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Quarterly Review

Final 2Q12 Results

ORTHOWORLD’s estimates place 2Q12 market growth at 5% over 2Q11, as shown in Exhibit 1.

Performance highlights follow and pertain to 2Q12, unless otherwise noted. 

Exhibit 1
Orthopaedic Sales Increases by Product Segment: 2Q12 vs. 2Q11


Notes to Exhibit 1

1 Orthopaedic products; constant currency, pro forma growth
2 Includes biologics
3 For the quarter ended 5/31/12; includes Dental. Spine includes Bone Stim and Biologics; Bone Stim reflects all Bone Healing sales.
4 For the quarter ended 7/27/12
5 Spine
6 For the quarter ended 6/30/12
7 Extremities: extremities + fixation combined; Endoscopy: endoscopic + communications, most of which is orthopaedic; Spine: neuro + spine. Total growth excludes Patient Handling.
8 ORTHOWORLD estimates

 aap Implantate
 €9.0MM (~US $11.1MM), +18% (Bone Cement/Cementing Technologies +20%; Trauma +44%; Biomaterials

- For remainder of year, focusing on signing new distributors in core markets (U.S., Latin America, China, EU) and launching extensions to LOQTEQ locking/compression family

- Completed clinical study for pH-neutral Jason collagen fleece

- Received CE Mark approval for bone cement for use in joint replacement

- Supplying stainless headed compression screw to Integra LifeSciences for U.S. market

- Planning to complete evaluation of “different alternatives” for hip and knee recon business by year-end

SEK 5.4MM (~US $0.8MM), +26% (U.S. +13%, Europe +114%)
- Own sales in U.S. +78%

  Artelon Tissue Reinforcement clinical update:

   - ATR I, Repair of large/complex rotator cuff tears: Follow-up complete
   - ATR II, Chronic injuries/re-rupture of Achilles tendon: Clinical follow-up in progress (2-year follow-up)
   - ATR III, Chronic injuries/re-rupture of Achilles tendon: Patient recruitment in progress (1-year follow-up)
   - ATR IV, Lateral ankle stabilization: Patient recruitment in progress
   - ATR V, Chronic injuries/re-rupture of posterior tibial tendon: Patient recruitment in progress
   - CMC, Thumb base joint osteoarthritis: Clinical follow-up planned for 2012

$8.2MM, +9% (Tissue sales $8.1MM, +10%)

- Growth attributed to increased sales from direct sales reps/independent distributors

- Signed 4th U.S. GPO contract: 3-year agreement with Premier Healthcare Alliance, serving >2,600 hospitals and >84,000 other healthcare sites


China Kanghui
RMB 101.1MM (~US $15.9MM), +24% (China ~$12.2MM, +35%; ex-China ~$2.3MM, -9%)
       Trauma ~$9.4MM, +25%
       Spine ~$5.1MM, +24%
       OEM ~$1.4MM, +11%
       Joint Reconstruction ~$0.16MM

- Growth primarily from volume as opposed to price

- Strong demand for product in Brazil and Columbia

- OEM revenue increase primarily from Japan sales

- Launched TGM hip implant internationally through Consensus Orthopedics, focusing on mid- to top-tier hospitals

- Launched Wei Rui Li knee system in 3Q, focusing on low- to mid-tier hospitals

- Launched Anterior L5/S1 Spine Plate in China to good initial market acceptance


Corin (1H12 sales only; 2Q12 not available)
£25MM (~US $39.5MM), +13%
       Hips ~$25.1MM, +37%
       Knees ~$5.5MM, -5%
       Other Products ~$8.8MM, -17%

By geographic region:
       U.K. ~$6.6MM, +10%
       Germany/Austria ~$5.1MM, +24%
       Australia, ~$8.9MM, -12%
       Japan ~$6.3MM, +8%
       U.S. ~$7.4MM, +101%
       Distributor markets ~$5.2MM, flat
       Excluding stocking sales to MAKO, sales +9%

  Highlights pertain to 1H12.

- Growth led by new cementless systems, Trinity cup, Metafix and MiniHip stems, line extensions

- Volume of metal-on-metal (Cormet and Optimom) sales declined, while value of sales increased slightly

- Not expecting significant deliveries to MAKO in 2H12

- Rolling out upgraded MiniHip instruments in 2H12

- Expects to launch new TriFit TS cementless hip stem in 1H13


- Improved performance from Uniglide partial knee due to new accounts in Germany, better market in U.K.

- Unity knee 1st evaluation surgeries complete


- Sales of LARS ligament continued to grow in U.K. and decline significantly in Australia

- LARS distribution agreement extended to end of 2016, with increased exclusive distribution rights (notably in the U.S.), closer collaboration between companies


Globus Medical
$96.0MM, +19% (U.S. $88.5MM, +17%; ex-U.S. $7.3MM, +38%)
       Fusion $61.2MM, +10%
       Disruptive Technology $34.7MM, +38%

- Sales growth led by CALIFBER expandable lumbar fusion and lateral lumbar fusion devices, SP-FIX spinous process fixation and INTERCONTINENTAL minimally invasive lateral fixation devices

- Strong sales of REVERE pedicle screw/rod, ELLIPSE posterior occipital cervical thoracic system and FORTIFY expandable corpectomy device

- Algea Therapies business unit is solely focused on interventional pain management; sells Affirm VCF system

- Increasing U.S. sales force, adding additional direct and distributor sales reps by year-end

- Has launched >100 products since 2003, expects 5 to 10 product introductions/year for next 3 years

- Company typically takes product from concept to commercialization within 12 months (including FDA review time)


Internal Fixation Systems
$136,800, +124%

- Growth attributed to release of additional sets of redesigned Cannulated screws, limited initial release of modular locking small fragment system and hiring of new distributors

- Markets “value-priced” orthopaedic, podiatric and spinal implants

- To date, revenues derived from sales of plates/screws for extremities


Life Spine (1H12 sales only; 2Q12 not available)

- Revenue growth +41.7%


Mazor Robotics
NIS 11.2MM (~US $2.9MM), +470% (U.S. ~$2.5MM)

- Launched C-OnSite, add-on to Renaissance system for planning, execution and verification of implant placement

- 256 cases sold in U.S. (vs. 88 in 2Q11)

- Received regulatory clearance to market Renaissance in Korea

- U.S. system utilization +100% over past 4 quarters


Medtronic (fiscal 1Q13, ended 7/27/12)
$786MM, -3% (U.S. $558MM, -5%; ex-U.S. $228MM, -3%)
       Core Spinal $645MM, +1% (U.S. $430MM, flat; ex-U.S. $215MM, -2%)
       Biologics $141MM, -19% (U.S. $128MM, -20%; ex-U.S. $14MM, -7%)
       FY12 Other Biologics revenue, previously classified within Biologics, has been reclassified to Core Spine.

- Excluding Kyphon, Core Spine +2% (U.S. +1%)

- Estimates U.S. spine market has improved over past 3 quarters; U.S. Core Spine results reflect stabilization

- Navigated spinal procedures and enabling technologies (such as POWEREASE) attracting more surgeon interest

- >300 surgeons using MAST MidLIF procedure (>1,000 procedures performed)

- Commenced full launch of Solera 5.5/6.0, nearly doubled SOLERA minimally invasive sets in field

- Increased ATLANTIS Vision Elite cervical plate sets by 20%

- Launching AMT interbody implants at NASS meeting

  - Yale Infuse study results expected by year-end


ChondroCelect €1.4MM (~ US$1.75MM), +1,300%
1H12 sales €2.1MM (~$2.6MM), +115% (2012 sales ~$1.8MM, 2011 deferred sales ~$0.8MM)

  Highlights pertain to 1H12.

- Discussions to obtain full reimbursement are advancing in France, Germany, Spain


$3.5MM, -35% (U.S. $3.2MM, -35%; ex-U.S. $0.2MM, -29%)

- U.S. AxiaLIF revenue $2.6MM: 65% 1-level, 35% 2-level

- Non-AxiaLIF revenue $600,000, including ~$0.5MM from VEO direct lateral cases

- Completed 262 AxiaLIF procedures; 193 in U.S.

- Continued negative impact of limited physician reimbursement for AxiaLIF, denial of coverage for fusion based on medical necessity

- Average revenue per case near all-time highs, driven by higher mix of AxiaLIF 1L+ and higher ancillary product use; case count declined, number of active surgeons flat

- VEO case revenue +46% sequentially

- Received CE Mark approval to market VEO lateral access fusion system for interbody fusion

- Recently gained AxiaLIF coverage from MagnaCare (1.3MM covered lives in New York, New Jersey), Capital BlueCross (1MM covered lives in Pennsylvania), Avera Health Plan and HMO (<100,000 lives in South Dakota)

- Enrolled 1st patient in RAMP trial, 200-patient study comparing AxiaLIF to TLIF

- Commencing a retrospective health economic study to isolate cost of company’s minimally invasive spinal fusion vs. traditional open procedures, expects completion in 1Q13

- No update on OIG subpoena from 10/11


Trauson (1H12 sales only; 2Q12 not available)
RMB 205.8MM (~US $26.5MM), +28%
       Trauma ~$14.7MM, +17%
       Spine ~$5.5MM, +95%
       OEM Products ~$3.3MM, -8%
       Other ~$2.7MM, +89%

  Highlights pertain to 1H12.

- Launched 4 new products, including one for non-fusion spine market

- Planning 2H12 launch of 1 trauma and 3 spine products

- ~660 distributors covering >3,800 licensed hospitals in China, to date

   - Expanding surgeon training in South America; pursuing distribution channels there and in Africa, Europe and 
     Middle East

Sources: Company press releases, earnings calls, filings with the Securities and Exchange Commission

Julie A. Vetalice is Editor, Information Products for ORTHOWORLD Inc. She can be reached at 440.543.2101 or julie@orthoworld.com