Moody’s Investors Service has lowered its outlook for the U.S. medical device industry due to lower sales it expects from the coronavirus outbreak.
The Wall Street ratings service said yesterday that it has revised its EBITDA forecast for the next 12 to 18 months to 2% to 4% from 5% to 6%, but added that revenue trends over the longer term are “promising.”
The outlook for the U.S. medical products and devices sector has been changed from “positive” to “stable,” the ratings service said in its report. Slowing global economic growth and the diversion of healthcare expenditures toward fighting the coronavirus will pressure medical device sales in the near term, resulting in lower earnings than previously forecast, the company added.
“We expect a pullback in consumption in the first half of the year followed by a moderate recovery, assuming global efforts to arrest the spread of coronavirus are successful,” said Moody’s SVP Scott Tuhy in a news release.
The lowered rating comes in part from hospitals’ move to prioritize care for the most vulnerable infected patients and away from elective procedures that can be postponed. Although those elective procedures will likely occur later, “it remains highly uncertain when conditions will stabilize, and operating room bottlenecks and other constraints could limit how quickly deferred procedures are undertaken,” the company said.
Aside from coronavirus-related risk in the near term, longer-term revenue trends for medical products and devices makers are promising, Moody’s added. The ratings service’s analysts expect that innovation, especially in minimally invasive procedures and products such as continuous glucose monitoring systems and robotics, will continue to drive mid-single digit organic growth for a sustained period once activity returns to normal.
Meanwhile, Moody’s expects medtech companies’ margins to improve only slightly over the next couple of years, given cost savings from 2017’s mega-mergers have largely been achieved. Companies will increase investment in research and development in order to maintain or enhance revenue growth, while they likely will also be able to moderate some discretionary expenses to keep margins stable, the ratings service said.