Tornier, the French company whose name is synonymous with well-engineered shoulder implants, announced on June 8th that it intended to sell roughly $205 million in common stock to the global investing “public.” The company has filed registration statements in the U.S. and, if the launch is successful (and it should be), Tornier’s common stock will start trading on the NASDAQ global market under the symbol TRNX.
Tornier Wants to “Go Public”
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Over the first 6 months of this year, 57 companies have braved the stock markets to “go public.” Of those, 23 or 40% are trading higher than their offering price and 34 or 60% are lower. The decision to file an IPO and the process to complete registration is a slow moving process. Considering the volatility of the public markets, both in the U.S. and in Europe, this can prove to be nerve-wracking for managers and underwriters alike. Of the last three orthopedic IPOs, two are underwater and one is 40% above its initial offering price.
The following table summarizes the last three orthopedic IPOs.
|
Company |
Date of IPO
Sales in IPO Year
2010 est Sales
Percent Change
IPO Stock Price
Current Stock Price
Percent Change
MAKO Surgical
February, 2008
$3 million
$45 million
+1, 400%
$10/share
$14/share
+40%
TranS1
October, 2007
$16 million
$26 million
+63%
$15/share
$2.82/share
(81)%
Alphatec Spine
June, 2006
$74 million
$207 million
+179%
$9/share
$5.18/share
(42)%
All three companies grew their business dramatically post IPO. In absolute dollar terms, Alphatec has grown its business the most—adding fully $130 million to revenues in the four years since IPO. As measured by percent change, MAKO jumped 1, 400%. Despite strong top line growth from both Alphatec and TranS1, moving the stock price into positive return territory is terrifically difficult.
Going public is not for the faint of heart.
Tornier’s Case for an IPO
Tornier’s IPO is clearly a bet on the emerging extremities market and the global market for orthopedics. At the time that the current owners (Warburg Pincus, Vertical Group and Split Rock partners) acquired the company from Alain Tornier in 2006, the investment rationale for the firm was to leverage Tornier’s reputation for extremity implant innovation, in particular its shoulder franchise, into a broader line of upper and lower extremity products. Over the ensuing four years, CEO Kohrs and his team:
-
created a single, extremity specialist sales channel in the United States
added new products to the line of shoulder joint implants and foot and ankle products
entered the sports medicine and orthobiologics markets
added to Tornier’s small line of hip and knee products
Management also raised R&D spending from $3.8 million on an annualized basis in 2006 to $18 million last year, a 374% rate of increase. To put that in perspective, in 2006 R&D was 4% of sales. In 2009 R&D was 9% of sales.
In its registration filings, Tornier’s management is making the case that all of these moves have increased the company’s addressable market from $2 billion in 2006 to approximately $7 billion in 2009.
The Tornier Product Offering – Today and Tomorrow
Through acquisition and a sizeable increase in licensing and R&D, Tornier’s product line has grown to into four major product categories:
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Upper extremity joint reconstruction and trauma repair products including joint replacement and bone fixation devices for the shoulder, hand, wrist and elbow. 59% of total sales
Lower extremity joint reconstruction and trauma repair products including joint replacement and bone fixation devices for the foot and ankle. 10% of total sales
Sports medicine and orthobiologics products including products to mechanically repair tissue-to-tissue or tissue-to-bone injuries, in the case of sports medicine, or to support or induce remodeling and regeneration of tendons, ligaments, bone and cartilage, in the case of orthobiologics. 6% of total sales
Large joint (hip and knee) repair and reconstruction products including hip and knee joint replacement implants and ancillary products. 25% of total sales
Overall, Tornier’s reported sales for the first quarter of 2010 increased 22%. Of the four product categories, the fastest growing line is Tornier’s sports medicine/orthobiologics line which rose 201% from an admittedly low base ($3.4 million this quarter vs. $1.1 million for the same period a year earlier).
Strategically, Tornier’s goal is to provide surgeons with the most complete line of upper and lower extremity products and then augment these lines with a large, dedicated extremity-focused sales organization. In many ways, the company’s strategic orientation is embodied in its corporate tag line—“Specialists serving specialists.”
Tornier’s other major strategic objective is, simply put, to be profitable. Since 2006, R&D and sales and marketing expenses have risen sharply. Of course, the payoff has been rapidly expanding product lines and a growing distribution force both inside the U.S. and internationally. In its registration, the company referred to this spending as an “investment.” Presumably, post IPO the company hopes to harvest the fruit of this investment and, for the first time since 2005, turn a profit.
The Extremity Market
One of the reasons we love IPOs is that the good old SEC requires companies to give their best estimates of market sizes and future growth rates.
Here is Tornier’s best estimate of its major markets as described in its S-1 filings. Enjoy.
| Major Orthopedic Market | 2009 Market Size ($ in billions) as Determined by Tornier’s Management |
2009-2013 Estimated Compound Annual Growth Rate (CAGR) |
| Spine | $7.20 | NA |
| Knee Joints | 6.8 | 5% |
| Hip Joints | 5.7 | 5% |
| Trauma | 5.2 | 12% |
| Orthobiologics | 3.9 | 11% |
| Sports Medicine | 3.3 | 10% |
| Extremity Joints | 0.9 | 11% |
| TOTAL | $33.00 | 10% |
Interestingly, the extremity market is, in Tornier’s judgment, the smallest of the major orthopedic markets. Specifically, “extremities” refers to implants and instruments used to replace shoulder, elbow, hand, and foot and ankle joints. Tornier is making the case that the smallest of the major markets has been under-served and underdeveloped by the major orthopaedic companies.
Tornier, which holds the #2 market share (as measured in revenues) markets the following product lines in extremities:
|
Product |
Description
Year(s) of
Introduction
Region
Currently
Marketed
Aequalis Shoulder Joint
Shoulder joint replacement implant to treat pain or disability due to arthritis, severe trauma and other conditions. The Aequalis system includes versions for traditional resurfacing, reverse, fracture and reverse fracture joint replacement.
1991-2009
United States
and
International
Affiniti Shoulder Joint
Shoulder joint replacement implant to treat pain or disability due to arthritis, severe trauma and other conditions. The Affiniti system is based on a “soft tissue balancing” surgical philosophy.
2007
United States
and
International
Ascend Shoulder Joint
Shoulder joint replacement implant to treat pain or disability due to arthritis, severe trauma and other conditions. The Ascend system is a bone-sparing design.
2009
United States
Aequalis Trauma Systems
Specialty shoulder plates and nails for reconstruction of 2-part, 3-part and some 4-part proximal humeral fractures.
2007-2009
United States
and
International
CoverLoc Wrist Plate
Metallic trauma plate used to stabilize distal radius fractures as they heal. The CoverLoc technology allows the screws to pull bone fragments to the plate and lock them for stability, while also covering the screw heads to minimize soft tissue irritation.
2006
United States
and
International
Latitude Elbow
Elbow joint replacement implant to treat pain or disability due to arthritis, severe trauma and other conditions. The Latitude system provides for anatomic reconstruction of the elbow joint.
2000
United States
and
International
Pyrocarbon Radial Head
Radial head (of the elbow joint) replacement implant to treat pain or disability due to arthritis, severe trauma, and other conditions. The system consists of a titanium expandable stem, a titanium angled neck and a pyrocarbon articular head.
2002
International
RHS Radial Head System
Radial head (of the elbow joint) replacement implant to treat pain or disability due to arthritis, severe trauma and other conditions. The anatomic bipolar system consists of multiple stem diameters and head sizes to match a wide range of patients.
2006
United States
and
International
Pyrocarbon Hand and Wrist
A range of interposition spacers or complete joint replacements manufactured from pyrocarbon for arthritic bones to relieve pain and restore function of the hand and wrist joints.
1994-2009
International
(some thumb implants in the United States)
Intrafocal Pin Plate
Internal pin/plate fixation system for minimally invasive stabilization of distal radius fractures.
2005
United States
and
International
Salto Talaris Ankle Joint
Total ankle joint replacement implant to treat pain or disability from severe arthritis. The Salto Talaris is a precision bearing (2-part) implant.
2007
United States
Salto Ankle Joint
Total ankle joint replacement implant to treat pain or disability from severe arthritis. The Salto is a mobile bearing (3-part) implant.
1997
Intern
Nexfix Fixation System
Specialty plates, compression screws, and pins with instrumentation designed to facilitate bone and joint fusion procedures of the foot.
2007
United States
and
International
Futura Foot Implants
The Futura product line includes forefoot joint replacement implants to treat pain or disability from severe arthritis or other conditions, and flatfoot correction implants.
1996-2004
United States
and
International
Stayfuse Fusion System
A two-part locking implant to fuse joints of the toes.
2001
United States
and
International
Wave Calcaneal Plate
Metallic trauma plate used in calcaneal fractures (heel bone) with a small incision.
2009
United States
Ankle Fusion Plate
Specialty CoverLoc plates to stabilize the ankle joint for fusion procedures. Available in both lateral and anterior versions based on surgeon preference.
2010
United States
Resorbable Fixation System
Bioresorbable pins and screws used in trauma and bone fusion to stabilize the bone fragments and resorb over time.
2007
United States
and
Selected
International
Countries
Osteocure
Cylindrical and wedge shaped implants with a resorbable, porous scaffold to support bony in-growth and to fill defects left by surgery, trauma or disease in the foot.
2005
United States
All in all, Tornier and its owners have created a very full plate to offer surgeons and, now, investors. Will the market understand and appreciate what CEO Kohrs and his team are offering? With an “A” list of underwriters, prospects look good.
React:
Discussion
This is a fascinating development. In my practice we've seen similar outcomes with the revised protocol. The key differentiator seems to be patient selection criteria. Has anyone else noticed the correlation with BMI thresholds?
Great point. I'd push back slightly on the conclusion, the sample size in the cited study is too small to draw population-level inferences. That said, the directional signal is compelling and worth a larger RCT.
We implemented a similar approach last year. Early results are promising but we're still gathering 12-month follow-up data. Happy to share our protocol if anyone is interested.
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