Spine industry suppliers sold $2.2 billion of products in the fourth quarter ending December 31, 2009, 1.5% short of our forecast. Based on several factors, we are lowering our 2010 spine industry sales forecast 1.5% to $9.7 billion.
Six months ago, reported spine product revenues appeared to be rebounding from the late 2008, early 2009 slowdown. For 2Q09 and 3Q09 overall spine industry sales increased 11% and 10%, respectively. Then came the 4Q09. Year-over-year (YOY) spine product sales growth in 4Q09 was 8.6%. Three major trends, we believe, affected the fourth quarter and support lowered sales growth expectations:
Pricing Pressure Is Increasing: As Stryker’s CFO Curt Hartman noted in a recent conference call, the spine industry is an “increasingly price sensitive” market. Michel Orsinger, President and CEO of Synthes Inc., agreed stating that he had even seen capitated pricing from some of his hospital customers.
Private Payer Pushback: Private payers are stingier with reimbursement. “Medical necessity” is driving reimbursement—for example, payers may be more inclined to reimburse for spinal stenosis and spondylolisthesis cases than discogenic back pain.
Consolidations and Closings: Late last year Facet Solutions acquired the assets of Archus Orthopedics. On December 17, Alphatec Spine started the process to acquire the assets of Scient’x. IST, Vertebron and Disc Dynamics Inc. all closed.
Large Suppliers Set the Tone
Fourth quarter sales growth rates at Medtronic, Inc., DePuy Spine, Inc., and Synthes Inc. (collectively 60% of the industry) were 1%, 8%, and 9%, respectively, and anchored overall industry growth rates. In Table 1 we list and rank the quarterly sales for each major spinal implant company. As the table shows, overall industry sales rose 8.6% in 4Q09. Full-year 2009 spinal implant, instrument and biologic sales increased 9.4% to $8.8 billion. We would also note that the fourth quarter is normally a seasonally strong quarter. For all of 2010, we estimate that spine revenues will rise by 10% to $9.7 billion.
Table 1: Quarterly and Annual Sales Revenue for Spine Product Companies
|
Revenue ($ millions) |
4Q09 |
2009 |
1Q10E |
2Q10E |
3Q10E |
4Q10E |
2010E |
|
Medtronic |
842 |
3, 500 |
924 |
914 |
882 |
885 |
3, 605 |
|
Synthes |
246 |
955 |
256 |
264 |
259 |
271 |
1, 050 |
|
DePuy |
240 |
1, 002 |
281 |
295 |
258 |
267 |
1, 101 |
|
Stryker |
152 |
558 |
141 |
155 |
152 |
168 |
616 |
|
NuVasive |
107 |
370 |
101 |
113 |
130 |
147 |
490 |
|
Orthofix/Blackstone |
74 |
279 |
74 |
78 |
77 |
82 |
311 |
|
Globus |
72 |
256 |
76 |
85 |
85 |
102 |
348 |
|
Zimmer |
63 |
254 |
63 |
65 |
63 |
69 |
259 |
|
Biomet |
59 |
234 |
59 |
66 |
64 |
67 |
255 |
|
Alphatec |
37 |
132 |
38 |
61 |
57 |
66 |
222 |
|
Pioneer Surgical |
29 |
112 |
32 |
34 |
33 |
35 |
134 |
|
Orthovita |
25 |
93 |
26 |
30 |
29 |
31 |
117 |
|
K2M |
22 |
83 |
27 |
28 |
28 |
29 |
112 |
|
SeaSpine |
16 |
60 |
18 |
19 |
18 |
20 |
75 |
|
Scient’X |
13 |
50 |
15 |
– |
– |
– |
– |
|
Osteotech |
12 |
48 |
12 |
13 |
13 |
13 |
50 |
|
Integra Spine |
11 |
41 |
11 |
12 |
12 |
12 |
47 |
|
U.S. Spine |
10 |
39 |
12 |
12 |
12 |
13 |
50 |
|
RTI Biologics |
10 |
41 |
9 |
10 |
11 |
12 |
42 |
|
LDR |
9 |
35 |
13 |
13 |
13 |
14 |
53 |
|
Spinal Elements |
7 |
25 |
8 |
8 |
8 |
9 |
33 |
|
Trans1 |
6 |
30 |
6 |
7 |
7 |
7 |
26 |
|
ArthroCare |
6 |
21 |
5 |
6 |
5 |
6 |
22 |
|
Exactech (Altiva) |
2 |
7 |
2 |
2 |
2 |
2 |
8 |
|
Other |
148 |
568 |
156 |
163 |
161 |
173 |
653 |
|
Total Revenues |
$2, 216 |
$8, 794 |
$2, 366 |
$2, 451 |
$2, 377 |
$2, 500 |
$9, 678 |
|
Total Growth |
8.6% |
9.4% |
10.3% |
8.3% |
9.5% |
12.8% |
10.1% |
Source: PearlDiver estimates, Wall Street reports, SEC filings
Synthes, Globus, and DePuy are estimated revenues
Osteotech spine-related revenue assumes 70% DBM revenue is spine related
Abbott Spine revenues reported as part of Zimmer 4Q08
Table 2 displays market share gains and losses for the quarter. NuVasive, Inc. and Globus Medical, Inc., we estimate, gained 1.1% and 0.78% share. Medtronic’s growth continues to lag and we do not expect that the company will be able to return to market growth rates in 2010.
Table 2: Market Share Changes
|
Company |
4Q08 |
4Q09 |
Est. Market Share |
|
NuVasive |
3.7% |
4.8% |
1.15% |
|
Globus |
2.4% |
3.2% |
0.78% |
|
Alphatec |
1.4% |
1.7% |
0.26% |
|
Orthofix |
3.2% |
3.4% |
0.14% |
|
Stryker |
6.8% |
6.8% |
0.02% |
|
Synthes* |
11.1% |
11.1% |
0.00% |
|
DePuy |
10.9% |
10.8% |
-0.05% |
|
Biomet |
2.7% |
2.7% |
-0.05% |
|
Trans1 |
0.4% |
0.3% |
-0.08% |
|
Zimmer |
3.5% |
2.8% |
-0.67% |
|
Medtronic |
40.8% |
38.0% |
-2.78% |
Source: PearlDiver Technologies estimates, Wall Street reports, SEC filings
Individual Company Commentary
Alphatec Spine, Inc.
The big news, of course, is Alphatec’s bid to acquire Scient’x Group SAS, which we estimate had $50 million in revenues in 2009. The buy-out is scheduled to close 1Q10 and would significantly expand ATEC’s global reach.
For 4Q09, Alphatec reported that spine product sales popped 28.9% to $36.6 million (up from $28.4 million in 4Q08). U.S. 4Q09 revenues increased 29% $28 million. This is the tenth consecutive quarter of record revenues and the seventh straight quarter in which YOY revenue growth exceeded 25%. Alphatec now has 95 distributors in the U.S. representing 280 sales reps with a goal of having over 85% exclusivity in 2010.
For 1Q10, we are forecasting that sales will rise to $38 million and for the full year, with three quarters of Scient’x added in, that sales will rise 68% to $222 million.
Biomet, Inc.
Biomet’s calendar 4Q09 spine sales (fiscal 2Q10) rose 6.5% YOY to $58.9 million—which was under our $61 million estimate. U.S. sales rose 7%, marking Biomet’s eighth consecutive quarter of domestic revenue growth. During January’s conference call with analysts, management said that spine hardware sales increased by double-digit rates but that both spinal stimulation and biologic product sales fell. Biomet’s Solitaire Anterior Spine and Polaris Deformity Systems were two notable bright spots in 2009.
Biomet launched the MaxAn Anterior Cervical Plate System during the first quarter which also helped reported sales growth rates.
This quarter’s sales (1Q10), we estimate will rise 8.7% to $58.5 million. Full-year sales, we estimate, will rise 9.4% to $255.4 million.
DePuy Spine, Inc.
DePuy Spine reported worldwide spinal product sales increased YOY 11%, 11%, and 9% for the last 3 quarters, respectively. For 4Q09 specifically spinal product sales, we estimate, rose to $240 million. An extra selling week in 4Q helped U.S product revenues increase 9% and international revenues grow 10%. Overall for 2009, we estimate spine product sales rose 9.8% to $1.0 billion from $913 million in 2008. While pricing pressures also affected DePuy Spine, unlike other firms, management was able to offset that with improved procedure mix.
The company launched Healos Fx Injectable Bone Graft Replacement for minimally invasive spine procedures in 2009 and announced new deals to test genetically engineered proteins for degenerative disc disease (DDD). We are projecting that DePuy Spine can increase sales in 2010 9.9% to $1.1 billion.
NuVasive, Inc.
NuVasive’s 4Q09 performance was clearly the industry’s top performer as sales rose 43% to $107 million (versus $74.6 million in 4Q08) exceeding all expectations. CEO Lukianov set $1 billion as the company’s long-term sales objective during his quarterly analyst call. Despite concerns over reimbursement, the company posted $370 million in 2009 sales, up 48%.
We have increased our forecast for NuVasive in 2010 and now expect the company will report sales of $490 million, up 32%. For 1Q10, we estimate that NuVasive’s sales for minimally disruptive surgical instruments, implants and biologics will reach $101 million.
Orthofix International
Orthofix’s 4Q09 spinal product sales rose an impressive 13% to $74.4 million (up from $65.7 million in 4Q08) and beating both our estimates and those of Wall Street’s analysts. For all of 2009, Orthofix reported that spine product revenues reached $279 million, up 11% from $252 million in 2008. Spine stimulation sales rose 12% to $42 million while implant and biologic revenues increased 15% to $32.5 million. Thoracolumbar and cervical spine implant revenues increased a very strong 31%. Furthermore Orthofix gained share in the spine stimulation market. Fourth quarter 2009 was the ninth consecutive quarter of double-digit sales growth.
Trinity Evolution, we expect, will add $28 million to $30 million to overall spine product sales in 2010. In 4Q09, Orthofix shipped $5.3 million of Trinity Evolution 4Q09. For 1Q10, we estimate, Orthofix’s spine sales will rise 11.6% to $73.6 million, reaching $310.5 million for all of 2010, up 11.2%.
Stryker Corporation
Stryker’s 4Q09 spinal product sales grew 9% from $139.2 million to $151.7 million. Domestic spine sales rose just 4% YOY (versus13% in 3Q09), which surprised us and other analysts. OUS spine product revenues jumped 26% for 4Q09 (14% constant currency). Stryker’s interbody and lumbar products contributed significantly to reported sales growth rates. In its quarterly call with analysts, management attributed the slower than expected growth rates to new product delays and an “increasingly price sensitive market.” Full year 2009 spine product revenues rose 10.1% to $558.5 million from $507.5 million in 2008.
Assuming better top-line growth in the second half of 2010, when new products will be available, we are forecasting that full-year 2010 sales will rise 10.3% to $616 million.
TranS1, Inc.
Reimbursement challenges hurt TranS1’s 2009 performance. Fourth quarter 2009 sales did not reach management’s earlier $6.7 million–$7.7 million estimate and that’s the second time management missed their mark in as many quarters. TranS1’s 4Q09 sales were $6.3 million, down 15% from $7.4 million in 4Q08. Surgeons performed 674 AxiaLIF procedures worldwide (550 domestic) in the quarter, down 12% from 768 in 4Q08.
Category III CPT reimbursement problems are the reason. Physicians are encountering problems being reimbursed for AxiaLIF 360° lumbar spine fusion procedures. The same is not true, however, of the use of TranS1’s products in such complex spine procedures as scoliosis or deformity cases since the access code in question is not as critical for reimbursement. In 4Q09 Trans1 partnered with Life Spine, Inc. to distribute a minimally invasive pedicle screw system called Avatar, which broadens TranS1’s product line.
AxiaLIF’s ASP fell $300 from 4Q08 to $10, 300. TranS1 also reduced its direct sales force count to 45. Based on the reimbursement issue and slowing domestic procedure volumes, we are lowering estimates for 1Q10 to $6.1 million, down 30% from 1Q09.
Zimmer Inc.
Zimmer Spine’s 4Q09 sales fell 12% to $63.1 (-15% constant currency) from $71.8 million in 4Q08. Zimmer’s sales decline breaks down to 14% drop in YOY procedure volume/mix, a 1% pricing reduction which was counterbalanced by a 3% currency exchange rate gain. Overall, sales in 2009 rose 10.2% to $253.6 million—virtually all of which is due to the Abbott Spine acquisition.
Zimmer’s innovative dynamic stabilization device, Dynesis, ran into competitive and reimbursement pressures and that, said management, was one of last year’s greatest challenges. Zimmer CEO David Dvorak said in his quarterly call that spine sales will remain slow for the next couple of quarters but could start rebounding in 4Q10. For 2010, we estimate, Zimmer spine sales will rise 2.3% to $259 million. First quarter 2010 sales, we estimate, will fall 2.5% YOY to $63 million.
Looking Forward
In Chart 1 we display the current market share for spine product companies. The underlying fundamentals of the spine market are solid, but there are critical challenges ahead. On the plus side, procedure volumes and favorable demographics will continue to fuel demand. On the negative side, pricing pressures show no signs of diminishing. Innovation has clearly slowed and reimbursement is not keeping up. Lastly, a sluggish Medtronic will continue to pull down overall industry growth rates.
Chart 1: Company Market Share
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