Orthopedic Promise Remains

It leads many sectors not only in the innovation of its products, but also in its manufacturing processes. But despite its advancements and market growth during the last decade, it hasn’t been immune to the effects of an international economic downturn. The question many have asked over the last few years is how the orthopedic sector will weather the storm.

Our analysts have studied the market closely. In analyzing the worldwide orthopedic market, we take into account hip and knee implants, spine, trauma devices and orthobiologics. In 2009, the market was worth $30.5 billion, which is an increase of 7.2 percent compared with 2008.

The growth was driven by several favorable factors we all know well: an aging population, obesity trends in developing countries, the role of reimbursement and the demand for new products and devices. All these parameters bode well for the market in years to come.

However, there also are unfavorable factors affecting this market, such as increased price pressures, longer research and development cycles, and slower market penetration of new products due to increasing regulatory burdens.

Overall, we don’t think the orthopedic market will be severely impacted in 2011 by the downturn of the past few years. In our opinion, the crisis has affected the orthopedic market’s growth by only a few percentage points. For example, spine devices only increased by 10 percent in 2009. By comparison, its growth before the recession was more than 15 percent per year. The knee implant has increased by only 6 percent, though its true potential growth is around 10 percent. The economic crisis certainly slowed market growth of orthopedic products, but this was nothing compared to the severe hit experienced by other industries such as aeronautics and automotive, where the crisis provoked a real market depression.

Orthopedic Contract Manufacturing

The worldwide orthopedic subcontracting market reached more than $2.65 billion in 2009 for implants, instruments and cases. This market has seen its growth slow dramatically, particularly for large contract manufacturers. Many restructured as a result of slower business in 2009, but there is still room to grow. Orthopedic medical device manufacturers still don’t subcontract at the level that many other industries do, such as automotive or aerospace (70 percent and 80 percent, respectively). Major orthopedic companies selectively subcontract parts of their production line including services such as casting, forging, coating, machining, polishing and sterilization.

In the coming years, subcontracting orthopedic services will undergo important transformations. Our surveys show more consolidation in the contract manufacturing sector.
The top 12 suppliersaccounted for $1.17 billion in 2009. More than 40 percent of this market is held by companies with less than 1 percent of market share each.

OEMs increasingly will require contract manufacturers’ special capabilities and should include them more assertively into their value chain.

OEMs need structured suppliers ready to:

• Deliver within shorter timeframes and be more flexible;

• Be efficient in terms of waste and, thus, reduce manufacturing costs; and

• Share more responsibility and risk with regard to regulatory challenges.

We believe that 2010 was a year of recovery for the orthopedic device and subcontracting markets and that they will regain some of the loss in growth this year, though perhaps not reaching the peak growth figures of 2008. However, our forecasts through 2014 are very encouraging. We predict that these markets will continuously grow by 9 percent to 15 percent during the next four years.

Ali Madani is CEO and survey director for Paris, France-based Avicenne Développement, a market research and consulting firm he founded in 1992. Madani holds a degree from École Normale Supérieure de Cachan and a MBA in Innovation Management from Paris IX Dauphine University. He has 15 years of experience in conducting marketing, strategic and financial studies, as well as technology watch projects for large corporations and small companies. He can be reached at [email protected] or www.avicenne.com. Avicenne also is hosting the Implants 2011 Conference and Exhibition in Lyon, France, in May. Turn to Calendar on page 71 for more information.