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We believe the orthopedic market recovery will stall in the second half of 2020. As orthopedic companies report their 2Q20 earnings, we expect performance above consensus projections for the quarter. However, we no longer foresee procedures returning to baseline in 2020 due to the U.S.’s inability to check the spread of COVID-19. While wholesale shutdowns are unlikely in this wave of COVID infections, the shift of healthcare resources will likely blunt the trajectory of orthopedic procedure volume improvements made in May and June.
Reviewing Our Recovery Projections
Earlier this year, we projected that the orthopedic market would decline between -60% and -70% in 2Q as it endured a full quarter of the pandemic. April represented the bottom point of the market, and many orthopedic players reported significantly better sales volume in May. Our projections expected a steady recovery throughout 2020, with 4Q approaching normalized historical procedure volumes and patient backlogs being worked into 2021. Critically, almost all recovery scenarios modeled no second wave of COVID.
Orthopedic Players Preliminary Revenue Better than Expected
Preliminary revenue results for the second quarter show orthopedic companies recovering faster than expected. Monthly results track closely with the easing of lockdown restrictions. Smith+Nephew reported a year-over-year decline of -29% in the second quarter. However, the monthly trajectory showed consistent improvement with -47% in April, -27% in May, and -12% in June. Joint replacement and sports medicine remain the most negatively impacted company segments. Integra LifeSciences saw a similar recovery curve with year-over-year 2Q sales down -34% and June improving to -15%. Conformis performed better than our expectations, exiting 2Q20 with product revenue down -50% vs. 2Q19.
Trends Show Improvement in Healthcare Productivity
Indirect measures of the market continued to show promising signs for recovery into June. Wells Fargo analysts found that doctor visits approached pre-COVID levels by mid-June. They also found that orthopedic procedures were recovering faster than expected. Likewise, analysts with Needham continue to track Google searches for elective procedures. Searches for orthopedic-related procedures were down -21% in June compared to last year. However, that is a 28% improvement compared to April.
Sinking Confidence in Recovery Timing
Despite the orthopedic market recovery improvements seen in 2Q, it is now clear that the U.S. loosened COVID restrictions before suppressing the spread of the virus. According to The COVID Tracking Project, the first 12 days of June averaged 20,610 new COVID cases per day. In July, that average increased to 55,836 per day, a staggering 171% increase that far outpaces the increase in new tests. Analysts with Canaccord Genuity polled 50 orthopedic surgeons in June. Only 8% of respondents expect procedure volume normalization in 3Q and only 18% expect it to even in 4Q. The number of surgeons expecting normalization in the first half of next year increased, reflecting the erosion of confidence in a 2020 recovery from COVID.
We believe the orthopedic market recovery will stall in the second half of 2020. As orthopedic companies report their 2Q20 earnings, we expect performance above consensus projections for the quarter. However, we no longer foresee procedures returning to baseline in 2020 due to the U.S.’s inability to check the spread of COVID-19. While wholesale...
We believe the orthopedic market recovery will stall in the second half of 2020. As orthopedic companies report their 2Q20 earnings, we expect performance above consensus projections for the quarter. However, we no longer foresee procedures returning to baseline in 2020 due to the U.S.’s inability to check the spread of COVID-19. While wholesale shutdowns are unlikely in this wave of COVID infections, the shift of healthcare resources will likely blunt the trajectory of orthopedic procedure volume improvements made in May and June.
Reviewing Our Recovery Projections
Earlier this year, we projected that the orthopedic market would decline between -60% and -70% in 2Q as it endured a full quarter of the pandemic. April represented the bottom point of the market, and many orthopedic players reported significantly better sales volume in May. Our projections expected a steady recovery throughout 2020, with 4Q approaching normalized historical procedure volumes and patient backlogs being worked into 2021. Critically, almost all recovery scenarios modeled no second wave of COVID.
Orthopedic Players Preliminary Revenue Better than Expected
Preliminary revenue results for the second quarter show orthopedic companies recovering faster than expected. Monthly results track closely with the easing of lockdown restrictions. Smith+Nephew reported a year-over-year decline of -29% in the second quarter. However, the monthly trajectory showed consistent improvement with -47% in April, -27% in May, and -12% in June. Joint replacement and sports medicine remain the most negatively impacted company segments. Integra LifeSciences saw a similar recovery curve with year-over-year 2Q sales down -34% and June improving to -15%. Conformis performed better than our expectations, exiting 2Q20 with product revenue down -50% vs. 2Q19.
Trends Show Improvement in Healthcare Productivity
Indirect measures of the market continued to show promising signs for recovery into June. Wells Fargo analysts found that doctor visits approached pre-COVID levels by mid-June. They also found that orthopedic procedures were recovering faster than expected. Likewise, analysts with Needham continue to track Google searches for elective procedures. Searches for orthopedic-related procedures were down -21% in June compared to last year. However, that is a 28% improvement compared to April.
Sinking Confidence in Recovery Timing
Despite the orthopedic market recovery improvements seen in 2Q, it is now clear that the U.S. loosened COVID restrictions before suppressing the spread of the virus. According to The COVID Tracking Project, the first 12 days of June averaged 20,610 new COVID cases per day. In July, that average increased to 55,836 per day, a staggering 171% increase that far outpaces the increase in new tests. Analysts with Canaccord Genuity polled 50 orthopedic surgeons in June. Only 8% of respondents expect procedure volume normalization in 3Q and only 18% expect it to even in 4Q. The number of surgeons expecting normalization in the first half of next year increased, reflecting the erosion of confidence in a 2020 recovery from COVID.
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ME
Mike Evers Mike Evers is an analyst and writer with over 15 years of experience in the medical industry, spanning cardiac rhythm management, ER coding and billing, and orthopedics. He joined ORTHOWORLD in 2018, where he provides market analysis and editorial coverage.
