$3.2 Billion

And then there were four.

It’s become survival of the fittest in the orthopedic world, or quite literally, survival of the richest, as multinational implant manufacturers exploit their fiscal clout to gain market supremacy. Responding to a shifting healthcare landscape defined by cost pressures, shrinking reimbursement rates and customer demands for fewer product choices, orthopedic device firms are transforming themselves into “one-stop shops” to boost their appeal to hospital clients.

Such metamorphoses have become quite common in the last decade, with major players like Smith & Nephew plc buying Plus Orthopaedics and ArthroCare Corp., Stryker Corp. merging with Orthovita Inc., Tornier N.V. purchasing Wright Medical Group, and Johnson & Johnson (through its DePuy subsidiary) snagging Synthes Inc.

Zimmer Holdings Inc. finally jumped on the mega-merger bandwagon last spring, offering $13.35 billion for Biomet Inc. “We believe that current demographic and macroeconomic trends affecting the healthcare industry will reward companies that successfully partner with other key stakeholders to improve patient care in a cost-effective manner. Together with Biomet we will expand the scope of our innovation programs and will enhance our efforts to provide integrated services and comprehensive solutions that address the needs of our customers. At the same time, we believe that this merger will further support our long-term growth and stockholder value creation strategies,” Zimmer President/CEO David C. Dvorak said when the merger was announced in April 2014.

It took Zimmer more than a year to officially close the deal, having been forced to satisfy American and European regulators with several product line divestitures. In late June 2015, however, the two separate companies became one, and the newly named Zimmer Biomet began trading on the New York Stock Exchange on June 29. (For more details on the merger’s logic, turn to the Zimmer listing on page 110).

Zimmer’s Chief Financial Officer James Crines and Asia Pacific President Stephen Ooi both retired following the deal’s closing, but Crines continues to serve in an advisory role.

Dvorak now is president/CEO of the combined company, which is organized around three business units led by 12 executives who report directly to him. These include the heads of business units, geographic regions and functional areas. Two of the three business heads reporting to Dvorak come from Biomet: Adam Johnson, group president for the Spine, Microfixation, Bone Healing and Dental businesses; David Nolan, group president for the Sports Medicine, Extremities, Trauma, Biologics and Surgical businesses; and Daniel Williamson, group president for the Knee, Hip and Bone Cement businesses.

Among the three geographical leaders named, two hail from Zimmer and one from Biomet. Of the six functional area heads, four are from Zimmer and two are from Biomet. These include David Florin as senior vice president and CFO; he was Biomet’s CFO.

Biomet’s final earnings report was a crowd-pleaser, as consolidated net sales rose 5 percent to $3.2 billion in the fiscal year ended May 31, 2014.

U.S. net revenue increased 5.8 percent to $1.97 billion, while European proceeds jumped 8.7 percent (4.8 percent in constant currency) to $772.0 million. International sales (comprising primarily Canada, Latin America and the Asia Pacific region) barely budged, inching up just 0.1 percent (9.3 percent in constant currency) to $481 million. Preliminary special items, after tax, totaled $383.3 million during FY14, compared to $964.1 million during FY13.

Operating income was $313.2 million compared to an operating loss of $164.5 million during the previous fiscal year. Excluding special items, adjusted operating income totaled $863.8 million during fFY14, compared to $837.6 million during the prior year period.

Net income was $36.8 million, compared to a net loss of $623.4 million during the prior year. Excluding special items, adjusted net income totaled $420.1 million.

Excluding special items, adjusted EBITDA during fiscal 2014 totaled $1.078 billion compared to $1.03 billion in 2013.

Preliminary reported cash flow from operations came to $529.0 million. Free cash flow (operating cash flow minus capital expenditures) was $300.3 million, which included $347.4 million of cash interest paid during the year, compared to a free cash flow of $264.5 million during FY13, including $388.6 million of cash interest paid.

Biomet briefly experienced a role reversal, having acquired Lanx Inc., a full-service spine company roughly six months before it was purchased itself. At the time, the merger expanded Biomet’s spine technology portfolio through the addition of such products as the Timberline Lateral Approach Fusion System and the Aspen Minimally Invasive Fusion System. Both items complemented Biomet’s spine offerings, including the Lineum OCT Spine System, MaxAn Anterior Cervical Plate system, Cellentra VCBM and the Polaris Translation Screw System.

“This is an exciting opportunity for Biomet to improve its competitiveness in the spine market by leveraging the best aspects of each company and adding strategically important technologies to our product portfolio,” former Biomet president/CEO Jeff Binder said.

Some of Biomet’s final product releases included the ePAK Single-Use Delivery System and the JuggerKnotless Soft Anchor device.

Biomet released the ePAK Single-Use Delivery System, an innovation for internal fracture fixation, in July 2013. The system is a pre-sterilized, single-use procedure pack that aims to add value by addressing the productivity needs of the operating room by helping to save time, reduce cost, improve efficiency, and ultimately increase productivity. The ePAK system addresses distal radius fractures and features the DVR Crosslock implant and instrumentation.

In July 2014, Biomet’s sports medicince subsidiary launched the JuggerKnotless Soft Anchor device, an innovation the company claimed was the first all-suture, knotless product on the market. Used for labral repair surgery in the shoulder,  the JuggerKnotless Soft Anchor features:

• • The benefits of all-suture anchor technology, which eliminates the use of a hard implant that can fracture and cause loose bodies in the joint.

• • A small, 2,1 millimeter drill hole that preserves bone and allows more freedom in anchor placement.

• • Technology that provides the surgeon with the ability to control the tension of the construct without tying a surgical knot.

$3.05 Billion
No. of Employees: 8,400

Throughout its history, Biomet Inc. has made headlines—both in arenas of business and orthopedic innovation—growing, in a relatively short time, from orthopedic upstart to among the industry’s largest companies. Its 37th year has been no exception. In 2014, the company was part of one of the year’s (and indeed the sector’s) biggest buyouts.

On the morning of April 24, Zimmer Holdings Inc. announced plans to buy rival Biomet in a deal worth $13.35 billion—which, in a way, brings the Biomet story to an end. The transaction, which is subject to customary conditions and regulatory approvals, is expected to close in the first quarter of 2015. Zimmer will pay $10.35 billion in cash and also will issue to Biomet’s equity holders an aggregate number of shares of Zimmer common stock valued at $3 billion. At closing, Zimmer stockholders are expected to own approximately 84 percent of the combined company, and Biomet shareholders are expected to own approximately 16 percent.

The merger will position the combined company as a force to be reckoned with in the $45 billion musculoskeletal industry. It’s been an amazing ride. Dane Miller, co-founder and longtime president and CEO of Biomet (prior to current CEO Jeff Binder), has been the face of the Warsaw, Ind.-based company for most of its existence.

How’d it all start? Like so many great beginnings, it started innocuously enough. This one happened during a discussion while drinking a beer on a sailboat. Miller—who has a master’s degree and Ph.D. in biomedical engineering and had worked for other medical technology companies—came up with the idea along with friend and coworker Jerry A. Ferguson while sailing in 1975. They then brought in Niles L. Noblitt and M. Ray Harroff to start Biomet in a converted barn in Warsaw in 1977. The group had only $725,000 in capital from their own money and a loan from the Small Business Administration. The company posted sales of $17,000 and $63,000 net loss that first year, but it didn’t stay that way for long.

So confident was he in the new company’s product, Miller’s maternal grandmother, Grace Shumaker, became the first Biomet joint recipient when she underwent a total hip replacement.

By 1980, Biomet earned $1.1 million in net sales. The company went public in 1982, garnered significant attention from Wall Street by 1983, and in 1987, with $96.7 million in net sales, was called a “hot growth company” by Businessweek magazine. With that kind of momentum, it’s easy to see why in 1984 Miller predicted Biomet would be a billion-dollar company by 2000.

“They all thought I was nuts,” Miller told students during a presentation last year at Indiana University’s Kelley School of Business as part of the Distinguished Entrepreneur-in-Residence Series at the Johnson Center for Entrepreneurship & Innovation. “How could anyone imagine by the year 2000 we’d be doing a billion dollars? And, in fact, in the fiscal year 2000, we reached a billion dollars.”

But the roller coaster ride slowed a bit for Miller in the mid-2000s. In 2006, Biomet’s board of directors thought it was a good time for Miller to “retire.” He did so, only briefly. He came back less that a year later to lead a consortium of private equity firms to make Biomet privately held once again. For a sale price of $11.4 billion in 2007, a private equity consortium including affiliates of Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co and TPG took ownership of the company.
Biomet had been planning to go public again with an initial public offering this year. After the merger was announced, however, those plans were put on hold.

Fiscal 2013 (ended May 31, 2013) was a productive one for Biomet. At the beginning of the fiscal year, the company closed its acquisition of the trauma operations of DePuy Orthopaedics Inc., which included facilities in the United States, the United Kingdom, Australia, New Zealand and Japan, as well as DePuy Trauma’s manufacturing operations in Le Locle, Switzerland.

New-product rollouts, of course, were part of the year’s offering. Among the first technologies of fiscal 2013 was the Comprehensive Nano stemless shoulder, which was released in Europe (the Nano is currently undergoing clinical trials for U.S. Food and Drug Administration approval in the United States). The Comprehensive Nano shoulder was developed based on the clinical heritage of the Biomet T.E.S.S. stemless shoulder, which has been clinically successful since its launch in Europe in 2004.
The bone-conserving shoulder design allows the surgeon to fit the implant to each individual patient by reproducing native humeral head version and inclination. The Nano is compatible with all configurations of the company’s Comprehensive shoulder system, and is the first stemless device to provide surgeons with intra-operative flexibility to convert from a Comprehensive Nano hemi-arthroplasty to a reverse or total shoulder arthroplasty using the same core instruments and without removal of the well-fixed humeral component, according to the company.

In February 2013, Biomet divested most of the assets of its bracing business.

In March 2013 Biomet partnered with OrthoSensor to combine the latter’s Verasense technology with Biomet’s Vanguard knee system. OrthoSense develops intelligent orthopedic devices that use embedded sensor technology to provide real-time data to physicians and healthcare systems with the goal of improving health and reducing costs. The Verasense knee system provides dynamic intraoperative feedback through an intelligent, single-use sensor to enable evidence-based decisions regarding component position, limb alignment and soft-tissue balance. The technology also is licensed by other orthopedic companies such as Smith & Nephew plc, Stryker Corp., and Zimmer.

Early in fiscal 2014, the company announced plans to acquire spine company Lanx Inc., broadening the company’s minimally invasive spinal technology offerings. Terms of the deal weren’t disclosed.

Also early this year, Biomet agreed to pay at least $56 million to settle a multi-district lawsuit relating to defective metal hip replacements, ending a protracted legal tussle. The litigation involves Biomet’s metal-on-metal hip replacement device known as M2a Magnum. Hundreds of plaintiffs claimed in various courts across the country that the hip device led to injuries. The lawsuits were combined and jointly heard in Indiana federal court, in the state where Biomet is headquartered. The multi-district litigation began in 2012. As part of the settlement reached in February, Biomet deposited $50 million into an escrow account and another $6 million into an attorney fee fund, according to a court filing. The agreement with the plaintiffs shall extend to all pending cases, and any future lawsuit filed in a federal court on or before April 15, 2014.

Number-wise, fiscal year, though now a distant memory for the company, showed solid performance.

The company’s top line for FY13 was a solid one. Biomet posted $3.05 billion in net sales, up 7.6 percent from fiscal 2012. U.S. sales increased 8.7 percent to $1.86 billion, while Sales in Europe rose 1.1 percent (including currently fluctuations, up 5.3 percent without) to $710 million. Remaining international markets posted the strongest gains, with net sales increasing 13.8 percent (18.4 percent in constant currency) to $480.5 million.

The bottom-line story was a little different. The company posted a net loss of $623.4 million for fiscal 2013, an increase compared to a net loss of $458.8 million.

Biomet’s Sports, Extremities and Trauma (SET) sector was the jewel in the company’s crown, with increased sales of $600.1 million, up from $361.1 million in fiscal 2012—a 66 percent increase (roughly 20 percent of Biomet’s total net sales). By comparison, sales of large-joint reconstruction products (hips and knees) were flat (down by a tenth of a percent) at $1.69 billion. Spine and bone healing dropped 5.1 percent to $291.3 million. Sales of dental products slipped 4 percent to $257 million.

“Fiscal 2013 was a very important year for our SET franchise, which had a fabulous year,” Binder said at the time. “We’re encouraged by the momentum in our SET and microfixation businesses during fiscal year 2013, and we’re excited by the growth potential we see in our spine, dental and biologics businesses.”

Looks like there’s a lot for Zimmer executives and shareholders to be excited about, too.

Through the end of the third quarter of fiscal 2014, which had ended by press time, the company reported solid sales gains for all sectors. Sales were $2.38 billion for the period ended Feb. 28, up from $2.27 billion for the same period for FY13. Again, SET sales outpaced the rest with 8.6 percent growth to $478.8 billion for the first nine months of FY14. But knee sales weren’t far behind —growth percentage wise—at 6.2 percent growth to $743.3 million. The company improved losses as well. Net loss through the end of the first three quarters was $65.9 million compared with $304.5 million for the same period in fiscal 2013. The United States and Europe posted sales gains—5.4 percent and 8 percent, respectively. International sales dropped slightly by 2.2 percent.

$2.7 Billion
NO. OF EMPLOYEES: 7,000

Some history is worth emulating. The post-World War II economic expansion, for instance, might be a suitable candidate, particularly considering the world’s financial troubles of late. Another potential contender could be the technological revolution that created such modern marvels as the Internet (though an argument theoretically could be made against revisiting that part of the past), the electric automobile and human genome mapping.

But some bits of history—specifically those involving war, civil unrest, political instability and of course, natural disasters—should be left to fade into memory and relived only through discussion and/or recollection.

Europe, however, is in danger of reincarnating a dark part of its history as it wrestles with a debt crisis that threatens to drag the world into another debilitating recession. Europe’s peripheral economies already appear to be in depression: According to the International Monetary Fund, gross domestic product will contract this year by 4.7 percent in Greece and 3.3 percent in Portugal. Earlier this summer, unemployment reached 24 percent in Spain, 22 percent in Greece and 15 percent in Portugal. Public debt, which already exceeds 100 percent of gross domestic product in Greece, Ireland, Italy and Portugal, is only adding to the pecuniary misery.

“Those of us who repeatedly warned in the 1990s that the experiment of monetary union would end badly would be gloating now—if we were not so troubled by the prospect of history repeating itself,” British historian/Harvard University professor Niall Ferguson and U.S. economist/New York University professor Nouriel Roubini wrote in a commentary that recently appeared in newspapers worldwide. “The EU [European Union] was created to avoid repeating the disasters of the 1930s. It is time Europe’s leaders…understood how perilously close they are to doing just that.”

Such a scenario would be calamitous for businesses that depend on the European market for a significant portion of their sales. The unfolding crisis already has curtailed profits at Biomet Inc., an orthopedic manufacturer in Warsaw, Ind., that has long been considered a bellwether for the U.S. orthopedic market. Losses at the firm soared during the fourth quarter and fiscal 2011, due largely to a $941.1 million writedown related to its reassessment of the European market.

The writedown was necessitated by “the continued market slowdown in Europe relative to the original purchase accounting assumptions” when a private equity consortium took Biomet private in 2007, according to a company news release.

“During our fiscal fourth quarter, our sales results continued to be challenged by industry volume and price pressures that affected our sales throughout fiscal 2011,” President/CEO Jeffrey R. Binder said in prepared remarks. “In addition, we have not been executing to our standard of above-market growth in most of our businesses. We are working hard to return to that standard as quickly as possible.”

Biomet posted net losses of $806.5 million on sales of $715.2 million for the three months ended May 31, 2011. The figure represents a net loss increase of roughly 5,462 percent, despite top-line growth of 1.8 percent, compared with the same period in 2010.

For the full year, Biomet reported an operating loss of $576.9 million; excluding special items though, adjusted operating income totaled $837.7 million, or 30.7 percent of net sales. On a reported basis, the company posted a net loss of $843.5 million, compared with a net loss during fiscal year 2010 of $47.6 million. Excluding special items in both periods, adjusted net income came to $211.5 million during FY2011, a 12.4 percent decrease compared with the $241.5 million in adjusted net income Biomet garnered in fiscal 2010. Excluding special items, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) rose 1 percent to $1.01 billion, or 37 percent of net sales.

Reconstructive products generated the most revenue for Biomet in fiscal 2011, boosting worldwide sales 2 percent to $2 billion, or 76 percent of the firm’s overall net sales. Global knee sales slowed significantly, rising 1 percent worldwide and remaining flat in the United States. The sluggish sales are somewhat troubling for the company, considering the impressive performance turned in by knee products in fiscal 2010, when revenue surged 13 percent worldwide and 11 percent in the United States. Executives attributed the stagnant growth to a sputtering global economy, high unemployment rates, a reluctance among patients to undergo elective surgical procedures, increased medical deductibles and co-pays, and the expiration of COBRA subsidies.

In both of the most recent fiscal years, the main growth driver in knee products was the firm’s Vanguard Complete Knee System with E1 antioxidant infused tibial bearings. The Vanguard System accommodates up to 145 degrees of flexion and is supported by five instrument platforms that can adapt to various workflows and techinques: Microplasty, Premier, Microplasty Elite, Vanguard Tensor and Vanguard Anterior Referencing.

During FY2011, the company began the clinical evaluation of its newest revision knee offering, the Vanguard SSK 360 Revision System. Biomet also received clearance to market the Signature System, which uses magnetic resonance imaging or computed tomography scan to produce patient-specific positioning guides for surgery. The Signature System was developed through a partnership with Materialise, a Belgian provider of rapid prototyping and CAD software development for medical and industrial applications.

Global hip implant sales rose 1 percent worldwide and domestically in fiscal 2011. During the year, the company introduced its Active Articulating E1 System and Active Articulation ArcomXL System—dual-mobility acetabular devices designed to provide the benefits of a large head design, including low wear. Also added to the company’s hip product lineup was the Arcos Modular Femoral Revision System, a comprehensive system that provides surgeons with 117 proximal/distal combinations, multiple auxiliary fixation options and one basic instrumentation platform.

Extremity product sales increased 20 percent worldwide and 30 percent domestically. Primary growth drivers were the Comprehensive Primary Shoulder and the T.E.S.S. (Total Evolutive Shoulder System), a product the company claims can be used in all shoulder arthroplasty procedures. T.E.S.S. is only available outside the United States.

Dental sales climbed 2 percent worldwide and 3 percent in the United States, bolstered in part by the launches of the pure titanium Tapered Certain Implant and the OSSEOTITE 2 Parallel Walled Dental Implant, a product developed to accommodate patient demands for shorter treatment times and the prevalence of both soft bone dental implant replacement and tooth extractions with immediate placement/loading and earlier loading. The OSSEOTITE 2 product, executives said, is designed for more immediate bone-to-implant contact for primary stability. In addition, Biomet 3i began offering Low Profile Abutments and restorative components during the fiscal year to provide better access to, recovery of, single and multiple-unit dental implant restorations.

Biomet’s Spinal and Fixation divisions were the only two segments to lose money in fiscal 2011. Each garnered a similar amount of cash and posted nearly identical losses, though executives gave different reasons for the respective declines. Fixation generated $232.9 million in sales, a 4 percent decrease compared with FY2010, while Spinal revenue slid 3 percent to $224.9 million. Bigwigs blamed the deficit in Fixation on pricing, but said Spinal sales were affected by a general slowdown in procedure volume, a challenging reimbursement environment for some fusion procedures, and a continued trend toward physician-owned distributorships.

Double-digit sales growth in Biomet’s sports medicine division helped push sales of “other” products to $190.2 million, a 7 percent increase compared with the $177.6 million those devices brought to the company in fiscal 2010. Top sellers in this category in fiscal 2011 included the JuggerKnot Soft Anchor, the ComposiTCP Interference Screw, the MaxFire MarXmen Meniscal Repair Device, the Toggle Loc Femoral Fixation Device with ZipLoop technology, and the ALLthread Knotless Suture Anchor.

$2.5 Billion
NO. OF EMPLOYEES: 3,548

Over the past year, Biomet Inc. President and CEO Jeffrey R. Binder has been quite a forceful critic of the healthcare reform efforts taking place in the nation’s capital. He is particularly bothered by the medical device excise tax included in the final version of the new law, and he hasn’t been shy about making his feelings known.

“The tax would create the worst of all possible situations: escalating costs on the newest technology and reduced capital to invest in jobs and R&D,” Binder wrote last fall in his blog on the company’s website.

With the central role research and development has played in Biomet’s transformation from an eight-member company with $17,000 in first-year net sales to a $2.5 billion leader in the manufacture of orthopedic implants, Binder’s discontent certainly is well-founded. The company has released 900 new products over the last 10 fiscal years; an additional 100 are expected to launch during fiscal 2010 (which began June 1).

Since the start of fiscal 2007 (which began June 1, 2006), Biomet has spent a total of $295.3 million on research and development. The funding has resulted in the development of dozens of profitable products for Biomet, including the AGC Total Knee System (released in 1983), Maxim Total Knee System (1993), Mallory-Head Modular Calcar Revision Series (1996), M2a-Taper Acetabular Hip System (2000), Vanguard Complete Knee System (2004) and the Oxford Partial Knee (2005). In 2007, the Oxford knee captured 54 percent of the U.S. market share and became the world’s most widely-used knee implant, according to the company.

In fiscal 2009 (ended May 31), new products and more established devices helped drive revenue, generating $2.5 in total sales. Gross profit jumped 27 percent to $1.6 billion, while R&D funding grew 13.7 percent to $93.5 million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for fiscal 2009 was $926.4 million, or 37 percent of sales, compared with adjusted EBITDA of $829.1 million, or 34.8 percent of sales for fiscal 2008, an increase of 12 percent.

Three out of four products sold by Biomet in fiscal 2009 were reconstructive devices such as hip or knee implants, extremity systems such as the Absolute Comprehensive Shoulder System and Total Evolutive Shoulder System, and dental reconstructive products. These devices contributed a total of $1.8 billion to Biomet’s bottom line, a 17 percent increase compared with the $1.5 billion the privately held company garnered in fiscal 2008 from the sale of reconstructive devices.

Fixation products—including electrical stimulation systems, bone substitute materials and items such as nails, plates, screws, pins and wires—were popular but contributed only a fraction of revenue to total sales compared with reconstructive devices. In fiscal 2009, fixation product sales amounted to $234.1 million, a 15 percent increase compared with the $203.2 million those products earned for Biomet in fiscal 2008.

Spinal product sales experienced the largest growth in fiscal 2009, rising 21.3 percent compared with the previous fiscal year. Total sales of these products (bone substitute and allograft materials, precision-machined allograft and motion preservation devices) came to $222.1 million.

Sales of other products, including arthroscopy devices and orthopedic support systems such as back and knee braces, wrist and forearm splints, cervical collars, slings and ankle supports, contributed $196.9 million, a 16 percent increase compared with the $169.6 million these items earned for Biomet in fiscal 2008.

The company posted double-digit sales increases domestically and internationally in fiscal 2009, with U.S. sales bringing in $1.5 billion, a 22.1 percent increase compared with the previous fiscal year. International sales garnered $264.5 million, a 21 percent jump compared with the $219.4 million the company posted in fiscal 2008. European sales rose a modest 7.2 percent to $711.7 million, according to Biomet’s fiscal 2009 annual report.

$2.4 Billion
NO. OF EMPLOYEES: 7,000

One of the few privately held companies on MPO’s Top Company list this year, Biomet has had its share of corporate drama over the past few years—from changes in top management to the blockbuster $11 billion private-equity takeover deal that took the company private in 2007. Fiscal 2008 (ended May 31, 2008) was comparatively less dramatic.

“Robust sales in our core orthopedic reconstructive device segment enabled Biomet to grow faster than the global market during each of our first three quarters [of 2008], and we finished the year with another quarter of strong reconstructive sales growth,” said Jeffrey Binder, president and CEO. “I am encouraged to see continued signs of stabilization in our trauma and spine business during the fourth quarter, and I am pleased with the fourth-quarter rebound in dental sales, returning dental to the double-digit growth reported during the first half of the fiscal year.”

Binder also noted that the company’s microfixation, sports medicine and biologics businesses reported “excellent growth” for the year.

“Biomet’s strong finish to fiscal year 2008 provides us with a solid foundation to capitalize on future growth opportunities during fiscal year 2009 and beyond,” he added.

For fiscal 2008, net sales increased 13 percent worldwide to $2.4 billion. Excluding instruments and the foreign currency impact, net sales increased 10 percent worldwide. During fiscal year 2008, the company incurred special charges related the research and development and costs related to the merger of approximately $1.45 billion. Reported operating loss for fiscal year 2008 was $750.5 million, compared to operating income of $489.6 million for the same period last year. Excluding special charges in both years, adjusted operating income for fiscal year 2008 was $702 million, or 29.5 percent of sales, compared to $622 million for fiscal year 2007, an increase of approximately 13 percent.

Adjusted earnings before interest taxes depreciation and amortization (EBITDA) for fiscal year 2008 was $829 million, or 34.8 percent of sales compared to adjusted EBITDA of $719 million, or 34.1 percent of sales for fiscal year 2007, an increase of 15 percent.

During fiscal year 2008, reconstructive device sales increased 17 percent worldwide to approximately $1.75 billion. Reconstructive device sales in the United States increased 10 percent (12 percent excluding instruments), and international reconstructive device sales increased 26 percent. Excluding instruments and the impact of currency, worldwide reconstructive devices sales increased 13 percent. By reconstructive segment, knee sales increased 19 percent worldwide during fiscal year 2008 and increased 14 percent in the United States. Excluding instruments and on a constant currency basis, knee sales increased 17 percent both worldwide and in the United States. The Oxford Partial Knee System and the Vanguard Complete Knee System were the growth drivers for knees during fiscal year 2008, the company reported. Hip sales increased 13 percent worldwide and 5 percent in the United States during fiscal year 2008. Excluding instruments and the foreign currency effect, fiscal year 2008 hip sales increased 10 percent worldwide and 6 percent in the United States. Key products contributing to hip sales growth include the M2a-Magnum Acetabular System and the Taperloc Hip Stem, as well as the ReCap Total Resurfacing System that is marketed only outside the United States.

During fiscal year 2008, fixation sales increased 2 percent worldwide to $230 million. Fixation sales decreased 4 percent in the United States during fiscal year 2008. Spinal product sales increased 1 percent worldwide to $208 million during fiscal year 2008 and increased 2 percent in the United States.

In February last year, Jon Serbousek was named president of Biomet Orthopedics Inc., in charge of the U.S. total-joint reconstruction business. During the past eight years, Jon has held diverse general management roles with Minneapolis, Minn.-based Medtronic in the areas of Spinal Reconstruction, International, New Technology Development and most recently, worldwide vice president and general manager of biologics. Prior to Medtronic, Jon spent 13 years with DePuy in Warsaw, Ind., holding positions of vice president of Marketing and Product Development Joint Reconstruction; vice president, Spinal Operations; vice president and general manager, Arthroscopy and Sports Medicine, and a series of product development and engineering management positions.

At the beginning of the calendar year, criminal charges were dismissed against Biomet in March—along with DePuy, Smith & Nephew, and Zimmer Holdings Inc.—following completion of the terms of their deferred prosecution agreements reached in 2007 with the U.S. Attorney’s office following a total of $311 million in civil settlements for all four companies. Biomet’s share was $25 million. Prosecutors had accused the device makers of improperly paying consulting fees to surgeons between 2002 and 2006 to entice the physicians to use the companies’ products. Stryker, based in Kalamazoo, Mich., which voluntarily cooperated with the investigation, also completed the terms of its non-prosecution agreement, however, it didn’t take part in the civil settlement.

Though this episode may be passed, medical device companies—and orthopedic companies in particular—remain vigilant. Many states, including Massachusetts, have enacted medical device compliance laws. And controversial legislation also currently is being debated on Capitol Hill. It remains to be seen, however, how federal legislation will trump individual state laws and how individual state regulations will overlap each other, creating a regulatory compliance headache for companies.

In response to the current conditions, Biomet’s Binder recently told by AAOS Now, the journal of the American Academy of Orthopaedic Surgeons: “One thing that hasn’t changed is the need for industry to collaborate with surgeons in product development, clinical research, and training and education. We simply cannot make the kinds of improvements that benefit patients without close interaction. We have completely isolated our sales force from any involvement in our consulting relationships. We do not want even the appearance of a link between our consultants and their current or potential business with the company as customers.”

According to Binder, if every state were to set forth its own set of disclosure laws, manufacturers would “face unmanageable and expensive disclosure requirements that simply create costs while providing information of dubious value.”

In June, Biomet reported preliminary results for fiscal 2009. Net sales increased 5 percent to $2.5 billion.

$2 Billion
No. of Employees: 6,300

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 an option is “backdated,” the vesting date on stock options is altered to make them more valuable. The process is not illegal under the stipulation that it is documented properly and reported to investors. An investigation by a special committee covered 17,000 grants to purchase approximately 17 million Biomet shares on more than 500 different grant dates from 1996 through 2006. Biomet restated its most recent annual report to reflect the disparity in the recorded expenses for stock option grants and the actual expenses for the grants, which were estimated at $50 million. The committee reported that most of the options issued during the period in question were not priced at the fair market value on the date of their respective grants.

“The company’s chief financial officer and general counsel during the period were or should have been aware of certain accounting and legal ramifications, respectively, of issuing an option with an exercise price lower than the fair market value on the date of issuance,” according to the committee, which also noted that Biomet “failed to maintain adequate books and records concerning its stock option grants.”

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, Daniel Florin joined the company as its new CFO, previously serving as vice president and corporate controller for Boston Scientific.

Most industry analysts, however, 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.

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.

For the first quarter of 2007, Biomet reported a 5% increase in net sales to $508 million compared to the same quarter of 2006. Net income inched 2% to $102 million. Company officials pointed to strong sales of orthopedic reconstructive devices (9% increase worldwide at $352 million) and dental reconstructive implants. However, sales of Biomet Trauma and Biomet Spine (formerly EBI) were approximately $12 million below management’s expectations for the first quarter of fiscal year 2007.  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.”

Also for the first quarter of 2007 (ended August 2006), worldwide knee sales showed double-digit growth at 11%. Notably, other double-digit gains came from worldwide extremity sales at 12% during the quarter, and dental reconstructive implant sales increased at 11% worldwide. For the first nine months of fiscal 2007, net sales increased 5% to $1.6 billion.

$1.9 Billion ($41.3B Total)
No. of Employees: 6,300

Biomet, an orthopedic reconstruction product manufacturer with operations in 50 locations and distributions in more than 100 countries, has seen some major changes in the past six months. Former CEO and founder Dane Miller, 60, abruptly resigned from his post in March, announcing his early retirement after serving as president, CEO and a director of the company since its formation in 1977. He will continue to serve as a director and consultant.

The board of directors named Daniel Hann as the interim president and CEO.

Mostly known as a “premier franchise,” Biomet has not been without struggle in competing against larger players Zimmer and Stryker. After all the recent reshuffling, Biomet confirmed in April that it hired investment banker Morgan Stanley to help explore future strategies, including a possible move to sell the company. Analysts have cited Medtronic and Smith & Nephew as potential buyers.

The asking price for Biomet, should it decide to sell, could be more than $10 billion, as the company’s third quarter 2006 and final numbers for fiscal year 2005 (ended May 31, 2005) have continued to post healthy gains—this year, the company moves up Medical Product Outsourcing’s list several notches as a reflection of Biomet’s continued growth.

In its 27th consecutive year of record revenues, Biomet was aided by a 16% increase in sales ($1.88 billion vs $1.62 billion in 2004), which is keeping in line with prior years. In addition, net income was up 8%, from $326 million to $352 million. In the past six fiscal years, Biomet has introduced more than 500 new products to the market. Continuing this product launch streak, 2006 will see many new additional introductions to the market. Biomet is hoping to make a splash with its C2a-Taper Acetabular ceramic-on-ceramic hip system and its Porous Plasma Spray technology, both approved by the FDA last December. In May, the FDA gave Biomet another nod, this time for the Regenerex porous titanium artificial hip product; the expected launch date is December 2006 or early 2007. The company plans to use the Regenerex brand to introduce a series of products made from porous metal.

Other offerings on the horizon include the ExploR Modular Radial Head as well as the Cobalt Bone Cement, which offers high optical contrast in Biomet’s Microplasty Minimally Invasive Programs.

In FY 2005, overall domestic sales grew 15%, while international numbers climbed 20%—many of these sales were positively impacted by currency translation; European sales, for example, were up 17%.

In the reconstructive device market, sales were up 19%, exceeding $1.25 billion total.

Spinal product sales increased 34%. Spinal hardware and orthobiological products used in spinal procedures grew a whopping 118%; however, spinal stimulation products decreased 9%. Biomet’s first top-loading spinal product, the Array Degenerative System, launched in 2005 and has since become the company’s best-selling spinal hardware system. Other spinal products introduced in 2005 include the ESL Spine Spacer System and the Interpore Nexus Curved Spacer System. In 2006, the company plans to roll out Interpore’s Altius M-INI Spinal Fixation System, the Synergy Polaris, Ibex Spine System and SpF MINI Implantable Spinal Fusion Stimulator.

Biomet’s EBI subsidiary faced some changes in 2005, as its sales force was divided into separate spine and fixation groups, all while the Interpore sales force was integrated with EBI’s spine sales force. In addition, Bart Doedens, MD, former president of Biomet’s 3i subsidiary, was promoted to president of EBI. Amid all these changes, fixation sales were flat.

The knee market saw healthy growth, with sales increasing 29% domestically and 25% worldwide. These percentages were partially achieved by Biomet’s Vanguard Complete Knee System, as well as by the domestic introduction of the Oxford Unicompartmental Knee System, the only free-floating meniscal unicompartmental knee system available in the United States. The Vanguard line will see even more introductions in 2006 for open knee procedures.

The hip market also aided sales, as the company launched the M2a-Magnum Large Metal Articulation, the bone-conserving ReCap Femoral and Total Resurfacing Systems, and the second-generation ArComXL, a highly cross-linked polyethelene that was cleared by the FDA in 2005.

Other products (eg, arthroscopy, softgoods and bracing equipment, as well as operating room supplies) saw a combined increase of 7%. The dental reconstruction segment also strengthened the bottom line with the introduction of the Encode Restorative System (a series of custom abutments) and CAM StructSURE Precision Milled Bars (for overdentures).

Looking ahead, the company increased its R&D expenditure by 25% in 2005, as the company continues to focus its attention on new product development and enhancements to existing products. Biomet is currently also evaluating facility expansion plans, possibly in either Indiana or New Jersey.

Third-quarter 2006 results, ending February 28, show the company is continuing its successful strides in the orthopedic market. Net sales were up 5% for the quarter and net income increased 10%. Biomet executives attributed much of this success to its national branding campaign. Reconstructive device, hip, dental implants and extremities sales were all up by 10% or more, with knee sales not too far behind, at about 8%-9% in the United States and abroad.

Tempering all the good news reported earlier this year, former CEO Miller did caution before his retirement that the company estimates it will see a negative impact from the continued strength of the US dollar on fourth-quarter sales (by as much as $11 million). As a result, the company expects fourth-quarter earnings to be in the range of $530 million to $540 million.