In general, the industry’s largest supplier of spinal implants, instruments, intelligent devices and, increasingly, services is having a good year. Aside from some hiccups due to Hurricane Maria in Puerto Rico, Medtronic Spine grew sales at roughly twice the industry rate in 2017.
Infuse, which has had more than its share of specious payer and journal shenanigans, sold 4% more in 2017 than in 2016—and more in 2016 than in 2015.
After nearly a decade of declining market share, Medtronic Spine, with approximately 31% market share, is growing.
By contrast, the #2 supplier, DePuy Synthes (with the emphasis on Synthes) is, to use a Wall Street term, donating market share.
Industry-wide, sales of spinal implants, instruments, intelligent devices and services, are growing 1.5-2.0% a year—which is the same rate found in the metalworking machinery (+1.4%), luggage and leather goods (+1.7%) and paper industries (+2.0%), for example.
But spine is a technology industry, and a highly regulated one at that, which makes the challenges facing every spinal implant supplier particularly complex.
And makes Medtronic Spine’s accomplishment so notable.
Market Share Estimates for 2017
Six companies command 80% of the market for spinal products. They are Medtronic Spine (31% share), DePuy Synthes (18%), NuVasive (11%), Stryker Spine (8%), Globus Medical (6%) and Zimmer Spine (7%).
The balance of the industry is divided among approximately 350 companies worldwide.
Who’s Up, Who’s Down for 2017
Most spinal implant companies will report better sales in 2017 than in 2016—with some notable exceptions. DePuy Synthes, Stryker and “Other”—which combined represent 39% of the market—will report a decline in sales for 2017.
Here is a company by company 2017 summary and sales forecast for 2018.
Alphatec Spine, Inc.: With former NuVasive VP of Sales, President and Co-Chair Pat Miles at Alphatec’s helm could the revolving door in the C-Suite be over? Employees and customers certainly hope so. Miles played one of the largest roles in building NuVasive and has a reputation for managing and motivating sales and distribution networks. The task at Alphatec is daunting. The ship has been listing for quite a while. Needed: sexy, differentiated technologies, better sales and distribution, a corporate makeover and profits. The good news is that Miles can get all that done…and more.
Consensus 2018 Sales Estimate: $100 million. No Growth. Chance of upside surprise—excellent.
Globus Medical, Inc.: Globus Medical’s growth rate dipped in 2016 and, most analysts expect, will bounce back strongly in 2017 (see chart at the end of this section). Globus’s growth really revolves around three key elements: emerging technologies like robotics, the new trauma line launch and the company’s growing ability to manage its sales and distribution network—meaning less attrition and more growth. Former CFO and President of Emerging Technologies, Dave Demski, is now CEO of the company. Demski took over after founder David Paul stepped back to attend to health issues. Most exciting is the Excelsius GPS Robotic and Navigation System. Wall Street thinks Excelsius will be a significant contributor to sales growth in 2018. Management has been telling analysts that there is strong interest in Excelsius from surgeons. We also heard similar stories from Medtronic and Mazor. It’s obvious that surgical robotics in spine is a hot topic with surgeons and their clinics. In trauma, Globus has FDA clearance for five product lines and, of course, has many more winding through the FDA gauntlet. Management is building sets and aggressively hiring for full commercial launch in 1Q18. Finally, we can’t help but note—as we always do with Globus—that operating profit margins cleared the 35% of sales level. Tops in all of spine.
Consensus 2018 Sales Estimate: $679 million. 8.60% growth. Chance of upside surprise. Modest.
DePuy Synthes: It was a rough third quarter this year. DePuy Synthes’ Q3 adjusted spine sales growth rate was -6.6%, which came on the heels of the second quarter’s -5.2%, and -3.4% in Q1. Most analysts attribute the poor performance to U.S. market share declines due to particular product gaps. U.S. sales declined in the third quarter by 9.2%. Most analysts think that DePuy Synthes “donated” spine market share to NuVasive, Globus or K2M. With Globus launching a trauma line in 2018, the challenge is clearly on for DePuy’s management. On the positive side, DePuy management showcased a full line of innovative MIS solutions—Viper and Concorde. Eventually, MIS will be 50% of all spine procedures. In addition, the recently acquired Rosa Robot attracted good interest at NASS.
Consensus 2018 Sales Estimate: $1,690 million. -1.0% growth. Chance of upside surprise. Low.
K2M, Inc.: K2M’s growth rate, while higher than average, has been trending down. In 2017, most analysts expect, K2M will post $256 million in sales, up 8.2%. Most analysts think that the key to growth in 2018 will be: BACS, 3D printing, new cervical offerings, MIS, and Navigation with BrainLAB. BACS stands for Balanced Axial Coronal and Sagittal alignment and consists of four components: 1) data management, 2) preauthorization planning, 3) surgical planning, and 4) 3D modeling. As for profits…none in sight. Losses this year are expected to reach $35 million.
Consensus 2018 Sales Estimate: $283 million. 10.60% growth rate. Chance of upside surprise. Low.
Medtronic Spine: With Mazor’s robot in the hands of Medtronic’s sales force (the largest in spine), with biologic products growing at 4-6% annually, with several product innovation investments now paying off, Medtronic Spine is back. As Doug King, Spine’s President told OTW a couple months back, the key to Medtronic Spine’s rebound was investment in R&D and innovation. And, we would add, stability at the leadership level.
Consensus 2018 Sales Estimate: $3 billion. 2.0% growth rate. Chance of upside surprise. Modest.
Mazor Robotics Ltd: Mazor was the first robotics company for spine surgeons. This Israeli-based company is in the tradition of such other famous success stories as Given Imaging or Omrix. Building on its leadership position, Mazor released the first major study of the effect of robotic-guided surgery. The 379-patient, prospective study was conducted at 10 sites and provided strong evidence that using the Mazor Renaissance lowered surgical complications 5x and dropped revision surgeries 7x, compared to freehand-based minimally invasive lumbar fusion surgeries.
Consensus 2018 Sales Estimate: $70 million. 14.70% growth rate. Chance of upside surprise. Excellent.
NuVasive, Inc.: The lawsuit between NuVasive and its former President Pat Miles (now at Alphatec) has been messy—with some internal dirty laundry finding its way into the blogosphere. Recently, NUVA received a subpoena from the Office of the Inspector General regarding issues over Medicare and Medicaid claims. Its market value has fallen from $4 billion to $2.5 billion. And NuVasive’s former distribution coordinator, Aaron Arboleda, filed a class-action lawsuit October 31 against the company. Too many distractions.
Consensus 2018 Sales Estimate: $1.09 billion. 5.70% growth rate. Chance of upside surprise. Good.
Orthofix Spine: Big sales growth rate jump in 2017—up 11.52%. Under CEO Brad Mason’s leadership, Orthofix has really settled down, stuck to its knitting and steadily posted up solid quarterly sales numbers. The company is now debt free and routinely beating Wall Street’s expectations.
Consensus 2018 Sales Estimate: $87 million. 8.20% growth rate. Chance of upside surprise. Good.
SeaSpine Holdings Corporation: Two of the three people who built NuVasive into the billion dollar spine company it is today are at smaller, emerging growth spine companies. Keith Valentine, former president of NuVasive has been at SeaSpine’s helm for a couple years and the turnaround is just beginning to show. And, of course, Pat Miles is at Alphatec. SeaSpine reversed several years of declining sales this year and is expected to post a 1.0-2.0% rate of growth for 2017. Particularly noteworthy is SeaSpine’s new NanoMetalene technology which is pure titanium but with the ability to completely bond with PEEK implants.
Consensus 2018 Sales Estimate: $137 million. 4.40% growth rate. Chance of upside surprise. Excellent.
Stryker Spine: Like DePuy Synthes, Stryker Spine had a rough third quarter this year. Sales declined in Q3 by 3.8%, which was after a 2.1% decline in Q2. Stryker’s other business units, notably large joint recon and neuro, are growing well and spine is kind of hidden under all the other good news. Indeed, not being in the spotlight at the moment may be helpful. No doubt, all suppliers are dealing with difficult reimbursement headwinds and the need for innovative products and approaches has never been stronger. No one understands how to tackle those issues better than the team at Stryker.
Consensus 2018 Sales Estimate: $750 million. 0.50% growth rate. Chance of upside surprise. Excellent.
Zimmer Spine: Zimmer’s acquisition of Texas-based LDR delivered outstanding revenue growth in 2017, as well as, of course, the MobiC disc arthroplasty product line. LDR’s management has integrated into Big Blue—they were everywhere at NASS. And we hope that their brand of entrepreneurial, innovative management is getting the support it deserves—2018 will be a key year for Zimmer Spine.
Consensus 2018 Sales Estimate: $680 million. 2.0% growth rate. Chance of upside surprise. Low.
Spine Is a Slow Growth Industry
A recent survey of 50 spine surgeons by Adam Maeder of Wells Fargo Securities confirmed that spine will continue to face the same challenges that have slowed growth over the past decade. Specifically, Maeder found most surgeon respondents are not expecting a significant increase in surgical volumes this year or next. Furthermore, they said that reimbursement is even more problematic now than it was in past years. The main bright spot is new technology—namely robotics, expandable cages and 3D printed implants.
And, we note, companies are increasing their spending on R&D.
Maeder also reported that 60% of his survey respondents have seen a year-over-year increase in fusion volume although it was in the low single-digit range. Fifty-six percent of the respondents reported significant or incremental increases in payor pushback for lumbar procedures.
No one, it seems, expects reimbursement to improve in 2018.
Bottom Line
This is not the same industry it was ten years ago. There is almost no margin for error and companies must do several tasks excellently. Companies must not only bring novel solutions to their surgeon customers who are themselves undergoing significant change, but do so while also charging less and making a credible case for better patient outcomes.
