10 Surprising 2017 Shoulder and Foot/Ankle Market Insights

Glenn Novarro, the managing director of life science research at RBC Capital Markets, one of the largest investment banks in the world, has been in the top ranks of Wall Street medical device research analysts for more than 20 years.

When Novarro speaks, the world listens.

One of Novarro’s more interesting research techniques is to survey surgeons. For the last six years he’s been surveying orthopedic surgeons. Not polling—but rather conducting time consuming, detailed Q&A surveys.

Invariably, he pulls from these interviews unique and valuable insights into market trends, backlogs and, most importantly, user attitudes and expectations.

Novarro’s work is, above all else, a flashlight into the opaque future.

On December 13, Novarro and his team released two new surveys—one covering shoulder implant markets and the other covering the foot and ankle implant market. In the course of roughly 130 pages, Novarro and his team revealed dozens of surprising and interesting insights into these two rapidly changing extremity markets.

We cherry picked ten of the most interesting results and here they are.

1. Approximately 70% of U.S. surgeons surveyed by RBC said they expect their shoulder volumes to be higher in 2017 than in 2016. When asked the question: “Do you expect your surgical volumes in each upper extremity category to be down, flat or up relative to 2016?” more than two-thirds of the surveyed surgeons said that shoulder would be up, 30% said flat and 0% said down. Fifty-three percent said that wrist and forearm would be higher year-over-year (y/y), 44% flat and 3% down. Sixty-one percent said that elbow and humerus would be up, 39% flat and 0% down. Finally, with regards to hands and fingers it was a 50/50 split between up from last year to being flat with last year. But, importantly, not a single surgeon said “down.”No doubt one reason the outlook among surgeons is so upbeat that is that backlogs are high and still growing. The surveyed surgeons reported that their current shoulder backlog stands at 4.1 weeks, increasing compared to the 3.4 weeks a year ago. To put this in perspective, ~97% of surveyed surgeons told RBC that they expect shoulder backlogs to be the same or higher one year from now.

2. Surgeons do not expect prices to rise for shoulder implants. When asked by RBC if they felt pricing pressure for total or reverse shoulder procedures, the consensus was “no.” And when asked if they expect prices to rise in 2017, the answer was 58% “yes” and 42% “no.” So, call it a weak “yes.”When RBC dug a little deeper and asked if, in terms of innovative new shoulder, elbow, wrist, forearm, hands or finger implants, surgeons did think price increases were likely. More survey respondents said “yes” than “no.” Said Novarro and his colleagues: “Interestingly, only 5% of surgeons we surveyed expect shoulder pricing to decline in their hospital/practice in 2017. This appears optimistic, but at the very least signals surgeons’ expectations for minimal pure pricing pressure in the U.S. upper extremity market. Separately, slightly over 60% of surgeons said that they have not seen increased commercial reimbursement pressure for shoulder procedures over the past 12 months.”

3. The two key growth drivers are reverse shoulder and stemless shoulder implants. The responding surgeons said they expect reverse shoulder replacement volume to grow somewhere between 15-20% year-over-year and that stemless shoulder volume can grow approximately 20% y/y in 2017.Are reverse shoulder implants overused? Approximately 68% of the surgeons said “no.” This gave the RBC analysts confidence that the comparatively higher priced reverse shoulder implant (surgeons said that they expected those prices to rise about 5% over the next couple of years) as well as other innovative products will support steady if not slightly higher shoulder implant pricing overall.As regards stemless shoulders, most of the surgeons said they expect these implants will comprise approximately 18% of their shoulder replacement procedures five years from now. Simpliciti is the only FDA approved stemless shoulder on the market, which is good news for Memphis based Wright Medical Group.

4. Nearly two-thirds (67%) of U.S. foot/ankle surgeons expect their procedure volume to grow in 2017. How much growth? The surgeons said high-single-digit percentage growth over 2016 was most likely.Surgery backlogs, said the foot and ankle surgeons, were at 3.6 weeks currently, which is higher than the 3.2 weeks they reported 12 months ago. Furthermore, these same surgeons expect that foot/ankle procedure backlog will keep growing and could be as high as 4.2 weeks a year from now. Why? The most common reason given was increased patient volumes and referrals. In fact, the number of foot/ankle surgeons saying that their backlogs will be the same or higher a year from now was an overwhelming 94%.

5. No pricing pressure in foot/ankle. Seventy percent of foot/ankle surgeons report no signs of higher implant pricing pressure in forefoot, midfoot or hindfoot implants in their hospital/practice over the past 12 months. In other words, there has been comparatively little pricing or commercial reimbursement pressure. Bottom line, said the RBC researchers, foot/ankle one of the healthiest markets in orthopedics.

6. Biologics and innovative total ankle implants also strong. The surgeons pointed to biologics and total ankle innovations as the key drivers for future procedure growth. Specifically, Augment Bone Graft the Infinity Total Ankle, Invision Total Ankle Revision System and the S.T.A.R. Total Ankle were cited by surgeons as likely to drive procedure growth at their hospital/clinic. Interestingly, the first three of those four products are from Wright Medical. The fourth is Stryker Corporation’s.It is worth noting that the more innovative implants and biologics products come with slightly higher prices. So as they earn greater procedure market share, they can put an upward bias to overall sales.Also, noting that the vast majority of foot/ankle surgeons said they had not experienced much pricing pressure, it does seem foot/ankle markets have been able to avoid the commercial insurer scrutiny. Probably won’t last. But, for now, this is an interesting and attractive market for surgeons and suppliers alike.

7. Memphis-based Wright Medical has momentum among surveyed surgeons. RBC, which analyzes stocks on behalf of its institutional customers, asked surgeons which companies THEY thought would gain market share. Surgeons know the tools they like, they know how to solve extremely complex problems and they know how to get patients back up and going again. But, can they also predict market share winners?In the foot and ankle implant market, surgeons selected Wright Medical as the supplier most likely to gain market share in 2017. This conclusion is based on Wright Medical’s INBONE and INFINITY ankle products which, when combined with Wright’s Augment Bone Graft, convinced the surgeons that Wright was going to gain market share.Who else do the surgeons think can gain market share in foot / ankle? The surgeons selected two other companies: Arthrex, Inc. and Stryker’s Small Bone Innovations, Inc.. Arthrex has always had a very strong ankle trauma presence and surgeons were most enamored with the company’s Titanium Ankle Fusion Plating System. Small Bone Innovations is, of course, best known for its S.T.A.R. total ankle system.

   In the shoulder implant market, surgeons picked Stryker as the company most likely to take market share on the strength of its new reverse shoulder implant, Reunion RSA. Also selected as likely market share gainers in 2017 were Exactech, Inc. and Wright Medical. Exactech has a winner in its Equinoxe shoulder system and its fine range of glenoid solutions. Wright Medical’s procedure share gains are coming courtesy of Tornier’s (acquired by Wright in 2015) Simpliciti stemless shoulder and the Aequalis Ascend Flex.

8. Zimmer coming on strong. Two Zimmer upper extremity products, Comprehensive Vault Reconstruction System and Comprehensive Reverse Shoulder with E1 Poly, were picked by the survey respondents as most likely to cause share shifts in upper extremity practices.Zimmer’s Comprehensive Vault Reconstruction System was just launched this past November and is the first patient-matched glenoid implant FDA approved to specifically treat patients with a severely deficient rotator cuff and extensive bone loss which precludes the use of a standard glenoid baseplate.Zimmer’s Reverse Shoulder with E1 Poly has received high marks from the RBC survey participants. It’s about four years old but as the first Vitamin E advanced bearing option for reverse shoulder applications, it clearly has fans and continues to gain share.

9. Biologics, specifically, new bone graft product Augment capturing share. Fighting a pricing headwind, Wright Medical’s Augment continues to excite survey respondents as familiarity of the bone graft rose to 75% from last year’s 33% of surgeons.Of those who’ve heard of Augment, 60% of surgeons expect to be using the advanced bone graft product 12 months from now. The surgeons themselves told RBC that they expect Augment will capture approximately 38% of their hindfoot and ankle fusion procedures five years from now.Pricing is an issue, however. About 48% of surgeons said they had received pushback from their hospital over Augment’s price. Another 37% said that they expect pushback in the next 12 months.

10. Bottom Line: Since these surveys are conducted by Wall Street analysts, the bottom line is who is gaining share and who is losing share. So RBC cut to the chase. Surgeons, they said, expected Stryker and Wright Medical to gain the most shoulder market share in 2017. Zimmer, DePuy Synthes and DJ Orthopedics, LLC will be net shoulder market share donors.Zimmer, Stryker and Wright Medical, say the surveyed surgeons, will likely increase their upper extremity presence most and were considered to be the most innovative upper extremity manufacturers. Stryker, for example, seems to gaining fans with its Reunion Reverse Shoulder Arthroplasty System. But all of these companies are just one missed innovation from being on the flip side of market share increases.Wright Medical is clearly benefitting from its purchase of Tornier. The Simpliciti stemless shoulder and continued solid growth of Tornier’s Ascend Flex are fueling Wright’s rising reputation among extremity surgeons.