Three Questions About the Orthopedic Market in 2Q21
June 22, 2021
by Mike Evers, Orthoworld
Content republished with permission from ORTHOWORLD® Inc., www.orthoworld.com
After more than a year of volatility, the orthopedic market is finding its footing once again. Last summer brought a similar sense of optimism, but this time feels different amidst the ongoing COVID vaccine campaign and resumption of activity.
How Far Along is the Orthopedic Market’s Recovery?
After declining by -10.6% in 2020 vs. 2019, the orthopedic market had a bumpy start to 2021. However, by March, trends improved significantly. We estimate that the market grew in the low single digits for the first quarter of 2021. Most companies saw sequential improvement throughout the first quarter and into April, with the U.S. generally recovering more quickly than Europe.
Exhibit 1 shows our estimated year-over-year growth rate for the orthopedic industry by quarter. Amid an expanding vaccinated population and lifting restrictions, the market showed signs of recovery in most segments. Enabling technology sales remained robust following a record-breaking fourth quarter. Knee replacement, OA pain management injections and some areas of sports medicine are lagging behind, but we expect them to make up ground in the second half.
Exhibit 1: Orthopedic Market Year-over-Year Growth Rate by Quarter
The scope of the accumulated procedure backlog remains challenging to assess, as well. Zimmer Biomet estimated its backlog at “hundreds of millions of dollars” that would take 12 to 18 months to work through. Colfax shared similar sentiments around timing, with a “catch up” period lasting into 2022.
U.S. unemployment rates improved modestly so far in the second quarter. Unemployment dropped below 6% in May for the first time since the pandemic began, but it is still 2.2% higher than the 12-month average for the period before COVID-19 hit the U.S.
Will the Pace of Tuck-In Acquisitions Accelerate?
Despite the impact of financial constraints, 2020 brought a brisk pace of mergers and acquisitions. We tracked 42 transactions for orthopedic device companies last year. Through the first half, 2021 is off to a slower start, with 13 closed transactions compared to 19 at the same point in the previous year.
Outside of spine, DJO has rapidly stood up a foot-and-ankle business by investing $225 million in a short span via deals with Stryker, Trilliant Surgical, MedShape and Mathys. We expect the company to remain active in 2021. Before the Mathys addition, Colfax’s CEO Matthew Trerotola said, “We’re in a position where we can now build the business organically plenty and have strong double-digit growth over time. But there are also other bolt-ons and tuck-ins within that space that we can take a look at. We certainly have more flexibility now. But I would say that most of the things that we’re thinking about are in the small to medium-size range, versus big moves, in the short to medium-term.”
Can Technology Really “Reshape the Growth Curve” in Orthopedics?
Zimmer Biomet’s Bryan Hanson highlighted the exciting potential of digital technology in orthopedics. He said, “We’re very focused on a real evolution of the company from a metal and plastic provider of implants to a leading med-tech innovator. Think of us as a high-tech company that happens to be in medtech. I believe fundamentally that this shift is coming not only for us, but for the entire market that we play in. These technology advancements potentially can reshape the growth curve of these markets.”
Robotics drove essential revenue streams for the largest orthopedic players in 4Q20 and 1Q21. Will momentum sustain placements in the second quarter, or are we about to hit a lull? Despite penetration and utilization remaining low, these platforms are increasingly a “must-have” portfolio item, as we see from NuVasive’s difficult position amid the delayed Pulse launch. We expect the success of these platforms to continue in 2021, in addition to more mid-sized players acquiring differentiated digital solutions.
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