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We often find more compelling quotes from orthopedic executives than we can use in our quarterly earnings recaps. Moving forward, we’ll share each quarter’s most enlightening or interesting commentary.
This quarter we identified four common themes during companies’ earnings calls:
- Players in emerging segments are taking the lead in market expansion
- Enabling technologies remain in high demand despite hospitals facing cash constraints
- Companies, both large and small, are focusing more on the ambulatory surgery center (ASC) environment
- Hospital staffing shortages could persist into 2024, but not all companies are equally impacted
Below, we provide some context on each theme and selected quotes from orthopedic executives during quarterly earnings calls.
Players Step Forward to Spearhead Segment Expansion
Some companies in emerging orthopedic segments are leading efforts to improve research and reimbursement in those markets. Paragon 28 is committed to publishing research that pushes the boundaries of current foot and ankle procedures. Meanwhile, Orthofix aims to expand the entire cervical disc market through its research efforts. Enovis sees a path toward U.S. reimbursement for software like its Motion I.Q. patient recovery app.
Albert DaCosta, Paragon 28 CEO
“Foot and ankle is a young and emerging segment of orthopedics. We need some meaningful research. We need a better understanding of the limitations of the procedures we’re doing and maybe even considerations we haven’t yet generated. We do research well before there’s a product in mind, and we are committed to publishing that research. If it can help a surgeon develop a different perspective on something we thought we knew yesterday, we’re committed to doing that. EU MDR initiatives got us to start looking at the clinical efficacy of the products and the technology we have on the market.”
Jon Serbousek, Orthofix CEO
“There have been competitive headwinds, and we’re dealing with it with data. We’re dealing with it with investments…We think we’re in a good place to assist in sharing our M6 data and expanding the cervical disc market—it’s incumbent upon us, and 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 right now.”
Matt Trerotola, Enovis CEO
“We’re confident that if you have a great solution and you demonstrate the benefits that it brings over time, the reimbursement can follow. Fortunately, a solution like MotionIQ doesn’t have a lot of extra cost. Getting it into the marketplace, where it’s not reimbursed, is a great way to lead the way and start getting some of the data that could lead to reimbursement over time. We’ve seen other apps in the U.S. getting funded. There are also several countries outside the U.S. that have reimbursement for connected medicine solutions. We feel like that’s how things will likely go here over time, and we’re going to be a company that’s leading the way.”
Sales Cycles Elongated, but Enabling Technology Drives Growth
Sales of enabling technology, especially robotics, boomed through most of the pandemic. Hospitals generally remained in strong financial positions. Revenue from those systems bolstered languishing orthopedic procedures like knee replacement and spine.
More recently macroeconomic pressures have shifted, and hospitals are conserving cash. Companies across orthopedics reported longer capital sales cycles. The purchase of big-ticket capital equipment is trending toward rentals and volume earn-out agreements. Still, companies with differentiated enabling technology found success in the third quarter.
Geoffrey Martha, Medtronic CEO
“Our capital equipment tends to be tied to profitable procedures, and we had a strong capital performance this quarter, especially in our cranial and spinal technologies business. Our capital there – whether navigation or intra-operative imaging – had a record quarter. It takes a little longer to close a deal, but we have strong demand in those areas.”
Kevin Lobo, Stryker CEO
“Quarter after quarter, we’re seeing Mako as a percent of our total knees go up, Mako hips as a percent of total hips go up, cementless as a percent of total knees go up, and cementless tends to correlate very well with Mako. All those vectors are heading in the right direction. We’ve had some delays in getting these robots installed and sold to our customers, but Q4 will be good and will continue our positive trajectory.”
Deepak Nath, Smith+Nephew CEO
“We’re winning market share with our technology. I feel very good about our position in robotics now. We’ve moved our installed base past 500 units, even with the constraint of chip availability. We have new differentiation with the unique knee revision indication, and we have a pipeline of further indications and assets to build on that. We’ve recently launched new software and indications for CORI, including making it the first and only system to support knee revision procedures. Revisions are around 10% of the knee market and are particularly suited to a robotic system that does not require a preoperative CT scan.”
Pat Miles, ATEC Chairman & CEO
“The value of EOS is unmatched. We believe that with a standing, weight-bearing, biplanar, non-magnified image, we have the makings of a spine alignment standard. Alignment remains the greatest correlative to a successful, durable, long-term outcome. And it doesn’t matter in short-segment or long-segment surgery. It is profoundly valuable in terms of understanding how a spine needs to be aligned. There is an old quip in spine surgery that 100% of spine surgeons are deformity surgeons. They either create them or fix them. Many truths are clearly said in jest, but the revision risk for malaligned patients is 10 times that of a properly aligned patient.”
Companies Focused on ASCs Amid Procedure and Reimbursement Shifts
The pandemic accelerated the trend of orthopedic procedures moving to ASCs and outpatient settings. As ASC surgical volumes increase amid improving reimbursement, companies like Zimmer Biomet and its peers are quickly building infrastructure and expertise to support an ASC-focused offense. Companies already deeply penetrated into ASCs, like SI-BONE, expect better reimbursement to drive growth over the next several years.
Bryan Hanson, Zimmer Biomet Chairman, President & CEO
“We see the ASC as an attractive submarket. It’s one of the faster-growth submarkets, and we’re increasing our focus and spending in that area. We’re putting infrastructure in place. We’ve got dedicated commercial teams that focus only on the ASC. That’s important because you’ve got to have contracting prowess in that space, and we’ve done that over the last couple of years. We’re getting good traction as a result of it.
“Additionally, we’re making sure that we scale up in the product categories that the ASC is looking for. We wouldn’t have purchased a booms and light company if we didn’t want to have that infrastructure for the ASC. Not to take anything away from booms and lights, but it’s not an area that we would have waded into if it wouldn’t have given us scale in the ASC marketplace.”
Laura Francis, SI-BONE CEO
“There has been a very significant increase in facility payments in the ASC environment and hospital outpatient setting. The total amounts of the payment in both arenas is something of note, as well. We think the decisions that surgeons are making about adopting SI joint fusion into their practices are based on diagnosing and treating these patients. But the health economics of that decision is also important.”
“Around 80% of our procedures are performed in an ASC or outpatient setting. We think that factor will attract new surgeons who previously were not doing the procedure. We also think that some surgeons who have been inactive will reactivate because of the reimbursement decision as well. So, we do think it’s significant, and we expect to see that as a tailwind in 2023.”
Impact of Staffing Shortages Varied Across Orthopedics
Hospital staffing levels have yet to recover from the impact of the pandemic. However, the effects of the shortages are uneven across orthopedics. CONMED sees staffing shortages as a sustained market pressure, while SeaSpine sees no cause for concern. Most orthopedic players indicated that staffing levels were at least more predictable, if still below historical norms.
Todd Garner, CONMED Executive Vice President & CFO
“I don’t believe that surgical staff levels will improve overnight. This is something that’s going to be measured in quarters, if not into 2024. There is a lot that must happen to get back to fully staffed levels, and there are some very well-known institutions doing very dramatic things to try to navigate the current staffing challenges. I think there are other factors at play, as well. We’re entering flu season, and who knows what will happen with COVID and childhood respiratory disease, and how those factors will burden the health system.”
John Bostjancic, SeaSpine CFO
“No one seems to be expressing any concerns about staffing. I think that everyone wants there to be more flexibility, the ability to work weekends or work longer shifts in the O.R. I’m not sure everyone is going to have that flexibility. Most surgeons we have spoken to said staffing levels are stable again, that they’re not worried about any kind of slowdowns from an O.R. perspective and they’re looking forward to getting through their scheduling. Going forward, it should be very similar to what we saw in the third quarter as far as staffing and availability. We don’t anticipate any kind of disruption at this point.”
Vafa Jamali, ZimVie CEO
“Staffing has been quite a bit better than in the past. I think that we’re getting to a point where we’re much more predictable and the business is much more predictable.”
We often find more compelling quotes from orthopedic executives than we can use in our quarterly earnings recaps. Moving forward, we’ll share each quarter’s most enlightening or interesting commentary.
This quarter we identified four common themes during companies’ earnings calls:
Players in emerging segments are taking the lead in market...
We often find more compelling quotes from orthopedic executives than we can use in our quarterly earnings recaps. Moving forward, we’ll share each quarter’s most enlightening or interesting commentary.
This quarter we identified four common themes during companies’ earnings calls:
- Players in emerging segments are taking the lead in market expansion
- Enabling technologies remain in high demand despite hospitals facing cash constraints
- Companies, both large and small, are focusing more on the ambulatory surgery center (ASC) environment
- Hospital staffing shortages could persist into 2024, but not all companies are equally impacted
Below, we provide some context on each theme and selected quotes from orthopedic executives during quarterly earnings calls.
Players Step Forward to Spearhead Segment Expansion
Some companies in emerging orthopedic segments are leading efforts to improve research and reimbursement in those markets. Paragon 28 is committed to publishing research that pushes the boundaries of current foot and ankle procedures. Meanwhile, Orthofix aims to expand the entire cervical disc market through its research efforts. Enovis sees a path toward U.S. reimbursement for software like its Motion I.Q. patient recovery app.
Albert DaCosta, Paragon 28 CEO
“Foot and ankle is a young and emerging segment of orthopedics. We need some meaningful research. We need a better understanding of the limitations of the procedures we’re doing and maybe even considerations we haven’t yet generated. We do research well before there’s a product in mind, and we are committed to publishing that research. If it can help a surgeon develop a different perspective on something we thought we knew yesterday, we’re committed to doing that. EU MDR initiatives got us to start looking at the clinical efficacy of the products and the technology we have on the market.”
Jon Serbousek, Orthofix CEO
“There have been competitive headwinds, and we’re dealing with it with data. We’re dealing with it with investments…We think we’re in a good place to assist in sharing our M6 data and expanding the cervical disc market—it’s incumbent upon us, and 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 right now.”
Matt Trerotola, Enovis CEO
“We’re confident that if you have a great solution and you demonstrate the benefits that it brings over time, the reimbursement can follow. Fortunately, a solution like MotionIQ doesn’t have a lot of extra cost. Getting it into the marketplace, where it’s not reimbursed, is a great way to lead the way and start getting some of the data that could lead to reimbursement over time. We’ve seen other apps in the U.S. getting funded. There are also several countries outside the U.S. that have reimbursement for connected medicine solutions. We feel like that’s how things will likely go here over time, and we’re going to be a company that’s leading the way.”
Sales Cycles Elongated, but Enabling Technology Drives Growth
Sales of enabling technology, especially robotics, boomed through most of the pandemic. Hospitals generally remained in strong financial positions. Revenue from those systems bolstered languishing orthopedic procedures like knee replacement and spine.
More recently macroeconomic pressures have shifted, and hospitals are conserving cash. Companies across orthopedics reported longer capital sales cycles. The purchase of big-ticket capital equipment is trending toward rentals and volume earn-out agreements. Still, companies with differentiated enabling technology found success in the third quarter.
Geoffrey Martha, Medtronic CEO
“Our capital equipment tends to be tied to profitable procedures, and we had a strong capital performance this quarter, especially in our cranial and spinal technologies business. Our capital there – whether navigation or intra-operative imaging – had a record quarter. It takes a little longer to close a deal, but we have strong demand in those areas.”
Kevin Lobo, Stryker CEO
“Quarter after quarter, we’re seeing Mako as a percent of our total knees go up, Mako hips as a percent of total hips go up, cementless as a percent of total knees go up, and cementless tends to correlate very well with Mako. All those vectors are heading in the right direction. We’ve had some delays in getting these robots installed and sold to our customers, but Q4 will be good and will continue our positive trajectory.”
Deepak Nath, Smith+Nephew CEO
“We’re winning market share with our technology. I feel very good about our position in robotics now. We’ve moved our installed base past 500 units, even with the constraint of chip availability. We have new differentiation with the unique knee revision indication, and we have a pipeline of further indications and assets to build on that. We’ve recently launched new software and indications for CORI, including making it the first and only system to support knee revision procedures. Revisions are around 10% of the knee market and are particularly suited to a robotic system that does not require a preoperative CT scan.”
Pat Miles, ATEC Chairman & CEO
“The value of EOS is unmatched. We believe that with a standing, weight-bearing, biplanar, non-magnified image, we have the makings of a spine alignment standard. Alignment remains the greatest correlative to a successful, durable, long-term outcome. And it doesn’t matter in short-segment or long-segment surgery. It is profoundly valuable in terms of understanding how a spine needs to be aligned. There is an old quip in spine surgery that 100% of spine surgeons are deformity surgeons. They either create them or fix them. Many truths are clearly said in jest, but the revision risk for malaligned patients is 10 times that of a properly aligned patient.”
Companies Focused on ASCs Amid Procedure and Reimbursement Shifts
The pandemic accelerated the trend of orthopedic procedures moving to ASCs and outpatient settings. As ASC surgical volumes increase amid improving reimbursement, companies like Zimmer Biomet and its peers are quickly building infrastructure and expertise to support an ASC-focused offense. Companies already deeply penetrated into ASCs, like SI-BONE, expect better reimbursement to drive growth over the next several years.
Bryan Hanson, Zimmer Biomet Chairman, President & CEO
“We see the ASC as an attractive submarket. It’s one of the faster-growth submarkets, and we’re increasing our focus and spending in that area. We’re putting infrastructure in place. We’ve got dedicated commercial teams that focus only on the ASC. That’s important because you’ve got to have contracting prowess in that space, and we’ve done that over the last couple of years. We’re getting good traction as a result of it.
“Additionally, we’re making sure that we scale up in the product categories that the ASC is looking for. We wouldn’t have purchased a booms and light company if we didn’t want to have that infrastructure for the ASC. Not to take anything away from booms and lights, but it’s not an area that we would have waded into if it wouldn’t have given us scale in the ASC marketplace.”
Laura Francis, SI-BONE CEO
“There has been a very significant increase in facility payments in the ASC environment and hospital outpatient setting. The total amounts of the payment in both arenas is something of note, as well. We think the decisions that surgeons are making about adopting SI joint fusion into their practices are based on diagnosing and treating these patients. But the health economics of that decision is also important.”
“Around 80% of our procedures are performed in an ASC or outpatient setting. We think that factor will attract new surgeons who previously were not doing the procedure. We also think that some surgeons who have been inactive will reactivate because of the reimbursement decision as well. So, we do think it’s significant, and we expect to see that as a tailwind in 2023.”
Impact of Staffing Shortages Varied Across Orthopedics
Hospital staffing levels have yet to recover from the impact of the pandemic. However, the effects of the shortages are uneven across orthopedics. CONMED sees staffing shortages as a sustained market pressure, while SeaSpine sees no cause for concern. Most orthopedic players indicated that staffing levels were at least more predictable, if still below historical norms.
Todd Garner, CONMED Executive Vice President & CFO
“I don’t believe that surgical staff levels will improve overnight. This is something that’s going to be measured in quarters, if not into 2024. There is a lot that must happen to get back to fully staffed levels, and there are some very well-known institutions doing very dramatic things to try to navigate the current staffing challenges. I think there are other factors at play, as well. We’re entering flu season, and who knows what will happen with COVID and childhood respiratory disease, and how those factors will burden the health system.”
John Bostjancic, SeaSpine CFO
“No one seems to be expressing any concerns about staffing. I think that everyone wants there to be more flexibility, the ability to work weekends or work longer shifts in the O.R. I’m not sure everyone is going to have that flexibility. Most surgeons we have spoken to said staffing levels are stable again, that they’re not worried about any kind of slowdowns from an O.R. perspective and they’re looking forward to getting through their scheduling. Going forward, it should be very similar to what we saw in the third quarter as far as staffing and availability. We don’t anticipate any kind of disruption at this point.”
Vafa Jamali, ZimVie CEO
“Staffing has been quite a bit better than in the past. I think that we’re getting to a point where we’re much more predictable and the business is much more predictable.”
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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.
