07.24.08
7. Biomet
$2.1 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:
6,300HEADQUARTERS:
Warsaw, INThe medical device sector saw merger and acquisition activity increase throughout 2007. As part of that trend, a few heavy hitters—Kodak Healthcare (now Carestream) and Bausch & Lomb, for example—went the private equity route, going from public entities to privately held companies backed by investor groups.
In one of the biggest deals of the year, Biomet followed suit. A private equity consortium, called LVB Acquisition (which includes Texas Pacific, Blackstone Group, Kohlberg Kravis Roberts & Co. and Goldman Sachs & Co.), purchased Warsaw, IN-based Biomet for approximately $11.4 billion. Company shareholders rejected an initial $10.9 billion offer that was brought to the table in late 2006. A few of Biomet’s competitors had considered merger talks, but nothing came to fruition. The buyout was completed in September.
With new owners in place, the company leaves behind abrupt management shakeups and a stock option backdating scandal that had plagued the company for the past few years. So what does the future hold for the “new” Biomet? Most of that story continues to unfold. Some industry analysts have indicated that the buyout may actually mean good news for Biomet’s R&D pipeline. There will be a lot of focus on the spine and trauma businesses. Company officials have said that while Biomet’s products in these areas are strong, they trail competitors’ growth rates.
In a letter to shareholders, the company’s newly tapped CEO, Jeffrey Binder, said the new ownership provided Biomet with the “strong backing of equity sponsors who recognize our growth potential and support our dedication to providing high-quality, innovative products. As a result, we expect to be in an even stronger position to deliver on our commitment to surgeons and their patients.”
Binder, a 15-year orthopedic industry veteran, joined the company in February 2007, replacing Daniel Hann, who served as interim chief executive following the abrupt departure of longtime company CEO Dane Miller in 2006. Hann later resigned following the company’s stock backdating controversy.
In other management changes, in April 2007, Glen Kashuba was named senior vice president of the company and president of Biomet Trauma and Biomet Spine. He previously served as worldwide president of Cordis Endovascular, a division of Johnson & Johnson. In June 2007, the company appointed Daniel Florin as senior vice president and chief financial officer. Florin had been vice president and corporate controller for Boston Scientific for six years. He replaced Gregory Hartman, who resigned along with Hann in the wake of the stock backdating problems. In February this year, Jon Serbousek was hired as president of Biomet Orthopedics, the company’s total joint reconstruction unit. Hartman previously held various positions with Medtronic’s orthopedic business.
“Biomet is focused on improving its trauma and spine operations,” Binder said. “We have strengthened our senior management team with recent promotions and new additions, which, along with a robust new product pipeline, we expect will lead to improved operational performance for the company.”
Improved operational performance may be the name of the game. The company’s sales for fiscal 2007 (ended May 31) were relatively flat, making modest gains. Net sales increased 4% to $2.1 billion. Excluding the impact of foreign currency, which increased fiscal year 2007 revenues by $37.9 million, net sales increased 2% worldwide.
Operating income was $490 million, compared with $608 million for 2006. Adjusted operating income, excluding special charges and stock compensation expense, was $622 million, or 29.5% of sales, compared with $627 million for the previous year. Net income fell to $336 million, compared with $406 million in 2006. Adjusted net income for the year, excluding special charges and stock compensation expense, was $420 million, roughly the same as FY06.
Reconstructive device sales increased 9% worldwide to $1.5 billion. International sales increased almost three times as much as sales did in the United States, rising 14% and 5%, respectively. Overall knee sales increased 8%. Excluding instruments, knee sales increased 12% worldwide and 11% in the United States. Hip sales increased 7% worldwide and 2% domestically. (Excluding instruments, hip sales increased 8% worldwide and 3% in the United States.) Extremity sales increased 14% worldwide and 7% in the United States. (Excluding instruments, extremity sales increased 15% worldwide and 9% domestically.) Dental reconstructive device sales increased 15% worldwide and 8% in the United States. Sales of bone cements and accessories were flat worldwide; however, US sales increased 13%.
Fixation sales decreased 11% worldwide to $225 million and decreased 17% in the United States. Craniomaxillo-facial sales increased 2% worldwide and 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 worldwide and domestically. Spinal product sales decreased 7% worldwide to $206 million and decreased 12% in the United States. Sales of spinal implants and orthobiologics for the spine decreased 3% worldwide and in the United States, while US and worldwide spinal stimulation sales decreased 21%.
According to analysts and industry experts, Biomet’s problems in the spine sector may be due to a combination of factors. The first part of it may be internal. The company has focused on knee and hip performance for so long (and, arguably, has done it well) that until management’s recent push to beef up the spine and trauma business, it was allowed to take a back seat to large-joint development. And given the market from spine in particular, the competition is intense. Medtronic is a market leader and newer companies such as NuVasive, whose sole focus is spinal devices, have made it harder to compete. Analysts also indicated that management changes at the company had an impact on performance.
On the new product front, Biomet’s dental division released an implant that incorporates nanotechnology. Rolled out in March 2007, the NanoTite implant adds to Biomet 3i’s Osseotite implant by adding deposits of nano-scale calcium phosphate crystals to approximately 50% of the surface. The nano-scale deposits create a complex surface on the implant that, according to Biomet, appears to play a key role in how the implant bonds with bone because human bone recognizes calcium phosphate as biologically natural, allowing the bone and implant to bond during healing. Biomet Orthopedics launched two hip stems in December—the Taperloc Microplasty Stem and the Balance Microplasty. The devices are designed to address the demand for minimally invasive bone-conserving total hip procedures and, according to the company, “offer conservative alternatives” to femoral resurfacing devices that typically cannot be implanted using minimally invasive techniques.
For 2008, the changes at Biomet may be paying off. Financial results for the company’s most recent quarter (ended Feb. 29), for example, showed signs that the company’s restructuring and recent stability are having an impact. Third-quarter revenues were strong with a 14% sales increase to $603 million (though the company lost $88.5 million as a result of special charges related to the recent acquisition). Reconstructive device sales increased 18% to $449 million, with knee and hip sales (without instruments) increasing 21% and 12%, respectively. Spinal product sales, however, continue to plague the company, with a 2% worldwide drop to $50.1 million compared with last year’s third quarter. (Year-end results, of course, would tell more of the story but were announced after press time.)
Overall financial results for fiscal 2008 will be impacted by the company’s settlement with the US Department of Justice regarding an anti-kickback investigation into financial relationships with consulting surgeons. Biomet paid $25 million, without any admission of liability or wrongdoing.