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Hi, I’m Jennie Tsai, the medical device analyst at Gabelli Funds.
The global orthopedic implant market grew 3% in 2019 to $42 billion. And we project the global orthopedic market to grow at 2-3% annually over the next few years as mid-single-digit growth in procedures is offset by low-single digit price declines. With regards to the coronavirus, we expect some elective procedures will be delayed on a global basis as hospitals use more of its resources to treat patients infected with the virus. With regards to the specific segments– the knee segment, the hip segment, the spine segment, trauma, sports medicine, and the extremities segment, these segments are growing in the low single digits, except for sports medicine, which is growing mid-single digits and the extremities segment which is growing high single digits. Given that consolidation has occurred annually, with Zimmer Biomet acquiring LDR in 2016, TPG Capital acquiring Exactech in early 2018, Stryker acquiring K2M in late 2018, and Stryker expected to acquire Wright Medical later this year, we expect consolidation to continue. We believe there are numerous publicly traded orthopedic companies that are potential acquisition candidates . . . They are Conmed, Conformis, Globus Medical, NuVasive, Orthofix, Orthopediatrics, Seaspine, Si-Bone, and Smith & Nephew. We also believe any of these companies are potential takeout candidates as companies realize that scale and breadth of product portfolio …. matters to hospital customers and …. strategic M&A can lead to revenue and expense synergies.
Finally, as valuations have come down recently, these companies are more attractive to strategic acquirers from a valuation standpoint. In summary, we like the companies in the orthopedic sector as these companies continue to innovate with new product launches and benefit from a global aging population.
