08.02.07
7. Biomet
$2 Billion
Key Executives:
Jeffrey R. Binder, President and CEO
Daniel P. Florin, Sr. VP and CFO
J. Pat Richardson, VP, Finance and Treasurer
William C. Kolter, President, Orthopedics
Glen A. Kashuba, Sr. VP and President Trauma and Spine
Robert E. Durgin, Corporate VP, Global Regulatory Affairs
No. of Employees: 6,300
Headquarters: Warsaw, IN
The past year has been one of change for Biomet Inc. From high-profile management changes, to questions of stock option impropriety, and ongoing takeover deals, Biomet made its fair share of headlines in 2006 and continues to do so in 2007. In the midst of the various corporate intrigue, the Warsaw, IN-based company showed steady, if modest, growth in overall net sales and profits for fiscal year 2006, which ended May 31, 2006.
For fiscal 2006, Biomet reported $2 billion in net sales, compared to $1.9 billion for 2005. Net income for 2006 was $406 million, up from $351 million for the previous fiscal year. By product segment, reconstructive device sales grew 10% to $1.38 billion; fixation sales increased 2% to $251.4 million; spinal product sales experienced growth of 4% to $222 million; and “other product” sales increased 5% to $173 million.
In particular, Biomet attributed its strong knee sales growth of 14% in the United States and 13% worldwide to continued demand for its Vanguard Complete Knee System and the Oxford Unicompartmental Knee System. In 2006, the company introduced the Vanguard SSK (Super Stabilized Knee) Revision System.
Hip sales increased 11% worldwide and 8% in the United States during fiscal year 2006. Hip products driving the year’s expansion, according to Biomet, were the M2a-Magnum Large Metal Articulation System, the Taperloc Hip Stem, ArComXL Polyethylene and the C2a-Taper Acetabular System. Additionally, ReCap Total Resurfacing System sales were strong in Europe during fiscal year 2006, Biomet said. Also in 2006, Biomet received FDA clearance to market Regenerex acetabular cups and augments, which the company expects to drive increased hip sales this year.
On the management front, in March 2006, Biomet founder and CEO Dane Miller abruptly resigned. After almost a year without a permanent chief executive, Biomet announced that Jeffrey R. Binder—a 15-year veteran of the orthopedic device industry—would join the company as president, CEO and a member of the board of directors. Binder replaced Daniel Hann, who served as interim chief executive following Miller’s departure. Hann later resigned in the wake of stock option backdating improprieties.
When a stock option is “backdated,” the vesting date is altered to make it more valuable. The process is not illegal if properly documented and reported. An independent committee examined 17,000 grants for about 17 million shares from 1996 to 2006 and found that most options were not priced at fair market value on the date of their respective grants. The committee also said that the chief financial officer and general counsel should have been aware of certain accounting and legal ramifications and that Biomet failed to maintain adequate records.
Following the committee’s findings, Gregory Hartman, senior vice president of finance and the company’s chief financial officer and treasurer, and Hann, executive vice president of administration and a member of the board of directors, resigned in March this year. In June, a former Boston Scientific executive, Daniel Florin, joined Biomet as its new CFO.
Most industry analysts see the stock option probe as having a minor impact on the company’s overall performance. It certainly didn’t keep Biomet from becoming an attractive takeover target.
In December 2006, Biomet announced plans to go private after a group of private equity investors (including Dane Miller) agreed to acquire the orthopedic manufacturer for $10.9 billion, beating an offer from orthopedic rival Smith & Nephew. In May, however, the private equity group, called LVB Acquisition (which includes Texas Pacific, Blackstone Group, Kohlberg Kravis Roberts & Co., and Goldman Sachs & Co.), raised the offer to $11.4 billion after Biomet shareholders rejected the initial $10.9 billion offer for being too low. Though the deal still must past muster with the Securities and Exchange Commission, a majority of Biomet shareholders approved the latest offer, the company announced on July 12. Biomet officials expect the deal to be wrapped up by the end of the calendar year.
Despite transitions in leadership and ownership, Biomet remains focused on expansion. In late 2006, the company announced that it allotted $21 million to expand its operations in Warsaw, which is expected to create another 260 jobs in the area. The first part of the plan calls for the company reconfiguring a 30,000-square-foot building to accommodate the company’s spinal implant manufacturing operations. The project, which will take about two years, will cost about $4.2 million and create 100 new jobs. Next, the company will construct a 60,000-square-foot addition. This project will take four years to complete, cost $17 million and create a minimum of 160 jobs. As of press time, it’s unclear whether the takeover will alter the company’s planned facility expansion.
The company has made numerous changes at its Biomet Trauma and Biomet Spine subsidiary, including the appointment of Chuck Niemier, former COO International Operations, as president, and the appointments of a new vice president of finance and vice president of sales.
“We are also making significant progress with the implementation of a new computer system, sales support systems, the in-sourcing of the manufacture of spinal hardware products and expanding the research and development team,” said Hann, interim CEO at the time. “Additionally, since May 31, 2005, the company has eliminated over 330 positions at the former EBI operations. We believe that the new management team and infrastructure changes at Biomet Trauma and Biomet Spine will allow the company to provide greater focus on the spine and trauma markets and to our customers.”
For fiscal year 2007 (ended May 31), Biomet increased sales 4% to $2.1 billion. Net income was $336 million, compared to $405 million for fiscal year 2006. Year-end results were a mixed bag of gains and losses, with some significant double-digit drops in key product areas.
Reconstructive device sales—knees and hips—increased 9% worldwide during fiscal year 2007 to $1.5 billion. Reconstructive device sales in the United States increased 5%, and international reconstructive device sales increased 14%. Knee sales increased 8% worldwide, while hip sales increased 7%.
Extremity sales increased 14% worldwide and 7% in the United States. Fixation sales decreased 11% worldwide to $225 million, but US sales decreased 17%. Craniomaxillofacial sales increased 2% worldwide and decreased 1% in the United States. Internal fixation sales increased 2% worldwide and decreased 5% in the United States, while external fixation sales decreased 13% worldwide and 17% in the United States. Electrical stimulation device sales decreased 25% both domestically and internationally.
Spinal product sales decreased 7% worldwide to $206 million during fiscal year 2007 and decreased 12% domestically. Sales of spinal implants and orthobiologics for the spine decreased 3% worldwide and in the United States, while spinal stimulation sales decreased 21% worldwide and in the United States.