It is that time of year again when the orthopedics community comes together to reflect on the recent American Academy of Orthopedic Surgeons (AAOS) meeting which took place in Las Vegas and finished late last week. We take pause to remember that AAOS is one of our industry’s most important educational and scientific meetings and brings together a diverse global audience of physicians, companies, C-level executives, investors, and other interested parties. Most equity analysts will issue their post-AAOS reports (some already have) and the news wires have been full of analysis of best products from AAOS 2019 and the recent spate of M&A deals. In other words, it is time for some post-AAOS commentary.
A BIG WEEK FOR M&A
Arguably the biggest news of the week came in the form of four M&A transactions announced during the AAOS, two from Smith & Nephew (Osiris and the Brainlab joint reconstruction business), one from Corin (acquiring Omni Orthopedics and its robotic orthopedic platform), and Stryker’s (Stryker has been on an M&A tear across its business segments) purchase of OrthoSpace.
In addition, just prior to the AAOS we saw the acquisition of handheld cryoanalgesia company Myoscience by specialty pharmaceutical company Pacira Pharmaceuticals. That transaction was so fresh that the Myoscience booth at AAOS did not appear to have any Pacira branding at all (Corin and Omni did look co-branded). And finally, in late 2018 we saw industrial specialist Colfax diversify into orthopedics and rehab via the acquisition of DJO Global. Let’s not forget the Medtronic-Mazor deal which, though mostly focused on spine, represents another push into robotics. See Table 1.
We are very encouraged by this M&A activity because it not only breathes life into a sector which has fallen behind in M&A activity in general vs. a very active interventional cardiology sector (see my blog from November 2017), but the transactions are all focused less on consolidating in the traditional metal arena, and more on newer areas we consider crucial to the ongoing growth and health of the orthopedics sector (robotics, planning software, digital surgery, biodegradable implants, and non-drug, non-surgical treatments for pain associated with OA of the knee). More specifically, the recent M&A activity brings a drug player into the orthopedics arena (Pacira-Myoscience), while the Stryker-OrthoSpace, Corin-Omni and Medtronic-Mazor deals represent cross-border activity which we believe is an essential part of today’s device deal making arena, and a positive move for the global expansion of M&A beyond large cap US-only deals. Furthermore, several of the recent transactions included substantial involvement of private equity (DJO backed by Blackstone; Corin backed by Permira). With that in mind I am focused on what EQT plans to do with Lima.
HEARD ON THE STREET
I spent several days wandering around Las Vegas/AAOS talking to doctors, CEOs, distributors and corporate development executives, and heard several consistent themes which we need to follow:
—Orthobiologics represent a growing part of large company product portfolios and are also a source of real innovation and value creation for emerging growth companies. Many executives expressed concern over the reimbursement pathway and timelines for these products, and this barrier could slow down M&A activity in this sector.
—The super large caps (DePuy, Stryker, Zimmer, etc.) had booths so large that they intimidated many people. These booths were the size of city blocks and were manned by armies of reps. Many small company executives stayed away.
—Corporate development executives and orthobiologic company CEOs were consistent in their lack of enthusiasm for traditional metal-based products to support growth. New materials, orthobiologics, digital health and new care delivery models were all mentioned as areas of focus for innovation in orthopedics.
—I walked around the first-time exhibitor section of the exhibit floor and found a high level of energy. Companies like Artoss (bone graft substitute), Onkos Surgical (implants and instruments for musculoskeletal oncology patients) and b-One (hips and knees/novel business model) had good foot traffic in their booths and represent an interesting group of relative newcomers to watch.
—There is a clear trend toward performing orthopedic procedures in outpatient/ambulatory surgery centers.
—Plus ca change plus c’est la même chose, i.e. not much has changed. However, product concepts such as the Zimmer-Biomet/Apple collaboration (Mymobility), Stryker’s Adapt augmented reality system, and Zimmer-Biomet’s integration of OrthoSensor’s Verasense sensor into the Persona knee system are encouraging examples of innovation at the top.
Despite concerns around lack of innovation, lingering doubts about reimbursement pathways for orthbiologics, and a fairly light last twelve months in orthopedic M&A, the 2019 AAOS ended up being relatively interesting. What I saw during my time in Las Vegas, while not the most exciting four days of the year, leads me to believe the industry is moving in a good direction.
Members of the Locust Walk medical technology team have been involved as company builders in the musculoskeletal device world (investor, transaction advisor, founder and marketing executive). We would be delighted to discuss our capabilities in this sector and others in the medical technology space and will continue to monitor major market trends that influence investment and strategic decisions.
ABOUT THE AUTHOR:
Hunt Henrie, Managing Director, Global Head of Medtech at Locust Walk