Orthopedic Sales in Line with Seasonal Expectations for 1Q19

The first quarter of 2019 brought modest growth to the orthopedic market, as expected seasonal softness and more competition in digital surgery platforms slowed sales for some of the largest players. The 25 companies listed herein had combined total orthopedic sales of $8.7 billion, growing just 1.1% versus the prior year. While the top two players, DePuy Synthes and Zimmer Biomet, both saw -2% growth, the quarter did feature strong performances by Medtronic (+5%) and Wright Medical (+16%) among the larger players. Exhibit 1 shows year over year sales performance for the first quarter of 2019.

Exhibit 1: 1Q19 Sales Results

Company Performance Notes for 1Q19

aap Implantate
€3.5MM (USD $4.3MM), +23.4%

• Sustained momentum from 4Q in Germany with +15% growth, and rebounded in North America with +22% growth
• Improved margin by focusing on high-margin markets and improved product mix
• Continued to make progress on clinical approvals for LOQTEQ polyaxial fixation and silver coating technologies

Alphatec Spine
$24.6MM, +15.3%

• Continued to update legacy-heavy portfolio with three new releases: the IdentiTi ACDF, IdentiTi PLIF and AlphaGRAFT DBM Fiber
• Received FDA clearance for SafeOP neuromonitoring system
• New products contributed 22% of U.S. revenue for the quarter
• Sales from strategic distributors comprised 84% of U.S. revenue for the quarter, up from 72% the prior year
• Compared to 1Q18, revenue per distributor increased 30% and revenue per case increased 13%
• Non-strategic international supply agreements are winding down, per leadership

Anika Therapeutics
$21.7MM, +11.6%

• Growth driven by higher global revenue of viscosupplements and HYAFF-based products
• Ex-U.S. sales of single injection treatments up 18%
• Remain on track for 2H19 launch of bone repair therapy product with expected U.S. market opportunity of $250MM to $300MM annually
• HYALOFAST Phase III trial enrolled at 55% with 37 sites initiated (estimated $500MM U.S. annual market opportunity)
• Continued implementation of hybrid commercial structure, pairing small in-house business development team with strategic partners who have an orthopedic salesforce

Aurora Spine
$2.7MM, +81.2%

• Highest quarterly revenue in company history
• Granted patent on “Expandable Interspinous Device” relating to minimally invasive implants
• Completing development of posterior SI joint products and the ZIP-Flex interlaminar fixation device

ConforMIS
$20.6MM, +5%

• U.S. revenue increased almost 10% driven by sales of iTotal PS
• iTotal PS sales grew 30% year over year
• iTotal PS now accounts for 37% of all product revenue, up from 30% last year
• Ex-U.S. sales continued to decline, especially in Germany
• Company faced operational issues with final stages of CAD outsourcing
• Funded a study published in Clinical Orthopaedics and Related Research that examined the knee anatomy of 24,000 patients and showed a high degree of variability, supporting the use of customized knee implants

ConMed
$113.4MM, +4.2%

• Increased 2019 guidance by 0.25%, bringing the range to 5.25% to 6.25%
• Sixth consecutive quarter of orthopedic revenue growth
• Orthopedic revenue driven by new products like the cordless MicroFree System
• Released a hip system with additional components slated for launch in 1H19

DePuy Synthes
$2,203MM, -2.1%

• Knee sales impacted by competitive pressure in the U.S. coupled with declines in EMEA, which were partially offset by increasing uptake of ATTUNE Revision
• Hip sales were supported by strong market demand for the ACTIS stem
• Spine regressed on base business declines
• In trauma, new products like Femoral Recon Nails gained traction supported by a growing market
• Sports medicine saw double-digit growth in Asia Pacific
• Completed acquisition of Auris Health to enhance digital surgery capabilities, expects the addition to complement Orthotaxy

Episurf
SEK 1.4MM (USD $0.2MM), +29.4%

• Gross order intake increased 25.5% vs. previous year
• Order backlog doubled to $0.1MM vs. previous year
• Received new patent approvals in Australia, Japan, Canada and the U.S. so far in 2019
• Reached milestone 500th Episealer knee implant in Q1 2019

Globus Medical
$182.9MM, +4.9%

• Spine sales driven by new products, implant pull through from ExcelsiusGPS and competitive reps coming off non-competes
• Ex-U.S. sales driven by penetration into Japan, Spain, Italy and the U.K.
• Trauma expected to contribute $5MM to $7MM in revenue for 2019, with “meaningful” contributions coming in 2020
• Launched Tibial Nail System for trauma within the quarter
• Received an FDA warning letter for Texas-based tissue facility in late 2018, creating $3MMimpact for biologics in 1Q (expected to be resolved in 2H19)
• ExcelsiusGPS placements generated $7.2MM for the quarter, down 43% from last year due to artificially high 1Q18 sales from pent-up demand and normal seasonal fluctuations for capital equipment
• An interbody module for ExcelsiusGPS has been submitted to FDA for 510(k) clearance, and the company expects to soon unveil three additional modular platforms that will comprise the Smarter OR suite
• Leadership has noticed that the selling cycle for robotics has elongated due to competitive entries; physicians are being asked to do comprehensive evaluations of all options before hospital executives commit to purchasing a technology

Integra LifeSciences
$22.7MM, +0.2%

• Achieved growth one quarter ahead of schedule, as orthopedics were expected to generate revenue growth in the second half of 2019
• Introduction of new products and improved salesforce effectiveness drove growth
• New products included Titan Reverse Shoulder and Panta 2 Arthrodesis Nail systems
• Double-digit growth in ankle and shoulder products (the latter +20%)
• EMEA sales declined due to expected disruption during ERP conversion

Medicrea
€7.7MM (USD $9.5MM), +10.6%

• U.S. sales, which represent just over half of the company’s revenue, grew 15% quarter over quarter; the number of UNiD patient-specific surgeries in the U.S. grew 68% in that same time frame
• Discontinued two “non-strategic” products (mainly biologics) and services (surgical motor repairs) that had been generating well below the company’s 80% gross margin target
• UNiD surgeries continued to gain traction in the U.S., where 60% of all 3,500 UNiD surgeries to date have taken place

Medtronic
$862.9MM, +4.9%

• Based on fiscal year 2020 guidance provided by Medtronic, ORTHOWORLD estimates that the company’s orthopedic revenue will increase by +4.3% to a total of $3.3 billion
• Core spine products growth decreased -1.1% in the quarter, offset by strength in new products such as Infinity OCT and Solera Voyager 5.5/6.0. and biologics
• When combined with enabling technologies such as Mazor X (reported in their Brain segment), spine grew 5.6% in the quarter and 4.5% for the fiscal year
• Core spine plus enabling technology grew 11% in the U.S. for the quarter, driven by Medtronic’s Surgical Synergy strategy
• Sold 26 Mazor X systems in the quarter
• Company leadership says they hold 70% spine robot market share with an installed unit base more than three times the next closest competitor
• Combined capital and implant contracts account for 80% of all Mazor systems sold
• Use of Medtronic spine implants in Mazor cases reached 60% in 4Q, up double digits from 3Q

NuVasive
$274.8MM, +5.5%

• Reiterated 2019 guidance of $1.14BB to $1.16BB
• Growth driven by U.S. spinal hardware on the strength of new products launched in late 2018
• Advanced Material Science products like COHERE and TLIF Porous PEEK up nearly 70% year over year
• PRECICE product line being expanded with STRYDE nail and a bone transport system later in the year
• Biologics down -6% as expected by the company, with increased volume offset by declining average selling prices due to shift away from high-end Osteocel to lower-cost products
• Experienced sales uptick in XLIF and ALIF franchises due to launch of X360 system, an integrated approach and instrument package that enables surgeons to access L5 to S1 without the need to reposition the patient
• Progress on robotic portion of Pulse will be shown at NASS in September 2019
• Leadership remains cautiously optimistic that the global spine market will not change much from 2018
• Price pressure for spinal hardware products was 2.4% for the quarter

Orthofix
$109.1MM, +0.4%

• First U.S. implants of M6-C disc have taken place
• Spine growth driven by Spinal Kinetics’ motion preservation products
• Spine growth offset slightly by ongoing selective disruption of legacy salesforce as largest sales partners are moved into key geographies
• Trauma impacted by several large orders that were delayed from 1Q to 2Q
• Trauma grew slightly when viewed as trailing 12 months year-over-year
• Biologics product volume increased by 20%, offset by low-single-digit ASP decline
• fiberFUSE demineralized bone matrix released in limited launch
• Bone growth therapies grew on strength of increased order volume, but were offset by product mix

OrthoPediatrics
$14.7MM, +21.2%

• Reiterated 2019 guidance of $69.7MM to 70.9MM, or 21% to 23% growth with expected consignment set investment of $15MM to $17MM
• Deployed $2.7MM in consignment sets in 1Q19, in anticipation of summer surgery season
• Launched BandLoc DUO to add to BandLoc 5.5/6.0mm System
• Added seven new U.S. sales representatives, bringing total force to 138
• Converted Belgium and the Netherlands to sales agency model

RTI Surgical
$60MM, +0.2%

• Completed acquisition of Paradigm Spine
• Focusing on accelerated reimbursement, physician engagement and salesforce execution to drive sales of coflex Interlaminar Stabilization device acquired from Paradigm
• Restructured and expanded commercial team
• 2019 guidance for all revenue in the range of $325MM to $335MM, +15% to +19% growth compared to 2018

Sanofi
€68MM (USD $76.4MM), flat

• U.S. revenue loss diminished from 2018, -2.2% vs. 1Q18
• Emerging markets were strong, with +15.4% revenue vs. last year

SeaSpine
$36.2MM, +9%

• Increased 2019 guidance by $2MM (1.5%) on the low end, bringing updated guidance range to $154MM to $156MM (+7.5 to 9% vs. 2018)
• Spine revenue growth driven by new products, particularly Shoreline and Mariner systems along with NanoMetalene products
• Orthobiologics revenue growth driven by new products such as OsteoStrand Plus
• Ex-U.S. revenue grew 15%, primarily on the strength of Europe

SI-BONE
$15MM, +17.9%

• Reiterated 2019 guidance in the range of $65MM to $66.5MM, growth of 17% to 20%
• Received FDA 510(k) clearance for a broader indication using iFuse Bedrock
• Launched single-use decorticator products in the U.S.
• Gained positive reimbursement coverage from BCBS Alabama and converted BCBS Vermont and Highmark BCBS to exclusive coverage

Smith & Nephew
$879MM, +0.9%

• All orthopedic business franchises reached low to mid-single-digit growth before currency exchange headwinds
• Emerging markets performed well, especially China
• Established ex-U.S. markets were challenged, but Europe returned to growth
• JOURNEY II and LEGION products drove knee growth
• Hip segment impacted by moderate supply issues that will improve throughout the remainder of the year
• Acquisition of Brainlab’s orthopedic digital assets closed in 2Q19
• Company remains highly active in M&A space, with addition of Ceterix Orthopaedics broadening the knee meniscal repair portfolio, Osiris Therapeutics adding biologics and Brainlab’s navigation assets adding to a robotics ecosystem

Stryker
$1,881.7MM, +7.8%

• Cementless knees account for about 30% of all Stryker knee implants, and have begun to impact the sales of bone cement
• Hip sales driven by recently launched 3D-printed acetabular cup
• Leadership really likes the shoulder joint replacement market and is pleased with the progress of that portfolio; this could potentially be an acquisition target for Stryker
• In spine, the K2M integration proceeding as expected and sales grew 2% on a combined company basis
• Trauma foot and ankle products have been a segment growth driver for Stryker
• Launch of the T2 Tibia Nailing System was delayed, with full commercial launch expected in the second half of the year
• Company claims market leadership in sports medicine hips, with room to grow in knees and shoulders
• 35 Mako robots installed in the quarter (27 in U.S.), +25% vs. 1Q18
• For the quarter, 55% of installed units went into competitive accounts where Stryker has little to no market share
• Approaching installed base of 700 robots, with 550 in the U.S.
• Around 10% of hospitals that have a Mako purchase multiple units
• More than 15,000 total knee procedures, +80% vs. 1Q18
• Utilization rates up 30% year over year

Vericel
$16.6MM, +37%

• Biopsy and implant trends indicate that MACI is on track to potentially exceed previous guidance
• The company provided revised guidance for MACI and Epicel combined, raising it to $100MM to $114MM, up from $108MM to $112MM. MACI is expected to account for at least $90MM of the updated guidance
• Expanded MACI salesforce now deployed into the field, bringing total number of sales territories to 48

Wright Medical
$230.1MM, +15.9%

• Performance driven by execution in the U.S. market, posting 22.3% growth for the quarter
• Sales to ASCs grew in the double digits
• Cartiva returned to growth ahead of schedule (sales declined in the run-up to Wright Medical’s purchase of Cartiva)
• Wright Medical will sell Cartiva directly in the U.K. and Australia starting in 2H19
• Added 130 new shoulder customers, driven primarily by BLUEPRINT
• Biologics grew on the strength of continued adoption of AUGMENT injectable, with 5% of the quarter’s growth coming from a bulk purchase of raw materials
• Near-term additions for BLUEPRINT
• Outcomes database allowing surgeons to track and search their patient outcomes, launching in the second half of 2019
• AI-based surgical planning recommendations are launching in 1H20, and are drawn from a database that currently houses 5,000 cases
• Appointed a Chief Digital Officer to oversee internal IT functions as well as digital surgery

Xtant
$16.7MM, -7%

• Added 12 new distributors over the last four months
• Declining revenues attributable to continued struggles with spinal hardware sales
• Focused on cutting costs to generate sufficient cash to fund operations

Zimmer Biomet
$1,759.4MM, -2.2%

• Short-term company priorities: supply recovery, increasing supply efficiency, quality remediation, new product launches and optimizing talent structure
• Remain on track to deliver 2% to 3% growth in 2020
• Expect revenue growth to accelerate in 2H19 due to new products
• Expects 2019 general orthopedic volume to be very close to 2018
• Generated over 2,000 leads at AAOS (up from just over 100 a year ago), with a “decent portion” of those leads focused on ROSA
• Early feedback in ROSA total knee limited launch is that the system quickly allows surgeons to achieve “time neutrality” in their procedure flow
• Company will be flexible in ways for customers to acquire a unit, but will prioritize getting units into “platinum” high-volume accounts penetrated by Stryker’s Mako

Sources: Company press releases, websites, filings with the U.S. Securities and Exchange Commission, ORTHOWORLD estimates, etc.

Mike Evers is ORTHOWORLD’s Market Analyst.