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Orthofix International
has been more aggressive in their inorganic growth strategies, acquiring a spinal implant
company, while putting in-place plans to
accelerate organic growth through product development activities in their R&D
organization
Healthcare
Medical Appliance & Equipment
(OFIX-NASDAQ)
Orthofix International N.V.
10115 Kincey Ave, Suite 250
Huntersville, NC 28078
(704) 948-2617
Alan W. Milinazzo
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published - January 4, 2007
BIO:
Alan Milinazzo, 46, is a 24-year veteran of the medical device industry. He joined
Orthofix International as Chief Operating Officer in September of 2005, and became the
company’s Chief Executive Officer on April 1st of 2006. He was also named
to the company’s Board of Directors on December 5, 2006. He comes to Orthofix
from Medtronic, where he was Vice President of the company’s Vascular business and
also Vice President and General Manager of their peripheral and coronary businesses. Prior
to leaving Medtronic Mr. Milinazzo led the launch of the company’s drug-coated stent
products, and was actively involved with several mergers and acquisitions. Mr. Milinazzo
also spent 12 years at Boston Scientific in a variety of roles, including as Vice
President of Marketing for SCIMED in Europe.
Company Profile:
Orthofix International N.V., a global diversified orthopedic products company, offers a
broad line of minimally invasive surgical, as well as non-surgical, products for the
spine, orthopedics, and sports medicine market sectors that address the lifelong
bone-and-joint health needs of patients of all ages, helping them achieve a more active
and mobile lifestyle. Orthofix’s products are widely distributed around the world to
orthopedic surgeons and patients via Orthofix’s sales representatives and its
subsidiaries, including Breg, Inc. and Blackstone Medical, Inc., and via partnerships with
other leading orthopedic product companies, including Kendall Healthcare. In addition,
Orthofix is collaborating in R&D partnerships with leading medical institutions such
as the Orthopedic Research and Education Foundation, Rutgers University, the Cleveland
Clinic Foundation, and National Osteoporosis Institute.
CEOCFO: Mr. Milinazzo, you have been with Orthofix for a
short time, first as COO and now as CEO; what attracted you to the company?
Mr. Milinazzo: “What attracted me was
that the company was in a terrific position with regard to its financial strength and it
participated in very attractive markets; sports medicine, general orthopedics and a subset
of the spine market being the bone growth stimulation market.”
CEOCFO:
What has changed under your leadership?
Mr. Milinazzo: “We have taken on an
approach where we are more aggressive in our inorganic growth strategies. We have acquired
a spinal implant company since I have been onboard, a company called Blackstone Medical
Inc., and we have also done some licensing on some other technologies. We have also put
into place different strategies with regard to our organic development plans, to really
begin to accelerate new product development through our R&D organizations. Those are
probably the two major changes since I have been onboard.”
CEOCFO:
What would you like to add to the mix going forward?
Mr. Milinazzo: “I think in the three
primary markets that we participate in we would want to continue to just focus on the
product areas where we can compete at a number-one and number-two market share position.
Obviously, for the spinal implant business that is years out, but we believe we can move
up the charts by steadily growing our business in a healthy manner from both an organic
and a non-organic perspective. I would also like to see us continue to improve our
international performance, where our results have been softer than we would like..In the
3rd quarter of 2006 we did show an improvement in our international business, so I’m
encouraged that we will be able to continue to show improvement in this area over the next
several quarters. Another area of focus is operational improvements; continuing to reduce
costs where it makes sense, for example by increasing our inventory turns, but also by
making additional investments in areas where we think it will benefit us in the long run,
such as our R&D capabilities.”
CEOCFO:
Will you tell us about the orthopedic products industry in general?
Mr. Milinazzo: “With our orthopedic
business we have really started to focus in on three key areas. We are looking at the
fixation business, and within the fixation business for us that is both external and
internal fixation. We also work on deformity correction products, which are products
designed for smaller patient populations; limb lengthening products or devices to treat
pediatric angular deformities, for example. And finally we have our bone growth
stimulation products. We participate in a very lucrative segment of the orthopedics
market, that being post-surgical bone growth stimulation for non-union fractures. Our
orthopedic business is really about those three dimensions: fixation, deformity correction
and stimulation.”
CEOCFO:
Why those three areas?
Mr. Milinazzo: “Those are areas where
we feel we have something to offer the market; both in terms of innovation as well as our
distribution system, which is tailored to those product areas. Specifically with our
innovation, we have historically done a lot of pioneering in the external fixation area,
and we feel like we can continue to innovate in that market segment. In addition, we have
some novel internal fixation products, both nailing and plating systems, that we are just
now bringing to the markets, particularly in the U.S. I think the opportunity to add value
to the market is what keeps us focused there.”
CEOCFO:
Please elaborate on some of Orthofix’s newer products.
Mr. Milinazzo: “There are a couple
different areas, and one is on the spine side with our stimulation products. We continue
to be rewarded by being the only company that has an FDA approval for a bone growth
stimulator for the cervical spine. Having approval for a cervical stimulator has been a
terrific success for us in terms of both market share growth as well as revenue. Also in
the spine sector, through the acquisition of Blackstone we have a novel set of minimally
invasive surgical instruments and products. We also now have a unique biologic product,
which is an adult stem cell product that is very novel in the marketplace. On the
orthopedic side, we’ve recently introduced a couple of things in the deformity
correction area and we are also bringing new internal fixation nailing and plating systems
to the market. Finally, in the sports medicine market we have a new line of functional
knee braces called Fusion, which has won accolades from our customer base, and is
contributing to our revenue growth in this segment. In each of those areas there is
something interesting and new to talk to our customer base about, and innovation and new
technology are important aspects of the markets in which we participate.”
CEOCFO:
How big a part of the business is the R&D segment?
Mr. Milinazzo: “There are two answers
to that question. The first relates to legacy Orthofix prior to the Blackstone
announcement that we made in August this year (2006). Most recently, we have been spending
about 3 or 4 percent of revenues on R&D. Historically, in the orthopedic segment, you
might see more like 6 to 7%. You could argue that we have been an efficient company with
R&D; however, I would say that we certainly could expand that - we probably need to
increase that spend in the future. When you add Blackstone to the mix, Blackstone on a
standalone basis has been spending 10 to 11 percent of revenues on R&D. So, the
combined company will spend about 5 to 6 percent of revenues on R&D going into 2007.
But, that will likely increase as we work to bring Blackstone’s artificial cervical
disc to market over the next few years.”
CEOCFO:
Education of physicians and surgeons is a big factor, what do you do there and how do you
get people to pay attention to Orthofix?
Mr. Milinazzo: “We have a wonderful
training facility in Verona, Italy; it is a neat location. We train over 1,000 physicians
a year through that facility, primarily focused on fixation techniques, although
increasingly also with the deformity correction techniques that we offer. The majority of
those physicians are outside the US, although we do have some US physicians that come over
to train and teach. Going forward we will expand that from just pure orthopedic training.
Additionally, we are planning to expand our training capabilities here in the U.S. This
will become a more important aspect of the spine industry over the next several years as
new procedures and technologies like minimally invasive surgeries and motion preservation
devices are developed.”
CEOCFO:
You mentioned that you have been a bit soft on the international side; what has happened
there and how do you regain the share you need today?
Mr. Milinazzo: “We have focused the
organization on growing revenue as well as streamlining costs. So, we have changed
compensation programs and incentive systems within our distribution system. We have
stripped away some of the responsibilities of some member of our management team that were
non-revenue generating responsibilities, so they can really focus on delivering quality
products, on time, and in a cost-effective manner. The second thing is that we have
launched new products. Some of the internal fixation products that I had alluded to
earlier are really focused on some of our key international markets. The third thing we
did was hire a new president of our international division. We also reorganized into three
distinct global business zones so that we will be able to leverage off what some of the
individual countries are doing successfully within a specific geographic zone. Therefore,
the leadership and the structure has been refined to focus on driving top line
growth.”
CEOCFO:
Tell us about your recent novel agreement with UnitedHealthcare.
Mr. Milinazzo: “We have an exclusive
agreement with UnitedHealthcare (a UnitedHealth Group – NYSE: UNH company) to provide
spinal stimulation products, and the way United is looking at this is they are evaluating
the clinical and economic benefit for patients that undergo spinal fusion procedures.
Typically, only about 20% of patients who have one or more risk factors are actually
prescribed a spinal stimulator after a fusion procedure. The spinal stimulator for
patients that have these risk factors will enhance the patient’s chance of a
successful fusion from around the mid-60’s to the high 80’s from a percentage
success standpoint. In terms of outcomes, if a primary procedure costs something like
$20,000, and a revision might cost another $40,000, we can significantly reduce the
likelihood that a revision will be necessary by having the physician prescribe a spine
stimulator post-surgically for less than $3,000. That’s a tremendous benefit for the
patient from a recovery perspective, and an economic benefit for the health care system
from the payor’s perspective. That’s the value proposition we have to offer the
marketplace. Of course, we also expect this will provide a boost to our revenue picture,
although it is too early yet to quantify that benefit. We will also be very interested in
knowing what the clinical and economic outcomes are as well, based on the data that United
will be collecting.”
CEOCFO:
You just joined the board of directors at Orthofix; how does that change things for you?
Mr. Milinazzo: “Well, instead of having
to convince ten people of my good ideas, now I only have to convince nine people. My
responsibilities as a CEO, certainly from a compliance and a regulatory standpoint, are
already fairly rigorous and that doesn’t really change in my capacity as a board
member. It certainly enhances the opportunity for two-way communication between the board
and senior management, which I think is very important in ensuring the sharing of
different perspectives. It was also somewhat bittersweet because the board member who
retired, and whose place I took, has been a very key part of the company’s history
and was in many ways a key architect in building Orthofix into the company it is
today.”
CEOCFO:
Is your management team in place now?
Mr. Milinazzo: “I think we are 90%
there. We have a couple of key positions that are still open and I suspect that in the
early part of the year we will fill those. However, right now we have 90% of our
management team in place. We have taken some of the strong talent that already existed at
Orthofix and moved them into key roles where their experience was needed, while we’ve
also brought on some folks to compliment those individuals, to round out the organization
and bring us new capabilities, such as our business development function. When I recruited
our new international president, I specifically went out and tried to find somebody with a
deep knowledge of the spinal implant business so that we could take advantage of the
acquisition that we made just a few months ago.”
CEOCFO:
What is ahead 2-3 years down the line for Orthofix?
Mr. Milinazzo: “Hopefully, we will
continue to see the sort of success we have begun to see in the past couple of quarters;
balanced, increased growth in all of our businesses, including double-digit growth in our
spine segment as a result of the Blackstone acquisition. We want to participate on a very
high level, in fact, around 60% of Orthofix’s revenues prior to the Blackstone
acquisition were from products that have a number one or number two-market position. I
believe we can see continued strong top line growth, as we continue to work on organic
improvements coupled with additional new business development opportunities. At the end of
the day, we want to continue to bring shareholder value while we also excite and reward
our employees. We are right where we planned to be at this time as we look at our internal
goals. We have a lot to accomplish as we move forward but, so far, all indicators are that
we are progressing at the pace and in the direction that we expected we would.”
CEOCFO:
Why should potential investors be interested and what might people miss when they first
look at the company?
Mr. Milinazzo: “I think we are a
company with a tremendous runway. If you look at the markets that we compete in,
specifically spine and orthopedics in general, and also the sports medicine segment, we
believe there’s tremendous upside for us, because those markets are so big, and
should continue to benefit from factors like the aging of the baby boom generation and the
development of new technological innovations. Our ability to grow our businesses through
market share increases as well as through the expected continuation of growth across the
markets in which we participate is very healthy. If you look at our balance sheet, you
will see that we have a strong financial situation, even though we have taken on some debt
to do this acquisition. We still generate a good amount of cash, so our debt repayment
ability is very solid. What people may miss is that, for a small cap company, we are very
strong financially and we are in very attractive markets. That sometimes is lost on people
when they look at us because people tend to think of Orthofix as being an external
fixation company only or a stimulation company only. In fact, we are much broader than
that and our financial strength is much greater than a typical company with our market
cap.”
CEOCFO:
Do you have any final thoughts for our readers?
Mr. Milinazzo: “I think it is a
terrific time to keep an eye on Orthofix. We’ve just made a transformational
acquisition, and we’ve taken steps to strengthen and build our infrastructure in
anticipation of additional organic and inorganic growth opportunities. So, we’ve got
the wind in our sails and our employees are energized about where we are in the evolution
of our strategy.”
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