Smith & Nephew Restructures and Refocuses

The news that Smith & Nephew plc is combining its orthopedic reconstruction and endoscopy units is part of a larger shift that’s been taking place for the past few years. The company actually has been revising its focus since about 2008, but on a global scale.

The new division serves customers in Smith & Nephew’s more established markets in the United States, Canada, Europe, Japan, Australia and New Zealand. However, the company also is increasing its focus in Brazil, Russia, India and China (the so-called BRIC nations) because of a higher growth potential,according to a company spokesperson.

“We must take market share in these markets to be successful,” OlivierBohuon, the company’s new CEO, said in a second quarter earings conference call with investors on Aug. 5.

“In the last few years, we have seen the markets around us change, some significantly,” Joseph Metzger, senior vice president of corporate communications, noted. “Our established markets, especially in North America and Europe, are under pressure. At the same time emerging markets have huge potential. We are going to ensure we have a focused organization and allocate appropriate resources to seize these opportunities.”

The company has been preparing for the market change for several years. In 2007, the company announced that it would close its high-tech wound care dressing facility in Largo, Fla., and move production to Suzhou, China. The following year, Smith & Nephew announced that manufacturing facilities in China would be expanded to capitalize on the market’s growth. In 2010, the company began producing parts for artificial joints specifically for the Asian population at a 10,000- square-meter facility in Beijing, China. Smith & Nephew also announced plans to train 5,000 surgeons in advanced orthopedic techniques at this time. The education initiative is still underway, and the company has four dedicated centers in China.

In the first quarter, Smith & Nephew’s international business grew 8 percent, compared with a 4 percent rise in the United States and a 1 percent increase in Europe. Combined, the orthopedic and

endoscopy divisions made up about 90 percent of the company’s total sales in the United States in Q1, and 78 percent of its approximately $1 billion in global sales.

In a separate statement, Metzger shared that “additional resource and focus will be given to the emerging markets of China, India, Brazil and Russia and other international markets.” Smith & Nephew’s geographic spread of revenuehas made it somewhat of an attractive takeover target for larger corporations: Zimmer Holdings Inc., Stryker Corp., Johnson & Johnson and Biomet Inc. all recently have been named possible suitors.

Announcements made in the past several weeks by other companies might be an indication that the industry as a whole shares Smith & Nephew’s viewpoint on the global marketplace, and that China currently is the hot commodity. GE Healthcare announced that it is moving the headquarters of its X-ray business from Waukesha, Wis., to Beijing, and Boston Scientific Corp. announced plans to spend $150 million during the next five years beefing up its China presence.

DePuy Gets 510(k) Clearance for Knee Implant Instrument and Software System

DePuy Orthopaedics Inc. has received 510(k) clearance from the U.S. Food and Drug Administration (FDA) for its TruMatch Personalized Solutions with the company’s Sigma Fixed-Bearing Knee System.
TruMatch, a surgical instrumentation and computer software system designed to aid in knee implant positioning and procedure efficiency, will be available immediately. Clearance was based partly on mechanical and alignment accuracy testing.

According to DePuy, the TruMatch System eliminates up to nine surgical steps compared to total knee replacements performed without the System,reducing operating room time by an average of 35 minutes.

“TruMatch Personalized Solutions represents an advance for knee replacement patients,” said Andrew Ekdahl, president, DePuy Orthopaedics. “This system is a win for patients, surgeons and hospitals that has the potential to improve patient care while reducing costs—a very important combination in health care today.”

The system uses computed tomography (CT) scans and computer software to guide the development and production of femoral and tibial cutting blocks made to match the actual bone surfaces of each patient, according to DePuy. The company also claims that the use of CT scans rather than magnetic resonance imaging results in improved bone imaging, less scanning time and lower costs.

Former ArthroCare Execs Reach Settlement in Earnings Scheme Lawsuit

Two former employees of Austin, Texas-based ArthroCare Corp. have been sanctioned by the U.S. Securities and Exchange Commission (SEC) and both have agreed to a settlement. The lawsuit claims the two participated in “a scheme” that misstated company earnings and demands that they repay part of the money made.

Court documents indicate that David Applegate and John Raffle, both former company vice presidents, accepted a five-year ban from serving as officers at any company that offers registered securities. As part of the settlement, neither has admitted any wrongdoing and both agreed they would not violate federal securities laws. The pair resigned in December 2009.

To settle the case, Raffle agreed to pay $175,000 and Applegate will male a payment of $55,000. Raffle’s ex-wife, Kathy Raffle, agreed to repay $200,000 she received in a divorce settlement that was ruled to have been earned as a result of the scheme.

Court documents show that Applegate and Raffle used a process known as “channel-stuffing” to make it appear the company was selling more of its SpineWands, a surgical tool used in outpatient back surgery, between 2004 and 2008. According to the lawsuit, the subsidiary company DiscoCare was used to drive up orders and make revenue appear higher. The men also recorded revenue on sales they did not expect to collect.

Reports concluded that ArthroCare overstated its revenue and net income by millions of dollars in securities filings in 2006, 2007 and 2008. The company’s stock was delisted from the Nasdaq exchange in 2008 during the SEC investigation but was reinstated in 2010, when it had more than $350 million in revenue.

Spencer Barasch, a Dallas attorney representing Raffle, declined to comment on the settlement, as did Applegate’s attorney and an ArthroCare spokeswoman.

ArthroCare, which develops and makes surgical products, moved its headquarters from Sunnyvale, Calif., to Austin in 2004. The company employs about 100 people in Austin and more than 450 in North America.

Biomet Confirms Layoffs in Near Future

Biomet Inc. has confirmed the elimination of up to 200 jobs in aglobal reconstructive business reorganization that is designed to boost growth to above market average. The effective date of the cuts was Sept. 1. According to the company, 21 jobs in the United States were cut; the rest were eliminated in Europe.

Biomet also is reviewing 99 positions in Great Britain for possible cuts due to “softness in the worldwide orthopedics market,” but this option apparently is unrelated to the reorganization.

To increase manufacturing efficiency, the company will consider cutting up to 29 jobs in Bridgend, South Wales, and up to 70 positions in Swindon, England.

“These decisions have been very difficult ones for the management team to make,” a company statement read. “Where possible, the company will explore other options for these team members.”

Employees who cannot transfer will be paid severance and given outplacement assistance.

On July 12, Biomet reported a preliminary annual loss of $843.5 million for the 2011 fiscal year ended May 31, but the company remains optimistic.

“Biomet remains confident in the future of the orthopedics market and in its ability to compete in this market,” the company statement read. Biomet cited the aging population and demand for the types of products it manufactures as reasons for the positive perspective.

In a May 4 filing with the U.S. Securities & Exchange Commission, the company acknowledged the elimination of 450 positions globally but declined to specify how many of those jobs were based at the company’s Warsaw, Ind. headquarters.

According to company officials, future hirings will “more than offset” the job losses.

Boston Scientific Takes Online Learning Initiative

Boston Scientific Corp. has launched its Neuromodulation Learning Institute (NLI), a clinical education program and online resource center for health care providers to enhance their knowledge and awareness of spinal cord stimulation (SCS) technology, procedures and techniques. The announcement was made during the annual meeting of the International Spine Intervention Society in Chicago, Ill. The Natick, Mass.-based company also is introducing an iPhone and iPad application that features surgical technique videos and access to an SCS textbook by Paul Kries, M.D., and Scott Fishman, M.D.

“The NLI offers in-depth instruction on techniques critical to successful patient outcomes with SCS,” noted Thomas Simopoulos, M.D., director of the Interventional Pain Service at the Arnold Pain Management Center, Beth Israel Deaconess Medical Center in Boston, Mass., and assistant professor of anesthesia at the 229-year-old Harvard Medical School, also located in Boston. “The new iPhone/iPad app is an excellent tool for training current and prospective pain physicians on spinal cord stimulation.”

The NLI offers various hands-on and web-based learning tools via the company’s Precision Plus SCS System, which uses current delivered to the spinal cord to stop pain signals from being recognized by the brain.

“This training forum will benefit physicians and the patients who suffer from chronic pain by offering health care providers a comprehensive, single source of SCS information,” said Michael Onuscheck, senior vice president and president of Boston Scientific’s Neuromodulation Division. “The NLI is dedicated to providing a continuum of physician training that will broaden understanding of SCS and advance the quality of patient care.”

Stryker Corp.’s Legal Woes

Stryker Corp.’s legal battle with Zimmer Holdings Inc. over alleged talent poaching is escalating. Lawyers for both sides are clashing over the disclosure of documents in the case, with each company

accusing the other of ignoring court-established deadlines. The case initially was filed in April.

In series of letters sent between Aug. 1 and Aug. 3, each side used colorful adjectives to describe the other’s position. Words such as “ludicrous,” “frivolous,” and “premature” were used, as well as phrases such as “just another attempt to waste this court’s … time,” “material misrepresentation of fact,” and“blatant gamesmanship.”

Magistrate Judge Patty Shwartz of the U.S. District Court for New Jersey denied Zimmer’s motion to sanction Stryker and the Kalamazoo, Mich.-based company’s bid to extend discovery deadlines. She ordered both sides to deliver documents and related privilege logs by Aug. 11, according to court documents.

Stryker claims that Zimmer enacted a scheme to recruit its executives by “willfully and maliciously targeting and soliciting Stryker employees for employment at Zimmer,” according to the lawsuit.

“Using the recommendations of former Stryker Spine sales leaders it previously recruited, Zimmer first identified high-potential Stryker employees … and induced them to breach [their] contractual obligations by asking them to gauge their coworkers’ initial level of interest in an‘opportunity’ with Zimmer,” the complaint states.

“Once these trusted ‘ringleaders’ planted the bait, Zimmer would make contact with the new Stryker recruits, offering significant salary increases and additional perks to capture the attention of employees who had no prior contact with or interest in working for Zimmer.”

The “ringleaders” then allegedly sought to pressure the recruits “by urging them not to ‘disappoint the team’ or ‘throw a wrench’ in the team’s plans to go to Zimmer en masse,” according to the suit.

Stryker claims the scheme resulted in the loss of almost two entire sales branches in Arizona and Las Vegas, Nev. The company anticipates the loss of millions of dollars in sales due to Zimmer’s alleged actions.

The battle with Zimmer isn’t Stryker’s only legal matter at the moment, though. The company also is embroiled in a case with former distributor BioInitiatives Inc. and DePuy Spine, and is managing complaints from patients about manufacturing problems with its pain pump.

Both Roseville, Calif.-based BioInitiatives and Warsaw, Ind.-based DePuy asked a California judge for an injunction barring Stryker from enforcing a non-competition clause in the now-expired deal with BioInitiatives, arguing it would violate California’s ban on non-compete agreements.

“Defendant Stryker Spine has recently engaged in activities to enforce comparable non-competition provisions towards other distributors,” state documents filed with the U.S. District Court for Eastern California. “Although confident that the non-competition provisions are void in California, defendant Stryker Spine’s conduct has caused plaintiffs to seek an order from this court confirming their position and avoiding the expected long and drawn out legal fight.”

The contract lapsed on Jan. 25, and BioInitiatives struck a deal with DePuy. The lawsuit aims to declare Stryker’s deal with BioInitiatives “void and unenforceable against California’s fundamental public policy,” and to prevent Stryker from taking any legal action to enforce the non-competition provision in the contract.

Meanwhile, Stryker continues to field patient complaints about its pain pump. Hundreds of lawsuits have been filedaccusing Stryker and other device manufacturers of improperly marketing pain pumps for post-operative joint pain, for which the devices are not U.S. Food and Drug Administration (FDA)-approved,according to the lawsuits. In 2009, the FDA issued a warning to health care providers against using pain pumps for “continuous intra-articular infusion of local anesthetics after orthopedic surgery.” Concern about the connection between pain pump use in joints and chondrolysis has been present since the late 1990s.

Ohio State Awarded Knee Replacement Research Grant

Researchers from Ohio State University in Columbus received a $1.1 million federal grant to study the differences in patient outcomes in those who have undergone total knee replacement operations—specifically, whether surgical techniquessuch as intra-operative management of soft tissues surrounding the knee impacts patient outcomes after total knee replacement surgery.

The research explores causes for the gap between some knee replacementpatients who struggle to perform daily tasks and those who resume more strenuous activities after surgery.

“Even though surgical technique is believed to be important to the outcome of the operation, key decisions are subjectively and qualitatively performed during surgery, representing a significant gap in the current knowledge of the procedure,” said Robert Siston, assistant professor in the Department of Mechanical and Aerospace Engineering at Ohio State University.

The grant comes from the National Institute of Arthritis and Musculoskeletal and Skin Diseases division of the National Institutes of Health. The research will be led by Siston.