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February 12, 2020 12:11 PM

Moody's: Coronavirus outbreak would increase demand, disrupt supply in U.S.

Tara Bannow
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    Robin Addison, a nurse at Providence Regional Medical Center in Everett, Wash., demonstrates how she wears a respirator helmet with a face shield. It is similar to the one she used when she helped treat the first person in the U.S. to have contacted a dangerous new virus that originated in China.

    U.S. healthcare companies would see mixed effects of a more significant coronvavirus outbreak within and outside of China, according to a new stress report from Moody's Investors Service.

    If the outbreak spreads significantly within China, it would dampen demand for U.S. healthcare companies that sell products there. Moody's said it is already seeing evidence of that on medical device companies' earnings calls. Companies that use Chinese components, including pharmaceutical ingredients, to make their products could also suffer supply chain disruptions.

    One medical technology company, Valeritas Holdings, filed for bankruptcy on Sunday, in part due to coronavirus. The Bridgewater, N.J.-based company makes insulin patches, and had experienced a supply chain issue in China prior to the coronavirus outbreak.

    "While the primary impact is on human health, the risk of contagion is affecting economic activity and financial markets," Moody's associate managing director Jessica Gladstone said in a statement. "The immediate and most significant economic impact is in China but will reverberate globally, given the importance of China in global growth as well as in global company revenue."

    As of Feb. 11, the World Health Organization had put the number of confirmed cases of the coronvavirus on mainland China above 42,000 and the number of deaths at over 1,000. The U.S. has seen 13 confirmed cases of the virus.

    The outbreak also provides some opportunity, according to Moody's. U.S. drug companies such as Gilead Sciences and Johnson & Johnson are working to develop novel medications or use existing ones to treat or prevent the coronavirus.

    Many U.S. medical device companies depend on China for components, such as memory chips, and growth. If the outbreak is not quickly contained, shortages of certain items could lead to supply chain disruption just as demand spikes. The same is true for generic pharmaceutical companies that rely on China for active ingredients. China is an important market for many device and life science companies due to its growing population and healthcare investments, according to Moody's.

    On the provider side, hospitals incur high costs when patient volumes surge from overtime pay and other unbudgeted staffing costs, Moody's said. What's more, an uptick in coronavirus patients could force hospitals to cancel profitable procedures like orthopedic or cardiac surgeries.

    On the other hand, Moody's said the increased patient volumes could provide a boost for staffing companies like AMN Healthcare, Medical Solutions Holdings and CHG Healthcare Services. It could also help emergency physician staffing companies like Team Health Holdings and Envision Healthcare.

    Even if the virus spreads widely in the U.S., Moody's said it does not expect it to materially impact health insurers, aside from the potential for modestly negative credit implications.

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