3 trends lagging behind medical technology: supply chain constraints, inflation and hospital staff shortages


After overcoming 18 months of COVID-19, the industry is hoping that the vision of a post-pandemic recovery is hampered by three major challenges: the supply chain, inflation and health worker shortages.

“One of the things that gets a lot of medical technology investors thinking right now is that there are only a lot of macro issues to think about,” from the healthcare workers to the line d supply through inflation, noted Bob Hopkins, an analyst at Bank of America. Boston Scientific call for results.

Hopkins observed that these hurdles arise before analysts “even begin to look at the fundamentals of the company,” adding that all of these dynamic market conditions “make it difficult for investors to know how to think about modeling for the 12 next months “.

Companies in the sector cited the factors slowing growth.

NuVasive and Zimmer Biomet warned investors of the headwinds created by hospital staff shortages in September, foreshadowing its emergence as a key theme in the current medical tech earnings season. Johnson & Johnson, one of the first companies to report results, identified “reduction in medical staff” as a factor that is to say “binding volumes of proceedings”.

Constraints on procedural volumes are slowing growth. Stryker cited health personnel when it lowered its growth target for the full year last week, reflecting the effect of the situation on its implant business.

“This has primarily impacted our implant-related business, including the hips, knees and spine, which in many cases can be postponed for a period of time. However, the disease we are treating is degenerative and patients who postpone their procedures will eventually come back for those procedures to be completed, ”Preston Wells, vice president of investor relations at Stryker, told investors.

The big question is how long it will take hospitals to bring the situation under control and overcome the backlog of deferred cases. Wells, while noting some improvements in October, Stryker said expects the recovery to be “partially mitigated” by continued hospital staffing issues.

Boston Scientific CEO Mike Mahoney has acknowledged staff shortages will persist, but argues hospitals will be able to overcome them, arguing that changes such as the use of telehealth to screen patients and use outpatient centers can help. “Hospitals, like everyone else, are innovating and finding a way,” Mahoney told investors. “I think the surges will subside and the staffing shortage is likely to persist for a bit, but hospitals are resilient enough to find ways to increase the volume.”

Semiconductor shortage expands supply chains

Hospitals are grappling with staff shortages while simultaneously dealing with supply chain issues. Marshall Mohr, CFO of Intuitive Surgery told investors the twin issues “challenge some hospital capacities and could impact postponed procedures, including da Vinci procedures, in the future.”

Mohr identified semiconductors, the scarcity of which affects everything from automobiles to consumer electronics, as a particular supply chain issue. “While to date we have been able to secure the supply necessary to ensure the satisfaction of customer demand, our teams devote a great deal of time and effort to making the link between future supply and demand. Global shortages could lead to future supply disruptions as well as development and regulatory delays. activities, ”Mohr warned.

The semiconductor shortage is already affecting the sales of some companies. In August, ResMed reported the semiconductor shortage as a constraint on its attempt to increase supply to meet the additional demand created by the recall of competing devices from Philips. ResMed CEO Mick Farrell reiterated the situation last week.

“We are faced with the challenge of delivering the volume for our own # 1 market share position and also trying to achieve their # 2 market share position in the world as much as possible.” Farrell said. “Supply bottlenecks continue to restrict our access to critical electronic components, especially semiconductor chips, which ultimately limit our net production. ”

The situation is exacerbated by air and sea freight problems which make “very difficult a steady and steady flow of products to the market,” Farrell added.

The challenges extend beyond semiconductors – Stryker has flagged resins as another in-demand raw material – and affect businesses without the unique pressures and opportunities ResMed faces.

Sales at GE Healthcare fell 6% organically in the third quarter due to persistent shortages hitting life sciences harder than any other industries targeted by the conglomerate. GE CEO Larry Culp said the supply chain challenges are the worst he has ever seen, adding that the healthcare unit continues to proactively manage supply and logistics. . “It’s really like playing Whac-A-Mole”, Culp said. GE expects the supply disruptions to continue at least until the middle of next year.

Inflation drives up costs

Supply shortages are closely related to the third macro problem facing the medical technology industry, according to Abbott CFO Bob Funck. told investors when calling for company results.

“I think inflation and the supply chain are really linked. The global supply chain has not been able to meet high demand. So, like others, we are seeing increased costs. inputs into all areas of our business. We “each other know of higher shipping costs and, in some cases, higher commodity costs,” Funck said.

Echoes of Funck’s comment have been heard throughout the medical tech results season. Mohr of Intuitive noted an increase in component prices and freight shipments, adding that he expects “supply issues to drive production costs up.”

Baxter CEO Joe Almeida told investors the company was grappling with the effects of macroeconomic problems, adding that it “is not immune to inflationary pressures from rising commodity costs, raw materials, components, fuel and ongoing supply chain disruptions “. As Baxter works to keep up with these rapidly rising costs, Almeida warned that factors could continue to impact operations until 2022.

Price increases are not yet having a real impact on the bottom line for many companies, but that could change in the coming quarters.

Wells told investors that Stryker’s supply chain and procurement teams have been able to manage the increased costs to avoid any “major impact” on finances. At Intuitive, Mohr said the price increases have been “intangible” so far but could affect margins in the next two quarters.

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