In recent years, analysts have frequently referred to the market for spine treatment products as one of the hottest fields in the medtech industry. Although traditionally considered a subset of the orthopedics sector, the spine products market has become increasingly viewed by industry analysts and market research firms as a sector in its own right.
Considering that worldwide spinal market revenues were less than a $100 million in 1990, grew to $3.5 billion by 2004, and reached more than $6 billion last year, growth of the segment has indeed been impressive. The pace of that growth may have cooled since the torrid 1520% annual increases of a few years ago, but the spine segment continues to post year-over-year revenue gains as a steady stream of new companies enter the market.
Going forward, most medtech analysts expect that the spine segment will post annual revenue growth rates of 810% over the next few years, particularly for large-cap companies. However, even greater growth for the segment has been projected by several market research firms that cover the field, including MedMarket Diligence LLC (Foothill Ranch, CA). In an extensive assessment of the spine industry published earlier this year, the firm projects a 14.4% compound annual growth rate for the segment over the next 10 years.1
Driscoll: A decade of growth.
"The orthopedic arena in general, and spine surgery in particular, are major areas of continued opportunity in the medical technology industry," says Patrick Driscoll, president of MedMarket Diligence. "The global market for spine surgery will therefore continue to be characterized by changing caseload, introduction of new technologies and, most importantly, solid market growthin double digit termsfor at least 10 years."
The top four players in the global spine market are Medtronic Inc. (Minneapolis); DePuy Spine Inc. (Raynham, MA), a unit of Johnson & Johnson Inc.; Synthes Inc. (Solothurn, Switzerland); and Stryker Corp. (Kalamazoo, MI). These firms control an estimated 80% of the global spine market (see Table I). According to MedMarket Diligence, Medtronic dominates the market with a 35% share, followed by DePuy with 21%, Synthes with 20%, Stryker with 10%, Zimmer Holdings Inc. (Warsaw, IN) with 5%, and Biomet Inc. (Warsaw, IN) with 3%. Other players account for the remaining 6%.
Market Share (%)
Table I. Market share of major companies competing in the market for spine surgery products.
Source: MedMarket Diligence.
Other major medtech companies with a presence in the spine sector include Abbott (Abbott Park, IL) and Smith & Nephew plc (London). Well over 100 more companies round out the market. In spite of the dominance of large, established firms, industry analysts generally see them ceding market share to smaller competitorsparticularly those with innovative technologies.
Much of the sales growth for the spine segment is taking place in North America. MedMarket Diligence cites a 76% share for the United States and Canada, 18% for Europe, 5% for Asia (Australia, Japan, and Korea), and around 1% for the rest of the world, primarily China, India and Latin America.
Spine segment growth is essentially attributed to the same factors driving the medtech industry overall, and the orthopedics sector in particular: aging populations, product innovation, and the market demand of the baby-boom generation. So-called 'boomers' typically lead a more active lifestyle than their forebears, and have a lower tolerance for 'putting up with pain.' Additionally, the rising incidence of obesity, which places greater strain on the back and can create spinal problems, is also frequently cited as a contributing factor.
The main impediments to segment growth generally revolve around reimbursement issues, particularly for newer, more innovative technologies that often struggle to demonstrate their cost-effectiveness in comparison with traditional approaches.
Back pain is reported as the second-most-cited reason for seeking medical consultation with a doctor, resulting in more than 50 million physician office visits annually in the United States. According to a recent report in the Journal of the American Medical Association, $86 billion was spent on back pain in 2005, up from $52 billion in 1997.2
Persistent or chronic back pain can be caused by a number of conditions, including congenital disorders, degenerative disk disease, injury or fracture, herniated disk, trauma, infections, spine tumors, and others.
According to the National Library of Medicine (Bethesda, MD), spinal fusion has traditionally been considered the gold standard of care for back pain, representing 85% of procedures, and 78% of implant sales in 2006 (see sidebar). The most common spinal area treated is the lower (lumbar) spine. However, fusion can also be performed on the upper (cervical) spine.
The MedMarket Diligence report on spinal surgery markets projects that spinal fusion will grow at an annual rate of only 3.3% between 2008 and 2017, while less-invasive and alternative technologies for greater motion preservation of the spine will post far larger gains. Procedures showing higher growth rates will include total disk replacement at 15.1%, nucleus replacement at 45.4%, vertebroplasty and kyphoplasty (combined) at 19.7%, bone graft substitutes at 14.7%, interspinous process spacers at 20.5%, and image-guided spinal surgery at 12.4%.
Matson: Chipping away.
Taking advantage of the opportunities in the various subsegments, many new companies are continuing to enter the spine space (see Table II). Michael Matson, senior medical device analyst with Wachovia Capital Markets LLC (New York City), describes the segment as "very competitive, with a huge number of private companies." Matson notes that many analysts refer to these companies as 'ankle biters,' but nobody is dismissing the fact that they're taking share by chipping away at some of the established firmseither through product innovation or by using a more service-oriented business model. He cites NuVasive Inc. (San Diego) and Trans1 Inc. (Wilmington, NC) as prime examples.
NuVasive has developed a minimally disruptive surgical platform called Maximum Access Surgery, resulting in less-invasive operative procedures, shorter hospitalization times, and faster recovery periods. The company has experienced significant growth since its launch in 1997. Company revenues for 2007 were $98.1 million, a 57% increase over 2006, which was itself a 59% gain over 2005.
Describing NuVasive, Matson said, "They've been doing a great job at growing the business and taking share from some of the bigger spine companies out there, particularly Medtronic and Johnson & Johnson's DePuy."
Trans1, founded in 2002, offers more novel, if not radical, approaches to both fusion and motion-preserving spine surgery. Trans1's 2007 revenues of $16.5 million represented a 183% increase over 2006. While Trans1 has seen some recent erosion of its stock price, primarily due to problems with sales, Matson still has an 'outperform' rating on the company.
Denhoy: Investor confidence.
Raj Denhoy, research director for medical devices in the New York office of Thomas Weisel Partners LLC (San Francisco), notes that while Medtronic lamented its 8.1% revenue gain for the company's most recent reporting period, NuVasive posted a 61% boost in revenues. NuVasive has now revised its revenue forecast for 2008 to $240 million.
But how many more companies are likely to replicate NuVasive's performance? Denhoy says that the spine segment boasts a steady stream of newcomers, but that many of their products are 'me-too' devices. "When you talk to spine surgeons, they're aware of the many new market entries, but are not particularly impressed with what's considered to be recent innovations," says Denhoy.
Matson and Denhoy foresee overall spine segment market growth in the mid to high single digits, perhaps reaching 10% over the next few years. Both analysts remain bullish on the field. Denhoy notes that there are many opportunities unique to the spine segment, since there remains much about the physiological dynamics of the back and spine surgery that continues to unfold.
|Table II.: Representative sampling of 25 emerging and small-cap medtech companies in the spine market. Note: Some companies may also be involved in other medtech segments. Source: individual company documents and Web sites.|
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In addition to the major medtech firms in spine, other public companies with products in the sector include: Alphatec Holdings Inc., ArthroCare Inc., BioMimetic Therapeutics Inc., Exactech Inc., Orthofix International NV, OrthoVita Inc., Osteotech Inc., and RTI Biologics Inc. (see Table II).
Although experiencing some setbacks with insurance reimbursement, surgeon resistance, and patient lawsuits, artificial disks continue to offer great promise for dynamic spine stabilizationparticularly as next-generation devices become available. According to Life Science Intelligence (Huntington Beach, CA), the U.S. market for artificial disk replacement will grow from $55 million in 2007 to $440 million by 2013.3
Last year, Medtronic spent $3.9 billion to acquire Kyphon, which had itself earlier in 2006 acquired St. Francis Technologies for $525 million. This past February, Zimmer acquired privately held Endius Inc. (Plainville, MA), following up on its acquisition of OrthoSoft (Montreal) in October 2007. Earlier this month, Integra LifeSciences Holdings Corp. (Plainsboro, NJ) acquired Theken Spine LLC (Akron, OH) for $75 million plus the potential for additional performance payments of $125 million. Nevertheless, analysts don't anticipate that these earlier purchases will set off a round of major mergers or acquisitionsat least in the near term.
Globus Medical Inc. (Audubon, PA), claims to be the world's largest privately held spine company, and the 10-largest overall. Other noteworthy private sector firms in spine include Atlas Spine Inc., Blackstone Medical Inc., Interventional Spine, K2M Inc., LDR Holding Corp., Nexgen Spine Inc., Scient'x, Sea Spine Inc., Small Bone Innovations LLC, and others.
Industry analysts generally see continued growth in the spine sector for the foreseeable future. As medtech analyst Raj Denhoy says, "As new implants, surgical instruments and procedural technologies for improving and enhancing spinal motion preservation continue to demonstrate efficacy, safety, and cost-effectiveness, they will steadily be embraced by an increasing number of spine surgeons, who as a professional group, have demonstrated their openness and receptivity to new technology."
- Spine Surgery: Products, Technologies, Markets, and Opportunities Worldwide, 20082017 (Foothill Ranch, CA: MedMarket Diligence, 2008).
- BI Martin et al., "Expenditures and Health Status among Adults with Back and Neck Problems," Journal of the American Medical Association 299, no. 6 (2008): 656664.
- 2008 U.S. Markets for Spinal Disc Repair and Replacement Technologies (Huntington Beach, CA: Life Science Intelligence, 2008).
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