Conformis' Surprising Strategic Shift to Standard Knee Implants

Will Conformis inadvertently diminish the value of its customized knee implants it's known for by adding a "standard" knee to its portfolio?

August 6, 2020

3 Min Read
knee implants
Image by romaset - Adobe Stock

The orthopedic company known for its customized knee implants now plans to sell a standard off-the-shelf knee in parallel to its higher-cost customized knee implants.

Ryan Zimmerman, a medtech analyst at BTIG, says the benefits will be a lower average selling price and faster lead times, but he worries it could diminish the value of the customized knee implants.

"This may open a few doors in [ambulatory surgery centers], but we worry it will also poke holes in the case for knee customization, which has been foundational for [Conformis] since inception," Zimmerman said in an investment report. "All told, it will take considerable resources and time to build this strategy."

Conformis has taken a hard hit during the pandemic. In March the company had to furlough 80 employees (about one-third of its workforce) due to a sharp decline in elective procedures. In April, the company received a $4.7 million loan through the Paycheck Protection Program, and was able to bring most of its furloughed staff back to work.

Conformis CEO Mark Augusti said the second quarter was also impacted by the pandemic, but the company has seen a "fairly quick" resumption of scheduled orthopedic procedures, going from April when the company was down 94%, to being down 39% in May, and then down just 9% in June.

"Conformis does not have any revision, oncology, or trauma orthopedic products that are considered essential surgery," Augusti said during the company's second-quarter earnings call, according to Seeking Alpha transcripts. "Therefore, we are heavily weighted towards pure primary elective total joint replacement."

Conformis' new knee offering will allow the company to deliver a "complete and efficient knee replacement package" profitably at a lower selling price than the company's fully personalized knee implants, Augusti said.

"We will also expect to be able to provide this product in three weeks versus the five to six weeks it currently takes for personalizing," Augusti said.

The CEO said he believes the pandemic will only serve to accelerate the market's shift to ambulatory surgery centers.

"In order to capitalize on this trend, Conformis is developing a new knee system that will be based on the experience and data we’ve collected as a result of designing more than a 100,000 personalized knee replacements," Augusti said. "From this and conjunction with researchers and utilizing advanced software techniques we are developing a set of standard knees that we believe will provide better coverage and perform better than any existing standard knee on the market today."

He also noted that because the system will have a defined number of standard sizes of knee implants, Conformis will be able to manufacture the knee system more quickly and efficiently than it manufactures fully personalized knee implants. The company also will be able to provide a full range of polyethylene inserts which will give surgeons more interruptive flexibility to handle soft tissue balancing as typically needed when implementing standard-size knee implants, Augusti said.

"The range of sizes of inserts we expect to provide will be comparable to existing systems and what is deemed customary and medically necessary in the industry," he said. "We expect this new knee system will be available in the second half of 2021."

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