(SEEKINGALPHA.COM) –The orthopedic implants industry is relatively fragmented among ten large competitors who operate in the space, with some like Globus Medical (GMED), specializing in certain products such as minimally invasive spine implants. Despite Globus Medical’s recent success, it remains a relatively small player in the orthopedic implants market. Stryker (SYK), Zimmer-Biomet (ZBH), and Medtronic (MDT) all generate billions from this space and control considerable market share compared to Globus Medical.
Medtronic and Zimmer-Biomet along with others control large percentages of the orthopedic implants market. Overall, the global orthopedic implants market is expected to grow approximately 3.4%.
Revenue growth was flat for Globus, Medtronic, and Zimmer-Biomet between 2016-2017. With the general orthopedic implants market expected to only grow 3.4% year over year, it has become hard to take advantage of aggressive growth opportunities to expand and grab market share. As a result, Globus Medical’s competitors have continued to gobble up billions in revenue each year while Globus hovers around $500-600 million in annual revenues.
While the larger players including Stryker, Medtronic, and Zimmer-Biomet have their business interests more diversified across the orthopedic implants space, Globus Medical is heavily concentrated in selling implants for spinal procedures. Bearing more risk by not diversifying its interests, Globus also sets itself up for much higher future upside in a general implants market that has sluggish growth.
Compared to the general market which will see growth of 3.4% year over year, the spinal implants market is expected to grow 6.6% CAGR through 2022. The global spinal implants market is worth between $8-10 billion, and Globus accounts for only half a billion as of now. Stryker, Medtronic, and Zimmer-Biomet derive 7.6%, 19.1%, and 14.4% of their revenues from spinal implant devices, respectively. Globus Medical specializes almost exclusive in spinal devices. While being diversified in other areas beyond spinal implants isn’t a bad thing, the point is that Globus is heavily concentrated in a high growth market, and with its low market capitalization compared to its competitors, has significant room to continue to grow.
And while the other competitors split their business investments across a diverse portfolio, Globus has recently ramped up innovation in the spinal space.
Globus recently developed the ExcelsiusGPS, an innovative robotic technology that will allow for highly advanced precision with spinal implant surgeries, increased mobility, and imaging compatibility. Globus isn’t the first company to develop sophisticated technology like the ExcelsiusGPS, but the new robotic surgical tool will offer real-time instrument positioning and tracking, is portable, and its display integrates preoperative CT, intraoperative CT, and fluoroscopic imaging. Major competitor Zimmer-Biomet’s robotic surgical tool does not offer similar features.
Entry into the Trauma Market
While Globus Medical’s bread and butter still remains the spinal implant technologies that it develops, it is capitalizing on the high growth trauma market that is expected to exceed $8 billion in total value by 2020 and grow at 6.8% CAGR through 2028. For Globus to maintain its growth in the spinal market while also gaining a piece of an $8 billion dollar market will bring continued high growth for the company.
Globus Medical is off to a hot start in establishing itself as a player in the trauma devices industry. In a press release on March 6th, 2018, Globus reported that it had received 11 FDA clearances for new trauma device technologies that it had developed. Some products include fracture plates, compression screws, and stabilization systems.
Large competitors in the space include Stryker, Zimmer-Biomet, and Smith & Nephew. Beyond the three largest players, the market is largely fragmented, offering Globus Medical the opportunity to establish a foothold in the industry and gain market share.
Several years will be spent by Globus establishing itself and implementing its products into hospitals but capturing even a small percentage of the market could bring substantial revenue upside for Globus Medical. Conservatively capturing 2% share by 2020 in a trauma market worth $8 billion would add $160 million in incremental revenue to Globus Medical’s top line revenue. Along with Globus Medical’s strong performance in the spinal market space, it’s not out of question for Globus’ revenue to hit $1 billion by 2020.
To jump in or not?
Investing in Globus back in late 2015-early 2016 would have been lucrative with an approximate 110% return since February 2016. However, investors who hadn’t jumped on the opportunity haven’t missed the train yet. Globus is still a relatively small company as compared to some of the industry giants who generate tens of billions in revenue each year.
Creating consistent returns and making strides to build out its core market while entering new high growth areas like the trauma devices market has helped Globus chug along the past couple years. It hasn’t aggressively financed itself with debt and has demonstrated positive cash flow while expanding year after year. And while industry giants like Stryker were founded in 1941, Globus was only founded in 2003. In under two decades, it’s become a $5 billion dollar company. As it keeps chipping away at the older, more established industry players while investing in areas that are expanding, there is much breathing room for Globus to expand year after year into the foreseeable future.
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