U.S. Healthcare Industry Faces Crosscurrents from COVID-19



The outbreak of COVID-19 is both benefiting and challenging the U.S. healthcare industry in ways that will continue to evolve in the coming quarters, according to the Global Healthcare team at Mitsubishi UFJ Financial Group.

The team issued its perspective on the heels of a wave of first-quarter earnings reports published by major U.S. pharmaceutical companies.


“From a macroeconomic perspective, healthcare is considered a defensive sector because it is comparatively non-cyclical: It offers products and services that consumers need and continue to consume in most economic environments,” said Andreas Dirnagl, MUFG’s global head of Healthcare Research at MUFG.

Amid the public health crisis triggered by COVID-19, Dirnagl noted the main reasons why healthcare has come back into favor among investors. “Naturally, there’s intense interest in healthcare as a source of treatment and of potential cure for the disease,” he said. “Healthcare as a whole is also viewed as a bastion of financial resilience relative to other industries that are suffering because of social distancing—and that will likely continue to suffer in a recessionary environment. These industries include tourism and hospitality, airlines, capital goods, and other industries fueled by discretionary spending and susceptible to economic downturns.”

However, when examined more granularly, “the healthcare industry itself is diverse and will be affected in uneven ways by the pandemic,” Dirnagl notes.


Dirnagl specifies the anticipated financial consequences of the pandemic for the healthcare industry’s main sub-sectors:

  1. Pharmaceutical companies:He suggested that in the short run, social distancing has accelerated the business of pharmaceutical companies because of “shelter-in-place” orders, which resulted in the extension of medication prescriptions—often from 30 to 90 days—to last for prolonged stays at home. Pharma companies with consumer-products businesses have particularly benefited from this trend as sales of over-the-counter drugs (such as pain-relief medication) and a range of household products (such as cleaning agents) have gone up.

    Yet Dirnagl said the effect of accelerated purchases during the first half of the year will be offset by a deceleration during the second half as shelter-in-place orders are lifted, thus reducing or neutralizing the net positive effect on companies’ annual results for 2020. The exception would be for manufacturers of products and supplies in exceedingly high demand to treat respiratory illnesses—such as ventilators—as well as any company that could manage to produce a successful vaccination against COVID-19. Such companies, he says, may well see a net positive effect on their annual results.

  2. Medtech:Dirnagl defined medtech companies as producers of technologies, supplies and capital equipment used in a care setting, such as medical and surgical devices and instruments, diagnostic tests, implant materials, biomaterials and disposables. He said the impact of the pandemic on a medtech company would depend on the extent to which its business is dependent on elective procedures (i.e., any surgery that must be done, but that need not be performed immediately).

    “What we’re hearing from some medtech companies is that things were going well until the coronavirus disease reached its apex in the second week of March—and then the bottom fell out,” Dirnagl said. “These are companies that rely on orthopedic, dental, low-acuity cardiac and other procedures, which had to be postponed either because of social-distancing measures, or because hospitals needed to free up resources and preserve capacity for an influx of COVID-19 patients. The real question will be how quickly this loss in volume is recovered once social distancing restrictions begin to be lifted. What many investors may underestimate is the reluctance on the side of patients to return to a clinical setting during a pandemic.”

  3. Healthcare services:Dirnagl defines the services sector as consisting of medical professionals, organizations such as hospitals, and workers who provide medical care to those in need. “The U.S. healthcare services sector makes one of the largest portions of its profits from high-priced, non-emergency procedures and surgical stays. As a result of procedure delays and cancellations, hospitals are hemorrhaging revenues,” he says. “Moreover, hospitals are spending large sums of money treating patients, and protecting their staff from the pandemic, and making other necessary preparations—an additional financial burden.”

    Dirnagl added that even if revenues rebound later in the year, it may take some time—perhaps a few years—until the services sector recovers financially. “What’s clear is that governments around the world are setting up financial lifelines for their hospital providers. And if there’s one thing a pandemic teaches a government, it’s how to value its healthcare infrastructure.”


Dirnagl expects the pandemic to have a lasting effect on the supply chain of pharmaceutical companies.

“This pandemic has exposed how dependent the United States is on countries like China for the material sourcing and manufacturing of active pharmaceutical ingredients, or APIs, which are the building blocks of drugs,” he said. “It should prompt a reassessment of supply-chain vulnerabilities and lead companies to establish workarounds to reduce their reliance on offshore outsourcing and minimize risks.”

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