$3.22 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 and 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 42).

Zimmer’s Chief Financial Officer (CFO) 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 previously 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 FY14, 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 (earnings before interest, taxes, depreciation and amortization) 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 medicine 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 allows the surgeon 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 co-worker 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 patient 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, the fiscal year, though now a distant memory for the company, showed solid performance.

The company’s top line for FY13 was robust. 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.

$2.8 Billion
NO. OF EMPLOYEES: 3,403

Biomet ended 2012 with a major acquisition deal under its belt. Just at the close of fiscal year 2012 (ended May 31), the company announced initial closing on the purchase of DePuy Trauma, gaining operations in the United States, United Kingdom, Australia, New Zealand, Japan, and a manufacturing location in Switzerland—which it closed a year later in July 2013. Medical device giant Johnson and Johnson (JNJ), which owns DePuy Orthopaedics, divested of DePuy’s trauma business in part to convince European antitrust authorities to let JNJ buy Swiss company Synthes without gaining too large of a market share on the continent. Biomet’s deal took a year to close, and was finalized in July of this year for $280 million in cash.

To bookend the year’s happy ending, FY12 began with positive clinical trial results from Biomet’s Phase I safety trial for autologous concentrated bone marrow aspirate (BMA) therapy in the treatment of critical limb ischemia (CLI). The trial, performed under a U.S. Food and Drug Administration (FDA)-approved investigational new drug application, evaluated the safety of autologous concentrated BMA therapy in 29 “no-option” CLI subjects who were at risk for major amputation due to severe peripheral arterial disease. The investigational treatment used the company’s Marrowstim device for point-of-care concentration of the autologous BMA. There were no reports of procedure-related deaths; two reports of procedure-related serious adverse events; one year amputation-free survival rate of 86.3 percent; improvement in rest pain, quality of life, and perfusion measures at 12-weeks post-treatment; and overall average Marrowstim procedure time (i.e., aspiration, concentration, delivery) of less than two hours.

“The results of this study are a crucial step in potentially providing alternative treatment for those patients who have no options other than amputation,” said lead investigator Michael P. Murphy, M.D., clinical director of the Vascular and Cardiac Center for Adult Stem Cell Therapy and assistant professor of vascular surgery at Indiana University School of Medicine in Indianapolis, Ind.

Biomet President and CEO Jeffrey R. Binder called the program “an important element of Biomet’s emerging biologics platform.” The subsequent trial phases are still ongoing.

Biomet’s sports, extremities and trauma business did well in FY12, bringing in net sales of $354.4 million, growing 13 percent over FY11. Sports medicine and extremities held the segment up with 18 percent growth each, while trauma saw a 2 percent decrease in net sales revenue. The addition of DePuy Trauma had no effect on the segment’s sales—however, Binder said last year that “trauma is one of the fastest-growing market segments in orthopedics and at the core of orthopedic care,” suggesting that Biomet has plans to grow its trauma business significantly.

“This transaction will provide Biomet with a much stronger presence in the global trauma market and greatly expands our sports, extremities and trauma business, which is a meaningful growth driver for Biomet,” said Binder. “The DePuy Trauma team has done a great job of building a successful business.”

While sports, extremities and trauma showed the most growth, Biomet’s most lucrative business segment was large joint reconstructive. Net sales for FY12 were $1.7 billion, up 4 percent from FY11. In the third quarter of FY12, the company gained significant FDA 510(k) clearances in the segment for its E1 humeral bearing for use with the Comprehensive reverse shoulder system and the Comprehensive segmental revision system (SRS). Reverse shoulder replacements usually are performed on patients with large rotator cuff tears who have developed a complex type of shoulder arthritis called cuff tear arthropathy. The E1 humeral bearing features “antioxidant-infused technology,” and is a vitamin E-infused advanced bearing option for reverse shoulder applications. Biomet first applied E1 technology to its hip and knee products, which was clinically successful. Vitamin E in polymers help the material retain improved mechanical and wear properties throughout the product.

The advantage of applying advanced bearing surfaces to the shoulder, as Biomet did, is increased wear characteristics. The second cleared product, the Comprehensive SRS, is a humeral replacement system designed to address significant bone loss, both proximally and distally. The system offers oncologic options and soft tissue attachments.

Also in FY12, Biomet released the Signature personalized patient care system for use with its Oxford partial knee system. The Signature system, previously cleared by the FDA, is designed to enabled preoperative planning and precise placement of implants via its positioning guides. It can be used with various surgeries, but this launch was significant last year for Biomet’s large joint reconstruction segment. Later in the year, in September, Biomet also announced a lifetime warranty on its Oxford knee replacements. The company will cover the cost of a Biomet replacement implant for U.S. patients who received the Oxford partial knee implanted utilizing Signature technology and need revision surgery for any reason, subject to the terms and conditions of the written warranty.

Larry Likover, M.D., an orthopedic surgeon based in Houston, Texas, who has implanted more than 800 Oxford knees, endorsed the product, claiming on his website that “No other partial knee replacement has the proven success rate and longevity of Oxford.”

Spine and bone healing suffered a 4 percent decrease in net revenue, bringing in $314 million in net sales.

In the works for the spine and bone healing segment is a new product called Sternalock Blu closure system designed to close sternal bone separations and aid in bone healing. Biomet began a clinical trial in February 2013, which will compare Sternalock with conventional wire cerclage, and evaluate analgesic usage, patient function and quality of life, and complications after surgery.

Biomet saw growth across all overseas segments in FY12: Europe brought in net sales revenue of $702.7 million, a 1 percent growth over the previous year; international net sales garnered $422.1 million, a hefty 13 percent growth over FY11; and domestic sales grew 3 percent to $1.7 billion.

The company’s recent decision to shut down its newly acquired Switzerland manufacturing location—which belonged to DePuy Trauma—was motivated by a sagging economy and declining global prices for medical devices, a company spokesperson said. Operations at the closed plant will be distributed between Biomet’s other facilities worldwide.

In the last quarter of FY12, in March, half a decade of uncomfortable negotiations came to close when Biomet reached a settlement agreement with the U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC). Biomet, along with the likes of Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc., came under investigation in 2007 for bribery of doctors who work in government-operated hospitals overseas to use their products. Last year, the company entered into a deferred prosecution agreement (DPA), agreed to pay a criminal fine of $17.3 million in its settlement with the DOJ, as well as a $5.5 million in disgorgement of profits and pre-judgment interest to the SEC.

The federal government agreed not to prosecute Biomet for bribery provided that the company satisfies its obligations under the agreement over a period of three years from the settlement. The DPA called for the appointment of an independent external compliance monitor to review the company’s compliance with the DPA, particularly in relation to the company’s international sales practices, for at least the first 18 months of the three-year term of the DPA. “Moving forward, we intend to continue to adhere to our enhanced global compliance procedures, and to promote the company’s commitment to the highest ethical standards in all the markets that we serve,” Binder said at the time of the settlement.

The company ended FY12 with a net sales increase of 3.6 percent to $2.83 billion, and a gross profit bump of 2.6 percent to $1.94 billion. Bottom line, however, was a net loss of $457.8 million—though almost a 50 percent improvement from FY11 which ended at a loss of $849.8 million.

$2.7 Billion
NO. OF EMPLOYEES: 7,000

“Those who fail to learn from history are doomed to repeat it.”
— Winston Churchill

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 deteriorating 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.

International sales were solid, jumping 14 percent to $374.4 million, but domestic (U.S.) revenue remained essentially flat, going from $1.64 billion in FY2010 to $1.66 billion in fiscal 2011 (year ended May 31, 2011). European sales took the biggest hit, falling 4 percent to $697.8 million, according to Biomet’s fiscal 2011 annual report.

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 orthopedic 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 techniques: 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, and 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. Company 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.

$2.7 Billion
NO. OF EMPLOYEES: 7,469

“My predictive powers have been called into question,” Jeffrey R. Binder quipped to Wall Street analysts that day last fall. It was a Tuesday in mid-October, and Binder was on a conference call with analysts to discuss the worst quarterly financial result in his three-and-a-half-year tenure with Biomet Inc. While he had good reason to be in a foul mood that day, Binder’s demeanor was anything but hostile. Quite the contrary: It was cheery, playful, even downright jovial.

Somehow, Binder’s positive mood that day seemed out of place, almost surreal. Even as he reviewed the company’s disastrous FY2011 first-quarter showing, Binder maintained his sanguinity, telling analysts that he remained optimistic about the long-term growth potential of the orthopedic industry.

Such potential, he reasoned, would come from baby boomers as they grow restless from “sitting on the sidelines with pain” and from a lingering unmet need that will lead to the differentiation for new products.

Binder, however, stopped short of predicting the timing of the market’s return to previous growth levels. He only would repeat to analysts his optimism for the future.

Though he might not have been able to (or wanted to) predict future growth, Binder certainly couldn’t deny its existence at his company in fiscal 2010. Thanks to a particularly successful fourth quarter, Biomet achieved an 8 percent increase in net sales to $2.7 billion. Gross profit jumped 12 percent to $1.8 billion and operating income soared to $356.6 million, compared with a loss of $348.3 million in FY2009.

“We made great progress during fiscal 2010,” said Binder,president and CEO. “Our consolidated sales growth accelerated in the fourth quarter, contributing to very healthy sales results for our full fiscal year. Double-digit sales growth for orthopaedic reconstructive products continued to drive our top line performance during the quarter and year, and allowed us to capture additional share gains in this market during fiscal 2010.”

Robust domestic and international sales during the fourth quarter also boosted overall revenue in fiscal 2010 (year ended May 31, 2010), according to Biomet’s latest annual report. U.S. sales increased 8 percent during the fourth quarter to $423.2 million, while International sales (primarily those in Canada, Mexico, South America and the Pacific Rim) skyrocketed 36 percent to $92.9 million.

European sales climbed 4 percent to $186.4 million. Excluding dental and the impact of foreign currency, net sales jumped 9 percent worldwide, 8 percent in the United States, 4 percent for Europe and 29 percent internationally during the fourth quarter.

Fiscal 2010 sales totals were just as strong across most world markets. Domestic sales generated $1.64 billion for the Warsaw, Ind.-based company, an 8 percent increase compared with the $1.52 billion in U.S. transactions reported in fiscal 2009. European sales edged up 2 percent to $728.8 million and international sales mushroomed 23 percent to $325.1 million. Excluding dental and the impact of foreign currency, net sales worldwide rose 8 percent with 8 percent growth in the United States, 4 percent growth in Europe and 17 percent growth internationally.

Executives attributed such robust sales in FY2010 to new product launches and continued market infiltration of the company’s older devices. New sales drivers included the Regenerex Primary Patella and the OptiLock Proximal Humeral Plating System, a device used to fix fractures, osteotomies and non-unions of the humerus (upper arm). Featuring SphereLock technology, the OptiLock product offers physicians an anatomically contoured, low profile plate with optimized bone screw trajectories that allow for minimal soft tissue impingement. Meanwhile, the T.E.S.S. (Total Evolutive Shoulder System)—a device available exclusively overseas for all indications of shoulder arthroplasty—made inroads in Europe.

Reconstructive products generated the most revenue for Biomet in fiscal 2010, boosting worldwide sales 9.3 percent to $2 billion, or 75 percent of the firm’s overall net sales. Analysts estimate the company gained 0.8 percent in reconstructive market share, gaining 1.2 percent share in knees and tying with DePuy Orthopaedics Inc. in hips, gaining 0.5 percent share.

Global knee sales rose 13 percent worldwide and 11 percent in the United States, thanks mostly to strong demand for the Vanguard Complete Knee System, Vanguard SSK Revision Knee System, E1 Antioxidant Infused Technology Tibial Bearings, the Signature Personalized Patient Care system and Regenerex Primary Tibial Trays.

Global hip implant sales rose 7 percent worldwide and 6 percent domestically as the Regenerex RingLoc and Modular Acetabular Systems, the Biolox delta, ceramic femoral heads, and both the Taperloc and Echo Hip systems grew in popularity.

European hip sales, according to executives, were driven by the Bi-Metric and Exceed ABT Advanced Bearing Technologies Acetabular System.

Extremity product sales increased 29 percent worldwide and 44 percent domestically. Primary growth drivers included the Comprehensive Primary and Reverse Shoulder Systems, the Comprehensive Fracture System, the Copeland Shoulder, the Discovery Elbow System and the ExploR Modular Radial Head. European extremity sales received a boost from the anatomical and reverse versions of the T.E.S.S. Shoulder System.

Though they didn’t capture the lion’s share of revenues for the company in FY2010, Biomet’s Spinal and Fixation divisions each garnered nearly an identical amount of cash. Fixation posted $237.8 million in sales, a 1.6 percent increase compared with the $234.1 million the division reported in FY2009. Spinal devicesfollowed closely behind, earning $236.2 million. Executivesattributed the 6.3 percent growth in spinal devices to increased sales volume within Biomet’s three major spine implant segments: spacer, thoracolumbar and cervical.

Spacer product sales increased on the strength in sales of the Solitaire Anterior Spine System, which includes the PEEK-OPTIMA version of the Solitaire Spine System for Anterior Lumbar Interbody Fusions. Thoracolumbar product revenue swelled from a strong market acceptance of the Polaris product line, including the Polaris Deformity System, which features Trivium Derotation instruments. Sales of cervical products increased mostly from healthy demand for the MaxAn Anterior Cervical Plate System.

Fixation product sales reflected double digit growth of craniomaxillofacial fixation devices and high single digit growth of internal fixation systems, though both kinds of products were offset by lower sales of external fixation and electrical stimulation goods. During the year, there was continued strong market demand for the TraumaOne System, TMJ Replacement System and the OnPoint Diagnostic Scope System, according to Biomet’s annual report. Key internal fixation products included the Phoenix Ankle Arthrodesis nail, the Forerunner Plating System and the OptiLock Proximal Humeral Plates.

Double-digit sales growth in Biomet’s sports medicine division helped push sales of “other” products to $199.5 million, a 1.3 percent increase compared with the $196.9 million such devices brought to the company in FY2009. Top sellers in this category in fiscal 2010 included the MicroMax Flex Suture Anchor, the ComposiTCP Interference Screw, the ZipTight Fixation Device, the MaxFire Meniscal Repair Device, and the ToggleLoc Femoral Fixation Device with ZipLoop Technology. European clinicians favored Gentle Threads Interference Screws and the EZLoc Femoral Fixation Device.

Biomet bolstered the product pipeline in its sports medicine franchise during fiscal 2010 with the purchase of Cartilix, a 7-year-old Foster City, Calif.-based cartilage repair company that developed ChonDux, a proprietary cartilage regeneration technology for knee repair. Clinical trials for the ChonDux technology currently are underway (it is not yet commercially available).

Biomet’s Dental division was the only segment to lose money in fiscal 2010. Sales fell 2 percent worldwide and in the United States, though executives claim the market began to stabilize and showed signs of improvement during the last half of the year. To prevent a similar loss in FY2011, Biomet 3i has partnered with Renishaw plc, a United Kingdom-based manufacturer of in-lab dental scanning systems to provide customers with access to the latest digital dentistry technology.

The relationship provides laboratories using Renishaw Contact Scanners and 3i incise computer-aided design (CAD) software broader access to a wide range of dental milling options, including 3i incise Copings and Frameworks in zirconia and cobalt chromium and the ability to scan precision copy milled bar patterns. Biomet bigwigs claim that laboratories utilizing the ProceraForte Scanner also can benefit from the various options by using the 3i incise CAD software.

$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. Throughout the company’s history, R&D funding has resulted in the development of dozens of profitable products for Biomet, including the AGC Total Knee System (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, 2009), 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.

Among the new reconstructive devices Biomet introduced in fiscal 2009 were the Regenerex Primary Tibial Tray and the E1 Antioxidant Infused Technology Tibial Bearings. The bearings, according to the company, are made from Vitamin E-infused highly crosslinked polyethylene, which is designed to provide strength and oxidative stability for improved wear characteristics.

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. To address a growing interest in minimally invasive spinal procedures, Biomet launched two new products in fiscal 2009—the Ballista Percutaneous Pedicle Screw Placement System and the AccuVision Minimally Invasive Access System. The AccuVision system, according to company literature, features a retractor frame and a series of blades, shims and retractor modules that provide surgeons with better access to bones.

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.

The year was not without controversy, though. Last spring, executives disclosed that the firm was facing several federal investigations over its bone growth stimulation devices. According to a filing with the U.S. Securities and Exchange Commission (SEC), federal prosecutors in West Virginia and Massachusetts investigated the sale and marketing of bone growth stimulation devices manufactured by the company’s EBI unit in Parsippany, N.J. The unit makes osteogenesis and bone growth stimulation devices that enhance the regeneration of bone in post-surgical patients.

Biomet settled lawsuits brought by 24 of 27 plaintiffs over the Ionic Spine Spacer System and its SpF and OsteoGen implants. The suits claimed a single surgeon at a West Virginia hospital implanted the devices in more than 120 patients during a six-month stint at the hospital and 27 of the patients either were misdiagnosed, harmed or died as a result. Biomet admitted no wrongdoing in the settlements, which are being kept confidential.

A subpoena from the Boston, Mass.-based U.S. attorney’s office is related to another whistle blower lawsuit, filed in March 2005. In that complaint, the owner of a Missouri medical billing company claimed several spine companies, including Biomet, were improperly billing bone-growth stimulators as devices that must be purchased, rather than rented.

In addition to the Massachusetts investigation, Biomet also faces a probe by New Jersey’s attorney general over potential financial ties between the company and doctors running its clinical trials. “Medical device makers have a duty to make certain that clinical trial results are accurate and unbiased,” Anne Milgram, former attorney general for the Garden State, said in issuing subpoenas last May to five major medical device manufacturing companies seeking information about their business practices.

Biomet’s legal woes infiltrated its European division as well. In January 2009, German precious metals and technology firm Heraeus Kulzer GmbH sued Biomet and its subsidiary, Biomet Europe BV, claiming the both the company and its subsidiary “misappropriated” Heraeus Kulzer trade secrets while developing a new line of European bone cements. The suit seeks roughly $44 million in damages and asks court officials to stop Biomet from producing its current line of European bone cements.

$2.4 Billion
NO. OF EMPLOYEES: 7,000

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.

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 with 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 with $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 with 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 the year, the company reported. Hip sales increased 13 percent worldwide and 5 percent in the United States. 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.

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, Serbousek 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, Serbousek 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.

Criminal charges were dismissed against Biomet in March 2009—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.

In response to the current conditions, Biomet’s Binder recently told 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.”

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

$2.1 Billion
NO. OF EMPLOYEES: 6,300

The 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.

$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 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.