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Orthopedic Outlook: COVID-19’s Impact on Industry Growth and Trends

Significant progress has been made in orthopedics over the last decade.

  • New materials
  • Evolution of the surgeon and sales rep relationship
  • Company and hospital consolidation
  • The propagation of ASCs and orthopedic urgent cares
  • The proliferation of additive manufacturing
  • The advancement of enabling technologies and robotics
  • Stringent regulations worldwide with UDI and the EU’s Medical Device Regulation
  • Upswing of gain-sharing and surgeons’ co-management of orthopedic “business”

We expect these trends to shape and grow orthopedics; however, the present and lasting impacts of the COVID-19 pandemic will cause confusion and delay before necessary adjustments are made and a revival of growth and progress returns. COVID-19 continues to spread across the globe, taking a great human and economic toll. The pandemic stunted orthopedics when hospitals and governments halted elective procedures, including spine, hip replacement and knee replacement. Social distancing resulted in fewer traumatic events, such as vehicular accidents. The postponement of orthopedic procedures has led to monumental revenue loss for hospitals, surgeons, OEMs and contract manufacturers, all of whom face significant business disruption and uncertainty. Companies will struggle with cash flow. Inventory and manufacturing forecasts will be unpredictable. Product launches will be postponed. Demands will be placed to squeeze even more cost and waste from the healthcare delivery and manufacturing chains. The ramifications of COVID-19 are not expected to be a three- or sixth-month blip. We expect ripple effects through 2022 and beyond. That said, we remain confident in orthopedics’ return to growth due to demographics and the economic need of all nations to keep their people productive. 

Orthopedic Trends Prevail

As with all challenges, opportunities will emerge. As executives, administrators and surgeons reorient themselves to a new normal, we expect the following trends to take hold.

  • Sophisticated Use of Technology: Social distancing has forced nearly everyone to adopt some form of virtual communication for connecting with colleagues, vendors, customers and, of course, doctors and patients. Telemedicine, webinars, online conferences and virtual reality training for procedures are just a few examples of our recent crash courses in 21st-century communication. All of this technology brings the likelihood of lasting economic benefits, which means that they will be a part of your new day-to-day.
  • Stronger Supply and Care Delivery Chains: As providers work through the backlog of surgeries, they’ll require a higher level of transparency and efficiency in logistics, product sterilization and the O.R. This shift could bear out in greater automation of the supply chain and surgical process and an uptick in single-use sterilized products. It will also result
    in even more orthopedic procedures moving to ASCs and to hospitals partnering with ASCs to streamline the flow of otherwise healthy patients to these cost-reducing, efficient sites of care. In addition, traditional sales rep roles that involve bringing product and serving as an advisor in the O.R. will be under intense scrutiny.

We expect the following, well-established trends to endure after a period of confusion and delay.

  • Robotics in the O.R.: Orthopedics’ largest players shifted R&D investment and strategies to enabling technologies in 2019. The purchase of capital equipment is expected to be stunted through 2021, as hospitals recover from the revenue hit they take responding to COVID-19. Robots currently in use are likely to be deployed in surgeries. We expect device companies to continue to invest in robotics, imaging and planning, but these technologies will become more versatile and significantly cheaper.
  • Proliferation of Additive Manufacturing: The adoption of 3D printing will continue to grow in orthopedics due to companies of all sizes being able to leverage the technology. Numerous small companies, primarily in spine, are building portfolios solely focused on 3D printing. These companies may be at a disadvantage for growth due to their limited
    portfolio offering. Additionally, we expect orthopedic companies and contract manufacturers will tighten their purchase of equipment and will pause investments in new machines.
  • Company Consolidation: Stryker’s pending acquisition of Wright Medical may be the largest acquisition we see for some time. Cash-rich companies could make tuck-in acquisitions to gain access to immediate revenue streams or seek deals in niche markets. Still, we expect most orthopedic companies will be too preoccupied with their COVID 19 response to think about difficult acquisition integrations in 2020 and early 2021. We maintain that small companies remain the innovation engine in orthopedics. Therefore, large and medium-sized companies will seek to acquire novel implants and software companies to expand their portfolios quickly so small acquisitions will continue.
  • Continued Rise of ASCs: Once the ban on elective surgeries is lifted, ASCs are expected to return to normal/max procedure volumes before hospitals due to their nimbleness as well as their orthopedic focus. ASCs have momentum with payors, hospitals, surgeons and device companies behind the push to this outpatient setting. Specifically, we expect hospitals to create relationships with physician-owned ASCs and build their own ASCs or specialty centers with outpatient services to move orthopedic patients to these settings. Additionally, during the COVID-19 recovery period, patients will seek limited exposure to other patients and choose this setting over a hospital. Companies with dedicated outpatient strategies will benefit from this focus in the short term.

Before we consider COVID-19’s impact on orthopedics’ growth, we review the market’s performance in 2019.

Orthopedic Product Segment Review 

Global orthopedic sales totaled $53 billion in 2019, an increase of +3.8% over 2018. Growth was realized across all market segments, including orthobiologics, which we estimated lost ~$9 million in revenue in 2018 compared to 2017. Exhibit 1 details product segment sales while Exhibit 2 illustrates market share for these segments.

Exhibit 1: Orthopedic Product Segment Sales – 2017 to 2019 ($Millions)

 Exhibit1 orthopedicproductmarket segmentsales

Exhibit 2: Orthopedic Product Segment Sales by Market Share ($Millions)

exhibit2 orthopedicproduct segmentsales

  • Joint replacement accounted for more than a third of all orthopedic sales but decelerated slightly (+3.3% vs. +3.7%) in 2019 due to mixed performance across the segment by the top players.
  • Spine grew +3.5% YoY, a full percentage point over our earlier projections. Growth was driven by the adoption of new enabling technology and implants.
  • Trauma decreased nearly a full percentage point from +4.1% in 2018 to +3.4% in 2019. The decline is primarily attributed to supply chain issues or delayed orders experienced by the top companies.
  • Sports medicine sales performed ~$9 million under our estimates but realized +5.5% YoY growth primarily due to new devices and a continued focus by the top players on integrated operating rooms that connect cameras, screens, patient positioning systems, etc.
  • The orthobiologics segment is the comeback story of 2019. After sputtering to a -0.2% decline in 2018, the segment rebounded to +4% growth this year. More orthobiologics were sold while price pressure on commoditized parts of the segment, like viscosupplements, stabilized compared to the prior year.

Orthopedic Company Performance 

Seven companies control 65% of the total orthopedic market. As can be observed, they’ve had varying degrees of success. Exhibit 3 details 2019 sales of the largest players, while Exhibit 4 provides a graphical representation.

Exhibit 3: Total Orthopedic Product Sales – 2017 to 2019 ($Millions)

exhibit4 totalorthopedic productsales

*We’ve updated our DePuy Synthes revenue for 2017 and 2018.
†Stryker’s revenue for 2017 and 2018 includes K2M sales.

Exhibit 4: Market Share – Largest Players and All Others ($Millions)

exhibit5 marketshare largestplayers

  • DePuy Synthes has not experienced consistent growth since its large acquisition of Synthes in 2012. The company made progress in their recovery efforts in 2019, but still failed to stop the slow bleed. Despite these struggles, it is the only company to maintain a top-five position in every orthopedic market segment.
  • Stryker benefited from Zimmer Biomet’s continued underperformance and surged to the number two rank in total orthopedic sales.
  • Zimmer Biomet performed at the top of its 2019 guidance range of -0.5% to +0.5% as it worked toward recovery from manufacturing quality and supply chain challenges that have plagued the company since Zimmer and Biomet combined in 2015.
  • Smith+Nephew drove growth through an updated sports medicine portfolio and enhancements to its joint replacement robotic technology.
  • Medtronic faced operational issues around order and purchase timing that slowed 2019 sales and vied to reorganize operations to reduce end-of-the-month headwinds.
  • Arthrex maintained its domination of the sports medicine segment through the breadth of its portfolio, and continued expansion in the joint replacement and trauma markets.
  • NuVasive demonstrated that it could drive significant growth through proceduralization, essentially taking more share of a surgery through integrated cross-selling and single position surgical approaches in spine.

Orthopedic Market Forecast: 2020-2021 

No one knows exactly how COVID-19 will impact orthopedics. We expect procedures will resume in late second quarter of 2020, and we think that the adjustment period will be sporadic, ambiguous and long-lasting.

We’re planning for COVID-19’s disruption to orthopedic procedure volumes and day-to-day business to last through 2020 and into 2021. More predictable, sturdy orthopedic procedure volumes will return by mid-2021 with robust, stabilized device company revenues returning in 2020.

It’s important to note that procedure volumes will be impacted not only by the postponement of elective procedures, but the following:

  • High unemployment rates, economic upheaval: Would-be patients without insurance will delay and cancel treatment, and those with jobs will reconsider taking time away for fear of losing them.
  • Apprehensive patients: The fear of contracting COVID-19 will linger.
  • Operating room competition: Non-orthopedic specialties are vying for scheduling time too.

Taking all of that into consideration, our forecast calls for a stark -17.4% or -$9.2 billion decline in 2020 revenue to reach $43.9 billion. We project a modest 21% growth in 2021 before the market begins to level off in 2022 and reaches $56 billion. Again, we maintain that orthopedics remains an attractive market due to demographics and the room for innovation. However, orthopedics is entering a new normal. Extraordinary times require orthopedic companies and individuals to diligently respond to market needs by relying on fundamental business principles. Success will come to those that:

  • Communicate with customers. The market forecast through 2021 is complex. Those that understand their customers’ problems and their customers’ customers’ problems will be better positioned to help solve problems, and in turn, be situated for success.
  • Embrace change. COVID-19 upended decades-long business practices in a matter of weeks. Companies need to ask: How should we adapt to the new environment? And then respond accordingly. Those that recognize the fast pace in change will be better positioned to react to market needs.
  • Reimagine their role. Everyone in orthopedics will be impacted by the pandemic – from R&D’s prioritization of new products to supply chain’s collaboration with manufacturing partners. It’s an essential time to consider how the changing landscape affects your responsibilities. The better job we do, the more effective and valuable we are.

Editor's Note: This article is excerpted from THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT®, a resource highly coveted by orthopedic executives for its in-depth insight and market numbers. With the belief that knowledge is power, we're republishing a portion of the executive summary from the exclusive, Member-only report to provide you guidance in the current environment. The full report can be accessed at