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It’s a quiet elephant.
Considered the world’s first modern orthopedic company, Warsaw-based DePuy Orthopaedics Inc., is easily one of the largest orthopedic device makers in the world today. It’s also easily overlooked, tucked into behemoth parent Johnson & Johnson, which reported $53.3 billion in sales last year.
Now DePuy is opening a new chapter under David Floyd, who was named the company’s president of U.S. operations in September. Expectations are high for the industry veteran with local connections who is expected to improve growth and innovation at the company.
“I think he’s going to be one of those truly charismatic leaders, and he’s going to rally the troops,” said George Grobe III, vice president of research at DePuy. He thinks Floyd’s broad view of the market, including his previous experience in the spine business, will give him an edge.
An edge is just what the company’s been lacking, one longtime industry analyst said.
“I think DePuy right now needs to get its mojo back,” said Robin Young, publisher of industry newsletter Orthopedics This Week. “David’s got a chance to get it back.”
DePuy led Warsaw’s Orthopedic Big Three with $4.1 billion in sales last year and is projected to amass $4.4 billion in sales this year, according to figures provided by PearlDiver Technologies Inc., a Fort Wayne-based orthopedic data firm Young founded. But its recent single-digit year-over-year growth doesn’t cut mustard for an orthopedic leader in an industry that’s averaging double-digit growth, Young said.
PearlDiver, which tracks patient statistics, medical billing data, orthopedic manufacturer revenues and other key aspects of the orthopedics industry, found that DePuy’s revenues grew by 6.7 percent in 2006. The company is projected for 7.4 percent year-over-year growth this year. By comparison, the industry growth rate was 6.8 percent last year – a down year – but is projected to be 14.1 percent this year.
Unlike DePuy, top competitors Michigan-based Stryker Corp., Warsaw-based Zimmer Holdings Inc., and London-based Smith & Nephew are all projected to grow at double-digit rates this year. Warsaw-based Biomet Inc. is projected grow at 5.5 percent.
Still, DePuy’s market share ranks first or second in the U.S. in hips and knee implants, the bread and butter of the orthopedic industry. It also leads the decidedly smaller shoulder implant market, though it’s less competitive in the trauma division. That’s according to the company’s U.S. market rankings data and estimates from Michigan-based Orthopedic Network News, a quarterly publication that focuses on cost and quality issues in orthopedics.
Floyd hopes to build on the company’s strengths in hip and knee and improve its position in trauma, but he’s also had some legal issues to manage. In Floyd’s first week on the job, the U.S. Department of Justice announced a settlement related to industry consulting arrangements. Namely, authorities said the companies paid orthopedic surgeons exorbitant amounts of money to be consultants and use their products exclusively.
As a result of the September settlement, DePuy agreed to pay $84.7 million, and Zimmer and Biomet agreed to pay $169.5 million and $28.9 million, respectively. The amounts were based on market share in hip and knee implants market. None of the companies admitted wrongdoing in the settlements.
But all five companies involved – including Stryker and Smith & Nephew – are now required to prominently post on their Web sites basic information about consulting agreements, including who they’ve worked with and how much they paid. Each company is also subject to federal monitoring.
Floyd expressed confidence in internal systems already in place to ensure business practices are on the up and up.
“What I found when I got here were very robust systems and people who were committed to doing the right thing.” Even so, the current level of scrutiny with outside monitors is unprecedented, he said.
Having made it through his first whirlwind week, Floyd said he is happy to be back in northeast Indiana where he and his wife both have family, and again working in joint reconstruction. He was once an executive at Zimmer and is a graduate of Grace College in Winona Lake, near Warsaw. He served most recently as president of Austin, Texas-based Abbott Spine.
“I’m excited to be here,” Floyd said, sitting at a table in his corner office. “It’s a tremendous opportunity to lead a company like DePuy.”
Particularly, he talked about the company’s influence in the market – a measure of its sheer size and legacy in the industry. And he talked excitedly about new technology.
One such product is a specialized hip implant that works for anterior approach hip surgery. The surgery requires a small incision in the thigh (traditionally hip replacement procedures are done with an incision in the hip), that doesn’t damage muscle or tissue. Initial results have been positive with patients recovering faster and having less pain, he said.
Increased innovation, along with improved execution, is just what the doctor has ordered for DePuy if it wishes to regain its historic stature, Young said. For now – relative to the top players and its own past – the company is underperforming, he said. But if Young and others’ optimistic expectations for Floyd are any indication, it might be headed for a grand rebound.
mschroeder@jg.net
