Biomet's Announcement Offers 3rd Quarter Preview
BY EDITOR, SEPTEMBER 22, 2003
What makes the Orthopedic Industry's current renaissance so interesting is not only how unexpected it is, but how unexpectedly broad and deep it is. Unlike the cardiovascular industry, which is riding the drug coated stent phenomenon, orthopedic revenues are bubbling up from a well established category of implants and therapies - not a single product, platform or company. We may, in fact, be looking at a true phenomenon. And that phenomenon is: the longer and more active lifestyles among patients 65 years of age and older. Not the baby boomers. And matching that phenomenon step for step are surgeons, with now 3 decades of modern orthopedic experience, delivering satisfaction rates in the high 90 percentiles.
Yup, this is an honest to goodness phenomenon.
A year ago, the orthopedic industry was winding up its fastest growing year in history – revenue growth was clearly going to exceed 14%. We wrote then that this growth rate was about to accelerate. 16% was our forecast for 2003. In fact, first half revenue growth for 2003 was 18% (see HealthpointCapital Weekly 9.01.03).
Biomet, with a quarter than ends August 31st, gives us our first look at the industry's third quarter. Biomet is the 4th largest public orthopedic supplier in the world with annual revenues of $1.45 billion. For the first six months of this year, Biomet had posted a sales growth of 16.0% (without consideration to the effects of currency). Our forecast was that Biomet's August quarter revenues would reach $362 million.
Here's what they actually reported: Revenues exceeded our forecast by 2.2% coming in at $370 million. Growth rate was 16.6%. Higher than the first half growth rate. That's not supposed to happen in the quarter that encompasses U.S. summer vacations and the European holiday season. August and September quarters are ALWAYS slower than any other quarter of the year.
Of course, we dug into the numbers and there were highlights and lowlights. But before we leave the big story'let's summarize. Orthopedic revenue growth is still accelerating. To repeat, orthopedic revenues are building. We haven't established the upper limit yet. And... get this... the baby boomers start to visit their orthopedists in about eight years. (Are we hyperventilating yet?)
Biomet's details... (is Dane the Energizer bunny?)
Reconstruction sales, 63% of the total, rose 22% in the quarter over prior year levels (15% on a constant currency basis) – pushed along by very strong extremity sales. Hip and knee implant sales each rose 19% (12-13% on a constant currency basis).
Spinal implant sales were really interesting. While the reported overall number was $38 million, up 14%, sales of spinal implants in the U.S. jumped 26%. And on the conference call, Dane said that his goal for spine was to round out the product line. Zimmer can buy its way into the spine industry. Looks like Dane is building his way in. Presently, Biomet's spinal implant sales are roughly on par with Interpore Cross and Blackstone Medical. Larger, we expect, than most observers realize.
And, of course, Biomet racked up a 32% operating profit margin. In other words, one out of every three sales dollars is profit. As Dane noted on the conference call, finally Wall Street took notice and moved his stock price up. For the past two years Biomet's stock had been flat, flat, flat. And as we noted a couple of weeks ago, it remains the least expensive orthopedic stock among the majors.
