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The orthopedic market faces several tests in the back half of 2023 and beyond. When will joint replacement procedure volumes normalize? Can the influx of technology into spine impact that segment’s growth rate? And, how will recent M&A deals pan out? Let’s take a deeper look at each of these questions.
How Durable is Joint Replacement’s Tailwind?
As we showed in a recent Chart of the Month post, joint replacement procedure volumes recovered more slowly than other segments after 2020. However, joint replacement picked up steam toward the end of 2022 and carried that through the first quarter of 2023. By our estimates, the knee replacement segment grew 13% in the first quarter of 2023 compared to 1Q22.
Several years of disruption created a sizable (we think) surgical backlog for joint replacement patients. Still, its contribution to first-quarter sales is difficult to parse against a notably weaker prior-year comparison. There’s no sense that the U.S. healthcare industry is operating in overdrive. It could be that we’re seeing the market operate at something closer to normal as disruptions mitigate with some overlapping tailwinds from backlogged procedures and the segment’s pivot toward digital.
However, parts of the European joint replacement market seemed to run hot in early 2023, according to Enovis. “Some countries like Germany are on overdrive,” said Enovis CEO Matt Trerotola. “They’re actually working off significant backlogs of surgery and running at higher than normal levels. Things could remain hot for another quarter or so, but then I think we need to be a little bit cautious about what happens in the back half of the year.”
Can Technology Bridge the Growth Gap in Spine?
While spine is a massive chunk of the orthopedic market’s annual sales, there’s far less organic growth to be had compared to less venerable categories like foot and ankle. This is a powerful driver of consolidation and the reason spine accounts for nearly 30% of all orthopedic M&A transactions, by far the highest among all product segments.
The largest players in the spine segment – Medtronic, DePuy Synthes, Stryker and Globus/NuVasive – are all heavily invested in commercializing enabling technologies like robotics and navigation systems. These technologies are almost a prerequisite to competing at the top levels of spine, according to Stryker.
“Not having a robot is a problem,” said Stryker CEO Kevin Lobo. “Now that we have our enabling technology roadmap, I’m actually pretty excited about spine in the future. It’s going to continue to be a dogfight through the end of 2023. But, going into 2024 with Q Guidance already launched, we’ll have a bit of a spring in our step. We’re committed to spine long-term.”
Technology’s strategic importance to device companies seems at odds with current surgeon utilization trends. Navigation is used in approximately 18% of spine surgeries, a number that has plateaued in recent years. Robotics are used in just 3% of spine cases. After a brief technology bonanza in the pandemic aftermath, hospitals largely moved away from purchasing technologies outright.
Given low utilization levels and the scarcity of outcomes data, it is hard to imagine hospitals bearing additional costs for incremental technology improvements. Barring a transformative and disruptive launch, the biggest spine companies will continue to purchase growth via acquisitions.
How Will Recent M&A Deals Pan Out?
Orthopedic merger and acquisition activity most recently peaked in 2020 with 42 transactions before dropping down to 22 deals in 2022. So far this year, there have been 14 transactions, with the market on pace for a slight rebound in 2023. The second quarter felt especially busy, with nine announced deals. A few of those second-quarter deals stood out to us as especially interesting opportunities:
- Enovis expanded its foot and ankle business by acquiring Novastep
- ATEC entered the robotics market through its purchase of REMI
- restor3D acquired Conformis to leverage IP across orthopedics
But, the most consequential deal in recent orthopedic history is the $3.1 billion combination of Globus Medical and NuVasive. Once the deal closes, Globus Medical will be a clear second player behind Medtronic and could pose a credible threat to the giant.
Doubling down on spine for that number two position wasn’t the move that investors expected. Analysts and observers pointed to the long trail of wreckage left behind by tumultuous spine integrations over the years. Globus Medical’s projected 17.4% market share in spine could be perilously close to “too big to grow” territory. The company’s competitors also expect opportunities arising from disruption in years two and three of the integration.
Globus Medical brushed off concerns about unrelated deals that failed and doesn’t expect excessive rep churn. “We don’t need to beg,” said company CEO Dan Scavilla. “We pay strongly for our reps, and we’ve been doing that historically without change, unlike other companies. So we’re talking about strong compensation, and arguably the strongest offering for products in the spine market with that. Our Enabling Technology, along with the Pulse system, can really become a powerful tool.”
Globus Medical has set a standard of excellence for several years running, however. It took some lumps from Wall Street, but will very likely see this integration through successfully and achieve the deal’s long-term objectives.
While there will almost certainly be some surprises in the upcoming second-quarter earnings, we think these three big questions will have a significant impact on orthopedics overall in the next several quarters to come.
The orthopedic market faces several tests in the back half of 2023 and beyond. When will joint replacement procedure volumes normalize? Can the influx of technology into spine impact that segment’s growth rate? And, how will recent M&A deals pan out? Let’s take a deeper look at each of these questions.
How Durable is Joint Replacement’s...
The orthopedic market faces several tests in the back half of 2023 and beyond. When will joint replacement procedure volumes normalize? Can the influx of technology into spine impact that segment’s growth rate? And, how will recent M&A deals pan out? Let’s take a deeper look at each of these questions.
How Durable is Joint Replacement’s Tailwind?
As we showed in a recent Chart of the Month post, joint replacement procedure volumes recovered more slowly than other segments after 2020. However, joint replacement picked up steam toward the end of 2022 and carried that through the first quarter of 2023. By our estimates, the knee replacement segment grew 13% in the first quarter of 2023 compared to 1Q22.
Several years of disruption created a sizable (we think) surgical backlog for joint replacement patients. Still, its contribution to first-quarter sales is difficult to parse against a notably weaker prior-year comparison. There’s no sense that the U.S. healthcare industry is operating in overdrive. It could be that we’re seeing the market operate at something closer to normal as disruptions mitigate with some overlapping tailwinds from backlogged procedures and the segment’s pivot toward digital.
However, parts of the European joint replacement market seemed to run hot in early 2023, according to Enovis. “Some countries like Germany are on overdrive,” said Enovis CEO Matt Trerotola. “They’re actually working off significant backlogs of surgery and running at higher than normal levels. Things could remain hot for another quarter or so, but then I think we need to be a little bit cautious about what happens in the back half of the year.”
Can Technology Bridge the Growth Gap in Spine?
While spine is a massive chunk of the orthopedic market’s annual sales, there’s far less organic growth to be had compared to less venerable categories like foot and ankle. This is a powerful driver of consolidation and the reason spine accounts for nearly 30% of all orthopedic M&A transactions, by far the highest among all product segments.
The largest players in the spine segment – Medtronic, DePuy Synthes, Stryker and Globus/NuVasive – are all heavily invested in commercializing enabling technologies like robotics and navigation systems. These technologies are almost a prerequisite to competing at the top levels of spine, according to Stryker.
“Not having a robot is a problem,” said Stryker CEO Kevin Lobo. “Now that we have our enabling technology roadmap, I’m actually pretty excited about spine in the future. It’s going to continue to be a dogfight through the end of 2023. But, going into 2024 with Q Guidance already launched, we’ll have a bit of a spring in our step. We’re committed to spine long-term.”
Technology’s strategic importance to device companies seems at odds with current surgeon utilization trends. Navigation is used in approximately 18% of spine surgeries, a number that has plateaued in recent years. Robotics are used in just 3% of spine cases. After a brief technology bonanza in the pandemic aftermath, hospitals largely moved away from purchasing technologies outright.
Given low utilization levels and the scarcity of outcomes data, it is hard to imagine hospitals bearing additional costs for incremental technology improvements. Barring a transformative and disruptive launch, the biggest spine companies will continue to purchase growth via acquisitions.
How Will Recent M&A Deals Pan Out?
Orthopedic merger and acquisition activity most recently peaked in 2020 with 42 transactions before dropping down to 22 deals in 2022. So far this year, there have been 14 transactions, with the market on pace for a slight rebound in 2023. The second quarter felt especially busy, with nine announced deals. A few of those second-quarter deals stood out to us as especially interesting opportunities:
- Enovis expanded its foot and ankle business by acquiring Novastep
- ATEC entered the robotics market through its purchase of REMI
- restor3D acquired Conformis to leverage IP across orthopedics
But, the most consequential deal in recent orthopedic history is the $3.1 billion combination of Globus Medical and NuVasive. Once the deal closes, Globus Medical will be a clear second player behind Medtronic and could pose a credible threat to the giant.
Doubling down on spine for that number two position wasn’t the move that investors expected. Analysts and observers pointed to the long trail of wreckage left behind by tumultuous spine integrations over the years. Globus Medical’s projected 17.4% market share in spine could be perilously close to “too big to grow” territory. The company’s competitors also expect opportunities arising from disruption in years two and three of the integration.
Globus Medical brushed off concerns about unrelated deals that failed and doesn’t expect excessive rep churn. “We don’t need to beg,” said company CEO Dan Scavilla. “We pay strongly for our reps, and we’ve been doing that historically without change, unlike other companies. So we’re talking about strong compensation, and arguably the strongest offering for products in the spine market with that. Our Enabling Technology, along with the Pulse system, can really become a powerful tool.”
Globus Medical has set a standard of excellence for several years running, however. It took some lumps from Wall Street, but will very likely see this integration through successfully and achieve the deal’s long-term objectives.
While there will almost certainly be some surprises in the upcoming second-quarter earnings, we think these three big questions will have a significant impact on orthopedics overall in the next several quarters to come.
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ME
Mike Evers is a Senior Market 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.
