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Robotics and other orthopedic enabling technologies brought a crucial revenue lifeline to companies during the peak of the COVID pandemic. However, more market entrants and sustained economic pressures have changed the game for hospitals acquiring capital equipment like orthopedic robots. Despite the volatility, demand for these technologies has only increased.
Below we recap the capital environment for orthopedic enabling technology since the pandemic’s start and look ahead to 2023.
Sales Accelerated During the Pandemic
Sales of orthopedic enabling technologies, especially robotics, gathered momentum during 2018 and 2019. On the eve of the pandemic, Stryker’s Mako install base neared 900 systems and accounted for more than 114,000 robotic procedures. Those procedures helped the company take share and earn more revenue per case through cementless knee replacement implants and disposables.
Uncertainty during the early portion of the pandemic slowed all capital equipment purchasing, including robotics. However, orthopedic enabling technology sales rebounded quickly.
Stryker CEO Kevin Lobo said in 3Q20, “With the success surgeons are having, hospitals are purchasing their second and third and fourth Makos. We’re seeing growth in teaching hospitals and surgery centers. It’s an inflection point that will last for many quarters.”
The market proved Mr. Lobo correct. The 2020 second quarter low point of the pandemic marked the beginning of an explosive climb for orthopedic enabling technology sales. Globus Medical’s performance from 4Q17 through 4Q22 is a stark illustration of that inflection point.
As shown in Exhibit 1, Globus Medical averaged $11.2 million in enabling technology sales per quarter in the ten quarters before 2Q20. In the ten quarters since then, the company’s average climbed to $20.2 million.
Exhibit 1: Globus Medical Enabling Technology Revenue by Quarter ($Millions)
Mounting Market Pressures Shift Purchasing Models
Orthopedic surgical volumes increased throughout 2021, but economic pressures such as inflation, staffing shortages and supply chain disruption have since plagued the market. Both hospitals and device companies reduced spending throughout 2022.
Enabling technology sales slowed significantly in the first quarter of 2022. The dip is visible in Globus Medical’s sales from Exhibit 1. Globus Medical’s peers in the robotic space, including Stryker and Zimmer Biomet, experienced similar challenges during that quarter. Transitory factors, not a lack of demand, seemed to drive the slowdown.
“Our capital business also experienced softness in Q1, reflective of the slow development of our robotics pipeline in the early part of the quarter, with many hospitals limiting access and shifting their focus to managing through the uptick in COVID cases while also managing staffing shortages,” said Globus Medical CFO Keith Pfeil. “As we approached the middle of March and entered the second quarter, our pipeline showed improvement as deal activity and discussions ramped up.”
During Mr. Pfeil’s comments on Q1, he also said that the company remained confident that its robotics business would progress through 2022. The next quarter, Globus recorded its highest-ever sales for enabling technology.
Stryker’s Mr. Lobo said the move toward rental agreements started in early 2022. Before rental agreements, even flexible financing of orthopedic robotics recognized more revenue upfront. Rentals expand the time horizon of revenue recognition and often include options to return to the system. “If our competitors offer a rental option, customers ask us for the same,” Mr. Lobo said. We’re not going to let our prior contracting approach stop us from competing.”
While most players in the orthopedic enabling technology space acknowledged that sales cycles have elongated, none accepted the premise of an overall capital equipment downturn or freeze.
Technology Remains a Focus for 2023 and Beyond
Orthopedic companies pivoted hard toward digital technology over the last several years. The pandemic accelerated that shift. Zimmer Biomet said that 70% of its product development dollars are being spent on ZBEdge, its digital ecosystem. Medtronic said a “disproportionate” amount of its R&D is focused on digital.
We expect broadly similar economic conditions for 2023, causing enabling technology players to get increasingly creative with placement strategies. Protracted hospital pressure is likely to expand the role of administrators in selecting technology, reducing the influence of surgeon advocates.
Companies also face questions about demonstrating better outcomes and proving economic benefits. Enovis takes a conservative view of the currently available enabling technology solutions, noting a scarcity of clinical data. “Where the big data matters is pre-operative care, surgical intervention and post-surgical protocol. When you track across all of those, caregivers will make different decisions,” said Enovis President and COO Brady Shirley.
Even then, the journey toward reimbursement for software technology such as Enovis’ Motion iQ is likely long. The company pointed to other areas of healthcare and countries outside the U.S. that have reimbursements for connected medicine.
While companies may lament the passing of outright sales for orthopedic robots, it seems certain that enabling technology has reached critical mass in the market. Players across the orthopedic revenue spectrum are committed to bringing technology into every case, and we’ve seen surgeon utilization increase dramatically over the last few years.
A change in purchasing models may bring some noise into 2023 for topline enabling technology revenue, but we expect the space to grow in size and importance for the foreseeable future.
Robotics and other orthopedic enabling technologies brought a crucial revenue lifeline to companies during the peak of the COVID pandemic. However, more market entrants and sustained economic pressures have changed the game for hospitals acquiring capital equipment like orthopedic robots. Despite the volatility, demand for these technologies...
Robotics and other orthopedic enabling technologies brought a crucial revenue lifeline to companies during the peak of the COVID pandemic. However, more market entrants and sustained economic pressures have changed the game for hospitals acquiring capital equipment like orthopedic robots. Despite the volatility, demand for these technologies has only increased.
Below we recap the capital environment for orthopedic enabling technology since the pandemic’s start and look ahead to 2023.
Sales Accelerated During the Pandemic
Sales of orthopedic enabling technologies, especially robotics, gathered momentum during 2018 and 2019. On the eve of the pandemic, Stryker’s Mako install base neared 900 systems and accounted for more than 114,000 robotic procedures. Those procedures helped the company take share and earn more revenue per case through cementless knee replacement implants and disposables.
Uncertainty during the early portion of the pandemic slowed all capital equipment purchasing, including robotics. However, orthopedic enabling technology sales rebounded quickly.
Stryker CEO Kevin Lobo said in 3Q20, “With the success surgeons are having, hospitals are purchasing their second and third and fourth Makos. We’re seeing growth in teaching hospitals and surgery centers. It’s an inflection point that will last for many quarters.”
The market proved Mr. Lobo correct. The 2020 second quarter low point of the pandemic marked the beginning of an explosive climb for orthopedic enabling technology sales. Globus Medical’s performance from 4Q17 through 4Q22 is a stark illustration of that inflection point.
As shown in Exhibit 1, Globus Medical averaged $11.2 million in enabling technology sales per quarter in the ten quarters before 2Q20. In the ten quarters since then, the company’s average climbed to $20.2 million.
Exhibit 1: Globus Medical Enabling Technology Revenue by Quarter ($Millions)
Mounting Market Pressures Shift Purchasing Models
Orthopedic surgical volumes increased throughout 2021, but economic pressures such as inflation, staffing shortages and supply chain disruption have since plagued the market. Both hospitals and device companies reduced spending throughout 2022.
Enabling technology sales slowed significantly in the first quarter of 2022. The dip is visible in Globus Medical’s sales from Exhibit 1. Globus Medical’s peers in the robotic space, including Stryker and Zimmer Biomet, experienced similar challenges during that quarter. Transitory factors, not a lack of demand, seemed to drive the slowdown.
“Our capital business also experienced softness in Q1, reflective of the slow development of our robotics pipeline in the early part of the quarter, with many hospitals limiting access and shifting their focus to managing through the uptick in COVID cases while also managing staffing shortages,” said Globus Medical CFO Keith Pfeil. “As we approached the middle of March and entered the second quarter, our pipeline showed improvement as deal activity and discussions ramped up.”
During Mr. Pfeil’s comments on Q1, he also said that the company remained confident that its robotics business would progress through 2022. The next quarter, Globus recorded its highest-ever sales for enabling technology.
Stryker’s Mr. Lobo said the move toward rental agreements started in early 2022. Before rental agreements, even flexible financing of orthopedic robotics recognized more revenue upfront. Rentals expand the time horizon of revenue recognition and often include options to return to the system. “If our competitors offer a rental option, customers ask us for the same,” Mr. Lobo said. We’re not going to let our prior contracting approach stop us from competing.”
While most players in the orthopedic enabling technology space acknowledged that sales cycles have elongated, none accepted the premise of an overall capital equipment downturn or freeze.
Technology Remains a Focus for 2023 and Beyond
Orthopedic companies pivoted hard toward digital technology over the last several years. The pandemic accelerated that shift. Zimmer Biomet said that 70% of its product development dollars are being spent on ZBEdge, its digital ecosystem. Medtronic said a “disproportionate” amount of its R&D is focused on digital.
We expect broadly similar economic conditions for 2023, causing enabling technology players to get increasingly creative with placement strategies. Protracted hospital pressure is likely to expand the role of administrators in selecting technology, reducing the influence of surgeon advocates.
Companies also face questions about demonstrating better outcomes and proving economic benefits. Enovis takes a conservative view of the currently available enabling technology solutions, noting a scarcity of clinical data. “Where the big data matters is pre-operative care, surgical intervention and post-surgical protocol. When you track across all of those, caregivers will make different decisions,” said Enovis President and COO Brady Shirley.
Even then, the journey toward reimbursement for software technology such as Enovis’ Motion iQ is likely long. The company pointed to other areas of healthcare and countries outside the U.S. that have reimbursements for connected medicine.
While companies may lament the passing of outright sales for orthopedic robots, it seems certain that enabling technology has reached critical mass in the market. Players across the orthopedic revenue spectrum are committed to bringing technology into every case, and we’ve seen surgeon utilization increase dramatically over the last few years.
A change in purchasing models may bring some noise into 2023 for topline enabling technology revenue, but we expect the space to grow in size and importance for the foreseeable future.
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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.
