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Quarterly Review

Orthopedic Public Companies Grow 2.6% YoY in Quarter

By Mike Evers

The second quarter of 2019 brought incremental improvement over the first. Year over year revenue grew 2.6% in the quarter for the public companies reported herein compared to 1.1% last quarter. The five largest orthopedic players, which control 58% of the market, showed a mixed performance, combining for 1.8% growth. Stryker and Medtronic saw revenue growth in the mid-single digits, Smith & Nephew performed at 1.6% and DePuy Synthes and Zimmer Biomet experienced a year-over-year loss.

Price pressure was a common theme in the quarter for many companies, as it offset some gains made from increased surgical volumes for the reporting period. Exhibits 1 and 2 show 2Q and 1H performance by company.

 

Exhibit 1: Orthopaedic Sales for Public Companies: 2Q19 vs. 2Q18 ($MM)

Company 2Q19 2Q18 $ Chg % Chg
aap $2.8 $3.0 -$0.2 -7.0%
Alphatec Spine $27.3 $22.0 $5.3 24.2%
Anika $26.5 $26.2 $0.3 1.0%
Aurora Spine $3.3 $2.0 $1.3 62.8%
BONESUPPORT $4.0 $3.0 $1.0 32.3%
Conformis $19.3 $18.9 $0.4 2.3%
ConMed $115.8 $110.1 $5.7 5.1%
DePuy Synthes $2,230.9 $2,260.9 -$30.0 -1.3%
DJO $104.3 $95.8 $8.4 8.8%
Episurf $0.1 $0.1 $0.0 37.5%
Globus Medical $194.5 $173.4 $21.2 12.2%
Implanet $2.2 $2.0 $0.2 8.4%
Integra LifeSciences $21.8 $22.0 -$0.3 -1.2%
Medtronic $819.8 $784.4 $35.4 4.5%
NuVasive $292.1 $281.6 $10.5 3.7%
Orthofix $115.9 $111.5 $4.3 3.9%
OrthoPediatrics $18.2 $15.1 $3.1 20.7%
RTI Surgical $71.6 $60.4 $11.3 18.7%
Sanofi $97.7 $103.4 -$5.6 -5.4%
SeaSpine $39.3 $36.4 $2.9 8.0%
Seikagaku $61.4 $65.2 -$3.9 -5.9%
SI-BONE $16.3 $13.7 $2.7 19.4%
Smith & Nephew $892.0 $878.0 $14.0 1.6%
Stryker $1,916.7 $1,772.5 $144.2 8.1%
Vericel $20.8 $14.1 $6.7 47.5%
Wright Medical $229.7 $205.4 $24.3 11.8%
Xtant $15.3 $18.7 -$3.5 -18.5%
Zimmer Biomet $1,769.4 $1,794.8 -$25.4 -1.4%

Exhibit 2: Orthopaedic Sales for Public Companies: 1H19 vs. 1H18 ($MM)

Company 1H19 1H18 $ Chg % Chg
aap $6.7 $6.2 $0.5 8.5%
Alphatec Spine $51.9 $43.3 $8.6 19.8%
Anika $48.2 $45.7 $2.5 5.5%
Aurora Spine $6.0 $3.5 $2.5 70.9%
BONESUPPORT $7.6 $6.4 $1.2 18.6%
Conformis $40.0 $38.6 $1.4 3.7%
ConMed $229.2 $219.0 $10.2 4.7%
DePuy Synthes $4,433.9 $4,511.0 -$77.1 -1.7%
DJO $197.0 $190.8 $6.2 3.2%
Episurf $0.3 $0.2 $0.1 32.8%
Globus Medical $377.5 $347.8 $29.7 8.5%
Implanet $4.3 $4.1 $0.2 5.2%
Integra LifeSciences $44.4 $44.7 -$0.2 -0.5%
Medacta $170.4 $149.7 $20.6 13.8%
Medartis $64.8 $61.3 $3.5 5.7%
Medtronic $1,682.7 $1,607.0 $75.7 4.7%
MicroPort Orthopedics $113.5 $122.3 -$8.8 -7.2%
NuVasive $566.9 $542.1 $24.8 4.6%
Orthofix $225.0 $220.3 $4.7 2.1%
OrthoPediatrics $32.9 $27.2 $5.7 20.9%
RTI Surgical $131.6 $120.3 $11.3 9.4%
Sanofi $174.1 $179.8 -$5.6 -3.1%
SeaSpine $75.5 $69.6 $5.8 8.4%
Seikagaku $130.4 $126.4 $4.0 3.2%
SI-BONE $31.3 $26.4 $4.9 18.7%
Smith & Nephew $1,771.0 $1,749.0 $22.0 1.3%
Stryker $3,798.4 $3,518.8 $279.7 7.9%
Vericel $37.4 $26.2 $11.2 42.7%
Wright Medical $459.9 $403.9 $55.9 13.8%
Xtant $32.0 $36.7 -$4.7 -12.9%
Zimmer Biomet $3,528.8 $3,594.6 -$65.8 -1.8%

 

Company Performance Notes for 2Q19
 

aap Implantate | €2.5MM (USD $2.8MM), -7%

  • Stable sales in Germany offset by expected slowdown for international distributors after a strong first quarter
  • The polyaxial LOQTEC VA foot system will launch in the U.S. market in 2020
  • Submitted an application to FDA to conduct human trials of silver coating technology
  • Earnings impacted significantly by one-time effects of early termination of former CEO and associated legal fees

 

Alphatec Spine | $27.3MM, +24.2%

  • Increased 2019 total revenue guidance to $104MM to $109MM, up from $100MM to $104MM
  • Revenue from new products contributed 32% this quarter, after none the year prior
  • SafeOp platform is currently in alpha evaluations, with anticipated full commercial release in 4Q
  • Within the quarter, launched two approach-specific spine implants (IdentTi TLIF and IdenTi ALIF), as well as the SafeOp-integrated Invictus thoracolumbar fixation system
  • Revenue per case increased 15% vs. the prior year due to more complex surgeries and an average of 1.5 products sold per case
  • Revenue per distributor increased 45% year over year, as the company continues to overhaul its sales channel; revenue from “strategic” suppliers comprised 88% of total revenue

 

Anika Therapeutics | $26.5MM, +1%

  • International viscosupplement sales up nearly 28% year over year
  • Due to marketing efforts by Anika’s sales partner, Mitek, MONOVISC volume grew by 18% and ORTHOVISC volume by 9% compared to 2Q18. Some of this increased volume was offset by pricing volatility over the last several quarters
  • CINGAL continued its strong performance in Europe and Canada, with 125% growth in the quarter
  • Soft launch of bone repair therapy expected in 3Q, while the company will focus on instrumentation design in 2H19 for upcoming rotator cuff repair treatments
  • After extensive consideration, Anika will move forward with efforts to bring their CINGAL product to the U.S., where leadership estimates it to be a $1 billion annual revenue opportunity
  • Plans to initiate a pilot clinical study designed to increase success probability for a Phase III trial
  • Expected to enroll around 240 patients, mostly in the U.S., across 15 sites.
  • Study expected to begin in 1H20 and take about a year to complete.
  • Phase III clinical trial for HYALOFAST has been expanded from 40 to 60 sites, with new ex-U.S. sites to come in 2H19

 

Aurora Spine | $3.3MM, +62.8%

  • Sales of cervical plates, lumbar cages and lumbar screws led to highest revenue quarter in company’s history
  • Sales of third-party products growing significantly faster than sales of proprietary products

 

BONESUPPORT | SEK 37.3MM (USD $4MM), +32.3%

  • Lost distribution rights with Zimmer Biomet at the end of May 2019
  • Signed GPO contract with Kaiser Permanente covering 690 medical offices and 39 hospitals

 

Conformis | $19.3MM, +2.3%

  • Leadership expects growth to decrease in the second half of the year due to denials of coverage for maintenance from Aetna
  • Three additional headwinds include the growth of the cementless market, reimbursement challenges in Germany and slower than expected ramping of hip revenue
  • Total 2019 revenue now expected to be flat vs. 2018
  • Losses in international markets mitigated by efforts to open new markets and working with German surgeons to better document their clinical decisions prior to surgery
  • Sales of the iTotal PS increased 19% year over year, while combined sales of the iTotal CR, iDuo and iUni declined 10% in the same timeframe

 

ConMed | $115.8MM, +5.1%

  • Increased 2019 guidance to the range of $951MM to $958MM, based in part on more favorable currency exchange trends
  • New shoulder and extremity products starting to gain traction
  • New hip products have been slower to gain momentum, but leadership believes the October 2019 International Society for Hip Arthroplasty meeting will raise market awareness

 

DePuy Synthes | $2,230.9MM, -1.3%

  • Knee sales declined in the U.S. due to competitors taking advantage of gaps in the portfolio; decline was partially offset by mid-single-digit growth ex-U.S.;leadership believes that launch of Orthotaxy combined with a cementless knee will drive the company to at or above market growth
  • Hip sales reflected continued demand for ACTIS, which is now the company’s number one selling stem in the U.S., and adoption of the KINCISE Surgical Impactor for hip procedures in the U.S.
  • Spine sales experienced further declines, primarily in the U.S.; the company is seeking to reverse this trend through innovation, calling out the second half launch of their Symfony product for complex cervical pathologies
  • Trauma supported by market growth and newer products like Femoral Recon Nails
  • U.S. price pressure for the quarter was 4% in spine and 2% for hips, knees and trauma
  • On the acquisition of Auris Health, company leadership highlighted the benefit of gaining access to robotics industry expertise via Fred Moll, M.D., who is evaluating all DePuy Synthes digital surgery platforms; Orthotaxy launch remains “on track”

 

DJO | $104.3MM, +8.8%

  • Colfax leadership is pleased with the continuing integration of DJO, noting “good engagement and associate feedback”
  • Joint replacement growth driven by product innovation and relationships with key opinion leaders, including positive surgeon response to the EMPOWR knee
  • Colfax’s operations improvement plan for DJO includes continuous improvement of procurement and supply chain, with a focus on the reimbursement process and product innovation
  • Leadership noted that the DJO purchase gives them new directions to pursue acquisitions that can improve both the scale and reach of Colfax

 

Episurf | SEK 1.1MM (USD $0.1MM), +37.5%

  • Gross order intake for the quarter increased 21% year over year
  • Orders for the Episealer knee implant increased 14% vs. prior year, with 49 orders
  • U.S. patient recruitment for the EPIC Knee study is ready to commence
  • Received patent approvals in the U.S., Japan and Europe
  • Entered into an agreement with a U.S.-based orthopedic company for use of Episurf’s AI-based imaging tool Epioscopy in allograft surgeries; details and financial considerations of the agreement are currently confidential

 

Globus Medical | $194.5MM, +12.2%

  • Acquired knee and hip implant manufacturer StelKast to leverage upcoming total joint applications for ExcelsiusGPS, with an anticipated launch of late 2020
  • Leadership added $5MM to 2019 revenue guidance to account for the acquisition
  • Implant sales grew 12.2%, but were offset somewhat by a corresponding double-digit decrease in sales revenue from ExcelsiusGPS placements
  • Continuing momentum for spine sales in the U.S. was augmented by strong performances in Japan, Spain, Italy and the U.K.
  • Leadership expects a slight deceleration in second half spine revenue due to the abatement of pent-up distributor demand
  • Launched the SI-LOK SELECT and a system for SI joint fusions within the quarter
  • The company is on track to launch an interbody module for ExcelsiusGPS and a spine deformity product in early 4Q
  • Launched the AUTOBAHN Tibial Nail and Femoral Nail systems for the growing trauma business

 

Implanet | €1.9MM (USD $2.2MM), +8.4%

  • Spine revenue grew 8.5% in the half driven by strong sales in the U.S. and European countries outside of France. Sales in France declined -7% due to surgeries postponed until July
  • Implanet entered a strategic partnership with SeaSpine to market the Jazz line of spine products in the U.S.; the contract spans a six-year period with guaranteed annual minimums
  • In addition to the first orders from the SeaSpine partnership, Implanet also recorded the first orders from their partnership with Kico Knee for the Madison knee prosthesis
  • The first U.S. surgeries for the Jazz Cap, a proprietary solution for securing screws in poor quality bone, were completed within the half

 

Integra LifeSciences | $21.8MM, -1.2%

  • Orthopedic sales impacted by case scheduling delays in high volume accounts
  • While still negative, sales of lower extremity fixation products increased sequentially to help stabilize that business, driven largely by the Panta 2 Nail
  • Growth in joint replacement driven by ankle and shoulder products
  • Leadership expects mid-single-digit growth in orthopedics in 2H19, due to the newly-established dedicated sales channel
  • To achieve growth acceleration in the second half, the company has increased manufacturing capacity and resources allotted to entering new markets

 

Medacta | First Half: €151.36MM (USD $170.4MM), +13.8%

  • Saw strength across all geographic regions and segments
  • Founded new U.S. operations headquarters in Franklin, Tennessee
  • APAC gains made in Japan slightly offset by weakness in Australia
  • Reached milestone 350,000th procedure for anterior minimally invasive hip replacement technique



Medartis | First Half: CHF 64.5MM (USD $64.8MM), +5.7%

Leadership pleased with above-market growth, but noted that performance was below expectations, particularly for distributors; as a result, the company walked back its previous 2019 outlook and now expects to grow in the 8% to 10% range

  • Hand and wrist products continued their solid performance, but lower extremity products did not perform to expectations
  • Distributors in Europe held back from investing in sets due to uncertainty around the EU’s Medical Device Regulation
  • Investing in sterile disposable packaging in anticipation of increased demand in Europe
  • Australian sales were impacted by a 7% nationwide reduction in reimbursement, while seasonal slowdowns affected sales in Japan

 

Medtronic | $819.8MM, +4.5%

  • Growth rate expected to accelerate in the second half of the fiscal year as some headwinds annualize and new products are launched
  • Integration of Titan Spine is “going very well,” with plans to apply Titan’s surface technology to Medtronic’s broad-based spine portfolio
  • Core spine sales grew 2% for the quarter
  • Will no longer provide Mazor unit placement data going forward
  • Mazor users have close to a 70% attachment rate to Medtronic implants
  • Built built a new 100-person “SWAT team” within the salesforce to train surgeons, surgical teams and sales reps on Mazor

 

MicroPort Orthopedics | First Half: $113.5MM, -7.2%

  • Domestic sales in China grew partially on strength of two newly approved knee products
  • International sales offset by short-term fluctuations due to price pressure and the loss of a major U.S. distributor

 

NuVasive | $292.1MM, +3.7%

  • Growth driven by U.S. spinal hardware on increasing case volumes and tangible growth in XLIF and ALIF franchises
  • Slower than expected ex-U.S. sales offset growth slightly; limited set availability impacted growth in APAC and LATAM regions
  • Focused on expanding its Advanced Materials portfolio as well as funding studies to further substantiate implant technology
  • Pulse launched commercially in the U.S., with alpha and beta trials underway in international markets; leadership expects revenue contributions from the system within the next two quarters
  • Price pressure for the quarter was -2%, though the company noted it is seeing consistently more aggressive hospital pricing environments particularly regarding commoditized areas like conventional fixation, open pedicle screws, cervical plates and disposables

 

Orthofix | $115.9MM, +3.9%

  • Jon Serbousek will succeed Bradley Mason as President and CEO on November 1, and will take the role of President of Global Spine in the interim
  • “Abnormally high” price pressure in the U.S. led to a 6.7% decrease in Spine Fixation revenue, though this was offset somewhat by a +33.5% increase in motion preservation products
  • The M6-C cervical disk has been implanted by 17 surgeons and generated approximately $0.5MM in revenue to date, with a year-end goal of $3MM to $4MM in revenue
  • Outperformance in biologics was driven by increased sales volume of Trinity allografts

 

OrthoPediatrics | $18.2MM, +20.7%

  • Increased 2019 revenue guidance to a range of 23% to 25% growth
  • Acquisition of Orthex external fixation expands coverage from 60% to 80% of addressable trauma and deformity market and expands existing surgeon base
  • Trauma growth partially driven by continued uptake of PNP Femur intramedullary nail system, launched in June 2018
  • Increased summer volume of elective deformity surgeries offset a seasonal slowdown in 1Q
  • Set deployments year to date are in the $12MM range, on pace for between $15MM and $17MM for the full year

 

RTI Surgical | $71.6MM, +18.7%

  • Reiterated 2019 full year guidance of $325MM to $335MM in total revenue
  • Growth attributable to performance of legacy spine franchise, amplified by the addition of coflex
  • Integration of coflex is “approximately six months behind our initial plans,” per leadership, with onboarding and training taking longer than expected
  • Opened a new design center in Germany that leverages talent and capabilities acquired from Paradigm Spine
  • Legacy spine hardware had double-digit growth bolstered by continued success selling the Fortilink family of products, which reached 5,000 implants in the U.S.

 

Sanofi | €87MM (USD $97.7MM), -5.4%

  • Continued struggles in the U.S. offset somewhat by high-single-digit growth in ex-U.S. markets
  • Seems to have stabilized its orthobiologics business after a span of four consecutive quarters, with at least a -20% sales decline between 4Q17 and 3Q18; average quarterly decline since then is -3.7%

 

SeaSpine | $39.3MM, +8%

  • Increased 2019 revenue guidance by $1MM at both the high and low ends, bringing range to $155MM to $157MM
  • Case volume increased by about 10%, but was somewhat offset by low-single-digit price decline and procedure mix heavier on low-complexity cases
  • Spine revenue growth driven by new products, particularly Shoreline and Mariner systems along with NanoMetalene-based products
  • Orthobiologics revenue growth driven by new products such as OsteoStrand Plus
  • Newer products accounted for 55% of spine revenue and 20% of orthobiologics revenue
  • Mariner Outrigger Revision system and Shoreline cervical interbody implant are both in limited commercial launch, while OsteoCurrent ceramic bone graft substitute and Regatta Lateral System are in full commercial launch
  • Marked the 20,000th implant of a NanoMetalene interbody device
  • Products treating complex pathologies and deformities posted lower than expected revenue, though leadership believes new product introductions will turn the franchise around starting late in the second half

 

Seikagaku | ¥6,798MM (USD $61.4MM), -5.9%

  • Domestic shipments of ARTZ decreased in volume, but were partially offset by delayed orders from previous quarters
  • International sales of the Gel-One viscosupplement increased due to marketing efforts and favorable reimbursement decisions from insurers
  • Sales of five-injection SUPARTZ FX declined as the U.S. market shifts toward single-injection treatments

 

SI-BONE | $16.3MM, +19.4%

  • Salesforce expansion and growing payor coverage starting to add to revenue growth momentum
  • International sales met leadership expectations, except for Germany, which experienced residual softness from 2H18
  • Surpassed 40,000 iFuse procedures performed by over 1,900 surgeons worldwide
  • Launched iFuse Bedrock in the U.S.

 

Smith & Nephew | $892MM, +1.6%

  • Knee sales driven by JOURNEY II and LEGION Revision knees, with the ex-US rollout of the JOURNEY II generating positive results
  • Hip sales increased in the low single digits before currency headwinds, driven by the POLAR3 total and REDAPT revision hips
  • Received positive outcomes data for their OXINIUM bearing surface, with a 9.88% reduction in post-acute 90-day episode of care average cost
  • Trauma saw continued demand for the EVOS system, and within the quarter the company launched the CONQUEST FN system to treat femoral neck factures
  • Sports medicine sales grew on strong U.S. sales of shoulder products, but was offset somewhat by continued softness in resection products
  • Launched NAVIO 7.0 in July, reducing the number of steps in the current workflow by 40%
  • Closed acquisition of the Brainlab Orthopedic Joint Reconstruction business
  • Announced acquisition of Atracsys to integrate the fusionTrack 500 optical tracking camera into Smith & Nephew’s next-generation robotics platform
  • Committed to investment through both R&D and acquisitions by leveraging their strong balance sheet

 

Stryker | $1,916.7MM, +8.1%

  • Key sales drivers included Mako TKA, the 3D-printed Trident II hip cup, increasing Mako utilization for hip procedures and strong sales of shoulder implants
  • Above-market growth in knees largely attributable to share taken through Mako placements in competitive accounts, with only minor benefits from sales mix
  • Integration of K2M completed milestone activities of product training and cross-selling within the quarter
  • Trauma remains impacted by supply chain issues from 1Q
  • Instrument sales grew in the double digits; leadership cautioned that the outsized growth is a transient “extra pop,” although instrument sales for the year are strong overall
  • 44 global Mako installs for the quarter (35 U.S), +12% vs. 2Q18
  • Installed base of over 700 robots, with close to 600 in the U.S.
  • Approximately 27,000 total U.S. Mako procedures in 2Q, +55% from 2Q18
  • Approximately 18,000 U.S. Mako TKA procedures in 2Q, +78% from 2Q18

 

Vericel | $20.8MM, +47.5%

  • Full year revenue guidance raised to $112MM to $116MM, an increase of $2MM on both the high and low ends
  • Growth driven by expanding surgeon base and increased utilization
  • Increased the estimated total MACI surgeon base from 3,000 to 5,000
  • Leadership estimates that MACI has penetrated about 5% of the target addressable market of 60,000 patients per year
  • MACI salesforce expanded to 48 representatives

 

Wright Medical | $229.7MM, +11.8%

  • Revenue guidance lowered to the range of $925MM to $930MM, with the projection of Cartiva revenue coming down to $30MM from the initial $47MM given in 4Q18
  • Cartiva sales were $8MM in the quarter, as sales in legacy distributor territories declined by 40%
  • The company terminated all legacy Cartiva distributors and moved the product to their direct lower extremity salesforce
  • Leadership described the quarter as a “knife fight” in their core foot business, as they faced both product and talent-retention challenges from a group of smaller, private companies
  • Shoulder-related sales in the U.S. performed well, with implants growing at 16% and biologics growing at 17% year over year
  • REVIVE shoulder revision line launched at the end of 2Q
  • Biologics growth in the U.S. driven by continued adoption of AUGMENT injectable

 

Xtant | $15.3MM, -18.5%

  • Sales decline primarily due to December 2018 recall of the PLX lumbar spine implant and termination of advisory agreement with a company that provided services to some Xtant customers
  • Continuing to cut costs by streamlining manufacturing operations and the sales channel
  • Hired additional sales personnel during the first half to bolster revenue stream

 

Zimmer Biomet | $1,769.4MM, -1.4%

  • Increased the bottom end of 2019 guidance, providing a revised range of flat to +0.5% revenue growth
  • Benefitted from improved U.S. knee performance, as well as strength in the APAC and EMEA regions before currency headwinds
  • While ROSA unit placements did incrementally contribute to knee revenue, much of the growth in the segment was due to increased volume and improved product mix
  • Leadership attributed positive knee performance to the salesforce’s increased confidence in the supply chain, with backorders being resolved in a day compared to the four days at the company’s low point
  • The underperforming spine segment was impacted by difficult quarterly comps; leadership is evaluating salesforce cohesion and selection of distribution partners
  • ROSA knee remains in limited launch with overall unit placements “relatively small”
  • ROSA Spine development has been put on the backburner until early 2020 to assure that the ROSA Knee launch is executed well
  • Committing more resources to robotics R&D as well as commercial infrastructure
  • Excited about revenue annuities like disposables and service agreements through the ROSA platform


Mike Evers is ORTHOWORLD's Market Analyst.