As we prepared our 2019 revenue projections for public companies, we took note of the major drivers in orthopedics of late. It was a busy year, with some surprising developments. After considering the stories behind companies’ 2019 performance, we offer these 10 takeaways, with specific examples.
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1. Joint Replacement Remains an Attractive Space
Players with operational stability achieved mid-single-digit growth in large joints and high-single-digit growth in extremities.
- Globus Medical saw enough opportunity to enter large joint replacement despite the size of the market’s competitors.
- Players will continue to pursue M&A to leverage high-growth sub-segments of joint replacement like shoulder, e.g. Stryker’s acquisition of Wright Medical.
2. Enabling Technology is Here to Stay
Enabling technologies, especially robotics, drove significant growth for some of the largest orthopedic players.
- Stryker (Mako), Medtronic (Mazor), Globus Medical (ExcelsiusGPS) and to a lesser extent Zimmer Biomet (ROSA) experienced revenue gains due to robotic sales and implant pull-through.
- Companies like NuVasive (Pulse), DePuy Synthes (Orthotaxy) and Smith+Nephew (acquisitions from Brainlab) are investing heavily in enabling technologies and expect them to be major factors in 2020.
- Globus Medical expects to compete at the top of the joint replacement market on the strength of their enabling technology instead of the implant hardware acquired from Stelkast.
3. Biologics Rebounded after a Tough 2018
Biologics volumes increased in both 2018 and 2019; however, this year brought some mitigation to the severe price pressure players faced last year.
- We’re projecting Sanofi, a top-five player in the segment, to finish the year at +1.3% after a difficult 2018 in which their sales declined -19%.
- Anika Therapeutics noted price increases for their MONOVISC product for three consecutive quarters.
- SeaSpine’s biologics growth is attributable to their investment in demineralized bone matrices, which they noted are one of the few products with zero reimbursement pushback from payers.
4. Sales Force Integrations are Rarely Smooth
The integration of acquired companies can be disruptive, even for players with excellent track records.
- Stryker’s integration of K2M is behind schedule and burdened with supply issues.
- RTI Surgical’s integration of Paradigm is six months behind schedule, causing the company to reduce its revenue projection for coflex from $45 million to $30 million.
- Self-inflicted wounds never help, as seen in 2Q19 when Wright Medical’s legacy Cartiva distributors mutinied before the company’s direct reps had access to the product.
5. Big Players Continue to Experience Vulnerability
DePuy Synthes and Zimmer Biomet progressed in their recovery efforts, but are still losing share to competitors.
- We’re projecting DePuy Synthes to be slightly negative for 2019 (-0.4%), as they continue to be a share donor in knees and spine.
- Zimmer Biomet’s ROSA platform and Persona knee system have been positive drivers, but the company is still working to regain the trust of their salesforce and facing weakness in their spine business
6. Proceduralization Gains Momentum in Spine Sales
Many spine players have focused on selling complete, proprietary surgical approaches.
- NuVasive’s X360 lateral single-position and Medtronic’s single-position Synergy OLIF360 have been important growth drivers that allow these companies to integrate many products and technologies into a single surgery.
- The focus on selling a complete approach allows companies to generate more revenue per procedure. Alphatec Spine, for example, increased their per-case revenue by 17% in 3Q19 compared to the prior year.
7. Companies Must Find Inventory Efficiencies
Players started to move away from “kitchen sink” tray deployments as their sales reps and customers are increasingly burdened by inventory management pain points.
- Per Doug Unis, M.D., Founder of Monogram Orthopedics, the average time that knee replacement implants remain on the shelf before use is 10 months, leading to operational inefficiencies for the device company and severe logistical burdens for the practice.
- Stryker is exploring solutions to these problems through their partnership with Conformis for patient-specific instruments and possibly through their acquisition of sterilization specialist TSO3.
8. Spine Companies Invest Heavily in Advanced Materials
Spine players drove innovation through advanced materials science, with several major players developing 3D-printed implants and unique coatings.
- NuVasive’s Modulus 3D-printed titanium product line gained traction and was a growth driver in 2019.
- SeaSpine continued to drive sales of its Nanometalane coated products, and achieved a milestone of 20,000 implants using the technology in 2019. The company expects to launch its first 3D-printed implant in 2020.
- Medtronic plans to deploy the surface technology acquired from Titan Spine to all its new spinal implants.
9. Companies Are Pursuing Aggressive Product Launch Schedules
New product launches are a critical factor in offsetting commoditization and price pressure. Players with comprehensive product solutions more readily took share from stumbling competitors.
- Alphatec Spine’s portfolio refresh was a major factor in their 2018 growth, and they’ve kept that momentum into 2019 with 11 new products launched through the third quarter.
- SeaSpine has more than 20 development projects underway and increased the revenue contribution from recently released products to 53%, up 9% over the prior year. Leadership also noted case volume was up double digits as they were able to field more cases with an expanded portfolio.
- RTI Surgical’s legacy spine hardware sales decelerated in 2019, and the company is committed to “rapidly refreshing” its portfolio.
10. Players are Expanding into New and Adjacent Segments
Players across all segments sought product synergies and acquisition opportunities in high-growth niche and adjacent markets.
- Anika Therapeutics plans to expand beyond their office-based selling of joint fluid replacement into O.R.-based selling of meniscal replacements, soft tissue fixation, tendon repair and other related segments.
- Integra LifeSciences plans to release a short-stem shoulder within the next 18 months, which they believe represents a $600 million market opportunity.
- Stryker has long operated below their potential in upper extremity replacement and, with the acquisition of Wright Medical, will have the portfolio and specialized salesforce to lead in that segment.
- Globus Medical continues its transformation from a pure-play spine company to a fully diversified musculoskeletal company, not only with the acquisition of StelKast, but also its growing trauma business.