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The orthopedic market outperformed expectations through the first half of 2021, given gaps in the global vaccination effort and the surging delta variant. However, segments like knee replacement remain well under historical growth rates. Disruptions to supply chains and labor forces created additional obstacles to market recovery. Below are some of our insights on those recovery factors, as well as our expectations for the remainder of 2021.
Market Recovery Progress
The orthopedic market kept pace with its 2019 sales through the first half of 2021. Based on analysis of 21 public companies, we estimate that the overall market grew around +1% in 1H21 compared to 1H19. The rate of recovery is gaining momentum. The first quarter of 2021 fell short of its 2019 comparison, but the second quarter brought mid-single-digit growth against 2019. It marked only the second positive quarter in the last year and a half for the market.
Exhibit 1: Orthopedic Market Growth Rate 2020 to 2Q2021
* The first and second quarters of 2021 are compared against 2019 in this chart.
Recovery trends vary by orthopedic market segment. In general, spine has fared better than large joint replacement, based on our analysis of public company’s device sales. Importantly, we excluded enabling technology revenue to the extent possible. Those technologies demonstrated rapid growth potential, even in the absence of implant volume throughout the pandemic. We estimate that the knee market is down in the high-single digits in 1H21 compared to 1H19. Hips are down in the low-single digits, and spine is up low-single digits for that same comparison period. Like the market overall, all three of those segments improved throughout 2021.
The pandemic and recovery have thus far defied broad strokes. Exceptions to the above trends abound. For example, Stryker’s knee implant growth far exceeded its peers in 2Q21, despite softness in volumes. While the spine segment has made modest gains over 2019, Globus Medical’s implant sales jumped more than +20% in 1H21 vs. 1H19.
Supply Chain and Labor Disruptions
All industries are experiencing supply chain disruptions. In orthopedics, it is another example of the pandemic pushing against pre-existing fault lines. Companies with squared-away operations are not suffering as much as companies caught halfway through solutions. Stryker bolstered its supply chain in recent years and that resiliency is paying off. Company CEO Kevin Lobo said, “Not just in the med-tech industry but broadly, there is pressure on raw material input costs. I’m delighted with the way that our organization has been able to offset those with savings initiatives, efficiency initiatives, and purchasing initiatives that have been in the works for the last couple of years. We are able to offset some of the challenges that others are experiencing.”
Still, even companies able to produce products are paying more to get it in the hands of surgeons. Leadership at DJO cited customer expectations, protection of accounts and a “do whatever it takes” factory mentality as reasons for elevated costs. The company said that it expects the situation to normalize over the coming quarters.
In addition to logistics challenges, companies are struggling to find qualified candidates for open jobs. The National Federation of Independent Business reported that 25% of its membership had no qualified candidates for available positions in May 2021. Those same labor shortages are hitting large orthopedic players as well. Smith+Nephew has key talent shortfalls in its Memphis manufacturing facility which produces most of the company’s orthopedic products. Smith+Nephew CEO Roland Diggelmann said, “We have had a huge effort in hiring in Memphis and ensuring that we have the capacity from a systems perspective, from a labor and resource perspective. And of course, you know that this is a complex supply chain when we look at all the sizes, when we look at the different variations and features. So it is a complex operation, but it’s something that we’re going to get back on track. Quarter three or four is what we’re seeing.”
Second Half Expectations
We expect the recovery to take a step back in the third quarter due to the delta variant, the return of somewhat normal seasonality and a bevy of surgeon conferences in August and September. Medtronic leadership believes delta variant infections will peak in early September, with hospital capacity improving as we enter fall.
The third quarter of 2020 benefited from a sizeable backlog of procedures. With travel restrictions in place at the time, surgeons stayed put and churned through waiting procedures. This year the dynamic is very different. There is no sharp backlog bounce on the horizon, deferred procedures are taking longer to return to the funnel and elective surgeries are being postponed in some areas with high COVID cases. Also, surgeons took vacations and traveled in 2021, unlike last year. Globus Medical CEO Dave Demski said, “There’s a pent-up demand in our society for travel. We’re seeing the surgeons take that. I fully expect that they’ll be back once school starts again in September. But from a sequential standpoint, it’s going to cause us to dip a little bit here in the third quarter.”
Despite that dip, orthopedics has largely exceeded expectations thus far in 2021. In the most recent edition of THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT®, we projected that the market would grow by +2.5% in 2021 over 2019. That result is within reach, given a strong fourth quarter. The recovery for some segments, like knee replacement, could stretch into mid-2022. Likewise, there are no quick or easy fixes for supply and labor disruptions. We expect those to remain factors in the market for several quarters to come. However, the orthopedic market is likely to demonstrate its underlying strength by growing despite those challenges.
Mike Evers is ORTHOWORLD’s Digital Content Strategist.
The orthopedic market outperformed expectations through the first half of 2021, given gaps in the global vaccination effort and the surging delta variant. However, segments like knee replacement remain well under historical growth rates. Disruptions to supply chains and labor forces created additional obstacles to market recovery. Below are some...
The orthopedic market outperformed expectations through the first half of 2021, given gaps in the global vaccination effort and the surging delta variant. However, segments like knee replacement remain well under historical growth rates. Disruptions to supply chains and labor forces created additional obstacles to market recovery. Below are some of our insights on those recovery factors, as well as our expectations for the remainder of 2021.
Market Recovery Progress
The orthopedic market kept pace with its 2019 sales through the first half of 2021. Based on analysis of 21 public companies, we estimate that the overall market grew around +1% in 1H21 compared to 1H19. The rate of recovery is gaining momentum. The first quarter of 2021 fell short of its 2019 comparison, but the second quarter brought mid-single-digit growth against 2019. It marked only the second positive quarter in the last year and a half for the market.
Exhibit 1: Orthopedic Market Growth Rate 2020 to 2Q2021
* The first and second quarters of 2021 are compared against 2019 in this chart.
Recovery trends vary by orthopedic market segment. In general, spine has fared better than large joint replacement, based on our analysis of public company’s device sales. Importantly, we excluded enabling technology revenue to the extent possible. Those technologies demonstrated rapid growth potential, even in the absence of implant volume throughout the pandemic. We estimate that the knee market is down in the high-single digits in 1H21 compared to 1H19. Hips are down in the low-single digits, and spine is up low-single digits for that same comparison period. Like the market overall, all three of those segments improved throughout 2021.
The pandemic and recovery have thus far defied broad strokes. Exceptions to the above trends abound. For example, Stryker’s knee implant growth far exceeded its peers in 2Q21, despite softness in volumes. While the spine segment has made modest gains over 2019, Globus Medical’s implant sales jumped more than +20% in 1H21 vs. 1H19.
Supply Chain and Labor Disruptions
All industries are experiencing supply chain disruptions. In orthopedics, it is another example of the pandemic pushing against pre-existing fault lines. Companies with squared-away operations are not suffering as much as companies caught halfway through solutions. Stryker bolstered its supply chain in recent years and that resiliency is paying off. Company CEO Kevin Lobo said, “Not just in the med-tech industry but broadly, there is pressure on raw material input costs. I’m delighted with the way that our organization has been able to offset those with savings initiatives, efficiency initiatives, and purchasing initiatives that have been in the works for the last couple of years. We are able to offset some of the challenges that others are experiencing.”
Still, even companies able to produce products are paying more to get it in the hands of surgeons. Leadership at DJO cited customer expectations, protection of accounts and a “do whatever it takes” factory mentality as reasons for elevated costs. The company said that it expects the situation to normalize over the coming quarters.
In addition to logistics challenges, companies are struggling to find qualified candidates for open jobs. The National Federation of Independent Business reported that 25% of its membership had no qualified candidates for available positions in May 2021. Those same labor shortages are hitting large orthopedic players as well. Smith+Nephew has key talent shortfalls in its Memphis manufacturing facility which produces most of the company’s orthopedic products. Smith+Nephew CEO Roland Diggelmann said, “We have had a huge effort in hiring in Memphis and ensuring that we have the capacity from a systems perspective, from a labor and resource perspective. And of course, you know that this is a complex supply chain when we look at all the sizes, when we look at the different variations and features. So it is a complex operation, but it’s something that we’re going to get back on track. Quarter three or four is what we’re seeing.”
Second Half Expectations
We expect the recovery to take a step back in the third quarter due to the delta variant, the return of somewhat normal seasonality and a bevy of surgeon conferences in August and September. Medtronic leadership believes delta variant infections will peak in early September, with hospital capacity improving as we enter fall.
The third quarter of 2020 benefited from a sizeable backlog of procedures. With travel restrictions in place at the time, surgeons stayed put and churned through waiting procedures. This year the dynamic is very different. There is no sharp backlog bounce on the horizon, deferred procedures are taking longer to return to the funnel and elective surgeries are being postponed in some areas with high COVID cases. Also, surgeons took vacations and traveled in 2021, unlike last year. Globus Medical CEO Dave Demski said, “There’s a pent-up demand in our society for travel. We’re seeing the surgeons take that. I fully expect that they’ll be back once school starts again in September. But from a sequential standpoint, it’s going to cause us to dip a little bit here in the third quarter.”
Despite that dip, orthopedics has largely exceeded expectations thus far in 2021. In the most recent edition of THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT®, we projected that the market would grow by +2.5% in 2021 over 2019. That result is within reach, given a strong fourth quarter. The recovery for some segments, like knee replacement, could stretch into mid-2022. Likewise, there are no quick or easy fixes for supply and labor disruptions. We expect those to remain factors in the market for several quarters to come. However, the orthopedic market is likely to demonstrate its underlying strength by growing despite those challenges.
Mike Evers is ORTHOWORLD’s Digital Content Strategist.
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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.
