Another one bites the dust.
In this age of orthopedic industry consolidation, another of the pioneering orthopedic suppliers, 69-year old Wright Medical Group, N.V., has agreed to be subsumed into Kalamazoo, Michigan-based Stryker Corporation for $5.4 billion—a 52% premium to the pre-offering stock price.
For Wright Medical, this news is the capstone of a remarkable 69-year history that started with rubber tips for leg casts, evolved into breast implants and then, skirting bankruptcy, finding new life and success as a leading supplier of implants, instruments and biologics for extremity cases.
Stryker Is Buying Shoulder and Lower Extremity Market Share
Wright Medical, which merged with French shoulder implant supplier Tornier, N.V. in a $3.3 billion deal in 2014, is a market leader in both upper and lower extremity markets. As the Wall Street analysts at Wells Fargo, Needham, and Cantor Fitzgerald noted, this purchase effectively makes Stryker the category leader in shoulders and such other extremity markets as foot and ankle and hand and wrist.
Quoting from the Wells Fargo research note, “SYK [Stryker] noted at its analyst day in November 2018 that it had plans to bring a stemless shoulder to market after 2019 and had recently begun a multi-year development process for MAKO shoulders. WMGI [Wright Medical], on the other hand, has the best-in-class portfolio of upper extremities products with its SIMPLICITI shoulder, PERFORM reversed glenoid, REVIVE shoulder revision system and BLUEPRINT planning software that offers the foundation for a digital ecosystem.” Bottom line, says the Wells Fargo team, this purchase could well push Stryker’s shoulder market share from under 10% to about 30%.
One possible fly in the ointment is the conflict between Wright’s TARS ankle system and Stryker’s STAR ankle system. Regulators who will be reviewing this deal for any anti-trust issues may ask Stryker to divest itself of one or the other, though most likely STAR.
Mike Mattson, Needham’s top analyst, thought that this was a particularly strategic move by Stryker. He said in his note to investors that Wright Medical could be, “complementary to SYK’s Trauma & Extremities business particularly in shoulders where SYK’s share is very low.”
And, Mattson noted, Stryker is still digesting K2M, Inc. so Wright Medical could be a distraction.
Wright Medical shareholders, however, are no doubt thrilled with a prospective 52% increase in their stock’s value and, if all goes according to plan, the deal should close sometime in the first half of 2020.
Wright Manufacturing’s Long Strange Trip
Stryker’s bid to acquire Wright got us thinking about the importance of Wright Medical and all the products and people who have made Wright such an important part of the history of orthopedics.
For those readers who don’t know the story, here is a quick summary of Wright Manufacturing’s long, strange but very important trip.
Frank O. Wright founded Wright Manufacturing in 1950 to supply rubber heeled leg casts. Working as a salesman for an orthopedic leg cast supplier, he discovered that the hard steel heel in the foot of those casts was creating back pain. Wright’s soft “street heel,” which eased patient discomfort, was a hit.
Over the next quarter century, Wright steadily expanded into medical soft goods, surgical instruments, and hip and knee implants.
In 1970, Wright gave the market the finger—the Swanson finger. Invented by Dr. Alfred Swanson, former President of the American Society for Surgery of the Hand and Internationally Federation of Societies for Surgery of the Hand and author of more than 300 publications, his one-piece silicone rubber finger implant with a flexible hinge, became the best-selling finger implant in the world capturing, eventually, 75% market share.
By the time Frank Wright died in 1975, the company that bore his name was the world leader in small joint orthopedics.
The company drifted without Frank and in 1977 Dow Corning bought the company, changing its name to Dow Corning Wright. In 1986 Dow’s managers had the bright idea to use Wright to manufacture silicone breast implants. It almost destroyed the company. Silicone breast implants, in the late ‘70s became the subject of numerous liability lawsuits and an eventual FDA ban. Wright’s breast implant production stopped in 1992.
Wright’s management did do one very smart thing during this period and that was to enter into a product development alliance with the Hospital for Special Surgery and a remarkable surgeon named Leo Whiteside.
In 1990, Wright introduced the now famous Whiteside Modular Knee. It provided surgeons with a system of replaceable parts that let surgeons construct a knee implant individualized to each patient. Whiteside’s Modular Knee was a big success. In 1991, Wright launched a modular hip system, Infinity hip implant.
While those two products kept Wright solvent during the breast implant firestorm, it did not save Wright from being sold again. In 1993, a group of private equity investors led by Herbert W. Korthoff bought Wright for $70.5 million and renamed it Wright Medical Technology.
At the time of Korthoff’s purchase, Wright Medical held 85% of the world market for small joint orthopedic implants and was one of the leading manufacturers of total hip and knee joint replacement.
