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We estimate that orthopedic market revenue declined -10.6% during a pandemic-stricken 2020. While we expect improvement throughout 2021, the first quarter began amid COVID’s deadliest surge. However, some encouraging signs point toward the orthopedic industry perhaps turning a corner toward overall growth. When public orthopedic companies start to report this week, we’ll get a clearer picture of the recovery. For now, we’ll review the COVID and economic situations in the first quarter, some areas of strength in the industry and surgeons’ positive outlook.
COVID and Economic Data
The pandemic’s late-year surge short-circuited the industry’s recovery, and device company leaders warned that emerging first-quarter trends indicated reduced patient volumes. Conformis CEO Mark Augusti said, “Through the first eight weeks of 2021, all the reports are suggesting visits and elective procedures are down 15% to 20% for the quarter. I see it as 20% to 25%. There is no doubt, as we talk to our surgeons, that their schedules and their backlogs are reduced. Plenty of patients have put off surgery. The first quarter is going to be challenged.”
According to the U.S. Centers for Disease Control and Prevention, COVID deaths in the U.S. peaked in January 2021, with over 97,000 fatalities. In fact, 36% of all U.S. COVID deaths occurred in the first quarter of 2021. During that same period, a fresh wave of lockdowns rolled over Europe to stem the tide of infections.
The U.S. economy continued its slow but steady climb in the first quarter, with the unemployment rate declining from 6.3% in January to 6% in March. While a vast improvement over the April 2020 low point (14.8%), unemployment remains 2.4% higher than the average for the 12 months preceding the pandemic.
Strong Performers Retain Momentum
We anticipate that two fourth-quarter bright spots, mid-tier spine players and enabling technology sales, will remain a strength in 1Q21. Few device companies have announced preliminary earnings thus far, but both ATEC Spine and SeaSpine checked in with impressive growth in the face of the pandemic surge.
ATEC expects first-quarter revenue of at least $43.7 million, growth of +45.1% compared to last year. Additionally, the company expects total 2021 growth above 30%. Likewise, SeaSpine’s revenue for the quarter is at least $41.5 million, growth of nearly +15%. SeaSpine also increased its 2021 guidance to reflect growth of +25% to +28%.
Generally, we’d anticipate some moderation of enabling technology sales in the first quarter after companies like Stryker, Zimmer Biomet and Medtronic set record highs for capital sales to end 2020. However, research by Larry Biegelsen and Shagun Singh at Wells Fargo Securities show training and adoption for Stryker’s Mako and Zimmer Biomet’s ROSA both increasing in 1Q21 compared to 1Q20. Given the size of the knee replacement market and the current low penetration of robotics, we believe these systems have ample revenue runway remaining.
Reasons for Optimism
A group of 51 orthopedic surgeons polled by Kyle Rose of Canaccord Genuity expressed optimism for the second half of the year. Conducted in the last two weeks of March 2021, the survey found 20% of responding physicians said volumes had returned to normal. However, only 10% see volumes returning to normal in the first half of the year. Increasingly, the second half looks to be where the orthopedic industry can regain some lost ground. In the survey, 40% of responding surgeons indicated they expected procedure volume recovery in 2H21.
In all, we expect another difficult quarter for orthopedic companies in 1Q21. However, we still see the industry on track for a sharp backlog-driven rebound in the second half of the year, with new patient volume recovery likely pushing into early 2022.
We estimate that orthopedic market revenue declined -10.6% during a pandemic-stricken 2020. While we expect improvement throughout 2021, the first quarter began amid COVID's deadliest surge. However, some encouraging signs point toward the orthopedic industry perhaps turning a corner toward overall growth. When public orthopedic companies start...
We estimate that orthopedic market revenue declined -10.6% during a pandemic-stricken 2020. While we expect improvement throughout 2021, the first quarter began amid COVID’s deadliest surge. However, some encouraging signs point toward the orthopedic industry perhaps turning a corner toward overall growth. When public orthopedic companies start to report this week, we’ll get a clearer picture of the recovery. For now, we’ll review the COVID and economic situations in the first quarter, some areas of strength in the industry and surgeons’ positive outlook.
COVID and Economic Data
The pandemic’s late-year surge short-circuited the industry’s recovery, and device company leaders warned that emerging first-quarter trends indicated reduced patient volumes. Conformis CEO Mark Augusti said, “Through the first eight weeks of 2021, all the reports are suggesting visits and elective procedures are down 15% to 20% for the quarter. I see it as 20% to 25%. There is no doubt, as we talk to our surgeons, that their schedules and their backlogs are reduced. Plenty of patients have put off surgery. The first quarter is going to be challenged.”
According to the U.S. Centers for Disease Control and Prevention, COVID deaths in the U.S. peaked in January 2021, with over 97,000 fatalities. In fact, 36% of all U.S. COVID deaths occurred in the first quarter of 2021. During that same period, a fresh wave of lockdowns rolled over Europe to stem the tide of infections.
The U.S. economy continued its slow but steady climb in the first quarter, with the unemployment rate declining from 6.3% in January to 6% in March. While a vast improvement over the April 2020 low point (14.8%), unemployment remains 2.4% higher than the average for the 12 months preceding the pandemic.
Strong Performers Retain Momentum
We anticipate that two fourth-quarter bright spots, mid-tier spine players and enabling technology sales, will remain a strength in 1Q21. Few device companies have announced preliminary earnings thus far, but both ATEC Spine and SeaSpine checked in with impressive growth in the face of the pandemic surge.
ATEC expects first-quarter revenue of at least $43.7 million, growth of +45.1% compared to last year. Additionally, the company expects total 2021 growth above 30%. Likewise, SeaSpine’s revenue for the quarter is at least $41.5 million, growth of nearly +15%. SeaSpine also increased its 2021 guidance to reflect growth of +25% to +28%.
Generally, we’d anticipate some moderation of enabling technology sales in the first quarter after companies like Stryker, Zimmer Biomet and Medtronic set record highs for capital sales to end 2020. However, research by Larry Biegelsen and Shagun Singh at Wells Fargo Securities show training and adoption for Stryker’s Mako and Zimmer Biomet’s ROSA both increasing in 1Q21 compared to 1Q20. Given the size of the knee replacement market and the current low penetration of robotics, we believe these systems have ample revenue runway remaining.
Reasons for Optimism
A group of 51 orthopedic surgeons polled by Kyle Rose of Canaccord Genuity expressed optimism for the second half of the year. Conducted in the last two weeks of March 2021, the survey found 20% of responding physicians said volumes had returned to normal. However, only 10% see volumes returning to normal in the first half of the year. Increasingly, the second half looks to be where the orthopedic industry can regain some lost ground. In the survey, 40% of responding surgeons indicated they expected procedure volume recovery in 2H21.
In all, we expect another difficult quarter for orthopedic companies in 1Q21. However, we still see the industry on track for a sharp backlog-driven rebound in the second half of the year, with new patient volume recovery likely pushing into early 2022.
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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.
