Inflationary risk ‘manageable’ for medtechs but impact will vary: RBC
February 15, 2022 / By Nick Paul Taylor Contributor
Medtech companies with portfolios dominated by more “commoditized” products such as traditional hip, knee and spine devices will find it hard to pass on rising costs to their customers, according to analysts at RBC Capital Markets. While the prediction points to headwinds for medtechs such as Stryker and Zimmer Biomet, the analysts see inflationary pressures as a “manageable risk” for the medical device industry.
The analysts looked at the impact of rising costs on medtech companies after the Consumer Price Index released by the Bureau of Labor Statistics posted a 7.5% annual gain in January. The rise topped the expectations of Wall Street and marked the biggest increase since 1982.
Medtech companies, like other industries, are impacted by the situation. As medtechs have been explaining since last year, the rising cost of materials, coupled to the linked supply chain challenges, is driving up production costs. The situation spurred the team at RBC to analyze whether medtech companies will pass the extra costs onto their customers in the form of higher prices, or keep prices steady or down and suffer margin erosion.
“Based on our conversations, we believe companies with more commoditized portfolios (e.g. traditional hips, knees, spine, CRM, stents, medical supplies) will have less pricing power and a more limited ability to pass pricing on to customers relative to those with more innovative portfolios driven by technology differentiation and/ or mix shift aided by new product launches,” the analysts wrote in a Monday investor note.