Integra LifeSciences Holdings Corporation (IART)

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Integra LifeSciences Holdings Corporation (IART)

Citi 2013 Global Healthcare Conference

February 26, 2013 3:00 pm ET


Peter J. Arduini - Chief Executive Officer, President, Director and Member of Special Award Committee

Angela Steinway


Amit Bhalla - Citigroup Inc, Research Division


Amit Bhalla - Citigroup Inc, Research Division

[Audio Gap]

Bhalla in Citi's life science tools and diagnostics team and we're happy to have our next presenting company, integra LifeSciences, with us. With us from the company are Pete Arduini, President and CEO; and Angela Steinway, Director of Investor Relations. Pete joined Integra in 2010 as President and COO and was appointed to his current position as President and CEO of the company in January of '12 -- in 2012. For those of you who are not familiar with Integra, Integra's a medical device company with solutions for orthopedic, neurosurgery, spine reconstructive and general surgery market.

Before we jump into Q&A, Pete, I'd just like to ask you to take a couple of minutes give us an overview of the company, and then we'll talk in more detail.

Peter J. Arduini

Great, thanks. Yes, so look, Integra's an exciting company where we've got a lot of things going on. We're a diversified health care company that's global in scope. And that said, we've got a couple of different key segments within the business. Our Neurosurgery business. Orthopedics, which has 2 distinct areas, Extremities, as well as our Spine business. And then our Instrument as overall franchise. From a sales standpoint, we're in the $830 million overall range, growing at 5% to 7%, which is our target growth over the next 5 years. I think one of the key things with operating margins in the 16% range, we've got a plan in place to take that up to 20% over the next 5 years. So 400 basis point strategy on really optimizing the company.

We talked about our aspirations for the company to become a multibillion dollar medical technology company and leveraging our diversification to help us out really in the way health care is evolving. And the three-prongs of that strategy are focused on execution, optimizing the company, accelerating growth. And the execution components, we've done a lot of work in 2012 around right people in the right roles, taking a look at actually how we run the company, our operating cadence and mechanism, so that we can obviously execute consistently. Many of the things that we're going to optimize the company are predicated on very good execution. And so optimization is really around how we get the structure in place to enable that growth. I mean, if you will, where I use the house analogy, a 2-storey home, and we have aspirations to be 10-storey building. And so a lot of the work that we're doing is assuring [ph] up the foundation to be able to do that, integrated one into ERP system, common quality system. Our discussions on taking our footprint of our facilities down significantly to simplify our overall structure. And with that, then, generating some leverage within the overall P&L.

From the growth standpoint, we've got a lot of good things going on. New products, this would be one of our biggest launch here with about 25 new products coming out across all of the product areas. Our Neuro business has had 6 launches, probably the first time in quite a few years. A new product coming out in our DuraGen franchise. We also have, in Extremities, we'll be having our first full integrated shoulder product with the reverse product coming out in that portfolio. So we're excited about that growth opportunity. As well as International, where we spent last year really kind of getting a lot of the items in place and now, we've got a plan with distribution structure, registration strategy of bringing new products in growth -- in many markets that we have competed in. So at that point, still about 77% of our sales are U.S.-based and lots of opportunity to grow outside. [indiscernible there.

Question-and-Answer Session

Amit Bhalla - Citigroup Inc, Research Division

Great. That's a good -- a nice overview. So just sitting with the theme of the conference, we're talking about value in health care, and ultimately, what we're seeing is decreasing prices of demand for more quality in the health care system. So when you think about the business against that backdrop, and you talked about 25 new products coming down the pipe, how do you -- how are those products going to fit in to a market where it's going to be tougher to get reimbursed and pricing is on a downward trajectory?

Peter J. Arduini

Yes, so I would say the first part is that I think it's a question of time here on how we think about health care reform. If I could, I'll back up just a point and say when we look at things that's going to happen in reform, clearly, we view that value and price, that composite is going to be a very, very important discussion in the future. In the short-term, right now, it obviously varies by the portfolios which we play. So if you look at our Instruments business, which has already been through a lot of price curbs at this point, it's a reasonably stable business that generates a strong amount of cash, and it's a strong service play. So when you're in 1 of 3 U.S. hospitals, you kind of are one of the core players that provide the goods to run the surgery, the service component becomes quite sticky, we believe. I think if you take a look at our Neurosurgery business where the cost of the actual good use in the procedure is still a small percentage, the price components aren't as strong today. But we believe, obviously, in the future, that those will increase, whereas the contract that was signed where we're already in the midst of combination of a changing market and price pressure is significantly higher levels. So the way we think about it is, clearly, the actions that we take are -- as we're looking at our R&D now, just given this past year, we've reduced the total amount of programs we're working on, we've kept our spend at the same levels and that additional money is actually now going in to more clinical-based studies than health economics work so that we can actually prove the value of the product. That's probably the first step that one would see. I think the second component of it is how we sell. Today, I think we have a very strong clinical call point. There is a hand and a feet, sort of pedic [ph] call point, surgery, materials management to the hospitals. But if we were to add an aggregated IDN [ph] level, say, how do we want to bring Integra to that customer, we don't necessarily have an integrated strategic call point. And I think that's one of the other components that we're taking a look at, as well, as health care reform takes place, customers take a look at how they may actually bundle different products, how they take a look at, how they may adjust the productive [indiscernible] list of accountable pair [ph] organization. So that's how we've been thinking about it. I think the question is how fast that some of those stuff evolves.

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