05.29.08
Anatomy of the Small-Joint Sector: Small Devices, Big Growth
The extremities market plays catch-up as opportunity knocks for manufacturers.
Jennifer Whitney
The largest bones are easiest to spot because they are the most prominent. But a close look at areas such as the hands and feet reveals an intricate network of tiny structures—each hand, for example, has 27 bones, while each foot has 26. Together, the hands and feet contain more than half of the body’s total bones.
The INBONE Total Ankle represents a new generation of motion-preservation implants for extremities. Photo courtesy of Wright Medicsal Technologies. |
Given those numbers, it could be easy to dismiss extremities. But an examination of some other recent figures in the industry shows a more remarkable trend that is becoming increasingly apparent every year. The extremities segment is growing at a rate of 15% annually, data from Health-pointCapital show.
In some ways, this should come as no surprise. According to research firm Frost & Sullivan, more than 50% of doctor visits and nearly 24% of all orthopedic surgeries performed in the United States are related to small bone and joint problems.
“Opportunities are definitely mounting in the treatment of small bones and joints in the extremities. In recent years, the market for small joints has shown a lot of growth, especially the shoulder segment,” said Frost & Sullivan Industry Analyst Aarti Shetty. “A major factor that has contributed to this growth is the growing awareness among the population about joint replacement procedures and their positive outcomes. Basically, treating disabilities related to extremity joints enables the patient to perform better activities of daily living, and it is this awareness that is contributing to high growth rates.”
Of course, patients can’t demand what is not yet available to them. Recognizing the market potential, an increasing number of companies have joined the ranks of manufacturers rolling out new solutions to the problems that often afflict extremities.
The Players
It’s no secret that the orthopedic giants in the field—Stryker, Zimmer, Smith & Nephew and several others—dominate the hip and knee reconstruction businesses. Some of the market’s largest global companies, such as Biomet and DePuy, also have diversified their portfolios with an array of small-joint solutions. Unlike the large-joint market, however, the extremities segment has a much more diverse group of companies vying for position as small-bone innovators—they may not be household names, but organizations such as Tornier, Arthrocare, Ascension Orthopedics and BioPro have found a niche in this market.
Products and techniques have been available for many years to treat common ailments such as bunions or rotator cuff injuries. But it’s only been in the past five years that the industry has seen a solid focus on the small-joint sector. Notably, 2004 marked a major peg in the milestone timeline for extremities.
It was in March that year when DePuy, a Johnson & Johnson company, announced the creation of its Trauma and Extremities Group in Warsaw, IN. Although many of the products overseen by that division weren’t new, DePuy’s strategy, as noted by the company’s media releases at the time, was to better structure the organization to meet the needs of surgeons while more closely aligning sales objectives in the extremities market.
In the same year, principals from Viscogliosi Brothers, LLC, a New York, NY-based investment firm focused on the musculoskeletal industry, were busy launching what’s now one of the most well-known operations in the small-joint sector, particularly given its fitting name: Small Bone Innovations (SBi). As a vertically integrated company with a wide-ranging portfolio of products, the company was one of the first to focus on this sector. Through the acquisition of various small, but established, companies in the United States, Europe and Canada, SBi has won numerous awards for its entrepreneurial approach to a less-tapped market. Within 30 months of opening its doors for business, the company added at least 61 product systems involving arthroplasty, trauma and tissue technology.
It wasn’t just the smallest and largest companies targeting this market, though. Plenty of midsize companies have entered the mix as well.
For example, Tornier, an orthopedic device company based in Edina, MN, was looking for opportunity and alternative market segments in the United States. The company’s executive strategists realized the extremities market—though not large—had plenty of opportunities and could pave a different, yet profitable path. Recent expansion in the United States and successful acquisitions have created a venerable specialty brand with focus and momentum.
“The extremities market is significant for Tornier but perceived to be small compared with other [major] orthopedic areas. Having said that, this extremity market will become increasingly defined, and we see enormous opportunity and potential to grow and excel as the leader in this area. Our vision is to be recognized as the single best ‘specialist’ brand in orthopedic extremities and the standard by which other products, services, education and surgeon training are compared,” explained Tim Cahill, Tornier’s vice president of marketing.
Photo courtesy of Ascension Orthopedics. |
“This market formerly was the red-headed stepchild, and now companies are seeing the opportunities there—you can make profits in a short amount of time,” Cahill told Orthopedic Design & Technology. With $100 million in sales in 2006, Tornier grew sales 34% that year compared with 2005.
Another mid-tier player that understands the value of the small-joint market is Wright Medical Technologies of Arlington, TN. In mid-2006, when Gary Henley left his post at Orthofix to serve as CEO of Wright Medical, he and other executives on his team viewed extremities as a fragmented market that offered the company an opportunity to dominate the foot and ankle segments, among others.
Along with its hip and knee portfolios (the company’s main source of income), in the past two years Wright has achieved its goal of being the market leader in foot and ankle and is a top seller in segments such as hand, wrist and shoulder. The original strategy has paid off handsomely: In the fourth quarter of 2007, Wright’s extremities business posted a 61% sales increase compared with the same period in 2006; and for full-year 2007, Wright reported 38.3% growth in its extremities business compared with 2006.
“Smaller companies realize there’s larger dollar opportunities in the extremities space, while [many] bigger companies are so big that a $5 million opportunity product doesn’t necessarily move their needles,” said John Treace, vice president of Biologics and Extremities for Wright Medical. “The smaller opportunities that present themselves in extremities that bigger companies overlook are very important to us.”
The Drivers
Those opportunities come at a time when aging populations worldwide are clamoring for relief from the aches and pains that come with growing old. Just as the hip and knee replacement markets have benefited from baby boomers seeking advanced technology that will help them stay active, the extremities segment has found a niche with consumers who are unsatisfied with pharmacologic remedies to their various ailments.
For one, the aging process often brings with it arthritis, a painful, chronic condition marked by the degeneration of bone structures and inflammation of tissues surrounding them. Arthritis also is prevalent among younger populations: Nearly three out of five people who suffer from arthritis are younger than 65. As one of the most common diseases in the United States, an estimated 70 million people are affected by one of the more than 100 types of arthritis, according to the Centers for Disease Control and Prevention (CDC).
“Twenty to 30 years ago, we thought there would be a cure for arthritis and there still is none. In the foreseeable future, we see a need for creative solutions to these maladies. Patients are looking for better solutions, and they’re not going to be happy with pain,” noted Andy Miclot, president and CEO of Ascension Orthopedics, an orthopedic extremities company based in Austin, TX that focuses on treating arthritis.
Along with aging populations, Americans’ expanding waistlines are playing a role in the growth of small-bone solutions. Obesity can impact a number of bones, particularly those in the ankle and foot. As Treace noted, every extra pound on the body applies more force on the foot, which impacts tendons and other support structures. Over time, these problems can lead to deformities that need to be surgically corrected.
The shoulder market is the third-largest segment in orthopedic implants today. The growth rates for shoulder products are higher than hips and knees (the market leaders), though, and only should continue, given advancements such as Tornier's Aequalis Reversed Shoulder (available in Europe). Photo courtesy of Tornier. |
With all those bones in the feet, Treace additionally noted that consumers of all ages also seek effective treatments for deformities such as flat feet, bunions and hammer toes and, as a whole, undergo an estimated 150,000, 500,000 and 1 million surgeries, respectively, annually to correct them.
Moving up the body, the shoulder market has been growing the most aggressively. The shoulder is the third most frequently replaced joint after hip and knee, according to Frost & Sullivan, and more patients are turning to arthroplasty and resurfacing procedures to treat rotator cuff injuries, among other conditions.
“Shoulder joints are definitely predicted to have the highest growth rates compared to the other smaller joints. Though the shoulder replacement market has been in existence for many years, its growth has not been in step with the growth in the hip and knee joint replacement markets, and we are seeing a change in this scenario now,” Shetty explained. “Total shoulder replacements are not a common procedure among the younger population, [but] there is an increasing young population base with enhancement in partial replacement methods in hip and knee implants. A similar trend in the shoulder implant market is also expected.”
With all these niches developing in the orthopedic market, it is not surprising that shifts in the surgeon ranks also are playing a large role in the overall growth seen in extremities, according to several experts who spoke with ODT.
“You’ve got a population of surgeons looking to carve a niche in their practices, and the extremities space is offering opportunities to them,” Cahill said.
The result, manufacturers have found, is that orthopedic physicians increasingly are specializing in one or two areas, rather than serving as a general orthopedic practitioner.
“We’re starting to see a focus on specialties, whereas in years past you’d have an orthopedic surgeon who did whatever came along,” Cahill added. “Now, if you have a shoulder issue, for example, you’re going to see a shoulder guy. If you had a problem with your back, do you want to see someone who primarily does knees or do you want someone who does spine surgery? It’s appealing to patients, and surgeons can use specializing as a marketing arm.”
The Strategies
Given the specialization, manufacturers said tailored marketing plans and other activities designed to secure relationships with orthopedic surgeons will play a major role in driving the overall growth of the small-joint market in coming years.
For example, Wright has tripled the size of its research-and-development, marketing and sales staff in an effort to ramp up attention toward the foot and ankle market and other extremities segments. Furthermore, the company has increased its medical education programs for surgeons. Using large, tour bus-style trucks, Wright has developed mobile cadaver laboratories that are used at professional society meetings to train surgeons on the latest techniques using Wright’s product platforms.
“It’s been a huge initiative, and it brings value to the society and loyalty from physicians,” Treace said. “After all, how else do you make sure that all the doctors know how to use your products?”
Education has been the backbone of the industry’s strategies moving forward. But it’s not just about educating professionals; it’s also about educating consumers. Tornier has found that patients are taking their research beyond discussions with doctors and are looking for additional information from manufacturers. Thus, companies such as DePuy—which offers extensive consumer resources such as JointReplacement.com, MyShoulderReplacement.com, My-anklereplacement.com and Finger-Replacement.com—have launched a myriad of sponsored portals on the Internet to provide the educational feedback consumers seek.
“We have many more patients going to our Web sites, and I’m amazed at the level of questions they are asking, the depth of the research they are doing.” Cahill of Tornier said. “They’re looking at outcomes and trying to get the best information possible before determining who will do the surgery.”
Sales forces also are expanding to provide expertise to surgeons. In Wright Medical’s initial examination of the market, the company had found that reconstruction surgeries often require more than one procedure and an array of instruments and devices, and that surgeons often work with several sales representatives from various companies to gather all the products needed. The solution Wright enacted was to simplify surgical operations by developing all-encompassing systems requiring little overlap from various manufacturers.
“If you talk to surgeons, they’re thinking that six or seven reps have the right equipment for the surgery. We’re trying to take that down to maybe one or two,” Treace said.
Ascension Orthopedics similarly has focused on developing delivery systems designed to facilitate quicker and easier surgeries, which benefit both patients and doctors. Miclot, who has held a variety of senior positions at leading companies including DePuy and Zimmer, has brought experience to Ascension gleaned from his 13-year tenure with Symmetry Medical, an orthopedic manufacturer with a long history in case and tray design. Along with Ascension’s device platform, the company has been developing new delivery systems that contain ergodynamic instruments that are easy to use, minimally invasive and laid out in a manner that helps the surgical team clearly identify each item.
The company also has beefed up its staff in 2008, compliments of $21 million in Series D financing in January from its majority investor, Frazier Healthcare Ventures. Miclot joined the company shortly after this funding came through, and along with other new hires, Ascension most recently appointed a global sales executive to accelerate the company’s development of extensive training programs for surgeons and sales representatives. “We’re on a hiring frenzy right now,” Miclot said.
Along with organic growth, many of the more established players in the extremities market have been acquiring emerging companies and product portfolios. Wright Medical, for example, recently acquired INBONE Technologies Inc. to expand its presence in the ankle market, while Tornier has been busy in the past couple of years snapping up emerging companies such as Nexa Orthopedics, BioProfile and DVO Extremities Solutions. SBi, built on a foundation of acquiring new technologies, most recently acquired the Scandinavian Total Ankle Replacement system (known as the S.T.A.R. Ankle) from the German firm Waldemark Link GmbH and Company KG.
The Future
Regardless of how they choose to grow, orthopedic firms rolling out new products in the extremities market certainly will face some challenges ahead. Patients are pleased to have new (and improved) options to treat their ailments with surgery if other methods fail, but many would prefer to explore pharmaceuticals and physical therapy first and avoid going under the proverbial knife.
Reimbursement also is a pressing concern for any small-joint manufacturer. Early generations of products in this market often have produced poor long-term outcomes, and while newer advancements appear to solve many of the problems plaguing traditional treatments, payers have been wary of approving coverage for these procedures. The ankle market particularly has faced an uphill battle even as it grows more crowded with cutting-edge technology. Where patients formerly only had the option of undergoing fusion procedures to treat ankle disorders, now an array of motion-preservation technology has become available, but payers have been hesitant to grant coverage until better outcomes are proven, according to Tornier’s Cahill. Furthermore, Treace noted that manufacturers face an uphill climb in convincing a surgeon who’s used to performing a 45-minute fusion procedure to switch to a three-hour surgery for a total ankle replacement if the reimbursement rate is comparable for both.
Although these concerns are at the forefront of any company investing in this market, technology advancements undoubtedly will be the most obvious driving factor moving the small-joint sector forward. The larger companies will continue to diversify their product portfolios in an attempt to remain competitive as more mature large-joint markets slow a bit (at least in the near term), but their investments in small joints may be limited, given that they have less incentive to create a wide array of solutions for the relatively smaller number of procedures performed on extremities. Still, these companies’ ample resources may make it a bit tougher for the little guys to grab a firm foothold in extremities. That said, Frost & Sullivan’s Shetty believes the industry cannot discount the immense potential emerging companies have in gaining momentum.
“Smaller participants have limited resources compared to the giants in the market, and their ability to extract maximum from their assets will be the deciding element in gaining a larger share of the orthopedic market,” Shetty said. However, she added, “Smaller emerging companies that have the ability to bring to the market some truly innovative products in terms of design, materials used, product ease of use and patient comfort will definitely emerge as shining stars.”
Ascension Orthopedics, which has been in operation for more than 10 years, is one such smaller company that believes it has what it takes to prosper and is moving forward with several new product launches this year.
“Nobody can really tell the future,” Miclot said. “But as long as we’re servicing the patient, we’re going to keep growing.”