Orthofix Medical Sees Reimbursement Rebound, but Spine Slump Clouds Outlook

Orthofix Medical NASDAQ: OFIX executives said the company’s updated outlook reflects the restoration of bone growth stimulation reimbursement, improving trends in biologics and limb reconstruction, and an expected European inventory order, partly offset by a steeper-than-anticipated decline among smaller U.S. spine distributors.

Speaking at the Canaccord Genuity Growth Conference, Chief Financial Officer Julie Andrews said the revised guidance incorporates several moving parts. Positive factors include the reimbursement restoration, an expected European Medical Device Regulation-related inventory purchase in the second half, and strengthening performance in the biologics and limb reconstruction businesses. Those items are being partially offset by weaker results from smaller U.S. spine distributors.

Orthofix expects third-quarter revenue to be in roughly the same range as the second quarter, with modest year-over-year EBITDA margin expansion. The company expects most of a European MDR-related stocking order to occur in the fourth quarter.

Orthofix said a temporary reimbursement pricing change affecting its bone growth stimulation business had an approximately $1 million impact over a six-week period in the second quarter. Andrews said the company expects to recoup that revenue in the third quarter following the restoration, along with billing proceeds. Chief Executive Officer Massimo Calafiore said the company worked with the Centers for Medicare & Medicaid Services and other industry participants to advocate for the reversal. He described the effort as a coordinated response led by Orthofix as a market leader in the category.

Despite the reimbursement uncertainty, Andrews said the company’s therapeutic solutions business showed resilience and that procedural volumes were broadly consistent. Calafiore added that Orthofix’s top 40 distributors, representing about 80% of distributor revenue, continued to grow above market.

While the FDA’s down-classification of certain products remains in place, Calafiore said Orthofix had been preparing for that development. He said the change may make it more difficult for new entrants to obtain equivalent indications, while giving Orthofix greater flexibility to consider product innovation and expansion into additional markets.

Orthofix is continuing to concentrate its spine business among larger, higher-quality distributor partners. Calafiore said the company plans to identify which distributors within the remaining 20% of its network it wants to retain and shift resources toward the larger distributor group. He acknowledged that the transformation could continue to create some volatility, but said...