The Global Orthopaedic Supplier Market

In 2011, ORTHOWORLD estimated 2009 annual global orthopaedic supplier market sales to be ~$2 billion. At that time, slowing growth from the 2008 orthopaedic original equipment manufacturer (OEM) sector was reflected in supplier side revenue. In 2010 and 2011, the supplier market commenced signs of a gentle increase in growth. 

Today, ORTHOWORLD estimates 2011 annual global orthopaedic supplier market sales to be ~$2.2 billion. Exhibit 1 displays 2011 earnings, estimated and actual, for a range of supplier companies, plus market shares.


Exhibit 1: 2011 Estimated Orthopaedic Supplier Sales ($MM) and Market Share

supp-revenue700 

Sources: Company earnings calls, SEC filings, press releases, ORTHOWORLD estimates for non-publicly-traded companies, company disclosures, etc. Supplier companies include contract manufacturers of implants/instruments, raw materials providers, etc.

 

For 2011, we estimated that global orthopaedic OEM revenue reached $43.1 billion, an increase of 5% over 2010, similar to 2010 vs. 2009 growth. At mid-2012, overall OEM market growth has held steady at estimated 5% growth 2Q12 vs. 2Q11, and throughout 2012, OEMs have commented upon signs of procedure volume increases:

  • Biomet stating U.S. hip/knee markets stable, maybe even slightly improving (May 2012)
  • Johnson & Johnson noting that orthopaedic procedures were +3% in 1Q, and 2Q experienced similar trends (August 2012)
  • Exactech and Smith & Nephew seeing small signs of stabilization in U.S. market overall; Stryker and Zimmer noting U.S. recon utilization trends stable to modestly improving (August 2012)
  • Medtronic estimating U.S. spine market improved over past 3 quarters; U.S. core spinal results reflecting stabilization (September 2012)


In 1Q12, publicly-traded supplier companies seemed upbeat that growth would be coming back in the latter half of the year. Greatbatch Medical touched on initiatives to expand and leverage its infrastructure to better support its orthopaedics business. Symmetry commented that customers’ planned new product launches would start to impact revenue in 2H12, and observed that lead times were at or below historical norms.


By the end of 2Q12, Greatbatch announced plans to open a manufacturing facility in Ft. Wayne, Indiana to consolidate its orthopaedic operations there. Meanwhile, Symmetry noted a slight uptick in instrument sales and stable results for implants as order activity rose above usual year-over-year levels. Further, Symmetry, while seeking transparency on inventory practices from its customers, mentioned that it was encouraged by what was happening on those fronts.

At OMTEC 2012, Brian Moore, former Symmetry CEO, confirmed that such factors as OEM inventory handling will continue to be far more important to growth for the supplier companies than will orthopaedic procedure volumes, though the supplier base will naturally continue to ebb and flow in reaction to the OEMs’ strategies.

An additional challenge is presented in FDA’s requirement that, as of October 2012, contract manufacturers must register and list the products that they make on the FDA Unified Registration and Listing or FURLS database. Such action could accelerate supplier rationalization as OEMs are facing more strict quality and regulatory scrutiny, themselves.

Moving forward, OEMs will continue to consolidate their supply chains, and suppliers will continue to merge and acquire to meet the OEMs’ needs. A number of such transactions occurred in 2011 and 2012 to date (3Q12), as illustrated in Exhibit 2.

Exhibit 2: Supplier Merger & Acquisition Activity: 2011 to 3Q12 

Qtr/Yr Close Acquired Acquired by Transaction Value ($MM) Sales ($MM) Sales Multiple
4Q12 In'Tech Medical TCR/Arkea Capital Cash n/a $38.0  n/a 
3Q12 Teleflex OEM orthopaedic business Tecomet Cash $45.2 $36.0  1.26
2Q12 Kensey Nash DSM Cash for stock $360.0 $25.6  14.06
2Q12 ETI MRPC Terms not disclosed  n/a  n/a  n/a 
1Q12 Sandvik Medical Altor (Orchid Orthopedic) Terms not disclosed  n/a  $90.0  n/a 
1Q12 Remmele Engineering RTI Intl Metals Cash and debt $182.5 n/a  n/a 
4Q11 ATS-Sferic Marle International Terms not disclosed  n/a  n/a  n/a 
3Q11 Hower Tool Haven Manufacturing Terms not disclosed  n/a  n/a  n/a 
3Q11 Boston Endo-Surgical Technologies Precision Engineered Products Terms not disclosed  n/a  n/a  n/a 
3Q11 Geisert Square Valtronic Terms not disclosed  n/a  n/a  n/a 
3Q11 Olsen Medical Symmetry Medical Cash $11.0 n/a  n/a 
3Q11 Structure Medical Squadron Capital Terms not disclosed  n/a  n/a  n/a 
3Q11 Hansa Medical Squadron Capital Terms not disclosed  n/a  n/a  n/a 
3Q11 Kemac Technology Tecomet Terms not disclosed  n/a  n/a  n/a 
3Q11 Solidscape Stratysys Terms not disclosed $38.0 $13.4  2.84
2Q11 Orchid Orthopedic Solutions Altor Terms not disclosed  n/a  n/a  n/a 
2Q11 Marcam Engineering Materialise Terms not disclosed  n/a  n/a  n/a 
1Q11 Sierra Manufacturing United Site Services Terms not disclosed  n/a  n/a  n/a 
1Q11 Concordia Medical Biomedical Structures Terms not disclosed  n/a  n/a  n/a 
1Q11 Nerites Kensey Nash Cash $20.0 n/a  n/a 
1Q11 Orliman Riverside (private equity) Terms not disclosed  n/a  $19.2  n/a 


Despite a slowing to mid-single-digit growth, the orthopaedic market should remain healthy due to solid demographics: an aging population, a more active and more demanding patient, increased reach into BRIC countries, etc.

To keep pace with the OEMs needs, suppliers may find success in offering services other than contract manufacturing, such as Ceram’s regulatory assistance package, Squadron’s customer financing services, etc., to device manufacturers that find themselves more thinly-spread. OEMs and suppliers will work together to build new paths to growth in orthopaedics.