Treace Medical, the leading player in the foot and ankle surgical market, recently announced its first quarter 2024 results. While revenue grew by 21%, driven by kit volume and the success of newer products like the SpeedPlate fixation platform, a closer look at the company's statements reveals a potential strategic shift that has largely flown under the radar of analysts.

Despite celebrating the 100,000 patient milestone for its flagship Lapiplasty procedure, Treace seems increasingly concerned about the rise of minimally invasive osteotomy (MIS osteotomy) solutions. This, coupled with the emergence of "knockoff" Lapiplasty products, is creating a more challenging competitive landscape.

The difference in language used during the recent earnings call compared to the fourth quarter of 2023 is telling. Previously, Treace downplayed the competitive threat, stating that they had "yet to see anything that was of a significant headwind." This time, CEO John Treace directly acknowledged "competitive pressure that is creating a headwind," directly impacting the company's revised 2024 guidance.

Mark Hair, Treace's CFO, attributed the 21% revenue growth in Q1 to both "volume increases and blended ASP." However, his comments regarding the full-year guidance emphasized that future growth will be primarily driven by "volume increases driven by Lapiplasty." This implies a potential slowdown in blended ASP growth, mainly fueled by newer products. This subtle shift in language suggests Treace is anticipating a dampening effect on the adoption of its complementary products due to mounting competitive pressure.

Shifting Focus: From Lapiplasty Champion to Comprehensive Bunion Solutions Provider

Interestingly, Treace's response to this pressure indicates a strategic shift. Instead of solely focusing on defending Lapiplasty's market share, the company is accelerating its efforts to become a "comprehensive bunion solutions company." This includes launching two innovative 3D MIS osteotomy systems later this year, directly targeting the 70% of the bunion market currently dominated by osteotomy approaches.

This pivot towards MIS osteotomies suggests Treace recognizes the increasing appeal of these minimally invasive techniques, even within its own loyal customer base. Currently, surgeons who utilize Lapiplasty still perform over half of their bunion cases using osteotomies. By offering its own MIS osteotomy systems, Treace aims to recapture those cases and prevent customers from fully converting to competing platforms.

Navigating a New Landscape: Risks and Opportunities

However, entering the highly competitive MIS osteotomy market is not without risk. Treace will be challenging established players with vast experience and extensive distribution networks. Success will hinge on the company's ability to replicate the design elegance, reproducibility, and clinical effectiveness of Lapiplasty in its new osteotomy systems.

This uncertainty is reflected in Treace's revised 2024 guidance, which now anticipates a significant slowdown in growth to a range of 7% to 13%. The company is banking on its new MIS osteotomy platforms to revitalize growth in the fourth quarter of this year and carry the momentum into 2025.

Charting a New Course: Volume vs. Blended ASP Growth

The following chart visualizes the projected shift in Treace's revenue growth drivers, with volume expected to play a more significant role in the future.

The stakes are high for Treace Medical. If the company successfully executes this strategic pivot, it could solidify its position as a dominant force in the overall bunion market. However, failure to gain traction with its new MIS osteotomy systems could significantly hinder growth prospects and potentially jeopardize its ambitions for profitability and long-term shareholder value.

"Fun Fact: Treace Medical was recently named the first medical device partner and official Foot and Ankle solution partner for The Professional Pickleball Association Tour. This is a strategic marketing move considering pickleball's explosive growth and the potential for bunion-related issues among its players."