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The orthopedic market is running hot so far in 2023. Through the first half of the year, the market grew in the high single digits, according to our estimates. It’s a bit of a mirage, though. Improving volume and staffing levels blew out weak comparisons for the first six months of 2022.
Underneath that, however, what durable trends drive orthopedics’ fastest-growing companies? An improving M&A environment, the rise of digital technologies and the foot and ankle market are three critical drivers for the best performers in orthopedics.
Scale is King in Orthopedics
Orthopedic merger and acquisition volume slowed in recent years due to market disruption and economic uncertainty. However, this year is on pace to stop the bleeding, if only modestly.
The year kicked off with the completion of Orthofix’s merger with SeaSpine. The deal created the 10th largest player in orthopedics with projected 2023 sales over $750 million.
But it didn’t seem like a perfect fit. Orthofix scuffled in recent years, while SeaSpine gathered tremendous growth momentum. Ultimately, the deal was about attaining scale and unlocking synergies.
The same can be said of Globus Medical’s $3.1 billion transaction to acquire NuVasive which closed in the third quarter of 2023. The technological prowess of Globus speaks for itself, but the company could get out-muscled by a behemoth like Medtronic.
Despite a negative initial reaction from Wall Street, the move solidifies Globus as a formidable number two player in spine. Integrations in the spine market are notorious. While Globus will take a few lumps over the next two or three years, we fully expect the acquisition to pay off in the mid-term.
Finally, we have to mention Enovis. The company cites M&A as a core competency and cultural tenet. It shows. Enovis’ recent acquisition of LimaCorporate marks its ninth acquisition since 2020, almost twice the next most active company.
Through many of those transactions, Envois rapidly created a foot and ankle business on its way to $100 million in annual sales. It expects to hit $200 million even more quickly.
“I’ve always said getting to your first a hundred million is hard,” said Gary Justak, Enovis President of Foot and Ankle. “It gets a lot easier to get from $100 million to $200 million. It’s the scale; it’s the mass. You have a commercial engine. You can feed that beast.”
Foot and Ankle Might Be the Last Gem in Orthopedics
The foot and ankle segment is an attractive space, with ample opportunities to improve surgical techniques and patient outcomes. The market is growing in the high single digits, but it is a complex and challenging area of orthopedics.
Revision rates in foot and ankle surgery can range between 20% and 70%, compared to the 2% revision rate in knee and hip surgery after three years.
“We always talk about how complex and what a marvel the foot and ankle environment really is when you start to appreciate how many bones and the interactions of those bones and the soft tissues that are related with the lower extremity. The fact that we bear weight and wear shoes makes everything more complicated,” said Paragon 28 CEO Albert DaCosta.
The highly fragmented nature of the space made a target-rich environment for the largest companies in orthopedics to acquire their way into foot and ankle. However, Paragon 28 and its peer Treace Medical achieved critical mass as pure-play disruptors. Those two companies are among the fastest-growing in orthopedics.
Both Paragon 28 and Treace Medical have long runways that can sustain long-term growth. Paragon 28 estimates that foot and ankle market is worth over $4 billion annually across multiple product categories like joint replacement, trauma, sports medicine and orthobiologics. Through the first half of 2023, Treace Medical estimates it has penetrated just 6.3% of its target market for bunion surgery.
While the largest companies in orthopedics have increased their focus on foot and ankle, they aren’t slowing down companies like Treace Medical.
Founder and CEO John Treace said, “Most of these are highly diversified companies with large bags of products. Their offerings get a fractional portion of their sales team’s time and attention. I can’t say that there’s any one of these multiline, distracted companies that’s slowing our business momentum.”
Digital Ecosystems Create Market Share Moats
While the foot and ankle market still has room for smaller disruptors, the joint replacement and spine segments are dominated by just a few massive companies. Orthopedic robotics further entrenched those large players through the razor and blades model.
Stryker’s 2013 acquisition of Mako set the stage for the company’s huge jump in knee replacement market share. Over the last few years, the combination of robotics and cementless knee implants has been Stryker’s golden ticket.
The combination of competitive entrants and sustained market pressure shifted hospitals away from outright purchases of robotics. Rental and volume-based agreements are now commonplace. Not all companies are impacted by the shift, however. Globus Medical’s enabling technology sales have remained buoyant in the face of the changing market dynamics.
Whether rental or outright sale, the proliferation of orthopedic robots locks hospitals and surgeons into implants from the same company. Early movers on robotics like Stryker and Medtronic are defending their hard-won market share.
It is worth remembering that orthopedics is in the early stages of the adoption curve for robotics. Robotic procedures account for about 12% of knee surgeries and just 3% of spine surgeries. As more robots enter the market across orthopedic segments, the closed model creates a Gordian Knot for hospitals and could stifle innovation.
Companies like THINK Surgical aim to disrupt the market by offering an open robotic system that addresses many of the issues with first-generation systems.
Outside of robotics, enabling technology has huge, virtually untapped potential in orthopedics. Many players in the space are focused on enabling better surgeon performance while driving economic value. OrthoGrid, for instance, developed an AI-powered ecosystem that detects and tracks specific anatomical landmarks through a sophisticated grid network.
“We’re very committed to the value equation of better outcomes over cost savings,” said OrthoGrid Co-Founder and Co-CEO Edouard Saget. “Hospitals are looking at where they spend their money. What item can be used by as many surgeons as possible? We believe we have a model that is competitive in cost savings. We have a 98% retention rate over five years.”
As the orthopedic market settles into a more predictable rhythm, we expect the best-performing companies to prioritize commercial scale, emerging product segments and digital technology.
The orthopedic market is running hot so far in 2023. Through the first half of the year, the market grew in the high single digits, according to our estimates. It’s a bit of a mirage, though. Improving volume and staffing levels blew out weak comparisons for the first six months of 2022.
Underneath that, however, what durable trends drive...
The orthopedic market is running hot so far in 2023. Through the first half of the year, the market grew in the high single digits, according to our estimates. It’s a bit of a mirage, though. Improving volume and staffing levels blew out weak comparisons for the first six months of 2022.
Underneath that, however, what durable trends drive orthopedics’ fastest-growing companies? An improving M&A environment, the rise of digital technologies and the foot and ankle market are three critical drivers for the best performers in orthopedics.
Scale is King in Orthopedics
Orthopedic merger and acquisition volume slowed in recent years due to market disruption and economic uncertainty. However, this year is on pace to stop the bleeding, if only modestly.
The year kicked off with the completion of Orthofix’s merger with SeaSpine. The deal created the 10th largest player in orthopedics with projected 2023 sales over $750 million.
But it didn’t seem like a perfect fit. Orthofix scuffled in recent years, while SeaSpine gathered tremendous growth momentum. Ultimately, the deal was about attaining scale and unlocking synergies.
The same can be said of Globus Medical’s $3.1 billion transaction to acquire NuVasive which closed in the third quarter of 2023. The technological prowess of Globus speaks for itself, but the company could get out-muscled by a behemoth like Medtronic.
Despite a negative initial reaction from Wall Street, the move solidifies Globus as a formidable number two player in spine. Integrations in the spine market are notorious. While Globus will take a few lumps over the next two or three years, we fully expect the acquisition to pay off in the mid-term.
Finally, we have to mention Enovis. The company cites M&A as a core competency and cultural tenet. It shows. Enovis’ recent acquisition of LimaCorporate marks its ninth acquisition since 2020, almost twice the next most active company.
Through many of those transactions, Envois rapidly created a foot and ankle business on its way to $100 million in annual sales. It expects to hit $200 million even more quickly.
“I’ve always said getting to your first a hundred million is hard,” said Gary Justak, Enovis President of Foot and Ankle. “It gets a lot easier to get from $100 million to $200 million. It’s the scale; it’s the mass. You have a commercial engine. You can feed that beast.”
Foot and Ankle Might Be the Last Gem in Orthopedics
The foot and ankle segment is an attractive space, with ample opportunities to improve surgical techniques and patient outcomes. The market is growing in the high single digits, but it is a complex and challenging area of orthopedics.
Revision rates in foot and ankle surgery can range between 20% and 70%, compared to the 2% revision rate in knee and hip surgery after three years.
“We always talk about how complex and what a marvel the foot and ankle environment really is when you start to appreciate how many bones and the interactions of those bones and the soft tissues that are related with the lower extremity. The fact that we bear weight and wear shoes makes everything more complicated,” said Paragon 28 CEO Albert DaCosta.
The highly fragmented nature of the space made a target-rich environment for the largest companies in orthopedics to acquire their way into foot and ankle. However, Paragon 28 and its peer Treace Medical achieved critical mass as pure-play disruptors. Those two companies are among the fastest-growing in orthopedics.
Both Paragon 28 and Treace Medical have long runways that can sustain long-term growth. Paragon 28 estimates that foot and ankle market is worth over $4 billion annually across multiple product categories like joint replacement, trauma, sports medicine and orthobiologics. Through the first half of 2023, Treace Medical estimates it has penetrated just 6.3% of its target market for bunion surgery.
While the largest companies in orthopedics have increased their focus on foot and ankle, they aren’t slowing down companies like Treace Medical.
Founder and CEO John Treace said, “Most of these are highly diversified companies with large bags of products. Their offerings get a fractional portion of their sales team’s time and attention. I can’t say that there’s any one of these multiline, distracted companies that’s slowing our business momentum.”
Digital Ecosystems Create Market Share Moats
While the foot and ankle market still has room for smaller disruptors, the joint replacement and spine segments are dominated by just a few massive companies. Orthopedic robotics further entrenched those large players through the razor and blades model.
Stryker’s 2013 acquisition of Mako set the stage for the company’s huge jump in knee replacement market share. Over the last few years, the combination of robotics and cementless knee implants has been Stryker’s golden ticket.
The combination of competitive entrants and sustained market pressure shifted hospitals away from outright purchases of robotics. Rental and volume-based agreements are now commonplace. Not all companies are impacted by the shift, however. Globus Medical’s enabling technology sales have remained buoyant in the face of the changing market dynamics.
Whether rental or outright sale, the proliferation of orthopedic robots locks hospitals and surgeons into implants from the same company. Early movers on robotics like Stryker and Medtronic are defending their hard-won market share.
It is worth remembering that orthopedics is in the early stages of the adoption curve for robotics. Robotic procedures account for about 12% of knee surgeries and just 3% of spine surgeries. As more robots enter the market across orthopedic segments, the closed model creates a Gordian Knot for hospitals and could stifle innovation.
Companies like THINK Surgical aim to disrupt the market by offering an open robotic system that addresses many of the issues with first-generation systems.
Outside of robotics, enabling technology has huge, virtually untapped potential in orthopedics. Many players in the space are focused on enabling better surgeon performance while driving economic value. OrthoGrid, for instance, developed an AI-powered ecosystem that detects and tracks specific anatomical landmarks through a sophisticated grid network.
“We’re very committed to the value equation of better outcomes over cost savings,” said OrthoGrid Co-Founder and Co-CEO Edouard Saget. “Hospitals are looking at where they spend their money. What item can be used by as many surgeons as possible? We believe we have a model that is competitive in cost savings. We have a 98% retention rate over five years.”
As the orthopedic market settles into a more predictable rhythm, we expect the best-performing companies to prioritize commercial scale, emerging product segments and digital technology.
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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.
