After bearing the brunt of a global slowdown in surgical procedures during the pandemic, the orthopaedic sector is seeing the first signs of a turnaround, led by demand for hip replacements.
Leading orthopaedic device makers Smith & Nephew, Johnson & Johnson and Stryker all reported hip sales in the first quarter that outpaced momentum in their knee businesses.
Patients in need of a new hip, it seems, are less able to withstand a prolonged delay in treatment than those in need of a knee implant. That's because hip patients tend to have more acute injuries, according to Smith & Nephew executives.
"We've seen throughout the pandemic that surgeons have prioritized hip procedures," Smith & Nephew CFO Anne-Francoise Nesmes said on the company's first-quarter earnings call.
Knee surgeries, by comparison, are easier to put off, device executives said. Knees "are perhaps the most elective of the procedures in terms of being able to delay," J&J CEO Alex Gorsky told analysts on his company's call.
At Smith & Nephew, hip revenues rose 12.6% in the first quarter, compared to the prior year, while knees fell 7.9%. J&J's hip business grew 5.8% from a year ago, but knee sales declined 7.6%. At both companies, executives said the introduction of cementless knee technologies were expected to give a boost to sales.
Orthopaedics rival Stryker posted lower sales in both the hip and knee categories in the first quarter. Hips were down 2.2% from a year ago, while knees declined 4.5%.
Yet, even with first-quarter knee sales down for all three companies, the results were an improvement over 2020's steep downturns, and executives offered upbeat views on the prospects for orthopaedic procedures going forward.
Smith & Nephew CEO Roland Diggelmann said the year is off to an encouraging start.
"Our approach through the pandemic has been to maintain our commercial readiness for the recovery that is now underway," Diggelmann said.
Stryker executives said the company's U.S. hip and knee businesses accelerated in March and into April, after declining in January and February. By April, the company was seeing U.S. hip and knee growth in the mid-single digits, compared to pre-pandemic levels two years ago.
Stryker raised its full-year earnings guidance, and CFO Glenn Boehnlein predicted a "return to normalcy" by the end of the second quarter and even stronger growth in the third and fourth quarters.
"The recovery seems to be on the right track," analysts at Truist said in a note to clients after Stryker's report.
Stifel analysts called Stryker's first-quarter commentary "highly encouraging for the rest of the year," noting management's projections for sales growth to accelerate.
J&J's Gorsky also forecast a continued orthopaedic procedure pickup, saying surgical planning reports point to better trends in the second and third quarters.
"We expect that to improve as patients gain confidence to go back into the hospitals, and we see systems work their way through backlogs," the CEO said.
J.P. Morgan analysts said U.S. healthcare systems ended the quarter with procedure volumes very close to normal levels, writing that a main takeaway from J&J's call was management’s "bullish stance" on volumes going forward.
"We still think it is prudent to wait until trends normalize and sustainable underlying growth becomes clearer before drawing longer-term conclusions. Nonetheless, we view this quarter as another encouraging step forward for the company as it aims to bring its medical device franchise up to the same level as other peers in the space," J.P. Morgan analysts wrote.
Hip and knee maker Zimmer Biomet is due to report its first-quarter results on Tuesday.
Zimmer struggled throughout much of last year as electives volumes were strained, reporting a 9.4% year-over-year sales decline for hips and a 15% decline for knees for the full year.
CEO Bryan Hanson said during a February earnings call that the fourth-quarter slowdown in elective care — due to rising COVID-19 cases and hospitalizations — spilled into 2021 and was putting pressure "across pretty much all of our regions and markets."
The CEO warned that the first quarter of this year was going to be worse than the fourth quarter of 2020, which resulted in sales declines across the entire company.
J.P. Morgan analysts said Zimmer has a high degree of elective procedure exposure and "should be one of the biggest beneficiaries from a procedure recovery in the short term."