08.05.13
$484 Million
KEY EXECUTIVES:
Robert J. Palmisano, President & CEO
Pascal E.R. Girin, Exec. VP & Chief Operating Officer
Lance A. Berry, Sr. VP & Chief Financial Officer
Peter S. Cooke, Sr. VP, International
Timothy E. Davis, President, OrthoRecon
William L. Griffin, Sr. VP & General Manager, BioMimetic Therapeutics
Eric A. Steiger, Sr. VP, Extremities
Daniel J. Garen, Sr. VP & Chief Compliance Officer
Kyle M. Joines, VP of Operations
Jennifer S. Walker, Sr. VP, Process Improvement
NO. OF EMPLOYEES: 1,400
GLOBAL HEADQUARTERS: Arlington, Tenn.
Robert J. Palmisano certainly is true to his word. Last spring, he warned shareholders that changes were coming.
Big changes.
“While we have many strengths, we have much work to do to realize the full potential that I believe this company is capable of reaching,” Palmisano said in Wright Medical Technology Inc.’s 2011 annual report. “We have already taken many positive steps to better position the company for success, including strengthening our compliance program and implementing a plan to reduce operational costs. And we will be implementing a number of important changes over the next several months to transform our business and maximize the opportunities we have. The changes…will require significant investment in 2012, which will negatively impact our full-year 2012 results. However, we believe these investments will generate significant future returns…”
Palmisano kept his promise, implementing a host of changes last year to transform the Arlington, Tenn.-based firm into a “high-growth, high-margin, high cash-generating” business. And, as he predicted, those changes annihilated earnings: Net sales and gross profit each fell 5.7 percent in 2012, bottoming out at $483.7 million and $333.3 million, respectively. The company’s OrthoRecon division sustained the worst destruction, posting a 10.8 percent sales loss for the year; Extremities revenue grew, but only marginally as biologics product and upper extremities device sales suffered double-digit losses.
The year, however, wasn’t a total write-off—net income rose to $5.2 million from a 2011 deficit of $5.1 million and operating income increased more than five-fold to $24.1 million. Wright also trimmed $6.3 million in expenses by completing its deferred prosecution agreement (DPA) with the U.S. Attorney’s Office in New Jersey. The orthopedic device manufacturer agreed to the deal in September 2010 to avoid prosecution for allegedly paying kickbacks to surgeons to use its hip and knee products. Wright voluntarily extended the one-year DPA for an additional 12 months in September 2011 after executives admitted the firm “willfully breached material provisions” of the accord that previous May. The disclosure forced the resignation of several high-level managers as well as former CEO Gary D. Henley, who joined the company in 2006.
Federal monitor James B. Tucker, former U.S. Attorney for the Southern District of Mississippi, has supervised Wright’s compliance to the deferred prosecution pact for the last two years. The firm now is subject to terms of a corporate integrity agreement it reached with the Office of Inspector General of the U.S. Health and Human Services Department through Sept. 29, 2015.
“While exiting the (deferred prosecution agreement) is an important milestone, executing an effective and efficient compliance system and promoting the highest standards of ethical and legal conduct in all of the markets that we serve will remain a focal point for the company,” Palmisano said.
Though the DPA was not incorporated into the company’s 2012 earnings forecast (odd, considering Palmisano knew it would expire last fall), its resolution is nevertheless an important cornerstone of Wright’s transition to a leaner, more efficient (and profitable) organization. Executives’ three-pronged plan for prosperity entails accelerating foot and ankle sales gains; building a growing, global OrthoRecon business; and improving cash flow over the next four years.
Palmisano expedited foot and ankle product growth last year by tripling the number of surgeons trained on Wright devices, boosting productivity rates of his sales force (from $600,000 to $700,000 per rep) and flooding the market with nine new inventions. The novelties included the Ortholoc 3Di Ankle Fracture System, Quickdraw Knotless Soft Tissue Fixation System, Prophecy Inbone Pre-Operative Navigation Alignment Guides for ankle replacements, Claw II Polyaxial Compression Plating System, and Ortholoc 3Di Reconstruction Plating System for foot and ankle surgery.
The Ortholoc 3Di Ankle Fracture System is described by Wright as a comprehensive single-tray ankle fracture solution that addresses various fracture types and classifications. The system, through the company’s 3Di polyaxial locking technology, features multiple anatomically-contoured plates and a comprehensive set of instruments that help surgeons match the appropriate implant construct with patient anatomy and fracture type.
3Di polyaxial technology also is used in the Ortholoc 3Di Reconstruction Plating System to adjust screw trajectory to patient anatomy and affix anatomical plates strongly to bone. The plates, screws and specialized surgical instruments in this system are used in fracture fixation, osteotomies and foot fusions; they represent the next-generation version of the original system cleared in 2010 by the U.S. Food and Drug Administration (FDA).
Wright’s Quickdraw system is designed specifically for soft tissue reattachment procedures of the foot and ankle. Composed of the Belay and Mini-Belay Knotless Suture Anchors, Rappel-Line Surgical Suture and instruments, the Quickdraw system helps simplify suture management and placement, enabling surgeons to quickly repair ruptured or detached foot and ankle ligaments (even the supremely challenging Achilles tendon).
The Claw II Compression Plating System, which uses Ortholoc 3DSi Polyaxial Locking screws for stability, allows surgeons to precisely match a greater number of patient anatomies. “The advancements offered with the new Claw II system, such as variable-angle locking screws and anatomically contoured plates for fusions and osteotomies of the forefoot and midfoot, will enable surgeons to choose the appropriate implants to meet the patient’s unique circumstances,” W. Hodges Davis, M.D., a foot and ankle orthopedic surgeon with OrthoCarolina Foot and Ankle Institute in Charlotte, N.C., noted when the system debuted in March 2012.
The Claw II and Ortholoc 3Di Reconstruction Plating System helped Palmisano keep his word to shareholders, fueling a 14.1 percent rise in foot/ankle product sales (to $122.8 million). Wright’s foot/ankle portfolio was the only product category that posted a gain in 2012 (year ended Dec. 31)—most others suffered losses of 10 percent or more.
The largest shortfall occurred in Biologics, which lost 12.8 percent of its 2011 sales to end the year with $60.4 million in revenue. Executives blamed the poor showing on a licensing agreement with Kinetic Concepts Inc. that prevented the firm from marketing its Graftjacket Regenerative Tissue Matrix product during the first half of 2012. The matrix is used to treat chronic foot wounds in diabetic patients.
Palmisano is hoping to reverse Biologics’ fortunes with the Augment Bone Graft, a bioengineered product that Wright acquired in its $380 million purchase of Franklin, Tenn.-based BioMimetic Therapeutics Inc. Approved only in Canada, Australia and New Zealand, the recombinant protein product is designed to be an alternative to using a patient’s own tissue (autograft) in foot/ankle fracture surgeries. The FDA has not yet sanctioned the product—in May, an advisory panel supported the safety and effectiveness of Augment, despite concerns from FDA staff that a synthetic protein might spur growth of existing cancer cells. The panel, however, suggested the company conduct additional studies of the product.
“If approved, Augment Bone Graft can leverage the distribution capabilities of our foot and ankle sales organization and physician training capabilities and help accelerate the transformation of our business,” Palmisano told shareholders in the company’s 2012 annual report. “If approved, it will represent an opportunity of approximately $300 million in the U.S. market alone to treat hindfoot and ankle fusions.”
Upper extremity products (those targeting the hand, wrist, elbow and shoulder) sustained the second-largest loss in the Extremities business last year. Revenue fell 10 percent to $24.9 million; those deficits, along with equally damaging ones in Biologics and “Other” products, limited overall growth in the Extremities business to 1.6 percent, or $3.3 million.
Palmisano attempted to jump-start growth in the company’s ailing OrthoRecon business by separating it from the Extremities division and establishing a separate leadership team, and enhancing its hip and knee product portfolio. But sales still fell significantly: Total OrthoRecon revenue slipped 10.8 percent to $269.6 million, hip sales plummeted 13.1 percent to $150.5 million and knee proceeds slid 7.3 percent to $114.8 million.
Executives attributed traced the abysmal hip sales to an 18 percent decline in domestic hip revenue from lower volume and customer losses. International hip sales fell 8 percent, thanks mostly to reduced volume in Europe and poor reimbursement rates in Japan. Those same forces contributed to the decline in knee revenue as well, though bigwigs also blamed the poor performance on “sales dis-synergies related to the U.S. sales force conversion initiative.”
Despite the sizeable losses in its OrthoRecon business, Wright managed to generate $49.5 million in free cash flow by reducing inventories, capital expenditures and working capital. The accomplishment, according to Palmisano, proves the company is heading in the right direction to improve its long-term profitability.
“Our transformation has begun and it is working,” he concluded in the 2012 annual report. “There is great reason for optimism as we continue with this transformation. We are a much different company than we were one year ago, and we have an opportunity to drive significant improvement again this year. We have both a clear goal and a clear ability to improve our performance as our strategy gains traction. This outlook, combined with the potential impact of the BioMimetic acquisition, makes us very optimistic about our ability to drive significant revenue and earnings growth in 2014 and beyond.”
KEY EXECUTIVES:
Robert J. Palmisano, President & CEO
Pascal E.R. Girin, Exec. VP & Chief Operating Officer
Lance A. Berry, Sr. VP & Chief Financial Officer
Peter S. Cooke, Sr. VP, International
Timothy E. Davis, President, OrthoRecon
William L. Griffin, Sr. VP & General Manager, BioMimetic Therapeutics
Eric A. Steiger, Sr. VP, Extremities
Daniel J. Garen, Sr. VP & Chief Compliance Officer
Kyle M. Joines, VP of Operations
Jennifer S. Walker, Sr. VP, Process Improvement
NO. OF EMPLOYEES: 1,400
GLOBAL HEADQUARTERS: Arlington, Tenn.
Robert J. Palmisano certainly is true to his word. Last spring, he warned shareholders that changes were coming.
Big changes.
“While we have many strengths, we have much work to do to realize the full potential that I believe this company is capable of reaching,” Palmisano said in Wright Medical Technology Inc.’s 2011 annual report. “We have already taken many positive steps to better position the company for success, including strengthening our compliance program and implementing a plan to reduce operational costs. And we will be implementing a number of important changes over the next several months to transform our business and maximize the opportunities we have. The changes…will require significant investment in 2012, which will negatively impact our full-year 2012 results. However, we believe these investments will generate significant future returns…”
Palmisano kept his promise, implementing a host of changes last year to transform the Arlington, Tenn.-based firm into a “high-growth, high-margin, high cash-generating” business. And, as he predicted, those changes annihilated earnings: Net sales and gross profit each fell 5.7 percent in 2012, bottoming out at $483.7 million and $333.3 million, respectively. The company’s OrthoRecon division sustained the worst destruction, posting a 10.8 percent sales loss for the year; Extremities revenue grew, but only marginally as biologics product and upper extremities device sales suffered double-digit losses.
The year, however, wasn’t a total write-off—net income rose to $5.2 million from a 2011 deficit of $5.1 million and operating income increased more than five-fold to $24.1 million. Wright also trimmed $6.3 million in expenses by completing its deferred prosecution agreement (DPA) with the U.S. Attorney’s Office in New Jersey. The orthopedic device manufacturer agreed to the deal in September 2010 to avoid prosecution for allegedly paying kickbacks to surgeons to use its hip and knee products. Wright voluntarily extended the one-year DPA for an additional 12 months in September 2011 after executives admitted the firm “willfully breached material provisions” of the accord that previous May. The disclosure forced the resignation of several high-level managers as well as former CEO Gary D. Henley, who joined the company in 2006.
Federal monitor James B. Tucker, former U.S. Attorney for the Southern District of Mississippi, has supervised Wright’s compliance to the deferred prosecution pact for the last two years. The firm now is subject to terms of a corporate integrity agreement it reached with the Office of Inspector General of the U.S. Health and Human Services Department through Sept. 29, 2015.
“While exiting the (deferred prosecution agreement) is an important milestone, executing an effective and efficient compliance system and promoting the highest standards of ethical and legal conduct in all of the markets that we serve will remain a focal point for the company,” Palmisano said.
Though the DPA was not incorporated into the company’s 2012 earnings forecast (odd, considering Palmisano knew it would expire last fall), its resolution is nevertheless an important cornerstone of Wright’s transition to a leaner, more efficient (and profitable) organization. Executives’ three-pronged plan for prosperity entails accelerating foot and ankle sales gains; building a growing, global OrthoRecon business; and improving cash flow over the next four years.
Palmisano expedited foot and ankle product growth last year by tripling the number of surgeons trained on Wright devices, boosting productivity rates of his sales force (from $600,000 to $700,000 per rep) and flooding the market with nine new inventions. The novelties included the Ortholoc 3Di Ankle Fracture System, Quickdraw Knotless Soft Tissue Fixation System, Prophecy Inbone Pre-Operative Navigation Alignment Guides for ankle replacements, Claw II Polyaxial Compression Plating System, and Ortholoc 3Di Reconstruction Plating System for foot and ankle surgery.
The Ortholoc 3Di Ankle Fracture System is described by Wright as a comprehensive single-tray ankle fracture solution that addresses various fracture types and classifications. The system, through the company’s 3Di polyaxial locking technology, features multiple anatomically-contoured plates and a comprehensive set of instruments that help surgeons match the appropriate implant construct with patient anatomy and fracture type.
3Di polyaxial technology also is used in the Ortholoc 3Di Reconstruction Plating System to adjust screw trajectory to patient anatomy and affix anatomical plates strongly to bone. The plates, screws and specialized surgical instruments in this system are used in fracture fixation, osteotomies and foot fusions; they represent the next-generation version of the original system cleared in 2010 by the U.S. Food and Drug Administration (FDA).
Wright’s Quickdraw system is designed specifically for soft tissue reattachment procedures of the foot and ankle. Composed of the Belay and Mini-Belay Knotless Suture Anchors, Rappel-Line Surgical Suture and instruments, the Quickdraw system helps simplify suture management and placement, enabling surgeons to quickly repair ruptured or detached foot and ankle ligaments (even the supremely challenging Achilles tendon).
The Claw II Compression Plating System, which uses Ortholoc 3DSi Polyaxial Locking screws for stability, allows surgeons to precisely match a greater number of patient anatomies. “The advancements offered with the new Claw II system, such as variable-angle locking screws and anatomically contoured plates for fusions and osteotomies of the forefoot and midfoot, will enable surgeons to choose the appropriate implants to meet the patient’s unique circumstances,” W. Hodges Davis, M.D., a foot and ankle orthopedic surgeon with OrthoCarolina Foot and Ankle Institute in Charlotte, N.C., noted when the system debuted in March 2012.
The Claw II and Ortholoc 3Di Reconstruction Plating System helped Palmisano keep his word to shareholders, fueling a 14.1 percent rise in foot/ankle product sales (to $122.8 million). Wright’s foot/ankle portfolio was the only product category that posted a gain in 2012 (year ended Dec. 31)—most others suffered losses of 10 percent or more.
The Ortholoc 3Di Ankle Fracture System features multiple anatomically contoured plates and a comprehensive set of instruments to precisely match foot and ankle implants with patient anatomy. Roughly 170,000 ankle fractures are surgically treated each year. Image courtesy of Wright Medical Technology. |
Palmisano is hoping to reverse Biologics’ fortunes with the Augment Bone Graft, a bioengineered product that Wright acquired in its $380 million purchase of Franklin, Tenn.-based BioMimetic Therapeutics Inc. Approved only in Canada, Australia and New Zealand, the recombinant protein product is designed to be an alternative to using a patient’s own tissue (autograft) in foot/ankle fracture surgeries. The FDA has not yet sanctioned the product—in May, an advisory panel supported the safety and effectiveness of Augment, despite concerns from FDA staff that a synthetic protein might spur growth of existing cancer cells. The panel, however, suggested the company conduct additional studies of the product.
“If approved, Augment Bone Graft can leverage the distribution capabilities of our foot and ankle sales organization and physician training capabilities and help accelerate the transformation of our business,” Palmisano told shareholders in the company’s 2012 annual report. “If approved, it will represent an opportunity of approximately $300 million in the U.S. market alone to treat hindfoot and ankle fusions.”
Upper extremity products (those targeting the hand, wrist, elbow and shoulder) sustained the second-largest loss in the Extremities business last year. Revenue fell 10 percent to $24.9 million; those deficits, along with equally damaging ones in Biologics and “Other” products, limited overall growth in the Extremities business to 1.6 percent, or $3.3 million.
Palmisano attempted to jump-start growth in the company’s ailing OrthoRecon business by separating it from the Extremities division and establishing a separate leadership team, and enhancing its hip and knee product portfolio. But sales still fell significantly: Total OrthoRecon revenue slipped 10.8 percent to $269.6 million, hip sales plummeted 13.1 percent to $150.5 million and knee proceeds slid 7.3 percent to $114.8 million.
Executives attributed traced the abysmal hip sales to an 18 percent decline in domestic hip revenue from lower volume and customer losses. International hip sales fell 8 percent, thanks mostly to reduced volume in Europe and poor reimbursement rates in Japan. Those same forces contributed to the decline in knee revenue as well, though bigwigs also blamed the poor performance on “sales dis-synergies related to the U.S. sales force conversion initiative.”
Despite the sizeable losses in its OrthoRecon business, Wright managed to generate $49.5 million in free cash flow by reducing inventories, capital expenditures and working capital. The accomplishment, according to Palmisano, proves the company is heading in the right direction to improve its long-term profitability.
“Our transformation has begun and it is working,” he concluded in the 2012 annual report. “There is great reason for optimism as we continue with this transformation. We are a much different company than we were one year ago, and we have an opportunity to drive significant improvement again this year. We have both a clear goal and a clear ability to improve our performance as our strategy gains traction. This outlook, combined with the potential impact of the BioMimetic acquisition, makes us very optimistic about our ability to drive significant revenue and earnings growth in 2014 and beyond.”