08.15.17
$564 Million
KEY EXECUTIVES:
David C. Paul, Chairman and CEO
Anthony L. Williams, President
Daniel T. Scavilla, Sr. VP and CFO
David M. Demski, Group President, Emerging Technologies
A. Brett Murphy, Group President, Commercial Operations
NO. OF EMPLOYEES: 1,400
GLOBAL HEADQUARTERS: Audubon, Pa.
For many orthopedic device manufacturers, sales are driven primarily by the U.S. marketplace with international revenues often coming in at a distant second in comparison. While the demand for orthopedic technologies is growing in international regions, they still fall well behind the numbers for U.S.-generated sales. The international market growth, however, creates an opportunity for OEMs as new areas open up for their products.
The reality of this scenario was likely at the top of the minds of bigwigs at Globus Medical when deciding to acquire the international operations and distribution channels of Alphatec Holdings (the parent company of Alphatec Spine). The transaction, which was coupled to an agreement for Globus to extend a five-year senior secured credit facility of up to $30 million to Alphatec, came at a purchase price of $80 million in cash, which Alphatec would use toward its outstanding debt, investment in commercialization, and expansion of its U.S. business.
Globus Medical assumed all of Alphatec’s international direct and distributor sales channels as a result of the transaction. In 2015, these accounted for sales of $71 million and in the first quarter of 2016, $15.6 million. Alphatec products were still sold through the channels until a complete transition could be made to Globus Medical’s product portfolio—the timing of which varied depending on each country’s regulatory requirements as well as contractual obligations. Also as a result of the transaction, Alphatec would supply Globus Medical with its products for a period of up to five years.
“Strategically, this acquisition gives us immediate access to Japan and increased presence and penetration in other key geographies, and significant scale, roughly doubling our international sales,” said David Paul, Globus Medical’s chairman and CEO. “In addition, we will be acquiring a talent pool of international sales professionals as well as an extensive network of international distributors. We expect the impact to be marginally accretive in 2017 as we work through our transition and integration plans and to provide up to 8 cents per share in incremental non-GAAP diluted earnings per share (EPS) in 2018 and beyond.”
Reviewing Globus Medical’s 2016 figures, it’s apparent that gaining an additional hold in new international regions will certainly help the company’s overall sales. Of the total $564 million in sales the company had in 2016 (fiscal year ended Dec. 31), only $63 million was derived from regions outside the United States. At the time of the Alphatec transaction, the company anticipated that the deal could add an additional $10 million to sales in the fourth quarter of FY16. The actual increase, however, over 2015 was 37 percent, a real monetary difference of more than $17 million. Further, the company expects the transaction to generate an additional $40 million in international sales for 2017.
If the Alphatec transaction can truly accelerate international sales for Globus, the company will enjoy significant gains in the coming years, backed by a strong base established through orthopedic sales within the United States. That region, however, while primarily responsible for the overwhelming majority of the company’s sales, experienced relatively flat growth (0.4 percent increase) in 2016 compared to the year prior, posting $500 million in sales for the year.
“In many respects, 2016 was a great year for Globus; at the same time, it was one of the most challenging periods in our company’s history. I’m proud to say that our company has responded to that challenge and we exit 2016 with a strong foundation to accomplish the goals we’ve set out for ourselves,” Paul said during a conference call announcing fourth quarter results for 2016. “As we look toward the rest of 2017, we’re confident of growing our top and bottom lines above market rates, within our core spine business. We’re particularly proud of our margins as they continue to be best in class within the industry, with this marking Globus’s eight consecutive year of mid-thirty’s EBITDA margin. We will continue to execute on our long-term strategy for success, as we drive towards $1 billion in sales.”
While the company enjoyed solid growth in international sales in 2016, it has a long journey before it hits $1 billion. The Alphatec transaction will help move toward that goal, but the company will need to grow its offerings in other ways to gain that achievement.
In the immediate future, Globus will enjoy the new international channels through which to distribute its 170 product offerings specifically indicated for the treatment of the spine, including 17 new offerings that joined the company’s portfolio in 2016. This portfolio is separated into two categories: Innovative Fusion and Disruptive Technology. The Innovative Fusion products are described by the company in its annual report as “a range of implant and surgical approach options to treat degenerative, deformity, tumor, and trauma conditions along the entire spine.” Expandable cages, minimally invasive surgery, motion preservation, and regenerative biologic products are all included as part of the Disruptive Technologies category. The breakdown in contribution to the company’s sales figures between these two product categories is almost a 50-50 split, with Innovative Fusion posting $288 million compared to $276 million from Disruptive Technology products. Growth, however, favored the Disruptive offerings, which experienced a 7.7 percent increase over the prior year, while Fusion sales fell 0.2 percent.
A CE mark in early 2017 for the company’s Excelsius GPS system—a robotic trajectory guidance and navigation solution—along with a series of orthopedic trauma products mark the creation of the company’s new Emerging Technologies products category. As these products didn’t begin selling until FY17, the company offered no insights on performance in the FY16 figures, but it could be an interesting new category worth watching in the coming years and may be instrumental in Paul’s goal of reaching $1 billion in sales.
Going forward, the company will promote the new category along with the aforementioned 17 new products that were released in 2016. Highlighting this group was the Quartex OCT Stabilization System. This solution is indicated as an adjunct to fusion to provide immobilization and stabilization in the spinal segments C1-C7 and T1-T3. Another standout among the new offerings was the Independence MIS—a minimally invasive ALIF integrated plate spacer. These interbody fusion devices are indicated for patients with degenerative disc disease at one or two contiguous levels of the lumbosacral spine (L2-S1).
KEY EXECUTIVES:
David C. Paul, Chairman and CEO
Anthony L. Williams, President
Daniel T. Scavilla, Sr. VP and CFO
David M. Demski, Group President, Emerging Technologies
A. Brett Murphy, Group President, Commercial Operations
NO. OF EMPLOYEES: 1,400
GLOBAL HEADQUARTERS: Audubon, Pa.
For many orthopedic device manufacturers, sales are driven primarily by the U.S. marketplace with international revenues often coming in at a distant second in comparison. While the demand for orthopedic technologies is growing in international regions, they still fall well behind the numbers for U.S.-generated sales. The international market growth, however, creates an opportunity for OEMs as new areas open up for their products.
The reality of this scenario was likely at the top of the minds of bigwigs at Globus Medical when deciding to acquire the international operations and distribution channels of Alphatec Holdings (the parent company of Alphatec Spine). The transaction, which was coupled to an agreement for Globus to extend a five-year senior secured credit facility of up to $30 million to Alphatec, came at a purchase price of $80 million in cash, which Alphatec would use toward its outstanding debt, investment in commercialization, and expansion of its U.S. business.
Globus Medical assumed all of Alphatec’s international direct and distributor sales channels as a result of the transaction. In 2015, these accounted for sales of $71 million and in the first quarter of 2016, $15.6 million. Alphatec products were still sold through the channels until a complete transition could be made to Globus Medical’s product portfolio—the timing of which varied depending on each country’s regulatory requirements as well as contractual obligations. Also as a result of the transaction, Alphatec would supply Globus Medical with its products for a period of up to five years.
“Strategically, this acquisition gives us immediate access to Japan and increased presence and penetration in other key geographies, and significant scale, roughly doubling our international sales,” said David Paul, Globus Medical’s chairman and CEO. “In addition, we will be acquiring a talent pool of international sales professionals as well as an extensive network of international distributors. We expect the impact to be marginally accretive in 2017 as we work through our transition and integration plans and to provide up to 8 cents per share in incremental non-GAAP diluted earnings per share (EPS) in 2018 and beyond.”
Reviewing Globus Medical’s 2016 figures, it’s apparent that gaining an additional hold in new international regions will certainly help the company’s overall sales. Of the total $564 million in sales the company had in 2016 (fiscal year ended Dec. 31), only $63 million was derived from regions outside the United States. At the time of the Alphatec transaction, the company anticipated that the deal could add an additional $10 million to sales in the fourth quarter of FY16. The actual increase, however, over 2015 was 37 percent, a real monetary difference of more than $17 million. Further, the company expects the transaction to generate an additional $40 million in international sales for 2017.
If the Alphatec transaction can truly accelerate international sales for Globus, the company will enjoy significant gains in the coming years, backed by a strong base established through orthopedic sales within the United States. That region, however, while primarily responsible for the overwhelming majority of the company’s sales, experienced relatively flat growth (0.4 percent increase) in 2016 compared to the year prior, posting $500 million in sales for the year.
“In many respects, 2016 was a great year for Globus; at the same time, it was one of the most challenging periods in our company’s history. I’m proud to say that our company has responded to that challenge and we exit 2016 with a strong foundation to accomplish the goals we’ve set out for ourselves,” Paul said during a conference call announcing fourth quarter results for 2016. “As we look toward the rest of 2017, we’re confident of growing our top and bottom lines above market rates, within our core spine business. We’re particularly proud of our margins as they continue to be best in class within the industry, with this marking Globus’s eight consecutive year of mid-thirty’s EBITDA margin. We will continue to execute on our long-term strategy for success, as we drive towards $1 billion in sales.”
While the company enjoyed solid growth in international sales in 2016, it has a long journey before it hits $1 billion. The Alphatec transaction will help move toward that goal, but the company will need to grow its offerings in other ways to gain that achievement.
In the immediate future, Globus will enjoy the new international channels through which to distribute its 170 product offerings specifically indicated for the treatment of the spine, including 17 new offerings that joined the company’s portfolio in 2016. This portfolio is separated into two categories: Innovative Fusion and Disruptive Technology. The Innovative Fusion products are described by the company in its annual report as “a range of implant and surgical approach options to treat degenerative, deformity, tumor, and trauma conditions along the entire spine.” Expandable cages, minimally invasive surgery, motion preservation, and regenerative biologic products are all included as part of the Disruptive Technologies category. The breakdown in contribution to the company’s sales figures between these two product categories is almost a 50-50 split, with Innovative Fusion posting $288 million compared to $276 million from Disruptive Technology products. Growth, however, favored the Disruptive offerings, which experienced a 7.7 percent increase over the prior year, while Fusion sales fell 0.2 percent.
A CE mark in early 2017 for the company’s Excelsius GPS system—a robotic trajectory guidance and navigation solution—along with a series of orthopedic trauma products mark the creation of the company’s new Emerging Technologies products category. As these products didn’t begin selling until FY17, the company offered no insights on performance in the FY16 figures, but it could be an interesting new category worth watching in the coming years and may be instrumental in Paul’s goal of reaching $1 billion in sales.
Going forward, the company will promote the new category along with the aforementioned 17 new products that were released in 2016. Highlighting this group was the Quartex OCT Stabilization System. This solution is indicated as an adjunct to fusion to provide immobilization and stabilization in the spinal segments C1-C7 and T1-T3. Another standout among the new offerings was the Independence MIS—a minimally invasive ALIF integrated plate spacer. These interbody fusion devices are indicated for patients with degenerative disc disease at one or two contiguous levels of the lumbosacral spine (L2-S1).