9. Orthofix International N.V.
$519.6 Million
KEY EXECUTIVES:
James F. Gero, Board Chairman
Alan W. Milinazzo, President, CEO and Director
Robert S. Vaters, Exec. VP and CFO
Bradley R. Mason, Group President, North America and President,Blackstone Medical Inc.
Michael Simpson, President, Orthofix Inc.
Michael M. Finegan, VP, Business Development and President, Biologics
Brad Lee, President, Breg Inc.
Luigi Ferrari, President, Orthofix International Orthopedic Fixation
NO. OF EMPLOYEES: 1,406
GLOBAL HEADQUARTERS: Curaçao, Netherlands Antilles
“Orthofix experienced a challenging year in 2008 on many levels…A number of the challenges during the year involved our spinal implants business, which struggled during our second year of its integration,” Board Chairman James F. Gero wrote at the start of the company’s 2008 annual report. “We understand that our shareholders expect to continue to see progress in the integration of the spinal implants business, while at the same time continuing to see strong results from our other businesses.”
Orthofix posted solid results overall and in three of its five business units. The company reported $519.6 million in sales last year, a 6 percent increase compared with the $490.3 million it posted in 2007. The Orthopedic sector, which has developed a bone growth simulator, mini “fixators” for fractures, fusions, and the lengthening of bones, and a bone growth product that contains adult mesenchymal stem cells, recorded the highest growth last year. That sector expanded 15 percent, going from $111.9 million in revenue in 2007 to $129.1 million in 2008 (ended Dec. 31). According to the company’s annual report, orthopedic products represented 25 percent of Orthofix’s total net sales last year.
The Sports Medicine business unit reported an 8 percent increase in 2008 revenue, reaching $94.5 million from its 2007 level of $87.5 million. Nearly two-thirds—61 percent—of the net revenues in this unit (which is reported under the subsidiary Breg Inc.) came from the sale of bracing products, including functional braces for the treatment and prevention of ligament injuries, load-shifting braces for osteoarthritic pain management, post-operative braces for protecting surgical repairs, and foot and ankle supports that provide an alternative to casts. About 33 percent of Breg’s 2008 revenues were derived from the sale of cold therapy products used to minimize pain and swelling following knee, shoulder, elbow, ankle and back injuries or surgery. About 4 percent of the subsidiary’s net revenue was generated from the sale of other rehabilitative products.
In March 2008, Orthofix sold the intellectual property, business assets and distribution rights related to the Pain Care line of ambulatory infusion pumps designed, manufactured and distributed by Breg. The sale was part of the company’s overall strategic goal of narrowing the focus of its Sports Medicine business to the knee bracing and cold therapy markets, where it holds No. 2 market share positions, executives claimed.
Overall, Sports Medicine product sales represented 18 percent of the company’s total net sales.
Nearly half of the revenue generated last year came from the sale of spine products. Orthofix posted a 4 percent growth rate in its Spine segment (which includes Blackstone Medical Inc., a company it acquired in 2006), going from $243.2 million in 2007 to $252.2 million last year.
That growth, however, didn’t come without a struggle. President and CEO Alan Milinazzo said the business challenges associated with the acquisition of Blackstone intensified in late 2007 and through most of 2008. In the second half of the year, company executives mapped out a strategy for overcoming these challenges and improving the financial performance of Blackstone Medical. Part of that strategy was unveiled in late August, when the company appointed Brad Mason as president of Blackstone Medical. That appointment was announced about two months after Orthofix executives promoted Mason to a newly created position of Group President, North America (prior to his first appointment, Mason was president of Breg, the Sports Medicine subsidiary). The decision to appoint Mason as president of Blackstone Medical was a direct result of the sub-par performance of Orthofix’s spine business in the first half of 2008.
Shortly after Mason’s appointment, theBlackstone Medical portfolio was infused with new products. Within a four-week span last fall, Orthofix received 510(k) approval from the U.S. Food and Drug Administration (FDA) for the PILLAR SA spine interbody device, an item that is designed for use (in most cases) as a stand-alone implant between the spinal vertebrae or as a partial vertebral body replacement.
The FDA also gave its 510(k) blessing to the company’s Firebird Spinal Fixation System, a “comprehensive” system designed for use in minimally invasive surgical procedures for the treatment of degenerative disc disease. The Firebird system is designed to give surgeons intra-operative flexibility during various thoracolumbar spine procedures.
Besides the PILLAR SA device and Firebird Spinal Fixation System, Orthofix teamed up with the Edison, N.J.-based Musculoskeletal Transplant Foundation (MTF) to develop an adult stem cell-based bone growth matrix designed to advance the use of surgical allografts. Called Trinity Evolution, the product has characteristics that are similar to an autograft used in spinal and orthopedic surgeries. “We believe this new stem cell-based bone growth matrix will further differentiate our broad portfolio of spine products,” Milinazzo noted.
So will a “next generation spine system” that is set to be released next year. Orthofix acquired the intellectual property for the spinal fixation system in June 2008 from Intelligent Implant Systems LLC, a Charlotte, N.C.-based company specializing in the research and development of spinal products. A June news release about the acquisition said the spinal fixation system features implants locked in place with a “unique” cap that does not require the use of a torque wrench.
Orthofix, however, did not rely solely on new products to improve the performance of Blackstone Medical. The company announced a restructuring plan in November that calls for the consolidation of the subsidiary’s current operations in Wayne, N.J., and Springfield, Mass., into its facility in Dallas, Texas. The transfer of functions from the New Jersey and Massachusetts facilities began immediately and will continue throughout 2009. Mason said he expects the move to result in significant cost savings next year.
While the restructuring plan and new product approvals were not expected to immediately impact the earnings potential of Blackstone Medical, the moves seem to have stemmed the losses at the subsidiary. In the fourth quarter of 2008, implant and biologic revenue was $28.2 million, a 7 percent decrease compared with 2007 but a 9 percent jump compared with the third quarter.
The Vascular and Other Products business units reported losses in the fourth quarter of 2008 as well as for the entire year. Revenue fell 10 percent in the Vascular segment, which markets products used to reduce deep vein thrombosis, pain and swelling for patients that undergo joint replacement procedures. Sales in this unit totaled $17.9 million in 2008; that figure represented 3 percent of the company’s total net sales last year.
The Other Products business unit generated $26 million in sales, a 6 percent decrease compared with the $27.8 million the segment reported in 2007. This unit sells an anesthetic-type device that maintains a patient’s airway during an operation as well as Mentor breast implants (in Brazil) and women’s care products in the United Kingdom. Last year, the Other Products segment contributed 5 percent of total net sales to the firm.
In addition to the management change in Blackstone Medical, Orthofix executives made several other personnel changes last year. In June, they appointed Denise Pedulla as senior vice president and chief compliance officer, and in October, they named Robert S. Vaters as executive vice president and chief financial officer. Vaters replaced Timothy Adams, who resigned April 30.
After tackling the financial challenge associated with Blackstone Medical (and to a lesser extent, the overall economic climate), Orthofix executives encountered one final challenge last year. In December, shareholders received a letter from Ramius LLC, a global investment management firm based in New York, N.Y., that owns a 5 percent stake in Orthofix. In the letter, Ramius executives outlined a plan to “substantially increase shareholder value” and protect investors’ interests; the plan involved selling Blackstone Medical.
Board members, however, claimed that Ramius’ proposal to sell Blackstone Medical would disrupt the progress managers at Orthofix and Blackstone made in executing the company’s strategic plan. In a vote on April 2, 2009, shareholders agreed with the board, rejecting Ramius’ proposals and its slate of alternative board members.