Growth Spurts

Growth Spurts

The trauma and minimally invasive surgery markets show the most promise for future growth as younger patients seek techniques that require minimal recovery time and retirees deal with the consequences of aging bones.

Michael Barbella

Managing Editor

Phil Simms took quite a beating during his reign as the New York Giants’ star quarterback, both on and off the field. He endured the curses and jeers from diehard fans during the team’s losing streaks (it never bothered him, he famously told a New York Times reporter) and daringly fended off super-sized opponents during championship runs. Simms’ teammates and coaches liked to describe him as soft-spoken but tough.

How tough? In a playoff game against the San Francisco 49ers, as Simms threw a pass to the right corner of the end zone, a 248-pound defensive end tackled him. Simms’s head bounced off the artificial surface, which at the time, consisted of cement covered in plastic.
Without missing a beat, Simms got up and walked over to the bench, where a teammate informed him that he’d just completed a touchdown pass. “A lot of quarterbacks will duck or throw it away,” defensive tackle Jim Burt recalled in a January 1987 Times Magazine feature. “Phil stood in there and that’s why he’s a great quarterback. When the guy’s barreling down and Phil knows he’s gonna get it, that’s when he makes the great plays.”

To make those great plays, however, Simms often had to risk injury. His list of game-related bruises included a torn knee ligament, a serious elbow injury, a fractured thumb, a separated shoulder and a broken foot. In fact, one of the only body parts that remained intact during Simms’s entire 14-year NFL career was his back.

Then last fall, that body part also made the injured list—Simms woke up one day with tightness in his back and left thigh, typical symptoms of stenosis and disc herniation. The retired Super Bowl champion tried to alleviate the pain by resting, undergoing physical therapy and taking injections of epidural steroids, but nothing worked. At one point, he couldn’t walk more than 20 or 30 yards without stopping.

Simms eventually opted for surgery. Within days of undergoing the procedure, Simms was pain-free and walking a mile on the treadmill.

Injuries such as lumbar stenosis—a condition caused by the narrowing of the spinal canal (central stenosis) or vertebral foramen (foraminal stenosis)—is not a condition that is exclusive to retired sports stars. Orthopedic surgeons expect the disorder to more than double over the next nine years as baby boomers confront the harsh realities of their aging bodies and contend with afflictions such as osteoarthritis and degenerative disc disease. The world’s aging population will become one of the most significant drivers of growth in the orthopedic industry over the next several decades, though certain sectors are projected to grow at a faster rate than others.

To determine the areas with the most growth potential,Orthopedic Design & Technology recently spoke to several industry professionals, including:

• Bruce Carlson, publisher at Kalorama Information, acompany that provides market research for the medical device, biotechnology, diagnostics, healthcare and pharmaceuticalindustries.

• Farhad Foroughi and Deanna Vankessel, principal analyst andsenior analyst, respectively, at Millennium Research Group, aDecision Resources Inc. company that provides medicaltechnology market intelligence and strategic information to thehealthcare sector.

• Wellington K. Hsu, M.D., an assistant professor with a jointappointment in the Department of Orthopaedic Surgery andDepartment of Neurological Surgery at NorthwesternUniversity’s Feinberg School of Medicine in Chicago,Ill. His areas of specialty include degenerative spine surgery,cervical spine surgery, spine trauma/spinal cord injury, spine tumors and spinal infections.

What sectors within the orthopedic industry will experience significant growth over the next five years?

Bruce Carlson: One area that is hot is trauma. That is where you are going to see double-digit growth rates, possibly around 11 percent. Part of the reason for that is it’s tougher for hospitals to apply some of the cost savings pressures that they apply in other areas because many of the products such as screws, nails and fixation systems are used in emergency [surgical] procedures.The smart orthopedic companies have discovered that if they go after some of these trauma products there’s better growth to be had.

Foot and ankle procedures, as well as those for the shoulder and hand, are not as common as spinal procedures or hip and knee replacements but those areas are becoming more established and will grow very fast. Those markets might grow 7 or 8 percent annually, where your standard hip and knee procedures might grow an average of2 percent each year.

Farhad Foroughi and Deanna Vankessel: In the United States, overall orthopedic device market growth has slowed; however, some segments are set for significant growth. In the trauma device market, plate and screw devices are forecasted to grow at a 13 percent compound annual growth rate (CAGR) through 2015, while the adoption of intramedullary nails will rise at a rate of 11 percent. Another sector that will see growth is the market for extremity devices (consisting of reconstructive implants, trauma, soft tissue repair and biologics) for the shoulder, foot and ankle, and hand, wrist, and elbow; this sector is forecasted to grow at a 10 percent CAGR in the next five years. Additionally, minimally invasive (MI) spinal fusions will grow above the overall spinal fusion segment at a CAGR of nearly 10 percent compared to -1 percent.

Wellington Hsu, M.D.: In the last five years the sector with the biggest growth in spine and orthopedics was in the biologics/bone graft substitute arena. In spine fusion, trauma and other areas, successful bone healing or bone fusion is required for a good outcome. The advent of newer technologies especially over the past five years has negated the need for an autograft, so patients actually do better because they have less hip pain and less blood loss due to the fact they don’t need a second procedure. Surgeons now have material available to them that forms bone. One of the most successful and profitable products is called BMP (bone morphogenetic protein), which has become a billion-dollar business that has revolutionized the way we perform spine surgery.

The other sector I would say has grown is cervical disc arthroplasty. We traditionally perform neck fusions to improve patients’ neck and arm pain. But we have recently seen the development of artificial discs that can preserve the motion at the area where we do surgery.
The first total disc arthroplasty that was approved by the FDA (U.S. Food and Drug Administration) came in 2007 and since then there have been two additional ones approved.
So now there are three FDA-approved artificial disc prostheses. That has been a growth both among patients and among surgeons who use it.

These two areas—biologics/bone graft substitutes, and cervical disc arthroplasty—as well as minimally invasive surgery – will experience significant growth over the next five years. There are new and better techniques on how we deliver surgical care that involves less morbidity and quicker recovery times to patients who are candidates. Minimally invasive procedures represent a very large area of growth because its use is more mainstream with each year that passes. When I started, there were only three or four spine surgeons that performed minimally invasive procedures worldwide. Now roughly 10 percent to 15 percent of surgeons are trained to perform minimally invasive procedures. I expect that number to grow exponentially because the younger and newer generation of surgeons are now looking for a minimally invasive piece to their education. They realize that outcomes can be improved in a certain patient population.

What factors are driving growth in these sectors? Have these factors remained constant or have they changed?

Carlson: The aging population is a huge growth driver. The world’s population is aging fast, and that is a significant factor. The sad fact is, as people get older, they are much more susceptible to fractures and bone diseases such as osteoarthritis.

Foroughi and Vankessel: Market growth in these segments is being driven largely by innovation. For example, the introduction of new anatomic plates that allows for the treatment of new indications in the plate and screw market has driven prices and procedures. Furthermore, the ongoing trend towards MI surgeries due to the benefits of these procedures over open (i.e. less blood loss, less scarring and tissue damage, faster recovery) has driven growth of intramedullary nails and MI spinal fusions.

Hsu: Historically, surgeons have used iliac crest bone graft for spine fusion, which is the gold standard when it comes to forming bone. But the percentage of surgeons who use it is dwindling. Five to 10 years ago if you polled spine surgeons on who takes iliac crest autograft during a spine surgery, about 80 percent did that. Now, five years later, the percentage is 20-30 percent. Plus, more studies have demonstrated that patients have pain after this procedure even two years after the surgery. As a result, I think more surgeons will avoid iliac crest bone graft in the future. Those surgeons who are looking for new biologic substitutes for autograft will increase the demand for novel biologics products.

Cervical disc arthroplasty is becoming more mainstream as more disc implants are approved. With three implants that are approved currently, I think we’ll see an additional two implants [approved] each successive year. With each successive implant, there are improvements in design, implantation technique, and efficiency. One of the reasons it’s not being used universally now is that it is slightly more difficult to put in than a fusion. As we increase our technology and our understanding of that technology, it will become widely adopted across the board.

Will some sectors grow more than others? If so, which ones? Why will these sectors outpace growth in other areas?

Hsu: The evolution of foot and ankle and shoulder surgery techniques is early at this point because they are very young fields. Ten years ago we didn’t see a lot of foot and ankle or shoulder specialists. Generalists included those areas in their repertoire, but we’ve become a much more specialized field. There are surgeons who just operate on the shoulder now, or operate only on the ankle now, and the advancement of improving surgical techniques in those fields has grown probably because of the nature of specialization. The patient population is getting younger so patients in general are becoming less tolerant of pain because they want to stay active. Shoulder and ankle arthritis have been around forever but we have better techniques to tackle these problems now than we did a decade ago, and that allows surgeons to become more aggressive and offer surgery to these patients.

Please discuss some of the challenges facing orthopedic companies thatpotentially could benefit from the growth in these various sectors.

Carlson: There’s an aging population that is creating a market for osteoarthritis treatment and other conditions that can weaken the body’s musculoskeletal system, but hospitals are more cautious now and they have a more stringent review process. They’re starting to limit how many procedures can be done and how much equipment can be purchased. A lot of companies are reporting pricing pressure; Stryker and Zimmer have warned about pricing pressure in the spine space. In hips and knees, companies face the same challenge. It’s a $14 billion sector, but hospitals are looking for economic and clinical justification for every product that is used and for every procedure that is performed. It all comes down to who is going to pay for it.

Foroughi and Vankessel: In the United States, the introduction of comparative effectiveness research has resulted in both surgeons and insurance providers requiring more clinical data to prove superior clinical benefits of new products or procedures compared to competing devices or procedures. Product costs will form part of the comparative effectiveness assessment. Companies will therefore be faced with not only getting approval for their product, but also demonstrating its superiority in terms of cost-effectiveness. Additionally, reimbursement challenges and pricing pressures to contain costs have limited the potential of these markets.

Hsu: The biggest challenge for any company is the price point of the product. Hospitals are becoming more aware and much more savvy in negotiating contracts with companies for their products because we have precedents now. Among biologics, I can tell you exactly what my hospital pays for a growth factor, stem cells, and pedicle screws. It was more of a black box way back when, nobody really knew what anybody was paying for products. Now, there is more pressure on hospitals to turn a profit so implant costs—and that includesbiologics—are being much more scrutinized with efforts to drive down costs. Companies lose margin based on that. Under recent healthcare reform, the funds that hospitals receive will inevitably decrease, and this will become more apparent.This being said, I do think there is room for additional reimbursement when it comes to a very unique product. For example, we have not improved our spinal cord injury care at all despite five or six decades of research. A treatment for spinal cord injury would be both beneficial and profitable.

What new technologies are on the horizon in some of these growth sectors? What kinds of new products hold the most potential for patients, surgeons?

Foroughi and Vankessel: Computer and robot-assisted orthopedic surgery is set for growth; the added precision associated with the use of computers and robots has demonstrated clinical benefits. These procedures also offer the ability to perform procedures using a MI approach—an option that patients are increasingly demanding. Also, the increasing use of innovative new materials, such as composite suture anchors embedded with hydroxyapatite, which offer the ability to stimulate bone growth, and combination biologics that offer comparable fusion rates to autograft at a lower price than growth factors such as Medtronic’s INFUSE, will contribute to market growth.

Hsu: In biologics there are two that come to mind. One area is stem cells—specifically, stem cells from alternative sources such as fat. The other area is synthetic carriers, which are manufactured in a plant and have less variability. There are developments with these carriers that can help the bone healing process become much more consistent and reliable. When we use bone graft from a cadaver we call that an allograft. There are variable results with an allograft, and most people will admit that. But if you can machine a product that has the biologic activity that is required, you would get a more reliable product that everybody could use. There is a lot more interest among many companies in trying to fashion a biologic that would serve this role. There is not currently a universally accepted bone graft substitute that everyone can use that can heal bone 100 percent of the time. Until we get that, there are going to be advancements in the field to achieve that.

In minimally invasive surgery, computer navigation allows us to put hardware in patients without making a big incision. We can take a CT scan during surgery and using multiple viewpoints, navigate a patient’s spine through their skin so we don’t have to open up the whole anatomy. We can now see what we’re doing through imaging techniques. More surgeons are demanding their hospitals get computer navigation so that they can use this technology, and hospitals are seeing a need for this.

The other thing with minimally invasive surgery would be a new procedure called a lateral interbody fusion. That allows us to access a disc space through the side of the spine instead of going through the back of the spine, where 90 percent of spine surgeries are performed. By going through the side of the spine, you can decrease the amount of muscle tissue damage and blood loss. There is increasing evidence that these patients can be effectively treated this way.

How can companies balance innovation in these growth sectors against potential market saturation?

Hsu: That’s a really good question. I think surgeons know the answer to that more than you think. Surgeons come from many different backgrounds, you have surgeons who have been in practice for 30 years, some who just started out two or three years ago, and then you have mid-career guys. Taking a sampling of surgeons from different portions of their career can give you a sense of where and how needed these techniques are. If you wanted to see where the market was for a new shoulder technique, you could assemble a panel of 10-15 people who do shoulder surgery, but you would only want a small percentage of those who specialize just in shoulder surgery. Then you want another small percentage who do mainly sports medicine, and another small percentage who do mainly trauma. I think having the viewpoints of many different people will give you a happy medium on how effective and newsworthy a certain surgical technique is.

Are there any growth sectors that possibly will experience flat or no growth over the next five years? Why are these sectors subject to flat growth?

Foroughi and Vankessel: Mature market segments such as primary knee and hip arthroplasty are set for a CAGR of -3 percent through 2015 and spinal fusion as a whole at
-1 percent. These markets are limited by heightened pricing pressure exerted on manufacturers by hospitals and group purchasing organizations and the increased scrutiny of the devices and procedures due to cost containment initiatives and the introduction of comparative effectiveness research.

Hsu: Spinal and joint injection therapy may have flat or no growth. Doing an injection in the spine or the joint is very expensive and the data to support its long-term effects is sparse. As we scrutinize procedures that are expensive and have very little long-term benefit, I think injection therapy may be vulnerable. For some patients, the injections cost almost as much as the surgery.

In the hand, I think distal radius fracture plating will not sustain much growth. There’s been a huge growth in the number of plates and options available to treat a fractured radius and the evidence has suggested that some patients do better without surgery for these fractures. That would probably be a technology that would flatline or have no growth.

What role (if any) do emerging markets and/or overseas markets play in the potential growth rates of these various sectors? Are there any segments (hip, knee, spine, etc.) that will dominate foreign market growth or does it depend on the country/region?

Carlson: Many companies in this space have been increasing rest of world sales over the last year or so. Stryker still sells about 39 percent or 40 percent of their products internationally and that’s been consistent over the last few years. But everybody is looking to reach the newly crowned emerging economies of Brazil, Chile, China, Russia, Latin America and Mexico. Many companies in their annual report are discussing emerging market sales and the growth they have sustained selling products to the rest of the world.

Foroughi and Vankessel: Companies seeking growth in the orthopedic sector are increasingly focusing on emerging markets. Growth rates in these markets will be significantly higher than in established U.S. and European markets. As an example, trauma devices will grow rapidly in India (27 percent, five-year CAGR) and China (22 percent, five-year CAGR) due primarily to lower safety standards and corresponding higher accident rates, and also because of greater government investment in healthcare. Joint reconstruction is the biggest orthopedic device segment in the emerging markets (Brazil, India and China), and in all three countries the five-year compound annual growth rate for this segment ranges from 15-24 percent. This segment will dominate the orthopedic device markets over the next five years in these countries.

Hsu: I think the Asian market in particular will play a huge role not only in spine surgery but in other orthopedic surgeries as well. The amount of education that Asian surgeons have available to them is so much more now than what was available a decade ago, just by opening the lines of communication and free markets. It is routine for surgeons to travel overseas and vice versa to share academic ideas, new procedures, and the teaching of different concepts. In spine surgery, that exchange has dramatically increased the exposure of minimallyinvasive techniques.

Many of the minimally invasive techniques have been developed in the United States, so more exposure in the Asian countries, particularly in China, would really affect the growth of that sort of instrumentation. With biologics, the overseas market has an even bigger impact than the U.S. market at times because there is no FDA approval system. The overseas market could substantially change the landscape of some of these growing technologies.

Regulation and Reimbursement: The Growth Inhibitors

In theory, at least, the planet’s orthopedic industry contains the perfect mix of ingredients for unlimited growth potential: an aging world population, the proliferation of musculoskeletal-related diseases such as diabetes and osteoporosis, and younger generations of patients seeking technologically advanced treatment options.

These ingredients should be more than capable of satisfying this $30 billion industry’s insatiable appetite for healthy profits and new business opportunities. At least in theory, anyway.

There’s one major problem with this theory, though: It doesn’t take into account the factors most likely to stunt future growth—a tougher device approval process and shrinking reimbursement rates.

“Orthopedics is one of the more interesting areas for device companies due to the aging population and the fact that there are more fractures and traumatic injuries as people get older,” noted Bruce Carlson, publisher at Kalorama Information, a company that provides market research for the medical device, biotechnology, diagnostics, healthcare and pharmaceutical industries. “There are a lot of companies competing in this market. On paper it looks like there are some great [growth] opportunities in this space, but so much competition already exists. The more companies that enter this space, the fewer the opportunities are going to be for growth due to pricing pressures and attempts by the government and the healthcare system to cut costs.”

While most implant manufacturers have become adept at sidestepping the built-in cost controls that hospitals and insurance carriers have implemented in recent years, their financial finesse could very well be challenged by the new healthcare reform law that gradually is being phased into the nation’s medical coverage infrastructure. Though the main intent of the law is to expand coverage to a greater number of Americans (95 percent compared with the current 83 percent), the legislation also aims to stem the spiraling costs of healthcare, which have more than doubled in 15 years and now represent roughly 18 percent of the nation’s gross domestic product.

In an effort to deflate the ever-expanding healthcare balloon and the gargantuan $2.5 trillion in annual U.S. medical expenditures, the Patient Protection and Affordable Care Act of 2010 institutes a number of reforms designed to change America’s healthcare spending habits. For example, the law tests new payment systems for doctors, penalizes hospitals for high readmission rates and creates an independent commission to evaluate the kinds of treatments Medicare should cover. The philosophy behind many of these institutional changes is research which suggests that the nation could save as much as $700 billion every year by eliminating wide disparities in the cost of similar procedures, particularly those in which pricier options do not produce better outcomes.

One of the provisions that is bound to impact the future growth of medical device manufacturers is the comparative effectiveness mandate. This provision requires the U.S. government to set aside $500 million or more per year for comparative effectiveness research—analysis that is designed to enhance healthcare spending decisions by providing evidence of the efficacy, benefits and drawbacks of various treatment options. The evidence is generated from research studies that compare drugs, medical devices, tests, surgeries or ways of delivering healthcare. The results of these research studies will be disseminated by the non-profit Patient-Centered Outcomes Research Institute, which also will provide the funding for additional analyses. And while the comparative effectiveness data presumably will be used to determine the most effective allocation of healthcare funding and resources, the law prohibits insurers such as Medicare from basing its reimbursement decisions on the research.

Though its intent is noble, industry experts contend that the comparative effectiveness mandate only will make it more difficult for implant manufacturers and hospitals to be compensated for their products or procedures. Adding another layer of complexity and red tape to the process most certainly will impact future growth, particularly in the spine sector, where the costs of implants and such procedures as minimally invasive fusions can run in the tens of thousands of dollars. Reimbursement for spine procedures (and other orthopedic surgeries as well) has been decreasing over the last several years as insurance companies and the Center for Medicare and Medicaid Services take a hard line on payments. Blue Cross Blue Shield of North Carolina, for example, instituted a new coverage policy on Jan. 1—it no longer reimburses doctors or hospitals for lumbar fusions in patients with degenerative disc disease, though it still provides coverage for lumbar fusions in patients suffering from spinal tuberculosis as well as spinal fractures with instability or neural compression. The insurer, however, dropped lumbar spine fusion coverage for disc herniations, initial discectomy or laminectomy for neural structure decompression and facet syndrome.

“The insurance system is doing what it can to require more justification for each procedure and putting pressure on companies regarding what will be reimbursed,” Carlson said. “There are more requests from insurers now for clinical justification for certain procedures. This is a big issue in the spinal sector because of the cost of some of the procedures. In the hip and knee segment, some of this additional justification is already in place. But insurance companies are beginning to require specific patient population data and outcome for spinal procedures. It’s something that definitely will limit growth.”

Another factor that is certain to limit growth in the various orthopedic sectors is the U.S. Food and Drug Administration’s (FDA) comprehensive overhaul of its much-maligned 510(k) clearance process. Like the nation’s healthcare reform law, the agency’s revamped 510(k) process leans heavily on clinical proof of comparative effectiveness for product approvals, a move that industry insiders claim could stifle both innovation and the future profits of device manufacturers.

Clinical data will particularly be vital to new product approvals and procedures in the spine sector, where demand is increasing for minimally invasive techniques. Armed with the comparative effectiveness mandate, insurance carriers most likely will wait for clinical trial results before deciding on coverage of minimally invasive procedures and other innovations in the spine segment. Obtaining such results can be expensive, though: Clinical trials can cost anywhere from $10,000 to $1 million and can take several years to conduct, factors that significantly could inhibit innovation and growth. Such restrictions, however, could benefit the larger orthopedic firms by eliminating some of the competition.

“The whole [orthopedic] sector already has a lot of players and a lot of competition,” Carlson explained. “You have Johnson & Johnson, Zimmer, Stryker, Biomet, Wright, Medtronic and other smaller companies in this space. As more companies jump into the sector, the more competition there is for customers and for dollars. To gain significant market share, companies are going to have to start proving that their product has a clear benefit to the patient and has a better price tag than their competitor. And not every company will be able to do that.”— M.B.