The final set of unit sales numbers have come straggling in and the orthopedic industry’s 2010 is officially history. Joanne Wuensch from BMO Capital Markets has been picking over the numbers and put out a research report last week that was mildly positive. She pointed very specifically to where she thought the industry and its specific suppliers are heading.
2010 Review and 2011 Outlook
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Aside from Wuensch, virtually every other major Wall Street analyst has reduced their orthopedic coverage and rotated into other corners of the medical technology world with more attractive growth opportunities. As a result, Wuensch’s report was a welcome update and provided some particularly interesting insights. The following is our summary and interpretation of the Wuensch report.
Hip Reconstruction 2010 Review
Hip implant shipments rose 3.6% worldwide in 2010 to $5.3 billion. Five companies hold a 95% share of the market with JNJ’s DePuy, at 25% market share, being the largest. Two companies gained share in 2010—DePuy and Stryker. Two companies lost share—Zimmer and Smith & Nephew. The following table summarizes the global market share for suppliers of hip implants.
Worldwide Hip Implant Market Share Analysis
(Source: BMO Capital Markets)
|
Company |
2006A
2007A
2008A
2009A
2010A
2011 est
Biomet1
10.6%
10.3%
10.7%
11.1%
11.1%
11.1%
JNJ-DePuy
22.7
23.6
24.3
25.0
25.1
24.6
Smith & Nephew2
9.2
12.1
13.6
13.4
13.0
13.0
Stryker
22.8
22.3
20.9
21.2
21.5
21.9
Wright Medical
3.0
2.9
3.2
3.3
3.3
3.3
Zimmer
28.9
26.6
25.4
24.1
23.9
24.1
Other3
2.9
2.1
1.9
2.0
2.0
2.0
TOTAL
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
1Biomet Fiscal year ends in May. Sales have been calendarized
2Smith & Nephew acquired Plus Orthopedics in 3/07. 2007 SNN ex-fx growth are pro-forma the Plus Acquisition
3Exactech, DJO Surgical and others
Source: BMO Capital Markets
A survey of surgeons by Wuensch offered some very interesting conclusions, specifically:
-
Most surgeons surveyed believe that the number of hip procedures will increase 6% over the next 12 months. This is much better than six months ago when surveyed surgeons predicted that hip implant procedures would rise just 2%.
Surgeons surveyed by Wuensch offered up the opinion that larger manufacturers are more aggressive on price than smaller firms. Indeed, of the larger firms, the surveyed surgeons picked Smith & Nephew and Zimmer as the most aggressive, but all firms were adjusting prices.
Survey respondents reported their use of metal-on-metal (MoM) hip implants is declining. Where 15% of surveyed surgeons reported using MoM hips a year ago, today that percentage has fallen to 8%.
Knee Reconstruction 2010 Review
Knee implant shipments rose 4.4% worldwide in 2010 to $6.7 billion. Five companies hold a 96% share of the market with Zimmer, at 26.7% market share, being the largest. Two companies gained market share in 2010—Biomet and Smith & Nephew. Three companies lost market share—DePuy, Stryker and Zimmer. The following table summarizes the global market share of knee implants.
Worldwide Knee Implant Market Share Analysis
(Source: BMO Capital Markets)
|
Company |
2006A
2007A
2008A
2009A
2010A
2011 est
Biomet1
11.8%
11.7%
12.2%
12.8%
13.4%
13.6%
JNJ-DePuy
24.7
24.2
23.3
23.2
23.1
22.9
Smith & Nephew2
10.2
11.5
12.0
11.8
12.0
12.1
Stryker
19.2
19.5
20.1
20.6
20.5
20.7
Wright Medical
1.9
1.8
1.9
1.9
1.9
1.9
Zimmer
29.2
28.8
28.0
27.4
26.7
26.5
Other3
3.1
2.5
2.4
2.4
2.4
2.4
TOTAL
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
1Biomet Fiscal year ends in May. Sales have been calendarized
2Smith & Nephew acquired Plus Orthopedics in 3/07. 2007 SNN ex-fx growth are pro-forma the Plus Acquisition
3Exactech, DJO Surgical and others
Wuensch’s survey of knee implant surgeons uncovered some surprisingly optimistic opinions, specifically:
-
Most surgeons surveyed believe the number of knee procedures will increase 10% over the next 12 months. This is much better than six months ago when surveyed surgeons predicted knee implant procedures would rise just 2%.
Finally, there appears to be a shift away from premium-priced implants with 71% of the surveyed physicians saying that their hospitals are shifting away from premium-priced implants. Interestingly, of the patients who were also surveyed, 90% said there was NOT a shift away from premium-priced implants. Interesting information gap.
When asked what percentage of their knee procedures were performed using custom knee cutting blocks, 14% reported they have adopted them in their practice and 57% said they expected to add them over the coming 12 months.
Spinal Repair 2010 Review
Spinal implant (ex-Infuse) shipments rose 1.9% worldwide in 2010 to $6.99 billion. Nine companies hold a 90% share of the market with Medtronic at 36.4% market share, being the largest. Four of the major supplier gained market share in 2010—NuVasive, Synthes, Orthofix and Alphatec Spine. Four companies lost market share—Medtronic, DePuy, Zimmer and Biomet. The following table summarizes the global market share of spinal implants.
Worldwide Spinal Implant Market Share Analysis
(Source: BMO Capital Markets)
|
Company |
2006A
2007A
2008A
2009A
2010A
2011 est
Medtronic
41.9%
42.1%
40.2%
38.4%
36.4%
36.1%
Synthes
13.3
13.0
13.4
13.4
13.5
13.4
JNJ-DePuy
15.7
15.0
14.4
14.5
14.3
14.1
Stryker
7.0
7.7
8.3
8.4
8.4
8.4
NuVasive
2.0
2..7
4.0
5.4
6.8
7.3
Zimmer
3.6
3.5
3.6
3.7
3.3
3.3
Biomet
4.3
3.6
3.3
3.4
3.3
3.2
Orthofix Int’l
2.9
4.3
4.0
4.1
4.4
4.6
Alphatec Spine
1.5
1.4
1.6
1.9
2.5
2.7
Others1
7.8
6.8
7.1
6.9
7.0
6.9
TOTAL
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
1Exactech, DJO Surgical and others
It is certainly noteworthy that the three fastest growing spinal implant companies—NuVasive, Orthofix and Alphatec—have all made significant investments in biologic products, in particular cell-based and trophic implants. The retail value, we estimate, of all the cell-based allograft implants supplied by these three companies amounted to more than $120 million in annual shipments in 2010. For 2011, we estimate, sales of these products will likely rise another 25% to 30%.
Last October Wuensch surveyed spine surgeons regarding new technologies. Seventy four (74%) percent identified biologics as the most exciting new technology for the future of spinal implant surgery. At our 6th annual New York Stem Cell Summit held this past March 1, the number of spine surgeons attending doubled from prior year levels.
Has the spine market stabilized? Wuensch said, “In the 4Q10, the spine market appears to have nestled into a low-single-digit growth rate, increasing 1.5% constant currency, following 3.2% in 3Q10 and 1.9% in 2Q10.”
2011 Outlook
For hips, Wuensch forecasts that shipments will rise 3.2% in 2011 to $5.4 billion, which is slower than the 3.6% growth rate reported in 2010. But most of that growth, says Wuensch, is likely to occur in the second half of the year when new products gain traction and there are easier year-over-year comparables. She is also looking at a fairly strong level of pent-up demand (Baby Boomers entering Medicare?) coming into the second half of this year.
Wuensch also pointed out that the industry landscape has shifted as a result of the metal-on-metal concerns. Specifically, she cited an uptake of the Zimmer’s Continuum Acetabular Cup system which may attract some of the MoM hip surgeons.
For knees, Wuensch forecasts that shipments will rise 3.7% in 2011 to $6.95 billion, which is slower than the 4.4% growth rate reported in 2010. The U.S. market, Wuensch believes, has bottomed and should begin to post small, incremental growth rate increases in 2011, particularly in the second half.
Probably the most interesting new technology in knee implants is the advent of MAKOplasty and, soon, its penetration into the hip market. MAKO Surgical is reporting strong revenue growth, albeit from a very low base. In Wuensch’s surveys MAKOplasty was cited as one of the new products that has most affected knee surgeon’s practice in the last six months.
For spinal implants, Wuensch forecasts that shipments will rise 3.6% in 2011 to $7.2 billion, which is a faster rate of growth than 2010. There remain significant concerns regarding the reimbursement environment for spine fusion for patients with degenerative disc disease. However, new technologies—specifically biologics, MIS and lateral access instrumentation—are growing at solid double-digit rates.
Our thoughts? Wuensch has it just about right. Furthermore, at a time when valuations for orthopedic companies are at their rock bottom and most analysts have moved on to presumably greener medical technology pastures, the old orthopedic commercial market is starting to look better and better.
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Discussion
This is a fascinating development. In my practice we've seen similar outcomes with the revised protocol. The key differentiator seems to be patient selection criteria. Has anyone else noticed the correlation with BMI thresholds?
Great point. I'd push back slightly on the conclusion, the sample size in the cited study is too small to draw population-level inferences. That said, the directional signal is compelling and worth a larger RCT.
We implemented a similar approach last year. Early results are promising but we're still gathering 12-month follow-up data. Happy to share our protocol if anyone is interested.
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