Market Analysis and Forecast Feature
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Q1 2017: Spine Market Analysis and Forecast
Robin Young • Mon, April 24th, 2017
The Shifting Outlook for Orthopedics
Robin Young • Tue, July 27th, 2010
Pricing, reimbursement, and spending pressures have become aural wallpaper for our industry. The effects of that insistent refrain from Wall Street analysts and anonymous bloggers (too numerous to mention) has begun to oxidize the infrastructure of orthopedic company valuations.
From an economic perspective, the business of manufacturing orthopedic products is about 0.2% of U.S. Gross Domestic Product (GDP) which is too small to have much macroeconomic impact. But when lost work time is factored in the impact is 8% of U.S. GDP and when patient impact (assuming roughly 75 million patients see their doctors for an orthopedic complaint each year) is considered, the effect rises to 21% of the U.S. population.
From a valuation perspective, the business of manufacturing orthopedic products is about 0.17% of all equity valuations that trade on the U.S. market which is close to its actual economic impact. Over the past 18 months the value of the orthopedic industry has declined to a point where, by most traditional valuation measures, the industry is either inexpensive or prospects for orthopedic sales and profits are worse than published estimates would indicate.
The debate about whether this industry is in for a difficult short term versus a more favorable long term because of demographically driven demand changes is an important one, which we will examine more in a moment. For now though, the thing that strikes us most is the remarkable 180-degree change in consensus outlook for the largest sector in orthopedics: spine surgery.
The Changing Outlook for Spine Surgery
Six years ago the consensus of most industry observers and investors was that spine surgery was the top investment choice for hospitals, manufacturers, private equity firms and generally speaking, Wall Street. It was then the most profitable service sector in orthopedics with high-dollar procedures, a payer mix weighted toward private payer (as opposed to Medicare) patients, favorable reimbursement updates from Medicare and the perceived long-term trend of increasing per capita utilization. In addition, new technologies (treatments for vertebral compression fractures and motion preserving implants) were expected to be the engine for sustained growth over the next several years.
IMS + PearlDiver: A New Standard in Ortho Market Intelligence
Robin Young • Fri, September 27th, 2013
IMS Health Incorporated and PearlDiver Technologies, Inc. have teamed up to create more current, robust and accurate orthopedic and spine market intelligence reports. Starting October 1, 2013, IMS Health and PearlDiver will be offering orthopedic and spine market intelligence reports based on the most current and robust data ever offered to orthopedic product manufacturers, academic institutions and clinical researchers.
More Current Data
For example, the new collaboration will provide orthopedic companies with market intelligence reports, updated quarterly or monthly that include:
- Data at doctor or facility level
- Data at the state, IDN or GPO level
- CMS data (including SAS files)
- Non-Medicare data
- Veterans Administration data
- U.S. Army data
- Claims data from over 100 health plans (including, soon, all the Blue plans in the U.S.)
- Code volumes for inpatient and outpatient procedures and diagnoses
In some cases, the data will be reported a mere 30 days after patient care.
Each report will combine IMS Health’s unmatched database of pharma, procedure, reimbursement, device and diagnosis data with PearlDiver’s long and well-established orthopedic domain knowledge. The reports will cover every major product and diagnosis category in orthopedics.
In addition, each report offers a portal into IMS Health’s analytic services.
IMS Health Analytics – Broadening the Definition of What Is Possible
IMS Health, which is the world’s largest supplier of data and data analytics services to the life sciences industry, has developed a class of analytic services for medical product companies. These services are designed around data analytics and benchmarking metrics. Not only can these services be used to improve current products, sales activities and organizational effectiveness, they are especially valuable for advanced technologies and innovations.
IMS Health’s analytics team uses research, analysis and prototyping of new solutions such as treatment trends, personalized medicine, and predictive analytics from aggregating complex data sets to, frankly, broaden the definition of what is possible in product development and roll out.
Surprising MicroPort Orthopedics
Robin Young • Fri, June 20th, 2014
Orthopedics is simply one of the foundational pillars of all medicine. Demand for orthopedic medical products and services will likely never, ever decline. Whether the issue is trauma (fractures, wars, auto accidents) or arthritis or congenital defects like cerebral palsy or back pain…global demand currently exceeds supply and will be rising for as long as anyone cares to forecast.
Any company that aspires to be a diversified provider of medical products and services eventually comes to orthopedics. The only other sector that could arguably approach orthopedics in terms of universality and rising demand is wound care. But even wound care doesn’t reach the sheer patient volume and diversity of orthopedics.
So when MicroPort, the Shanghai-based (and Hong Kong exchange traded) medical device company decided to diversify it went to orthopedics AND the United States.
This impressive two-fer is, in retrospect, a notably smart strategic coup. Since MicroPort’s purchase, Smith & Nephew plc bought ArthroCare Corporation, Zimmer Holdings, Inc. bid for Biomet, Inc. and Stryker Corporation is evaluating the purchase of Smith & Nephew. Orthopedic equity values are rising as buyers are realizing that the number of large joint recon suppliers is rapidly shrinking.
There is a scarcity value to large joint reconstruction companies.
Who Is MicroPort?
Simply put, MicroPort is the most interesting company in large joint recon.
This 16-year-old company was founded by the former VP of R&D for Atlanta-based Cryomedical Sciences, Inc.—Dr. Zhaohua Chang. Dr. Chang was raised in China where he earned a master’s degree in cryogenics (his Ph.D. degree in biological science is from the State University of New York) and realized the clear need for a Chinese-based medical device company.
So in 1998 this scientist, author of more than 40 peer-reviewed articles and holder, at the time, of five patents, founded MicroPort Scientific Corp.
MicroPort’s first products were devices for cardiac catheterization and stent implantation. At the time, only 3, 000 patients in China had had coronary stents implanted (vs. 700, 000 in the U.S.).
With the backing of the Chinese government MicroPort launched a balloon dilation catheter.
It’s Always Sunny in Orthopedics
Robin Young • Wed, January 28th, 2015
Older patients. Mega suppliers. More insured patients. A growing economy. More jobs. Some give on prices.
In the words of top gun orthopedic industry analyst Bill Plovanic of Cannacord Genuity, the signs are in place for better growth rates and, for investors, “long term opportunities within orthopedics…and [we] believe the industry will continue to evolve and offer investors ample opportunities for capital gains…”
On January 24, Plovanic issued an important new report where, among other conclusions, he revised his expected sales growth rates in two of the largest orthopedic sectors upward and suggested that the industry will grow at rates unseen since before the Great Recession of 2008.
But he isn’t so sure that last year’s torrid M&A activity can stay hot. “Given the mega mergers and small cap valuations trading near record highs, we believe M&A activity may cool off a bit in the near term.”
The Outlook for Large Joints
For large joints, Plovanic is raising his growth expectations to levels not seen since, well, before 2008.
In many respects, this uptick in growth expectations reflects the experience of the 2008-2010 recession. U.S. unemployment peaked at 10% in October 2009 and the very next year hip and knee replacement shipments fell approximately 4% and 5%, respectively, industry wide.
The extent to which employment rates and large joint procedures are linked was driven home between 2008 and 2010. And why not? No job. No insurance. No surgery.
This year every economic analyst of note is predicting a strong job market for the U.S. According to David Payne in this month’s Kiplinger Report, the job market will continue to be strong in 2015 and beyond. Payne is expecting that monthly job gains in 2015 will average 250, 000—about 3.0 million for the year, slightly above 2014’s addition of 2.95 million jobs and that those gains will keep incomes and consumption fueling a healthy economy. And trips to the doctor.
Payne wrote earlier this year that unemployment will likely finish 2015 at about 5.3%—or roughly half the rate of October 2009.
Plovanic is now “modeling for a continued ‘rebound’ for large joint procedure volumes through year end 2014and into 2015…”
Here is how Plovanic modeled recent history:
Will Consolidation in Large Joints Continue?