When the investor relations folks at Johnson & Johnson’s New Brunswick, N.J, headquarters kicked out the company’s earnings Tuesday morning, it marked the beginning of yet another quarterly earnings season — and another peek at how the medical device industry has withstood the worst financial crisis in generations.
For JNJ the news was good; sales of medical devices were up 4.2 percent domestically and even beat its pharmaceutical division’s numbers for just the second time in a decade. But will the rest of the industry show similar signs of health?
A recent report from Ernst & Young indicated that the industry has thus far weathered the storm, growing an estimated 11 percent overall in 2008 despite the apocalyptic economic environment. However, the auditors said the industry remained flat for the first half of 2009 and will face “significant challenges,” as the funding drought for startups continues and the regulatory picture evolves.
The troubling omens include a reported 38 percent decline in venture capital investment for the sector during the first six months of 2009 and the fact that the IPO market has been DOA since Q1 2008. Not surprising, and not good news.
Overall M&A activity also declined significantly: There were only 44 deals totaling $6.7 billion during the first half of 2009. In comparison, there was $41 billion worth of deals last year, which itself was a 33 percent drop from 2007.
So what should we look for during earnings season?
Analysts at New York-based investment firm Leerink Swann said in a report to investors that, while the third quarter is statistically a slower season for medical technology companies, they have not heard reports of any procedures slowdowns and are expecting a slight rebound in the number of procedures performed at hospitals.
The analysts also don’t expect foreign exchange rates to take as big a bite from bottom lines, as in the recent past, and said they expect large-cap companies to deliver “basically fine” results.
Some other findings from the Leerink study:
- A 5.3 percent growth estimate for the implantable cardioverter defibrillator market. The firm had previously predicted a 7.1 percent spike, but lowered its forecast on St. Jude Medical’s recent announcement that Q3 sales would be off.
- Boston Scientific Corp., the first company out of the gate in the ICD market, will report its earnings Oct. 19. Leerink Swann analysts said the Natick, Mass.-based medical device colossus should show some gain in market share on the backs of its Cognis and Teligen lines.
- The drug-eluting stent market worldwide will likely grow about 2 percent in Q3, according to Leerink.
- Analysts expect stable-to-improving growth in the U.S. orthopedics market, with pricing pressures coming on the global market. Overall, the analysts are predicting industry growth of around 3 percent compared to last year.
Here’s a rundown of the major companies’ earnings releases and consensus estimates for sales and earnings-per-share:
- 10/14: Abbott Laboratories: Analyst estimates (mean): $15.19 billion, $1.13 EPS
- 10/15: Baxter International: Analyst estimates (mean): $7.72 billion, $.90 EPS
- 10/20: Boston Scientific Corp.: Analyst estimates (mean): $2.04 billion, $.14 EPS
- 10/20: Stryker Corp.: Analyst estimates (mean): $1.62 billion, $.69 EPS
- 10/20: NuVasive Inc.: Analyst estimates (mean): $92.8 million, $.05 EPS
- 10/21: St. Jude Medical Inc.: Analyst estimates (mean): $1.17 billion, $.58 EPS
- 10/21: Zimmer Holdings Inc.: Analyst estimates (mean): $953 million, $.86 EPS
- 10/27: Hospira Inc.: Analyst estimates (mean): $932 million, $.68 EPS
- 11/4: Becton, Dickinson & Co.: Analyst estimates (mean): $1.84 billion, $1.25 EPS
- 11/17: Covidien, Ltd.: Analyst estimates (mean): $2.62 billion, $.70 EPS