Dive Brief:

• Analysts at Baird have downgraded their expectations for Nevro’s fourth quarter results after the company on Monday discussed decreasing demand for its neuromodulation devices.

• Speaking at an investor event, Nevro management said headwinds exceed "a few percent" but the situation is better than in the second quarter, when sales fell 40%. However, the wide range covered by the comment led Baird to model a 10% drop in fourth quarter sales.

• If the change in Nevro’s tone reflects a growing unwillingness of patients to get elective care amid surging COVID-19 cases, as the Baird analysts believe, the update could have implications for other medical device companies.

Dive Insight:

The start of the pandemic hit Nevro hard. Analysts at William Blair reported "near-zero trial procedures" using Nevro's spinal cord stimulation systems in April. Sales of the systems were flat by June, enabling Nevro to beat the analyst consensus. While sales grew 8% in the third quarter, with trial procedures falling and the backlog largely exhausted, Nevro predicted a flat fourth quarter.  

That prediction now looks optimistic. Analysts at Baird came away from Monday's investor discussion with Nevro management believing the rising COVID-19 case count is impacting company sales. Nevro has yet to provide a detailed picture of how bad the situation could get.

Management said the headwinds are more than "a few percent" but less than the 40% hit suffered in the second quarter, according to Baird. Based on the comments, analysts expect fourth quarter sales to fall 5% to 15%, versus the prior expectation of flat performance year on year. The responses of patients to the resurgence of the pandemic in the U.S. underlie the new prediction. 

"Broadly, incremental challenges sounded less like an issue with health system capacity and/or accessibility and more like an unfavorable change in patient willingness to seek elective care given recent deterioration in pandemic metrics," the analysts wrote in a Monday note to investors.

The nature of Nevro's business means the effect of headwinds this quarter could drag on into 2021. Patients receive trial implants before getting permanent devices. Trial procedure volumes fell 5% in the third quarter and have worsened since then. With some permanent procedures getting delayed or canceled, the Baird analysts said the signs "portend unfavorably for three- to six-month visibility."

Nevro competes with the neuromodulation divisions of medtech giants such as Abbott, Boston Scientific and Medtronic. Those companies have broad enough device portfolios to weather pressures on their neuromodulation businesses but the challenges faced by Nevro may affect other products. If some patients are putting off treatment for chronic pain due to the pandemic, other individuals are likely deferring the care they need to receive for their medical conditions.  

A survey of older people by analysts at Needham last month found willingness to undergo elective procedures had fallen since September. Companies including Johnson & Johnson and Zimmer Biomet have run campaigns intended to allay patient concerns and drive the resumption of procedures.

However, as U.S. COVID-19 cases have continued to surge nationwide in recent weeks, there have been reports from across the country of disruptions to elective procedures, including at UW Medicine in Seattle, UofL Health in Louisville, Kentucky, and more Mercy Health locations.