With the delta variant raging across the U.S. and other countries, medtechs are facing another dip in elective care as hospitals are overwhelmed by patients with COVID-19 and forced to delay or cancel procedures.

After the industry was slammed by elective procedure shutdowns throughout 2020 and early 2021, the industry was largely banking on, and predicting, a return to form in the second half of the year. As companies reported first- and second-quarter results, it looked like a recovery was coming sooner than expected, with businesses returning to pre-pandemic metrics and even growing above them.

Now, hospitals are once again being flooded by patients with COVID-19 and elective care is being delayed or canceled as the delta variant of the coronavirus continues to drive surges across the globe, putting a lucrative business line for the industry at risk of disappearing right as it was coming back.

"Over the last few weeks, there's been a meaningful drop in elective procedures," said Mayuri Shah, a partner with Bain & Company. "There are pockets of the country where a lot of things are looking very similar to where they were at the start of the pandemic."

Medtechs largely made it out of the second quarter of 2021 with minimal impact from COVID-19 surges caused by the delta variant. Companies like Johnson & Johnson, Boston Scientific and Stryker reported procedure volumes recoveries, and executives had little, if anything, to say about the variant.

However, delta-fueled surges intensified in July and early August, after the majority of the industry closed their books on the first half of the fiscal year, leaving unanswered questions about delta's potential effect.

Medtronic, which reported on Tuesday, may offer a peek at what companies could experience during the third and fourth quarters.

The medtech giant's fiscal year is scheduled differently than others, with the most recent quarter ending July 30 rather than June 30. While Medtronic reported some businesses eclipsing pre-pandemic marks behind a month-by-month improvement in procedure volumes, executives said delta's impact began hitting the company in late July and continued into August.

CFO Karen Parkhill cast confidence the impact would be "short-lived" because the introduction of vaccines has kept hotspots from spreading and hospitals now experienced at managing an increase in COVID-19 patients can prevent the level of procedure stoppages previously seen.

Medtronic executives also predicted delta would peak in the coming weeks with minimal impact on the company for the rest of 2021.

"We expect infection rates to peak probably in late August to early September and hospital and ICU capacity to improve a few weeks after that … By the time we exit our second quarter, we expect procedures to be back to more normal," Parkhill said.

Still, experts at groups like the University of Washington's Institute for Health Metrics and Evaluation and Johns Hopkins say the wave could extend longer.

Investors seem to have bought into Medtronic's optimism. Shares climbed nearly 5% between Aug. 24 and 25.

However, the full impact on medical device companies is still very much unknown due to the timing of the surges. Intuitive Surgical cautioned July 20 of rising COVID-19 cases in certain geographies but did not build possible disruptions to procedures from delta or other potential virus variants into future guidance.

Ashley McEvoy, executive vice president and worldwide chairman of J&J's medical devices business, said during a July 21 earnings call that U.S. hospital systems were delaying care in late July but did not give specific figures or outlooks. 

Meanwhile, Stryker CEO Kevin Lobo downplayed the risk of procedure delays or cancellations for the orthopaedics company.

"With the delta variant, you're starting to see pockets of disruption. But overall, the hospitals are very capable of being able to deal with this," Lobo told investors July 27.

Multiple medtech executives may contend that hospitals are better at managing surges, but not much can be done when ICU beds fill up and hospital staff are stretched thin. And while states with poorer vaccination rates are seeing higher rates of COVID-19 patients and hospitalizations, rates have been climbing across the country.

For example, Washington state has one of the highest vaccination rates in the country at nearly 60%, according to the U.S. Centers for Disease Control and Prevention. However, reports show the state, where one of the earliest pandemic hotspots for the U.S. was located, is experiencing some of the highest COVID-19 rates it has ever seen and is running out of hospital capacity.

While medtech leaders seem to think hospitals can handle the surge, some health system executives expressed caution on making predictions on recent financial calls.

"Despite all of the things that a hospital has learned about how to manage COVID more effectively, and maintaining operations across departments, when you're in that extreme of a position, there are fewer options on what you could do," Bain's Shah said.

Delta's impact still unknown

While delta is already shutting down elective care and posing a risk to the broader industry, the effect is likely to be less than in 2020 and early 2021 amid a nationwide and even international shutdown of procedures.

From March 24 to April 16, 2020, ophthalmological surgeries in the U.S. declined by 94% compared to pre-pandemic volumes, pain procedures dropped 91%, oncology surgeries dipped 89%, and orthopaedic procedures dropped by nearly half, according to data from IQVIA. Similar drops were seen in the European Union over the same period, although with an 89% hit for orthopaedics.

"Virtually every category of elective procedures saw initial dramatic decreases," the March report stated.

While Gov. Greg Abbott, R-Texas, asked Texas hospitals to suspend certain procedures Aug. 9 of this year, the regionality of hotspots could allow some areas to continue with procedures in certain pockets of the state while other areas have to limit or completely stop care, Shah said.

Another positive signal is that while industry took a substantial hit during multiple previous shutdowns, many procedures were successfully rescheduled, suggesting that this could happen again as hospitals' operations normalize in current COVID-19 hot spots.

J.P. Morgan analysts wrote that market stabilization could happen in September or October if delta peaks in late August or early September, with ICU bed stabilization following a few weeks later.

William Blair analysts wrote that certain models have suggested a peak in later September or October, about one month later than J.P. Morgan's mark, which would delay care even longer and put more pressure on medtechs' revenues.

A lingering and longer-term challenge facing the industry is early data showing in-person doctor visits, particularly specialty visits, are falling along with electives, according to Shah. While companies can work through backlogs, new patient lists cannot be filled unless patients are recommended for procedures by doctors.

Shah said cardiac and orthopaedic procedures have been some of the early procedure types that have taken a hit, but it could still be weeks before more data comes in and a clearer picture of delta's impact is known.

J.P. Morgan analysts wrote that updates from orthopaedic companies during the American Academy of Orthopaedic Surgeons conference next week may offer a better glimpse at delta's impact as orthopaedic procedures are considered to be more highly deferrable than others.

"As we get towards the end of the quarter, we'll certainly hear more in terms of earnings calls from these companies and understand the impact on business," Shah said. "The milestone I'm not aware of is when do we say, 'Okay, we've hit the peak of delta and now we're seeing how things are bouncing back.' We just don't know yet what to call the peak."