Dive Brief:

• Philips continues to experience significant demand for patient monitors and ventilators fueled by hospital orders as the U.S. and Europe struggle with spikes in COVID-19 cases, the company reported in third quarter results released Monday.
• The Dutch conglomerate reported 10% sales growth across the overall company with a 42% increase in its connected care unit driven by orders related to the ongoing coronavirus pandemic. While the trend is expected to extend into the fourth quarter, a decline is predicted for 2021 as demand for ventilators wanes.   
• Still, Philips is targeting average annual sales growth of 5% to 6% from 2021 to 2025 as the company seeks to capitalize on what execs perceive as a shift in healthcare as remote patient monitoring and virtual care gain momentum. "We think that's permanent," CEO Frans van Houten told investors on Monday's earnings call. 

Dive Insight:

While van Houten said the pandemic is "far from over," and the company expects low single-digit growth from the diagnosis and treatment and personal health units in 2021, it will be offset by lower connected care sales as demand for ventilators normalize from this year's coronavirus-driven spike.

Philips' ventilator business took a hit in late August when it received a partial termination notice from the Department of Health and Human Services that it would no longer require delivery of 30,700 remaining ventilators to the U.S. Strategic National Stockpile. As a result, the company reduced its 2020 earnings outlook. 

The cancellation of the HHS contract took a "bite out" of the medtech's ventilator business, van Houten acknowledged. That aside, the CEO noted Philips reported comparable order intake showed a double-digit increase, with strong growth across all businesses. "We had approximately 30,000 or so ventilators in 2019" and a "sevenfold increase this year."

However, the company expects the hospital ventilator market to return to 2019 levels in 2021.

Nonetheless, van Houten contends the value of remote monitoring technologies has been validated during the COVID-19 crisis and Philips has seen increased interest from healthcare customers in post-pandemic use of such telehealth and virtual care applications as tele-ICU, teleradiology and telepathology.

"We do see resilience in the order funnel for patient monitoring, because monitoring will get into our care settings, van Houten said. "And I think the category will prove to be much more resilient then hospital ventilation."

CFO Abhijit Bhattachary noted that the medtech expects continued "solid growth" in connected care sales in the fourth quarter, albeit not comparable to third-quarter levels.

While the hospital ventilation business is expected to decline, Philips anticipates its sleep business will make a comeback. Though fewer sleep tests are being conducted during the pandemic, van Houten said there's a backlog of patients that are "underdiagnosed and undertreated" which could get a "big boost" in 2021.

Likewise, the company expects strong growth in cardiac ultrasound and MRI as elective procedures continue to recover.

Overall, Philips anticipates "an acceleration" of its average annual comparable sales growth to 5% to 6% "with all business segments in that range," van Houten told investors on Monday, aiming to reach the high teens by 2025.

Philips on Nov. 6 will hold a virtual capital markets day with investors and financial analysts when it plans to provide additional details on its 2021-2025 strategic plan.