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Orthopedic and Dental Industry News Complete Archive »

Musculoskeletal News Roundup 2-August-07 BY LAUREN UZDIENSKI, AUGUST 2, 2007

Earnings
Large Joint: Exactech announced 2Q:07 revenue of $31.6 million, beating estimates of $29.9 million and up 19% from the comparable quarter. CEO Bill Petty attributed the growth to "acceptance of our new products and continuing success of our products across all segments." Excluding an impairment charge of $1.5 million relating to an agreement with Dimicron Corporation, adjusted net income was $2.4 million, or diluted earnings per share of $0.20. This beats estimates of $0.18 and marks an increase of 15% over 2Q:06.

Smith & Nephew reported revenues of $813.0 million, beating estimates of $779.85 million and representing a 19% increase over 2Q:06. Net income was $111.0 million, or $0.12 per share, beating estimates of $0.11 and up from $96.0 million, or $0.10 per share. Growth in the quarter was attributed to sales of new products and the acquisition of PLUS Orthopedics.

Wright Medical Group reported net revenues of $98.0 million during 2Q:07, beating estimates of $97.5 million and up 12% (11% excluding the impact of foreign currency) over the comparable quarter. In its press release, the company notes that 2Q:07's net sales were greater in 2Q:07 than during any quarter in the company's history. Adjusted income for 2Q:07 increased 16% to $6.0 million, up from $5.2 million in 2Q:06. Diluted earnings per share, as adjusted, increased 13% to $0.17 for 2Q:07, beating estimates of $0.08 and up from $0.15 in the comparable quarter. The company attributed the revenue growth to an 18% increase in international business and by domestic growth in Wright's extremities and biologics businesses. The extremities results included contributions from the acquisitions of Darco International and R&R Medical.

Spine: Kyphon reported worldwide 2Q:07 revenues of $144.3 million, up 43% (41% constant currency) from 2Q:06. In the U.S., revenues increased 36%, to $110.7 million, over 2Q:06, while total international revenues increased 73% to $33.6 million. Kyphon's core spinal fracture management and repair product revenue grew 19%, to $120.6 million, from 2Q:06. Worldwide revenues from spinal motion preservation and disc disease diagnosis and therapies products, including the X-STOP®, were $23.7 million, with U.S. revenues of $18.4 million. Non-GAAP diluted earnings per share for 2Q:07 was $0.26, up from $0.21 per diluted share in the comparable quarter.

Tissue Processing: Cryolife announced 2Q:07 revenues of $23.0 million, up 11% from 2Q:06 and in line with analyst estimates. Net income in the second quarter of 2007 was $1.3 million, or $0.05 per basic and fully diluted common share, beating estimates of $0.04. Net income in the comparable quarter was $0.22 million and $0.00 per basic and fully diluted common share.

Osteotech reported 2Q:07 net income of $0.9 million, or $.05 diluted earnings per share, beating estimates of $0.03 per share. Net income is down from $1.1 million, or $.06 diluted earnings per share, in 2Q:06, which the company said was impacted by the $0.30 million cost of its annual preventative maintenance activities and a $4.0 million investment in sales initiatives. 2Q:07 revenue increased 5% to $26.5 million, beating estimates of $26.24 million and up from $25.3 million in 2Q:06.

Regeneration Technologies reported 2Q:07 revenues of $22.9 million, beating estimates of $22.28 million and up 25% from $18.3 million in 2Q:06. The company reported net income of $0.20 million, or $0.01 per diluted share, beating estimates of $0.00. This compares to a net loss of $1.6 million and a net loss per diluted share of $0.05 in 2Q:06. CEO Brian Hutchinson attributed performance in the quarter to the company's focus on sports medicine and building new and existing markets with its distribution partners.

Bracing: DJO reported 2Q:07 net revenues of $120.2 million, beating estimates of $116.69 million and reflecting an increase of 12.8% over 2Q:06. CEO Les Cross attributed increased sales to growth in the domestic rehabilitation, regeneration and international segments. Non-GAAP net income for 2Q:07 was $8.5 million, or $0.35 per share, beating estimates of $0.28 per share and up from $0.22 per share 2Q:06.

Dental: Dentsply reported 2Q:07 net revenues of $507.4 million, beating estimates of $504.38 million and marking an increase of 7.4% over 2Q:06. Adjusted income (excluding restructuring and other costs and income tax-related adjustments) was $68.0 million or $0.44 per diluted share, beating estimates of $0.43, up 12.8% over the comparable quarter. CEO Bret Wise highlighted opportunities arising from investments in sales and marketing, excitement surrounding new products and the double-digit internal growth rates in implants, endodontics and orthodontics.

Other
ArthroCare Corp. announced 2Q:07 revenues of $79.5 million, up 21% from $66.0 million in 2Q:06. Net income for the quarter rose 35% to $10.4 million, or $0.37 per share. The company attributed the growth to "accelerating growth in the Company's Spine and Sports Medicine businesses, reflecting new product launches, high volume manufacturing of key new products and the benefits from continued investments in sales and marketing."

Symmetry Medical reported 2Q:07 revenues of $69.6 million, up 7.4% from 2Q:06. Revenues beat estimates of $66.99 million. Net income for 2Q:07 was $4.4 million, or $0.13 per diluted share, beating estimates of $0.18 per share. Income was down from $7.7 million, or $0.22 per diluted share, in 2Q:06.

M&A
Last Friday Medtronic announced plans to acquire Kyphon for $3.9 billion, a 32% premium on KYPH's closing price the day before the announcement. Kyphon's complementary product offerings should allow Medtronic to reach older patients, and Medtronic's broad international distribution network will bring Kyphon's product line to new markets. The acquisition is expected to close in 1Q:08, and it should result in pending patent infringement litigation between the two companies being dropped.

RoundTable Healthcare Partners announced that its portfolio company Avalign Technologies, Inc. completed the acquisition of Nemcomed, Inc. Nemcomed designs and manufactures precision-machined medical implants and instrumentation for orthopedic specialties. Terms were not disclosed.

Funding
Amedica announced that it is withdrawing plans for an initial public offering. CEO Ashok C. Khandkar, Ph.D., said in the press release, "Given current market conditions, we do not believe it is a suitable time to continue with an IPO."

Orthovita completed a $32.5 million equity offering on Monday, and the company plans to use the proceeds for product development, sales force expansion and increasing manufacturing capacity, as well as for working capital and other general corporate purposes. The transaction consisted of a registered direct offering of about 12.3 million shares of common stock to a group of institutional investors led by Essex Woodlands Health Ventures of Palo Alto, CA. Lehman Brothers Inc., Magnetar Capital and affiliates of William Harris Investors Inc., all existing shareholders of the company, also participated in the financing. Additionally, the company entered into an agreement to repurchase Paul Capital Healthcare's interest in future sales of certain Orthovita biomaterial products for $20 million and about 1.14 million shares of common stock. To finance the deal, Orthovita entered into a $45 million debt arrangement with LBI Group Inc.

Acrobot, a London-based company that has designed a robotic tool for shaping orthopedic implants, announced the completion of a $5.3 million B round of funding. The money will be used to bring the tool to market. The round was jointly led by the London Technology Fund and PUK Ventures. Imperial Innovations Group also took part in the round.

Intellectual Property
BioMedical Enterprises, Inc. received U.S. patent number 7,240,677 for the "System and Method for Force, Displacement and Rate Control of Shape Memory Material Implants," the basis for the company's OSSforce™ Implant Controller technology.

Reimbursement
CMS released its final rule for the FY2008 Inpatient Prospective Payment System (IPPS). Ortho payments will mostly increase next year with a 4-5% increase in spinal fusion payments and a 4% increase in recon payments. The rule also confirms that CMS will implement new MS-DRGs, which are severity-adjusted and redistribute payments within, not across, DRGs.

Product Introduction and Update
DePuy announced plans to launch the Ci Essential Hip System, software for computer-assisted hip replacement surgery, in September. The company said that the technology lets surgeons visualize parts of the patient’s anatomy not visible through the incision, without the need for computed tomography or fluoroscopy.

Legal
Biomet Orthopedics, Inc. and Biomet, Inc. initiated legal proceedings against Zimmer US, Inc., former Biomet distributors and David Montgomery, a former Biomet executive who resigned from Biomet in January 2007 and currently works for Zimmer. The thirteen-count lawsuit filed in Marion County, Indiana alleges, among other things, that Zimmer and Montgomery attempted to create an unfair market advantage by engaging in a campaign to misappropriate confidential Biomet information, interfering with Biomet's contractual relations with distributors and attempting to buy the assets of Biomet distributors (including Biomet surgical instruments) throughout the country. The lawsuit further alleges that the limited number of distributors who accepted Zimmer's offer are in violation of their contractual obligations to Biomet. The company is seeking compensatory damages.

Investigations
Orthofix announced in a regulatory filing that its Blackstone Medical subsidiary received a subpoena from the OIG. According to the 8-K, the investigation concerns physician consultant compensation as it relates to the federal healthcare fraud and false claims statutes. The OIG typically investigates when they believe physicians are compensated by a manufacturer at a rate greater than Fair Market Value.

License Agreements
Symmetry Medical entered into a manufacturing and supply agreement with MAKO Surgical. Symmetry Medical will supply MAKO with future implants, instruments and associated products designed to be used in delivering MAKO's MAKOplasty™ therapy.

Operations
Smith & Nephew Inc. began construction on its new 210,0000-square-foot Memphis distribution center this week. The new warehouse facility, which is being built at Belz Enterprises' MELTECH park, will be Smith & Nephew's largest worldwide distribution facility.

Appointment
Nobel Biocare's Board of Directors appointed Domenico Scala CEO, effective September 1, 2007. Domenico Scala succeeds Heliane Canepa in the the company's regular succession process. Domenico Scala was Chief Financial Officer of Syngenta International AG from 2003 to July 2007 and member of the Executive Committee of Syngenta.

Orthovita named R. Scott Barry, Paul Thomas and William Tidmore to the board following the July resignations of board members Joseph Harris, Robert Levande and Russell Whitman. No reason was given for the resignations. Barry joins the board in connection with the closing of a $32.5 million equity offering with Essex Woodlands Health Ventures as the lead investor. Barry is a principal at Essex. Thomas is chief executive and chairman at LifeCell. Tidmore is former president and chairman of DePuy.

Langer appointed Kathleen P. Bloch Vice President and Chief Financial Officer effective September 4, 2007. Ms. Bloch joins Langer from her role as Chief Operating Officer at the Silverman Group, a family real estate and investment company, and has also held positions at Silver Line Building Products and Peat Marwick.

OrthoLogic announced the creation of a Scientific Advisory Board with the appointments of Michael E. Mendelsohn, M.D. of Tufts-New England Medical Center and Charles A. Dinarello, M.D. of University of Colorado School of Medicine. The SAB will provide counsel regarding the development of the company's novel synthetic peptides Chrysalin® (TP508) and AZX100. Dr. Mendelsohn will serve as Chairman of the SAB.

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