CONMED Corporation

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CONMED Corporation

PURCHASE OF NEW DIMENSIONS IN MEDICINE: 1996

LAWSUIT AGAINST JOHNSON & JOHNSON: 2003

FORMATION AS CONCOR ENTERPRISES

Conmed was founded by Eugene R. Corasanti, a 1952 accounting graduate of Niagara University. An aspiring entrepreneur, he started a few businesses before assembling a group of investors to acquire Mohawk Hospital Supply, a Utica medical equipment supplier, in 1970. In that same year he formed Concor Enterprises, Inc., to house the asset. Soon Corasanti was looking to branch into manufacturing to expand the business, and after conferring with engineers he decided to produce a disposable EKG electrode. In April 1972 he changed the name of Concor Enterprises to Consolidated Medical Equipment Inc. Manufacturing of the product began in 1973, which Conmed considers the year that it was founded.

Disposable EKG electrodes proved to be a good choice of product. At the time disposable medical products were just beginning to become acceptable and the disposable electrode market was in its infancy. Consolidated Medical did so well with the electrodes that in the 1980s it added products used in electrosurgery, a method of using high frequency current to cut tissue and stem bleeding. Because it was used in about 80 percent of all operations, electrosurgery products offered a great deal of commercial promise. At first the company introduced disposable handheld pencils and grounding pads, but in time added other electrosurgery products.

In July 1985 Consolidated Medical became Conmed Corporation. Two years later the company went public, issuing four million shares. In that same year the company completed its first acquisition, paying $126,000 in cash for Medac, Inc., but little more than two years after that the business was discontinued. Conmed’s first significant acquisition came in August 1989 with the $5 million purchase of Aspen Laboratories, Inc., a unit of a Bristol-Myers Co.’s subsidiary, Zimmer Inc., which manufactured electrosurgical generators. Aspen, founded in Denver in 1975, made its mark by introducing the first disposable, hand-held electronic scalpel, capable of cutting and cauterizing. It then produced the first solid-state electro-surgical generator.

At the start of the 1990s Conmed posted annual revenues of more than $30 million. It made further acquisitions to bolster its position in the electrosurgery market. In 1991 it paid nearly $3.2 million to acquire the Concept electrosurgical disposables business of Linvatec Corp., another Bristol-Myers subsidiary. Sales increased to $38.5 million in 1991 and net earnings to $8.5 million. A year later sales improved to $42.6 million and earnings to $9.7 million. In July 1993 Conmed acquired Medtronic Andover Medical, Inc., for $21.8 million in cash from Medtronic, Inc. The Massachusetts-based company manufactured cardiac monitoring disposable products. Its addition helped to increase Conmed’s sales to $53.6 million in 1993. That year was also noteworthy because Corasanti’s son, Joseph J. Corasanti, joined the company as its general counsel. A graduate of Whittier College School of Law, he spent three years working as an associate attorney with the Los Angeles law firm of Morgan, Wenzel & McNicholas. Moreover, in 1993 Conmed unveiled a new electronic trocar system. Called TroGard, it allowed surgeons to make small punctures in a patient’s abdominal wall using radio frequency energy transmitted through a pencil-tip-size handheld instrument. Once the body cavity was penetrated, the system instantly shut off energy. The punctures were then used to insert instruments and camera systems. The product was rolled out in 1993 but did not make much of an impact until 1994 when it was featured on The Discovery Channel’s “Cutting Edge Medical Report.” Shortly after the program aired at 6:30 a.m., Conmed received telephone calls from more than 100 surgeons interested in trying out the system. Prior to the show the company had fewer than 30 customers for the product.

Conmed acquired a specialty ECG monitoring line from Becton Dickinson Vascular Access Company in November 1994. Later in the year it agreed to another deal, which was not completed until 1995: the $21.2 million stock swap of Irvine, California-based Birtcher Medical Systems. A competitor in the electrosurgery field, Birtcher also produced other hospital operating-room equipment. Also in 1995 Conmed acquired The Master Medical Corporation for $9.5 million and the assumption of another $500,000 in debt, adding a line of single-use IV fluid drop rate gravity controllers. As a result of acquired products and internally developed products, Conmed’s sales approached $100 million in 1995 and net income increased to $10.9 million.

PURCHASE OF NEW DIMENSIONS IN MEDICINE: 1996

In a deal agreed to in 1995 but not completed until February 1996, Conmed acquired a competitor, Melville, New York-based New Dimensions in Medicine, Inc., for $31.6 million in cash and the assumption of $3.3 million in debt. As a result, Conmed added ECG electrode products, disposable electrosurgical products, and a number of wound care products. Revenues improved to $125.6 million in 1996 and net income grew to $16.3 million. A year later revenues reached $138.3 million, helped in part by the acquisition of the surgical suction-tubing product line of a C.R. Bard Inc. subsidiary. However, Conmed also recorded a $7 million loss in 1997, due in part to a disappointing performance by New Dimensions but mostly to a $34 million write-off of some research and development projects it inherited in the acquisition of Linvatec Corporation, which closed on the final day of 1997.

COMPANY PERSPECTIVES

Our mission is to improve the quality of healthcare by designing, producing, and marketing innovative, high-quality products.

Although the write-down may have been a bitter pill to swallow, the $370 million Linvatec acquisition was the more important transaction in Conmed’s history. Linvatec, yet another Bristol-Myers unit, manufactured and distributed arthroscopy products and powered surgical instruments. With $215 million in sales in 1996, Linvatec essentially tripled Conmed’s business overnight, making Conmed the second largest producer of arthroscopy products and orthopedic powered surgical instruments in the world. In 1998 Conmed posted revenues of $336.4 million and net income of $17.8 million. Also making a contribution to the balance sheet was the addition of the arthroscopy product line of Minnesota Mining & Manufacturing Co. (3M). The assets were folded into the Linvatec unit, as was the 1999 acquisition of 3M’s line of powered surgical instruments, used to operate on soft tissue and bone. The 3M assets played a significant role in Conmed’s 1999 performance. Sales increased 10.8 percent to $372.6 million. Arthroscopy sales grew by nearly 20 percent and about half of that improvement was due to the 3M acquisition. The powered surgical instrument segment also benefited from the addition of 3M assets, which accounted for 13.2 percent of increased sales, compared to the 7.3 percent contribution from internal growth.

Conmed entered the 21st century with a new president and chief operating officer. The posts were assumed by Joseph J. Corasanti who was being groomed to one day succeed his father. The company’s momentum was blunted somewhat in 2000. Arthroscopy sales showed only slight improvement, but because the orthopedic and powered surgical instrument businesses continued to grow, Conmed was able to increase 2000 revenues by 5.2 percent to $395.9 million. Net income, in the meantime, fell from $27.2 million in 1999 to $19.3 million. The company enjoyed a better year in 2001, when sales increased 8.3 percent to $428.7 million and earnings rebounded to $24.4 million. The powered surgical instruments business was essentially flat but early in 2002 the company looked to improve that performance by launching a new line of battery-powered systems to replace an outdated line. Also boding well for the future were a pair of acquisitions from Imagyn Medical Technologies, Inc., in November 2000 and July 2001, which greatly enhanced Conmed’s presence in the endoscopy segment.

Conmed completed several significant acquisitions at the end of 2002 and in 2003. In December 2002 it bought a pair of privately held companies: Portland, Oregon-based ValMed Corporation and Quebec, Canada-based NorTrex Medical Ltd. ValMed produced ceiling mounted service manager and lighting systems and centralized touch-screen consoles to control operating room lights and equipment. NorTrex offered similar products to Canadian intensive care units and other critical care areas in hospitals. The two companies formed the foundation for a new business unit: CONMED Integrated Systems, the mission of which was to provide a turnkey solution for hospital and surgery centers.

Early in 2003 Conmed paid about $48 million for Blue Bell, Pennsylvania-based Bionx Implants Inc., maker of self-reinforced polymer bioabsorbable suture anchors, screws, pins, stents, and other soft-tissue devices used in orthopedic surgery and sports medicine. Not only did the deal add to Conmed’s slate of sports medicine products and nearly $19 million in annual revenues, it increased Conmed’s research and development capability. Also in 2003 Conmed acquired Jacksonville, Florida-based Core Dynamics for $9 million in cash, a move that further built up the company’s Endoscopy assets by adding Core’s minimally invasive laparoscopic surgical devices, including trocars, cannulas, and laparoscopic suction/irrigation devices. The company also brought with it a reputation as an innovator, having developed the audible trocar, which signaled when the trocar tip had penetrated the peritoneal cavity. Conmed’s revenues increased to $453 million in 2002 and approached the $500 million mark in 2003, topping $497 million. The company recorded earnings of $34.1 million in 2002 and $32 million in 2003.

KEY DATES

1970:: Eugene Corasanti forms Concor Enterprises, Inc.
1973:: Company is renamed Consolidated Medical Equipment Inc., company begins manufacturing EKG electrodes.
1985:: Name is shortened to CONMED Corporation.
1987:: Company goes public.
1997:: Linvatec Corporation is acquired.
2003:: Conmed sues Johnson & Johnson Co.
2007:: Joseph Corasanti become chief executive officer.

LAWSUIT AGAINST JOHNSON & JOHNSON: 2003

Also of note, in November 2003 Conmed filed a federal lawsuit against Johnson & Johnson Inc. claiming that it used its position in the suture market to coerce hospitals to also purchase its endoscopy devices, which were more expensive than those offered by Conmed. In order to receive discounts and rebates on sutures, Conmed alleged, hospitals were often required to purchase 80 percent of their endoscopy products from Johnson & Johnson. Conmed estimated that were it not for Johnson & Johnson’s practices it would be able to do more than $100 million in additional business each year, increasing its market share from less then 5 percent to more than 20 percent. Johnson & Johnson was already under investigation by the Federal Trade Commission as well as the attorneys general of Connecticut and New York concerning the way it marketed suture and endoscopy instruments. Conmed was not alone in challenging Johnson & Johnson. Earlier in the year California-based Applied Medical Resources Corp., a manufacturer of endoscopy instruments, filed a similar suit against Johnson & Johnson.

Conmed completed another important acquisition in 2004 that resulted in another new division. At the cost of $80 million Conmed acquired the endoscopic product line of C.R. Bard Inc., maker of single-use medical devices used in the gastroenterological and pulmonary markets to detect diseases of the digestive tract and lungs. They formed the basis of CONMED Endoscopic Technologies. Based in Billerica, Massachusetts, the unit generated about $54 million in sales in 2003. Added to Conmed’s balance sheet for part of 2004 it helped boost Conmed over the $500 million mark to $558.4 million. The company enjoyed strong growth on every front, and hoped to build on that momentum in 2005. Although revenues increased to $617 million, Conmed fell short on its sales and earnings’ goals.

At the end of 2006 Eugene Corasanti announced that effective with the start of 2007 he was turning over day-to-day control of the company he founded to his son, Joseph, although he planned to stay on as chairman. In his final year at the helm, Corasanti was able to correct some of the problems that cropped up in 2005, as revenues increased 4.8 percent to $646.8 million in 2006.

Ed Dinger