I’m often asked what the orthopedic market will look like in the next few years. Having spent over 27 years in the Orthopedic Implant Industry, and having the advantage of regularly speaking with executives in all shapes and sizes of ortho companies, I’ve decided to put down on “paper” what I think. I’ve shared this with more people than I can count and no one has said I am out to lunch, so you could say my opinions have been tested to some extent. All comments are welcomed, but before you criticize my ideas, carefully consider where we’ve been as an industry and I think you’ll see a pattern emerge even though there are different forces at work.

What to Expect in Orthopedic Implants in the next few years:

Big Ortho is betting on “Bundling.”  So much for the long standing value of the relationship between the Rep and Surgeon. Big Ortho is making a strategic and unprecedented move driven by the belief that the rep-surgeon relationships that have traditionally lead the way to sales growth will continue to be marginalized. As Big Ortho is lowering commissions and cutting out “case coverage” support, field based sales people see the change coming, even if they’ve managed to ignore it until now. These not-so-subtle changes amount to a direct assault on their very livelihoods.  Whether you look at Zimmer, Depuy or Stryker, it appears that they believe that the future of decision-making at the hospital level will continue to shift away from surgeons over to the GPO’s & IDN’s and they intend to be on the front end of this evolution. Big Ortho has begun to shift their own most promising Sales Talent into Corporate Sales or Strategic Sales whatever the name, it seems inevitable that more selling will be done at the institutional level rather than direct to the surgeon. At least that is what Big Ortho thinks.

 

Case in point, Depuy-Synthes has taken their eight divisions and rolled them under one consolidated business unit. Their belief seems to be that they will be able to leverage more product sales from different product segments, formerly from different parallel divisions, through one big brand with a centralized sales focus. Strategic sales people directing their sales efforts at the C-Suite. As Big Ortho continues to roll up their competitors, it appears that we can expect to see this strategy continue until there are essentially two extremes in the marketplace. The Mega-Ortho companies, selling a very broad range of products across all ortho specialties and small, more focused companies that fight for business wherever they can get it. There will also be a hand full of mid-sized companies, but none will have the might of the big three. (J&J, Zimmer & Stryker)

 

Every time there is a new big trend in orthopedics, there is a counter balance phenomenon that brings new and exciting opportunities. All these Big Ortho moves actually create unprecedented opportunities for the smaller companies to capitalize on.

It is no surprise that the big companies simply cannot innovate anymore. They have become extremely proficient at “line extensions” and “next generations” and what they are best at is “Marketing.” They have long since yielded their position as innovators to the entrepreneurs and venture community.  Add to this the disenfranchised, high performing sales professionals at Big Ortho and you have a potential to make considerable gains by exploiting their connectivity to surgeons where they still have a say in the products they use. Time will tell if the reps’ success has more been a result of representing a Big Ortho brand with deep product offering and support or a result of their individual effort, intense commitment to excellence and value delivered to their direct customers/surgeons?

 

This is how I see it playing out:

{cke_protected}{C}%3C!%2D%2D%5Bif%20!supportLists%5D%2D%2D%3E1.     {cke_protected}{C}%3C!%2D%2D%5Bendif%5D%2D%2D%3EBig Ortho will deliver bottom line results, as this will be their primary focus. Wall Street will reward their stock prices even though they will only see relatively slight revenue growth.  This will be the result of increased units sales at lower average selling prices, all as a result of their corporate bundling sales efforts. In the end, their profits will be higher despite sluggish growth. This is what they are betting on and they should be happy when it happens.

 

{cke_protected}{C}%3C!%2D%2D%5Bif%20!supportLists%5D%2D%2D%3E2.     {cke_protected}{C}%3C!%2D%2D%5Bendif%5D%2D%2D%3ESmall to mid-sized companies stand to make big gains by leveraging sales talent coming from Big Ortho as they are either discarded or leave out of frustration.  After suffering cascading commissions to new lows hovering around 6%, it isn’t hard to see why they would want to see what they can do at a company that values their individual contribution.  Motivated by less political infrastructures and quicker response-times, some of the best and brightest will look for opportunities outside of Big Ortho even though they may have more than 20 years tenure. As more and more decision-making is centralized in large companies, some people grow frustrated and some will “take their ball and go home.” Small companies can really capitalize on this when they hire experienced sales talent with valuable surgeon relationships.

 

It is the way it typically happens following a big merger like JNJ-Depuy, Stryker-Howmedica and JNJ-Synthes and now Zimmer – Biomet. Make no mistake. There will be an ongoing exodus and that will breathe new life into many smaller ortho companies.  The big winners will be the 2nd tier companies like Exactech, DJO, and MicroPort. Even the third tier companies will make relatively big gains, perhaps some will begin to make an impact with their generic implants.

 

This is going to be fun to watch. Stay tuned.