Fifteen years ago, more hip replacement implants and instruments were sold than any other category of orthopedic product. Ten years ago, knee implants became #1. Eight years ago spinal implants and instruments overtook knee implants and today, sales of products to treat chronic back pain resulting from either degenerative disc disease or such forms of instability and pain as idiopathic deformity are the largest single sector in orthopedics.
For 2012, spinal implant sales will likely reach $8.9 billion. Large joint reconstruction (both hip and knee) will generate about $14 billion in sales in 2012. And sales of trauma products will clock in at about $8.3 billion.
But, as Mizuho Securities analyst Michael Matson illustrated in his Monthly Med Tech Review dated November 29, 2012, spinal implant sales growth rates have been declining and it is almost certain that 2012’s reported sales will be less than 2011.
But sales of products for trauma use, according to Matson, will likely reach $8.3 billion this year, up 4% from 2011.
Trauma
Constant Currency Growth
|
|
2008 |
2009 |
2010 |
2011 |
Q1/12 |
Q2/12 |
Q3/12 |
Q4/12E |
2012E |
2013E |
2014E |
| Knees |
9% |
4% |
3% |
(1%) |
3% |
2% |
2% |
1% |
2% |
2% |
2% |
| Hips |
7% |
3% |
2% |
2% |
2% |
1% |
0% |
1% |
1% |
1% |
2% |
| Spine |
13% |
12% |
4% |
(2%) |
(1%) |
1% |
(1%) |
(2%) |
(1%) |
(1%) |
1% |
| Trauma |
11% |
6% |
9% |
5% |
4% |
4% |
4% |
4% |
4% |
4% |
4% |
Note: 2008 thru Q3/12 are actual numbers.
Source: Mizuho Securities
In the third quarter every sector seemed to slow down—except trauma. Hip sales growth, which started this year at a year-over-year growth rate of 2%, slowed to 1% in the second quarter then flat lined in the third quarter ending September 30. Spine, which grew ever so slightly in the first quarter, fell 2% in year-over-year terms in the third quarter. Knees, which slowed to a 2% growth rate, seem to be poised to ease down to a 1% growth rate in the current Q4.
Only trauma is growing steadily. In fact, trauma’s growth rate is double that of knees—the only other sector in Matson’s analysis that grew in the third quarter. Throughout 2012, sales of implants and instruments for trauma surgeons have grown at a very consistent 4% year-over-year rate.
Why?
According to Matson the market for trauma products has very different forces affecting it than spine or knees or hips. Trauma is all about acute injury—not a chronic disease like osteoarthritis or degenerative disc disease. “I think there are a few differences between the trauma market and the recon and spine markets, ” said Matson. “First, most trauma procedures are not elective meaning that it is less cyclical. That said, trauma is not immune to economic growth, however, because there is still a correlation between economic activity and accidents. Second, pricing pressure seems less severe in trauma probably because the implants consume a smaller portion of procedural reimbursement than recon or spine implants. And third, the market is more concentrated and possibly less competitive than the recon and ortho markets because of JNJ-Synthes’ dominance.”
Indeed, DePuy (aka: JNJ-Synthes) holds a 49.5% market share. Closest to DePuy in terms of market share is Stryker at 18.6%. Most interestingly, despite the rumors and headlines that the merger of Synthes into DePuy caused several Synthes reps and distributors to jump ship, DePuy’s market share rose in the third quarter. Indeed, of the five companies that hold in the aggregate 85% trauma market share, only two recorded rising market shares—DePuy and Zimmer!
Trauma Market Share
|
Company |
3Q11A |
3Q12A |
% Change |
| DePuy |
49.3% |
49.5% |
0.1% |
| Stryker |
18.9 |
18.6 |
(0.3) |
| Smith& Nephew |
7.4 |
7.2 |
(0.1) |
| Biomet |
4.9 |
4.9 |
(0.0) |
| Zimmer |
4.5 |
4.8 |
0.3 |
Note: Biomet and DePuy 2011 market shares are pro forma
Source: Mizuho Securities
Spine
There was a moment in time when innovation drove product sales in spine. For the physicians who chose to work with these chronically debilitated patients, innovation was their cat nip. It was, to borrow a phrase from the late great Dr. Charlie Ellis, a winner’s game. Then everything seemed to change. From an annual growth rate of 13% in 2008 sales of spinal implants will likely slip by a percent or two this year.
Matson, for example, expects that spine product sales will likely decelerate more rapidly in the fourth quarter of this year. “Yes, my current estimate is for -2% constant currency growth in the global spine market in 4Q12.” Said Matson: “The market forecast is generated from my individual company forecasts so this is to some degree dictated by guidance from the companies themselves. I suspect that it could prove conservative and growth could be higher but we will have to wait and see.”
So which companies seem to be prospering the most in this market? According to Matson, Globus Medical, NuVasive, Biomet and Stryker are taking share this year.
Spine Market Share
|
Company |
3Q11A |
3Q12A |
% Change |
| Medtronic |
36.4% |
35.0% |
(1.4%) |
| DePuy |
24.0 |
23.6 |
(0.4) |
| Stryker |
7.8 |
7.8 |
0.1 |
| NuVasive |
6.2 |
6.6 |
0.5 |
| Globus Medical |
3.6 |
4.2 |
0.7 |
| Zimmer |
2.4 |
2.2 |
(0.2) |
| Alphatec |
2.1 |
2.1 |
0.0 |
| Biomet |
1.7 |
1.9 |
0.2 |
| Orthofix |
1.6 |
1.6 |
0.0 |
Source: Mizuho Securities
Point in fact: spinal implant innovation is not gone. It is, we think, a nearly impossible human activity to suppress. Biomet, as we noted in our annual spine technology issue, introduced an entire line of highly innovative metal and biologic products this year. An independent panel of surgeons awarded Biomet an unprecedented three awards in 2012 for its innovative spine products.
Medtronic, likewise, has invested heavily in innovation and is starting to bring some of these products to market. Unlike its competitors, the Memphis based firm is still working through several legacy products which are on the downside of their life cycle.
The key, as we see it, is for spine products to reposition themselves for a market which is de-emphasizing surgical procedures while seeking improved outcomes for these chronically debilitated patients. In other words, fewer re-admissions. Fewer complications. More consistent results.
Knees
Only two companies gained market share in the knee market and they were Stryker and DePuy.
Knee Market Share
|
Company |
3Q11A |
3Q12A |
% Change |
| Zimmer |
25.4% |
25.1% |
(0.3%) |
| Stryker |
19.0 |
19.5 |
0.5 |
| DePuy |
17.6 |
17.8 |
0.2 |
| Biomet |
13.2 |
13.2 |
0.0 |
| Smith & Nephew |
12.3 |
11.9 |
(0.4) |
| Wright Medical |
1.7 |
1.6 |
(0.1) |
Source: Mizuho Securities
Picking up even half a percent in market share in a well established market like knees is no easy feat. How did Stryker do it? In Matson’s opinion, the key was Stryker’s Triathlon knee system but more specifically the single-radius design.
“Based on our current estimates, I expect Stryker to gain about 0.3% share in global knees (0.5% in the U.S., 0.1% outside the U.S.) in 2012 over 2011 which is more than any of its competitors.” Continued Matson: “I think this is due to ongoing success of the Triathlon knee combined with Stryker’s renewed marketing focus on Triathlon’s single-radius design. Stryker ran a significant direct-to-consumer campaign this year branding Triathlon as the Get Around Knee and this probably helped it gain share in the U.S.”
Hips
DePuy, fresh from acquiring Synthes, is not only the largest supplier of hip implants in the world, but also gained the most market share this past quarter.
Hip Market Share
|
Company |
3Q11A |
3Q12A |
% Change |
| DePuy |
24.4% |
25.1% |
0.7% |
| Zimmer |
21.2 |
21.3 |
0.2 |
| Stryker |
20.1 |
19.9 |
(0.2) |
| Smith & Nephew |
10.9 |
10.3 |
(0.6) |
| Biomet |
10.3 |
10.5 |
0.2 |
| Wright Medical |
2.6 |
2.3 |
(0.3) |
Source: Mizuho Securities
Six companies hold 89% market share. What will be very interesting to observe over the course of the next decade is how China begins to influence these shares. It is certainly worth noting that Medtronic is now producing hip and knee implants in China—the home of the second largest economy, the largest orthopedic surgeon society and a rapidly aging and osteoarthritic population.
China’s government has embarked on a massive hospital modernization program aimed to provide more services to more of its aging population. By 2020, China’s purchases of hip and knee implants will be second only to the U.S.
Recon
Here again DePuy, despite all of the merger related disruptions from acquiring Synthes does not appear to have lost a step and actually gained the most market share of any company in recon.
Recon Market Share
|
Company |
3Q11A |
3Q12A |
% Change |
| Zimmer |
22.2% |
22.2% |
0.0% |
| DePuy |
20.5 |
20.9 |
0.4 |
| Stryker |
19.7 |
19.8 |
0.1 |
| Biomet |
13.0 |
13.1 |
0.1 |
| Smith & Nephew |
11.1 |
10.6 |
(0.5) |
| Wright Medical |
3.0 |
2.9 |
(0.1) |
Source: Mizuho Securities
Smith and Nephew, as was the case in knees and hips, lost the most market share of any company in orthopedics. In recon, SNN lost about half a percentage point in market share. In knees SNN lost 0.4% market share, again the most of any company. Finally, in hips SNN lost 0.6% market share—yet again the most of any company.
What is going on with Smith & Nephew?
2013 and 2014
Matson’s outlook for orthopedics is conservative. Spine sales, he thinks, will continue to decline in 2013 and then rise a single percent in 2014. Hips, he’s forecasting, will rise 1% next year and 2% in 2014. Knees, he thinks, will rise at a steady 2% average annual rate into 2014.
But trauma, says Matson, will be the fastest growing major sector with a sustained average annual growth rate of 4%—double either knees or hips.
Bottom line, for those companies in the trauma market, the unique and quirky aspects of this market are a haven in this era of outcome based medicine.
In closing, if those of us in orthopedics think that a 1% or 2% sales growth dip is hard. It could easily be worse. It could be cardiovascular. They really have it rough.
