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In 2024, more than 60% of all orthopedic sales are generated by just six public companies, each with over $2 billion in annual sales.
But each of those companies is facing significant questions or tests this year. Below we dive into one of these questions for each of Stryker, DePuy Synthes, Zimmer Biomet, Smith+Nephew, Medtronic and Globus Medical.
Is Spine’s Technology Turn a Boon for Stryker?
Stryker’s spine business has been stuck in neutral for a decade. Its 2018 acquisition of K2M seemed promising, but stumbled through integration issues. The company may have its answer at some point in 2024 when it launches its Mako spine robot, without which it struggled to compete against Medtronic and Globus. Coupled with the already-launched Q Guidance system, Stryker may finally have the proper arsenal in spine.
Large, diversified companies like Stryker are fighting history and competition in the spine market. The spine segment strongly rewards specialization. Pure-play companies like ATEC enjoy massive growth partly because they take spine market share from the largest diversified players. Cobbling together a spine business through acquisitions leads to flawed integrations, like Stryker’s rough road with K2M. Over the last ten years, the company struggled to unlock organic growth in its spine sales.
Stryker is banking on the spine market’s perceived need for enabling technology to bridge the gap to above-market growth. Utilization rates of robotics and navigation are low and stagnant in spine surgery. Yet, the segment’s three giants – Medtronic, Globus Medical and Stryker – are fully invested in driving enabling tech sales and procedures.
Stryker’s spine robot is scheduled to hit the market in 2024. The company expects a fairly quick uptake as a relatively late mover in the space. “When you’re first, the uptake tends to be a little slower because you have to overcome objections,” said Stryker CEO Kevin Lobo. “There are already a couple of players in the [spine] market, and we already have a very large footprint of robots. That should be a faster ramp than we saw with hips and knees.”
Will DePuy Synthes’ Restructure Increase Upside?
Johnson & Johnson announced a two-year restructuring of its orthopedics business during its third-quarter earnings call. The company hopes to meet demand better and win in high-growth segments by simplifying and focusing operations. DePuy Synthes will exit certain product lines and markets.
The restructuring will incur a modest $250 million revenue disruption and cost up to $800 million over the two-year project. We estimate that DePuy Synthes will finish 2023 with $8.9 billion in sales, reflecting growth of 3.6% versus 2022.
The chart below tracks DePuy Synthes’ sales by business unit from 2016 through our 2023 projection. The company’s joint replacement sales have largely offset in recent years, with a CAGR of 0.5%. Trauma’s growth is below market, but increasing steadily at about 2% annually against a massive revenue base of nearly $3 billion. The Spine, Sports and Other segment has declined 3% annually, with punishing losses concentrated in spine.
The orthopedic market’s growth is expected to remain elevated through 2024, and companies are jockeying to win those procedures. Companies with operational inefficiencies, like DePuy Synthes and Smith+Nephew, have largely missed out on the market’s upside so far.
Companies are mobilizing to win in high-growth segments that will drive the market in the coming years. DePuy Synthes’ leadership highlighted “all things robotics,” ASCs and extremities as areas of investment and focus.
Can Zimmer Biomet’s Growth Momentum Spur M&A?
Zimmer Biomet underwent a multi-year transformation under the stewardship of former CEO Bryan Hanson to fix operational issues and revitalize the company’s innovation cadence. Since the pandemic, Zimmer Biomet focused on active portfolio management.
The company spun off its dragging spine business, quietly rationalized a “dramatic” number of SKUs and reallocated focus with 50 new product launches in higher-growth areas between 2018 and 2022. However, post-pandemic market disruption limited Zimmer Biomet’s cash leverage and M&A firepower.
Zimmer Biomet wasn’t alone in that regard. The most active orthopedic M&A companies since 2016 went into cash-saving mode after the pandemic. The top ten most active companies accounted for 10% fewer deals after the pandemic (29%) than before (39%).
Market recovery in 2022 and 2023 helped Zimmer Biomet build substantial momentum in critical areas like cementless knees, revenue from ASCs and higher-growth markets like foot/ankle and sports medicine. Those results give the company the flexibility to make a significant M&A move.
“M&A remains the number one recipient of capital allocation,” said Zimmer Biomet CEO Ivan Tornos. “S.E.T. is one very attractive category, given the higher market growth dynamics or position in the space. So, you should assume that this is one area where we will focus from an M&A standpoint. We like to do things up to $2 billion in acquisition price. We want these deals to be EPS-neutral within two years. And we spoke about high-single-digit ROIC within five years. So, that’s a bit of a strategic and financial profile.”
Can CORI Turn Smith+Nephew’s Knee Business Around?
Smith+Nephew’s orthopedic business units include Knees, Hips, Other (robotics) and Trauma & Extremities. The company’s problems in these segments predate the pandemic. Market average knee replacement growth decelerated, while both hips and trauma seriously underperformed against the market average growth.
Operational issues exacerbated market disruption brought on by the pandemic. The company also had meaningful exposure in China, where nationalized volume-based procurement slashed prices of orthopedic products. Smith+Nephew knee replacement sales are improving, but still below its 2019 threshold. Hip replacement and trauma have shown few signs of life.
While supplies of its Journey II knee are still pressured, the company is well down the path of re-wiring its orthopedic product delivery. With more efficient operations, Smith+Nephew is banking on its CORI handheld robot to drive cementless knee sales. Until relatively recently, those were gaps in the company’s knee offering.
“The strategy we’re running is not to place robots willy-nilly, but rather where we expect to see utilization,” said Smith+Nephew Deepak Nath. “That combination is important for us. We’re encouraged by the uptake we’ve gotten not only in academic medical centers where historically we’ve had a weaker presence, but also in the ASCs, which I know is a growing segment. CORI is very well-positioned within that segment as well, and we’re pleased with the uptake we’re seeing there.”
Can Medtronic’s Tech Transformation Fuel a Decade of Growth?
While the combination of Globus and NuVasive altered the landscape of the spine segment, Medtronic remains the only spine company with more than 20% market share. It has long faced questions about its ability to drive meaningful organic growth from such a massive base.
Like its peers, Medtronic transformed to align itself with the post-pandemic market. CEO Geoffrey Martha prioritized reducing complexity, allocating capital toward high-growth opportunities and leveraging the company’s vast scale.
Medtronic is at the forefront of the spine industry’s technology transformation with its AiBLE ecosystem. According to the company, its global footprint of over 10,000 systems is more than four times larger than Globus Medical’s install base.
The company intends to invest in AI and technology across its enterprise. To that end, Medtronic created the new position of Chief Technology and Innovation Officer. Ken Washington – a veteran of Amazon, Ford and Lockheed Martin – filled the newly created role, and leads the deployment of technologies like AI and robotics across the company.
“We’re executing on our comprehensive transformation,” said Mr. Martha. “We’re decisively allocating capital into fast-growth medtech markets and fueling innovative technologies like robotics, AI and closed-loop systems that will drive our growth over the next decade.”
Can Globus Medical Buck Spine Market History?
Globus completed its $3.1 billion purchase of NuVasive in late 2023, setting the stage for a consequential integration between the two very different companies. Recent history showed that technology and scale win at the top of the spine market. Globus Medical has the technology, with its well-regarded enabling technology platforms. Now it has the scale to push a behemoth like Medtronic.
Globus talked previously about investing in higher-growth markets like regenerative medicine, sports medicine and extremities. The decision to invest so much in a low-growth market like spine perplexed many. But to be fair, Globus has a proven history of drastically outperforming the spine market. Using legacy company sales from 2016 to the estimated 2023 finish, Globus’ CAGR (9.3%) is far better than NuVasive’s (3.1%) and the overall spine market’s (2%).
Globus Medical must defy history to achieve its strategic goals, though. The spine market is replete with cautionary tales of troubled integrations that languish for years. DePuy Synthes’ spine woes go back decades, Zimmer Biomet’s spine business essentially got jettisoned twice in as many years, and Stryker is still trying to catch its footing in spine.
But those companies aren’t Globus Medical, and it will likely be another year or so before we truly know how the integration is going. For now, the company is taking a business-as-usual approach. “We’re creating a great deal of disruption,” said Globus CEO Dan Scavilla. “That creates uncertainty, and folks are looking to get answers. So what I’d like to do is move at a faster pace. The sooner we can create a steady state, the better.”
In 2024, more than 60% of all orthopedic sales are generated by just six public companies, each with over $2 billion in annual sales.
But each of those companies is facing significant questions or tests this year. Below we dive into one of these questions for each of Stryker, DePuy Synthes, Zimmer Biomet, Smith+Nephew, Medtronic and Globus...
In 2024, more than 60% of all orthopedic sales are generated by just six public companies, each with over $2 billion in annual sales.
But each of those companies is facing significant questions or tests this year. Below we dive into one of these questions for each of Stryker, DePuy Synthes, Zimmer Biomet, Smith+Nephew, Medtronic and Globus Medical.
Is Spine’s Technology Turn a Boon for Stryker?
Stryker’s spine business has been stuck in neutral for a decade. Its 2018 acquisition of K2M seemed promising, but stumbled through integration issues. The company may have its answer at some point in 2024 when it launches its Mako spine robot, without which it struggled to compete against Medtronic and Globus. Coupled with the already-launched Q Guidance system, Stryker may finally have the proper arsenal in spine.
Large, diversified companies like Stryker are fighting history and competition in the spine market. The spine segment strongly rewards specialization. Pure-play companies like ATEC enjoy massive growth partly because they take spine market share from the largest diversified players. Cobbling together a spine business through acquisitions leads to flawed integrations, like Stryker’s rough road with K2M. Over the last ten years, the company struggled to unlock organic growth in its spine sales.
Stryker is banking on the spine market’s perceived need for enabling technology to bridge the gap to above-market growth. Utilization rates of robotics and navigation are low and stagnant in spine surgery. Yet, the segment’s three giants – Medtronic, Globus Medical and Stryker – are fully invested in driving enabling tech sales and procedures.
Stryker’s spine robot is scheduled to hit the market in 2024. The company expects a fairly quick uptake as a relatively late mover in the space. “When you’re first, the uptake tends to be a little slower because you have to overcome objections,” said Stryker CEO Kevin Lobo. “There are already a couple of players in the [spine] market, and we already have a very large footprint of robots. That should be a faster ramp than we saw with hips and knees.”
Will DePuy Synthes’ Restructure Increase Upside?
Johnson & Johnson announced a two-year restructuring of its orthopedics business during its third-quarter earnings call. The company hopes to meet demand better and win in high-growth segments by simplifying and focusing operations. DePuy Synthes will exit certain product lines and markets.
The restructuring will incur a modest $250 million revenue disruption and cost up to $800 million over the two-year project. We estimate that DePuy Synthes will finish 2023 with $8.9 billion in sales, reflecting growth of 3.6% versus 2022.
The chart below tracks DePuy Synthes’ sales by business unit from 2016 through our 2023 projection. The company’s joint replacement sales have largely offset in recent years, with a CAGR of 0.5%. Trauma’s growth is below market, but increasing steadily at about 2% annually against a massive revenue base of nearly $3 billion. The Spine, Sports and Other segment has declined 3% annually, with punishing losses concentrated in spine.
The orthopedic market’s growth is expected to remain elevated through 2024, and companies are jockeying to win those procedures. Companies with operational inefficiencies, like DePuy Synthes and Smith+Nephew, have largely missed out on the market’s upside so far.
Companies are mobilizing to win in high-growth segments that will drive the market in the coming years. DePuy Synthes’ leadership highlighted “all things robotics,” ASCs and extremities as areas of investment and focus.
Can Zimmer Biomet’s Growth Momentum Spur M&A?
Zimmer Biomet underwent a multi-year transformation under the stewardship of former CEO Bryan Hanson to fix operational issues and revitalize the company’s innovation cadence. Since the pandemic, Zimmer Biomet focused on active portfolio management.
The company spun off its dragging spine business, quietly rationalized a “dramatic” number of SKUs and reallocated focus with 50 new product launches in higher-growth areas between 2018 and 2022. However, post-pandemic market disruption limited Zimmer Biomet’s cash leverage and M&A firepower.
Zimmer Biomet wasn’t alone in that regard. The most active orthopedic M&A companies since 2016 went into cash-saving mode after the pandemic. The top ten most active companies accounted for 10% fewer deals after the pandemic (29%) than before (39%).
Market recovery in 2022 and 2023 helped Zimmer Biomet build substantial momentum in critical areas like cementless knees, revenue from ASCs and higher-growth markets like foot/ankle and sports medicine. Those results give the company the flexibility to make a significant M&A move.
“M&A remains the number one recipient of capital allocation,” said Zimmer Biomet CEO Ivan Tornos. “S.E.T. is one very attractive category, given the higher market growth dynamics or position in the space. So, you should assume that this is one area where we will focus from an M&A standpoint. We like to do things up to $2 billion in acquisition price. We want these deals to be EPS-neutral within two years. And we spoke about high-single-digit ROIC within five years. So, that’s a bit of a strategic and financial profile.”
Can CORI Turn Smith+Nephew’s Knee Business Around?
Smith+Nephew’s orthopedic business units include Knees, Hips, Other (robotics) and Trauma & Extremities. The company’s problems in these segments predate the pandemic. Market average knee replacement growth decelerated, while both hips and trauma seriously underperformed against the market average growth.
Operational issues exacerbated market disruption brought on by the pandemic. The company also had meaningful exposure in China, where nationalized volume-based procurement slashed prices of orthopedic products. Smith+Nephew knee replacement sales are improving, but still below its 2019 threshold. Hip replacement and trauma have shown few signs of life.
While supplies of its Journey II knee are still pressured, the company is well down the path of re-wiring its orthopedic product delivery. With more efficient operations, Smith+Nephew is banking on its CORI handheld robot to drive cementless knee sales. Until relatively recently, those were gaps in the company’s knee offering.
“The strategy we’re running is not to place robots willy-nilly, but rather where we expect to see utilization,” said Smith+Nephew Deepak Nath. “That combination is important for us. We’re encouraged by the uptake we’ve gotten not only in academic medical centers where historically we’ve had a weaker presence, but also in the ASCs, which I know is a growing segment. CORI is very well-positioned within that segment as well, and we’re pleased with the uptake we’re seeing there.”
Can Medtronic’s Tech Transformation Fuel a Decade of Growth?
While the combination of Globus and NuVasive altered the landscape of the spine segment, Medtronic remains the only spine company with more than 20% market share. It has long faced questions about its ability to drive meaningful organic growth from such a massive base.
Like its peers, Medtronic transformed to align itself with the post-pandemic market. CEO Geoffrey Martha prioritized reducing complexity, allocating capital toward high-growth opportunities and leveraging the company’s vast scale.
Medtronic is at the forefront of the spine industry’s technology transformation with its AiBLE ecosystem. According to the company, its global footprint of over 10,000 systems is more than four times larger than Globus Medical’s install base.
The company intends to invest in AI and technology across its enterprise. To that end, Medtronic created the new position of Chief Technology and Innovation Officer. Ken Washington – a veteran of Amazon, Ford and Lockheed Martin – filled the newly created role, and leads the deployment of technologies like AI and robotics across the company.
“We’re executing on our comprehensive transformation,” said Mr. Martha. “We’re decisively allocating capital into fast-growth medtech markets and fueling innovative technologies like robotics, AI and closed-loop systems that will drive our growth over the next decade.”
Can Globus Medical Buck Spine Market History?
Globus completed its $3.1 billion purchase of NuVasive in late 2023, setting the stage for a consequential integration between the two very different companies. Recent history showed that technology and scale win at the top of the spine market. Globus Medical has the technology, with its well-regarded enabling technology platforms. Now it has the scale to push a behemoth like Medtronic.
Globus talked previously about investing in higher-growth markets like regenerative medicine, sports medicine and extremities. The decision to invest so much in a low-growth market like spine perplexed many. But to be fair, Globus has a proven history of drastically outperforming the spine market. Using legacy company sales from 2016 to the estimated 2023 finish, Globus’ CAGR (9.3%) is far better than NuVasive’s (3.1%) and the overall spine market’s (2%).
Globus Medical must defy history to achieve its strategic goals, though. The spine market is replete with cautionary tales of troubled integrations that languish for years. DePuy Synthes’ spine woes go back decades, Zimmer Biomet’s spine business essentially got jettisoned twice in as many years, and Stryker is still trying to catch its footing in spine.
But those companies aren’t Globus Medical, and it will likely be another year or so before we truly know how the integration is going. For now, the company is taking a business-as-usual approach. “We’re creating a great deal of disruption,” said Globus CEO Dan Scavilla. “That creates uncertainty, and folks are looking to get answers. So what I’d like to do is move at a faster pace. The sooner we can create a steady state, the better.”
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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.
