Inflation, Supply-Chain Woes Hit Medical-Device Makers

Costlier electronic components have forced

Stryker Corp.

, maker of surgical equipment and joint-replacement parts, to raise prices and slow purchases and production as it searches for better prices, said Chief Executive

Kevin Lobo.

Abbott Laboratories

hasn’t been able to meet demand in some emerging markets for older models of  its Libre blood-sugar monitoring devices because certain older semiconductors are hard to come by, even as chip shortages have eased overall.

Across the industry, specialized plastics, metals and resins needed to make devices are all in short supply, according to the companies.

“We’re all still exposed to shocks,”

Intuitive Surgical

Chief Executive

Gary Guthart

said at a recent industry conference. Intuitive sells a surgical robot. He likened companies’ vying for supplies to “an old Western movie bar fight. It starts in the morning and goes all day.”

Medical-device industry revenues will rise 7.8% this year to $498.7 billion worldwide, compared with 8.1% last year in a rebound from the 5.7% decline in 2020 because of the pandemic, estimated Frost & Sullivan, a consulting and research firm. 

Although many hospitals now have normal operations after pandemic-related shutdowns and some device makers are reporting an uptick in procedures for the latest quarter, supply-chain disruptions are hampering manufacturers’ ability to respond to the revived market.

Some hospitals continue to have shortages of nurses and technicians,  industry officials said.

Edwards Lifesciences Corp.

cited the shortages as a reason its third-quarter sales rose only 1% from a year earlier. 

Earlier this year, GE Healthcare had to shut down a Shanghai plant that makes a dye used in imaging-guided procedures because of Covid-19 lockdowns. A resulting dye shortage caused cancellations and postponements of many procedures, crimping sales of devices that are used in imaging-guided procedures, such as

Abiomed Inc.’s

heart pumps and Edwards Lifesciences’s heart valves.

Abbott had difficulty getting semiconductors for its first-generation Libre blood-sugar monitoring devices, which hurt sales in certain emerging markets, said Bernstein analyst Lee Hambright. 

Abbott has said it expects supply constraints to ease over the next couple of months. An Abbott spokesman said the company has seen a modest impact on Libre sales, which the company expects to improve.

The industry is partly to blame for the supply-chain issues, analysts and consultants say. Medical-device companies have historically underinvested in the chains, because high profit margins lessened the urgency for finding efficiencies. The recent difficulties have spurred companies to make improvements, according to industry executives. 

“We’re all going through a major modernization in our supply chains,”

Ashley McEvoy,

who heads Johnson & Johnson’s medical-technology unit, said at the industry conference. “We have not been pace setters relative to other industries. We’re going to have to get masterful at logistics.”

Medical device companies also have been working with the federal government to get priority access to semiconductors, arguing that their products can be lifesaving, according to the trade group AdvaMed.

Even with priority access, prices for electronics have surged, said Stryker’s Mr. Lobo. 

To get a better price, Stryker has sometimes delayed purchases, Mr. Lobo said. The disruptions have forced the company to delay deliveries of certain of its products, he said, and Stryker has sometimes paid more than it wanted to avoid delays in manufacturing.

Stryker, which makes surgical equipment and joint-replacement parts, also has searched for other sources of supplies. Yet when it secures chips from one supplier, a new problem will arise with another supplier, Mr. Lobo said. “We’ve been scrambling.” 

The company’s profit margins fell to 62.1% in the third quarter, down from 63.5% a year earlier. Stryker expects full-year 2022 adjusted gross margins to be about 2.5 percentage points lower than 2021. In the third quarter, the company’s cost of sales, which includes materials and supplies, rose 11.8%, outpacing the company’s 7.7% sales growth.  

To account for the higher electronics prices, Stryker is raising prices on some of its own products, Mr. Lobo said. The company didn’t specify which products or the size of the increases. 

The company is also pushing its scientists to develop new versions of its products that use new-generation chips, which are more plentiful than older-generation chips, Mr. Lobo said. 

Write to Peter Loftus at [email protected]