3Q10 Company Financials: Orthopaedic and Spine

Following is a first look at select company financials for 3Q10. Our estimates place year over year market growth at 4%, as indicated in Exhibit 1, which displays growth by product segment. Performance highlights relate to 3Q10, unless otherwise noted.

Exhibit 1: Orthopaedic Sales1 Increases by Product Segment: 3Q10 vs. 3Q09

vetalice-exh-21

Notes to Exhibit 1:

1Orthopaedic products only; constant currency, pro forma growth
2For the quarter ended 8/31/10; excludes dental; trauma includes stimulators; spine includes stimulators and orthobiologics.
3Includes biologics
4Spine
5Endoscopy (most of which is orthopaedic)
6ORTHOWORLD estimates
7Excludes “Other” (Aerospace)

aap Implantate

  • €7.2MM (~US $10.2MM), +20%
  • Launched Genius anatomic knee
  • Concluded distribution negotiations for antibiotic-impregnated Jason G® collagen fleece in 11/10; product will hit market in 1Q11
  • 1st cannulated screws will ship to U.S. in 4Q
  • Initial EU sales of cement product will occur in 4Q
  • Commenced regulatory procedure on new arthroplasty cement plus antibiotic; clearance anticipated in 1Q11
  • Planning 2011 launch of WSG system, to compete with Synthes’ LCP

ArthroCare

  • $61.3MM, +11%
  • Sports Medicine $56.9MM, +13% (ex-U.S. +12%)
  • Spine $4.3MM, -4%
  • Sports Med growth attributable to $6.4MM increase in contract manufacturing pursuant to existing supply/distribution contract with Smith & Nephew
  • Expects 4Q contract manufacturing sales to be much lower than 3Q
  • U.S. Sports Med experiencing lower ASPs and procedures, delays in new product proprietary launches
  • Base of active U.S. Sports Med customers stable, but revenue per customer declined
  • De-emphasized certain low-margin arthroscopic accessories
  • Eliminated remaining U.S. direct spine salesforce; will sell through network of agents
  • Launched all 4 Ambient wands, seeing traction with new and existing customers, at modest price premium
  • Of 6 new anticipated soft tissue fixation products:
  • Launched FirstPass suture passing device, early feedback very positive
  • Received FDA clearance for Spartan PEEK Suture Implant system in 4Q; will launch by year-end
  • Titan titanium corkscrew implant for rotator cuff will launch 4Q
  • SpeedLock knotless PEEK labrum implant and SpeedFix preloaded labrum anchor will launch 1Q11

Artimplant

  • SEK 5.1MM (~US $0.75MM), -7%
  • Own sales of product increased to 65% of 3Q sales (own sales tripled again in U.S.)
  • Artelon MTP Spacer in launch phase in Europe
  • Artelon Tissue Reinforcement in market introduction in Europe and U.S.
  • Sales of Sportmesh by Biomet Sports Medicine to end-users (from BMET’s own inventory) remain stable
  • Sales of Artelon Spacer by Small Bone Innovations continued to fall, due to reports of unsatisfactory surgical outcomes during initial post-launch—surgical instructions not followed, SBi working on corrective communication to market
  • Product sales to end-users in Europe stable, though assigned lower priority while concentrating resources on U.S.

Biomet (fiscal 1Q11, ended 8/31/10)

  • $640.7MM, +3%
  • Reconstructive 478.4MM, +4% (Hips +2%, Knees +5%, Extremities +27%, Other -3%, Dental -1%)
  • Fixation -2%
  • Spine $57.9MM, flat
  • Other Products $45MM, +8% (Sports Med +17%, Soft Goods/Bracing -1%)

Recon

  • >70% of U.S. acetabular unit volume derived from “super premium” category (includes E1 and metal-on-metal systems)
  • Continues to note drivers impacting growth, e.g. end of COBRA subsidies, high unemployment, changes in private insurance market
  • European performance impacted by slightly declining hip/knee market, negative recon ASPs, slightly more price pressure than 4Q, steep market decline and price decrease in Greece, significant price decline in Turkey
  • Price mix impact on hip/knee fairly consistent with previous quarter, U.S. ASPs declined slightly, offset by positive product mix
  • Will launch Arcos Modular Revision Hip in 2QFY11; E1 Active Articulation dual mobility system now slated for U.S. launch in 2HFY11
  • Signature Personalized Patient Care update: received FDA warning letter alleging inappropriate clearance to market (See BARE BONES®, 9/10.), filed additional 510(k) in 9/10
  • Continued surge in demand for comprehensive primary, reverse and fracture shoulder systems in U.S. (comprehensive system well-received in Europe)
  • Will train 200 U.S. surgeons on comprehensive subsystem in 2Q

Trauma and Spine

  • Continued price and volume pressure in spine core segments
  • Introduced Enclave Anterior Spinal System, a PEEK Optima spacer with open design for anterior or anterolateral approach, and Valiant Anterior Lumbar Plate, low-profile taper design

Other

  • Acquired Cytosol, producer of small volume anticoagulants (See BARE BONES, 8/10.); will ensure provision of critical supply component used in GPS Platelet Separation System
 BioMimetic Therapeutics
  • Developing 3 products for Sports Medicine, including intratendon, tendon-to-bone and cartilage repair; initial clinical trial expected by year-end to focus on rotator cuff
  • Wrapping up spine fusion study in large animal trial (more information potentially by next AAOS meeting)

Augment Bone Graft

  • Completed 100-day Premarket Approval meeting w/FDA for foot/ankle fusion, no unexpected issues impacting potential clearance in 2011
  • 17 institutions in Canada either used or cleared use of Augment, on track to meet goal of 20-25 by year-end
  • Transitioning to network of independent sales agents in Canada, will reach 25 by year-end
  • Filed for regulatory in Australia, expect clearance by end of 2011

Augment Injectable Bone Graft

  • Received FDA determination that product review will follow medical device pathway, will initiate enrollment in U.S. pivotal trial after approval of Investigational Device Exemption study, which is expected by year-end

CareFusion

  • Noting progress with launch of AVAmax Vertebral Balloon for kyphoplasty in U.S., has a modest revenue plan, encouraged by market interest and user feedback
  • ~100 hospitals now using product

ConMed

  • $102.8MM, -3%
  • Arthroscopy $68.2MM, -0.4%
  • Powered Instruments $34.6MM, -7%
  • Strong market acceptance continues for Shoulder Restoration System and recently-launched PopLok device for shoulder instability
  • Will launch device for arthroscopic knee repair by year-end

DePuy

  • $1,309MM, +2% (U.S. $748MM, +1%; ex-U.S. $561MM, +3%)
  • Hips +2% (U.S. -1%, ex-U.S. +7%)
  • Knees +3% (U.S. +2%, ex-U.S. +4%)
  • Spine flat (U.S. -3%, ex-U.S. +7%)
  • Price pressure continued, as did U.S. softness in procedural volume, though positive mix due to continuing product innovation mitigated some impact
  • Price inclusive of mix is -~1.5% vs. last year: hips/knees in U.S. down ~1% to 2% (a bit worse in hips than knees), ex-U.S. -~1%, spine down mid-single-digits
  • Ex-U.S. growth driven by success of acetabular and cementless systems
  • Continues work through ASR implant recall, still defining extent of this program

DJO

  • $233.6MM, +1%
  • Bracing/Supports $78.1MM, +2%
  • Recovery Sciences $85.8MM, +1%
  • International $54.9MM, -3%
  • Surgical Implant $14.5MM, +1

Bracing/Supports

  • Ex-U.S. markets growing faster than U.S.
  • Growth partially offset by conversion of certain units previously billed to insurance at higher ASPs to units sold at reduced ASP to clinics that do their own insurance billing
  • Continued benefit from conversions of new hospitals under Novation soft goods contract; will continue to ramp up through year-end
  • New product launches gaining traction (DonJoy Armor FourcePoint, converted nearly 1,000 accounts in U.S. to this technology year to date)

Recovery Sciences

  • Growth constrained by economic conditions that reduce healthcare utilization
  • Led by Active soft back brace that incorporates Transcutaneous Electrical Nerve Stimulation
  • Will expand use of Active to other limbs, other joints

International

  • Slower sales of continuous passive motion products, notably in Germany
  • Continued traction of Shockwave therapy for tissue rehabilitation and bracing supports in all major ex-U.S. markets
  • Acquired bracing/supports systems business from South African distributor

Surgical Implant

  • Lost a few key surgeon relationships when cancelled some R&D projects, also noted reduced volume and utilization
  • Launched Lima Hip Revision system; sold for several years in Europe and collected a lot of clinical data

Exactech

  • $42MM, -1% (U.S. $31.9MM, +6%; ex-U.S. $10.2MM, -16%)
  • Hips $6.6MM, -3%
  • Knees $15.6MM, -10%
  • Biologics/Spine $6.3MM, -3%
  • Extremities $7.3MM, +33%
  • Other $6.2MM, -1%
  • Softness in several product lines exacerbated by temporary, negative impact of costs associated with entry into new markets, distribution changes in Germany and Spain, less demand for elective procedures in U.S.
  • Sees opportunity for additional direct sales operations ex-U.S.; currently direct in Canada, China, France, Germany, Japan, Spain, U.K.
  • U.S. hip and knee units flat, experiencing price pressure (more so in hips than knees)
  • Product launches include Novation ceramic crown cup (4Q); BIOLOX Delta femoral head in U.S., Integrip revision cup, LPI Prime short stem, pedicle screw and PEEK interbody device (all 1Q11); posterior cervical system (2Q or 3Q11)

Genzyme Biosurgery

  • Synvisc and Synvisc-ONE $100MM, +14%
  • Synvisc now represents 46% of U.S. viscosupplementation market
  • Synvisc-ONE >2/3 of U.S. Synvisc revenue
  • Received clearance to market Synvisc in Japan
 Greatbatch Medical
  • $28MM, +21%
  • Dedicated focus on orthopaedic segment really paying off
  • Claims better than 95% on-time delivery, significant reduction of lead times for entire product range
  • Continues to invest in facilities: updating Indianapolis, opened rapid prototyping center in Warsaw, will open a pilot line dedicated to low-volume runs in Columbia City—to open by year-end; now able to produce spine implants at Chaumont, France facility and manufacture spine, hip and shoulder implants for multiple customers

Integra Orthopedics

  • $72.9MM, +14%
  • No price pressure in any business segments, seeing price increases sticking in extremities
  • No slowdown in procedure volumes
  • U.S. spinal hardware improvement offset by decreases in European orthobiologics, down due to delisting of several products that required regulatory re-registration in some markets
  • Particularly strong sales in mid- and hindfoot, hand also doing very well
  • Claims 1% share of metal spine market, 10% of U.S. orthobiologics
  • Opened new education center and cadaver lab in Irvine, CA and new facility in Ohio featuring expanded capabilities for production of custom instruments
  • Will continue to expand spinal distribution, particularly in Asia and Europe; exploring an office in Singapore
  • Notes that hospital initiatives to consolidate vendors plays very well to IART’s advantage

Kensey Nash(for fiscal 1Q11 ended 9/30/10)

  • $5.3MM, -18%
  • Sports Medicine $2.7MM, -26%
  • Spine $2.5MM, -8%
  • Other Orthopaedic $ 0.1MM, +4%
  • Product royalties from Orthovita $1.4MM, flat
  • Growth impacted by high unemployment, reduced procedures, more conservative treatment of spine patients
  • Expects continued weakness sin spine and sports medicine, to improve in 2H FY11

MAKO Surgical

  • $12MM, +79%
  • RIO Systems $7.6MM
  • Implants/disposables $4.1MM
  • 9 RIO systems sold in quarter (including one to Italian distributor), U.S. commercial installed base now 54 systems
  • 20 RIO systems sold worldwide year to date
  • Procedures performed in 3Q: 815 MAKOplasty, +95% from 3Q09; 107 lateral and isolated patellofemoral; 67 bicompartmental procedures
  • Completed 1st total hip procedures with RIO; MAKOplasty-optimized hip implant co-developed with Pipeline Biomedical (company has an orthopaedic pedigree, having founded Osteonics and Implex)

Medicrea

  • €4.6MM (~US $6.4MM), +48%
  • 19 new surgeons in U.S. using PASS LP thoracolumbar fixation system
  • Launched GRANVIA C cervical disc in Europe
  • Focused on developing distribution in Europe, especially in German-speaking countries where currently absent

NuVasive

  • $120.3MM, +27% (ex-U.S. 5% of sales; biologics ~15% to 20% of sales)
  • Difficult conditions negatively impacted growth and visibility: deceleration in procedure volumes (starting in last 2 weeks of 3Q, continuing into 4Q), heightened pushback from insurers (increased criteria to preauthorize lumbar spinal fusion, increased level of scrutiny for preauthorization)
  • To much lesser extent, volumes may be temporarily impacted by surgeon trialing of other new lateral products
  • Channel checks suggest that ~10% to 20% of procedures are being cancelled outright when degenerative disc disease is an indication
  • Mitigated effects of price pressure thanks to positive mix
  • Launched Helix R cervical plate, specialized instruments to integrate delivery of implants and biologics, introduced 4 additional XLIF implants/instruments, upgraded NeuroVision software
  • Opened NUVA East education center, trained 40 surgeons to date

Orthofix

  • $135.1MM, +8% (Trinity Evolution $7.7MM, +87%)
  • Spine $77.4MM, +20% (Spinal Stim $43.2MM, +9%, Implants/biologics $34.2MM, +20%)
  • Orthopaedics $34MM, +6%
  • Sports Medicine $23.7MM, -4%
  • Sports medicine decline due to weak economy
  • Spine stimulation serves >1,500 surgeons in the U.S.
  • Inventory of Trinity Evolution continues to improve
  • Four elements of focus: expand distribution into new geographies, upgrade distribution talent in existing regions, launch new products/enter new subsegments in spine, leverage surgeon relationships from stim side with implants/biologics
 Orthovita
  • $23.3MM,+5% (ex-U.S. 7% of sales; Biosurgery +4%; Vitoss +1%, Vitoss Bioactive Foam +12%, U.S. Cortoss and Aliquot $1MM, +150%)
  • Spine procedures flat or down slightly (driven by unemployment, patients putting off procedure, insurance companies squeezing down on the funnel of patients)
  • Modest increases of 1%-2%in Vitoss and Biosurgery pricing, though some more price-sensitive bone graft customers migrated to lower-priced products
  • Maintained pricing for Vitagel
  • Biosurgery represents ~50% spine/orthopaedics (weighted toward ortho)
  • Vitoss contributes 75% of spine sales, remainder is other orthopaedic (trauma, foot/ankle, etc.)
  • 2011 initiatives will diversify bone graft business outside of spine
  • Cortoss sales will continue to be choppy in the face of sales network transitions and uncertain reimbursement landscape; inpatient opportunity will be smaller than anticipated at Cortoss launch
  • Noridian Medicare administrator pending review of vertebral augmentation procedures; final decision to come in 1Q11, may define parameters under which vertebroplasty and kyphoplasty will be reimbursed, could include defining a period during which conservative care be administered prior to VCF procedure (6-12 weeks)
  • AAOS released guidelines for treatment of VCFs, did not support use of vertebroplasty and only weak support for kyphoplasty; did not take into account Vertos II study
  • Expects vertebroplasty will be outpatient performed by interventional radiologists (IRs) and pain management physicians; kyphoplasty will continue migration to outpatient under mix of spine neurosurgeons, IRs and pain management physicians (long-term migration may favor IRs and pain management)
  • Hybrid sales model showing signs of moving in the right direction (core salesforce focusing on inpatient; placing direct sales to create outpatient selling capability that is “rightsized” for current vertebral compression environment)
  • 1st enhancements to Vitoss platform to launch in 1H11
  • Developing structural bioimplant for spine; will have regulatory pathway clarity in 2011
  • Developing balloon tamp to work with Aliquot delivery system, potential for 1H12 launch; pricing in $1,800-$2,000 range
  • New clearances for Cortoss in inpatient setting could be achieved by 1H12
  • At 80-85 direct sales reps; will have ~60 distributors by start of 2011
  • ~2% of hospitals moved up to be 2- to 3-product customers

Össur

  • Bracing & Supports $43.2MM, +12%
  • U.S. growth trend positive; strong sales in Australia, but EMEA product launches not taking off as expected
  • Miami Lumbar and Rebound Walker launches well received

Osteotech

  • $23.1MM, 1%
  • Demineralized Bone Matrix $13.2MM, +9%
  • Hybrid/Synthetic $3.3MM, +275%
  • Traditional Tissue $4.9MM, -3%
  • Spinal Allografts $1.3MM, -30%
  • Other $0.15MM, -60%
  • New products, primarily MagniFuse Bone Graft and Plexur M, contributed $3MM
  • Client Services and Private Label $1.2MM, +50%
  • Did not host an earnings call this quarter
  • On track to finalize merger with Medtronic in 4Q

RTI Biologics

  • $26.3MM, -1%
  • Sports Medicine $10.8MM, +15%
  • Spine $9.7MM, -10%
  • Bone Growth Substitute/General Orthopaedic $5.6MM, -3%
  • Spine impacted by procedure declines, pricing pressure
  • Experienced lower export orders from several countries in Europe
  • U.S. business trending nicely in Sports Med, General Ortho
  • Signed distribution agreement with SeaSpine, launched new cervical construct
  • Signed exclusive agreement with Athersys, gained access to Multipotent Adult Progenitor Cell (MAPC) technologies
  • Launched new spine implant with Medtronic
  • >100 reps selling Sports Med

Smith & Nephew

  • $711MM, +3%
  • Orthopaedics $510MM, +2%: (U.S. +2%, Europe -1%, Rest of World +6%)
  • Hips $157MM, flat (U.S. +1%)
  • Knees $183MM, +6% (U.S. +5%)
  • Trauma $106MM, +5% (U.S. +3%)
  • Clinical Therapies $55MM, -5%
  • Endoscopy $201MM, +4% (U.S. -1%, Europe +6%, Rest of World +10%)
  • Arthroscopy $173MM, +8%
  • Visualization $25MM, -19%

Recon

  • Pricing pressures steady at -1%, -2%
  • BHR continues to be impacted by metal-on-metal debate; represents ~15% of global hip sales, notes no loss in U.S. market
  • 30-year wear claim for VERILAST knee a contributing force in driving revenues
  • Strong demand for VISIONAIRE knee cutting blocks
  • Will continue geographically-targeted U.S. direct-to-consumer marketing campaigns for next quarter or so for BHR, VERILAST

Trauma and Clinical Therapies

  • Expects competitive pressures to continue in Clinical Therapies
  • EXOGEN has Europe-wide clearance for use on all bones except spine, skull

Endoscopy

  • Hip arthroscopy growing very well
  • 2/3 of U.S. salesforce is direct
 Stryker
  • $1,767.6MM*, +7% (*Includes patient handling and emergency medical equipment.)
  • Orthopaedic Implants $1,028.8MM, +1%:
  • Hips +1% (U.S. +3%, ex-U.S. -1%)
  • Knees flat (U.S. +2%, ex-U.S. -5%)
  • Trauma +4% (U.S. +7%, ex-U.S. +1%)
  • Spine +1% (U.S. flat, ex-U.S. +4%)
  • MedSurg Equipment $738.8MM, +16%
  • Instruments +13% (U.S. +14%, ex-U.S. +11%)
  • Endoscopy +8% (U.S. +8%, ex-U.S. +6%)
  • Company-wide selling prices -1.8% worldwide, mix still positive
  • Modest pricing pressure on hip/knee, same or a bit greater in spine
  • OtisMed clearance now expected in 2011
  • Launched ADM hip, new cervical plates, kyphoplasty products

Symmetry Medical

  • $85.8MM, +5%
  • Instruments $36.0MM, -13%
  • Implants $28.3MM, +17%
  • Cases (mostly non-ortho) $21.5MM, +31%
  • Core ortho continues to stabilize, cases benefitted from increased volume in ortho business
  • New product launches in instruments (which is ~100% focused on ortho, spine) driving growth
  • Customer demand for quality, regulatory support/services continues to increase; customers paying attention to inventory, procurement, with emphasis on smaller product batches
  • Spine approaching 10% of total sales
  • SSI division signed exclusive distribution agreement with Cannuflow for new suite of access instruments, scopes and fluid management products for sports med applications

Synthes

  • $907.2MM, +5%
  • North America $539.5MM, +2%
  • Europe $196.5MM, +7%
  • Asia Pacific $103.4MM, +6%
  • Rest of World $67.8MM, +28%
  • Trauma growth fueled by launches of 2-Column Distal Radius, LCP fibula, LCP Clavicle plate; will launch Periarticular Proximal Humerus Plate in 4Q
  • Improved salesforce effectiveness with focused conversion initiatives
  • Global spine impacted by market dynamics, product launch delay, increase in payor scrutiny of procedures (particularly lumbar fusion for degenerative disc disease), patient deferrals, competitive pricing
  • Price pressures in spine stable, but still challenging
  • Resolved Norian case with U.S. government (See BARE BONES, 11/10.)
  • Encouraged by solid global performance in cervical, increasing adoption of Zero-P and Synapse
  • Growth will come via Matrix comprehensive pedicle screw for lumbar spine (launched in U.S. and Europe to date), largest launch in SYST history, surgeon feedback positive thus far in market preference evaluation
  • Will re-launch universal reduction screw by year-end
  • Japan impacted by price decreases; continues to grow volume, but flat in revenue
  • Withdrew a major business in India
  • Building small product development center in China to address local needs

Wright Medical

  • $121.7MM, +4% (U.S. +1%, ex-U.S. +8%)
  • Hips $39.9MM, flat (U.S. -9%, ex-U.S. +7%)
  • Knees $29.5MM, -1% (U.S. -5%, ex-U.S. +3%)
  • Biologics $19.6MM, +1% (U.S. +2%, ex-U.S. -4%)
  • Extremities $30.1MM, +18% (U.S. +13%, ex-U.S. +52%)
  • Other $2.4MM, -7%
  • Economic factors continue to impact procedure volumes across the board; U.S. recon also impacted by price declines (-2% to -3% range, more difficult in hips, knees and biologics)
  • Resolved Department of Justice investigation (See BARE BONES, 11/10.)
  • Acquired EZ Frame hybrid boot ex-fix system, will launch in 1H11
  • Commenced full launch of PRO-STIM
  • Excited about ability to gain new business with EVOLUTION Medial-Pivot knee, early feedback very positive and number of new customers will come on board when sets are available in later 4Q
  • 1st full quarter of VALOR Nail launch is outstanding
  • Received clearance for DARCO in Japan, awaiting reimbursement approval (expected in 2011)
  • >175 focused foot/ankle reps in U.S.

Zimmer

  • $916MM, -1%
  • Hips $287MM, +1% (U.S. +3%, Europe -4%)
  • Knees $403MM, -3% (U.S. -3%, Europe -6%)
  • Extremities $34MM, +4%
  • Dental $49MM, +5%
  • Trauma $58MM, +1%
  • Spine $56MM, -7% (Europe +21%)
  • Surgical/Other $78MM, +8%

General

  • Global economy, unemployment, European austerity measures negatively impacted procedures
  • Consolidated ASPs -1.4% (Americas -1.6%, EMEA flat, Asia Pacific -2.9%)

Recon

  • Hips reflect volume and mix +2.7%, price -2.2%
  • Knees reflect volume and mix -0.4%, price -2.3%
  • Early stages of new knee instrument launches: patient-specific and posterior referencing

Trauma and Spine

  • 1,000th implantation of Cephalomedullary Nail
  • 1st implantation of NCB Periprosthetic Plate

Sources: Company earnings calls, press releases, filings with the Securities and Exchange Commission

Julie A. Vetalice is Editor, Information Products for ORTHOWORLD Inc. She can be reached at 440.543.2101 or This email address is being protected from spambots. You need JavaScript enabled to view it..