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Product / Company Performance

Wright Medical Group Reports 3Q18 Revenue of $194.1MM, +13.8% vs. 3Q17 -

By Mike Evers, ORTHOWORLD

 

Wright Medical reported 3Q18 revenue of US $194.1MM, +13.8% vs. 3Q17. Growth was driven by strong performance in both upper and lower extremity products like the SIMPLICITI shoulder system and PROPHECY ankle pre-operative navigation system. The closing of the Cartiva acquisition is expected to further bolster lower extremity sales in 2019 with the inclusion of the Synthetic Cartilage Implant. Additionally, the launch of AUGMENT Injectable, an alternative to autograft in hindfoot and ankle arthrodesis, provided a strong boost the company’s biologics business.

 

A Perfect Storm

The third quarter overperformance is a case of “the perfect storm,” as President and CEO Robert J. Palmisano put it. Key segments performed above expectations and the normally choppy international markets grew in low double-digits for the quarter. In short, everything went right for the company. Wright Medical Group increase full year guidance to $825MM to $828MM excluding Cartiva, and $832MM to $835MM including Cartiva.

Upper extremity sales grew at nearly 20% year-over-year, driven by strong growth in the company’s U.S. shoulder sales. The SIMPLICITI shoulder and PERFORM reversed glenoid both outperformed overall shoulder growth. Third quarter saw continued adoption of the BLUEPRINT 3D planning software, with 30% of the company’s shoulder cases using the software, up from 20% in the previous quarter. Increased adoption is driven, in part, by the software becoming cloud-based. Leadership believes that BLUEPRINT is key to their ability to convert competitor surgeons and is actively developing additional modules for the platform, including augmented reality, artificial intelligence and interoperative guidance.

Wright Medical Group believes enabling technology is a primary driver of their shoulder and ankle growth. In regards to the company’s total ankle market penetration, Palmisano said, “The big driver here that differentiates us is PROPHECY. It’s just like BLUEPRINT affects in a pretty dramatic way our upper growth; PROPHECY is what affects our lower growth. It makes it easier for physicians to do total ankles than just freehand surgery, like they have to do with most of the competitive products.” Leadership called out new products like PROstep MIS for bunions, the largest surgical procedure for the company, as a market share gainer and important product for increased ASC sales.

The company projects Cartiva revenue of $47MM in 2019 and is not concerned about the sequential slowdowns seen for the product in 2018. Senior VP and CFO Lance Berry said, “A lot of that had to do with a management team that spent of this year working on a sale process for the company and not really driving sales.”

ORTHOWORLD projects 2018 revenue, inclusive of Cartiva, of $833MM, +11.8% vs. 2017.

Wright Medical Group’s 3Q18 and YTD segment sales and growth on an as-reported basis is as follows.

  3Q18 3Q17 $ Change % Change
Joint Reconstruction Extremities $94.0 $76.2 $17.8 23.4%
Trauma $68.1 $65.2 $2.9 4.5%
Arthroscopy/Soft Tissue Repair $4.8 $5.3 -$0.5 -9.8%
Orthobiologics $27.2 $23.8 $3.4 14.1%
Total  $194.1 $170.5 $23.6 13.8%

 

  YTD18 YTD17 $ Change % Change
Joint Reconstruction Extremities $291.7 $239.6 $52.1 21.7%
Trauma $214.3 $198.9 $15.4 7.7%
Arthroscopy/Soft Tissue Repair $14.6 $16.9 -$2.2 -13.2%
Orthobiologics $77.4 $72.0 $5.4 7.5%
Total  $598.0 $527.4 $70.7 13.4%

 

3Q18 Revenue by Geographic Region

Wright Medical Group’s traditionally uneven international performance was buoyed by distributor markets that are also strong biologics markets. The company likes the margins and lack of capital intensity in biologics for emerging markets like China and South America. Leadership said normalized international growth in the high single-digits could be expected moving forward.

Wright Medical Group’s revenue by geographic region is as follows.

Geographic Region 3Q18 3Q17 $ Change % Change
US $145.6 $126.9 $18.7 14.7%
Ex-US $48.5 $43.6 $4.9 11.2%
Total $194.1 $170.5 $23.6 13.8%

 

New Products Pave a Path to ASCs

Wright Medical Group is well positioned to leverage their new extremity products to increase sales in ASCs, as Cartiva and PROstep are both well suited to outpatient settings. Leadership cautioned, however, that selling in ASCs is more nuanced than simply offering low-cost products. There is a paradigm shift from physician-focused to institution-focused selling that comes with a bevy of differences in billing, inventory and product mix. Additionally, Mr. Berry noted that ASCs want options around price points, as well as ways to drive efficiency to keep their operating rooms full.

There are some challenges to be solved for both Cartiva and PROstep. Of the 40 current Cartiva distributors, only the 20 highest revenue generators are having their contracts renewed by Wright Medical. The remainder of the distribution will be picked up by the company’s internal sales reps. The aim is to cause as little disruption as possible in established surgeon relationships. Over the next several months the company will evaluate opportunities to further develop the Cartiva platform and determine investments needed for long-term growth.

Leadership called out PROstep as having a steep enough learning curve that surgeons get “discouraged” after only doing one or two procedures. The company believes that surgeons get comfortable with the procedure after “double-digit” cases and is working on ways to get surgeons to do many cases under supervision. Wright Medical believes, however, that PROstep is a break-through product with significant market potential and are committed to giving surgeons the help needed to master the technique.

 

Net Earnings

Wright Medical Groups net earnings are as follows:

3Q18 Amount ($MM) % of Sales
Sales $194.1  
   Cost of Sales -$44.3 22.8%
   Administrative -$139.2 71.7%
   R&D -$13.8 7.1%
   Other -$39.2 20.2%
Net Earnings  -$42.5 -21.9%

 

Sources: Wright Medical Group; ORTHOWORLD estimates. All revenue figures presented in USD $MM.

Mike Evers is ORTHOWORLD’s Market Analyst. He can be reached by email.

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