Biomet (BMET:NASDAQ) Reports 3Q:05 Results; Knee Revenues Increase 31%
BY JOHN CHOPACK, MARCH 28, 2005
Biomet reported an 18% increase in net sales which totaled $482 million during the 3Q:05. The company also reported earnings, excluding any one-time costs associated with its recent Interpore Cross or Biomet Merck acquisitions, totaled $0.40 per diluted share which was an 18% over the 3Q:04. Both revenues and earnings were in-line with analyst's expectations.
Management has announced the approval by the Board of Directors to purchase an additional $100 million of BMET's outstanding common stock. If you remember the Board of Directors recently approved a $100 million purchase plan in July/2004. Since July the Company has purchased $59.2 million and 2.5 million shares are scheduled to be automatically purchased in equal increments on a daily basis through July/2005. Since December, 2001 BMET has purchased a total of $764 million representing 24.3 million shares of common stock.
Source: Company Reports.
Reconstructive Segment
Revenues from reconstructive revenues (hip, knee, extremity and dental) totaled $326 million or 68% of net revenues. This represented a 21% increase on an as reported basis and 17% excluding the effects of currency translation over the 3Q:04. The reconstructive growth experienced during the 3Q:05 was in-line with the 2Q:05.
Knee Revenues - increased by 31% as reported and 27% on a constant basis over the 3Q:04. U.S. knee revenues increased by 36% during the 3Q:05. We believe that this is the fastest growth rate in the knee segment for all major orthopedic companies holding greater than 2% of the market. Revenue drivers during the quarter included the Oxford unicompartmental knee system. 220 domestic surgeons were trained on the Oxford system during the past 2 quarters and an additional 150 surgeons are scheduled to be trained during the 4Q:05. Additional drivers included further penetration of BMET's minimally invasive total knee instrumentation. The Company reported that over 850 sets
Source: Company Documents.
of Microplasty total knee instruments have been released during the past several quarters. To date, approximately 900 domestic surgeons were trained on the Microplasty total knee system with additional 100 surgeons to be trained during the 4Q:05.
Hip Revenues - increased 11% as reported and 8% excluding foreign currency translation. The 8% increase on a constant currency basis was 2% faster than the growth rate during the 2Q:05. The clear driver continues to be BMET's metal-on-metal hip sales which increased by 41% in the U.S. during the quarter and now represents 32% of domestic hip articulation. Future drivers include the recent introduction of ArcomXL which is the Company's first highly cross-linked polyethylene offering and the anticipated FDA approval of a ceramic-on-ceramic hip system in the next 3-6 months.
Extremity Revenues - increased 10% and 4% in the U.S. Key revenue drivers include the Comprehensive Fracture Stem, the Copeland Humeral Resurfacing Head and the Bio-Modular total shoulder and the Discovery Elbow. Management also stated it was planning to roll-out the Explorer Modular Radial Head hemi-elbow during the 4Q:04.
Spinal Revenues
Biomet's spine revenues increased 34% as reported and 33% on a constant currency basis during the 3Q:05 which represent the fastest growing segment of the Company. Revenue is obviously being driven by the Interpore Cross acquisition which just recently had its anniversary earlier in the month. Growth drivers included the Array Deformity System which is now BMET's best selling hardware system. EBI (a Biomet subsidiary) continues to roll-out the ESL Spine Spacer System and the CAS Spacer. Additional upcoming launches include the Altius Mini Posterior Cervical System and the Synergy Polaris System. Electrical spine stimulation sales decreased by 11% as management indicated that they have probably lost focus on the segment as a consequence of integrating the Interpore Cross transaction.
Orthopedic Trends
- HCA Hospital Gain Sharing Potential - Management addressed the recent buzz around the potential for 'gain sharing' within the orthopedic sector. Dane Miller, CEO, stated that the orthopedic community experienced the same thing 8 years ago when the HCA tried to 'strong arm' surgeons into using certain products based on contract pricing. Mr. Miller stated that this didn't work 8 years ago and, he expects, will fail again. He also commented that Biomet is not sure if the plan is even legal stating that it may not pass 'the legal muster of broad abuse'. Either way he believes that the situation will be rectified in the next 6 months.
- Pricing - Management commented that hip and knee pricing increased 5-6% during the 3Q:05 which is in-line with the last couple of quarters.
- Direct-to-Consumer - Biomet stated that it was broadening its direct-to-consumer branding campaign which has experienced excellent results to date. The campaign is currently being conducted via network television and newsprint in 7 regions in the U.S.
Guidance
Management is comfortable with analyst forecast for the 4Q:05 for revenues to range between $503 and $530 million and earnings-per-share between $0.42 and $0.44.
