Look East for Growth in Orthopedic Devices Market

EDITOR'S PAGE

Does Asia represents the most promising market for orthopedic device manufacturers? A new report from Frost and Sullivan says yes. The region “enjoys a fundamental advantage in terms of its huge potential customer base.” For orthopedic device manufacturers—which are already seeing explosive growth—that's just more good news. According to the report, “World Orthopedic Devices Market—Investment Analysis and Growth Opportunities,” this market earned revenues of $25.3 billion in 2006 and is expected to grow at a compound annual growth rate of 13.4% during the period 2006–2011.

“There is considerable R&D activity in the orthopedic devices market,” says Frost & Sullivan financial analyst Sheetal Rajani. She notes that those device companies whose sole focus is on orthopedics have seen an increase of 18.4% in R&D expenditures from 2002 to 2006. “This clearly indicates a favorable growth trend in the future as increasing R&D expenditure implies continued technological innovation.”

Although more than 50% of the world's graying population lives in Asia, Rajani says the region accounts for only around 10% of the global orthopedic devices market. Within this, Japan accounts for a majority of the revenues, representing more than 60% of the Asia-Pacific market. These statistics reveal great potential for growth in relatively underpenetrated countries such as China and India.

“Although the lack of affordability has not allowed countries such as China and India to realize their full potential, this is expected to change in the future due to encouraging reforms taking place in these countries' health insurance markets,” says Rajani.

The report notes that the aging baby boomer population will drive strong growth in the global orthopedic devices market in general. It points to the high incidences of back pain and joint-related disorders in this demographic group. Ongoing technological development is another important market driver.

According to the report, the spinal surgery segment in the past has been one of the fastest growing and is expected to continue to grow at a strong rate in the future. Technological advances such as nonfusion technologies are encouraging patients to opt for surgery. These developments are also creating a flourishing market for spinal implants, a segment that is predicted to grow at a rate of 16% through 2011.

It won't necessarily be easy to jump into this market. Rajani cautions that healthcare budgetary constraints and resulting reimbursement pressures worldwide will continue to create significant pricing pressures. Because fixed costs represent a substantial part of an orthopedic device manufacturer's expenditures, little flexibility is left in your pricing structures.

Against such a backdrop, though, she says that strategic consolidation may help orthopedic device companies achieve much-needed economies of scale. “Acquisitions are expected to play a vital role in helping companies further reduce their fixed-cost components and promote greater consolidation,” she says.

Sherrie Conroy for the Editors