The COVID-19 pandemic has had an enormous impact on elective and nonessential procedures, and with them the medical device companies they depend on, but early signs of recovery are encouraging, according to Raghav Tangri, of Decision Resources Group (DRG), which is part of Clarivate. That said, Tangri told BioWorld that while the second quarter is expected to be the most strongly impacted period this year, the speed of recovery will depend on a number of factors, including the possibility of a second wave of the coronavirus outbreak and how soon a vaccine is available.
“We are already seeing some sort of a stalling in July” after upticks in procedure numbers in May and June, Tangri said.
A recent report by DRG looked at the impact of COVID-19 on elective, semi-elective and nonessential procedures, focusing on six market areas; aesthetics, dental, orthopedics, endoscopy and open surgery, gynecology and urology. Major factors limiting procedures included infection containment and self-isolation, regulatory and public health recommendations and guidelines and financial uncertainty.
It also depended on the necessity of the procedure. Of the eight aesthetic procedures DRG looked at, all were deemed to be “primarily elective.” Not surprisingly, first-quarter revenue in the aesthetics sector was down 15%, compared with the same period of 2019.
By contrast, orthopedics declined 5% year over year in Q1, with trauma procedures helping to cushion the slowdown in more elective hip and knee replacements and spine surgery. Because they are mostly elective, orthopedics, dental and aesthetics will take longer to recover than gynecology, urology and endoscopy, which each declined 9% but include more urgent procedures that can’t be put off, the report says.
The downturn is notable in second-quarter earnings reports from major orthopedics companies, such as Johnson & Johnson, Stryker and Zimmer Biomet Holdings. As Wells Fargo analyst Larry Biegelsen noted recently, “Adjusted for the y/y impact of FX and selling days, we estimate that the global recon market decelerated by 3,420bps sequentially in Q2’20 (to -41.1% y/y) due to COVID-19 after declining 6.9% y/y in Q1’20.” The slowdown was less in hips than in knees, as the former are more likely to be trauma-related, he said.
“We’re seeing impacts, if it’s a highly deferrable procedure, of around 30% … [versus] an impact of less than 10% for things that are highly urgent,” Tangri said.
DRG predicts gynecology, urology and endoscopy procedures will recover in the second half of 2021, but aesthetics is expected to catch up until the second quarter of 2022, and neither dental nor orthopedics until the fourth quarter of that year.
Slower recovery for capital equipment
Another victim of the slowdown is capital equipment. Hospitals depend on revenue and profits from nonessential procedures to finance machines that may cost millions of dollars. When those dollars dry up, hospitals forego those large purchases.
“The capital equipment market is going to have an even larger, drawn-out impact even when procedures start to recover,” trailing six to nine months behind the recovery of procedures, he said. ‘’There are procedure categories that will not come back to normal in 2021, and then there is this whole segment of the market, which makes up 20% to 25%, which is high-end CT scans, MRI machines.” The recoveries for these could extend well into 2022 and 2023, Tangri said.
Moreover, recovery rates across all categories will vary across geographies, with Asia Pacific, where COVID-19 peaked early, rebounding sooner than Europe, the U.S. and Latin America.
Health insurance could also affect the recovery, especially in the U.S. As people struggle economically and are unable to pay their premiums or lose their overage altogether, categories like dental, aesthetics and orthopedics will suffer. Tangri noted that elective dental procedures fell off sharply after the 2008 economic downturn and have never totally closed the financial gap that occurred.
Despite these concerns and the ongoing battle to contain COVID-19, overall recovery across both more emergent and elective/nonessential procedures was faster than expected in May and June, Richard Newitter, of Svb Leerink, told BioWorld.
“As you moved into May and June, when things started to reopen on a rolling basis throughout the country, you saw a very, very fast V-shaped snapback, especially for elective procedures like hips, knees, and orthopedics, which happen to be as well very profitable procedures,” he said, citing some comebacks at 80% to 90% of pre-pandemic levels exiting June, after seeing declines of 70% to 80% in April’s trough. “There was an incentive on some level [for providers] to get those done, but also from a mobility standpoint, people are in pain and wanted to get those procedures done, too.”
No clear scenario for recovery
Still, how quickly and how steadily markets recover will depend on access, restrictions and people’s willingness to got to health care facilities during the pandemic. DRG sees three possible scenarios unfolding.
One is that things will return to normal in 2021. However, while nonessential procedures resume, efficiency rates will be lower because of the need for PPE or other precautions. “You are always going to work at 80%, 90% efficiency for the longer-term future,” Tangri said.
How much things normalize will also depend on the availability of a vaccine, people’s willingness to seek treatment in the wake of COVID-19 and their ability to pay.
In the second scenario, the virus is mostly controlled by fall, and the economy takes much longer to recover – with the lag particularly in capital equipment.
Lastly, the virus could take ages to control and may return in a second wave, resetting the timeline for recovery.
Tangri is 80% to 90% sure “we will not be going back to the lockdown situation … I think only the U.S. can afford that sort of reality,” he said. “So you will work at lesser capacities, efficiencies, you’re operating expenses will be much higher … your profit margins will be smaller. But we don’t think that recoveries are going to go back to where they were in April or March.”
Backlog vs. new starts
There’s also the potential for a lull in procedures once current backlogs are whittled down, if new patients don’t quickly fill the gap, Newitter said. “It’s a question we all have on our minds.”
In a recent conference call, most companies told Leerink that the improvement seen in May and June was a combination of backlog work-down and new patient starts. “They generally felt like there was a relatively healthy combination to suggest that it wouldn’t be this massive air pocket into the back half” of the year,” he said.
Setting could also help speed some recoveries. Procedures that can be performed in low-acuity settings like an ambulatory surgery center of doctor’s office – such as knee arthroscopies or benign hyperplasia – should get back to normal, or close to normal, faster than those that have to be performed in a hospital, Newitter said.
Like Tangri, he doesn’t expect a repeat of this spring, should a second wave of the virus strike. “It’s going to be more like a rolling elective procedure shutdown situation, if elective procedures shut down at all,” he said. That doesn’t mean there won’t be periods of slowing paces of recovery, but hospitals will be better equipped to manage through future surges and less willing to forego revenue-generating procedures.
“Hospitals will figure out ways to make sure they never have to shut down elective procedures, especially the profitable ones, as significantly as they did the first time around.