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Orthopedic News Roundup 27-Oct-05 BY HUYEN NGUYEN, OCTOBER 27, 2005

It has been a busy week for many CEOs and CFOs in the orthopedic device sector. In the past two weeks orthopedic companies reported 3Q:05 sales of $4.7 billion which was a 12% increase over the 3Q:04. Net earnings for the quarter increased by 15% ($539.9 million vs. $467.8 million) excluding Synthes and DePuy. It has been an interesting quarter as stock prices fluctuated day-to-day; negative press articles, companies lowering their earning outlooks, changes in operation and managements caused some companies to lose millions and/or even billions in market capitalization.

The following are brief summary of companies that reported this week. Please refer to the table (below) for sales and earnings data.

Earnings Summary
Biologics: After LifeCell Corp. released its earnings on Wednesday, the Company's stock price took a downward turn and loss 10% intraday. LifeCell missed their numbers by $0.03 and came in at $0.07 per diluted share in 3Q:05. Although operating income for the quarter rose by 100% year-over-year, it was negatively impacted by a pre-tax charge relating to the write-off of $1.4 million in inventory and a $469,000 reserve for the estimated tissue product recall. Product revenues for the quarter increased by 62% ($24.3 million vs. $14.9 million): included are AlloDerm® Regenerative Tissue Matrix growing by 76%, Graft Jacket® 36%, Repliform® 20%, and AlloCraft™DBM which was down by 8%. Management also provided an outlook for the rest of the year with product sales expected to reach $91 to $93 million. Product revenue mix will be approximately 84% reconstructive, 8% orthopedic and 8% urogynecology. Regeneration Technologies ("RTI") reported 3Q:05 with sales basically flat and a net loss of $1.6 million. In 3Q:05, RTI recorded a charge of $3.5 million in operating income related to the tissue recall. Management commented that had it not been for this charge, RTI would have returned a profit for the quarter. RTI's stock was up by 6% at the close. A research and development company, OrthoLogic ("OLGC") reported 3Q:05 with net loss of $7.6 million. OLGC is on track with its Chrysalin® clinical trial in the fracture repair market as well as continuing its study for diabetic foot ulcer indication.

Bracing: dj Orthopedics reported 3Q:05 with a top line increase of 15%. In the quarter, the domestic rehabilitation segment, which included the DonJoy®, ProCare®, OfficeCare® business lines and the recently acquired OSG product line grew by 15% over 3Q:04. The OL1000™ non-union fracture bone growth stimulator grew over 27% and the SpinaLogic® bone growth stimulator grew more than 8% year-over-year. dj Orthopedics remains strong and management commented that in 4Q:05 revenues are expected to be between $71 and $72 million, and FY2005 revenues will be in the range of $282 to $283 million. Spinal bracing and trauma company Orthofix International N.V. ("OFIX") reported 3Q:05 results with spine up 23%, reconstruction 5% and trauma 1% year-over-year. In the quarter, OFIX received a $41 million settlement from the KCI litigation settlement; excluding this one-time benefit, OFIX's net income would be down by 3% compared to 3Q:04. The Company, however, missed analyst estimates by $0.03 and came in at $0.50 per diluted shares on a non-GAAP basis. OFIX's stock price was down by 10% intraday.

Large Joint: Zimmer Holdings, reported its much anticipated 3Q:05 numbers beating analysts estimate by $0.03 (adjusted) and came in at $0.70 per diluted share. In the quarter, its hips grew by 4%, knees 12%, extremities 12%, trauma 10%, spine 19% and dental 19%. The Company has updated its guidance for 4Q:05 to be in the range of $845 to $850 million. For the full year, sales will be in the range of $3,283 to $3,288 million, which is a 10% increase from FY2004; EPS is also expected to be $2.93 on a reported basis and $3.07 as adjusted basis. Exactech reported 3Q:05 with hips down by 2%, knees 1%, biologics, however, increased by 13% year-over-year. In the domestic and international markets, overall sales grew by 8% and 19%, respectively. The Company forecasts that in 4Q:05 diluted EPS will be in the range of $0.15 to $0.17 with revenues of $21.5 to $23.5 million. For the full year, revenues will be $90 to $92 million with diluted EPS of $0.56 to $0.58. Wright Medical Technology reported 3Q:05 results with hips grew by 9%, knees 10%, extremities 14% but biologics was down by 6% compared to 3Q:04. In the domestic and international markets, sales increased by 7% and 5%, respectively. Management maintains an outlook for 4Q:05 with sales expected to be in the range of $76 to $79 million and diluted EPS of $0.12 to $0.16. For the full year, sales are targeted to be in the range of $315 to $318 million with $0.66 to $0.70 per diluted shares. London-based large joints orthopedics company, Smith & Nephew PLC ("SNN"), reported 3Q:05 earnings results with orthopedics sales up 15% (16% in the U.S. and 13% OUS). Product breakdown for the quarter included hips, which grew by 10%, knee 13%, trauma 15%, endoscopy 8% and advanced wound management 3%. SNN forecasts that for the full year, orthopaedics revenues will increase by 17%, endoscopy 8% and wound management 5%.

Spine: NuVasive reported 3Q:05 Maximum Access Surgery (MAS) revenues increased by 46% over 3Q:04. Revenue mix for the quarter was 77% MAS and 23% classic fusion. Management has maintained a previously stated guidance in the range of $61 to $62 million for the rest of the year.

Appointment: Ronald G. Hiscock was appointed President and Chief Executive Officer of Alphatec Spine following his recent hire in June as President and Chief Operating Officer. Alphatec Spine is a portfolio company of HealthpointCapital. OrthoLogic announced the appointment of Dana B. Shinbaum to the position of Vice President, Business Development. Previously, she has served in various positions with Savient Pharmaceuticals, Inc.

Distribution Agreement: Artimplant, a Swedish biomaterial company, announced that it has signed a new development and license agreement with Small Bone Innovations for a new product to treat patients who suffer from osteoarthritis of the hand, wrist and foot.

Product Introduction & Update: Smith & Nephew Endoscopy launched the Controlled Disc Stimulation (CDS) System this week. The CDS is for discography, a method of diagnosing the source of disc-related back or neck pain. LDR Medical® announced that 100 patients have been implanted with its second-generation Mobi-C® Cervical Artificial Disc outside of the U.S. The product has also been introduced in over 20 countries worldwide. Triage Medical, based in Irvine, CA, announced that it has received two patents from the United States Patent Office called, "Proximal Anchors for Bone Fixation System" and "Spinal Stabilization Device". SpineVision® announced that it has trained 100 U.S. spine surgeons to use its PediGuard™ hand-held, wireless drilling device for real-time detection of possible penetration outside the vertebral pedicle during pedicle screw placement in spine surgery.

Regulatory Update: X-spine Systems, a motion preservation technology company, announced that it has received an FDA clearance to market its new Spider Cervical plating system. The system is a titanium plate with a proprietary locking mechanism to prevent screws from backing out. NuVasive, who recently acquired the cervical nucleus-like replacement device NeoDisc™, has filed for an IDE on the device with the FDA. By receiving an IDE on this device, NuVasive can initiate a pivotal human clinical study in the U.S.

Miscellaneous: Apart from the Brooklyn District Attorney's investigation into Biomedical Tissue Services in Fort Lee, N.J., the FDA has decided to do its own investigation into this matter. So far no illnesses related to this scandal have been reported to the FDA; however, it is suggesting doctors provide HIV-1 and 2, hepatitis B and C and syphilis tests to patients who have received these tissues. At the International Osteoporosis Foundation-IOF in Berlin, Germany, an event was organized by Nationale Initiative gegen Osteoporose to encourage people to exercise to build strong and healthy bones. MULTISENSE has created a program that has a virtual reality image of a real patient's musculoskeletal tissues where doctors can perform a virtual hip replacement surgery on the patient and also get a read-out indication of the likely success of the surgery. This week the Cleveland Clinic hosted a medical summit for top-level industry executives, entrepreneurs, venture capitalists and clinicians. The summit focused on the medical, technological and economic trends reshaping the spine and orthopaedic markets.