Osteotech Calls it Quits with SpineVision... Wall Street, for some reason, thinks that's a negative
BY ROBIN R. YOUNG CFA, JANUARY 26, 2004
To quote from Dow Jones' press release, "Despite recording a $4.6 million profit in the first nine months of this year, Osteotech's metal spinal implant products have suffered big losses because an insufficient unit volume has failed to cover overhead costs. That line also has been marred by a July lawsuit from Alphatech Manufacturing Inc. claiming Osteotech breached a contract concerning the distribution of its Affirm Anterior Cervical Plate System. Osteotech denied the allegations, but has since suspended selling that product."
Osteotech pioneered the use of allograft bone void fill. It's Grafton® brand is market leader. Generating allograft revenues of $85 million for 2003, Osteotech is one of the largest and most respected allograft companies operating in both the United States and Europe. So, to us, the real question is why would OSTE divert precious R&D and marketing resources to a metal spinal implant line? While Osteotech was trying to add metal implants to its distribution base, other companies were scrambling to compete with Grafton, to engineer new forms of allograft and to, generally, take over Osteotech's market position.
In last week's conference call, management indicated that it was redeploying its metal implant resources into increased R&D for its allograft products and to beef up allograft distribution. Sounds like "sticking to your knitting" to us.
Wall Street, on the other hand, was disappointed. Go figure. OSTE's earnings outlook, according to management, remains unchanged – even with higher spending on allograft R&D and distribution.
