Moody's expects to see slow global economic growth and healthcare expenditure diversion due to the coronavirus outbreak, according to a March 17 outlook report.
The medical device industry in particular will experience a negative impact from hospitals and surgeons canceling or postponing elective surgeries. Here is an ongoing list of hospitals that are halting elective surgeries for now. Moody's expects eventually patients will have their elective procedures at some point in the future.
"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 Senior Vice President Scott Tuhy.
Six things to know:
1. If disruption from the coronavirus outbreak is prolonged, Moody's believes companies will moderate some discretionary expenses to keep margin stability. "We could revise our industry outlook to negative if we expect EBITDA to decline over the next 12 to 18 months. [That] could happen. If global efforts to arrest the spread of the virus are unsuccessful and procedures become deferred for an extended period of time."
2. Moody's changed the outlook for U.S. medical products and devices sector from positive to stable, reflecting its revised EBITDA of 2 percent to 4 percent over the next year to 18 months. Prior to the coronavirus outbreak, the EBITDA forecast was 5 percent to 6 percent.
3. Beyond the coronavirus impact, Moody's projects the longer term revenue trends for medical products and devices are promising, especially related to minimally invasive procedures and robotics. The firm sees robotic-assisted procedures continuing to expand, which will benefit Stryker and Zimmer Biomet. "While Stryker has a significant head start in robotics, we believe Zimmer will be able to grow this business, partly due to the high level of physician loyalty for Zimmer," the report states.
4. Moody's expects device company revenue to improve slightly in the coming years since the cost savings from the mergers in 2017 have been achieved, according to the report. They are likely to use research and development to grow revenue while using some discretionary expenses to keep margins stable.
5. It is unclear how long it will take hospitals to recover procedure volume. In some cases, companies have reported that sales in China are beginning to recover, but still are at historic lows.
6. Stryker is still expected to close its $5.4 billion acquisition of Wright Medical later this year. However, Moody's said it expects companies to be cautious regarding transactions going forward until the coronavirus pandemic subsides.