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Orthofix and SeaSpine created a stir in the lead-up to the 2022 NASS Annual Meeting by announcing their intention to combine in a merger of equals. The companies completed the merger earlier this week, less than three months after the initial announcement.
The combined organization will retain the Orthofix name and OFIX symbol on NASDAQ, with a new name coming later. The merger created the ninth-largest company in orthopedics by total global revenue. But Orthofix and SeaSpine arrived at this point on two different trajectories. Below, we take a deeper look at each company and the deal’s implications.
Orthofix No Longer Stuck in Neutral
Before the merger, Orthofix was the 12th largest orthopedic company with projected 2022 sales of $462 million. While it managed above-market growth in the spine segment, its total orthopedic revenue hasn’t moved much, hovering between $400 million and $465 million since 2018. Exhibits 1 and 2 show Orthofix’s pre-merger sales by product segment.
Exhibit 1: Orthofix Pre-Merger Orthopedic Sales by Product Segment ($Millions)
Exhibit 2: Orthofix Pre-Merger 2022 Orthopedic Sales by Product Segment ($Millions)
Orthofix hit a rough patch in late 2018 as it reorganized its business lines and underwent an extended CEO search that eventually netted Jon Serbousek. Critical executive vacancies remained through early 2020, and salesforce realignments also caused disruption.
The company acquired Spinal Kinetics and its M6-C cervical disc in 2018. Since then, the product’s steady growth has helped drive Orthofix’s spine segment. However, NuVasive and others have increasingly pressured the M6-C disc.
“We’ve highlighted there have been competitive headwinds out there, and we’re dealing with it with data. We’re dealing with it with investments,” said Jon Serbousek, former Orthofix CEO and current Chairman of the merged company. “We think we’re in a good place to assist in expanding the cervical disc market by sharing our M6 data. We’re pleased that we’re leading in this effort to invest here, so the cervical disc market has a growth opportunity in the future. That’s where we’re focused on right now.”
Orthofix expected mid-single-digit growth in 2022 and an acceleration to high single digits in 2023. Based on company revenue guidance, Orthofix will likely be flat in 2022. Those goals may not have been attainable even in a normalized market. The company’s non-spine businesses — trauma, orthobiologics and stimulation therapies — grew less than 1% between 2016 and 2022.
However, the addition of fast-growing SeaSpine could breathe new life into those markets.
SeaSpine Achieves Scale Through Merger
Around the time Orthofix began scuffling, SeaSpine’s growth kicked into high gear. The company nearly doubled its orthopedic sales between 2016 and 2022, growing from $129 million to $238 million.
SeaSpine weathered the pandemic year of 2020 far better than its competitors. Since then, the company has achieved growth of more than 20% in two consecutive years. Exhibits 3 and 4 show SeaSpine’s sales by product segment.
Exhibit 3: SeaSpine Orthopedic Sales by Product Segment ($Millions)
Exhibit 4: SeaSpine 2022 Orthopedic Sales by Product Segment
SeaSpine’s growth is attributable primarily to its relentless pace of innovation and product launches. Products launched or updated within the last five years account for 76% of SeaSpine’s U.S. spinal implant sales.
An innovative and differentiated product portfolio allowed the company to attract game-changing distributors. SeaSpine also focused on closing geographic white spaces. In the third quarter of 2022, the company’s U.S. spinal implant volumes increased 30% year over year.
SeaSpine is also building momentum with its 7D navigation system. The company announced a co-marketing agreement with 7D Surgical in early 2020 that eventually led to an acquisition a year later. The system has attractive economics and attainable earnout metrics even for ASCs, further contributing to SeaSpine’s market share growth.
SeaSpine CEO Keith Valentine said, “As we work with hospitals and ASCs on the metrics for an earnout, the earnout is much more attractive. The reality is we don’t have much market share in a number of the accounts we’re talking to about 7D. The shift in market share needed to justify the earnout is an easier equation.”
Despite the company’s rapid ascent, SeaSpine still had a fair distance to travel to attain its desired scale and profitability. The merger with Orthofix provides scale and synergy that could vault the combined company into the highest tier of orthopedic players.
Prospects Moving Forward
The combined Orthofix will have orthopedic sales that approach $700 million for 2022, making it the ninth largest player in the industry. It is the eighth-largest spine company with $241 million in sales and ranks 11th in orthobiologics with $163 million in sales. Despite those rankings, the company is a low single-digit player 63in all segments where it competes. Exhibits 5 and 6 show the combined company’s sales by product segment.
Exhibit 5: Combined Orthopedic Sales by Product Segment ($Millions)
Exhibit 6: Combined 2022 Orthopedic Sales by Product Segment
Armed with a highly complementary portfolio, a robust product development engine and unique enabling technology, the company could be an aggressive share taker in the coming years. However, integrations in the spine market are notoriously tricky. The cobbled-together spine businesses of some large orthopedic companies are cautionary tales. Even Stryker struggled to integrate K2M.
Keith Valentine, who will lead the merged company as President and CEO, pushed back on the notion that this merger will face those challenges. “I think we’re starting to beat home the message that this is not a spine merger of giant companies,” he said. “You shouldn’t see a lot of geographic overlap and revenue dis-synergy risk. That’s what the deal’s due diligence bore out.”
If the new Orthofix can avoid the pitfalls of integration, it is well-positioned to enter a new phase of growth in 2023 and beyond.
Orthofix and SeaSpine created a stir in the lead-up to the 2022 NASS Annual Meeting by announcing their intention to combine in a merger of equals. The companies completed the merger earlier this week, less than three months after the initial announcement.
The combined organization will retain the Orthofix name and OFIX symbol on NASDAQ,...
Orthofix and SeaSpine created a stir in the lead-up to the 2022 NASS Annual Meeting by announcing their intention to combine in a merger of equals. The companies completed the merger earlier this week, less than three months after the initial announcement.
The combined organization will retain the Orthofix name and OFIX symbol on NASDAQ, with a new name coming later. The merger created the ninth-largest company in orthopedics by total global revenue. But Orthofix and SeaSpine arrived at this point on two different trajectories. Below, we take a deeper look at each company and the deal’s implications.
Orthofix No Longer Stuck in Neutral
Before the merger, Orthofix was the 12th largest orthopedic company with projected 2022 sales of $462 million. While it managed above-market growth in the spine segment, its total orthopedic revenue hasn’t moved much, hovering between $400 million and $465 million since 2018. Exhibits 1 and 2 show Orthofix’s pre-merger sales by product segment.
Exhibit 1: Orthofix Pre-Merger Orthopedic Sales by Product Segment ($Millions)
Exhibit 2: Orthofix Pre-Merger 2022 Orthopedic Sales by Product Segment ($Millions)
Orthofix hit a rough patch in late 2018 as it reorganized its business lines and underwent an extended CEO search that eventually netted Jon Serbousek. Critical executive vacancies remained through early 2020, and salesforce realignments also caused disruption.
The company acquired Spinal Kinetics and its M6-C cervical disc in 2018. Since then, the product’s steady growth has helped drive Orthofix’s spine segment. However, NuVasive and others have increasingly pressured the M6-C disc.
“We’ve highlighted there have been competitive headwinds out there, and we’re dealing with it with data. We’re dealing with it with investments,” said Jon Serbousek, former Orthofix CEO and current Chairman of the merged company. “We think we’re in a good place to assist in expanding the cervical disc market by sharing our M6 data. We’re pleased that we’re leading in this effort to invest here, so the cervical disc market has a growth opportunity in the future. That’s where we’re focused on right now.”
Orthofix expected mid-single-digit growth in 2022 and an acceleration to high single digits in 2023. Based on company revenue guidance, Orthofix will likely be flat in 2022. Those goals may not have been attainable even in a normalized market. The company’s non-spine businesses — trauma, orthobiologics and stimulation therapies — grew less than 1% between 2016 and 2022.
However, the addition of fast-growing SeaSpine could breathe new life into those markets.
SeaSpine Achieves Scale Through Merger
Around the time Orthofix began scuffling, SeaSpine’s growth kicked into high gear. The company nearly doubled its orthopedic sales between 2016 and 2022, growing from $129 million to $238 million.
SeaSpine weathered the pandemic year of 2020 far better than its competitors. Since then, the company has achieved growth of more than 20% in two consecutive years. Exhibits 3 and 4 show SeaSpine’s sales by product segment.
Exhibit 3: SeaSpine Orthopedic Sales by Product Segment ($Millions)
Exhibit 4: SeaSpine 2022 Orthopedic Sales by Product Segment
SeaSpine’s growth is attributable primarily to its relentless pace of innovation and product launches. Products launched or updated within the last five years account for 76% of SeaSpine’s U.S. spinal implant sales.
An innovative and differentiated product portfolio allowed the company to attract game-changing distributors. SeaSpine also focused on closing geographic white spaces. In the third quarter of 2022, the company’s U.S. spinal implant volumes increased 30% year over year.
SeaSpine is also building momentum with its 7D navigation system. The company announced a co-marketing agreement with 7D Surgical in early 2020 that eventually led to an acquisition a year later. The system has attractive economics and attainable earnout metrics even for ASCs, further contributing to SeaSpine’s market share growth.
SeaSpine CEO Keith Valentine said, “As we work with hospitals and ASCs on the metrics for an earnout, the earnout is much more attractive. The reality is we don’t have much market share in a number of the accounts we’re talking to about 7D. The shift in market share needed to justify the earnout is an easier equation.”
Despite the company’s rapid ascent, SeaSpine still had a fair distance to travel to attain its desired scale and profitability. The merger with Orthofix provides scale and synergy that could vault the combined company into the highest tier of orthopedic players.
Prospects Moving Forward
The combined Orthofix will have orthopedic sales that approach $700 million for 2022, making it the ninth largest player in the industry. It is the eighth-largest spine company with $241 million in sales and ranks 11th in orthobiologics with $163 million in sales. Despite those rankings, the company is a low single-digit player 63in all segments where it competes. Exhibits 5 and 6 show the combined company’s sales by product segment.
Exhibit 5: Combined Orthopedic Sales by Product Segment ($Millions)
Exhibit 6: Combined 2022 Orthopedic Sales by Product Segment
Armed with a highly complementary portfolio, a robust product development engine and unique enabling technology, the company could be an aggressive share taker in the coming years. However, integrations in the spine market are notoriously tricky. The cobbled-together spine businesses of some large orthopedic companies are cautionary tales. Even Stryker struggled to integrate K2M.
Keith Valentine, who will lead the merged company as President and CEO, pushed back on the notion that this merger will face those challenges. “I think we’re starting to beat home the message that this is not a spine merger of giant companies,” he said. “You shouldn’t see a lot of geographic overlap and revenue dis-synergy risk. That’s what the deal’s due diligence bore out.”
If the new Orthofix can avoid the pitfalls of integration, it is well-positioned to enter a new phase of growth in 2023 and beyond.
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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.
