Shares of two of the largest orthopedic device companies started climbing this morning on news of a new White House recommendation that elective surgical procedures may resume.
Shares of Zimmer Biomet (NYSE:ZBH) were up 6.42% to $116.45 apiece in mid-morning trading and those of Stryker (NYSE:SYK) had risen 5.28% to $184.20.on both an inpatient and outpatient basis as the country begins to resume normal activities.
The decision, announced during yesterday afternoon’s White House coronavirus briefing, is part of the Trump administration’s larger plan to gradually reopen the country as the coronavirus pandemic plays out. The new federal guidelines also allow governors to take a phased and deliberate approach to reopening their individual states.
Several medical device companies, especially those in orthopedics, have suffered major drops in sales since the Centers for Medicare and Medicaid Services (CMS) recommended in March that healthcare providers postpone elective procedures until further notice to preserve personal protective equipment.
The CMS decision followed one by the American College of Surgeons calling for hospitals to “minimize, postpone or cancel” elective procedures until the coronavirus (COVID-19) outbreak slows down. This week, the surgeons’ organization published its own list of recommendations for gradually resuming outpatient procedures.
Elective surgeries in hard-hit China and Italy plummeted by 85% to 90% in February and March. In the U.S., the downturn in elective procedures has been “severe,” according to Jefferies analyst Raj Denhoy.
Guidance from CMS has been “far from uniform,” Denhoy added, giving hospitals and other surgical sites “a fair amount of discretion on what is elective.”
“The issue, though, is that hospitals and doctors are losing a significant amount of revenue in this period and there is a lot of incentive to open things up again,” Denhoy said in an email to MassDevice. “And without procedures, device companies see a major hit to their sales.
“How this happens and the pace of recovery is a point of significant discussion among investors. Lessening the restrictions will help, but there are still questions on if patients will want go to hospitals? What is the capacity that is being opened up? Will volume shift to sites outside of hospitals? Will there be a spike as deferred procedures are made up or will it be more gradual? Things like that,” he added.
In the meantime, many medical device companies have reduced or abandoned their financial projections for the remainder of 2020.
Executives of orthopedics firms announced they would be taking pay cuts and that their companies would be cutting back in other ways. Zimmer Biomet reported April 7 that it would implement other cost-cutting moves, including reductions in discretionary spending and decreasing manufacturing output. Stryker withdrew its guidance altogether, saying it intends to provide additional information in its next earnings release and conference call, which is scheduled for April 30, 2020.
Non-orthopedic medtech companies have not been spared, either. For example, Abbott (NYSE:ABT) noted recently that its medical device revenue was down 50-80% at the end of the first quarter of 2020.
Medtech trade group AdvaMed hailed the news.
“We appreciate the President’s announcement tonight of a plan that would safely allow elective surgeries to resume,” said AdvaMed president & CEO Scott Whitaker. “The term ‘elective surgeries’ implies they’re procedures patients choose to have, but in reality (it) means surgeries or procedures that are ‘scheduled,’ are important to the patient’s health, and must often be performed. As the plan is implemented, we must ensure that patients who need life-saving care can receive it. We thank the White House task force for working with AdvaMed, our member companies who manufacture these crucial surgical technologies, and the health care professionals who helped make the case that we need to work responsibly to get these patients the care they need.”