Top companies report: a comprehensive look at the biggest worldwide orthopedic manufacturers.
Top of Their Game
Every year, Orthopedic Design & Technology examines the top 10 performing orthopedic firms. As with issues past, companies are ranked by revenue for the last full fiscal year--in this case, 2007. To provide insight into a company's performance, we looked at new product launches, research and development activity, mergers and acquisitions, as well as market share gain and loss--business as usual, right?
That was not necessarily true for 2007, as orthopedic firms were judged by more than their financial skills and technological prowess. It was a period of marked transition as US regulators and lawmakers investigated orthopedic manufacturers' relationships with physicians. While companies continued day to day, Wall Street and other interested observers held their collective breath to see how it all would play out.
As 2007 drew to a close, so did an investigation that started with subpoenas issued in 2005 by the US Department of Justice (DOJ) regarding possible violations of the Federal Healthcare Anti-Kickback Act-basically, allegations that companies paid kickbacks to surgeons to use their products. Biomet, DePuy, Zimmer and Smith & Nephew entered into deferred-prosecution agreements, through which they avoided criminal action if they adopted overhauls and completed 18 months of corporate monitoring. They also agreed to pay a total of $311 million to settle the criminal and civil probes. Stryker did not pay a fine, but voluntarily cooperated with prosecutors and agreed to a non-prosecution pact. None of the companies admitted to any wrongdoing.
The investigation and subsequent fallout have brought with them a change in how the entire medical device industry does business and interacts with a key group of end users. That's not to say that some improprieties didn't exist (it's likely some did and needed to be exposed), but physician input remains critical to R&D and proper training, making it much different than the model used by the pharmaceutical industry. Companies have begun to adopt specific policies on payments for product development activities; education and training; and other physician-related business relationships. The DOJ activity wasn't the end of the story. Proposed legislation on Capitol Hill--the Physician Payment Sunshine Act--would mandate transparency and fees for noncompliance. Last fall, the Securities and Exchange Commission began its own investigation. Given how long it took the DOJ's inquiry to unfold, this one, too, could take some time.
Despite the more critical mood, business remained robust. Favorable market demographics continue to fuel large-joint expansion. The spine, biologics and trauma markets represent opportunity and are growing quickly, led by technological breakthroughs not available as recently as a few years ago. And, of course, acquisitions continue as a tool of choice to swiftly grow revenue and product lines.
Input from industry experts, public documents and consultations with company officials helped us compile this report. Space constraints limit our ability to outline every detail, but we hope you, nonetheless, find it comprehensive and informative.
The ODT Staff
1 Stryker Corp. $6 Billion
John W. Brown, Chairman
Stephen P. MacMillan, President and CEO
J. Patrick Anderson, VP, Corporate Affairs
Dean H. Bergy, VP and CFO
Andrew Fox-Smith, President, International
Michael P. Mogul, President, Orthopedics
Stephen S. Johnson, Group President, MedSurg
Timothy J. Scannell, President, Spine
James E. Kemler, Group President, Biotech, Osteosynthesis and Development
NO. OF EMPLOYEES: 18,800
HEADQUARTERS: Kalamazoo, MI
Joining an elite few, Stryker has managed to achieve a best-in-class track record for the seventh consecutive year: For 2007, the company recorded double-digit sales growth of 16.6%. Given that the company was one of only 19 Fortune 500 companies to achieve double-digit growth for six consecutive years through 2006, and the number of firms able to continue this heady gain for 2007 most likely dwindled as the US economy tumbled, the latest feat is quite an achievement.
Net sales totaled $6 billion for the fiscal year ended Dec. 31, compared with $5.1 billion for 2006. With such financial strength, the company managed to increase operating cash flow in excess of $1 billion, an 18.6% increase. Double-digit growth was apparent in various areas of Stryker's financial recordings for the year.
Domestic sales (64% of total revenues) were nearly $3.9 billion, a 17% increase from $3.3 billion in 2006. International sales (36% of total revenues) grew 16%, from $1.8 billion in 2006 to nearly $2.2 billion in 2007.
In terms of product lines, Stryker operates with two major segments including Orthopedic Implants and MedSurg Equipment.
The Orthopedic segment recorded net sales of $3.57 billion, representing 15% growth from $3.11 billion in 2006. Within this segment, sales of hip, knee, trauma, spinal and craniomaxillo-facial (CMF) implant systems grew 9%, 16%, 19%, 25% and 17%, respectively. Hip sales were driven by sales of X3 polyethylene and Accolade cementless hip products in the United States, as well as solid sales for the Exeter, Trident, X3 polyethylene and Accolate products in Europe, the Pacific region and Latin America. Knees had strong growth due to strong sales of the Triathlon Knee System in the United States, Europe, Canada and the Pacific region, along with growth of the Scorpio Knee System in Europe, the Pacific region and Latin America. Trauma saw sales gains with its Gamma3 Hip Fracture System in the United States, Europe, Canada and the Pacific region, as well as sales growth for the T2 Nailing System in the United States and Europe. Spine grew mostly as a result of strong product demand for thoracolumbar implant systems, interbody devices and cervical implants. CMF implant sales were aided by growth of products for neurological indications and CMF implants in the United States, Europe and the Pacific region.
MedSurg Equipment had net sales of $2.43 billion, a 19% increase from $2.04 billion in 2007. Sales of surgical equipment and surgical navigation systems increased 20% due to strong sales in powered surgical and operating room equipment in the United States, Europe and the Pacific region; another contributor was constant currency sales growth of interventional pain products in Europe. Sales of endoscopic, communications and digital imaging systems grew 20% in 2007, aided by strong growth in medical video imaging equipment (particularly the 1188 HD Camera) and complementary products such as the X8000 Lightsource and Vision Elect Monitor; arthroscopy and communication products also achieved strong sales in the United States, Europe and the Pacific region. Finally, sales growth of 16% for patient handling and emergency medical equipment was attributed to increased sales of stretchers and emergency medical equipment in the United States and Europe, as well as hospital beds in the United States and maternity beds in the United States, Canada, Europe and Latin America.
One of the company's top goals has been to invest in R&D to propel future growth and, as such, Stryker increased its expenditures in this area 16% to $375 million. As a result of increased spending for R&D activities over the years, Stryker was able to introduce several new products in 2007. The Orthopedic Implants segment rolled out the condylar stabilizing ultra-congruent insert for the Triathlon Knee System, the Scorpio NRG with X3 advanced bearing technology and the Omega 3 Compression Hip Screw System. The MedSurg equipment segment also launched InTouch, a high-acuity care bed; the SDC Ultra, an all-in-one medical imaging information management system; the CORE Sumex drill for use in ear/nose/throat procedures; and the 45L PneumoSure insufflator.
One of Stryker's top achievements, in terms of product approvals, was US clearance for the Cormet Hip Resurfacing System, making the company the second to offer this type of technology in the United States (Smith & Nephew was first with its Birmingham system).
To better hone its core competencies, in 2007 Stryker divested its outpatient physical therapy business, Physiotherapy Associates, to Water Street Healthcare Partners, for $150 million. On the other hand, a celebration was on hand that year for the opening of the Homer Stryker Center, a clinical research and surgeon education center that was the brainchild of former Executive Vice President Ron Lawson, who retired at the end of the year.
Clearly, Stryker's results for the year showed that it could remain focused on business as usual, even when problems cropped up. The company received two FDA warning letters in 2007 targeting quality systems at its Cork, Ireland facility and its Mahwah, NJ facility.
For 2008, Stryker is looking to carry on as a double-digit gainer in the industry, though its net sales target increase is lower than 2007's final gain. The company is forecasting net sales growth of 11% to 13%.
2 DePuy $ 4.6 Billion
Michael Mahoney, Group Chairman
Peter Batesko III, VP, Finance and CFO
David Floyd, US President, DePuy Orthopaedics
Richard Twomey, International President, DePuy Orthopaedics
Gary Fischetti, Woddwide President, DePuy Spine
NO. OF EMPLOYEES: 5,500
HEADQUARTERS: Warsaw, IN
During a June 2008 meeting with members of the investment community, various officials from Johnson & Johnson outlined their growth expectations from the company's medical device units during the next several years, with orthopedic products projected to get a 9% annual boost to $48 billion.
Orthopedic products are sold under the DePuy brand name, which is segmented further into the Codman, DePuy Mitek, DePuy Orthopaedics and DePuy Spine brands.
Michael Mahoney, the group chairman of J&J's DePuy orthopedic division, said the overall unit gets more than 40% of its revenue from outside the United States and claims the No. 2 spot in the global market, while retaining the top spot in the domestic market. Brazil, Russia, India and China had record growth in 2007, and the company is making investments to build on that momentum.
"We recognize the potential of the marketplace and see the opportunity to gain share," Mahoney told analysts. The company has been introducing a range of new product platforms that include more durable materials and instruments for minimally invasive surgery. Those are both necessary to stay on top, he said, as patients demand better implants and less-invasive techniques.
The DePuy unit was the largest revenue contributor within J&J's medical device division last year, accounting for $4.59 billion in sales.
The powers that be at New Brunswick, NJ-based Johnson & Johnson claim their device and diagnostics businesses make up the world's largest medical technology business. With 2007 revenues in excess of $21 billion (35% of the company's total sales), there's no arguing with that boast. In 2007, J&J's device businesses achieved total growth of 7.2% compared with 2006 (domestic sales increased 3.2% and international sales increased 11.1%--4.6% from operations and 6.5% from currency).
Overall, medical device sales are J&J's second-largest revenue driver-behind pharmaceutical sales.
One reason for DePuy's success within J&J's medical device division is that new products continually roll out every year. In 2007, DePuy launched 24 new products.
The DePuy Orthopaedics division, for example, launched several new hip products. The Ultamet XL and Altrx hip bearings with the Pinnacle Acetabular Cup System are technology used to recreate the hip's natural ball-and-socket joint and help increase joint stability and range of motion in patients needing total hip replacement. The Peak FX Hip Plate System is used to stabilize hip fractures while sparing surrounding tissue (to help promote faster recovery). Further up the body, the Delta Xtend Reverse Shoulder System reverses the shoulder's anatomy to use the healthy deltoid muscle to restore shoulder function.
DePuy's acquisition of Hand Innovations in 2006 started paying off in 2007, as DePuy Orthopaedics launched less-invasive products for fracture surgery for the hand, wrist, foot and shoulder. At the February 2007 annual meeting of the American Academy of Orthopedic Surgeons, the company unveiled the F3 Fragment Plating System, the $3 Shoulder Nail Plating System and the Multidirectional Threaded Peg for the DVR Anatomic Plating System. (During the meeting, DePuy also launched the Global AP Adjustable Neck Shoulder Replacement System, as well as the Agility LP Total Ankle Replacement.)
The Orthopaedic division also notably launched new software platforms to be used in conjunction with hip and knee surgeries. The Ci Essential Hip System and Ci Essential Knee System were designed to let surgeons visualize parts of the body that aren't visible through an incision, without the need for computed tomography or fluoroscopy. The company said these advantages could save hundreds of dollars and enhance implant positioning.
DePuy Spine, meanwhile, grew with product launches as well as strategic alliances and acquisitions. In January 2007, it launched the Expedium 6.35, a titanium and stainless steel screw and rod system designed to simplify the correction of spinal deformities and treatment for degenerative disc disease. In February, the Egis Anterior Lumbar Plate System, designed to treat degenerative conditions of the lumbar spine, was rolled out. In May, DePuy launched the Vertigraft VG2 TLIF Allograft, designed to facilitate graft insertion and bone growth during transforaminal lumbar spinal fusion surgery.
In terms of getting ahead via other means, Axial Biotech, Inc. and DePuy are collaborating to develop a gene-based test that would help predict the progression of scoliosis (curvature of the spine). The Spine unit also acquired assets pertaining to the treatment of vertebral compression fractures from Disc-O-Tech Medical Technologies. Furthermore, last fall DePuy and J&J invested $5 million in Series C equity financing for Biomerix Corp., a medtech company that DePuy hopes will help advance development of a new annulus repair implant following lumbar discectomy.
The Mitek unit, focused on sports medicine, notably launched the Versalok knotless anchor system, used in rotator-cuff repair; it allows surgeons to use one implant and a variety of suture-passing configurations for various tear pathologies.
The future of DePuy Orthopaedics domestically now rests in new hands. In late September, David Floyd was named as the unit's US president. He came to J&J with more than 20 years of experience in orthopedics, especially in the reconstructive joint market, and formerly worked at companies such as Abbott Spine, AxioMed Spine Corp. (where he was president and CEO) and Centerpulse Orthopedics (for which he was US president).
One less worry he'll have moving forward is the US Attorney's 2005 investigation related to consulting relationships and other agreements with DePuy's surgeon customers. DePuy paid $85 million as part of its settlement (see the "Top Companies" introduction on page 38 to learn more about the issue).
The first half of 2008 has shown that DePuy is still posting double-digit gains in a tough economic climate. US growth was only 4.1% compared with the same period in 2007, but international sales grew 20.5%. Overall, DePuy's total global sales were $2.5 billion for the first six months, a 10.9% increase from the first half of 2007.
3 Zimmer Holdings $3.9 Billion
David C. Dvorak. President and CEO
Cheryl R. Blanchard, Sr. VP, R&D and Chief Scientific Officer
James T. Crines, Exec. VP, Finance and CFO
Jon E. Kramer, President, US Sales
NO. OF EMPLOYEES: 7,600
HEADQUARTERS: Warsaw, IN
In the United States and Europe, the older-than-65 age group is projected to grow to between 15% and 20% of the population by the year 2015, compared with 10% to 15% in 2000. And in 2008, baby boomers began turning 62, which means they're on the threshold of age-related degenerative conditions such as arthritis. If you're an orthopedic company with dominant products in knees and hips, you're in the right place at the right time.
That's certainly the case for Zimmer Holdings, Inc.
By the company's estimates, it holds the No. 1 market positions in hips (26% of a $5 billion global market) and knees (28% of $5.8 billion global market). And Zimmer is performing solidly, reporting double-digit revenue growth for the 2007 fiscal year (ended Dec. 31) and rolling out a series of new products. Sales for 2007 were $3.9 billion, a 12% increase compared with 2006. Knee reconstruction products were the biggest revenue driver at 42% of sales, posting a 12% increase to $1.64 billion. Hips followed with $1.3 billion, a 9% increase.
"Our smaller businesses also are well positioned to deliver growth with new products and technology applications," CEO David Dvorak said in Zimmer's annual report. It seems he's correct. While not the biggest bottom-line earner, sales from Zimmer's extremities product line showed the most impressive growth, increasing 34% to $104 million. Rounding out the company's Reconstruction division, revenues for dental products grew 23% to $221 million.
Sales for the Trauma division rose 6% to $206 million. Spine business revenue gained 11% to reach $197 million, while the company's Orthopedic Surgical Products (OSP) unit increased its sales 8% to $234 million.
The United States was responsible for 58% of net sales, Europe was 28% and the Asia-Pacific region was 14%.
Despite solid sales performance, net earnings of $773.2 million slid $61 million from 2006 profit of $834.5 million. The difference primarily was due to settlement charges of $169.5 million related to the government's anti-kickback probe of five of the largest orthopedic companies. Adjusted earnings, excluding the settlement costs as well as acquisition-related expenses and other nonrecurring items, improved 14% to $961.6 million.
Zimmer notably made some strategic acquisitions in 2007 and rolled out more than 20 new products across all product categories.
In early 2007, Zimmer agreed to buy Endius, Inc., a Massachusetts-based spine company that developed a minimally invasive instrument kit and associated implants for spinal fusion. In November, Zimmer acquired ORTHOsoft Inc., which develops computer navigation for orthopedic surgery. According to Zimmer officials, the acquisition bolstered the company's SmartTools computer-assisted surgery product portfolio. Dvorak has said the company would continue to develop minimally invasive and computer navigation concepts across Zimmer's range of businesses.
Among new products introduced to the market in 2007 was the Gender Solutions Natural-Knee Flex System, the company's second gender knee that builds on its original Gender Solutions NexGen knee launched in 2006.
Another noteworthy product launch is the NexGen LPS-Flex Mobile knee, which was approved by the FDA in December. According to Zimmer, a key strength of its mobile bearing system is the ability to be used in a minimally invasive procedure. The main difference between a traditional knee replacement design and a mobile bearing knee is that the polyethylene articulating surface is free to rotate slightly along with the patient's natural movement. When used with the LPS-Flex femoral component, the knee replacement is designed to safely accommodate active deep flexion of up to 155 degrees for patients who are otherwise capable of that level of flexion. In the past, knee implants have been designed to accommodate flexion of only 120 degrees, according to Zimmer.
Meeting market growth demands and an aggressively expanding product line means the company will need more capacity. In February 2008, Zimmer announced plans to add a 100,000-square-foot manufacturing facility in Shannon, Ireland. Zimmer officials considered a number of sites before selecting Shannon, including existing sites and other global locations. The company expects to invest between $70 million and $75 million in the next two years and plans to begin manufacturing operations later this year. Initial employment will be approximately 25 to 50 employees, with total employment expected to be approximately 250 in five years. Initially, the facility will produce knee replacement implants, although other products could be added in the future, the company said.
For 2008, Dvorak said Zimmer would make additional investments in the higher-growth areas of spine and dental products. The company also plans to continue moving forward aggressively with knees and hips. For the first quarter (ended March 31), net sales increased 11%.
Zimmer hopes to expand its knee portfolio with new products such as the NexGen LPS-Flex Mobile Knee, Gender Solutions' Natural-Knee Flex and Patello-Femoral Joint System. Additionally, the company added to its portfolio the Kinective Technology for hip replacement and Fitmore Hip stem, which received FDA approval in March.
In April, Zimmer initiated voluntary recalls to improve quality systems at its OSP facility in Dover, OH, allowing the company to improve production systems and provide enhanced quality training for employees. The company expects the move to cause revenue to decrease by $70 million-$80 million. Zimmer said the recalls do not affect its core hip and knee implants business. In late 2007, the OSP division initiated a recall of more than 60,000 Pulsavac kits, used to clean wounds, because their sterility was compromised.
4 Smith 8, Nephew $3.4 Billion
John Buchanan, Chairman
David J. Illingworth, CEO
Adrian Hennah, CFO
Joseph M. DeVivo, President, Reconstruction
Joe Woody, President, Advanced Wound Management
Mark Augusti, President, Trauma and Clinical Therapies
Michael Frazette, President, Endoscopy
NO. OF EMPLOYEES: 9,190
HEADQUARTERS: London, United Kingdom
Some may have seen the orthopedic market cool in 2007, but that wasn't the case for Smith & Nephew. Even as Sir Christopher O'Donnell retired from his post as head of the company's board at the end of July, David J. Illingworth smoothly stepped into the role of CEO and was able to boast a 21% increase for the year's revenues by the end of 2007. The double-digit increase, enviable for any company in business, was particularly impressive given 2006 revenues only had grown 9% compared with 2005. Whether examining revenues by product type, sales region or business segment, year-over-year increases were, in some cases, as high as 76%.
Once again, Smith & Nephew used its experience as a 152-year-old company to deftly handle legal entanglements with the government, complete strategic acquisitions, roll out new products and boost profits. By the year's end, the company's total revenue was $3.37 billion, compared with $2.78 billion in 2006.
Accounting for more than one-third (37%) of its revenue totals, the Reconstruction segment (overseen from Smith & Nephew's Memphis, TN location), contributed $1.24 billion in 2007, up 35% from $919 million in 2006. The company reported that 18% of that gain was due to the May 2007 acquisition of Plus Orthopedics, a private Swiss company, for $889 million. Global knee revenue was up 25% for the year to $634 million, while global hip revenue grew 50% to $567 million.
Reconstruction growth (20%) in the United States ($618 million) was attributed to healthy sales for products such as the Legion and Journey knees and the Birmingham hip resurfacing system, all launched in recent years. The company can claim even greater success internationally, with revenue rising 54% in 2007 compared with 2006, bringing the year's total to $622 million. Europe sales grew 76% (more than half of which was a result of acquisitions), and Japan sales grew 13%.
The next largest contributor to Smith & Nephew's 2007 revenues, with 23% of total revenues, was the Advanced Wound Management segment. For the year, this unit saw revenue increase 12%, from $698 million in 2006 to $779 million in 2007. US revenues increased 13% to $157 million, while revenues outside the United States were on par with an 11% increase to $622 million. European regions all posted double-digit percentage gains, but growth in Japan was flat, according to the company.
In May 2007, Smith & Nephew strengthened its offerings in wound management by purchasing BlueSky Medical Group, Inc., a private US company, for an initial payment of $15 million, with future milestone payments of up to $95 million. The company's stated strategy has been to enter to the negative pressure wound therapy market, which the executive team believes is estimated at $1.4 billion. The Allevyn hydrocellular dressings were enhanced with new versions in the past couple of years, with 2007 bringing additions such as silver variants. Acticoat also offered new dressings for infection prevention. Last year, the company also entered into an agreement with Covalon Technologies, Inc. to distribute a range of denatured collagen dressings.
The Endoscopy segment, which added 22% of the company's total revenue, reported growth of 13% to $732 million, compared with $648 million in 2006. In the United States, sales increased by 5% to $361 million and were driven by the knee and shoulder repair sector as well as revenues from the company's Visualization and Digital Operating Room, which grew 7% due to the launch of the HD660 camera. Overseas revenue gains were healthier at 22% for the year, bringing the total to $371 million by the close of 2007.
The company expanded its shoulder repair offerings with the launch of the Kinsa RC Suture Anchor, while the arthroscopic hip repair market benefited from the introduction of the Lateral Hip Positioning System. The Endoscopy segment also redesigned and expanded its line of Clear-Trac disposable cannulas. Regulatory clearances also were granted in most major markets (excluding Japan) for the Kinsa anchor, Ultra FastFix, Trufit BGS, 560 High Definition camera system and various arthroscopy instruments and devices.
Revenues from the Trauma and Clinical Therapies segment, which contributed 18% of Smith & Nephew's total revenue, grew 20% to $618 million in 2007, compared with $514 million in 2006. US revenue for the year increased 12% to $414 million, while international revenue increased 41% to $204 million. The company's 2006 acquisition of Durolane hyaluronic acid product paid off in 2007 as it accounted for 5% of the underlying growth in sales outside the United States within clinical therapies (which grew 27% for the year). US clinical therapies operations were aided by a larger sales force that drove growth of Exogen (22%) and Supartz (10%) products. By August 2007, Exogen had captured the industry's top market share position for long bone stimulation, according to the company
The fixation product segment grew 17% for the year. In the United States, where sales grew 11%, continued growth of the Peri-Loc compression plate system (launched in 2006) and the launch of the Intertan nail contributed to the gains. The Peri-Loc Variable-Angle Locked Plating System was a significant introduction for 2007, as was the Peri-Loc Periarticular Reduction Forcepts Set. Other important launches in fixation included the Large Cannulated Screw System, Trigen Meta-Nail Blocking Screw Instruments, Trigen Percutaneous Intertrochanteric/Femoral Antegrade Nail Instruments and Caption Platelet Rich Concentrate System.
Overall, the company's largest markets were the United States (46%) and Europe (35%), with Africa, Asia and Australia and other regions rounding out the balance. In the United States, Smith & Nephew reached a settlement in September with the US Attorney for the District of New Jersey's office with regard to the subpoena the company (along with four other competitors) received in 2005 pertaining to antitrust law violations related to implant sales. Smith & Nephew paid a civil restitution payment of $29 million and legal costs of $1 million, as well as agreed to improve its compliance system.
A few minor product recall issues also were dealt with in 2007. In March, the company recalled 539 RF Denervation probes, used with the Electrothermal 20S Spine System in radiofrequency heat lesion procedures for pain relief, due to sterility labeling issues. A packaging error at a subcontractor also led to a voluntary withdrawal of 185 Birmingham hip resurfacing system implants. In addition, a precautionary recall was announced for knees from the TC-Plus, VKS and RT-Plus knee ranges after it was deemed that a limited number of semi-finished knee implant castings had a higher-than-specified iron content due to a production error at a supplier's factory.
On first glance, very little appeared to be slowing Smith & Nephew down in 2008. The company's first quarter, ended March 29, produced revenue gains of 22% to $911 million, compared with $744 million for the first quarter of 2007. The Reconstruction segment grew a substantial 44% to $377 million, while Advanced Wound Management, Trauma and Clinical Therapies, and Endoscopy had percentage increases of 2% ($189 million), 11% ($151 million) and 10% ($194 million), respectively. New product introductions for 2008 include the Arthrogarde Hip Access Cannula, the Footprint PK Suture Anchor, the R3 Acetabular System, Vertilast Technology and the Caption Disposable Platelet Concentration System.
In spite of the slew of product launches and double-digit sales increases, management said the results for the quarter were tempered by some problematic issues related to sales practices in Europe by Plus Orthopedics--the company now is working to harmonize standards in the group with Smith & Nephew's company-wide standards. For the full year, the company expects projected revenues to be reduced by about $100 million as a result of the problems. The Trauma and Clinical Therapies segment also had disappointing US sales, which were flat at 1% growth, but Illingsworth noted that European business was strong.
With favorable global market conditions overall, Illingsworth remained optimistic regardless of the problems he has inherited. "Although this has been a challenging quarter in parts of our business in Europe, we have taken firm action and we are confident that the overall business is in a strong position for continued strong sustainable profit growth," he concluded.
5 Synthes $2.8 Billion
Hansjorg Wyss, Chairman
Michel Orsinger, President and CEO
Robert Donohue, CFO, President, Synthes Canada
NO. OF EMPLOYEES: 9,070
HEADQUARTERS: West Chester, PA
In yet another solid year for Synthes, the company grew sales 15.3% to $2.8 billion in 2007, up from $2.4 billion in 2006. Net income was nearly $613 million, an increase of more than 20% from $509 million recorded for 2006. The steady climber has had a compound annual net sales growth rate of 22.4% in the past 10 years and shows no signs of slowing down--especially with some key product approvals last year.
The manufacturer of instruments, implants and biomaterials for surgical fixation, correction and regeneration of bone and soft tissues capped off a successful year in December with FDA approval for its ProDisc-C Total Disc Replacement, making Synthes the first company to offer both a lumbar and a cervical disc replacement in the United States. (This approval follows Synthes' fall 2006 launch of ProDisc-L, used in more than 1,000 US surgeries in 2007.) Synthes' biomaterials offerings also were strengthened by FDA clearance in October for the chronOS Strip flexible ceramic bone substitute.
As for many in the industry, Synthes invested in its future growth through acquisitions. In December, the company bought privately held N Spine for approximately $30 million (with additional payments of up to $45 million, depending on milestone achievements), enabling Synthes to enter the posterior spinal dynamic stabilization market to treat degenerative disc disease and stenosis. San Diego, CA-based N Spine's 6-mm diameter dynamic stabilization rod is compatible with Synthes' Pangea and Click'X pedicle screws, making the acquisition a strategic fit for the companies' products.
The most profitable region by far was North America, which contributed $1.7 billion in sales, representing 62% of the company's total sales. Within the United States, revenues were $1.67 billion, a 12.6% increase compared with $1.48 billion in the prior year. Trauma was the biggest growth driver in North America; new introductions in this business segment included the Volar Column Distal Radius Plate System and the Expert Lateral Entry Femoral Recon Nail Systems. Within the Spine division, new product launches included Antegra (a plating system used to stabilize degenerated lumbar spine segments anteriorly) and Synapse (instruments and implants for posterior stabilization of the upper spine). Spine growth also was aided by a continued rollout of SynFix-LR. Cranio-Maxillofacial (CMF) sales were driven by the MatrixNEURO system, which should continue to be successful in 2008 as indications are expanded, as well as increased use of Synthes' sternal fixation and reconstruction system.
Europe, which contributed nearly one-quarter of total sales, produced $637.3 million in revenue for 2007. In spite of competition and pricing/reimbursement pressures--not to mention unseasonably warm weather (and thus, fewer snow- and ice-related injuries)--the company grew its business with 13.4% local currency growth compared with 2006. Trauma growth came from the completion of the Expert Nail lines, as well as introductions including the LCP DHS, LCP DHS Blade and the EPOCA shoulder prosthesis. Spine also saw introductions with In-Space and Vertecem, along with new additions to product lines launched in 2006, such as Pangea. CMF, meanwhile, had the highest growth percentage, thanks to the MatrixNEURO system, the launch of the Sternal Closure systems and improved supply chains for the Patient Specific Implant.
Net sales in Asia-Pacific, the company's third-largest market, were $248.4 million. In its annual report, Synthes noted that it achieved market leadership in the Japanese Trauma market for 2007 (though government price cuts significantly affected Trauma there by 10%15%), and China and India have become the fastest-growing countries for the company's products in emerging Asian markets.
Other regions contributed $153 million in net sales for 2007. Latin America, which had particularly strong spine sales, saw sales growth of approximately 19% in local currencies. The strongest markets in the region were Brazil and Columbia. Spine introductions led the division's growth there, as did Power Tools.
Overall, the year was strong in a time of transition, when Michel Orsinger took over the CEO spot from Hansjorg Wyss (who remains chairman). More than 600 additional employees (+7.3%) joined Synthes' ranks in 2007.
The first quarter of 2008 continued a strong sales showing, with an 18.7% increase in net sales over the prior year to $781 million. All divisions and major geographical regions posted double-digit gains, and the company had a new addition after it acquired Innomedic, a German software developer for med-tech applications, for an undisclosed sum. Profits should continue to be strong in 2008 given Synthes' commitment to education for its customers and markets it serves. Last year, Synthes held more than 1,600 courses globally for more than 30,000 participants.
6 Medtronic Sofamor Danek $2.5 Billion
Art Collins, Chairman
William A. Hawkins, President and CEO
Gary Ellis, Sr. VP and CFO
Susan Alpert, Sr. VP and Chief Regulatory Officer
Stephen La Neve, Sr. VP and President, Spinal and Biologics (ie, Sofamor Danek)
NO. OF EMPLOYEES: 1,800
HEADQUARTERS: Memphis, TN
As certain segments of the cardiovascular sector took a beating in 2007 (compliments of various quality problems and product recalls), manufacturers in that market faced tough challenges in regaining the heady profits formerly seen with sales of their implantable cardioverter defibrillators and stents. But a diverse product portfolio can help soften blows to a company's bottom line. Medtronic, one of the medical device industry's top performers (ranking fourth in total net sales among global medical device companies), has been able to maintain its market leadership as it continues to diversify--particularly in the orthopedic market.
Among the myriad divisions achieving double-digit growth in fiscal year 2007 (ended April 27 that year), Medtronic's Spinal and Navigation segment, which operates under the name Sofamor Danek, was a top performer. This unit offers a variety of cranial and spinal products--ie, thoracolumbar, cervical and interbody spinal products and bone growth substitutes--as well as surgical navigation tools. For fiscal year 2007, this unit reported sales of $2.54 billion, representing 13% growth compared with fiscal year 2006. Breaking these numbers down further, Spinal net sales increased 13% to $2.42 billion.
Capstone and Crescent Vertebral Body Spacers, which are minimal access devices and techniques designed to replace and restore vertebral height, led to 10% growth within Medtronic's Spinal Instrumentation business, which reported net sales of $1.72 billion, compared with $1.57 billion in fiscal year 2006. Within the company's minimal access technology portfolio, the CD Horizon Sextant II (part of the CD Horizon family of products), a percutaneous lumbar fixation system with minimal access technologies that reduce procedural steps, was another growth driver. An increase in dynamic stabilization products--led by the Diam System--outside the United States also helped the bottom line. Furthermore, the company benefited from the introduction of two Arcuate vertebral augmentation systems that offer physicians control over the flow and direction of medical cement when treating painful vertebral compression fractures.
Biologics, which had net sales of $696 million (a 22% increase from fiscal 2006), had continued success with the Infuse bone graft, which contains a recombinant human bone morphogenetic protein (eliminating the need for additional surgeries to harvest bone from other body parts). Introduced in fiscal 2003 for spine use, Infuse received FDA approval in late fiscal 2007 for use in certain oral maxillofacial and dental regenerative bone grafting procedures.
Medtronic appears focused on bringing other new biologics to market, if some of its alliances are any indication. In March 2007, Medtronic announced that it had entered into a development agreement with OsteoGenix Inc., a private orthobiologic pharmaceutical company based in Palo Alto, CA. Per the agreement, Medtronic will have an additional source of bone growth therapies for surgeons, since OsteoGenix has been completing preclinical work on its proprietary bone anabolic agent and preparing for clinical trials. Also, in May 2007, Medtronic started distributing Progenix DBM putty through its wholly owned subsidiary SpinalGraft Technologies LLC. Progenix is a bone-graft substitute and bone void filler used in the pelvis, ilium and extremities.
Sofamor Danek's smallest unit, the Navigation business, increased 18% to $127 million due to strong sales of the PoleStar N20, an intra-operative MRI Guidance System and O-arm Imaging System, a multi-dimensional surgical imaging platform for use in spine and other orthopedic surgery.
As small companies increasingly enter the spine market, Medtronic is aware that pressure is growing in the market. To counter new competition, Medtronic implemented several major facility expansions In addition, Medtronic executives said they expect continued growth from the CD Horizon lines and Vertex Max Reconstruction System in Japan and Western Europe; greater use of the Infuse bone graft (especially if additional indications are approved by regulators); continued acceptance internationally of dynamic stabilization products such as the Diam System, the Maverick Lumbar Artificial Disk and Prestige LP Cervical Disc Systems; and growing use of the Synergy Experience StealthStation System, a combination of navigational procedure solutions and MAST techniques that facilitate less-invasive procedures. In another major coup for Medtronic, the Prestige Cervical Disc System was approved by the FDA in July 2007, making it the first artificial disc commercially available in the United States for use in the neck.
The biggest news coming from the Sofamor Danek unit, however, was announced in July 2007 (which was part of fiscal year 2008 for the company). Medtronic announced that it would acquire Kyphon Inc., a Sunnyvale, CA-based spinal developer, for approximately $3.9 billion. The merger was completed in November.
"We expect our combination with Kyphon to help accelerate the growth of Medtronic's existing spinal business by extending our product offerings into some of the fastest growing product segments and enabling us to provide physicians with a broader range of therapies for use at all stages of the care continuum," said Art Collins, chairman of Medtronic. "Importantly, the combination will also enable more patients of all ages to receive the benefits of modern, minimally invasive spinal treatments earlier in their care, with lifestyle friendly options that are simpler, faster and less invasive than many traditional surgical treatments."
Just as notable as this acquisition, Collins ended his tenure as president and CEO (positions from which he transitioned in August 2007) on a strong note, with fiscal 2007 net sales of $12.3 billion, 9% growth from $11.3 billion for fiscal 2006. Net earnings also grew 10% to $2.8 billion. Along with growth in the Vascular, Diabetes and Neurological businesses, Medtronic's bottom line was well benefited by the Spinal and Navigation unit's performance.
Current President and CEO Bill Hawkins should be poised to continue Medtronic's long-term growth, as the company had more than 200 clinical trials underway or planned by the close of the fiscal year. Approximately two-thirds of fiscal 2007's revenue came from sales of products introduced within the previous two years. Aiding the effort was the addition of more than 2,000 employees as well as facility expansions to increase capacity. New facilities in the United States, Puerto Rico, Switzerland and Ireland played a role, too.
For fiscal 2008, it should come as no surprise that Medtronic brought back the days of double-digit gains for overall net sales--the company recorded a 10% increase to $13.5 billion compared with fiscal 2007. Spinal revenue was even healthier than it was in fiscal 2007, with revenues totaling $2.98 billion, a 23% increase.
The company is looking to streamline operations and restructure its organization. Earlier this year, Medtronic announced it would reduce its staff by approximately 1,100 as part of its global restructuring and in response to a slower ICD and stent market. This spring, Michael DeMane, chief operating officer, also left the company. Several other additions were named, however, including the appointment of Jean-Luc Butel as president of Medtronic International. Steve LaNeve, formerly president of Medtronic Japan, also was named senior vice president and president of Medtronic's Spinal and Biologics business, replacing Pete Wehrly, who left the company.
For fiscal 2009, the company expects revenue of between $15 billion and $15.5 billion.
7 Biomet $2 Billion
Jeffrey R. Binder, President and CEO
Daniel P. Florin, Sr. VP and CFO
J. Pat Richardson, VP, Finance and Treasurer
William C. Kolter, President, Orthopedics
Glen A. Kashuba, Sr. VP and President Trauma and Spine
Robert E. Durgin, Corporate VP, Global Regulatory Affairs
NO. OF EMPLOYEES: 6,300
HEADQUARTERS: Warsaw, IN
The medical device sector saw merger and acquisition activity increase throughout 2007. As part of that trend, a few heavy hitters--Kodak Healthcare (now Carestream) and Bausch & Lomb, for example--went the private equity route, going from public entities to privately held companies backed by investor groups.
In one of the biggest deals of the year, Biomet followed suit. A private equity consortium, called LVB Acquisition (which includes Texas Pacific, Blackstone Group, Kohlberg Kravis Roberts & Co. and Goldman Sachs & Co.), purchased Warsaw, IN-based Biomet for approximately $11.4 billion. Company shareholders rejected an initial $10.9 billion offer that was brought to the table in late 2006. A few of Biomet's competitors had considered merger talks, but nothing came to fruition. The buyout was completed in September.
With new owners in place, the company leaves behind abrupt management shakeups and a stock option backdating scandal that had plagued the company for the past few years. So what does the future hold for the "new" Biomet? Most of that story continues to unfold. Some industry analysts have indicated that the buyout may actually mean good news for Biomet's R&D pipeline. There will be a lot of focus on the spine and trauma businesses. Company officials have said that while Biomet's products in these areas are strong, they trail competitors' growth rates.
In a letter to shareholders, the company's newly tapped CEO, Jeffrey Binder, said the new ownership provided Biomet with the "strong backing of equity sponsors who recognize our growth potential and support our dedication to providing high-quality, innovative products. As a result, we expect to be in an even stronger position to deliver on our commitment to surgeons and their patients."
Binder, a 15-year orthopedic industry veteran, joined the company in February 2007, replacing Daniel Hann, who served as interim chief executive following the abrupt departure of longtime company CEO Dane Miller in 2006. Hann later resigned following the company's stock backdating controversy.
In other management changes, in April 2007, Glen Kashuba was named senior vice president of the company and president of Biomet Trauma and Biomet Spine. He previously served as worldwide president of Cordis Endovascular, a division of Johnson & Johnson. In June 2007, the company
appointed Daniel Florin as senior vice president and chief financial officer. Florin had been vice president and corporate Controller for Boston Scientific for six years. He replaced Gregory Hartman, who resigned along with Hann in the wake of the stock backdating problems. In February this year, Jon Serbousek was hired as president of Biomet Orthopedics, the company's total joint reconstruction unit. Hartman previously held various positions with Medtronic's orthopedic business.
"Biomet is focused on improving its trauma and spine operations," Binder said. "We have strengthened our senior management team with recent promotions and new additions, which, along with a robust new product pipeline, we expect will lead to improved operational performance for the company."
Improved operational performance may be the name of the game. The company's sales for fiscal 2007 (ended May 31) were relatively flat, making modest gains. Net sales increased 4% to $2.1 billion. Excluding the impact of foreign currency, which increased fiscal year 2007 revenues by $37.9 million, net sales increased 2% worldwide.
Operating income was $490 million, compared with $608 million for 2006. Adjusted operating income, excluding special charges and stock compensation expense, was $622 million, or 29.5% of sales, compared with $627 million for the previous year. Net income fell to $336 million, compared with $406 million in 2006. Adjusted net income for the year, excluding special charges and stock compensation expense, was $420 million, roughly the same as FY06.
Reconstructive device sales increased 9% worldwide to $1.5 billion. International sales increased almost three times as much as sales did in the United States, rising 14% and 5%, respectively. Overall knee sales increased 8%. Excluding instruments, knee sales increased 12% worldwide and 11% in the United States. Hip sales increased 7% worldwide and 2% domestically. (Excluding instruments, hip sales increased 8% worldwide and 3% in the United States.) Extremity sales increased 14% worldwide and 7% in the United States. (Excluding instruments, extremity sales increased 15% worldwide and 9% domestically.) Dental reconstructive device sales increased 15% worldwide and 8% in the United States. Sales of bone cements and accessories were flat worldwide; however, US sales increased 13%.
Fixation sales decreased 11% worldwide to $225 million and decreased 17% in the United States. Craniomaxillo-facial sales increased 2% worldwide and 1% in the United States. Internal fixation sales increased 2% worldwide and decreased 5% in the United States, while external fixation sales decreased 13% worldwide and 17% in the United States. Electrical stimulation device sales decreased 25% both worldwide and domestically. Spinal product sales decreased 7% worldwide to $206 million and decreased 12% in the United States. Sales of spinal implants and orthobiologics for the spine decreased 3% worldwide and in the United States, while US and worldwide spinal stimulation sales decreased 21%.
According to analysts and industry experts, Biomet's problems in the spine sector may be due to a combination of factors. The first part of it may be internal. The company has focused on knee and hip performance for so long (and, arguably, has done it well) that until management's recent push to beef up the spine and trauma business, it was allowed to take a back seat to large-joint development. And given the market from spine in particular, the competition is intense. Medtronic is a market leader and newer companies such as NuVasive, whose sole focus is spinal devices, have made it harder to compete. Analysts also indicated that management changes at the company had an impact on performance.
On the new product front, Biomet's dental division released an implant that incorporates nanotechnology. Rolled out in March 2007, the NanoTite implant adds to Biomet 3i's Osseotite implant by adding deposits of nano-scale calcium phosphate crystals to approximately 50% of the surface. The nano-scale deposits create a complex surface on the implant that, according to Biomet, appears to play a key role in how the implant bends with bone because human bone recognizes calcium phosphate as biologically natural, allowing the bone and implant to bond during healing. Biomet Orthopedics launched two hip stems in December--the Taperloc Microplasty Stem and the Balance Microplasty. The devices are designed to address the demand for minimally invasive bone-conserving total hip procedures and, according to the company, "offer conservative alternatives" to femoral resurfacing devices that typically cannot be implanted using minimally invasive techniques.
For 2008, the changes at Biomet may be paying off. Financial results for the company's most recent quarter (ended Feb. 29), for example, showed signs that the company's restructuring and recent stability are having an impact. Third-quarter revenues were strong with a 14% sales increase to $603 million (though the company lost $88.5 million as a result of special charges related to the recent acquisition). Reconstructive device sales increased 18% to $449 million, with knee and hip sales (without instruments) increasing 21% and 12%, respectively. Spinal product sales, however, continue to plague the company, with a 2% worldwide drop to $50.1 million compared with last year's third quarter. (Year-end results, of course, would tell more of the story but were announced after press time.)
Overall financial results for fiscal 2008 will be impacted by the company's settlement with the US Department of Justice regarding an anti-kickback investigation into financial relationships with consulting surgeons. Biomet paid $25 million, without any admission of liability or wrongdoing.
8 DJO Incorporated $492 Million
Ken Davidson, Chairman of the Board
Les Cross, CEO
Vickie Capps, Exec. VP, Chief Financial Officer and Treasurer; International Sales and Marketing
Luke T. Faulstick, Exec. VP and Chief Operating Officer
NO. OF EMPLOYEES: 4,000
HEADQUARTERS: Vista, CA
In another example of the deal making and private-equity investment that characterized the medical device industry for much of 2007, the big news out of DJO Incorporated for the year was its buyout by Austin, TX-based ReAble Therapeutics in a deal worth approximately $1.5 billion.
ReAble (formerly known as Encore Medical) was itself purchased by private-equity investment firm The Blackstone Group (not to be confused with the spinal implant division of Orthofix, which has the same name) for $870 million in 2006. The merger of DJO and ReAble creates a new orthopedic powerhouse that should generate close to a billion dollars in revenue for 2008, according to CEO Les Cross. Out of the total price, $1.2 billion was in cash; the remainder was for the assumption of debt. The deal was announced in July 2007 and closed in November. As a result of the merger, DJO's common stock ceased to trade on the New York Stock Exchange. In addition, once the deal was closed, ReAble Therapeutics was renamed DJO Incorporated and relocated its headquarters to Vista, CA (near San Diego), where DJO is based.
DJO specializes in rehabilitation products such as knee braces, pain management devices as well as regeneration and bone growth stimulation products for the non-operative orthopedic and spine markets. The device maker sells its products under the DonJoy, ProCare and Aircast brands through agents, distributors and a direct sales force to orthopedic and spine surgeons, orthopedic and prosthetic centers, as well as hospitals, physical therapists and other healthcare professionals.
Through its Orthopedic Rehabilitation division, ReAble provides electrical stimulation and other orthopedic products used for pain management, orthopedic rehabilitation, physical therapy, fitness and sport-performance enhancement. ReAble's Surgical Implant division manufactures a range of reconstructive joint products for the hip, knee and shoulder. Following the merger, in an effort to continue the corporate re-branding effort, the implant division was renamed DJO Surgical.
"DJO and ReAble have established strong positions in the orthopedic and rehabilitation markets," said Ken Davidson, formerly CEO of ReAble and currently board chairman of DJO. "The resources of the combined company will allow us to develop even better and more innovative products, and to take care of more of the needs of more patients and caregivers than ever before. The strategic fit, both in the US and overseas, is absolutely compelling."
For fiscal 2007 (ended Dec. 31), DJO's net sales were $492.1 million, reflecting an increase of 35.8%, compared with actual combined net sales of $362.3 million for 2006, driven by recent acquisitions (Aircast and Axmed in 2006), as well as continued growth in each of the company's business segments, according to officials. Net loss for the year was $82.4 million, compared with an actual combined net loss of $88.4 million for 2006. The company attributed some of the loss to costs associated with the merger.
"Over the course of 2008, we will be highly focused on the elimination of duplicate corporate and general and administrative spending and opportunities to reduce our costs of goods sold," said Cross. "We also have the opportunity to consolidate some of our business operations...for functions such as insurance reimbursement operations and manufacturing, as well as to drive best practices and efficiencies into all of our activities. We expect to generate over $50 million of cost savings as we complete these integration projects."
As part of the newly integrated company, the DJO Surgical division announced in March this year that it received FDA clearance for the new X-alt cross-linked polyethylene liner for DJO Surgical's FMP acetabular hip system. The FMP implant combines the company's existing cobalt-chrome and ceramic femoral heads with a new wear-resistant, highly cross-linked polyethylene cup liner to form the hip ball-and-socket joint. According to the company, the cross-linked polyethylene liner reduced the generation of wear particles by 87% compared with DJO's traditional polyethylene liner. Polyethylene wear debris in total hip replacement is a leading cause of osteolysis, an inflammatory response to wear particles that can lead to subsequent implant loosening in patients who have undergone hip replacement surgery. The X-alt was designed to reduce post-surgical hip dislocation by incorporating larger-diameter femoral heads. Larger-diameter heads increase the range of motion of the femoral shaft relative to the socket, reducing the chance that the femoral head will pop of the socket.
9 Orthofix $490 Million
Alan W. Milinazzo, Group President and CEO
Thomas Hein, VP, Finance
Scott Dodson, President, Orthopedic Global Business Unit
Brad Mason, Group President, North America
Oliver Burckhardt, President, Orthofix Spine
Denise Pedulla, Sr. VP and Chief Compliance Officer
NO. OF EMPLOYEES: 1,406
HEADQUARTERS: Curacao, Netherlands Antilles
Fiscal 2007 was the year Orthofix set about integrating one of its most significant purchases to date. The company acquired Blackstone Medical in September 2006 for $333 million, which was part of a move to make Orthofix a larger player in the spinal market.
Orthofix, based in the Netherlands Antilles, has its US headquarters in Huntersville, NC (a suburb of Charlotte). The company manufactures a broad line of surgical and non-surgical products in spine, orthopedics (joint), sports medicine and vascular market sectors. The addition of Blackstone's product line provided Orthofix with several new device offerings (and 24% of sales), including cervical and lumbar plates and other fixation systems that incorporate the use of metal bracing and pedicle screws to stabilize the spine; interbody devices and vertebral body replacements used to restore the space between two vertebrae that has been lost as a result of degenerative disc disease or to replace the damaged vertebrae; and an adult stem cell-based biologic bone-grafting product for the growth of new bone around the spine.
Other product lines include non-invasive stimulation products designed to enhance the success rate of spinal fusions and to treat non-union fractures; external and internal fixation devices used in fracture treatment, limb lengthening and bone reconstruction; bracing products used for ligament injury prevention, pain management and protection of surgical repair to promote faster healing; bone cement; and devices for removal of bone cement used to fix artificial implants.
Earlier this year, the company had announced it was looking into the possibility of divesting the fixation assets of its Orthopedic business unit, but it has decided to delay the move in the near term. Orthofix had anticipated using proceeds from the sale to reduce debt and take advantage of "additional strategic opportunities" in the spine sector.
Though the fourth quarter of 2007 underperformed corporate expectations, revenue for the year still showed significant gains--up 34%--to $490.3 million. Reported earnings were $11 million, or $0.64 per diluted share. Adjusted net income, excluding specified non-cash items for 2007, was $44.4 million, or $2.61 per share. Spine revenues were $243.2 million, a 68% increase compared with 2006, due mostly to the Blackstone acquisition. Spinal implant and biologic revenue grew 30%. Orthopedic revenue was $111.9 million, up 17%. Sports medicine revenue rose 11% to $87.5 million.
By sector, the Spine, Orthopedics, Sports Medicine and Vascular divisions made up 49%, 23%, 18% and 4%, respectively, of sales for the year, for a total of 94% of net sales in 2007. Sales of "other" products, including women's care, airway-management products (for use during anesthesia) and other products accounted for the remainder of sales.
The company's efforts to build its share in spine continued throughout 2007 and into 2008. Last year, the company prepared to roll out its Advent Cervical Disc implant, the first motion-preservation device developed by its Blackstone unit. The company anticipates it will receive a CE mark this year and FDA approval by the end of 2011.
In 2007, the company also acquired the rights to all of the intellectual property related to the InSWing interspinous process spacer, a device designed to alleviate the leg and back pain suffered by individuals with lumbar spinal stenosis. The device can be used in a minimally invasive surgical procedure involving minimal or local anesthesia, significantly less blood loss and a shorter rehabilitation period than alternative surgical procedures, the company said. Details of the purchase agreement were not disclosed.
In June this year, Orthofix acquired the intellectual property and technology from Intelligent Implant Systems LLC (IIS) for an implantable device that fixes spine disorders. Under the terms of the deal, Orthofix will pay $2.5 million upfront, plus up to an additional $4.5 million based on milestones, to IIS of Charlotte, NC. Orthofix said the spinal fixation device, which is set to launch in late 2010, is locked in place without the use of a torque wrench, which simplifies the procedure for surgeons.
For the first quarter of 2008 (ended March 31), sales were $128 million, an increase of 9%. Net income totaled $3.6 million, or $0.21 per diluted share.
10 Wright Medical $387 Million
Gary D. Henley, President and CEO
Frank S. Bono, Sr. VP, Research and Development
Cary R Hagan, VP, Orthopedic Reconstruction Marketing
John T. Treace, VP, Biologics and Extremity Marketing
NO. OF EMPLOYEES: 1,000
HEADQUARTERS: Arlington, TN
Perhaps it's not the company on ODTs list with the largest bottom line, but Wright Medical Technology posted significant sales gains for fiscal 2007 and was aggressive about new product development and acquisitions.
The device company has manufactured orthopedic implants and instrumentation for more than 50 years. Its product offerings include large-joint implants for the hip and knee; extremity implants for the shoulder, elbow, hand, wrist and foot; and biologic products including bone-graft substitutes.
Net sales for the fiscal year (ended Dec. 31) were $387 million, an increase of 14.1% compared with 2006. The company's large-joint products made up the largest percentage of sales. Hips were 34.7% of sales, and revenues increased 10% for the year. Knee products were 26.5% of sales, while sales rose 8.8% compared with 2006. The most significant sales gains, however, came from extremity reconstruction products and biologics--areas in which Wright has devoted considerable attention and resources in recent years. Extremity sales increased 38.3% and represented 16.1% of sales. Biologics sales grew 16.2%, representing 19.7% of total 2007 sales.
Notably, international sales increased 18% to $151 million, helped in part by $6 million in favorable currency exchange, the company said.
Net income decreased to $1 million in 2007 from $14.4 million in 2006, primarily as a result of $18.9 million in restructuring charges related to the closure of the company's operation in Toulon, France. Costs associated with acquisitions also impacted net income.
In hips and knees, the company cited strong sales of its Advance knee systems, the Profemur line of primary hip stems and the Conserve total hip implant, though sales partially were offset by slower sales of older product lines. For biologics, sales were boosted by the Graftjacket tissue repair product line and the Pro-Dense injectable regenerative graft. Extremity sales were helped by the Charlotte foot and ankle system and the Darco plating system, company officials noted.
For 2007, the company unveiled a number of new hip products, including the Supercap total hip arthroplasty, which does not require the hip to be dislocated during the procedure (minimizing recovery times). In addition, the company rolled out the Profemur Xm hip stem, the Profemur Z hip revision stem and the Profemur TL modular neck system. The new Dynasty acetabular cup system and the Gladiator bipolar system also were introduced.
In a significant step toward approval in the United States, Wright Medical received approval from Japan's Ministry of Health, Labor and Welfare for its Conserve Plus hip resurfacing system, which currently is available in Europe, Canada and Australia, as well as other international markets. The company's regulatory submission remains under review by the FDA, and the device only is available under an investigational device exemption domestically. Once approved, it would join Smith & Nephew's Birmingham hip resurfacing system and the Cormet device (marketed by Stryker in the United States), which already received FDA approval.
Other notable product launches included the Evolve Proline system for radial head replacement in complex elbow fractures; the Pro-Dense injectable regenerative bone graft product; Advance Stature femoral implants for patients with a more narrow knee anatomy or smaller skeletal frame; and the Carolina system designed for treatment of Jones fractures of the fifth metatarsal of the foot, which is common in young, athletic patients and geriatric patients.
Product development and expansion in 2007--a particular boost to the company's extremities business--were the result of strategic acquisitions. For example, in April last year, the company purchased Darco International, Inc.'s reconstructive foot surgery business for approximately $17 million in cash. The company also entered into an agreement with Regeneration Technologies, Inc. (RTI), a Florida-based developer of orthopedic and biologic implants, to develop advanced xenograft implants for use in foot and ankle surgeries. Under the agreement, Wright Medical will design and distribute the implants, while RTI will develop, manufacture and supply Wright's designs. Wright will market the new foot and ankle implants under the Cancello-Pure brand.
Acquisitions continued in 2008. In June, the company acquired certain assets of A.M. Surgical, Inc., a Smithtown, NY-based firm that develops endoscopic soft-tissue release products for foot and ankle surgeons. Wright has marketed A.M. Surgical's foot and ankle products since October 2007. The purchase consisted of an initial cash payment of $2.1 million and potential additional cash payments, not to exceed $700,000, based on future financial performance of the acquired assets.
In April, Wright completed the buyout of Inbone Technologies, Inc. for an initial cash payment of $24 million, guaranteed minimum future payments of $3.7 million and potential additional cash payments based on future operational and financial performance. The Inbone acquisition marked the seventh business development initiative targeted for the foot and ankle surgery market by Wright in the past year and a half. Key products for Wright Medical will be the Inbone Total Ankle system and the Inbone Intra-osseous Fusion Rod and Plate system.
TOP 10 ORTHOPEDIC DEVICE MANUFACTURERS 1. Stryker Corp $6B 2. DePuy $4.6B 3. Zimmer Holdings $3.9B 4. Smith &Nephew $3.4B 5. Synthes $2.8B 6. Medtronic $2.5B 7. Biomet $2.1B 8. DJO Incorporated $492M 9. Orthofix $490M 10. Wright Medical $387M