07.28.10
$3.4 Billion
KEY EXECUTIVES:
Dr. h.c. mult. Hansjörg Wyss, Board Chairman
Michel Orsinger, President and CEO
Robert Donohue, Chief Financial Officer
Ciro Römer, President, Europe, Middle East and Africa & Global Operations
NO. OF EMPLOYEES: 10,705
GLOBAL HEADQUARTERS: West Chester, Pa.
When executives at Synthes Inc. released the firm’s 2009 earnings earlier this year, President and CEO Michel Orsinger set a rather ambitious goal for both himself and the company. “My personal focus this year,” he told his colleagues and shareholders, “is on keeping the innovation cycle high and on increasing the effectiveness of our sales force.”
Based on Synthes’ 2009 results, Orsinger may have an easier time achieving his goal than he anticipates. Dozens of new product introductions (more than 30 in the Trauma segment alone) and an expanded sales force helped boost sales by 6.3 percent to $3.4 billion in 2009 (year ended Dec. 31). Gross profit rose 6.2 percent to $2.8 billion, according to Synthes’ 2009 annual report.
“In 2009, Synthes delivered a good result,” Orsinger and Board Chairman Hansjörg Wyss said in their letter to shareholders that was included in the annual report. “The global financial crisis that began in 2008 continued to have a negative impact on the incidence level of fractures, due to less participation in activities that tend to result in orthopedic trauma. And while the company was not immune to the economic downturn, we still demonstrated strong resilience.”
Synthes is one of the few orthopedic companies that demonstrated such resilience last year. Besides increasing its operating income by 7.6 percent and earnings per share by 75 cents, the company managed to overcome the economic roadblocks that dampened sales throughout most of the orthopedic sector and improve its position in the global trauma market (now estimated to be at 50 percent). Executives attributed the gain in trauma market share to the company’s sales force, its product lineups and the barrage of new device debuts last year.
Those debuts included the release of the LCP Two Column Variable Angle Distal Radius Plate, the LCP Distal Fibula Plate, the Angular Stable Locking System for Intramedullary Nails, and an array of Headless Compression Screws. Synthes claims the Angular Stable Locking System represents a milestone in nail development, executives claim, because it gives surgeons the ability to create a locked structure that offers angular stability for intramedullary nails.
Last year’s debuts were not limited to products, though. The Trauma segment introduced a new leader—I.V. Hall, a 12-year Synthes veteran responsible for Global Trauma Product Development during the last four years. Hall succeeded Rick Gennett as segment president.
Spine growth was derived from the Synapse system, the Zero-P implant and the expansion of Prodisc-C, an implant made up of three components—two cobalt chrome alloy endplates and an ultra-high molecular weight polyethylene inlay. Another significant sales contributor was the Vertebral Body Stenting system, a minimally invasive surgical technique designed to treat osteoporotic vertebral compression fractures.
Though it is not reflected in the 2009 annual report or final sales figures, spinal device sales most certainly were affected by a recall of the company’s Synex II Central Body components. Synthes officials announced the recall on Nov. 12 after the U.S. Food and Drug Administration discovered that six of the firm’s Ti Synex II devices had collapsed only several months after they were implanted.
Synthes continued to maintain its market-leading position in the cranio-maxillofacial (CMF) market sector last year as the Matrix line of products (the Neuro, Midface and Mandible) drove sales growth. The newest member of the Matrix family is the MatrixRIB Fixation system, which is used to repair and stabilize rib fractures, fusions and osteotomies of normal and osteoporotic bone.
Along with product initiatives, Synthes strengthened its market presence in other ways last year. In August, executives announced a strategic agreement with Kensey Nash Corp., an Exton, Pa.-based medical device firm that develops new technologies in regenerative medicine. The agreement gives
Synthes the right to market and distribute Kensey Nash’s extracellular matrix (ECM) porcine dermis product for soft tissue reconstruction in ventral hernias and head and neck procedures. Executives said the agreement will allow the firm to build “a valuable franchise with a series of ECM products.”
Synthes expanded its presence in the Asia Pacific market by completing construction of a manufacturing plant in Suzhou, China, in September. The plant manufactures products for local (China) markets.
Synthes further strengthened its foothold in the Latin American arena by creating logistics points in Brazil to help improve service and optimize costs. The logistics points enabled the company to reach areas and regions that previously had been inaccessible. The success of its first logistics point in the state of Rio Grande do Sul was so successful that Synthes is planning to open five additional points by the end of 2010.
The logistics point in Rio Grande do Sul perhaps helped Synthes achieve a sales growth rate of 19 percent in Brazil. Colombia posted an increase of 25 percent, but that growth was tempered by flat or declining revenue in countries where the company has distributors. Executives blamed the low growth rates in these areas on tight credit in Chile and Venezuela and the postponement of non-emergency surgery by southern hemisphere hospitals due to the H1N1 pandemic.
Overall, Latin American sales grew 13.3 percent last year in local currency, a figure that is slightly below the company’s historical average and also below executives’ expectations for future revenue growth.
North America accounted for nearly two-thirds (60.7 percent) of Synthes’ total 2009 sales, generating $2 billion in revenue. Europe contributed $788.5 million, a 4.3 percent increase compared with the $756.1 million the region reported in 2008. The Asia Pacific region posted the largest sales growth, as new products and technologies and the company’s expanding sales force made inroads in emerging markets. Synthes’ CMF business grew more than 20 percent in the Asia Pacific region, due mostly to the introduction of the Matrix product line, executives said. Sales in the Asia Pacific region totaled $357 million, a 15.5 percent jump compared with the $309 million the region reported in 2008.
Sales throughout the rest of the world decrease 7.4 percent to $190 million.
An unexpected legal windfall of $21 million also added to Synthes’ bottom line in 2009. The company received the money from Medtronic Inc. for infringing the patent for its ProDisc-L artificial disc replacement device. In late August, a U.S. District Court judge in Tennessee permanently forbid Medtronic from infringing on the patent and ordered the device giant to pay Synthes’ attorneys’ fees.
The firm’s ProDisc-L also has been at the center of a legal battle with the New Jersey attorney general. An investigation conducted by the attorney general’s office in 2008 concluded that doctors who were working for Synthes and also were in charge of clinical trials for the ProDisc Total Disc Replacement System, the ProDisc-L and the ProDisc-C did not disclose their financial stake during some of the trials.
An agreement Synthes signed with the New Jersey Attorney General’s Office in May 2009 requires the company to disclose all financial relationships with doctors conducting clinical trials of its products, and bans it from tying their compensation to the outcome of such trials. The pact resolves allegations that Synthes failed to disclose financial conflicts of interest among clinical trial researchers.
Synthes agreed under the settlement to pay clinical investigators “fair market value” compensation for their clinical trial work and any other consulting services they provide to the company. It also agreed to reimburse the Garden State $236,000 for the cost of the investigation.
Roughly one month after resolving its dispute with New Jersey, Synthes found itself in more legal trouble, only this time it came from Pennsylvania authorities. The U.S. Attorney for the Eastern District of the Keystone State accused the company with the off-label promotion of Norian XR, a spinal product the firm discontinued in 2004. Though Synthes is cooperating with the government’s investigation, executives insist the company did nothing wrong and that any marketing of Norian XR was conducted properly.
KEY EXECUTIVES:
Dr. h.c. mult. Hansjörg Wyss, Board Chairman
Michel Orsinger, President and CEO
Robert Donohue, Chief Financial Officer
Ciro Römer, President, Europe, Middle East and Africa & Global Operations
NO. OF EMPLOYEES: 10,705
GLOBAL HEADQUARTERS: West Chester, Pa.
When executives at Synthes Inc. released the firm’s 2009 earnings earlier this year, President and CEO Michel Orsinger set a rather ambitious goal for both himself and the company. “My personal focus this year,” he told his colleagues and shareholders, “is on keeping the innovation cycle high and on increasing the effectiveness of our sales force.”
Based on Synthes’ 2009 results, Orsinger may have an easier time achieving his goal than he anticipates. Dozens of new product introductions (more than 30 in the Trauma segment alone) and an expanded sales force helped boost sales by 6.3 percent to $3.4 billion in 2009 (year ended Dec. 31). Gross profit rose 6.2 percent to $2.8 billion, according to Synthes’ 2009 annual report.
“In 2009, Synthes delivered a good result,” Orsinger and Board Chairman Hansjörg Wyss said in their letter to shareholders that was included in the annual report. “The global financial crisis that began in 2008 continued to have a negative impact on the incidence level of fractures, due to less participation in activities that tend to result in orthopedic trauma. And while the company was not immune to the economic downturn, we still demonstrated strong resilience.”
Synthes is one of the few orthopedic companies that demonstrated such resilience last year. Besides increasing its operating income by 7.6 percent and earnings per share by 75 cents, the company managed to overcome the economic roadblocks that dampened sales throughout most of the orthopedic sector and improve its position in the global trauma market (now estimated to be at 50 percent). Executives attributed the gain in trauma market share to the company’s sales force, its product lineups and the barrage of new device debuts last year.
Those debuts included the release of the LCP Two Column Variable Angle Distal Radius Plate, the LCP Distal Fibula Plate, the Angular Stable Locking System for Intramedullary Nails, and an array of Headless Compression Screws. Synthes claims the Angular Stable Locking System represents a milestone in nail development, executives claim, because it gives surgeons the ability to create a locked structure that offers angular stability for intramedullary nails.
Last year’s debuts were not limited to products, though. The Trauma segment introduced a new leader—I.V. Hall, a 12-year Synthes veteran responsible for Global Trauma Product Development during the last four years. Hall succeeded Rick Gennett as segment president.
Spine growth was derived from the Synapse system, the Zero-P implant and the expansion of Prodisc-C, an implant made up of three components—two cobalt chrome alloy endplates and an ultra-high molecular weight polyethylene inlay. Another significant sales contributor was the Vertebral Body Stenting system, a minimally invasive surgical technique designed to treat osteoporotic vertebral compression fractures.
Though it is not reflected in the 2009 annual report or final sales figures, spinal device sales most certainly were affected by a recall of the company’s Synex II Central Body components. Synthes officials announced the recall on Nov. 12 after the U.S. Food and Drug Administration discovered that six of the firm’s Ti Synex II devices had collapsed only several months after they were implanted.
Synthes continued to maintain its market-leading position in the cranio-maxillofacial (CMF) market sector last year as the Matrix line of products (the Neuro, Midface and Mandible) drove sales growth. The newest member of the Matrix family is the MatrixRIB Fixation system, which is used to repair and stabilize rib fractures, fusions and osteotomies of normal and osteoporotic bone.
Along with product initiatives, Synthes strengthened its market presence in other ways last year. In August, executives announced a strategic agreement with Kensey Nash Corp., an Exton, Pa.-based medical device firm that develops new technologies in regenerative medicine. The agreement gives
Synthes the right to market and distribute Kensey Nash’s extracellular matrix (ECM) porcine dermis product for soft tissue reconstruction in ventral hernias and head and neck procedures. Executives said the agreement will allow the firm to build “a valuable franchise with a series of ECM products.”
Synthes expanded its presence in the Asia Pacific market by completing construction of a manufacturing plant in Suzhou, China, in September. The plant manufactures products for local (China) markets.
Synthes further strengthened its foothold in the Latin American arena by creating logistics points in Brazil to help improve service and optimize costs. The logistics points enabled the company to reach areas and regions that previously had been inaccessible. The success of its first logistics point in the state of Rio Grande do Sul was so successful that Synthes is planning to open five additional points by the end of 2010.
The logistics point in Rio Grande do Sul perhaps helped Synthes achieve a sales growth rate of 19 percent in Brazil. Colombia posted an increase of 25 percent, but that growth was tempered by flat or declining revenue in countries where the company has distributors. Executives blamed the low growth rates in these areas on tight credit in Chile and Venezuela and the postponement of non-emergency surgery by southern hemisphere hospitals due to the H1N1 pandemic.
Overall, Latin American sales grew 13.3 percent last year in local currency, a figure that is slightly below the company’s historical average and also below executives’ expectations for future revenue growth.
North America accounted for nearly two-thirds (60.7 percent) of Synthes’ total 2009 sales, generating $2 billion in revenue. Europe contributed $788.5 million, a 4.3 percent increase compared with the $756.1 million the region reported in 2008. The Asia Pacific region posted the largest sales growth, as new products and technologies and the company’s expanding sales force made inroads in emerging markets. Synthes’ CMF business grew more than 20 percent in the Asia Pacific region, due mostly to the introduction of the Matrix product line, executives said. Sales in the Asia Pacific region totaled $357 million, a 15.5 percent jump compared with the $309 million the region reported in 2008.
Sales throughout the rest of the world decrease 7.4 percent to $190 million.
An unexpected legal windfall of $21 million also added to Synthes’ bottom line in 2009. The company received the money from Medtronic Inc. for infringing the patent for its ProDisc-L artificial disc replacement device. In late August, a U.S. District Court judge in Tennessee permanently forbid Medtronic from infringing on the patent and ordered the device giant to pay Synthes’ attorneys’ fees.
The firm’s ProDisc-L also has been at the center of a legal battle with the New Jersey attorney general. An investigation conducted by the attorney general’s office in 2008 concluded that doctors who were working for Synthes and also were in charge of clinical trials for the ProDisc Total Disc Replacement System, the ProDisc-L and the ProDisc-C did not disclose their financial stake during some of the trials.
An agreement Synthes signed with the New Jersey Attorney General’s Office in May 2009 requires the company to disclose all financial relationships with doctors conducting clinical trials of its products, and bans it from tying their compensation to the outcome of such trials. The pact resolves allegations that Synthes failed to disclose financial conflicts of interest among clinical trial researchers.
Synthes agreed under the settlement to pay clinical investigators “fair market value” compensation for their clinical trial work and any other consulting services they provide to the company. It also agreed to reimburse the Garden State $236,000 for the cost of the investigation.
Roughly one month after resolving its dispute with New Jersey, Synthes found itself in more legal trouble, only this time it came from Pennsylvania authorities. The U.S. Attorney for the Eastern District of the Keystone State accused the company with the off-label promotion of Norian XR, a spinal product the firm discontinued in 2004. Though Synthes is cooperating with the government’s investigation, executives insist the company did nothing wrong and that any marketing of Norian XR was conducted properly.