RBC Capital Markets orthopedic report: hip market up at $1.1 billion, growth rates slow

By Lisa Kerner

Charlotte, N.C., Aug. 16 - Growth in the hip market remained sluggish in the second-quarter 2006, with revenue of an estimated 4.3% in constant currency to $1.1 billion, according to RBC Capital Market's analyst William R. Quirk's quarterly orthopedic wrap-up.

Growth rates slowed sequentially, from 6.3% for the first-quarter 2006, and year-over-year, from 8.7% for the second-quarter 2005.

Going forward, hips should benefit from progressively easier year-over-year comps as well as a steady stream of products entering the market.

Surgical volumes are expected to favor knees over hips, despite new products entering the market.

Zimmer and Biomet made modest gains in dollar share, largely at the expense of Johnson & Johnson's DePuy and Stryker.

Smaller hip manufacturers, especially Wright Medical, outpaced the overall market, according to the analyst.

Quirk estimates that domestic hip sales increased 5.7% to $557 million, with Biomet and DePuy leading the segment, and Stryker and Smith & Nephew both sluggish.

The quarter proved weak for international hip growth, which increased an estimated 3.0% in constant currency to $516 million.

Worldwide knee revenue increased 6.5% in constant currency to $1.2 billion.

Segment growth was lead by Stryker and Biomet due in large part to continued penetration of their Triathalon (Stryker) and Vanguard (Biomet) knee systems. DePuy (up 1%) and Zimmer (up 5%) were sluggish.

Quirk believes Zimmer's growth will benefit from the launch of its Gender Specific knee system.

Domestic knee revenue increased 7.6% to $700 million. Biomet led the large manufacturers with 17.8% growth. International knee growth was 5.0% in constant currency to $525 million.

Spine products increased 12.2% in constant currency to $1.3 billion as DePuy experienced its third consecutive quarter of below-market growth.

RBC's Quirk noted that CMS' final 2007 reimbursement reverses several of the drastic cuts contained in the April proposal, with a favorable outlook for the orthopedic sector. Final reimbursement for primary hip and knee replacement increased 4.2% to $10,544, while hip and knee revision increased 5.0% to $13,426. Spine reimbursement was revised up to a positive 6.0%.

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