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Orthopedic companies face unprecedented challenges as they manage procedure recovery waves and a battered supply chain. However, orthopedic device company executives who spoke at OMTEC® said that they remain optimistic about the industry’s future while addressing the complexity of the current environment.
The OMTEC 2022 Keynote address on the State and Future of the Orthopedic Industry brought together:
- Brady Shirley, President and COO, Enovis
- Curt Hartman, President and CEO, CONMED
- Rebecca Whitney, Senior Vice President and President, Global Spine, ZimVie
- Eric Major, an Advisor at Major Advisory Group and former President of K2M and Stryker Spine
Moderated by Matt O’Brien, Senior Research Analyst and Managing Director, Piper Sandler, the panel shared how they’ve adapted to the challenges presented by the pandemic and how they perceive the industry evolving in the future.
Orthopedic’s COVID Recovery
Orthopedic industry sales surpassed $53.6 billion in 2021, growing +12.8% vs. 2020 and +0.9% vs. 2019, according to our estimates. Based on commentary from orthopedic companies, we expect the market to almost align with pre-pandemic growth in the +3% range by the end of 2022.
Shirley remarked that historically predictable periods have faced change and challenge. “I think that’s where we’ll be through most of the rest of the year,” he said. He perceived factors like COVID resurgence in pockets around the world, surgeons taking earlier vacations and staffing issues as impacting factors for quarterly forecasting.
Shirley noted that he thinks there will be a “better than normal” recovery this year as long as the staffing environment improves.
Volatility that the spine sector is facing is like none before it, Whitney said. The market will begin to stabilize and then certain regions will be impacted unpredictably.
More complicated procedures, in turn, are being prioritized and are bouncing back in numbers greater than basic procedures, she said. Those factors indicate prolonged softness in some procedure volumes relating to issues not directly connected to COVID.
Hartman said that organizations now understand how to deal with complications presented by COVID, like sick workforces. The bigger hindrance to orthopedics’ recovery today, he said, is the global supply chain.
Managing Supply Chain Challenges
The orthopedic supply chain is complex at predictable times. The stacking of COVID, environmental, economic and geopolitical factors has added complications.
Simple things that companies took for granted are now elongated in the supply chain process, Hartman said. Companies must stay connected to their tier one, tier two and tier three suppliers to head off disruptions downstream. He said that clarity in the supply chain is not on the horizon.
On a positive note, the supply chain challenges drove CONMED to look at and “professionalize” its practices through greater focus and enhancements.
“I mentioned not only tier-one vendors but tier two and tier three. We dove into that early in COVID, thinking, okay, we’ll do this for three, six months.” Hartman said. “However, this turned into a practice that we don’t ever see going away.”
O’Brien asked Whitney and Shirley, who have encountered spin-offs and acquisitions in recent years, how critical it is to partner with contract manufacturers at this stage in their business’ respective lifecycles.
Whitney said when Zimmer Biomet announced it was spinning off its spine and dental divisions into ZimVie, it was February 2021 – smack dab in the middle of the pandemic.
She said ZimVie has legacy relationships and partnerships through its Zimmer Biomet history. In turn, a lot of time has been spent assessing every individual partnership to determine which must be maintained. Then, because the new company no longer has the scale of an organization like Zimmer Biomet, they examine where they need to look at things differently. It has been a challenge, she said, but it has also provided great flexibility and a fresh perspective.
“Going through all of this in the middle of a pandemic, with the supply chain challenges we’re all aware of, has been really interesting. We’re coming out of it with a very clear perspective on what we need from our supply chain partners to set us up for success,” Whitney said. “That’s allowed us to think a lot more flexibly and have conversations and start setting us up for, not just what we need today, but where we’re going to take this company.”
Shirley noted that not only did Colfax spin off its industrial unit, but in building its medical business, Enovis (formerly DJO Global), the company finalized seven acquisitions in two years. Enovis’ M&A has led to several new orthopedic contract manufacturing partners.
Related to the recent supply chain environment, Shirley said the company has experienced challenges with continuity of supplies and, thus, has spent significant focus in that area.
“We’ve approached that by leaning in hard from commodities all the way to raw materials and, quite frankly, expanded inventory intentionally to ensure that we were properly prepared for a recovery,” he said. “Certainly had a number of our suppliers were challenged with extended lead times, which has changed the game. Our team has taken a more aggressive approach in forecasting and a more aggressive approach with our partners to align us on what would be a more full recovery.”
Shirley ended his supply chain comments with single-sourcing, a challenge that has impacted many orthopedic companies.
“A big challenge for us is, how do we maintain great partnerships but also give ourselves some leverage and flexibility by having additional partners–or even additional sites of our own,” he said.
Maintaining Inventory Levels
The panel was also asked how companies will manage inventory in the future; namely, will they keep an elevated level versus pre-pandemic times?
Shirley said it would probably be three to four years before inventory levels normalize to pre-pandemic times. Flexibility is what will allow unique opportunities to arise with contract manufacturing partners. Whitney agreed, saying that newer companies like hers are looking for additional enduring partnerships. It’s essential to have safety stock, but device companies cannot afford to absorb the inventory.
“We’re looking for those partnerships that offer that flexibility and that long-term view, where we’re in it together and work it out in a way that makes sense for both parties,” she said. “I don’t see us staying at these elevated levels for any longer than we need to, frankly, because it’s cost-prohibitive and can be very cumbersome. We’re working toward normalizing that and right-sizing it, but at the same time being very mindful that the supply chain world right now is in a bit of disarray as we continue to work through a fallout from COVID and everything we’re facing.”
Looking Forward
Orthopedic companies are contending with uneven procedure volumes, heightened supply chain challenges, acquisitions and mergers, product launches, regulatory changes, etc.
The panel executives repeatedly emphasized the need to remain focused and strengthen communication with internal employees and external partners.
Eric Major, who led Stryker Spine in late 2018 to mid-2021 when Stryker acquired his company K2M, posed the question of how companies will function moving forward. He referenced the juggle of building company culture with a workforce seeking to do their jobs from home.
Major is adamant about some work still needing to be done around a table, but noted that many orthopedic companies continue to work in a virtual environment and will likely continue to do so to some degree.
“Everyone’s trying to test the waters on what this future is going to look like,” he said.
Kaitlyn McGarvey is a BONEZONE Associate Editor.
