Orthopedic Sales Unlikely to See Upside in 4Q Earnings Results
January 10, 2022
by Mike Evers, Orthoworld
Content republished with permission from ORTHOWORLD® Inc., www.orthoworld.com
Illustration 108853825 © Monsit Jangariyawong | Dreamstime.com
The orthopedic market finds itself in familiar territory in early 2022, with COVID infections surging to record levels. While we await fourth-quarter and full-year results from orthopedic companies, we'll summarize below our expectations and questions for the market as it enters the third year of disruption from the pandemic. In brief, we see 2021's recovery for orthopedic sales falling short of initial expectations. Additionally, unprecedented market dynamics have created a favorable environment for IPOs, but are slowing orthopedic acquisitions.
Orthopedic Market Lost Momentum Halfway Through 2021
A year ago, the orthopedic market labored under the weight of a surge in COVID infections that led to a record number of both cases and hospitalizations. According to data from the CDC, cases peaked in December 2020 with 6.3 million new infections, and then the number of currently hospitalized patients peaked a month later with just over 124,000 hospitalizations. The cancelation of elective procedures acutely impacted orthopedic sales through early March 2021.
Along with most observers, however, we expected an improving situation throughout the year with significant progress in backlog recovery leading to tailwinds in the second half of the year.
A Weaker Fourth Quarter for Many Orthopedic Companies
Not much is different in the orthopedic market's situation now compared to one year ago. The U.S. once again tallied 6.3 million new COVID infections in December, as the omicron variant rapidly rose to prominence. January has, with just seven days of CDC data, racked up 4.7 million cases with a hospitalization peak of 108,200. Lockdowns and elective surgery restrictions are once again commonplace.
Unprecedented Market Puts Brakes on Orthopedic M&A
Orthopedic merger and acquisition activity increased every year between 2017 and 2020. Despite conserving cash during the first year of the pandemic, companies remained aggressive in scooping up small or distressed assets. But, according to our estimates, only 23 transactions closed in 2021 for orthopedic device companies compared to 42 last year.
Medtech M&A transactions are nearing an all-time high with peak valuations. While orthopedic M&A slowed in 2021, we expect a rebound for transaction volume in 2022 as the largest players continue to favor cautious tuck-in acquisitions and partnerships earlier in the commercialization process. The IPO market is also record-setting in terms of volume and valuations. Three orthopedic companies went public in 2021, and we expect investors to continue chasing disruptive growth stories.
In all, it is disappointing to find the orthopedic market retracing its steps from a year ago. The market should recover during 2022 and benefit from a growing procedure backlog, but the pandemic has defied many reasonable predictions thus far.
Mike Evers is ORTHOWORLD's Digital Content Strategist.
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