Johnson & Johnson’s orthopedics unit is undergoing several changes as it looks to enter high-growth markets. Last year, J&J announced the unit would exit less profitable markets and product lines. The company is also looking to expand its surgical robot, Velys, which received FDA clearance in 2021 for total knee procedures and a CE mark in 2023.
Last year, the orthopedics unit reported sales of $8.94 billion, roughly a 5% increase year over year.
Aldo Denti, chairman of DePuy Synthes, spoke with MedTech Dive about the company’s strategic priorities, and the role of technology as more procedures move to ambulatory surgery centers.
This interview has been edited for length and clarity.
MEDTECH DIVE: How are you thinking about orthopedics over the next five years?
ALDO DENTI: I’ve watched the progression of this industry over the last 30 years, and I’ve been the beneficiary of seeing all of the different trends develop. There’s not a time before this, that I can remember, that has been as exciting as the time that we’re in now.
That’s for a number of different reasons related to just the technological evolution that we face as a company and as an industry. You think of things like digital enablement. We think of the site of care shifts that we’re observing in the United States and elsewhere. We think about the advent of being able to better utilize materials and biomaterials to help patients. We truly are at a real fork in the road with regard to innovation, where we see a deviation from being core implant companies and migrating ourselves all to being what I'd like to call medtech companies.
What’s driving the shift in procedures to outpatient settings?
In our orthopedics business, we are increasingly seeing lots of different procedures migrating to what we call an ASC or ambulatory surgical setting. That’s a trend that we see accelerating.
We fully expect that in the next five years, upwards of 50% of all total joint reconstruction cases could be done in an ASC. That would be hips, knees and shoulders, to be specific.
There's been recent news that shoulders now can migrate towards that setting as well. And that’s an exciting prospect for us.
It’s not just a U.S. phenomenon. We’re starting to see other countries pay attention to this, like Canada, Switzerland, the United Kingdom and Australia. And the reason this is important is because the volume trend is related to this.
In the United States, the [COVID-19 pandemic procedure] backlog, it’s certainly still there, but the difference between the U.S. and outside the United States is that we have an efficiency play in the channel setting, which means that you’re starting to see those volumes go through a more efficient channel.
Outside the United States, the backlog is still there because the setting is rather inefficient. As those countries evolve their setting, we will see a more efficient play and we should see those backlogs come down.
What types of procedures are moving to ASCs?
I think the trend in the United States started with ophthalmics. Related to orthopedics, what we’re seeing is sports went there first. A very large proportion of sports procedures, ACLs in particular, migrated towards the ASC setting first. And then we started to see other things follow, like elective foot and ankle, lapidus procedures [or bunion procedures], hammertoes. More recently, we've seen more complicated cases, hips and knees and now shoulders also going there.
Those are the predominant areas that we see right now. That’s not to say that in the not too distant future, we couldn’t see simple fractures, like fractures in the fingers and hands go there as well. But that’s a little different because you have to go to an emergency center first. It’s more the elective cases that are going there, and the ones that are less complicated where we have a proven track record that patients can benefit from the site of care.
How are you thinking about robotics in the context of orthopedics?
When you think about the opportunity that lies in front of us, we fully expect that robotically-enhanced knees will be the way business is done in the future. Not everywhere, but in the United States, we certainly see it having migrated towards that.
Given that our penetration with robotically-enhanced knees is relatively low, in the 16th-percentile range, we see tremendous upside for us as the market continues to grow, as the site of care shifts, and of course, we have a high-performing knee implant.
Not related to hips and knees, we are in the process of using AI predictive software for our bunion procedures. We’re in limited release right now and we expect to launch later this year. Virtuguide allows us to couple our acquisition of Crossroads Extremities and adds the element of digital.
We are preoperatively planning the correction of that patient, we can determine how that correction will be executed in the ASC, we can send customized cutting guides to the surgeon and we can take away a lot of the complexity of that case. So you can imagine the efficiency that enables in a setting where the throughput is important.
Are you still working on partial knee replacement and spine indications for your robotic system?
We are delighted that we can extend the applications for our Velys total knee robot. We are extending the application to a partial knee, and that’s particularly exciting for us because a lot of the systems that exist today are based on CTs and/or burrs. Ours uses a blade as opposed to a burr, has no CT, and is built and customized for a partial knee application.
Partial knee applications on a worldwide basis are essentially about 5% of the total knee market, but it’s growing about 7%.
You couple a great implant with a very competitive robot built for a specific site of care with relatively low penetration, what that tells you is that we have a lot of opportunity for growth.
Lastly, you referenced spine. We are in the process of trying to get a spine robot to the market, and I will be in a position to share more news about that later this year.
Stryker and Zimmer Biomet are working on robotic applications for shoulder replacements. Is that something you’re looking at?
In shoulders, the unmet need is to ensure that the pin placement for the glenoid is accurate. I believe there are technologies that are available today that allow us to do that without necessarily having to have a robot.
One would be the use of augmented reality with some navigation capability, so that you are looking at the native anatomy but at the same time getting information through an augmented reality or mixed reality set where you can place the pin in the appropriate place but not be hampered by the use of a robot.
Shoulders are not as high volume as hips and knees. And because there are less surgeons doing higher volumes it also means that the device that you're using has to be accurate and yet adaptable to all surgeons whether they be lower volume or higher volume. I do believe that the enabling technologies that are referencing have the capability to do that. We are actively looking at those technologies, and that is where we’re going as a company.
In October, J&J mentioned plans to restructure its orthopedics business. Could you share more details about what products or markets you’re looking to exit?
It’s not a restructuring per se, but rather a transformation.
We started our journey four years ago to stabilize the company. And we did that.
Now, we are pivoting to, how do we operationally make the company more efficient from a long-term perspective?
We want to focus on the markets where we have the highest ability to serve patients and customers. We have announced that we will be optimizing 50 markets-plus in order to ensure that our footprint matches our growth aspirations.
Step two is addressing the complexity of our portfolio. We have flagship brands. Some of those examples are the Attune or Actis. We want to ensure that we move our efforts to those flagship brands, and to de-complexify all the brands that perhaps don’t have as much material impact on our business. It’s optimizing our portfolio and eliminating about 20% of the SKUs that sit in those brands where we don't have as much interest in driving the focus as opposed to our flagship brands.
Step three of our transformation is optimizing our network footprint to reduce operating costs. Over the pandemic, in the last few years, we’ve been facing inflation and a lot of challenges. And so optimizing our network is an important step in making us more robust from a profitability perspective going forward.
What are the areas you want to invest in, whether through internal resources or acquisitions?
The other chapter that we’re going to simultaneously execute is a movement from our core implant business, which would be more like the hips and knees, and core trauma and spine, and continuing to do well on that, but at the same time, starting to pivot to higher growth segments.
Some of the areas that are of particular interest to us would be things like shoulders, cranio-maxillofacial, upper extremities — in particular, the distal radius area, and lower extremities — foot and ankle. Biomaterials is another area that we’re interested in, and then sports.
That coupled with digital, which we’ve been speaking a lot about, allows us to coin what we’d like to think of as us evolving not to a medtech company, but to a bio-medtech company. That is our aspiration.
Correction: This article misstated J&J's market penetration for robotically-enhanced knees. It is in the 16th percentile range.
