Osteotech's Difficult Road Ahead
BY JOHN MCCORMICK, NOVEMBER 29, 2005
Last Wednesday, Osteotech announced that their beleaguered Chief Executive Richard Bauer will retire at the end of December - sooner than expected. While he will remain on the Osteotech board, Sam Owusu-Akyaw, the Company's current president and chief operating officer, will step up as the new Chief executive Officer. The company also said Chairman Donald Johnston stepped down from that job and was replaced by board member Kenneth Fallon.
This long overdue restructuring at the top leaves Osteotech's incoming Chairman of the Board, CEO and CFO with some significant challenges. Among them:
- A slow growing demineralized bone matrix market
- Poor tissue supplier relations when supply is critical
- Competition from bone morphogenic proteins
- Competition from premium DBM suppliers
- Inefficient tissue processing
- Disgruntled shareholders
This toxic brew of business problems is not insurmountable, but clearly Osteotech has considerable hurdles to clear before it can get back on the road to health. We wish this morning's announcements about Grafton's 510(k) clearance was big news, but it is a merely formality that was expected. A necessary but not sufficient condition to... revenues.
There is much urgent work to be done, but above all else management needs to repair its relationships with battered stakeholders. First, management must reach out to its key supplier Musculoskeletal Tissue Foundation which has become even more estranged as a result of Osteotech snubbing MTF's attractive takeover bid. Second, the Company must reach out to its shareholders. Management should implement a roadshow to its key institutional shareholders and start speaking at investor conferences where a coherent path to recovery is outlined. Like the proverbial new restaurant owner reaching out to the neighborhood, management needs to do the same. Then comes the day to day blocking and tackling which, in Osteotech's case, is no mean feat. The Company is in a slower growth segment of orthopedics that faces daunting challenges from substitute products and premium competition.
Getting the company back on it feet, in other words, is going to be a long hard slog. We wouldn't be surprised if discussions MTF resume.
