By LD Friedland, Managing Director, Wombat Capital Markets, LLC
As an investment banking professional who has worked with companies and investors in the medical device industry for the last 25 years, I have witnessed a number of seminal events that have had a dramatic impact on financial markets and on the medical device industry in particular. Not surprisingly, the global impact we are currently experiencing due to the COVID-19 pandemic is unprecedented.
As I write this article in late March 2020, the governor of New York has ordered the temporary shutdown of all non-essential businesses in the state and has directed all affected workers to stay at home, and the governors of many other states have also issued “stay-at-home” orders. While the current number of infected individuals in the U.S. is unknown due to limited testing, more than 100,000 cases have been confirmed to date, with nearly half of those cases occurring in New York.
The resultant impact on the financial markets has been dramatic. Major stock market indices have seen sharp declines from their all-time highs. The Dow Jones Industrial Average experienced a decline of 38.4% from 29,568.57 on February 12 to a periodic low of 18,213.65 on March 23, while the S&P 500 Index experienced a decline of 35.4% from 3,393.52 on February 19 to a periodic low of 2,191.56 on March 23. During this same period, the Fidelity Select Medical Technology and Devices Index saw a 33% decline in its value from February 19 to March 23, as a flight to cash resulted in value declines across nearly all asset classes.
Similar dislocation has affected the private markets, as many venture capital and private equity investors seek to conserve cash and reserve resources to assist existing portfolio companies in surviving. As a result, many investors that aggressively sought new opportunities just a short time ago, are limiting their interest in potential new investment opportunities. Others are seeking to use the current market dislocation as an opportunity to acquire attractive assets at reduced prices.
How has this dislocation affected the medical device industry? That depends on which sector or end market is being considered. As hospitals and critical healthcare assets gear up for an influx of COVID-19 cases, resources are being diverted away from elective procedures and other non-critical components. For example, non-emergency dental services have been severely curtailed or shut down across the United States. The Centers for Disease Control and Prevention have advised healthcare facilities and physicians to reschedule elective surgical and procedural cases. In New York, Mayor de Blasio signed an emergency Executive Order compelling hospitals and ambulatory service centers to cancel elective procedures.
Conversely, medical device companies whose products can directly address the COVID-19 crisis are experiencing record demand. Because personal protective equipment (PPE) such as masks, gowns and gloves are anticipated to be in short supply, manufacturers and distributors of such products are attempting to respond by utilizing their resources to put such critical equipment in the right place at the right time. Innovative diagnostic companies are developing and marketing tests for the virus (or antibodies) and developing other diagnostic capabilities, such as rapid detection of fluid in a patient’s lungs, indicating COVID-related pneumonia. These companies are deploying their precious resources toward COVID-19 solutions.
Although the duration and long-term impact of COVID-19 on the medical device industry remains uncertain, the short-term impact appears to favor those companies that can facilitate the diagnosis and treatment of COVID-19. Further, while the volume of elective procedures has been and will continue to be curtailed during this crisis, companies continue to express confidence that current circumstances will result in a mere delay of elective procedures rather than “lost revenues.” As the economy adapts to a post-COVID-19 reality, the medical device industry will continue to play an important role at the forefront of diagnostic and therapeutic intervention.
BMK invites articles that may be of interest to our clients, colleagues, and friends during these trying times. BMK is not affiliated with Wombat Capital Markets LLC, and it does not endorse the content or views expressed by Wombat Capital Markets or by Mr. Friedland. Should you have questions or comments concerning the article, we suggest that you contact Mr. Friedland directly at (646) 971-0063 or friedland@wombatcapital.com
The article is not and cannot be construed as legal advice.