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We expect another year of elevated growth rates, accelerating consolidation and economic stress for the orthopedic industry. Below, we recap some of the major themes of 2023 and look ahead to developments that could impact 2024.
Recovery and Consolidation in 2023
Orthopedics turned a corner in late 2022 when joint replacement volumes finally started to recover. That momentum carried into 2023 and drove substantial performance in the orthopedic market. The seasonal rhythms of the year settled into something akin to normal. But things are never quiet for long in orthopedics. Major M&A moves shifted the competitive balance of the market.
Backlog-Driven Overperformance
The orthopedic market’s overperformance in 2023 is attributable to pent-up demand stemming from several years of postponed elective surgeries, an aging global population and advancing digital technologies.
According to our projections, the global orthopedic market will surpass $59 billion in sales for 2023, reflecting a robust growth rate of 6.5% compared to the previous year. Notably, this growth rate exceeds the industry’s historical average by three percentage points and underscores the momentum of the market’s recovery.
While all product segments overperformed, joint replacement saw the most significant recovery. That segment basically “lost” years of growth after the pandemic as other segments recovered more quickly.
The chart below shows knee and hip replacement sales for the four largest players in the space: Zimmer Biomet, Stryker, DePuy Synthes and Smith+Nephew. Hip replacement sales didn’t recover to 2019 levels until 2022, and knee replacement took until this year to reach that threshold.
Return to Normal(ish) Seasonality
While sales volumes remained elevated, the cadence of those sales returned to normal. Mostly. We saw the expected third-quarter slowdown, but the summer months decelerated more than some anticipated. Treace Medical Concepts admitted surprise at the extent of the lull, and several other companies commented on the stepdown in summer sales. A slow summer could be the new normal in orthopedics.
“It’s a new kind of summer seasonality,” said Enovis CEO Matt Trerotola. “Starting last year with more vacations than normal, that repeated this year, even a bit heavier this July. So we’re slower the first few months of the summer.”
However, orthopedic players remained bullish about fourth-quarter prospects and follow-on opportunities in early 2024. Enovis foresaw a “pretty normal run to the finish” for 2023.
Changing Competitive Landscape
Orthopedic M&A reversed its downward trend in 2023 with 29 transactions, an increase of more than 30% compared to 2022. While short of the frantic pace we saw between 2019 and 2020, this activity level is probably closer to the norm.
A new class of buyers is helping to fuel the M&A rebound. Mid- and small-sized companies are increasingly active as they expand into product adjacencies and new markets. Since 2020, Enovis and OrthoPediatrics have been in the top five most active companies for orthopedic acquisitions.
Globus Medical’s $3.1 billion deal for NuVasive shifted the competitive balance of the spine market and created a credible challenge to Medtronic’s supremacy. Enovis’ rapid entry into the foot and ankle segment and its increased global footprint will likely vault the company to the $1 billion annual sales threshold by 2025.
A More Normalized 2024
The orthopedic market enters 2024 with substantial momentum from backlogged procedures. Growth rates will likely overperform again, albeit more modestly. Enabling technologies will play an increasingly important role in M&A while investor behavior changes to favor later-stage companies. One welcome development is that GLP-1 weight loss drugs will likely have no negative impact on orthopedic procedure volumes.
Enabling Tech Will Drive Orthopedic M&A
We expect orthopedic M&A to remain active in 2024 as technology becomes increasingly important, especially in the spine market. Spine is the most active segment at 28% of all orthopedic M&A transactions since 2016, while digital-focused transactions accelerated since the pandemic.
“Over the last four or five years, we’ve seen quite a bit of consolidation, but there are still more operators in spine than we see in some of our other specialties,” said Stryker CEO Kevin Lobo. “One of the drivers of the consolidation is enabling technologies. It is sort of the ticket to the dance to be successful long term.”
Developing and commercializing differentiated technology can be highly challenging for smaller companies. Accelus sold its robotic REMI solution to ATEC primarily because of the burdens of developing the platform.
Even the largest companies aren’t immune. Stryker’s spine business struggled without a robot as it took on Medtronic and Globus. Likewise, DePuy Synthes hopes to revitalize its flagging spine franchise with a robotic platform.
Flight to Certainty and Profitability
An inflationary environment, supply chain disruption and lingering staffing shortages will continue to inject uncertainty into the orthopedic market for 2024. Stock prices for many orthopedic companies, even those with impressive topline performance, will likely remain under pressure.
Investors are prioritizing later-stage companies with a clear path to profitability. The pace of investment slowed in 2023 while the average investment climbed steeply. We estimate that 27 investments worth at least $637 million went to orthopedic companies in 2023. The average investment amount in 2023 nearly doubled the historical average.
GLP-1 Impact Likely Minimal
The efficacy of GLP-1 weight loss drugs brought further uncertainty to orthopedic investors in the second half of 2023. However, initial concerns over the impact on joint replacement and other orthopedic procedures were likely overblown.
Orthopedic executives spent considerable time in the third quarter assuaging investor fears. The consensus among those executives is that the drugs will have no negative impact on orthopedic procedure volumes and could be a modest tailwind in the longer term.
Obesity is an obstacle to eligibility for joint surgery. If these drugs can lower a patient’s BMI to a certain threshold, they become eligible for surgery. Additionally, healthy patients could be more active and live longer, thus extending the runway for orthopedic procedures.
“A good example of this fact is Japan,” said Zimmer Biomet CEO Ivan Tornos. “It is the second largest market in the world for osteoarthritis with minimal obesity rates but very long life expectancy dynamics. We’ve not seen any near-term impact from GLP-1s, and the long-term impact would be a positive one for orthopedics and Zimmer Biomet.”
We expect another year of elevated growth rates, accelerating consolidation and economic stress for the orthopedic industry. Below, we recap some of the major themes of 2023 and look ahead to developments that could impact 2024.
Recovery and Consolidation in 2023
Orthopedics turned a corner in late 2022 when joint replacement volumes...
We expect another year of elevated growth rates, accelerating consolidation and economic stress for the orthopedic industry. Below, we recap some of the major themes of 2023 and look ahead to developments that could impact 2024.
Recovery and Consolidation in 2023
Orthopedics turned a corner in late 2022 when joint replacement volumes finally started to recover. That momentum carried into 2023 and drove substantial performance in the orthopedic market. The seasonal rhythms of the year settled into something akin to normal. But things are never quiet for long in orthopedics. Major M&A moves shifted the competitive balance of the market.
Backlog-Driven Overperformance
The orthopedic market’s overperformance in 2023 is attributable to pent-up demand stemming from several years of postponed elective surgeries, an aging global population and advancing digital technologies.
According to our projections, the global orthopedic market will surpass $59 billion in sales for 2023, reflecting a robust growth rate of 6.5% compared to the previous year. Notably, this growth rate exceeds the industry’s historical average by three percentage points and underscores the momentum of the market’s recovery.
While all product segments overperformed, joint replacement saw the most significant recovery. That segment basically “lost” years of growth after the pandemic as other segments recovered more quickly.
The chart below shows knee and hip replacement sales for the four largest players in the space: Zimmer Biomet, Stryker, DePuy Synthes and Smith+Nephew. Hip replacement sales didn’t recover to 2019 levels until 2022, and knee replacement took until this year to reach that threshold.
Return to Normal(ish) Seasonality
While sales volumes remained elevated, the cadence of those sales returned to normal. Mostly. We saw the expected third-quarter slowdown, but the summer months decelerated more than some anticipated. Treace Medical Concepts admitted surprise at the extent of the lull, and several other companies commented on the stepdown in summer sales. A slow summer could be the new normal in orthopedics.
“It’s a new kind of summer seasonality,” said Enovis CEO Matt Trerotola. “Starting last year with more vacations than normal, that repeated this year, even a bit heavier this July. So we’re slower the first few months of the summer.”
However, orthopedic players remained bullish about fourth-quarter prospects and follow-on opportunities in early 2024. Enovis foresaw a “pretty normal run to the finish” for 2023.
Changing Competitive Landscape
Orthopedic M&A reversed its downward trend in 2023 with 29 transactions, an increase of more than 30% compared to 2022. While short of the frantic pace we saw between 2019 and 2020, this activity level is probably closer to the norm.
A new class of buyers is helping to fuel the M&A rebound. Mid- and small-sized companies are increasingly active as they expand into product adjacencies and new markets. Since 2020, Enovis and OrthoPediatrics have been in the top five most active companies for orthopedic acquisitions.
Globus Medical’s $3.1 billion deal for NuVasive shifted the competitive balance of the spine market and created a credible challenge to Medtronic’s supremacy. Enovis’ rapid entry into the foot and ankle segment and its increased global footprint will likely vault the company to the $1 billion annual sales threshold by 2025.
A More Normalized 2024
The orthopedic market enters 2024 with substantial momentum from backlogged procedures. Growth rates will likely overperform again, albeit more modestly. Enabling technologies will play an increasingly important role in M&A while investor behavior changes to favor later-stage companies. One welcome development is that GLP-1 weight loss drugs will likely have no negative impact on orthopedic procedure volumes.
Enabling Tech Will Drive Orthopedic M&A
We expect orthopedic M&A to remain active in 2024 as technology becomes increasingly important, especially in the spine market. Spine is the most active segment at 28% of all orthopedic M&A transactions since 2016, while digital-focused transactions accelerated since the pandemic.
“Over the last four or five years, we’ve seen quite a bit of consolidation, but there are still more operators in spine than we see in some of our other specialties,” said Stryker CEO Kevin Lobo. “One of the drivers of the consolidation is enabling technologies. It is sort of the ticket to the dance to be successful long term.”
Developing and commercializing differentiated technology can be highly challenging for smaller companies. Accelus sold its robotic REMI solution to ATEC primarily because of the burdens of developing the platform.
Even the largest companies aren’t immune. Stryker’s spine business struggled without a robot as it took on Medtronic and Globus. Likewise, DePuy Synthes hopes to revitalize its flagging spine franchise with a robotic platform.
Flight to Certainty and Profitability
An inflationary environment, supply chain disruption and lingering staffing shortages will continue to inject uncertainty into the orthopedic market for 2024. Stock prices for many orthopedic companies, even those with impressive topline performance, will likely remain under pressure.
Investors are prioritizing later-stage companies with a clear path to profitability. The pace of investment slowed in 2023 while the average investment climbed steeply. We estimate that 27 investments worth at least $637 million went to orthopedic companies in 2023. The average investment amount in 2023 nearly doubled the historical average.
GLP-1 Impact Likely Minimal
The efficacy of GLP-1 weight loss drugs brought further uncertainty to orthopedic investors in the second half of 2023. However, initial concerns over the impact on joint replacement and other orthopedic procedures were likely overblown.
Orthopedic executives spent considerable time in the third quarter assuaging investor fears. The consensus among those executives is that the drugs will have no negative impact on orthopedic procedure volumes and could be a modest tailwind in the longer term.
Obesity is an obstacle to eligibility for joint surgery. If these drugs can lower a patient’s BMI to a certain threshold, they become eligible for surgery. Additionally, healthy patients could be more active and live longer, thus extending the runway for orthopedic procedures.
“A good example of this fact is Japan,” said Zimmer Biomet CEO Ivan Tornos. “It is the second largest market in the world for osteoarthritis with minimal obesity rates but very long life expectancy dynamics. We’ve not seen any near-term impact from GLP-1s, and the long-term impact would be a positive one for orthopedics and Zimmer Biomet.”
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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.
