DJO Global is among the large players in the orthopedic device market space. The company recently acquired the Discovery Elbow System, Biomet Cobalt Bone Cement and its related Optivac Cement Mixing Accessories and Softpac packaging technology from Zimmer Biomet before the two industry giants finalized their merger.
The acquisition was attractive as a forced divestiture. DJO acquired the technology at a potentially lower rate than they'd have had on the open market. Zimmer and Biomet divested three products in the United States markets and DJO initially wanted all three, but only received FTC consent for the first two; Smith & Nephew acquired the Zimmer Unicompartmental High Flex Knee system technology.
"We wanted these products because there are only three cement products on the market that have a substantial share of the market," says Brady Shirley, president of DJO Surgical. "We are the fastest growing company in the recon space and cement is being used on many of our products, but we didn't have a cement product ourselves. We know with our volumes growing every day, and it made sense for our reps to carry these products."
Mr. Shirley had an extra incentive for acquiring the Discovery elbow as well; he is friends with one of the original designers and has had his eye on the product for years. "There are really only two or three products out there with a solid level of proven trust," he says. "It has the right clinical data behind it, the right key opinion leaders and a great reputation in the space."
DJO added the Discovery elbow to their upper extremity business. The company has a strong presence in the shoulder arthroplasty space especially with their reverse shoulder implant. "This has been established in the market for an extended period of time and we're focused on a continued evolution to maintain position and to expand its influence," says Mr. Shirley.
"It's a hand-in-glove fit," says Mr. Shirley. "It makes sense because our distribution network has great focus on upper extremity. There are a number of our top shoulder customers that currently use Discovery, and a number that we hope to convert to it.”
As part of the transaction, DJO also has the right to hire a large number of Biomet reps with exemption from non-compete and non-solicitation.
"This will really help us evolve our sales force," says Mr. Shirley. "I expect to see us do really well in the cement and elbow because of the talent acquisition."
Pre-acquisition, DJO Global was growing at three to four times the market. But after the acquisition and talent add-ons, the company could grow to seven- to eight-times market for a period of time. The big three companies — Johnson & Johnson, Zimmer Biomet and Stryker — still control a large part of the hip and knee market. However, these companies are growing at 3 percent, while DJO Global grew its hip line 30 percent every quarter over the past several quarters.
"One of the trends that we see in the marketplace is that our customers are really looking for options to provide the best-in-class patient care and outcomes but at a better value than what is currently available. Some companies are essentially repackaging old implants, we're trying something new – modern 'new' implants at a substantially improved price point," says Mr. Shirley.
DJO Global developed the Exprt product line as a high quality, modern implant at a lower cost. So far this year, DJO has launched three major product lines and plans to launch additional products — including two in the Exprt line — in 2016.
"We have great respect for the big three in the marketplace, but their incentives aren't to drive prices down. We think we can launch high quality implants at a significantly higher value than what exists in today’s market. The Exprt Revision Knee is the first of many to come," says Mr. Shirley.
However, the future isn't without challenges. Hospitals looking to standardize and consolidate vendors are negotiating vendor contracts with only a narrow number of options. The most attractive companies are the larger companies because they can provide the most variation in products.
"Hospitals are using standardization as a way to drive costs down, but it doesn't always work," says Mr. Shirley. "We plan to use these acquisitions and our Exprt products to create opportunities for large hospitals, GPOs and IDNs to have a trusted partner with enough mass to significantly impact their costs. We are having good success early with our Exprt Revision Knee product and believe we have only scratched the surface."