08.05.15
$474.3 Million
KEY EXECUTIVES:
David C. Paul, Chairman & CEO
David M. Demski, President & Chief Operating Officer
Daniel T. Scavilla, Sr. VP & Chief Financial Officer
A. Brett Murphy, Exec. VP, U.S. Sales
David D. Davidar, Sr. VP, Operations
Anthony L. Williams, Sr. VP, Business Development & General Counsel
NO. of EMPLOYEES: 900
HEADQUARTERS: Audubon, Pa.
The pain seemed to come out of nowhere, shooting thunderbolts of white-hot heat down Frank Hummel’s left arm from shoulder to fingertips. Relief was practically impossible as neither medication nor physical therapy could dull the burning within his limb.
Hummel’s life quickly morphed into a series of terrible, horrible, no good, very bad days: Once-simple tasks like going to work or picking up his children at school became agonizingly difficult. Even sleeping was a challenge.
“My neck, my back, my arm was numb, my hand was numb. And nothing would help,” he recalled. “It hurt. It hurt a lot. Sleeping was hard, interacting with my family was hard—anything, really—life became very hard.”
And so it remained until doctors diagnosed Hummel with a herniated disc in his lower neck (between the C-5 and C-6 vertebrae). Surgery was his only real treatment option.
“Before surgery I was nervous. It was hard to sleep sometimes, there was a lot weighing on my mind,” he said. “I was thinking about my family ... what am I going to do after surgery? Can I do the things I [like to] do? I like kayaking, hiking, I like fishing, and I was afraid that I might not be able to do all these things again.”
Valid fears, certainly, and, most likely the rationale behind Hummel’s choice of disc replacement over spinal fusion surgery. After consulting with his orthopedist, Jeffrey R. McConnell, M.D., of Allentown, Pa., Hummel settled on the Secure-C Cervical artificial disc, a motion-sparing device designed specifically as an alternative to fusion. Made by Audubon, Pa.-based Globus Medical Inc., the artificial disc provides articulation and sagittal plane translation, allowing up to 15 degrees of motion in flexion/extension (bending the neck forward and backward), and up to 10 degrees of motion in lateral bending (side to side). The disc itself consists of two metal (chromium molybdenum) endplates coated with a titanium plasma spray, and a polyethylene inner core designed to minimize wear debris.
“Waking up from surgery was amazing. The arm pain was gone, the hand numbness was gone, the thumb pain was gone, everything was back. I had surgical pain but it was nothing compared to what I was going through before,” Hummel said. “It was absolutely amazing. After my three-month checkup, they cleared me for work and that was fantastic. I was also able to go kayaking again, and go camping and hiking. It was a great time and it still is. It’s a good feeling to have your life back. I got my life back and I feel great.”
Hummel’s recovery capped a “great time” in Globus Medical’s 12-year history as well: The company grew sales 9.2 percent last year to $474.3 million and increased its gross profit 8.8 percent to $363.5 million, according to the 2014 annual report. Net income skyrocketed 34.8 percent to $92.5 million, with net income per diluted share rising by nearly the same amount (32.8 percent) to 97 cents per share.
“2014 was a great year for Globus Medical,” Chairman/CEO David C. Paul told analysts during an earnings conference call earlier this year. “Full-year EBITDA (earnings before interest, taxes, depreciation, and amortization) increased by 140 basis points to 26.1 percent of sales. We launched 16 new products, significantly expanded our research capabilities and successfully completed the acquisition of Transplant Technologies of Texas. This performance was a result of continued execution of our strategy of robust product innovation, sales force expansion and disciplined expense control.”
And well-accepted technology. Paul and his fellow executives attributed Globus’ stellar fiscal performance last year to strong demand for both new and existing products, particularly devices released during the last three years. Old favorites that contributed to 2014 sales growth included the Secure-C Cervical disc, the Latis Spacer, the Fortify corpectomy spacer, Kinex Bioactive and the SI-LOK Sacroiliac Fixation System, a device that alleviates pain by fusing the joint in a minimally invasive procedure. The product features hydroxy-apatite-coated screws with an optional slot for bone graft materials.
The Revere Threaded Reduction Screw System and CREO platform were among the products that boosted Innovative Fusion sales 6.6 percent in 2014 (year ended Dec. 31) to $270.8 million. The Revere device includes both polyaxial and uniplanar screws designed specifically to address spondylolisthesis and other spinal deformities. Its ±30-degree screw angulation (60 degrees total) provides intraoperative versatility, and reduction tabs allow maximum rod reduction into the screw head while the blunt tip permits bicortical purchase. The threaded locking cap mechanism is optimal for cases in which patient anatomy limits the space for reduction maneuvers.
Globus continued to roll out its CREO portfolio last year in its drive to turn the product into the world’s “most advanced and comprehensive pedicle screw system for various complex, deformity, degenerative and trauma pathologies through either an open or minimally invasive approach.” According to bigwigs, the CREO platform—encompassing the non-threaded, AMP, threaded, threaded AMP, deformity, MCS and SILC models—has been used in roughly 6,000 surgeries worldwide. Executives plan to introduce another nine versions of the product by mid-2016.
Similarly, robust demand for Globus’ minimally invasive, biologic, artificial disc and interventional pain management products helped lift Disruptive Technology revenue 12.8 percent to $203.5 million. Sales drivers in this category included Kinex Bioactive and the Plymouth Lateral Plate System, the latter of which is designed to provide spine stabilization through a single lateral approach. Unique anchoring and keying instruments align the plate with the interbody device and vertebral body endplates, allowing controlled placement with minimal retraction.
Kinex is a bioactive product with the osteostimulative properties of bioglass that amplifies the cellular activity responsible for bone formation. In addition to bioglass, Kinex contains collagen for scalp holding and hyaluronic acid to help with angiogenesis.
Newcomers that contributed to 2014 earnings growth included the Monument Anterior Spondylolisthesis Reduction system, SILC Fixation System and Altera Minimally Invasive Articulating Expandable spacer. Globus executives describe the Monument as an anterior lumbar interbody fusion device with a built-in mechanical feature to help with spondylolisthesis reduction. The self-locking and threaded translational attribute can be engaged to reduce the implant up to 8 millimeters in-situ, and the screws are designed for optimal cortical purchase. Monument is manufactured in different sizes, heights and sagittal angles to accommodate the lumbar and sacral spine, including L5-S1. The device is intended for use with supplemental fixation.
The SILC system is a low profile sublaminar fixation device that provides the stability to perform standard reduction maneuvers for spinal curvature correction without the need for pedical purchase in all vertebrae. The system consists of a polyethylene band that uses the strength of the laminal cortical bone as well as a top-loading clamp with integrated set screw allowing implant insertion at any time during the procedure. SILC is compatible with rod diameters ranging from 4.5 millimeters to 6.5 millimeters.
Released at the North American Spine Society 2014 Annual Meeting in November, the Altera spacer helps restore lordosis and maintain sagittal balance while reducing the challenges of insertion. The spacer is inserted at a minimized height, articulated into an anterior position and then expanded vertically to optimize fit (surgeons have the choice of 8-degree or 15-degree profile angles). The device also allows for in-situ delivery of autogenous bone graft into, as well as around, the implant after it has been expanded.
Securing Future Growth
Besides its new product launches, Globus also shored up its future earnings potential by acquiring allograft tissue processor Transplant Technologies of Texas Ltd. in October and refining its robotics program throughout the year.
Paul said the company made “tremendous progress” in commercializing its robotics technology, building a multidisciplinary team in Boston, Mass., dedicated to working on robotics, navigation and imaging. The firm’s first product is a robotic surgical aid for navigating and facilitating surgical access, implant sizing, positioning and placement; the system is being designed to enable surgeons to perform procedures more quickly and with greater accuracy, safety and reproducibility. Paul is eyeing a 2016 target for commercialization.
The Transplant Technologies purchase arrived too late in the year to significantly impact sales, but Globus bigwigs expect the addition to contribute $12 million in revenue this year and neutrally impact fully diluted earnings per share for 2015.
Transplant Technologies processes sterile human tissue and distributes a wide range of allograft implants (tissue graft from donors), including machined spine implants, demineralized bone matrix, sponge allografts and traditional bone allografts. The company also processes and distributes sports medicine tendons, birth tissue allografts and skin allografts. Founded in 1993, Transplant Technologies products have been used in more than 600,000 implant procedures worldwide.
Globus said it plans to grow Transplant Technologies’ operations in Texas and maintain its existing relationships with distribution partners while pumping its products to its own sales channels.
Back in Court
The company’s legal problems intensified last year with the filing of two new patent infringement lawsuits and a trade secret misappropriation guilty verdict.
A judicial double-whammy occurred in January, as DePuy Synthes accused Globus of infringing upon its spinal stabilization device with the Transition Stabilization System, a semi-rigid posterior fixation solution that provides “unique” biomechanical profiles. The product’s SoftStop technology allows optimized load sharing with the anterior column and transitional stabilization between rigidly fused levels and un-instrumented spinal segments. DePuy does not specify the way(s) in which the Transition device infringes upon its patent, nor does it identify the specific product it mimics, but the Jan. 8 complaint does ask the court for relief.
Nine days later, a federal jury found Globus guilty of trade secret misappropriation and awarded a neurosurgeon $4.3 million in damages. The physician, identified as Sabatino Bianco, M.D., sued the company in 2012, alleging that it misappropriated his trade secrets by using drawings related to three implantable medical devices he had provided to Globus years earlier pursuant to a confidentiality agreement (the Caliber, Caliber-L, and Rise products). Bianco claimed that Globus told him it was not interested in commercializing the idea he proposed in the drawings but then internally developed and sold a device incorporating that idea without compensating him.
Following trial, the jury awarded Bianco a 5 percent royalty based on net sales of three specified Globus products. In post-trial motions, the parties disputed the appropriateness of an ongoing royalty. Noting that ongoing royalties were appropriate in patent-infringement cases, the court reasoned that misappropriation was sufficiently analogous to patent infringement and upheld the jury’s royalty award. The court also concluded the royalty should be paid for 15 years from the date that an agreement between Bianco and Globus should have been reached in 2007 and that the royalty was owed on all products “not colorably different” from those at issue in the litigation.
Globus, naturally, is appealing the jury’s verdict.
In November, Bonutti Skeletal Innovations, LLC filed a patent infringement suit against Globus, claiming several of the company’s spinal spacer products and related instruments infringe Bonutti Skeletal patents, which include one titled “Changing Relationships Between Bones,” issued Aug. 8, 2000. The patent discusses the use of a wedge member in a joint to alter the relative positioning of a patient’s bones.
Specifically, Bonutti Skeletal alleges that Globus’ Caliber, Caliber-L, Coalition, Colonial, Continental, Forge, Fortify, Fortify I PEEK, Fortify I-R, Independence, Intercontinental, Monument, Nikeo, Rise, Signature Sustain Arch, Sustain Large, Sustain Medium, Sustain-O, Sustain Small, and Transcontinental spinal spacer products each infringe various Bonutti Skeletal patents.
According to the complaint, Bonutti Skeletal has been built on the work of Peter M. Bonutti, M.D., a surgeon that has performed more than 20,000 orthopedic procedures and been the inventor or co-inventor on more than 150 U.S. patents.
KEY EXECUTIVES:
David C. Paul, Chairman & CEO
David M. Demski, President & Chief Operating Officer
Daniel T. Scavilla, Sr. VP & Chief Financial Officer
A. Brett Murphy, Exec. VP, U.S. Sales
David D. Davidar, Sr. VP, Operations
Anthony L. Williams, Sr. VP, Business Development & General Counsel
NO. of EMPLOYEES: 900
HEADQUARTERS: Audubon, Pa.
The pain seemed to come out of nowhere, shooting thunderbolts of white-hot heat down Frank Hummel’s left arm from shoulder to fingertips. Relief was practically impossible as neither medication nor physical therapy could dull the burning within his limb.
Hummel’s life quickly morphed into a series of terrible, horrible, no good, very bad days: Once-simple tasks like going to work or picking up his children at school became agonizingly difficult. Even sleeping was a challenge.
“My neck, my back, my arm was numb, my hand was numb. And nothing would help,” he recalled. “It hurt. It hurt a lot. Sleeping was hard, interacting with my family was hard—anything, really—life became very hard.”
And so it remained until doctors diagnosed Hummel with a herniated disc in his lower neck (between the C-5 and C-6 vertebrae). Surgery was his only real treatment option.
“Before surgery I was nervous. It was hard to sleep sometimes, there was a lot weighing on my mind,” he said. “I was thinking about my family ... what am I going to do after surgery? Can I do the things I [like to] do? I like kayaking, hiking, I like fishing, and I was afraid that I might not be able to do all these things again.”
Valid fears, certainly, and, most likely the rationale behind Hummel’s choice of disc replacement over spinal fusion surgery. After consulting with his orthopedist, Jeffrey R. McConnell, M.D., of Allentown, Pa., Hummel settled on the Secure-C Cervical artificial disc, a motion-sparing device designed specifically as an alternative to fusion. Made by Audubon, Pa.-based Globus Medical Inc., the artificial disc provides articulation and sagittal plane translation, allowing up to 15 degrees of motion in flexion/extension (bending the neck forward and backward), and up to 10 degrees of motion in lateral bending (side to side). The disc itself consists of two metal (chromium molybdenum) endplates coated with a titanium plasma spray, and a polyethylene inner core designed to minimize wear debris.
“Waking up from surgery was amazing. The arm pain was gone, the hand numbness was gone, the thumb pain was gone, everything was back. I had surgical pain but it was nothing compared to what I was going through before,” Hummel said. “It was absolutely amazing. After my three-month checkup, they cleared me for work and that was fantastic. I was also able to go kayaking again, and go camping and hiking. It was a great time and it still is. It’s a good feeling to have your life back. I got my life back and I feel great.”
Hummel’s recovery capped a “great time” in Globus Medical’s 12-year history as well: The company grew sales 9.2 percent last year to $474.3 million and increased its gross profit 8.8 percent to $363.5 million, according to the 2014 annual report. Net income skyrocketed 34.8 percent to $92.5 million, with net income per diluted share rising by nearly the same amount (32.8 percent) to 97 cents per share.
“2014 was a great year for Globus Medical,” Chairman/CEO David C. Paul told analysts during an earnings conference call earlier this year. “Full-year EBITDA (earnings before interest, taxes, depreciation, and amortization) increased by 140 basis points to 26.1 percent of sales. We launched 16 new products, significantly expanded our research capabilities and successfully completed the acquisition of Transplant Technologies of Texas. This performance was a result of continued execution of our strategy of robust product innovation, sales force expansion and disciplined expense control.”
And well-accepted technology. Paul and his fellow executives attributed Globus’ stellar fiscal performance last year to strong demand for both new and existing products, particularly devices released during the last three years. Old favorites that contributed to 2014 sales growth included the Secure-C Cervical disc, the Latis Spacer, the Fortify corpectomy spacer, Kinex Bioactive and the SI-LOK Sacroiliac Fixation System, a device that alleviates pain by fusing the joint in a minimally invasive procedure. The product features hydroxy-apatite-coated screws with an optional slot for bone graft materials.
The Revere Threaded Reduction Screw System and CREO platform were among the products that boosted Innovative Fusion sales 6.6 percent in 2014 (year ended Dec. 31) to $270.8 million. The Revere device includes both polyaxial and uniplanar screws designed specifically to address spondylolisthesis and other spinal deformities. Its ±30-degree screw angulation (60 degrees total) provides intraoperative versatility, and reduction tabs allow maximum rod reduction into the screw head while the blunt tip permits bicortical purchase. The threaded locking cap mechanism is optimal for cases in which patient anatomy limits the space for reduction maneuvers.
Globus continued to roll out its CREO portfolio last year in its drive to turn the product into the world’s “most advanced and comprehensive pedicle screw system for various complex, deformity, degenerative and trauma pathologies through either an open or minimally invasive approach.” According to bigwigs, the CREO platform—encompassing the non-threaded, AMP, threaded, threaded AMP, deformity, MCS and SILC models—has been used in roughly 6,000 surgeries worldwide. Executives plan to introduce another nine versions of the product by mid-2016.
Similarly, robust demand for Globus’ minimally invasive, biologic, artificial disc and interventional pain management products helped lift Disruptive Technology revenue 12.8 percent to $203.5 million. Sales drivers in this category included Kinex Bioactive and the Plymouth Lateral Plate System, the latter of which is designed to provide spine stabilization through a single lateral approach. Unique anchoring and keying instruments align the plate with the interbody device and vertebral body endplates, allowing controlled placement with minimal retraction.
Kinex is a bioactive product with the osteostimulative properties of bioglass that amplifies the cellular activity responsible for bone formation. In addition to bioglass, Kinex contains collagen for scalp holding and hyaluronic acid to help with angiogenesis.
Newcomers that contributed to 2014 earnings growth included the Monument Anterior Spondylolisthesis Reduction system, SILC Fixation System and Altera Minimally Invasive Articulating Expandable spacer. Globus executives describe the Monument as an anterior lumbar interbody fusion device with a built-in mechanical feature to help with spondylolisthesis reduction. The self-locking and threaded translational attribute can be engaged to reduce the implant up to 8 millimeters in-situ, and the screws are designed for optimal cortical purchase. Monument is manufactured in different sizes, heights and sagittal angles to accommodate the lumbar and sacral spine, including L5-S1. The device is intended for use with supplemental fixation.
The SILC system is a low profile sublaminar fixation device that provides the stability to perform standard reduction maneuvers for spinal curvature correction without the need for pedical purchase in all vertebrae. The system consists of a polyethylene band that uses the strength of the laminal cortical bone as well as a top-loading clamp with integrated set screw allowing implant insertion at any time during the procedure. SILC is compatible with rod diameters ranging from 4.5 millimeters to 6.5 millimeters.
Released at the North American Spine Society 2014 Annual Meeting in November, the Altera spacer helps restore lordosis and maintain sagittal balance while reducing the challenges of insertion. The spacer is inserted at a minimized height, articulated into an anterior position and then expanded vertically to optimize fit (surgeons have the choice of 8-degree or 15-degree profile angles). The device also allows for in-situ delivery of autogenous bone graft into, as well as around, the implant after it has been expanded.
Securing Future Growth
Besides its new product launches, Globus also shored up its future earnings potential by acquiring allograft tissue processor Transplant Technologies of Texas Ltd. in October and refining its robotics program throughout the year.
Paul said the company made “tremendous progress” in commercializing its robotics technology, building a multidisciplinary team in Boston, Mass., dedicated to working on robotics, navigation and imaging. The firm’s first product is a robotic surgical aid for navigating and facilitating surgical access, implant sizing, positioning and placement; the system is being designed to enable surgeons to perform procedures more quickly and with greater accuracy, safety and reproducibility. Paul is eyeing a 2016 target for commercialization.
The Transplant Technologies purchase arrived too late in the year to significantly impact sales, but Globus bigwigs expect the addition to contribute $12 million in revenue this year and neutrally impact fully diluted earnings per share for 2015.
Transplant Technologies processes sterile human tissue and distributes a wide range of allograft implants (tissue graft from donors), including machined spine implants, demineralized bone matrix, sponge allografts and traditional bone allografts. The company also processes and distributes sports medicine tendons, birth tissue allografts and skin allografts. Founded in 1993, Transplant Technologies products have been used in more than 600,000 implant procedures worldwide.
Globus said it plans to grow Transplant Technologies’ operations in Texas and maintain its existing relationships with distribution partners while pumping its products to its own sales channels.
Back in Court
The company’s legal problems intensified last year with the filing of two new patent infringement lawsuits and a trade secret misappropriation guilty verdict.
A judicial double-whammy occurred in January, as DePuy Synthes accused Globus of infringing upon its spinal stabilization device with the Transition Stabilization System, a semi-rigid posterior fixation solution that provides “unique” biomechanical profiles. The product’s SoftStop technology allows optimized load sharing with the anterior column and transitional stabilization between rigidly fused levels and un-instrumented spinal segments. DePuy does not specify the way(s) in which the Transition device infringes upon its patent, nor does it identify the specific product it mimics, but the Jan. 8 complaint does ask the court for relief.
Nine days later, a federal jury found Globus guilty of trade secret misappropriation and awarded a neurosurgeon $4.3 million in damages. The physician, identified as Sabatino Bianco, M.D., sued the company in 2012, alleging that it misappropriated his trade secrets by using drawings related to three implantable medical devices he had provided to Globus years earlier pursuant to a confidentiality agreement (the Caliber, Caliber-L, and Rise products). Bianco claimed that Globus told him it was not interested in commercializing the idea he proposed in the drawings but then internally developed and sold a device incorporating that idea without compensating him.
Following trial, the jury awarded Bianco a 5 percent royalty based on net sales of three specified Globus products. In post-trial motions, the parties disputed the appropriateness of an ongoing royalty. Noting that ongoing royalties were appropriate in patent-infringement cases, the court reasoned that misappropriation was sufficiently analogous to patent infringement and upheld the jury’s royalty award. The court also concluded the royalty should be paid for 15 years from the date that an agreement between Bianco and Globus should have been reached in 2007 and that the royalty was owed on all products “not colorably different” from those at issue in the litigation.
Globus, naturally, is appealing the jury’s verdict.
In November, Bonutti Skeletal Innovations, LLC filed a patent infringement suit against Globus, claiming several of the company’s spinal spacer products and related instruments infringe Bonutti Skeletal patents, which include one titled “Changing Relationships Between Bones,” issued Aug. 8, 2000. The patent discusses the use of a wedge member in a joint to alter the relative positioning of a patient’s bones.
Specifically, Bonutti Skeletal alleges that Globus’ Caliber, Caliber-L, Coalition, Colonial, Continental, Forge, Fortify, Fortify I PEEK, Fortify I-R, Independence, Intercontinental, Monument, Nikeo, Rise, Signature Sustain Arch, Sustain Large, Sustain Medium, Sustain-O, Sustain Small, and Transcontinental spinal spacer products each infringe various Bonutti Skeletal patents.
According to the complaint, Bonutti Skeletal has been built on the work of Peter M. Bonutti, M.D., a surgeon that has performed more than 20,000 orthopedic procedures and been the inventor or co-inventor on more than 150 U.S. patents.