WEDNESDAY • APRIL 11, 2012
C2 Business reports
C2 Markets
C2 Currencies
C5 Classifieds
–213.66 DOW 12,715.93 | –55.86 NASDAQ 2,991.22 | –23.61 S&P 500 1,358.59 | –0.06 10-YR. T-NOTE 1.99% | –$1.44 OIL $101.02 | +$17.00 GOLD (N.Y.) $1,659.50 | +0.0024 EURO 0.7648
EC O N O M Y
RESTOCKING EDGES UP: U.S. wholesalers rebuilt their stockpiles at a
faster rate in February, suggesting
they expect stronger sales. Stockpiles rose a seasonally adjusted
0.9 percent to $478.9 billion, the
Commerce Department said. Sales
by wholesalers rose 1.2 percent in
February, largely on the strength of
gas, hardware, plumbing and heating equipment.
SUMMER DRIVERS TO PAY MORE:
Gasoline will cost an average of
$3.95 per gallon from April through
September, an increase of 6.3 percent from the same period last year,
the Energy Information Administration predicted.
–64.94 –124.80 –14.61 –130.55 –213.66
Tuesday, April 3
Wednesday, April 4
Thursday, April 5
Monday, April 9
Tuesday, April 10
STOCKS LOG WORST DAY OF 2012
Dow’s fall for 5th straight day follows European market sell-off
Dow Jones industrial average
13,250
CHRISTINA REXRODE
ASSOCIATED PRESS
13,000
12,750
12,500
Tuesday’s close
Daily closes
February
12,715.93
March
April
ASSOCIATED PRESS
The stock market suffered its worst loss of the
year Tuesday because of uncertainty about coming corporate earnings reports and
concerns that the borrowing
costs of Spain are creeping
close to a crisis level.
The decline extended the
longest and deepest slump
of the year for Wall Street
to five days. More than half
the first-quarter gain of the
Dow Jones industrial average has been wiped out, and
BUSINESS OPTIMISM WANES:
more than a third for the
Standard & Poor’s 500.
The Dow fell 213.66 points,
its third triple-digit loss
in four days. It closed at
12,715.93, its lowest since Feb.
2. The dollar and U.S. Treasury prices rose as investors
SEE STOCKS • C3
The National Federation of Independent Business said its index of
small-business optimism fell nearly
2 points during March, reflecting
concern about rising gas prices and
uncertainty about Europe’s financial crisis. The drop to a reading of
92.5 from February’s 94.3 follows six
months of gains.
CONVENTION
CENTER CHIEF
SAYS SHE’S
NOT RESIGNING
NATI ON
She says letter misconstrued,
but future is under discussion
CEO RESIGNS AMID PROBE: Brian
Dunn, a 28-year Best Buy veteran
who had been CEO since 2009,
abruptly resigned Tuesday during
an internal investigation into his
“personal conduct.” The embattled
consumer electronics chain first
said the departure was a “mutual
decision” but later disclosed it is
conducting the probe, without giving any more details.
LORI WEISBERG • U-T
YAHOO TO RESTRUCTURE: A week
after cutting 14 percent of its workforce, Yahoo CEO Scott Thompson
unveiled a plan that will reorganize
the company’s remaining 12,000
employees around three areas:
consumers, geographic regions and
technology. The goal is to refocus
the flagging Internet business on
two potential areas for growth:
Yahoo’s media properties and the
wealth of data it has on its users.
ALZHEIMER’S DIAGNOSIS AID
APPROVED: A radioactive com-
pound that lights up plaques in the
brain to help diagnose Alzheimer’s
disease has been approved by the
Food and Drug Administration for
use in patients being evaluated
for Alzheimer’s and other causes
of cognitive decline. The imaging
agent, Amyvid, is owned by Eli Lilly,
and will be available in June.
EARNI N GS
ALCOA: The largest U.S. aluminum
producer reported an unexpected
first-quarter profit after orders rose
and it closed higher-cost smelting
capacity. Net income fell 69 percent
to $94 million, or 9 cents a share,
from $308 million, or 27 cents, a
year earlier. Sales edged up to $6.01
billion from $5.96 billion.
SUPERVALU: The nation’s third-
largest supermarket operator
swung to a loss in the fourth quarter
of $424 million, or $2 per share, as
a result of impairment charges and
costs related to store closures and
layoffs. But excluding those items,
the owner of Albertsons stores
beat Wall Street’s expectations,
and revenue was down 5 percent to
$8.23 billion.
WORLD
SURGE IS SURPRISING: After
months of weakness in overseas
demand, Chinese exports finally
seem to be recovering. Exports
surged last month, helping to produce an unexpected trade surplus
of $5.35 billion in March, according
to government data. But now the
country’s domestic economy is looking a little less robust.
FROM U-T SAN DIEGO NEWS SERVICES
Knee braces are among the wide spectrum of orthopedic support products made
by Vista-based DJO Global, which is owned by the Blackstone Group. DJO GLOBAL
BRACE MAKER IS
SCALING HEIGHTS
Vista-based DJO Global is $1 billion strong, with 1,000 devices
PADMA NAGAPPAN • SPECIAL TO THE U-T
I
f you go to an orthopedic surgeon
because of a sports injury or chronic
knee pain, the doctor may suggest a
supportive device such as a knee brace as
a treatment option for moderate to severe
pain, before considering surgery.
Chances are the prescription brace you
buy at the specialty clinic or pharmacy has
been manufactured by DJO Global, a $1 billion orthopedic support products company
based in Vista.
It makes more than 1,000 devices that
take care of the whole spectrum of orthopedic needs, from injury prevention to
post-surgical rehabilitation. The company
has grown rapidly through acquisitions and
has strong sales internationally.
Despite its size, DJO has kept a low profile
in San Diego. Vickie Capps, the company’s
chief financial officer, said it wasn’t a deliberate decision.
SEE DJO • C4
3.875%
IN DEPTH
C4
Maria Guadalupe is one of DJO Global’s 500 workers in Vista, and among
5,000 overall. JOHN GASTALDO • U-T
Carol Wallace, who heads the San Diego Convention Center Corp., sought to
clarify Tuesday what had appeared to be
a resignation letter, saying that she has
no intention of leaving her position.
In a formal statement, she denied she
is resigning but acknowledged that her
future with the organization is still under
discussion.
Wallace’s statement
came in response to a
letter she had sent this
month to Nikki Clay,
chairwoman of the convention center board, in
which Wallace said she Carol
planned to bring the “ter- Wallace
mination of my contract”
to the board’s executive committee at its
next meeting.
The letter, she said, was misconstrued.
Her statement, issued Tuesday, said:
“It is unfortunate that confidential San
Diego Convention Center Corporation
documents, including my personal letter
to the Corporation’s board of directors,
were released publicly. Characterizations in the media that I have resigned
are inaccurate.
“In my letter, I acknowledge that I believe ‘a number of the Board members
desire to make a change in the leadership
of the Corporation.’ I commit in my letter
to ‘assist in the seamless transition of the
Convention Center Sales and Marketing’
which I believe will be complete by June
SEE WALLACE • C3
LAWMAKERS BALK
AT BULK SALE OF
FORECLOSED HOMES
Housing director’s plan would
convert properties to rentals
LILY LEUNG • U-T
The regulator of Fannie Mae and
Freddie Mac continues to gain critics
with his agency’s housing policies and
its resistance to implement others.
Edward DeMarco, acting director of
the Federal Housing Finance Agency,
is getting heat from California congressional members over a pilot plan to sell
600-plus foreclosed homes in Riverside
and Los Angeles counties to investors in
bulk on condition they will convert them
to rentals. The plan is part of a larger
program to sell almost 2,500 properties
in Fannie’s portfolio of both occupied and
vacant homes in some of the most-struggling areas of the nation.
The 19 lawmakers — including three
from San Diego: Reps. Duncan Hunter,
R-El Cajon; Brian Bilbray, R-Solana
Beach, and Susan Davis, D-San Diego
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SEE HOUSING • C3
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C4
U-T SAN DIEGO | WEDNESDAY • APRIL 11, 2012
IN DEPTH
Bracing products
Vascular products
Electrotherapy products
Surgical products
of revenue
24%
of revenue
12%
of revenue
32%
of revenue
6%
Includes: Knee, ankle,
wrist, elbow, shoulder, back braces.
Includes: Compression socks and pumps
that help regulate blood flow post-surgery.
Includes: Bone growth, nerve
and muscle stimulation products.
Includes: Reconstructive joint products
for knees, hips and shoulders.
Top brands: DonJoy, best known for knee
braces, and Aircast, known for ankle braces
that have air pockets built in for a snug fit.
Top brand: Dr. Comfort, diabetic
footwear that is stylish unlike
traditional post-surgical shoes.
Top brands: Empi, which has easy-to-use
products that patients take home;
Chattanooga, clinical use medical equipment.
Top brand: DJO Surgical, whose primary
focus is on shoulder replacement surgery,
including a reverse shoulder implant.
Note: The figures above reflect domestic sales for DJO Global; international sales contribute the remaining 26 percent of revenues.
DJO • Original company was started in a Carlsbad garage in 1978
FROM C1
“Growth just sort of
happened and happened
quickly,” she said. “I guess
we did not do enough of a
job of letting our local community know about us and
our growth. I think part of
it is that we’re in the North
County.”
DJO is a private company
owned by Blackstone Group,
a New York City-based private equity firm. It has 5,000
employees, including about
500 in Vista.
Among the company’s
top brands are DonJoy, Aircast, ProCare, Dr. Comfort,
Bell-Horn, Chattanooga and
Empi — not brands typically
found at CVS or Walgreens
— but names that are familiar to athletic trainers, physiotherapists, pain management physicians, orthopedic
surgeons,
chiropractors
and podiatrists. The products are not sold through
consumer retail channels
such as big box stores because there aren’t enough
margins or differentiation
for its higher-end products
compared with the less-expensive, over-the-counter
Chinese imports.
But it has not ruled out
this market for the future
given that consumers are
taking a more active role in
their health care.
It develops devices in four
categories: electrotherapy
for both home and clinical
setting that helps with muscle, nerve and bone stimulation; bracing support for the
knee, ankle, elbow, shoulder
and back; vascular products
a business that helps people
get better without surgery
or medicine is a very good
market to be in.”
DJO aims to be No. 1 in
the markets it’s in, and focuses on categories where
it can move up.
“It’s about figuring out
your customer’s need — not
always what they tell you
they want, but having your
engineers and sales reps in
every market stay close to
them, so you can figure out
what their needs are,” said
Mike Mogul, the company’s
chief executive.
He added, “If you are also
lean, you can be No. 1 or 2 in
every market you occupy.”
Mogul, who joined DJO
last year after being president of Stryker Corp., has
pushed the concept of conservative care, where patients are given all the support options they need to
avoid or postpone surgery.
“WE’RE IN A VERY FUN SPACE IN THE MARKET, AND
WE’VE HAD A LOT OF OPPORTUNITIES TO EXPAND
GEOGRAPHICALLY AND ACQUIRE MORE PRODUCTS
— THAT HAS BEEN KEY TO OUR GROWTH.”
DJO Global Chief Executive Michael P. Mogul and Chief Financial Officer Vickie Capps. JOHN GASTALDO • U-T
like compression socks
that help with blood flow
post-surgery; and surgical
implants used in shoulder
&
Thursday, April 19, 2012
2 p.m. – 7 p.m.
Pacific Coast Business Park
1351 Rocky Point Drive, Oceanside, CA
FREE Admission
• Connect with business owners from
around the region
• Build business relationships and
strategic partnerships
• Resources for small business owners
• Up to 95 exhibitors
Join business organizations, business networking groups,
exhibitors, etc. for a unique business networking experience.
To register and for more information, visit
hbshowcase.com or
oceansidebusinessexpo.com
For booth or sponsorship information, contact
Tayde Aburto at [email protected],
(858) 768-2483 or Scott Ashton at
[email protected], (760) 722-1534.
replacement and other surgeries.
Research and development and manufacturing
of some higher technology
items take place in Vista;
Clear Lake, S.D.; and Austin,
Texas. Its largest factory is
in Tijuana, a 285,000-squarefoot maquiladora that employs about 2,000 people.
DJO also has a sizable
plant in Tunisia, which supplies the European market.
Growth has come from
international sales, which
comprise a quarter of its
revenue, but Capps said the
company would like for it to
be closer to half as it focuses
more on Asia.
The company made
news recently for a couple
of reasons. It launched an
aggressive expansion of its
product line with new devices that focus on patient
convenience.
And revenue crossed the
$1 billion mark for the first
time in 2011, coming in at
$1.074 billion, making it the
largest nonsurgical orthopedic products company in
the United States.
Garage startup
It began as a humble
startup in a Carlsbad garage
in 1978, making support
sleeves for the knee, ankle
and elbow.
It was founded by Mark
Nordquist, the then-Philadelphia Eagles offensive
line captain, and Ken Reed,
a San Diego lawyer. The
men named the company
DonJoy, after their wives,
Donna and Joy.
DonJoy took off as sports
medicine grew into a thriving niche market in the early
1980s.
In 1987, the company
was acquired by Smith &
Nephew, a British medical
device conglomerate, for
$20 million. It continued to
grow through acquisitions
and organic growth, reaching $100 million in sales by
the late ’90s.
DonJoy’s management
team engineered a leveraged buyout, changed the
name to DJ Orthopedics
and took it public in 2001,
after which it went on an
acquisition spree.
The company also expanded its product portfolio
from braces to bone growth
stimulation, cold therapy
and medical equipment.
“Nothing ever goes in a
straight line, but it’s been
exciting,” said Capps, who
joined the company in 2002.
“We’re in a very fun space
in the market, and we’ve
had a lot of opportunities
to expand geographically
and acquire more products
— that has been key to our
growth.”
When Blackstone approached DJO in 2007 with
an offer to take it private, it
was more a strategic purchase than a typical private
equity buyout. Blackstone
had previously purchased
Reable Therapeutics, an
orthopedic company whose
products complemented
DJO’s portfolio.
Reable had a strong name
on the physiotherapist side,
while DJO focused on orthopedic surgeons and hospitals.
Capps recalled that DJO
had Western Europe well
penetrated and was starting
to expand in Asia. “That’s
when Blackstone made an
offer our shareholders could
not refuse,” she said.
In an era when many investment firms were snapping up underperforming
public companies, restructuring them and then taking
them public again, some private equity firms like Blackstone went in as strategic
buyers, looking to merge
target companies with existing subsidiaries.
The idea was to make the
combined company a onestop shop for a continuum
of orthopedic care.
Blackstone bought DJO
for $1.6 billion, at $50 per
share, a premium of 20
percent, with debt financing from Credit Suisse and
Bank of America. The joint
company was renamed DJO
Global.
But although the companies were of near-equal stature, each with about $500
million in sales, Blackstone
asked DJO’s executives to
take over the merged company.
“Reable had a good management team, but we had
been very disciplined about
integrating the businesses
we acquired and making it a
scalable business process,”
Capps said. “Blackstone
saw the need to integrate
the combined company and
gave us the responsibility to
do that.”
She pointed out that most
San Diego companies that
get acquired typically move
headquarters, but “we were
very happy to stay here.”
While DJO has strong
cash flows, it’s a highly leveraged company, with the
bulk of its $2.16 billion in
debt connected to the 2007
leveraged buyout by Blackstone.
Nonsurgical market
In a market where most of
the large orthopedic device
firms like Stryker Corp.,
Zimmer and Smith & Nephew focus on the surgical side
with implants, Capps said
DJO deliberately focused
on the nonsurgical side,
with pre- and post-surgical
products.
“It’s a nice niche for us,
even if it grew at a slower
pace and was a little less
profitable, since it allowed
us to develop a strong
range of products. To have
Leveraging technologies
He talked about how the
recently announced line
of products combine new
materials with technologies that existed but were
brought together for the
first time.
The unloader brace is
a knee brace that relieves
osteoarthritis pain, but it’s
heavy and has to be worn
on top of clothes, which is
off-putting for most people
who don’t want to go out in
public wearing it.
“So our engineers came up
with a new alloy called nano
magnesium for the Nanobrace, and the patient can
barely tell it’s there, but it provides pain relief,” Mogul said.
“To make products lighter or
easier to use is a way to get
patients to use them more
and gain benefits.”
Orthopedic surgeon Dr.
Franz Kopp with Scripps
Health, who specializes
in foot and ankle surgery,
agreed that ease of use is
important in getting patients to utilize support
products.
“I think comfort is No. 1. If
not, they won’t wear it. An
ankle brace constructed
with lighter materials will
make for better comfort,”
Kopp said.
Kopp also considers affordability because many
people don’t have insurance. Products from companies like DJO that are sold
through specialty pharmacies and clinics tend to be
more expensive than what’s
available in drugstores.
“You get what you pay
for, the prescription types
do last longer in my experience,” Kopp said.
Mogul also described
how the company makes
products that can wrap the
knee and others that can
send electronic signals that
reduce pain, two technologies it’s had for many years
but had not been brought
together.
Mogul said he is using
customer feedback to drive
innovation at DJO.
“It’s done a terrific job of
integrating a variety of companies in the last few years.
But in focusing on integrating, it didn’t focus on growing organically or growing
the products internally, so
that’s my focus.”
Padma Nagappan is a San Diego
freelance writer.