The ortho market is changing faster than ever because of technology, a new financial environment, shifts in demographics, new drugs delaying elective surgeries, new regulatory hurdles, new pricing in China, and much more.
Sharing 23 mini-trends that I see this year in ortho.
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Trend #1: The Extremities Segment Leads Growth
The growth narrative in orthopedics is predominantly led by the extremities segment, with companies like Treace and Paragon 28 at the forefront. The joint sector follows closely, thanks to efforts by giants like Stryker and ZB, though the spine sector trails slightly in comparison. New categories like imaging, navigation, AI and surgical planning are hard to categorize because they make all treatments better.
Trend #2: IPO Revival Wave
The reopening of IPO window this year will see a stack of new and old companies going public. Established entities are seizing their chance to go public, alongside a surge of underdogs, driven by drying VC wells and high borrowing costs. For many unprofitable small companies the IPO market is their only chance to tap into the capital markets (even at poor valuations).
Trend #3: The GLP-1 Phenomenon
GLP-1 drugs are emerging as a potential alternative to orthopedic procedures by aiding in weight loss, presenting a new treatment avenue. GLP-1 drugs take center stage, significantly slashing obesity and diabetes rates while simultaneously diminishing the demand for surgeries across orthopedics. Read more – The largest transformational change in orthopedics is coming. Buckle up!
Trend #4: Big Ortho’s Financial Bonanza
Major orthopedic corporations like ZB and Stryker are witnessing an upturn in their financial health, propelled by robust sales growth, indicating a vibrant orthopedic market. ZB posted 6.5% revenue growth in 2023 and Stryker posted 11% revenue growth in 2023. This strong financial performance continues as the Big Orthos are shedding FTEs at a record rate and doing more efficient work with less people. Read also – Doing More with Less.
Trend #5: Sales Commission Cuts
It’s tough to be in ortho sales these days. The era of hefty sales commissions is waning, affecting many in the field as they observe a decline in their earnings and autonomy. Big Orthos like Arthrex are hiring kids right out of school to cover cases for $50K/year – baby sitting implant and instrument assets at the hospital. Welcome to the new ortho device sales model !
Trend #6: This Technological Trio is the Future
Imaging, navigation, and AI-based tools are converging to transform orthopedic diagnosis, surgical planning, and treatment personalization, aiming for improved patient outcomes. This trio will eclipse extremities as the fastest growing segment.
Trend #7: Additive to become commonplace
In 2024, 3D printing (additive manufacturing) is coming-of-age in personalized ortho medicine. Like most trends in ortho, they start slowly for years, then suddenly overnight.
Its turns out that the sweat spot for additive solutions is…. oncology, weird anatomy and poor bone quality.. and this adds up to a huge market. But in the future, additive technology will become so commonplace that people will forget about it. It reminds me of when “titanium” came to trauma (previously stain steel). No trauma company says, “we have titanium” any more.
Trend #8: Patient-Specific Everywhere
Its turns out that the sweat spot for patient specific implants and disposable instruments is 1/ oncology, 2/ weird anatomy and 3/ poor bone quality. This cohort of patients is actually bigger than anyone thought. The industry is increasingly focusing on developing orthopedic solutions tailored to individual patient needs, emphasizing personalized care. The Patient-Specific trend is driven by new technologies like design automation, quad lasers, print ing overnight, in-house heat treatment, better UI surgical planning platforms for the surgeon customer.
Trend # 9: Access to Sell Devices into Hospitals Becoming Harder
The year 2000- Surgeon – “This is the implant system that I want to use and my rep will handle everything.”
The year 2015 – Surgeon – “This is the implant system that I want to use but I first have to get it through the review system at the hospital.”
The year 2020 – Surgeon – “If you can get your implant through the VAC committee then I will use it.”
The year 2024 -Surgeon – “I no longer have influence over the VAC committee. I don’t even know who the 3rd party VAC group is. Good luck!
BONUS: Learn tips from the VAC Whisperer here (video).
Trend #10: Higher Regulatory Hurdles
If you are a US ortho company, forget about Europe. As we look at the US market opportunity, I contend that the Class III pathway in the US is not worth the risk any longer (capital risk, regulatory risk, timeline risk). Orthopedic devices are under closer regulatory scrutiny by all the regulators, ensuring market offerings are safe and perform as intended. EU used to be the first market entry, now its last.
Trend #11: Wearables Coming of Age
Wearable technology is extending beyond fitness tracking to play a significant role in patient rehabilitation, enhancing recovery processes. We will start to see real-time diagnostics with wearables and wearables used in clinical trial data collection. Don’t be surprised if Apple, MS, Google get into this space quickly.
Trend #12: Carrying Debt has become a Business Drag
In the good old days of ZIRP, ortho companies could hold debt to fuel growth. Not any more.
A/ Increased Interest Expenses: Higher cost of debt translates into higher interest payments that the company has to make on its outstanding debt. This can directly affect the company’s profitability and cash flow, as a larger portion of its earnings will be used to service the debt.
B/ Cash Flow Constraints: Higher debt costs can put pressure on the company’s cash flow, potentially limiting its ability to invest in growth opportunities, research and development, and other strategic initiatives.
C/ Capital Allocation Decisions: With higher debt costs, the company might need to reassess its capital allocation decisions. It might prioritize debt reduction over expansion, mergers, or acquisitions.
D/ Refinancing Challenges: If the company has upcoming debt maturities, higher debt costs could make it more challenging to refinance the debt at favorable terms, leading to refinancing difficulties or higher refinancing costs.
E/ Perceived Risk: Analysts and investors often assess a company’s financial health based on its debt-to-equity ratio and interest coverage ratio. Higher debt costs can increase perceived financial risk and negatively impact the company’s valuation.
Trend #13: Increased PE Shopping
Private equity firms are actively acquiring stressed companies and product lines, reshaping the orthopedic industry’s financial landscape. For example, PE Firm will probably pick up the Aesculap spine products in their “roll up” strategy. As as example, firms like Gemstone (with Zavation), Corelink, H.I.G. capital (with Zimvie Spine), Orbimed (with Xtant Medical) or Altus Capital partners (with Choice Spine) are always looking for spine assets.
Trend #14: More Effort Creating Clinical and Economic Evidence
Ortho device companies are increasingly focusing on substantiating product claims with clinical and economic evidence, emphasizing tangible value. However, I am skeptical that this changes the buying behavior of US surgeons and hospitals. Read more – The Clinical Evidence Myth.
Trend #15: Office Returns for Most Roles
The shift back to office work marks a post-pandemic return to traditional work environments in many orthopedic companies, moving away from remote setups. It turns out that creativity and innovation is better when people are collaborating in person. Read more – The status of Remote Work in Orthopedics.
Trend #16: Profitability Creates Leverage
Profitability is granting companies strategic leverage. Profitable orthopedic device companies have more resources to invest in R&D, marketing, and talent, leading to better products, stronger brand reputation, and ultimately, higher market share. While profitability isn’t everything, it provides a significant advantage in a competitive and regulated market. However, even unprofitable competitors can be nimble and adaptable, offering potential for future success if they can survive.
Trend #17: Small Meeting Re-Focus
There’s a pivot towards smaller orthopedic gatherings, focusing on education, networking, and collaboration, reflecting a shift in conference dynamics. These meeting are more intimate, more productive for the ortho device companies. Read also – NASS and AAOS are slowing dying.
Trend #18: A Shift to Long-Term Thinking
Largely due to the new financial environment, startups are focusing on building substantial, enduring businesses, and avoiding the pitfalls of premature exits. A second order effect of long-term thinking is that CEOs are strategizing for financial sustainability, aiming for cash flow positivity or breakeven in a growth-aligned manner.
Trend #19: China Pricing Drop
Ouch! If a US-based device company is selling in China. China has just installed VBP. VBP stands for Volume-Based Procurement. It’s a policy implemented by the Chinese government to reduce healthcare costs by leveraging bulk buying power. It basically provides favoritism to Chinese device manufactures and penalizes US device manufactures with an 80% price drop. VBP is like a huge tariff on imports from the US.
Trend #20: Procedures Continue to Move into ASCs
ASC-friendly designs gain traction as surgery shifts to outpatient settings. Examples include Anika’s RevoMotion shoulder and Enovis’ EMPOWR 3D knee, with features like efficient designs and navigation systems. Midsized and smaller firms in this space face growing competition from larger players entering the ASC market. This highlights the increasing importance of ASC-tailored products in orthopedics, driven by cost-effectiveness and efficiency.
Trend #21: Acceleration of Big Ortho Consolidation
In 2023, a select group of 45 orthopedic businesses surpassed the $100 million revenue mark, collectively commanding 84% of the sector’s sales. This concentration of market power underscores a clear trend: the industry’s leading players are poised to further consolidate their dominance, actively pursuing acquisitions of enabling technologies. The momentum in orthopedic mergers and acquisitions (M&A) notably picked up last year, with the completion of 29 transactions, a significant increase from the 22 recorded the previous year. These deals were particularly concentrated in the areas of spine, orthobiologics, and enabling technologies, indicating strategic areas of focus for growth and expansion in the orthopedic domain.
Trend #22: AI for Office Productivity, not for Improved Surgery Procedures
Physicians are constantly battling against the clock. AI tools for productivity offer exciting possibilities to “stretch time” and allow them to focus on what matters most: their patients. It is hard to underestimate the importance of AI. Surgeons are using tools in the clinic like DAX Copilot from Nuance Communications and it saves them 45-60 minutes a day in clinic. Smith+Nephew has a new version of CORI has an AI assistant built in to predict the surgeon’s preferred balance which is saving 14 minutes of OR time.
Trend #23: Single-Use Disposable Kits are Replacing Autoclavable Trays.
The trend of ASCs demanding more single use disposable kits is driven by several factors, including cost savings, improved efficiencies, and enhanced safety. These kits can be tailored to individual implants and offer sterile-packed inventory ready for on-demand procedures. The use of disposable instruments is not new to the medical field, but their implementation in orthopedic procedures is a recent development. In the orthopedic market, single-use instruments and kits are gaining popularity due to their ability to reduce inventory, lost instruments, and lifecycle costs. They also help to curb surgical site infections and ensure accurate torque calibration.
Navigating these trends is akin to surfing a dynamic wave – it requires agility and foresight. With technology and market shifts propelling the orthopedic industry forward, 2024 promises to be a year of significant evolution and excitement.