COVID-19 Takes a Bite Out of Joint Reconstruction Sales

The top four companies offering knee and hip joint reconstruction products account for over 90% of the U.S. and global reconstruction market. After two years of slow, but steady growth all four companies, DePuy Synthes (JNJ), Smith & Nephew, plc (SNN), Stryker Corporation (SYK), and Zimmer Biomet Holdings, Inc. (ZBH), reported a substantial reversal in Q1-2020 earnings due to the economic impacts of COVID-19. Many countries in Europe and Asia, as well as most states in the U.S. put a moratorium on elective procedures, which include most hip and knee replacement surgeries, during the second half of Q1 and currently into the first half of Q2. Some countries and U.S. states remain under shelter-in-place conditions with plans for a slow return to normalcy. Most plans include resumption of elective procedures early in the phased reopening of economies so surgeons are gearing up to return to the OR in the coming weeks. Dozens of manufacturers and clinics together have already laid-off or furloughed thousands of staff and employees due to significant losses in revenue.

The Global COVID Effect on Recon Sales

Year-over-year, Q1-2020 showed retraction of 7.2% for the global reconstruction market, -7% and -7.4% for global knee and hip, respectively. The U.S. market fared slightly better with a 5.3% decline for the combined reconstruction market, and -5.2% and -5.3% for knee and hip, respectively. Both global knee and hip reconstruction growth fell by over 1,100 basis points (bps) each in Q1-2020 compared with Q4-2019. The quarter-over-quarter drop for U.S. knee and hip reconstruction of 940 and 950 bps, respectively.

The greatest losses were reported by Zimmer Biomet with a greater than 10% decrease in growth in the U.S. and globally for hip reconstruction products knee sales. Zimmer has seen negative growth in domestic knee sales as it has been slowly rolling out the PERSONA knee system and the ROSA robotic surgical assistant. Despite Zimmer’s negative revenue growth, the company retains 34.4% of global reconstruction market share, and 32.3% of the U.S. market.

Stryker suffered the mildest decline of the four with -3.5% revenue growth for global reconstruction. Stryker’s surgical robot, the MAKO, buoyed the company’s U.S. and global knee sales, limiting U.S. revenue growth to only a 0.4% decline. Stryker’s decline in hip sales, both domestic and global, were in line with the other manufacturers.

DePuy Synthes’ year-over-year revenue retraction was below the average decline for each category, but the company had been reporting below-market growth for at least two years. DePuy’s losses were better than the market average, likely due to sales of the ATTUNE knee product family.

Where a Turnaround Might Be Coming: Patient Visits

A hint of a turnaround can be seen in weekly reports of physician visits. Nearly all orthopedic elective procedures require a visit to a primary care physician for evaluation and referral, so it stands to reason that tracking primary care visits will correlate with future orthopedic reconstruction procedures.

A recent report from Wells Fargo research looked at weekly physician visit data from IQVIA’s BrandImpact survey and found that total visits to primary care physicians are still down by about 20% from an early-March baseline. However, visits are trending upward from the lows of late March suggesting that patients are feeling more comfortable seeking help for non-COVID-19 related issues.

Additionally, in-person primary care visits are no longer losing ground to remote visits. The prior three weeks of data report a steadying of the ratio of in-person to remote visits at 37% remote to 63% in-person. In-person visits are likely to be more indicative of requests for orthopedic surgery referrals, as X-rays and physical evaluation are necessary. These data indicate that potential new patients are no longer putting off appointments for their primary care physician.

The Rate of Return to Elective Surgery

Assuming a similar portion of these patients are seeking referrals to orthopedic specialists now as before, resumption of elective surgery will begin as soon as regulations allow. However, without a surge back to baseline levels, or above, it is unlikely that surgical volumes will return to pre-COVID-19 levels, and certainly not to make up for lost procedure volume during shelter-in-place conditions.

As of May 14, 2020, at least 27 states have explicitly resumed elective surgeries or bans have expired. Another 3 states have announced that elective surgeries will resume or bans will expire by the end of May. In most cases additional restrictions are still in place that may necessitate further delays in specific regions. For example, Arizona now allows elective procedures provided that the facilities conducting surgery have sufficient staffing, beds, and a 2-week supply of personal protective equipment (PPE).

Some states, such as Ohio, are limiting procedures to those that were postponed over the last 2 months. Even New York State, the hardest hit state in the nation, has allowed elective surgery in counties with fewer than 10 new cases in the prior 10 days. The New York policy will allow many of the more rural states to conduct elective procedures, but it is unlikely that New York City or other population centers in the state will qualify in the near term. Overall, states are imploring physicians to make good clinical decisions on what the best course of action is for each individual patient preventing disease progression.

Bottom Line

It is difficult to predict when elective procedure volumes, including joint reconstruction, will return to baseline levels in the short term. It is also likely that a portion of the delayed procedures will not be conducted or delayed even further.

Unfortunately, many of the patients suffering from pain and in the greatest need of joint reconstruction are also those most at risk for contracting COVID-19 and experiencing complications, which further complicates the decision to allow them into the operating room. Younger, healthier patients are likely to be invited to the operating room before older patients or those with more co-morbidities.

With Q2-2020 under continued shelter-in-place orders, phased-reopening, and general discomfort among the population with returning to normal it is nearly impossible that surgeries will bounce back to baseline.

Zimmer Biomet expects Q2 to continue the downward trend and has not provided guidance for the year. Johnson & Johnson, parent company of DePuy Synthes, has lowered its overall 2020 earnings outlook by over $2 per share. Similarly, Stryker and Smith & Nephew have withdrawn guidance for the remainder of 2020.

With resumption of elective surgeries in the second half of Q2 and into the second half of 2020, the decline may stabilize and begin to reverse by the end of the year on a quarter-over-quarter basis.