Analysts at Needham predict ResMed will be the biggest beneficiary, in relative terms, of the ventilator contracts HHS has awarded to a clutch of medtech companies.
ResMed’s contract to supply 2,550 ventilators in return for $32 million could add 2.7% to growth in the fourth quarter, the analysts wrote in a note to investors Monday.
Hillrom and Medtronic also landed contracts with HHS but their deals are smaller, both in dollar terms and in relation to the size of the businesses, leading the analysts to predict they will have less impact on growth.
ResMed generated revenues of $1.4 billion over the first six months of its financial year.
Needham analysts expect ResMed to realize $19 million worth of the contract in its fourth quarter, reflecting the requirement for it to ship 1,550 ventilators by the start of June. HHS wants ResMed to ship the remaining 1,000 ventilators by mid-July, meaning those sales will fall in the first quarter of the company’s financial year. Based on that timing, the analysts expect the HHS contract to add 2.7% and 1.8% to growth in the fourth and first quarters, respectively.
As the analysts note, ResMed could realize additional growth by selling ventilators to other groups, such as states and foreign governments. Those opportunities are open to other ventilator suppliers but the analysts think ResMed “is most likely to see the largest benefit to its financial results.” The Needham analysis echoes views expressed by analysts at William Blair late last month.
“[ResMed] is uniquely positioned given its significant manufacturing flexibility, broad product portfolio, already FDA-approved manufacturing facilities and strong cash position,” the William Blair analysts wrote.
Subsequent comments from ResMed have validated that analysis. Last week, ResMed said it will not be modifying its continuous positive airway pressure (CPAP) systems to serve as ventilators. While the conversion is possible, ResMed’s conversations with hospitals, health systems and governments have led it to conclude its resources are better focused on scaling up output of other devices.
As such, ResMed has modified its manufacturing processes and reorganized its teams to maximize production of ventilators and bilevel machines, according to CMO Carlos Nunez. ResMed expects the changes to triple its global production of ventilators and bilevel devices.
To hit that goal, ResMed will shift some capacity from sleep generators to ventilators. The change and potential for the pandemic to slow sleep sales could create a headwind for ResMed.
Similar dynamics are in play at Hillrom and Medtronic. The Needham analysts expect the contract with HHS to add up to 2.3% to quarterly sales growth at Hillrom. As a larger company with a smaller contract, Medtronic is only expected to realize a 0.1% benefit from the HHS contract.
Both companies may face headwinds from the deferral of elective procedures and broader shift in the focus of health systems away from activities unrelated to coronavirus. Abbott financials, may be negatively impacted by COVID-19. Hillrom’s business is more focused on activities that may continue during a pandemic but is still broad enough that some areas may face headwinds.