$564.4 Million
KEY EXECUTIVES:
Robert S. Vaters, President and CEO
Brian McCollum, Chief Financial Officer and Sr. VP of Finance
Brad Lee, President, Global Sports Medicine Business Unit
Luigi Ferrari, President, Global Orthopedics Business Unit
Michael M. Finegan, VP, Corporate Development andPresident, Biologics
NO. OF EMPLOYEES: 1,486
GLOBAL HEADQUARTERS: Curaçao, Netherlands Antilles
Professional coaches like to call them “rebuilding” years. Most sports fans cringe at the term, knowing such construction projects usually entail a revolving door of management and player changes, a sharp decline in performance, and a rethinking of the overall strategy that initially brought the team success.
A rebuild can take as little as one season to complete, or drag on for years, fostering feelings of frustration, disappointment, anger, hopelessness, even misery among the most diehard enthusiasts.
(Pity the fans of Major League Baseball’s Cleveland Indians, for example, who seem perpetually stuck in waiting mode for the end of the Tribe’s retooling and the start of its World Series title run).
Rebuilds are not limited to the sports world, however. They occur just as often in the corporate arena among companies looking to regain their footing and return to the top of their game. Orthofix International N.V. was one of those companies last year, seemingly undergoing a rebuilding effort that included changes to its leadership, the reorganization and consolidation of its business operations, and the settlement of a nagging legal dispute with both NuVasive Inc. and Osiris Therapeutics Inc.
Like most organizations spearheading an internal renaissance, the rebuilding effort by Orthofix negatively affected its performance last year, but only in the fourth quarter. Reorganization charges and the legal settlement prompted executives to lower the company’s final quarter (2010) earnings to 39-42 cents per share from 59-62 cents per share. Slow growth in the firm’s spine stimulation unit affected the company’s bottom line as well, lowering fourth-quarter and full-year 2010 revenue projections to $142-$144 million, and $562.6-$564.6 million, respectively.
The lower earnings estimates, however, had little effect on the company’s overall growth last year.
Despite the last-minute double hit to its finances, Orthofix posted a 3.4 percent increase in overall revenue and a staggering 74 percent surge in diluted EPS; amazingly, the company fell precisely within the boundaries of its late-year earnings adjustments, posting a fourth-quarter EPS of 45 cents and full-year revenue of $564.4 million. In addition, gross profit rose 6.2 percent to $432.6 million and operating income climbed 39.3 percent to $89 million, according to Orthofix’s 2010 earnings report.
Executives attributed the company’s revenue growth in fiscal 2010 (year ended Dec. 31) to the market penetration of several new products released in 2009, including the Ascent LE posterior cervical spine system; the Pillar SA interbody device, used for spinal fusion procedures in patients with degenerative disc disease at one or two contiguous levels in the lumber spine; and the Firebird pedicle screw system as well as its new spinal deformity correction module. The new system, in limited release last fall, is designed for treatment of patients with conditions such as scoliosis and kyphosis. The system’s new Direct Vertebral Rotation device provides surgeons with the option of combining rod reduction and direct vertebral rotation in one instrument. The device is designed for quick intraoperative assembly and disassembly.
Sales last year also were driven by the Trinity Evolution allograft, the subject of Orthofix’s legal dispute with NuVasive and Osiris Therapeutics. San Diego, Calif.-based NuVasive sued Orthofix and the Musculoskeletal Transplant Foundation in April, claiming the Trinity Evolution allograft infringed upon intellectual property owned by NuVasive and Osiris. The companies entered a licensing deal covering the Trinity Evolution product, an allograft of cancellous bone composed of viable adult stem cells and osteoprogenitor cells within the matrix and a demineralized bone component. The product provides orthopedic surgeons an alternative to autograft and other bone grafting procedures, according to Orthofix.
The company’s rebuilding efforts certainly added to its bottom line last year. A new, 144,000-square-foot North American Operations and Education Center in Lewisville, Texas, opened in August 2010, enabling the firm to consolidate its Spinal Implants division operations from Wayne, N.J., and Springfield, Mass., and house operations from its Global Spinal Implants and Spine Stimulation divisions as well as its North American Orthopedics division. Orthofix also closed up shop in several locations throughout the United States and Mexico, and subleased a facility in Boston, Mass.
Selling its vascular product line in March 2010 to Covidien plc netted an extra $27.7 million for Orthofix, enabling executives to pay off loans ($19 million of its vascular product line sale price went toward creditors). Through its various cost-saving initiatives, the firm reduced its outstanding credit balance last year by 14 percent to $216.2 million. Its credit ratio, according to executives, was 2.1 in 2010 compared with 2.6 in 2009 (year ended Dec. 31).
Though the company implemented a restructuring plan late last year to further reduce costs and chip away at its outstanding loans, it did not realize any of the anticipated $6 million to $7 million in annual savings. Executives expect the extra cash to impact revenue starting this year.
Despite announcing the restructuring of its three business units (Spine, Orthopedics and Sports Medicine), Orthofix reported 2010 sales data under its former operating structure, dividing sales between its Domestic, Spinal Implants and Biologics, Breg, and International divisions. Using that reporting method, the Domestic division garnered the most revenue for the company, earning $228.2 million, or 41percent of overall sales. Top sellers in this category included the Spinal-Stim and Cervical-Stim products, which Orthofix touts as “non-invasive pulsed electromagnetic bone growth stimulators.” The firm’s Trinity Evolution product also contributed to the 8 percent growth in Domestic sales.
Spinal Implants and Biologics product sales climbed 10 percent to $130.5 million, due mostly to a 17 percent spike in throacolumbar product sales and a 10 percent jump in interbody product revenue.
Much of the increase resulted from strong sales of the Pillar SA interbody device, the Firebird pedicle screw system and the Trinity Evolution allograft.
Sales in the remaining two divisions—Breg and International—both fell in 2010, with Breg revenue slipping 1 percent to $91.7 million and International sales plummeting 8 percent to $113.9 million.
Executives attributed the drop in International sales to the divesture of the company’s vascular operations as well as the June 2010 termination of a distribution agreement for anesthesia products Orthofix disseminated in the United Kingdom. Breg’s dropoff, on the other hand, primarily was due to a 2 percent decrease in bracing sales compared with 2009. Overall sales of sports medicine products was off as well, despite the introduction of three new products last spring: a soft knee brace with an integrated hinge for added stability, a hip pad to be used with Orthofix’s cold therapy devices for pain relief after surgery, and a wrist immobilization accessory for Breg’s T-Scope Elbow brace.