Motto: A Great Day in the
O.R.sm "Back off, lawman --
Exactech's joints are medicinal. Hospitals, surgeons, and clinics
worldwide use the company's knee and hip devices to replace joints
weakened through injury or disease. Its Optetrak knee implant and
various hip implant systems either partially or totally replace
patients' damaged joints. It also makes Opteform, a bone allograft
material developed at the University of Florida. Exactech markets its
products through independent dealers in the US and through foreign
distributors in some 20 other countries. International sales account
for roughly a fifth of revenues. Chairman and CEO William Petty and
his family own about 35% of Exactech." [Source:
Hoover's Online.]
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|
Business Summary
"Exactech, Inc. engages in the
development and marketing of orthopaedic implant devices, related surgical
instruments, and biologic materials and services to hospitals and
physicians. Its orthopaedic products are used in the restoration of bones
and joints that have deteriorated as a result of injury or diseases, such
as arthritis. The major product lines of the company include knee
implants, hip implants, and tissue services. Its Optetrak®
knee system is a modular system designed to improve patellar tracking,
reduce articular contact stress that leads to implant failure, and provide
a range of motion. The company's AcuMatch® hip system is designed to
address the indications for total hip replacement, including primary and
revision needs. The customers for the company's products are hospitals,
surgeons, and other physicians and clinics. The company markets its orthopaedic implant products in the United States through 55 independent
sales agencies and one domestic distributor; and internationally through
18 foreign distributors that distribute products in 23 countries in
Europe, Asia, Australia, and Latin America. The company manufactures many
of its orthopaedic devices at its Gainesville facility. Its competitors in
the orthopaedic implant market include DePuy, a division of Johnson and
Johnson, Inc.; Zimmer, Inc.; Stryker Howmedica Osteonics; Smith and Nephew
plc; Sulzer Orthopaedics, Inc. and Biomet Orthopaedics."
[Source: "Exactech
Inc. - Detailed Product Pipeline." By G. Harinatha. Life Science
Analytics. August 4, 2003. In
Investext.]
Investment Thesis
"Positive Industry Dynamics. Exactech
is benefiting from several key ongoing trends in the orthopedic industry
including favorable demographics, a healthy pricing environment, stable
and established reimbursement, and the introduction of newer technology
products. The convergence of these industry trends is driving growth
across the overall orthopedic industry. The aging population is driving
the market for reconstructive implants. The advent of newer technologies,
including alternative bearing surfaces and advanced designs, has been
contributing to steady pricing increases in this key segment.
"Geographic Expansion. Exactech
products are available throughout most of the US and in approximately 20
countries in Europe, Asia, Australia and Latin America. The company is
making strides at expanding its distribution network to reach a larger
market as evidenced by the company's recent entrance into various
distribution arrangements."
Risks & Caveats
"Highly Competitive Marketplace. EXAC
is a relatively small company in an industry dominated by giants. The $15
billion global orthopedic market is led by six companies (almost 60% of
the global market), each with more than $1 billion in annual sales. EXAC
holds only a 1% share of the hip market and a 2% share of the knee market
and doesn't currently offer products throughout the entire U.S.
"Potential Decline of Favorable
Industry Pricing Environment. A slowdown or reversal of the positive
pricing trends in the U.S. reconstructive market that have helped
rejuvenate the industry over the last couple of years would likely reduce
company share valuations. If this favorable pricing environment were to
deteriorate, sales trends would likely be negatively impacted across the
industry."
[Source: "Exactech Inc. By S.S. Wong,
et al. Robert W. Baird & Co. July 25, 2003. In
Investext.]
Exactech Expands
"David
Petty is probably still counting the ways that a recently-completed
expansion project at Exactech Inc. has improved the company's operations.
"'We've got more room for marketing, more room
for engineering and more room for manufacturing,'
said Petty, Exactech's executive vice president of sales and marketing.
'We have a new teleconferencing room and a
bigger training area. We were really running out of space before this.'
"It's not surprising that Petty sounds relieved.
Exactech, an orthopedic products manufacturer, had to double its space
with a $4 million expansion in order to accommodate the company's rapid
growth in recent years. Exactech grew steadily after it was formed in
1985, but the company found a worldwide market shortly after it moved to
its current location on NW 66th Court in 1997. Sales in 2000 were $41.9
million, and that jumped to $46.6 million in 2001.
"Last year, Exactech pulled in $59.3 million in
sales, due to strong domestic revenues but also an extensive international
network that includes distribution agreements for Exactech's products in
20 foreign countries. Through the first half of 2003, the company has
earned $35.8 million in sales, a 24 percent increase from $28.7 million
through the first six months of 2002.
"The company's expansion project began last
summer and with its completion this month has added 37,000 square feet to
Exactech's 38,000-square-foot facility. The company's work force of 154
employees is expected to grow nearly 20 percent during each of the next
five years, and it could bring Exactech's payroll to nearly 400 workers by
the end of that period, said Jody Phillips, Exactech's chief financial
officer.
"And with the extra manufacturing space and
steady business, Exactech may add a second shift to meet the demand for
its hip and knee replacement systems, the company's most popular products.
Exactech also develops surgical instruments and biologic materials, such
as bone paste, for orthopedic restoration.
"'Our needs are across the board, as far as
hiring new workers,' Petty said,
'but our growth will likely come from
manufacturing'"
[Source: "Exactech
Elbowroom." By Joe Coombs.
Gainesvillesun.com July 27, 2003]
Company History
"Exactech was founded by
William Petty, M. D., an orthopaedic surgeon, Betty Petty, and Gary
Miller, Ph.D., a bioengineer. Because of their positions on the University
of Florida College of Medicine faculty, Drs. Miller and Petty had worked
with several orthopaedic companies as consultants. Dr. Petty had
increasing concerns about the cost pressure in medicine and the
implications that might have for the products he used in his patients. He
thought he saw some things the industry could do differently, and better,
to assure superior quality products while responding to the need for
medical cost containment. The Pettys invited Dr. Miller to join in forming
Exactech with the intent of making a difference in the orthopaedic implant
industry.
"Exactech was incorporated on
November 11, 1985 under the laws of the state of Florida. In May of 1996
Exactech became a publicly traded company on the Nasdaq Stock Exchange.
The founding philosophy is best expressed in the corporate purpose and
values." [Source:
Exactech Company History.]
Hawk Associates
Profile
"Exactech develops and markets innovative
orthopaedic implant devices and unique biologic materials to hospitals and
physicians. The company's products are used in the restoration of bones
and joints that have deteriorated as a result of injury or diseases such
as arthritis. the company's strategy is to provide mechanical and
biological technologies that offer the best solutions for bone and joint
restoration.
"Management
estimates the current market for joint implants is $2.6 billion in the
U.S., and exceeds $5.2 billion worldwide. The market for biologic
materials is projected to approach this size in five years, according to
industry analysts.
"The
company's high quality FDA-cleared devices for hip and knee repair respond
to the cost-conscious demands of the hospital and surgical community.
Exactech's differentiated products provide true improvement over current
healthcare offerings.
"The
company has a strong growth record, with 2002 sales of $59.3 million,
compared with $46.6 million in 2001. From 1997-2002 the company's CAGR was
28%.
"Exactech
markets its products in the U.S. through experienced independent sales
reps and has distributors in 25 countries in Europe, Asia, Australia and
Latin America."
[Source:
Hawk
Associates.]
Wall Street
Transcript Interview with Bill Petty (July 15, 2002)
"We incorporated Exactech in 1985.
there were three Founders, myself, my wife, whose name is Betty, and Gary
Miller a Bioengineer. All three of us still work at Exactech. We
established the company to approach product development, for
musculoskeletal treatments, by a method that we call solution based. We
decided this, based on some of our observations in the industry. By
solution based we mean we have a pretty good knowledge of the orthopedic
medical field so we look at problems that patients are still having,
surgeons are dealing with, and then see, with our own research, as well as
reviewing the research of others, can we bring solutions or partial
solutions to these problems? If we go back to 1985, it was a time in which
cost and value were not high priorities in medical care. We recognized
that as an opportunity as well. So we basically founded the company on the
philosophy of the kind of product development I have described, as well as
providing high value in what we do. From that point, we began to develop
prostheses for replacing damaged hips and knees. That area still remains a
major part of what we do, currently accounting for almost 90% of our
revenues. We are also now involved in developing biologic means for
restoring damaged bones and joints. We are represented in 45 states and we
are also in 20 foreign countries. We did not begin marketing our products
until about 1989, but since then we have grown to revenues just below $47
million. We hope we are able to continue a bit of substantial growth over
the coming years."
[Source: "CEO Interview: William
Petty - Exactech Inc." Wall Street Transcript 7/15/2002. Vol. 157
(3). In
Investext.]
[Source:
Quote.com.]
SECURITY OWNERSHIP
The following table sets forth, as of the
Record Date, the number of shares of Common Stock of the Company which
were owned beneficially by (i) each person who is known by the Company to
own beneficially more than 5% of its Common Stock, (ii) each director and
nominee for director, (iii) the Named Executive Officers (as defined in
“Executive Compensation”) and (iv) all directors and executive officers of
the Company as a group (after taking into account the Stock Split):
|
Name and Address
of Beneficial
Owner(1) |
|
Amount and Nature of
Beneficial
Ownership(2)(3) |
|
Percentage of
Outstanding
Shares Owned(2) |
|
|
|
William Petty, M.D. |
|
4,110,798 |
(4) |
35.2 |
% |
|
|
Betty Petty |
|
4,110,798 |
(4) |
35.2 |
% |
|
|
Gary J. Miller, Ph.D. |
|
619,962 |
(5) |
5.3 |
% |
|
|
David W. Petty |
|
83,538 |
(6) |
* |
|
|
|
Joel C. Phillips, CPA |
|
76,028 |
(7) |
* |
|
|
|
Albert H. Burstein, Ph.D. |
|
6,000 |
(8) |
* |
|
|
|
R. Wynn Kearney, Jr., M.D. |
|
454,860 |
(9) |
3.9 |
% |
|
|
Paul Metts, CPA |
|
15,400 |
(10) |
* |
|
|
|
Prima Investments, Limited Partnership
|
|
3,876,998 |
|
33.2 |
% |
|
|
Millerworks, Limited Partnership
|
|
473,562 |
|
4.1 |
% |
|
|
FMR Corp. |
|
1,027,600 |
(11) |
9.7 |
% |
|
|
All directors and executive officers as
a group (8 persons) |
|
5,366,586 |
(12) |
45.9 |
% |
|
________________________
*
Less than 1%.
[Source: Schedule 14A.
Definitive Proxy Statement. March 21, 2003.
EDGAR.]
Officers and
Directors
William Petty, M.D.
was a founder and has been Chairman of the
Board and Chief Executive Officer of the Company since its inception.
Dr. Petty also became President of the Company upon the departure of
former president Timothy Seese on January 31, 2002. Dr. Petty was a
Professor at the University of Florida College of Medicine from July 1975
to September 1998. Dr. Petty also served as Chairman of the Department of
Orthopaedic Surgery at the University of Florida College of Medicine from
July 1981 to January 1996. Dr. Petty has served as a member of the
Hospital Board of Shands Hospital, Gainesville, Florida, as an examiner
for the American Board of Orthopaedic Surgery, as a member of the
Orthopaedic Residency Review Committee of the American Medical
Association, on the Editorial Board of the Journal of Bone and Joint
Surgery, and on the Executive Board of the American Academy of
Orthopaedic Surgeons. He holds the Kappa Delta Award for Outstanding
Research from the American Academy of Orthopaedic Surgeons. His book,
Total Joint Replacement, was published in 1991. Dr. Petty received his
B.S., M.S., and M.D. degrees from the University of Arkansas. He completed
his residency in Orthopaedic Surgery at the Mayo Clinic in Rochester,
Minnesota.
Gary J. Miller, Ph.D.
was a founder and has been Executive Vice
President, Research and Development of the Company since February 2000. He
was Vice President, Research and Development from 1986 until 2000 and has
been a Director since March 1989. Dr. Miller was Associate Professor of
Orthopaedic Surgery and Director of Research and
Biomechanics at the University of Florida College of Medicine from July
1986 until August 1996. Dr. Miller received his B.S. from the University
of Florida, his M.S. (Biomechanics) from Massachusetts Institute of
Technology, and his Ph.D. in Mechanical Engineering (Biomechanics) from
the University of Florida. He has held an Adjunct Associate Professorship
in the College of Veterinary Medicine’s Small Animal Surgical Sciences
Division since 1982 and was appointed as an Adjunct Associate Professor in
the Department of Aerospace, Mechanics and Engineering Sciences in 1995.
He was a consultant to the United States Food and Drug Administration from
1989 to 1992 and has served as a consultant to such companies as Johnson &
Johnson Orthopaedics, Dow-Corning Wright and Orthogenesis.
David W. Petty
has been Executive Vice President, Sales
and Marketing since February 2000. He has been employed by the Company in
successive capacities in the areas of Operations and Sales and Marketing
for the past thirteen years, serving as Vice President, Operations from
April 1991 until April 1993 and Vice President, Marketing from 1993 until
2000. He also served as a Director from March of 1989 until March 1996. He
was appointed to the Board of Directors on January 31, 2002 to fill the
vacancy created by the resignation of Timothy Seese and was elected to the
Board in May 2002. Mr. Petty received his B.A. from the University of
Virginia in 1988 and completed The Executive Program at the Darden School
in 1999. He is the son of Dr. and Ms. Petty.
Joel C. Phillips, CPA
has been Chief Financial Officer of the
Company since July 1998 and Treasurer since March 1996. Mr. Phillips was
Manager, Accounting and Management Information Systems from April 1993 to
June 1998. From January 1991 to April 1993, Mr. Phillips was employed by
Arthur Andersen. Mr. Phillips received a B.S. and a Masters in Accounting
from the University of Florida and is a certified public accountant.
Betty Petty
was a founder and has been Vice President,
Human Resources and Administration since February 2000. She has also been
Secretary of the Corporation since its inception and served as Treasurer
and a Director until March 1996. Ms. Petty served in the dual capacities
of Human Resources Coordinator and Director of Marketing Communications
from the founding of the Company until 2000. She received her B.A. from
the University of Arkansas at Little Rock and her M.A. in English from
Vanderbilt University. Ms. Petty is the wife of Dr. Petty.
Albert Burstein, Ph.D.
has been a director of the Company since
March 1996. From 1976 to 1996, Dr. Burstein was Senior Scientist,
Department of Research and Associate Attending Orthopaedic Surgeon
(Biomechanical Engineering) at the Hospital for Special Surgery, New York,
New York and Adjunct Associate Professor of Mechanical Engineering at the
Sibley School of Mechanical and Aerospace Engineering, Cornell University,
Ithaca, New York. In addition, he was Professor of Applied Biomechanics
(in surgery) at Cornell University Medical College, New York, New York
from 1978 through 1996. From 1976 until 1992, he served as Director,
Department of Biomechanics, Research Division, at the Hospital for Special
Surgery. Since 1980, he has served as Deputy Editor for Research for
The Journal of Bone and Joint Surgery . Dr. Burstein is an author of
six textbooks on Orthopaedic Biomechanics. He holds the Shands Award of
the Orthopaedic Research Society for outstanding career contributions to
orthopaedic research and is a Past President of the American Society of
Biomechanics. Dr. Burstein holds thirteen patents for orthopaedic devices.
R. Wynn Kearney, Jr., M.D.
has been a director of the Company since
September 1989. He is the senior partner of the Orthopaedic and Fracture
Clinic, P.A., a medical group with locations in southern Minnesota. He has
been a member of the group since 1972. He received his B.S. degree and
M.D. degree through the Honors Program of Northwestern University Medical
School in Chicago. He completed an orthopaedic surgery post-graduate
residency at the Mayo Clinic in Rochester, Minnesota and was a member of
the team that implanted the first total knee replacement in the United
States in 1970. He is also an Assistant Clinical Professor of the
University of Minnesota Medical School. Dr. Kearney has served as
President of the Minnesota Orthopaedic Society, the Southern Minnesota
Medical Association and the Orthopaedic Practice Society. He recently
completed a term as President of the Foundation Board of Minnesota State
University, Mankato. Dr. Kearney is a member of the board of directors of
Hickory Tech Corporation and is a minority owner of the Minnesota
Timberwolves NBA basketball team.
Paul Metts, CPA
has been a director of the Company since
April 1998. Mr. Metts was the Chief Executive Officer of Shands HealthCare
at the University of Florida from 1987 to 1997. Shands HealthCare System
is a 2000-bed, nine-hospital system with approximately 12,000 employees.
Mr. Metts currently serves a member of the Robert Wood Johnson
Foundation’s National Advisory Committee for Urgent Matters and has served
as a board member of many local civic and business organizations including
Barnett Bank, the University of Florida Foundation and University Medical
Center in Jacksonville. Mr. Metts has also chaired or served as a member
on state and national industry organizations such as the Florida Institute
of Certified Public Accountants Healthcare Industry Committee, the Florida
Hospital Association Board, the Association of Voluntary Hospitals of
Florida Board, the University Health System Consortium Board, and several
committees for the Association of American Medical Colleges. Mr. Metts, a
Certified Public Accountant, received his undergraduate degree in
Accounting from the University of South Florida and his Masters Degree in
Health Care Administration from the University of Minnesota.
William B. Locander, Ph.D.
has been
Chairman of Marketing, Professor of Marketing and Quality, and Director of
the USF Leadership Center at the University of South Florida in Tampa,
Florida since 1992. He was previously Professor of Marketing at the
University of Tennessee, Knoxville from 1983 until 1992. From 1973 through
1983 he was a faculty member at the University of Houston, serving as
Associate Professor, Chairman of the Department of Marketing, and
Associate Dean for Research and Administration at that institution. Dr. Locander
has authored numerous articles in reference publications and has served on
the editorial board of the Journal of Marketing and the Journal of
Marketing Research. He was president of the National American Marketing
Association in 1988 and 1999. He was an examiner for the Malcolm Baldridge
National Quality Award in 1991 and 1992. Dr. Locander has spoken and
consulted in the areas of marketing, total quality, strategic planning,
and customer satisfaction, with companies such as IBM, General Electric,
3M, Proctor and Gamble, and Chevron. He received his B.S., M.S. and Ph.D.
degrees from the University of Illinois in Champaign-Urbana.
[Source: Schedule 14A.
Definitive Proxy Statement. March 21, 2003.
EDGAR.]
Orthopaedic Products Industry
"According to The Medical and
Healthcare Marketplace Guide 2002-2003, published by Dorland Healthcare
Information, the worldwide market for orthopaedic products was nearly $15
billion in 2001, which represented an increase of 13% from 2000. The three
market segments in which the Company offers its products and services,
reconstructive devices, biologics and other orthopaedic products,
experienced 12%, 13% and 9% growth, respectively, during 2001 when
compared to 2000. In 2001, the United States market for reconstructive
products was $2.8 billion, and the international market was $2.6 billion.
The market for biologics (which includes bone graft substitutes, allograft
distribution and processing and other tissue based products and services)
was $900 million in the United States and $300 million internationally in
2001. Other orthopaedic products, including power equipment, cement and
cement delivery systems, experienced United States sales of $2.3 billion
and international sales of $1.0 billion in 2001.
"Management believes that the
industry will continue to grow due to the changing demographics of an
aging population in much of the world. Increasing life spans impact the
number of individuals with joints subject to failure, thereby increasing
demand for joint replacement procedures. In 2001, more than 1.5 million
joint replacement procedures were performed. Sixty percent of these were
in persons over the age of 65. This age group is expected to grow at three
times the rate of the overall population. Additionally, earlier
generations of implanted joint replacement prostheses have begun to reach
their maximum life and are beginning to fail, resulting in increasing
demand for revision procedures."
