Pricing pressures continue to affect spinal implant supplier revenues and we are, therefore, lowering our sales forecasts for spinal implant and instrumentation suppliers.
For the first quarter of 2010, spinal implant suppliers reported product sales of $2.283 billion, which fell just short of our 1Q10 forecast of $2.366 billion. We have therefore decreased our industry 2010 sales estimate from $9.768 billion to $9.490 billion. Revenue growth slowed sequentially for each of the last three quarters. Overall, sales of spinal implants and instruments grew 11.1%, 9.9%, and 8.6%, respectively, for 2Q09, 3Q09 and 4Q09. The trend continued in the first quarter of 2010 as growth rates declined to a 6.4% rate of year-over-year increase.
Three major trends, we believe, will affect future sales growth rates:
Pricing Pressures and Product Mix: The theme is not new, but the impact continues. Competitive pricing pressure was noted by DePuy’s management in their quarterly conference call as being one of the primary reasons behind their reported lower revenue growth rate in spine. DePuy and Integra both noted mid-single-digit price declines. Stryker, Biomet, and even NuVasive acknowledged that pricing pressures are now part of the spinal implant market landscape. Synthes discussed pricing concerns rather candidly in its first quarter conference call, noting that hospitals are reducing the number of spine vendors in order to demand price discounts. Now for the “Catch 22.” Despite the comments of competitors, Medtronic claimed that construct pricing was flat to down 1%. The question moving forward will be whether or not mix can mitigate potential price decreases, as most companies indicated that procedure volumes were stable.
CMS Payment Changes: On April 19 CMS (Centers for Medicare and Medicaid Services) issued the proposed rule for the IPPS (Inpatient Prospective Payment System) for 2011. Spine procedures fared well with lumbar fusion and vertebral augmentation procedure reimbursement increasing 4.4% and 5.6%, respectively.
Consolidations: The urge to merge is still coursing through larger company board rooms, although at, we suspect, a diminished rate. On March 1, Baxter announced that it would acquire ApaTech for total consideration of $330 million. ApaTech had $60 million in sales in 2009 and markets Actifuse, a synthetic bone graft. On March 16, Alphatec Spine shareholders voted overwhelmingly to issue new shares of common stock to help pay for the acquisition of Scient’x.
Revenue Growth Rate Declines
Revenue growth rates at larger companies slowed which pulled overall industry growth rates down. Medtronic, Synthes, and DePuy reported that revenue growth rates were 0%, 5%, and 3%, respectively, during the quarter.
In Table 1 we list and rank the quarterly sales for each major spinal implant company with our estimates for 2011 and 2012. As the table illustrates, sales of spinal implants and their related biologic products rose 6.4% in 1Q10, down from 8% growth in 1Q09. For all of 2010, we estimate that spine revenues will rise 8.0% to $9.49 billion.
Table 1: Quarterly and Annual Sales Revenue for Spine Product Companies
|
Revenue ($ millions) |
1Q 10 |
2Q 10E |
3Q 10E |
4Q 10E |
2010E |
2011E |
2012E |
|
Medtronic |
880 |
914 |
876 |
858 |
3, 528 |
3, 722 |
4, 038 |
|
DePuy |
258 |
280 |
253 |
255 |
1, 046 |
1, 121 |
1, 210 |
|
Synthes |
245 |
253 |
254 |
268 |
1, 020 |
1, 119 |
1, 231 |
|
Stryker |
141 |
155 |
152 |
168 |
616 |
687 |
759 |
|
Zimmer |
60 |
65 |
64 |
69 |
257 |
281 |
311 |
|
Orthofix / Blackstone |
74 |
78 |
77 |
82 |
311 |
348 |
388 |
|
Biomet |
56 |
65 |
64 |
66 |
251 |
272 |
294 |
|
NuVasive |
109 |
116 |
130 |
142 |
497 |
626 |
790 |
|
Globus |
76 |
85 |
85 |
102 |
348 |
460 |
598 |
|
Alphatec |
38 |
61 |
57 |
66 |
222 |
259 |
298 |
|
Pioneer Surgical |
32 |
34 |
33 |
35 |
134 |
158 |
179 |
|
K2M |
27 |
28 |
28 |
29 |
112 |
129 |
157 |
|
Osteotech |
11 |
12 |
12 |
13 |
48 |
51 |
54 |
|
Orthovita |
24 |
27 |
26 |
28 |
104 |
122 |
144 |
|
ArthroCare |
4 |
4 |
4 |
6 |
19 |
28 |
35 |
|
Scient’X |
15 |
– |
– |
– |
– |
– |
– |
|
SeaSpine |
18 |
19 |
18 |
20 |
75 |
89 |
105 |
|
RTI Biologics |
7 |
7 |
11 |
12 |
37 |
42 |
43 |
|
U.S. Spine |
12 |
12 |
12 |
13 |
50 |
58 |
65 |
|
Integra Spine |
11 |
12 |
12 |
12 |
46 |
52 |
59 |
|
Trans1 |
7 |
6 |
7 |
7 |
27 |
29 |
31 |
|
LDR |
13 |
13 |
13 |
14 |
53 |
73 |
93 |
|
Spinal Elements |
8 |
8 |
8 |
9 |
33 |
41 |
49 |
|
MEDICREA |
5 |
6 |
6 |
7 |
23 |
30 |
40 |
|
Exactech (Altiva) |
2 |
2 |
1 |
2 |
7 |
8 |
8 |
|
Other |
150 |
157 |
155 |
166 |
629 |
714 |
809 |
|
Total Revenues |
$2, 283 |
$2, 418 |
$2, 357 |
$2, 448 |
$9, 490 |
$10, 519 |
$11, 789 |
|
Total Growth |
6.4% |
6.9% |
8.6% |
10.5% |
8.0% |
10.8% |
12.1% |
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
We believe that 2010 will be the trough in spinal implant and instrumentation sales growth rates. Despite the current pricing pressures, procedural volumes will, we believe, continue to grow steadily due to a number of powerful factors including obesity, diabetes, aging and the increasingly sedentary lifestyle in the U.S., Europe, Japan and the rest of the world. By 2012 a combination of new, more effective technologies combined with higher procedure counts throughout the world will drive sales growth rates up significantly to 12% year-over-year.
In Table 2 we display specific company market share gains or losses for the first quarter of the year. NuVasive and Globus gained, we estimate, the most market share points rising 1.1% and 0.8%, respectively in the quarter. Of the 11 major spinal implant companies we follow, five reported market share gains and six reported sales that indicate market share declines. The greatest market share decline, we believe, was reported by, Medtronic. We are currently forecasting that Medtronic will return to market rates of sales growth in 2012.
Table 2: Market Share Changes
|
Company |
1Q09 |
1Q10 |
Est. Market |
|
NuVasive |
3.7% |
4.8% |
1.1% |
|
Globus |
2.5% |
3.3% |
0.8% |
|
Alphatec |
1.4% |
1.7% |
0.2% |
|
Stryker |
6.0% |
6.2% |
0.2% |
|
Orthofix |
3.1% |
3.2% |
0.2% |
|
Biomet |
2.5% |
2.5% |
0.0% |
|
Trans1 |
0.4% |
0.3% |
-0.1% |
|
Synthes |
10.9% |
10.7% |
-0.2% |
|
DePuy |
11.7% |
11.3% |
-0.4% |
|
Zimmer |
3.0% |
2.6% |
-0.4% |
|
Medtronic |
41.1% |
38.6% |
-2.5% |
Source: PearlDiver estimates, Wall Street reports, SEC filings
Next week, we review the first quarter sales performance for major suppliers of spinal implants and instruments and then also provide a brief company specific outlook for the remainder of 2010.
Chart 1: Spine Market Shares (1Q10)
Matt Menze – Spine – For more articles by this author, please select the following link: http://www.pearldiverinc.com/pdi/spine.jsp.
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