Hello, everyone. Welcome to day two of the Jefferies London Healthcare Conference. My name is Young Li, one of the med tech analysts on the U.S. team. Really pleased to be joined by management from CONMED. We have on my right, Pat Beyer, President, International Global Orthopedics, and next to him, Todd Garner, EVP, CFO. So this will be a moderated Q&A session. Gentlemen, welcome, and thanks for coming to our conference.
Thanks, Young. Thanks for having us.
Happy to be here.
All right, great. I guess to start off, I guess since we have more of a global audience than normal, why don't we start off a little bit, you know, higher level? Can you maybe talk about your two main business segments, the key growth drivers versus the base businesses in both? Maybe Pat can take ortho, and Todd can take general surgery. Okay.
Perfect. Happy to. Again, as many of you will know that, we did two acquisitions in the prior years. We did the acquisition of the In2Bones business, which is foot and ankle. That's going well. It's growing above market. Definitely a growth driver for the organization. And last year, we acquired a company called Biorez, which is a broad-based, tissue, tendon and tissue augmentation system. Integration's gone well. The broad-based application of it in multiple disciplines is going good, strong. The sales force adoption is good, so both are growing well.
On the general surgery side, I would say our key growth drivers are AirSeal product line, which we bought in 2016, and have developed—you know, continued to build that, build that platform out in the last seven years. It's been growing strongly for the seven years that we've owned it. We continue to believe that it'll continue to grow strongly for several more years, many more years. In 2019, we bought Buffalo Filter, which is a smoke evacuation business, which is also growing very nicely. A very hot topic in the States.
It's become a very popular legislative move for states to protect healthcare workers, specifically nurses, and so we've benefited from that energy and just the desire to protect people from unsafe working conditions which really we now know what's in surgical smoke, and it is toxic and dangerous for everybody in the room. So that's... There's a lot of room still to run with that product line and that business, and so we're happy to be the product leaders there. And then our other growth drivers are, you know, we focus on all of our businesses. The standard at CONMED is you have to grow faster than the markets you're in, and the rest, the general surgery business... Our GI business does very well as well. Boston Scientific is the big leader in that space.
They typically, I think if you look over, you know, the last several years, they usually grow in the high single digits, and our business does grow faster than the markets. And so we've grown better than that in our GI business, so lots of good things happening on the general surgery side as well.
All right, great. Thanks for that overview. I guess just staying high level before we dig into some of those growth drivers, asking most of our companies this, but just the potential GLP impact on CONMED's business and core markets, any near-term impacts to numbers or any long-term impacts to your TAM?
Yeah, look, I mean, we're not dismissive of the subject. You know, I think it's a good, it's a good development. You know, if finally we have figured out how to help obesity, I think that's a great thing. The one thing I'm sure of is that nobody really knows the impact on med tech. I think it's been overblown, is my personal opinion. There's certainly logic that with fewer comorbidities, I understand the logic of less hospital activity with healthier population, but with a healthier population, you also get a more active population, and that's where a lot of our patients come from, especially on the ortho side, is activity. And so, you know, we haven't seen any impact yet.
We don't want to be dismissive of it, but I think there's as much logic that it's beneficial to our types of procedures than it is that it's detrimental. The other thing to remember is that with the severely obese patients, they're not candidates for surgery, right? They need to lose weight to become candidates for surgery. So, you know, we'll have to see how it plays out. I don't think anybody really knows, but one thing I'm confident about is the current market reaction is overdone.
All right. Yeah, we think so as well. So time will play that one out. So, you know, you have the four main growth drivers. Wanted to hear a little bit of your updated thoughts on the growth algorithm now that those four are all organic, and you're able to deliver consistent low double digit organically. Just the sustainability of that going forward and your confidence in that.
Yeah, and every time you ask me this question, Young, like, I get in trouble with my boss. My boss, Curt, hates talking about just parts of the business 'cause at CONMED, we're trying to grow all the business, and the standard for the entire business is everybody grows faster than their markets. So that's the measure of success. But it is true that we have a few product lines that are growing very high, you know, around the, in the 20% range, and those make up about 30-- we said in Q1, they were more than 30% of our mix. And so that growth, you know, how are we growing double digits, right? So all year, we've been growing organically double digits.
We think that given a healthy, stable market, we should be able to stay in that growth area. How? You know, why should investors feel good about that? Well, one, we're doing it. And the way we're doing it is with 30% or more of the mix growing around that 20% range. That's 6% growth for the company, if everything else were zero. Everything else is not zero. Everything else is expected to grow faster than the markets. We think the markets we're in, the market growth is somewhere in the mid-single digits. And so if you take that other 70% of the business, and if it grows mid-single digits or on the high end of that mid-single digits, which is what the expectation would be, that gets you to a double-digit, sustainable, repeatable grower.
So, you know, that's, that's why it works. That's what we're focused on. So that's kind of the growth, the growth model, I think, for CONMED.
Okay, great. I guess maybe if we were to turn to ortho a little bit since Pat's here. You know, you guys made the two major deals, In2Bones, on the foot and ankle side. That was about a year and a half ago in June, and then Biorez was in August. Can you maybe talk about how performance has been since you acquired those assets, the impact on growth and margins to the overall business? And, you know, how do the two companies benefit from being inside of CONMED?
Gotcha. You know, good, good question. So I'll try to cover both of them in one pocket, then I'll hit each of them. Both deals are currently growing according to plan. So of course, when we do an acquisition, we build a plan. They're both achieving what we thought they would do. Secondly, from a margin standpoint, both of these businesses are north of 80% margin, so they're accretive to that. So now, why does BioBrace fit into the CONMED organization, and how does it benefit from it? Number one, we've expanded the sales force tremendously that was selling that product line, number one.
Number two, we acquired a technology that was pre-revenue, essentially, so all of the technological capabilities they've had there, we've kept them intact, and they're benefiting from the broader CONMED organization, be that the G&A and the sales force training, the Med Ed department. On the foot and ankle side, a couple of things there. Number one, if you remember, you might remember, CONMED was previously selling into the foot and ankle space prior to having the In2Bones acquisition. We had a number of products that were being sold into the foot and ankle space that we've now moved into the In2Bones sales force. So you have a group of products that now has a much larger sales force. It's benefiting from that.
In addition to that, you clearly have the In2Bones organization benefiting from the CONMED infrastructure of sales training, Med Ed, and some of those other technology support functions we have there.
All right, excellent. And then maybe just to follow up on foot and ankle a little bit, I mean, it's a high-growth market, but it is a competitive market. You know, you've benefited from cross-selling and more feet on the street. But maybe if you can double-click and talk a little bit about the product or the portfolio or the pipeline that's differentiated or compelling, that gives you confidence on the growth outlook going forward.
Yeah. You know, two things I'm gonna say is, we know in the foot and ankle space, there's a lot of innovation happening there, and it's an exciting market today. One of the exciting reasons why we bought the In2Bones organization was their pipeline and new products. In the last couple of years, we've seen our Quantum ankle really get broader adoption in the market, and we're bringing out some new advancements on that, and we have a new plating system called PCR, which is polycarbonate-reinforced plating. That's a technology that allows a surgeon to have thinner plates. It's more akin to allowing the bone to grow and heal faster, and it's radiolucent, so the surgeon can actually see the fractures healing without looking through the metal of a plate. And so those are two things.
The other thing I neglected to say earlier, you have to remember also, the In2Bones organization that CONMED bought was primarily U.S.-focused. We're able to take that same organization and that pipeline of new products and innovation and bring that into CONMED's global international orthopedic business and run that through the sales forces around the world. We're seeing some great feedback there.
All right, excellent. Maybe to focus on the base, orthopedic business a little bit, it's sports medicine-focused. I think you have around mid-single-digit share globally. You grow above market in that business. Was wondering, you know, what's unique or differentiated about your base ortho business? You know, it's bigger O.U.S. than the U.S., so there's a channel difference. But maybe if you can talk a little bit about the main differences, as well as the competitive dynamics that's different in Europe versus the US.
You know, we're really proud of our international orthopedic business and should be. The results have been fantastic. I would also say we're equally excited about what we're doing in the U.S. and like what we're doing there. If you remember, CONMED acquired the arthroscopy division of Bristol Myers Squibb about 10 years ago called Linvatec. That carve-out of Bristol Myers Squibb brought us not only a product line, but a group of leaders. When you look across the international business of CONMED, there are multiple leaders with 20-plus years of service, and so I think that's one of the key reasons why our international business is as big as it is and is performing as well, as we have a group of leaders with a lot of continuity with surgeons around the world that have been delivering.
That would be what I would say, number one. You know, give me the second half of that question?
Yeah, I guess I'm just kinda interested in the relative differentiation between-
Mm-hmm.
- your base business versus peers.
Yeah, again, you were mentioning, you know, the difference between Europe and the United States. You know, quite honestly, you-- we're seeing, and many people would know in here, that the changing on the regulatory space in Europe with the EU MDR, and that is creating a differentiation, where in the past, we would launch technology sooner in Europe. We're now seeing the U.S. is actually launching technology sooner than in Europe. But I would generally say on the sports med side, around the world, surgeons operate similarly. Procedure adoption happens at different rates, so you'll see different approaches to surgery in Europe versus the U.S., but over time, they equalize. And to be honest, the magic of a great sales force with great products that deliver clinical value and economic value really are borderless.
Over time, we're seeing those come together, tell you the truth.
Okay, great. And then I think, you know, the base ortho business, you're bigger in shoulders than hip and knees, and then bigger than the smaller extremities, foot and ankle, hands and wrist. Maybe if you can talk about sort of your relative share in those businesses, and what's driving some of the growth in hip and knees and extremities?
Yeah, when we look at our sports med business, we think about it, and you're right, the way you frame it, large joints. So the biggest market we compete in is the shoulder space, the second one is the knee, third one is the hip, and then we have the foot and ankle space. We think all of those markets are large in scale, billion-dollar-plus opportunities, and we think we have market share that is, you know, quite honestly small. And so we see opportunity to grow much faster than the market is in those areas. You are right, though, we do have a solid foundation in the shoulder space. We continue to use that to leverage and get into new opportunities.
Okay, great. One more on ortho before I turn over to general surgery. Just on the Biorez, BioBrace growth, you know, that should inflect with the, two-year data that's coming next year. Wanted to hear, you know, your updated thoughts on, how many indications it's, it could be used for, you know, how many indications it's currently being used for, and maybe updated thoughts on the, on the TAM opportunity for it.
Gotcha. So again, BioBrace is a collagen technology that has PLLA fibers interwoven in them. BioBrace has the unique ability to have strength and healing. We believe it's a second-generation solution to the clinical issue of reinforcing ligaments and tendon. We have seen the early adoption of first-generation products in the market, and we know companies that are selling $100 million plus of first-generation products. Our product has the clinical regulatory approval in the United States for anywhere tissue weakness exists, we can use it. We have seen over 40 uses of it in the United States, in multiple clinical uses. We have a prospective randomized clinical trial underway between multiple hospitals in the United States and in Canada. It's kicked off. We expect to have data in a couple of years.
But quite honestly, we're seeing surgeons adapt the technology around reinforcing ligaments and tendons sequentially, day after day, as they're seeing more and more surgeons adopt the technology and the clinical results being very good. So while we're excited and think it's responsible to do the trial that we're doing, I think it's gonna be a step change when we get the data, not a floor change. We're gonna see more and more adoption day after day as this technology advances into multiple indications and in multiple places around the world between now and then.
All right, great. So I guess turning to general surgery, it's a focus for our investors. The AirSeal insufflation business specifically has been getting a lot of attention, potential competition from Intuitive Surgical with their own insufflation product. I guess, you know, what do you know about it? What do you think about that as a competitive threat? You know, if this device or a later generation device becomes valveless or more competitive to AirSeal, you know, how can that impact AirSeal's growth, which is, you know, doing really well, growing 20+%?
Yeah, like we said, AirSeal's been growing very nicely for the seven years that we've owned it. There's still a lot of room to run. Well, the biggest field to run in is actually in the non-robotic space. There's 10 times the non-robotic laparoscopic procedures as there are robotic laparoscopic procedures. So when we bought, the company was called SurgiQuest, the product is AirSeal. In 2016, when we bought that, 100% of their revenue was tied to Intuitive procedures. Today, we're probably somewhere around 65% globally of our revenue is connected to Intuitive procedures, and that will continue. The mix of that will just continue to shift downward naturally, as more and more of those non-robotic procedures use AirSeal, which is happening today.
Specific to the noise around coming competition, we have seen the patents that are filed by Novanta, who is the partner that apparently Intuitive is working with. Intuitive has said nothing about coming into insufflation, by the way. But Novanta has worked hard to get investors' attention on their new product, which is finally they're able—What they're excited about is they can evacuate smoke with their insufflator, which they haven't been able to do before. AirSeal's done that for 10 years. We do it simultaneously. We do it much more elegantly than anybody else on the market, which is why we're the market leader. The big difference is that, compared to standard insufflation, which is the products, everything else on the market, does the functions, the insufflation functions serially, so one at a time.
So they're either insufflating, or they're removing, or they're measuring. What makes AirSeal so differentiated is it does everything simultaneously, constantly. And so therefore, instead of the big variations in working space and abdominal pressure, we have lower pressure that is stable. They have higher pressure that is variable. That's a big difference clinically. And so nobody has been able to, even though sometimes their marketing people say that they're gonna compete with AirSeal, nobody's actually been able to compete with AirSeal in the operating room. We don't see any. We've seen the patents filed on the device we're talking about. It is just like all the other standard insufflation devices on the market. We don't believe, it'll be competitive to AirSeal for the same reason that the current devices are not competitive to AirSeal.
All right, great. Very helpful. Yeah, I mean, you talked about some of the technical advantages or differences, but can you maybe talk a little bit about some of the clinical advantages, you know, either from less pain or-
Yeah
... lower length of stay?
Yeah, so-
Can you maybe also talk about patent protection for the device? How long-
Excuse me?
Patent protection.
Oh, yeah. So yeah, and if you go back to our Q2 call, where this was kind of the very hot topic, we hit it head-on, and we included in our materials data showing... Well, there's dozens of studies that cover millions of patients that show that because of those benefits that I just talked about, length of stay is cut in half for the patient. So that's a huge thing, right? Economically, when you're trying to get a premium product through a hospital, 50% length of stay is a no. You know, that's a very short conversation. You cover whatever economics you have with 50% length of stay reduction, and that's what AirSeal has demonstrated and proven over millions of patients. No. There is zero evidence out there on any of the standard insufflation products that do anything like that.
So there's nothing like this on the market. It also. If you look at that data, you'll also see a 30-something% reduction in PACU time. So the benefits of that lower pressure, stable operating environment are enormous to the patient, to the hospital, and it justifies the premium price that we get in the market. Did I miss part of that question, Young?
I guess, you know, how long patent protection do you have on this?
Oh, yeah. In that same... Thank you. In that same Q2 deck, we show the patent protection, which goes out into the mid- to late-2030s. So nobody can, nobody can do anything like what AirSeal does, the way we do it, for at least 15 years, and we, we continue to enhance and extend that patent portfolio. So I can't, I can't remember the numbers off the top of my head. It's in, it's in our deck that we posted in Q2, but it's-
Mm
... we have hundreds of patents that protect. And it's not just in the box. You have to know that AirSeal is three different parts. So it's the trocar, which there's a lot of novel patents and technology in the trocar itself, in the box, the insufflation box, and then also in the tube set, the tri-lumen tube set that makes all of that work together. So none of that is made by the same vendor. We own the patents on all of it, so nobody can, nobody can copy AirSeal for a very long time.
All right, great. And, you know, another exciting product in the portfolio is Buffalo Filter, focused on smoke evacuation. So, you know, that's a space where there's a lot of state legislative tailwinds. I think around 15 states now, 10 active, 5 pending. It's about 45% of the U.S. population that's impacted. You have more on deck. I guess I'm just kind of curious about, you know. Does the legislation mostly benefit or impact the Buffalo Filter side, or does AirSeal also get some benefits from that as well?
I think it's so it is, it does confuse investors a lot, and maybe we've been part of that confusion, because we did bundle them together when we talked about kind of the mix of our portfolio and the growth rates, because they were of similar growth rates. And they both do have smoke evacuation in them, so I think that's confused some folks. When we talk about smoke evacuation and Buffalo Filter, that is 100% open procedure. So that's not laparoscopic procedures, open procedures. And Buffalo Filter is about protecting the people standing over the patient from that initial smoke plume. So you touch heat to tissue, that burning tissue has toxic chemical molecules in it, that come up and go into the air passages of everybody standing over the patient.
That is the novel benefit of Buffalo Filter, which captures that toxic smoke before it gets to your air passages. We are the market leader in that space. There is enormous market potential here. Like, we think the market today is somewhere between 200 million and 250 million. We think when it gets the... And you're right, Young, it's been 2023 was a good year. Lots of big states, New York, New Jersey, California, adopted or announced legislation to protect people from unsafe working conditions. There's more states coming. We have a decent chunk of the population. We believe that this will be 100% of the globe. We, now that we know what's in this smoke, we do think that the world will want to protect all workers from this toxic smoke.
This $200-$250 million market, we believe, is growing to a several billion-dollar market in the coming years, and so there's room for lots of people to win. I think the winners currently are probably us and Stryker. I think we're leading out on protecting patients. And AirSeal—so does AirSeal benefit? When we talk about smoke evacuation in laparoscopic cases, yes, that smoke does eventually get into the room, but it's coming out through the boxes, where hopefully it's being filtered. We have the best filter on the market, so we can make that room air cleaner than others. But smoke evacuation in laparoscopic is really more acutely about visibility, because when there's smoke in the abdomen, the cameras get fogged up, and they can't see.
So like, for example, Novanta being excited about adding smoke evacuation to their insufflator, that's about improving the visibility for surgeons. It's not so much about protecting the nurses, because in a laparoscopic case, while you do have smoke that could come through the trocars, the risk is much lower because most of that is being removed out through the box. So it does overlap, but I think of them separately. It's when we talk about smoke evacuation, we're talking about open procedures. AirSeal is about laparoscopic procedures.
All right, great. I do have some more questions, but I think we're out of time, unfortunately. But thank you so much for attending, and thanks for the Q&A session.
Thanks, Young.