Health Care: $50M Deal To Create Jobs, Boost International Sales
VISTA , In 2002, when freestyle aerialist Mariano Ferrario hopes to leap for gold at the Winter Olympics in Salt Lake City, he’ll brace himself , literally.
Ferrario said he was devastated after tearing a ligament in his right knee a year before the 1998 Winter Olympics in Japan. When he blew out his left knee after still qualifying for the Olympic team, he thought his career was over.
After surgery and rehabilitation Ferrario is back. His knees are fully recovered, but the freestyle ski artist still won’t jump off a ramp doing tricky flips and twists in the sky without his custom-fitted knee braces. He counts on them to soften the 50-foot vertical drop onto packed snow.
Dj Orthopedics, LLC, which custom-fitted Ferrario’s knee braces, will be rooting for him to make the 2002 team.
For the Vista-based orthopedic product maker, the success of top-notch athletes like Ferrario is also a golden opportunity , namely to get the word out on its product.
More visible than Ferrario’s tucked-in brace, however, is dj Orthopedics’ July 10 acquisition of Johnson & Johnson Co.’s DePuy Orthopaedic Technology unit for $50 million.
Les Cross, president and CEO of dj Orthopedics, said the acquisition of its chief rival in sports medicine orthopedic products adds significant value to his firm.
It also fits nicely with Cross’ three-pronged vision: To enhance dj’s core business, boost international sales and expand the business platform.
Expanding Work Force
The purchase will add 70 new jobs at the firm’s headquarters in Vista, mainly in manufacturing and sales and customer support, Cross said.
It will also open 40 new manufacturing jobs at dj Orthopedics’ Tijuana-based maquiladora, which delivers lower-end products, Cross said.
Cross expects to boost sales in France and Canada, where DePuy has a strong market presence. The expansion into these territories adds to dj Orthopedics’ market presence in Germany, Italy and Japan.
Cross calculated in 1999 the consolidated firms would have reported $164 million in sales with DePuy contributing $50 million.
The combined firms will boast 240 U.S. salespeople, thousands of products for sports medicine and 1,000 employees, Cross said.
He added about 85 percent of the integrated products will be slashed because of overlap. That means only about 15 percent of DePuy’s existing knee braces, arm slings and garments will make it to the market.
Rick Riley, vice president of sales and marketing at knee-brace maker Townsend Design in Bakersfield, finds the acquisition creates both benefits and disadvantages for rival firms.
The consolidation of products opens the door for smaller firms, such as Townsend, “to capture some business,” Riley predicted.
Added Power
On the other hand, the acquisition gives dj Orthopedics , which already has a significant market share , even more clout, he said.
He pointed to the similar business strategies of dj Orthopedics and DePuy , a strategy that many rival firms don’t necessarily agree with, he said.
Both firms rent storage space for “soft” products, such as ankle braces, crutches and arm slings, in doctors’ offices and then bill insurance firms for services provided.
“Dj can take over the contracts that (DePuy) Ortho Tech had and move their products into physician clinics and expand their scope of entrance,” Riley said.
Cross said dj Orthopedics will take over 400 contracts from DePuy.
He added doctors like the agreement, since it has become increasingly difficult for them to bill patients for these types of services.
Riley said while dj Orthopedics’ strategy is good for the bottom line, patients should be seen by trained specialists to ensure they get proper care.
“Our president believes only a licensed person should do the custom-fitting of braces,” he said.
Riley said his firm sells products at wholesale prices mostly to orthopedic and prosthetic facilities that specialize in the custom-fitting of braces and then bill the insurance firms themselves.
Cross contended that custom fitting is not part of a firm’s “stock and bill” strategy.
He emphasized that patients in need of custom-fit braces are always referred to a specialist.
In 1999, dj Orthopedics reported $114.3 million in sales and $7.1 million in net income.
The company was a unit of British-based Smith & Nephew Inc. and known as Smith & Nephew DonJoy until June 30, 1999.
Cross, former president of the Carlsbad-based Smith & Nephew unit, aligned with Chase Capital Partners and Fairfield Chase Medical Partners to create privately held independent dj Orthopedics last year.
DePuy’s manufacturing plant in Tracy, Calif., will be closed, Cross said. None of the 300 employees will transfer to dj Orthopedics, he added.
Van Gorder Gets Permanent Title at Scripps Health
The Scripps Health board of trustees appointed Chris Van Gorder to stay permanently at the helm of San Diego’s largest health care system.
“Based on the overwhelming response we’ve received, the trustees feel confident in Chris’ many abilities and his expertise in both health care strategy and implementation,” said Frank Panarisi, chairman of the Scripps Health board of trustees.
Van Gorder was named interim president and CEO of Scripps Health on June 1.
He joined Scripps in December 1999 as chief of health care operations.
