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Sector Snapshot: The Orthopaedic OEM and Supplier Markets

In 2009, ORTHOWORLD estimated annual global orthopaedic supplier market sales to be approximately $2 billion. At that time, slowing growth in the orthopaedic original equipment manufacturer (OEM) sector was reflected in the supplier side, though competition remained high and consolidation/collaborations continued around the globe. To this day, the orthopaedic supplier market remains highly fragmented and competitive.

On the OEM side, seven multinational OEMs – Stryker, DePuy/J&J, Zimmer, Medtronic Sofamor Danek, Synthes, Smith & Nephew and Biomet – each with $1 billion or more in annual orthopaedic device sales, currently hold the predominant share of the orthopaedic device market. The ten largest orthopaedic OEMs account for approximately 90% of the market. These leaders rely heavily upon independent suppliers for the manufacturing of implants, instruments, cases and other elements of an implant system.

Over the past three years, growth in the supplier side of the market has “tagged along,” ebbing and flowing behind that of the OEM side. Exhibit 1 illustrates the variety in growth rates for the years 2008 to 2010, displaying orthopaedic segment growth for three publicly-traded supplier companies alongside that of the overall orthopaedic market.

Exhibit 1: Worldwide Orthopaedic Segment Sales for Select Supplier Companies, Including Overall Orthopaedic Market Growth: 2008 to 2010

Sources: ORTHOWORLD estimates, data obtained from company filings, press releases.

Despite a slowing of growth to the mid-single digits, the orthopaedic market should remain one of the healthiest among medical devices due to undeniably perfect demographics. Following is a snapshot of current market dynamics affecting both OEM and supplier sides.

OEM Market Characteristics

  • ~$40 billion global market, with estimated 5% growth in 2010
  • U.S., Europe and Japan account for >80% of global market with <20% of world’s population.
  • The fastest growth segments are spinal, arthroscopy/soft tissue repair and trauma, with more modest growth in reconstruction implants and orthobiologics.
  • The global recession has taken its toll upon the largest orthopaedic OEMs which, after years of double-digit revenue growth, posted more modest sales growth in FY10. However, growth strengthened in late FY10 and into FY11.
  • Despite moderating growth, profitability has remained solid due to greater scale and commitment to operational efficiency, with recent median gross and EBITDA margins of 74% and 32%, respectively, vs. 73% and 31% from three years prior for the top 7 OEMs.
  • Increased pricing pressure continues throughout the supply chain from moderating growth rates, increasing pressures from end users, Department of Justice and FDA activity.