Synthes

$2.8 Billion

KEY EXECUTIVES:

Hansjörg Wyss, Chairman
Michel Orsinger, President and CEO
Robert Donohue, CFO, President, Synthes Canada

NO. OF EMPLOYEES:

9,070

HEADQUARTERS:

West Chester, PA

In yet another solid year for Synthes, the company grew sales 15.3% to $2.8 billion in 2007, up from $2.4 billion in 2006. Net income was nearly $613 million, an increase of more than 20% from $509 million recorded for 2006. The steady climber has had a compound annual net sales growth rate of 22.4% in the past 10 years and shows no signs of slowing down—especially with some key product approvals last year.

The manufacturer of instruments, implants and biomaterials for surgical fixation, correction and regeneration of bone and soft tissues capped off a successful year in December with FDA approval for its ProDisc-C Total Disc Replacement, making Synthes the first company to offer both a lumbar and a cervical disc replacement in the United States. (This approval follows Synthes’ fall 2006 launch of ProDisc-L, used in more than 1,000 US surgeries in 2007.) Synthes’ biomaterials offerings also were strengthened by FDA clearance in October for the chronOS Strip flexible ceramic bone substitute.

As for many in the industry, Synthes invested in its future growth through acquisitions. In December, the company bought privately held N Spine for approximately $30 million (with additional payments of up to $45 million, depending on milestone achievements), enabling Synthes to enter the posterior spinal dynamic stabilization market to treat degenerative disc disease and stenosis. San Diego, CA-based N Spine’s 6-mm diameter dynamic stabilization rod is compatible with Synthes’ Pangea and Click’X pedicle screws, making the acquisition a strategic fit for the companies’ products.

The most profitable region by far was North America, which contributed $1.7 billion in sales, representing 62% of the company’s total sales. Within the United States, revenues were $1.67 billion, a 12.6% increase compared with $1.48 billion in the prior year. Trauma was the biggest growth driver in North America; new introductions in this business segment included the Volar Column Distal Radius Plate System and the Expert Lateral Entry Femoral Recon Nail Systems. Within the Spine division, new product launches included Antegra (a plating system used to stabilize degenerated lumbar spine segments anteriorly) and Synapse (instruments and implants for posterior stabilization of the upper spine). Spine growth also was aided by a continued rollout of SynFix-LR. Cranio-Maxillofacial (CMF) sales were driven by the MatrixNEURO system, which should continue to be successful in 2008 as indications are expanded, as well as increased use of Synthes’ sternal fixation and reconstruction system.

Europe, which contributed nearly one-quarter of total sales, produced $637.3 million in revenue for 2007. In spite of competition and pricing/reimbursement pressures—not to mention unseasonably warm weather (and thus, fewer snow- and ice-related injuries)—the company grew its business with 13.4% local currency growth compared with 2006. Trauma growth came from the completion of the Expert Nail lines, as well as introductions including the LCP DHS, LCP DHS Blade and the EPOCA shoulder prosthesis. Spine also saw introductions with In-Space and Vertecem, along with new additions to product lines launched in 2006, such as Pangea. CMF, meanwhile, had the highest growth percentage, thanks to the MatrixNEURO system, the launch of the Sternal Closure systems and improved supply chains for the Patient Specific Implant.

Net sales in Asia-Pacific, the company’s third-largest market, were $248.4 million. In its annual report, Synthes noted that it achieved market leadership in the Japanese Trauma market for 2007 (though government price cuts significantly affected Trauma there by 10%-15%), and China and India have become the fastest-growing countries for the company’s products in emerging Asian markets.

Other regions contributed $153 million in net sales for 2007. Latin America, which had particularly strong spine sales, saw sales growth of approximately 19% in local currencies. The strongest markets in the region were Brazil and Columbia. Spine introductions led the division’s growth there, as did Power Tools.

Overall, the year was strong in a time of transition, when Michel Orsinger took over the CEO spot from Hansjörg Wyss (who remains chairman). More than 600 additional employees (+7.3%) joined Synthes’ ranks in 2007.

The first quarter of 2008 continued a strong sales showing, with an 18.7% increase in net sales over the prior year to $781 million. All divisions and major geographical regions posted double-digit gains, and the company had a new addition after it acquired Innomedic, a German software developer for med-tech applications, for an undisclosed sum. Profits should continue to be strong in 2008 given Synthes’ commitment to education for its customers and markets it serves. Last year, Synthes held more than 1,600 courses globally for more than 30,000 participants.