Abbott Laboratories and Johnson & Johnson separately reported recoveries from elective procedures earlier than expected in US hospitals in the second quarter, even as the nation struggles with an increasingly severe COVID-19 pandemic.
Shares of Abbott ABT,
closed at a year-to-date high of $ 99.25, the day after it reported its second-quarter results that exceeded expectations for profit and revenue. Johnson & Johnson’s JNJ,
The shares closed at $ 149.29 on Thursday, the day they reported that their second-quarter earnings and sales exceeded expectations. The company also raised its outlook for the full year.
Both companies market a combination of medical products, including devices, medications and tests for Abbott and pharmaceutical products, devices and consumer brands such as Band-Aids for J&J.
As the coronavirus spread through parts of Asia, Europe, and the US, the largest geographic markets for these companies, many hospitals canceled or postponed elective appointments and procedures that often use medical devices and diagnostic tests. This was done to keep patients out of high-risk healthcare facilities and to release personal protective equipment such as masks, gloves, and gowns, as well as the workers themselves for COVID-19 patients.
Read: Rule change on how hospitals report coronavirus data to government is under fire
Many of the initial spikes in coronavirus cases in the United States occurred during the second quarter of the calendar year, which began in April and ended in June.
It was a surprise then that companies like Abbott and J&J saw unexpected recoveries in procedural volume at the end of the second quarter.
Abbott President and CEO Robert Ford said Thursday that “procedural volumes had recovered to approximately 90% of pre-COVID levels on average in the US.” In late June, according to a FactSet transcript of an investor call. Its diagnostic testing business, which does not include the diagnostic and serological tests it sells for COVID-19, also rebounded, to a similar threshold of 90% compared to pre-pandemic levels, according to Ford’s comments.
That said, Abbott’s global device sales still fell 21.2% on a reported basis to $ 2.4 billion in the second quarter of 2020, as did device sales in the United States, 29.0% to $ 966. millions. Diagnostic sales increased 7.1% to $ 1.9 billion in the second quarter of the year; In the US market, they shot up 23.2% to $ 857 million.
J&J’s medical device business reported a 33.9% decrease in sales on a reported basis to $ 4.3 billion in the second quarter of 2020, down from $ 6.5 billion in the same quarter of the prior year. Sales of medical devices in the US fell 39.6% to $ 1.8 billion in the second quarter of the year, compared to $ 3.1 billion in the same quarter of 2019.
J&J Chief Financial Officer Joseph Wolk told investors Thursday that company executives still expect the second quarter to be the quarter most affected this year by device sales.
“We are encouraged by the improvement we saw each month in the second quarter, with June being the minimum at about 25% compared to our original expectations,” he said in a call to investors. “We are experiencing a faster-than-expected recovery, and therefore the backlog of patients we originally predicted in the fourth quarter as a result of backlog is now assumed to occur earlier in the year.”
J&J’s reported rebound in elective surgeries “bodes well” for manufacturers like Stryker Corp. SYK,
and Zimmer Biomet Holdings Inc. ZBH,
Both only sell medical devices, according to Raymond James analysts. Stryker Reports Earnings July 30; Zimmer reports the following week. But recent increases in cases in the United States may also become a barrier to growth in the second half of the year, they said. “Ultimately, part of the resurgence of COVID-19 concerns probably means there could be a slower progression from here,” analysts wrote on July 16.
A few months ago, the expectation was that the United States would fare similarly to other affected regions, such as Italy, Spain, and China. After a spike in cases, the US would be on the other side of the curve, with some room to breathe before a possible “second wave” occurs. However, that has not been the case in the United States. Coronavirus cases are emerging in California, Florida and Texas, among other states. According to the Kaiser Family Foundation, as of July 19, more than half of the US states are considered “hotspots” for the virus.
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There are some potential new scenarios on how the recent increase in cases affects traditional sales of non-COVID-19 related health industry products and services. Many U.S. hospitals, which now have a better understanding of how the virus is transmitted (and how to prevent transmission within a healthcare setting), and also how closing elective procedures can affect its results, may move forward with some procedures even when caring for an increasing number of patients with COVID-19.
Hospitals “as much as possible want to try to continue to ensure that patients can access these procedures even while managing the pandemic,” J&J CEO Alex Gorsky said in the same call to investors. “But again, depending on where you are, there have been some areas where the elective procedures have closed, and they are managing it based on the case loads they are seeing.”
“There is less uncertainty about the medium-term outlook for the procedures in the next 12 months, but the shape of the recovery curve in [the second half of 2020] it’s a little confusing, ”SVB Leerink device analysts wrote in a July 17 note. “Overall, hospitals are likely better prepared to deal with regionalized COVID surges compared to preparedness in March / April, so the impacts on elective procedures, if / when the second wave hits, should be more manageable than the first lap. “
Abbott shares have risen 14.2% and J&J shares have risen 2.4% since the beginning of the year. The S&P 500 SPX,
it is down 0.2% on the year.
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