2005 AAOS Analyst Meeting Reviews
BY JOHN CHOPACK, MARCH 1, 2005
This year we attended Smith & Nephew's, Biomet's, Stryker's, and Encore Medical's analyst meetings. All were very professional and well attended. Here are our notes from each:
Smith & Nephew
Overview: Although Smith & Nephew posted the best large joint reconstructive revenue growth rate in orthopedics, the Company focused on Sports Medicine and Trauma during its analyst meeting. The only displayed products were sports medicine and trauma implants.
Endoscopy:
- Good recovery from 2003 - increased 9% in 2004
- 25% growth was from new products
- 75% business in arthroscopy the other 25% is visualization & endoscopy
- Smith & Nephew holds #1 arthroscopy market share position with 29% of market
- 2004 US growth 9%, international growth 10%, visualization 22%, shoulder repair 28%
- 39 new products launched in 2004
- Keys to success - education, education, education
Dr. Joshua Siegel - Focus on Shoulder Repair:
- Major takeaway - "Can see more with an arthroscope then by cutting a joint open... can see pathology not seen when cutting a joint open."
- Excited about the Elite Shoulder system - an easy to use one tray system
David Illingsworth, President - Orthopaedics Business
- Successful 2004 - Market share gains in all product segments
- Smith & Nephew was fastest growing orthopedic company for 5th year in a row
- Crossed $1billion mark for first time in 2004
Reconstructive Segment
- Strong growth from alternate bearing surfaces
- Only company offering, metal, ceramic, highly cross-linked poly, and Oxinium hip bearings
- 25% of growth was from new products
- #1 in hip resurfacing market in the world
Trauma Segment
- Specialized exclusively dedicated sales force
- Clinical Therapies, including Supartz, has its own dedicated sales force
Dr. Gregory M. Georgiadis - Evaluating PERI-LOC Plating System
- "locking plate is like an internal split"
- 75% of Dr. Georgiadis business utilizes locking plates
- Most surgeons are only using 25% of the time - good growth potential
Stryker Corp.
Overview: Although Jon Brown, Former CEO, didn't present, Stryker's AAOS analyst meeting followed the same format as previous years. Stryker brought 25 to 40 managers from Kalamazoo to sit in attendance in the back of the ballroom. Stryker's executive team then introduced accordingly, highlighting what a great job they accomplished through-out the year.
Si Johnson - V.P., Group President, MedSurg Division
- Instruments (OR & navigation) - Market growth rate was 10% in 2004
- Stryker's Instrument growth was 17% and they hold 31% of market
- Instrument revenue growth drivers include:
- Maestro High Power Drill - intended for spine use
- NavSuite - navigation integrated with the Ortho Suite
- NavCast II - dual monitor
- Knee 3.0 - visualization for MIS knee
- Endoscopy Market - Market growth rate was 13% in 2004
- Stryker's Endoscopy revenue growth was 22% in 2004
- They hold number 2 market share position behind Smith & Nephew (32% versus 16%)
- Acquired eTrauma for $50 million - imaging for Ortho
Jamie Kelmer - V.P., Group President, Biotech, Spine, Trauma
- Spine sales increased 18% compared to a market growth rate of 24%
- Stryker holds 7% of the market
- Spine revenue drivers include:
- Oasys posterior cervical system
- Reflex hybrid cervical plate
- AVS Vertebral Spacers
- LITe for less invasive spine procedures
- Flexicore lumber disc - patient enrollment will be complete 1Q:05
- Cervicore - IDE study initiated 2Q:05
- Trauma market is growing at 13%, Stryker growing at 17%
- Stryker holds #2 position in trauma market with 18% of market
- Revenue growth drivers include:
- T2 proximal humerus
- Locking plate (new segment) with mono & polyaxial locking system for lower & upper extremity
- OP-1 is a driver of Biotech and currently has HDE approval
- 2 year OP-1 pivotal trial will be complete this year
Ron Lawson, V.P., Group President, Orthopaedics and International
- Mr. Lawson first pointed out the superb work Mike Mogul - new President of Orthopedics, has accomplished
- Significant future growth driver is the Triathlon Knee System which his "finally here"
- Centpillar hip stem is geared toward Japanese market as well as MIS due to its smaller size
- Stryker recently entered revision hip market with Restoration Hip Stem
- MIS Joint Replacement
- Focused on long-term clinical outcomes
- "we do not believe that one surgical technique is for everyone... it should be surgeons choice".
- Mr. Lawson told an emotional story regarding his wife battle with bilateral hip replacements stating, "God sent me a patient to live with to better understand patient needs".
Stephen P. MacMillan, President and Chief Executive Officer
- Stryker recently received Fortune 500's most admired medical device company
- Stryker will continue with direct-to-consumer advertising as Nicklaus advertising campaign now makes reference to knee products.
Biomet.
Overview: Biomet held a cocktail reception prior to giving its analyst update which was a nice change of pace from the other analyst meetings. It provided for a more relaxed environment which was missing at the other meetings. Dane Miller presented a brief overview which was followed by a presentation by Professor David W. Murray, M.D. and Keith R. Berend, M.D.
Dane Miller, Ph.D., President and Chief Executive Officer
- Team Biomet: 5,900 members, 18 manufacturing facilities, 2,400 representatives
- 100 new products at 2005 AAOS
- Reconstructive market share 16% in 4Q:04
- Number 4 market share position in knee market.
- 900 surgeons trained on Microplasty Knee procedure
- EBI / Interpore integration going smoothly - expands dedicated spine sales force significantly
Professor David Murray, M.D., Oxford University
- Has utilized the Oxford Meniscal Bearing Knee for over a decade
- It is the third generation of a 25 year old design
- Indicated in 1 out of 3 symptomatic knees
- Significant increase in interest in unicompartimental knee during the last 7 years
- Biggest disadvantage has been increased wear
- The Oxford Free Floating Meniscus Design reduces wear as a consequence of its unconstrained design
- Svard study implanted 420 Oxford prosthesis: 94% success rate at 15 years and 20 years
- Works well in young and active patients
- Surgeon training is necessary and an FDA requirement
- Designing lateral components
Keith R. Berend, M.D., Joint Implant Surgeons, Columbus, Ohio
- Dr. Berend was trained by Dr. Mallory and now works with him
- Big proponent of M2A metal-on-metal hip system using it in a majority of patients
- Will use ArCom XL highly cross-linked poly in revisions and difficult cases
- M2A is self-polishing - buffs out small scratches
- Magnum M2A allows for 50+ millimeter femoral heads
Encore Medical
Overview: Encore's 2005 analyst meeting was much larger than previous years in which less than handful of analysts were in attendance. This years meeting consisted of approximately 10-15 analysts and approximately 6 or 7 Encore managers.
- Recent M&A activity
- OTI, estimated purchase of $14.5 million
- Continue building on OTI distribution network which was weak
- Complete spinal segment, forecast to reach $9-10 million 1st year post acquisition.
- Empi, total purchase of $363 million
- Financed $180 million in senior credit facility and $165 million in senior subordinate notes
- Capital structure: As of 10/2/04
- Cash - $15 mm
- Assets - $523 mm
- Debt - $315 mm
- Shareholder's equity - $154 mm
- Business strategy:Patient
Pre OR OR Post-op clinical Post-op home
- Rehab market growing 5-6% annually, Encore's rehab product line growing at 6.5%
- OTI R&D activities included artificial disc, interbody cages and kyphoplasty
- ENMC is the only U.S. company to have ceramic-on-ceramic, metal-on-metal and metal-on-poly hip bearings
- Distribution network will never be homogenous including rehab and surgical implants divisions.
- ENMC recognizes a lack of biologic products within their portfolio but has yet to find an appropriate acquisition or business development opportunity.
- Rehab business much larger than surgical implant and currently is performing better
- Future goal is an equal split in product mix between rehab and surgical implant divisions
- 2005 Outlook - Forecasted revenues in 2005 will be ~ $310 mm with operating margins of 14.5 - 15% of revenue (including 1x charge in expenses related to the EMPI acquisition)
