to come by,” the analysts wrote.
With the first week of earnings done, a longer list of companies will be reporting this week and proving if trends reported in week one will hold up.
J.P. Morgan analysts highlighted Edwards, Boston Scientific and Stryker as companies that could beat Wall Street’s expectations due to a lesser-than-expected omicron impact last quarter.
Here are a few key earnings calls to watch this week:
- Edwards Lifesciences – Tuesday, April 26, 4:30 pm ET
- Boston Scientific – Wednesday, April 27, 8 am ET
- Baxter International – Thursday, April 28, 8:30 am ET
- Stryker – Thursday, April 28, 4:30 pm ET
- Dexcom – Thursday, April 28, 4:30 pm ET
Elise Reuter contributed reporting.
