Becker's ASC Review

60 ORTHOPEDICS Post-coronavirus outlook for 4 major companies in orthopedics — Stryker, Medtronic & more By Laura Dyrda T he medical technology giants are feeling the effects of the COVID-19 pandemic, including giants in the or- thopedic space such as Johnson & Johnson, Stryker, Medtronic and Zimmer Biomet. e virus first began affecting these compa- nies while it spread through China in January and February; many of these companies have manufacturing in China, and Chinese fac- tories were shut down for a time to curb the spread of the virus. As things began to get up and running in China again, the virus spread to the U.S., where new challenges arose. On March 17, CMS urged hospitals to halt elective surgery and devote resources to treating coronavirus patients. Many hospitals independently announced a reduction, postponement or cancellation of elective surgeries, including many orthopedic and spine cases. In hospitals where these cases are ongoing, vendor presence is limited. Moody's altered the U.S. medical products and devices sector outlook from "positive" to "stable" on March 17 due to the elective surgery cancellations, although the firm an- ticipates it will recover with canceled surgeries being performed later this year or next year. e American Academy of Orthopaedic Surgeons also canceled its annual meeting, scheduled for March 24-28. Device compa- nies typically launch or display new products at the convention. Here are key notes on the outlook of these four companies: 1. Johnson & Johnson DePuy Synthes, part of Johnson & Johnson Medical Device Companies, is building its digital and robotic presence as well in the orthopedic space. e company generates around $10 billion in an- nual sales and continues to release new capa- bilities with Brainlab. Meanwhile, Johnson & Johnson teamed with Janssen Pharmaceutical and Beth Israel Deaconess Medical Center on March 13 to develop a COVID-19 preven- tive vaccination. Moody's rated Johnson & Johnson as "Aaa" on Aug. 29, 2019, and it has a negative outlook. 2. Stryker Moody's expects Stryker to proceed with its $5.4 billion acquisition of Wright Medical despite the coronavirus spread, but is not projecting much other transformational M&A in the foreseeable future. And when elective surgeries do pick up again, Moody's sees companies with robotic technology, such as Stryker's Mako, as expanding rapidly. Stryker has a rating of "Baa1" stable and reports nearly 800 robotic systems installed worldwide. 3. Medtronic Medtronic has an "A3" stable rating from Moody's, which expects its cardiology-related revenues to grow at an accelerated rate because the company's prod- ucts are used for high-risk cases. On March 18, Medtronic reported it had increased its ventilator production by more than 40 percent and is on track to double its capacity to manufacture ventilators in response to the growing need for COVID-19 patients. 4. Zimmer Biomet Moody's expects to see Zimmer Biomet's sales of its robotic platform, ROSA, to increase when elective surgery vol- ume swings back to normal. Zimmer Biomet received FDA approval for ROSA in 2019 and Moody's thinks it will be able to grow due to physician loyalty to its products. Zimmer Biomet has a "Baa3" stable rating. n DOJ alleges SpineFrontier bribed spine surgeons to use devices in $8M kickback scheme By Angie Stewart T he Department of Justice intervened in two whistle- blower cases alleging that SpineFrontier illegally paid over $8 million in kickbacks to spine surgeons from October 2013 through December 2018. In complaints filed under the False Claims Act, the govern- ment accuses SpineFrontier, its executives and related entities of paying spine surgeons to use the company's medical devices and disguising those kickbacks as con- sulting fees for product evaluations. SpineFrontier founder and CEO Kingsley Chin, MD, is also the founder and principal owner of KIC Management Group and KICVentures. Those two entities own and operate SpineFrontier and Impartial Medical Experts, which prosecu- tors allege was created for the sole purpose of shielding the "sham" consulting payments from government scrutiny. Dr. Kingsley, his wife and IME employee Vanessa Dudley, and SpineFrontier President and CFO Aditya Humad alleg- edly portrayed IME as an independent, third-party entity but actually used it to bribe spine surgeons with kickbacks. Spine surgeons were allegedly paid about $500 for a cer- vical procedure and $1,000 for a lumbar procedure if they used SpineFrontier devices, even though SpineFrontier didn't systematically collect or use feedback from those surgeons. Prosecutors accuse SpineFrontier of giving surgeons unlimited opportunities to receive these "consulting" pay- ments, as long as they used SpineFrontier devices. Previous employees originally filed the lawsuits under the False Claims Act's whistleblower provision. n

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