Orthopedic News Roundup 3-Nov-05
BY HUYEN NGUYEN, NOVEMBER 3, 2005
We wrap up this quarter with aggregated earnings and sales in the public orthopedic sector of $560 million and $5 billion, respectively, as a few more companies reported this week. For 3Q:05, orthopedic sales were up by 13% ($5.0 billion vs. $4.4 billion) and net income increased by 19% ($563 million vs. $473 million) year-over-year; these earnings excluded Synthes and DePuy. From what we have observed in the orthopedic industry, the third quarter is usually a slower quarter, sequentially, when compared to the second quarter.
Earnings Summary
Biologics: IsoTis Biologics reported 3Q:05 results, showing a 37% increase in revenues and a loss of $1.5 million for the quarter. In 3Q:05, U.S. operation grew 38% while OUS grew 27% compared to 3Q:04. The Company maintained an outlook of 20% growth rate going into 2006. A biomaterials company, CryoLife reported 3Q:05 with revenues basically flat and a net loss of $2.8 million (adjusted) for the quarter. The non-recurring charge in the quarter was a result of a securities class action lawsuit that the Company had settled previously. In terms of product breakdown, BioGlue sales were flat for the quarter while tissue processing revenues grew by 5% year-over-year. By mid-day, CryoLife's stock plummeted by 11%.
Large Joint: The last of the large joint public orthopedic company, Encore Medical reported its 3Q:05 this week taking in $72.7 million in sales and $2.7 million in net income (continuing operations only). Revenues for the quarter were up by 171% which was attributed both to strong organic growth in the quarter and the recent acquisition of Empi. The surgical implant division increased by 31% and the orthopedic rehabilitation division increased by more than 250% compared to 3Q:04. According to management, Encore continues to grow in core product lines and improve its operating margins.
Spine: A kyphoplasty company, Kyphon reported strong results in 3Q:05 with revenues growing 42% ($79 million vs. $56 million), net income for the quarter grew by 92% ($11.7 million vs. $6.1 million) year-over-year. Kyphon has updated its future revenue outlook to be between $304 million to $307 million for the full year, and 4Q:05 to be between $84 million to $87 million. International operations are expected to contribute between 17% and 18% of revenue in 4Q:05.
Sports Medicine: A Coblation technology company, ArthroCare ("ARTC") reported 3Q:05 product revenues grew 40% ($52 million vs. $37 million). Non-GAAP net income for the quarter was $8.9 million, up 148% year-over-year. Most of ARTC's divisions performed well, with sports medicine up 49% and ENT up 49%, but spine was basically flat compared to 3Q:04. ARTC's financial outlook for 4Q:05 is sales between $55 million and $60 million; for the full year, ARTC expects sales to be in the range of $210 million to $215 million.
Business Update: The Musculoskeletal Transplant Foundation (MTF) finally confirmed that it has terminated its previously proposed decision to acquire Osteotech. By the end of the trading day Osteotech's stock was up by 11%, closing at $3.65.
Distribution Agreement: A biodegradable materials company, Inion Ltd. announced an exclusive U.S. distributing agreement with Richard Wolf Medical Instruments Corporation for Inion's sports medicine product line. Inion has already established a sports medicine distribution network in Europe through several distributors. These products included: Inion Hexalon™ Interference Screw, Trinion™ Screw and Anchron™ Suture Anchor. ReGen Biologics signed an exclusive distribution agreement with Xmedica to market its ReGen® CMI™ in Italy. Xmedica is a sports medicine company that is headquartered in Milano, Italy. BREG, a division of Orthofix International N.V., was given a three-year agreement with Novation, a health care purchasing group. Under the agreement, BREG will distribute its Polar Care® cold therapy product line to hospitals that belong to VHA Inc., and the University HealthSystem Consortium, the two health care alliances that own Novation.
Financing: SpineMedica™ announced that it has raised $10.6 million in Series A Private Offering; funding were provided by FCA Venture Partners III, the Trelys Funds and A/B Partners III LP.
Product Update: At the MedTech Insight In Spine & Orthopedics Meeting in Dallas, TX, CryoLife announced that a doctor has successfully implanted into four patients the BioDisc™ Spinal Disc Repair System. The BioDisc™ is a nucleus pulposus repair device intented to treat herniated disc of the spine.
Regulatory Update: Kyphon announced that The Centers for Medicare & Medicaid Services (CMS) has posted its final rule for the Medicare Physician Fee Schedule for calendar year 2006. Included in its rule are three new Category I CPT (Current Procedural Terminology) codes for kyphoplasty procedures and their associated relative value units. Physicians will be able to get reimbursement for kyphoplasty procedures, without using vertebroplasty codes, starting January 1, 2006.
Miscellaneous: The story of Biomedical Tissue Services (BTS) of Fort Lee, N.J. has even affected Canadians as the London Health Sciences Centre is investigating whether its surgeons have used any of these illegal tissues. The New York Times has also published its own story regarding this scandal.
