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Don’t expect a pandemic-related backlog in procedures to fuel sales of orthopedic medical devices this year, according to a new analysis from Needham & Co.
In a recent report, the investment bank said the backlog appears to have largely run its course Sales in 2023 of most orthopedic products will be slightly higher than they would have been if the pandemic had never occurred.
Needham calculated constant currency compound annual growth rates, or CAGRs, from 2013 to 2019 for four major orthopedic device categories and applied them to the pandemic years 2020 to 2023 to see how the products performed.
According to the analysis, the fashionable market grew the most last year. The constant currency CAGR for hip replacement products was 1.9% from 2013 to 2019. If the market had grown at the same pace during the pandemic years, sales in 2023 would have reached 6.22 billion of dollars. Needham estimates that sales in 2023 were actually $6.32 billion, which was 1.5% higher than the non-COVID estimate.
The plug market was the next best performer. Needham estimated constant currency CAGR for the period 2013 to 2019 at 1.6%, which would have resulted in sales of $9.77 billion in 2023 if they had grown at the same rate. The bank estimates that 2023 sales actually increased to $9.88 billion in 2023, which is 1.1% higher than the non-COVID estimate.
For the knee market, the constant currency CAGR was 2.7% from 2013 to 2019, with sales expected to reach $8.55 billion in 2023 as they grew at the same pace. Instead, sales reached an estimated $8.61 billion in 2023, beating Needham’s non-COVID estimate by 0.7%.
The trauma and limb market, meanwhile, has seen slower-than-expected growth. Needham estimates that the segment had a constant currency CAGR of 6.2% from 2013 to 2019. If the market had grown at the same rate during the pandemic, sales would have reached $10.31 billion in 2023. Needham estimates that sales only reached $9.54 billion in 2023, or 7.5% lower than the non-COVID estimate.
Needham noted that plant prices have improved since the pandemic, which may have led to higher-than-expected sales. “But even taking into account the improvement in prices, we believe that orthopedic market growth will likely be significantly slower in 2024 compared to 2023,” she added.
Overall, Needham expects the orthopedics market to grow 4.8% in 2024, up from an estimated 7.3% in 2023. “While most orthopedic companies outperform consensus during 2023, we believe upside could be more limited in 2024,” Needham added.
The investment bank said it still favors Enovis (NYSE:ENOV) and Alphatec (NASDAQ:ATEC) in the orthopedics and spine segments as their shares are lower and growth is expected to be driven more by stock gains than actual market growth.
Other orthopedic companies covered by Needham include CONMED (CNMD), Globus Medical (GMED), OrthoPediatrics (KIDS), Paragon 28 (FNA), Medtronic (MDT), Stryker (SYK), and Zimmer Biomet (ZBH).