Orthopedic Market Nears Normalization as 2021 Winds Down
September 8, 2021
by Mike Evers, Orthoworld
Content republished with permission from ORTHOWORLD® Inc., www.orthoworld.com
Illustration 108853825 © Monsit Jangariyawong | Dreamstime.com
The orthopedic market outperformed expectations through the first half of 2021, given gaps in the global vaccination effort and the surging delta variant.
Market Recovery Progress
The orthopedic market kept pace with its 2019 sales through the first half of 2021. Based on analysis of 21 public companies, we estimate that the overall market grew around +1% in 1H21 compared to 1H19. The rate of recovery is gaining momentum. The first quarter of 2021 fell short of its 2019 comparison, but the second quarter brought mid-single-digit growth against 2019. It marked only the second positive quarter in the last year and a half for the market.
Recovery trends vary by orthopedic market segment. In general, spine has fared better than large joint replacement, based on our analysis of public company’s device sales. Importantly, we excluded enabling technology revenue to the extent possible. Those technologies demonstrated rapid growth potential, even in the absence of implant volume throughout the pandemic. We estimate that the knee market is down in the high-single digits in 1H21 compared to 1H19. Hips are down in the low-single digits, and spine is up low-single digits for that same comparison period. Like the market overall, all three of those segments improved throughout 2021.
Supply Chain and Labor Disruptions
All industries are experiencing supply chain disruptions. In orthopedics, it is another example of the pandemic pushing against pre-existing fault lines. Companies with squared-away operations are not suffering as much as companies caught halfway through solutions. Stryker bolstered its supply chain in recent years and that resiliency is paying off. Company CEO Kevin Lobo said, “Not just in the med-tech industry but broadly, there is pressure on raw material input costs.”
Still, even companies able to produce products are paying more to get it in the hands of surgeons. Leadership at DJO cited customer expectations, protection of accounts and a “do whatever it takes” factory mentality as reasons for elevated costs. The company said that it expects the situation to normalize over the coming quarters.
In addition to logistics challenges, companies are struggling to find qualified candidates for open jobs. The National Federation of Independent Business reported that 25% of its membership had no qualified candidates for available positions in May 2021. Those same labor shortages are hitting large orthopedic players as well.
Second Half Expectations
We expect the recovery to take a step back in the third quarter due to the delta variant, the return of somewhat normal seasonality and a bevy of surgeon conferences in August and September. Medtronic leadership believes delta variant infections will peak in early September, with hospital capacity improving as we enter fall.
The third quarter of 2020 benefited from a sizeable backlog of procedures. With travel restrictions in place at the time, surgeons stayed put and churned through waiting procedures. This year the dynamic is very different. There is no sharp backlog bounce on the horizon, deferred procedures are taking longer to return to the funnel and elective surgeries are being postponed in some areas with high COVID cases. Also, surgeons took vacations and traveled in 2021, unlike last year. Globus Medical CEO Dave Demski said, “There’s a pent-up demand in our society for travel. We’re seeing the surgeons take that. I fully expect that they’ll be back once school starts again in September. But from a sequential standpoint, it’s going to cause us to dip a little bit here in the third quarter.”
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