- Johnson and Johnson’s medical device business continued recovering from the effects of the coronavirus pandemic, growing year-over-year for the second straight quarter after declining in every quarter of 2020.
- The medical device business grew 62.7% on a reported basis from a year ago. The recovery was driven by normalizing procedure volumes and favorable comparisons to the second quarter of 2020 when J&J’s medical device sales fell by nearly 34%.
- While revenues grew across the company compared to the second quarter of 2020, the quarter’s results were in line with or slightly above pre-pandemic levels — overall medical device sales totaled approximately $7 billion in the quarter compared to $6.5 billion in the second quarter of 2019, and orthopaedic sales in both the second quarter of 2021 and 2019 totaled about $2.2 billion.
- J&J’s return to growth could be a positive glimpse as to where procedure-dependent medtechs stand as the industry recovers from the pandemic. Orthopaedic rivals Stryker and Zimmer Biomet will add to the industry’s recovery narrative heading into the second half of 2021 when the companies report in the coming weeks.
A return in electives is crucial for the industry as many companies rely on the lucrative procedures to drive overall revenues. Wall Street analysts and industry predicted elective volumes to return to pre-pandemic levels in the second half of 2021, and early reports suggest these predictions are on track.
Evercore ISI analysts wrote that J&J’s sales numbers for the quarter are a “positive for Medtech trends, where most companies have assumed sequential improvement over 1Q.”
However, as companies are recovering and procedure volumes are normalizing, COVID-19 cases are surging across the globe and hospitals are having to, once again, shut down procedures as a result.
“We are seeing light at the end of the COVID-19 tunnel,” Ashley McEvoy, executive vice president and worldwide chairman of J&J’s medical devices business, said during the Wednesday earnings call. “But this remains, as we all know, a very fluid situation.”
McEvoy said that the pandemic’s impact going forward will rely on the same factors as the last several quarters: vaccination rates, hospitals’ ability to manage COVID-19 surges and maintain normal operations, and patient willingness to receive care in hospitals and other healthcare settings.
“It’s not going to be linear,” McEvoy added about the return of procedure volumes. “We do know hospital systems in the United States are starting to delay care right now. So, I think quarter-to-quarter it will improve, but it will never be a linear line.”
J&J’s overall orthopaedic sales grew by 53.4% on a reported basis, with the most substantial recovery coming in the knee business. After continuing 2020’s declines by dropping year over year by nearly 10% in the first quarter of 2021, knee sales rose by 94.6% on an operational basis in the second quarter. Sales for the knee segment were down by about $22 million compared to the second quarter of 2019.
Meanwhile, hips and spine, sports and other reported sales grew year over year by 73.7% and 55.3%, respectively.
J&J’s surgery sales also saw a substantial bounce-back, growing year over year by 62.6% to roughly $2.5 billion, a slight increase over the second quarter of 2019.
Much like the last 12-16 months, business is returning at different rates in different geographies, according to McEvoy. For example, China is largely driving sales for the Asia Pacific region, while Australia and Japan are back in lockdown and India continues to struggle.
Overall medical device sales grew on a reported basis by 77.2% in the U.S. and 51.6% internationally compared to the same period last year.
J.P. Morgan analysts wrote in a Wednesday report that J&J outperformed conservative overall device sales expectations by roughly $465 million, led by a $126 million beat for interventional solutions and a $95 million beat for orthopaedics.
- Source: https://www.medtechdive.com/
Many investors may never have heard of AngioDynamics (NASDAQ:ANGO), which produces “minimally invasive medical devices” to treat peripheral vascular disease and cancer, according to its website.
Some, however, may have taken notice after the July 13 announcement of net sales for the fourth quarter of 2021 (which ended May 31). A top line of $76.8 million was comfortably higher than the analyst consensus of $72.7 million and represented a 31.7% year-over-year surge over $58.3 million in Q4 2020.
Lest the investor community assume that this net sales beat was unsustainable, President and CEO Jim Clemmer pointed out in the earnings call that Q4 revenue represented an 8% rise over the third quarter.
Because coronavirus headwinds sharply dampened results in Q4 2020, management believes the 8% figure is a more accurate measure of its actual momentum.
Rapidly improving operating momentum
Non-GAAP adjusted earnings per share (EPS) for the quarter came in at analyst expectations of $0. This was a notable improvement over the $0.06 loss seen in Q4 2020, when COVID-19 was leading many people to postpone elective surgeries. This particularly affected the company’s VenaCure EVLT varicose vein treatment and certain oncology products.
Citing growth platforms such as Auryon (a peripheral arterial disease technology the company says “efficiently and repeatedly treats any lesion type, any lesion length, at any lesion location”), NanoKnife (a cancer treatment that recently received FDA approval for a 100-patient study to establish its efficacy in treating prostate tumors), and the anticipated launch of the AlphaVac Mechanical Thrombectomy System (for which the company also received FDA clearance after the end of Q4), AngioDynamics is forecasting $305 million to $310 million in net sales for FY 2022. That’s up significantly from $291 million in FY 2021 and $264 million in FY 2020.
As the effects of COVID-19 are expected to continue lessening with each passing quarter, AngioDynamics anticipates that its gross margin will improve from 53.9% in FY 2021 to 55% in FY 2022, which the company believes will allow it to generate $0 to $0.05 in adjusted EPS for FY 2022 as it continues to invest in R&D, sales and marketing, and product launches.
A strong balance sheet to fund future growth
Although management didn’t provide an estimate of the cost of the AlphaVac Mechanical Thrombectomy System product launch, it’s safe to assume that it will be several million dollars at the least. Fortunately for AngioDynamics, the company’s cash position is relatively steady. While cash on the books declined from $54.5 million at the end of Q3 2021 to $48.2 million in Q4, the company also reduced its long-term debt obligation from $30 million in Q3 to $20 million in Q4.
AngioDynamics generated $19.5 million in adjusted EBITDA during FY 2021 (up $1.5 million year over year) against just $20 million in long-term debt, meaning the company’s debt-to-adjusted EBITDA ratio is just over 1. This suggests the company could cover its debt using its adjusted EBITDA over the span of a year.
AngioDynamics has $28.2 million in cash net of long-term debt, and the reason management has likely chosen not to pay that debt off entirely is because they view the business as more of a growth company, one that is looking to develop and launch products to bolster its revenue and eventually its earnings.
The balance sheet is in an admirable position for a growth-focused company, which should allow for aggressive research and development and product launches to drive revenue and earnings expansion.
Worth a look for patient growth investors
Coming off a rebound from COVID-19 headwinds with a recent FDA clearance on its AlphaVac Mechanical Thrombectomy System, AngioDynamics appears well positioned to finance upcoming product launches. If the FDA does ultimately give the green light on the commercial expansion of NanoKnife to treat prostate cancer, the company would be entering a global prostate cancer treatment market that Fiors Market anticipates will grow revenue at 5% annually from $7.2 billion in 2019 to $10.7 billion by 2027.
Seizing a measly 2% of this market by 2027 would result in an additional $214 million in revenue for the company, which would represent a 74% increase over FY 2021’s $291 million revenue base alone.
Even in a worst-case scenario in which NanoKnife isn’t allowed to expand indications into prostate cancer, the future appears bright with the upcoming launch of AlphaVac to complement the existing AngioVac. Management believes that the launch of AlphaVac (slated for the end of this calendar year) will help the company to “serve a much larger segment of the venous thromboembolism market” while also not cannibalizing sales from the AngioVac portion of the business.
The launch of AlphaVac within the venous thromboembolism (VTE) market, as well as increasing market acceptance of the existing AngioVac and Auryon platforms, is likely to translate into tens of millions of dollars of additional annual revenue over the next few years; the VTE market is positioned to grow by 8.7% annually from $950 million in 2020 to $1.7 billion by 2027. AngioDynamics’ robust vascular trifecta of AlphaVac, AngioVac, and Auryon, as well as the prospect of NanoKnife’s expansion into treating prostate cancer, provide ample growth avenues to which the company can allocate its cash stockpile in the years ahead.
As a result, I believe that growth-oriented investors with a long-term horizon would be wise to consider AngioDynamics below $27 a share.
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