Despite numerous challenges, the medtech industry showed itself to be fairly recession-proof in 2020, according to a Medical Design & Outsourcing analysis of financials.
Annual reports recently released by 20 of the world’s largest medical device companies showed only a slight dip in revenue during 2020 — a year in which medtech held the front lines against the COVID-19 pandemic. Employment was also up slightly amongst the top earners, while R&D spending held its own.
The 20 companies included in the MDO analysis include 3M Healthcare, Abbott (medical device segment), Alcon, Align Technology, Baxter, Boston Scientific, Danaher (life sciences and diagnostics segment), Dentsply Sirona, Edwards Lifesciences, GE Healthcare, Henry Schein, Intuitive Surgical, Johnson & Johnson (medical device segment), Medline Industries, Owens & Minor, Royal Philips, Smith+Nephew, Stryker, Teleflex and Zimmer Biomet.
Revenue for those companies totaled $208.8 billion in 2020, a -0.3% decrease from the year prior when the same companies brought in $209.5 billion. In comparison, the 20 companies saw a 3.4% increase in revenue from 2018 to 2019 without a global pandemic affecting sales.
Companies that topped the list of increased sales included diagnostic and imaging companies, while orthopedic and other elective procedure device makers saw a slight dip in sales in 2020.
MassDevice and MDO‘s MedTech 100 Index, which includes stocks of the world’s 100 largest medical device companies, was up nearly 20% in 2020. In contrast, the S&P 500 was up about 16%.
“We had different kinds of companies that were able to benefit on some level from COVID and shutdowns,” Richard Newitter, senior research analyst at SVB Leerink, told Medical Design & Outsourcing. “Companies that do diagnostic tests saw sales increase throughout COVID. We also had other companies that had products that were well-suited for at-home type of treatment or things that require fewer in-person visits that also unironically saw a tailwind throughout COVID.”
Kaila Krum, managing director of Truist Securities, noted that elective procedures such as orthopedics and acute cardiac procedures were negatively affected in 2020, while devices used in lifesaving procedures or acute emergency cases saw more of a revenue increase.
“A lot of large-cap medical device companies did see revenue decreases in 2020. It was pretty diverse across our sector. We did see revenue decline in our midsize and small-size companies, too. Despite that, about two-thirds of our stocks within the medtech universe outperformed in 2020,” Krum said. “I think we learned [the medtech industry] isn’t bulletproof, but the stocks held up pretty well, albeit with a little bit of volatility throughout the year. We learned that procedure volumes can swing to pretty big degrees, and we learned that procedures that aren’t traditionally considered elective procedures were still getting pushed out.”
The Centers for Medicare and Medicaid Services (CMS) recommended postponing elective procedures to preserve personal protective equipment in March of 2020. Analysts expected the move to affect companies specializing in devices for higher-acuity procedures, like cardiovascular devices. CMS relaxed the guidelines in June, stating that facilities should check with state and local authorities to confirm if gating criteria (symptoms, cases and hospitals) have been met in their area.
“The biggest factor that really played into whether or not a company was doing well was elective procedure volumes and how the companies adapted to the declines in those procedure volumes,” Krum said.
There were also shifts to the outpatient environment and greater use of patient monitoring. Those types of trends accelerated in 2020 and will continue into 2021. Pent-up demand will also be geared more toward things like orthopedics, according to Newitter.
“I think the pent-up demand, some of it, has already been worked down in the back half of 2020 — the elective, deferred procedures — but not all of it,” Newitter said. “We also have another dip or a retreat in December/January with resurgences, so that probably created a little bit of new pent-up demand, in addition to the pent-up demand that was still lingering from our first initial big COVID wave.”
Research and development spending was up slightly in 2020 among the 15 out of 20 companies that reported the figure. All companies — excluding Danaher, Medline Industries, 3M Healthcare, Henry Schein and Owens & Minor — reported $12.3 billion in R&D spending in 2020, a 0.9% increase from 2019 when the same companies spent $12.2 billion on R&D efforts.
The biggest jump in R&D spending was from Align Technology, which spent 11.4% more in 2020 than in 2019. Zimmer Biomet’s R&D spending took a –17.2% hit between 2019 and 2020 as orthopedic procedure volumes slowed through Q3 last year.
With fewer people wanting to visit doctors during the pandemic, Newitter said that companies like Align saw increased demand during the pandemic because their products reduced the need for in-person appointments. Align, for example, sells clear teeth aligners that compete against traditional braces.
“Align and Invisalign allow for people to have fewer office visits to have orthodontist treatments done,” Newitter said. “You can imagine that that has clear benefits during a time when people don’t want to be going into doctors’ offices.”
Employee counts were up 2.7% in 2020 as well despite the COVID-19 pandemic. Among the top 20 companies, 17 reported their employee counts in 2020. Excluding Abbott, Owens & Minor and J&J, large medtech companies employed a total of 450,298 in 2020, a 2.7% increase from 2019 when the same companies reportedly employed 438,351.
GE Healthcare’s employee count took the biggest hit as it reported 3,000 fewer employees, representing a –6% reduction in its workforce. (GE completed the $20 billion sale of its BioPharma business to Danaher in 2020.) Align Technology saw the biggest spike in employment, employing 3,540 more people in 2020 for a 24.4% increase year-over-year. That number, however, is on trend with Align’s hiring numbers. The company hired 24.6% more people from 2018 to 2019 when there wasn’t a pandemic.