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The orthopedic market finds itself in familiar territory in early 2022, with COVID infections surging to record levels. While we await fourth-quarter and full-year results from orthopedic companies, we’ll summarize below our expectations and questions for the market as it enters the third year of disruption from the pandemic. In brief, we see 2021’s recovery for orthopedic sales falling short of initial expectations. Additionally, unprecedented market dynamics have created a favorable environment for IPOs, but are slowing orthopedic acquisitions.
Orthopedic Market Lost Momentum Halfway Through 2021
A year ago, the orthopedic market labored under the weight of a surge in COVID infections that led to a record number of both cases and hospitalizations. According to data from the CDC, cases peaked in December 2020 with 6.3 million new infections, and then the number of currently hospitalized patients peaked a month later with just over 124,000 hospitalizations. The cancelation of elective procedures acutely impacted orthopedic sales through early March 2021.
Along with most observers, however, we expected an improving situation throughout the year with significant progress in backlog recovery leading to tailwinds in the second half of the year.
Orthopedic sales performed better than expected in the second quarter of 2021. At the time, NuVasive’s CFO Matt Harbough said, “We believe this volume improvement was primarily related to continued positive recovery in the spine market, as well as the broader global economy beginning to reopen. Signs of recovery in the second quarter continue to support our outlook that we can deliver 2021 net sales growth that exceeds our pre-pandemic 2019 results.”
In retrospect, the second quarter might have been the highwater mark for the year. COVID’s delta variant led to a disappointing third quarter and added strain to a system already stressed by supply chain disruptions and shortages in the labor market. A new pricing policy for knee and hip replacement implants in China further pressured orthopedic companies in that market.
Some of the largest companies like Zimmer Biomet, Medtronic, NuVasive and Orthofix lowered 2021 revenue guidance at the end of the third quarter. Others, like Smith+Nephew and ConMed, held out hope of achieving the low ends of guidance ranges.
A Weaker Fourth Quarter for Many Orthopedic Companies
Not much is different in the orthopedic market’s situation now compared to one year ago. The U.S. once again tallied 6.3 million new COVID infections in December, as the omicron variant rapidly rose to prominence. January has, with just seven days of CDC data, racked up 4.7 million cases with a hospitalization peak of 108,200. Lockdowns and elective surgery restrictions are once again commonplace.
Even before bearing the full brunt of omicron, orthopedic companies tempered fourth-quarter expectations given COVID cases and hospital staff shortages.
SeaSpine CEO Keith Valentine said, “Our experience gives us confidence that our surgery customers will eventually work through the surgery backlog that accumulated in Q3. We aren’t anticipating an upside in the fourth quarter because many surgeons’ schedules are already full in what has historically been the busiest quarter of the year. While we fully expect to see surgeons work through this backlog of spine surgeries, we believe it will begin in the fourth quarter and take the first half of 2022 to play out fully.”
Preliminary orthopedic sales results announced thus far are in line with analyst consensus, but primarily come from niche players or companies operating against smaller revenue bases.
We were hopeful that the orthopedic market could more than recover its 2020 losses in 2021, delivering low single-digit growth over 2019. Given the current situation, we think it is more likely that the market will struggle to match its 2019 performance, which we estimated at $53.1 billion.
Unprecedented Market Puts Brakes on Orthopedic M&A
Orthopedic merger and acquisition activity increased every year between 2017 and 2020. Despite conserving cash during the first year of the pandemic, companies remained aggressive in scooping up small or distressed assets. But, according to our estimates, only 23 transactions closed in 2021 for orthopedic device companies compared to 42 last year.
Medtech M&A transactions are nearing an all-time high with peak valuations. While orthopedic M&A slowed in 2021, we expect a rebound for transaction volume in 2022 as the largest players continue to favor cautious tuck-in acquisitions and partnerships earlier in the commercialization process. The IPO market is also record-setting in terms of volume and valuations. Three orthopedic companies went public in 2021, and we expect investors to continue chasing disruptive growth stories.
In all, it is disappointing to find the orthopedic market retracing its steps from a year ago. The market should recover during 2022 and benefit from a growing procedure backlog, but the pandemic has defied many reasonable predictions thus far.
Zimmer Biomet’s CEO Bryan Hanson said, “Here’s what we’ve learned. Every time we try to use an external view of when COVID will get better, we seem to be wrong. I’ve learned my lesson. I’m not going to try to predict this anymore until I see proof in the marketplace.”
Mike Evers is ORTHOWORLD’s Digital Content Strategist.
The orthopedic market finds itself in familiar territory in early 2022, with COVID infections surging to record levels. While we await fourth-quarter and full-year results from orthopedic companies, we'll summarize below our expectations and questions for the market as it enters the third year of disruption from the pandemic. In brief, we see...
The orthopedic market finds itself in familiar territory in early 2022, with COVID infections surging to record levels. While we await fourth-quarter and full-year results from orthopedic companies, we’ll summarize below our expectations and questions for the market as it enters the third year of disruption from the pandemic. In brief, we see 2021’s recovery for orthopedic sales falling short of initial expectations. Additionally, unprecedented market dynamics have created a favorable environment for IPOs, but are slowing orthopedic acquisitions.
Orthopedic Market Lost Momentum Halfway Through 2021
A year ago, the orthopedic market labored under the weight of a surge in COVID infections that led to a record number of both cases and hospitalizations. According to data from the CDC, cases peaked in December 2020 with 6.3 million new infections, and then the number of currently hospitalized patients peaked a month later with just over 124,000 hospitalizations. The cancelation of elective procedures acutely impacted orthopedic sales through early March 2021.
Along with most observers, however, we expected an improving situation throughout the year with significant progress in backlog recovery leading to tailwinds in the second half of the year.
Orthopedic sales performed better than expected in the second quarter of 2021. At the time, NuVasive’s CFO Matt Harbough said, “We believe this volume improvement was primarily related to continued positive recovery in the spine market, as well as the broader global economy beginning to reopen. Signs of recovery in the second quarter continue to support our outlook that we can deliver 2021 net sales growth that exceeds our pre-pandemic 2019 results.”
In retrospect, the second quarter might have been the highwater mark for the year. COVID’s delta variant led to a disappointing third quarter and added strain to a system already stressed by supply chain disruptions and shortages in the labor market. A new pricing policy for knee and hip replacement implants in China further pressured orthopedic companies in that market.
Some of the largest companies like Zimmer Biomet, Medtronic, NuVasive and Orthofix lowered 2021 revenue guidance at the end of the third quarter. Others, like Smith+Nephew and ConMed, held out hope of achieving the low ends of guidance ranges.
A Weaker Fourth Quarter for Many Orthopedic Companies
Not much is different in the orthopedic market’s situation now compared to one year ago. The U.S. once again tallied 6.3 million new COVID infections in December, as the omicron variant rapidly rose to prominence. January has, with just seven days of CDC data, racked up 4.7 million cases with a hospitalization peak of 108,200. Lockdowns and elective surgery restrictions are once again commonplace.
Even before bearing the full brunt of omicron, orthopedic companies tempered fourth-quarter expectations given COVID cases and hospital staff shortages.
SeaSpine CEO Keith Valentine said, “Our experience gives us confidence that our surgery customers will eventually work through the surgery backlog that accumulated in Q3. We aren’t anticipating an upside in the fourth quarter because many surgeons’ schedules are already full in what has historically been the busiest quarter of the year. While we fully expect to see surgeons work through this backlog of spine surgeries, we believe it will begin in the fourth quarter and take the first half of 2022 to play out fully.”
Preliminary orthopedic sales results announced thus far are in line with analyst consensus, but primarily come from niche players or companies operating against smaller revenue bases.
We were hopeful that the orthopedic market could more than recover its 2020 losses in 2021, delivering low single-digit growth over 2019. Given the current situation, we think it is more likely that the market will struggle to match its 2019 performance, which we estimated at $53.1 billion.
Unprecedented Market Puts Brakes on Orthopedic M&A
Orthopedic merger and acquisition activity increased every year between 2017 and 2020. Despite conserving cash during the first year of the pandemic, companies remained aggressive in scooping up small or distressed assets. But, according to our estimates, only 23 transactions closed in 2021 for orthopedic device companies compared to 42 last year.
Medtech M&A transactions are nearing an all-time high with peak valuations. While orthopedic M&A slowed in 2021, we expect a rebound for transaction volume in 2022 as the largest players continue to favor cautious tuck-in acquisitions and partnerships earlier in the commercialization process. The IPO market is also record-setting in terms of volume and valuations. Three orthopedic companies went public in 2021, and we expect investors to continue chasing disruptive growth stories.
In all, it is disappointing to find the orthopedic market retracing its steps from a year ago. The market should recover during 2022 and benefit from a growing procedure backlog, but the pandemic has defied many reasonable predictions thus far.
Zimmer Biomet’s CEO Bryan Hanson said, “Here’s what we’ve learned. Every time we try to use an external view of when COVID will get better, we seem to be wrong. I’ve learned my lesson. I’m not going to try to predict this anymore until I see proof in the marketplace.”
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.
