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DePuy, Inc.

DePuy, Inc.

700 Orthopaedic Drive
P.O. Box 988
Warsaw, Indiana 46581
U.S.A.
(219) 267-8143
Fax: (219) 267-7196
Web site: http://www.depuy.com

Wholly Owned Subsidiary of Johnson & Johnson
Incorporated: 1903 as DePuy Manufacturing Company of Elkhart, Indiana
Employees: 3,220
Sales: $770.2 million (1997)
NAIC: 339113 Surgical Appliance & Supplies Manufacturing; 42145 Medical, Dental, & Hospital Equipment & Supplies Wholesalers

DePuy, Inc., a subsidiary of Johnson & Johnson, is a designer, manufacturer, and distributor of orthopedic devices and supplies. Through various subsidiaries, the company produces a wide array of products, which are marketed through its global network of sales and distribution offices. The companys oldest business, DePuy Orthopaedics, Inc., manufactures hip, knee, and shoulder replacement systems, as well as environmental protection products and surgical equipment. Through its OrthoTech subsidiary, the company produces and markets orthopedic products for the sports medicine market. DePuy ACE Medical Company makes specialty orthopedic trauma products, including external and internal fixation devices, and bone fracture management and reconstruction products. The companys DePuy Motech/AcroMed, Inc. business is the second largest maker of spinal implant medical devices in the world.

Founding and Early Years

DePuy, Inc. was founded in 1895 by a 35-year-old traveling salesman named Revra DePuy. DePuys family lived in Grand Rapids, Michigan, at the time of his birth, but soon moved to Canada. While working as a drugstore clerk in Canada, the young DePuy developed an interest in chemistry that would eventually lead him to take classes at the University of Toronto. After graduating from the University of Toronto, DePuy put his chemistry education to work, becoming a traveling salesman for a pharmaceutical company.

It was during his work-related travels that DePuy first visited the tiny community of Warsaw, Indiana. By the time he arrived in Warsaw, the inventive pharmaceutical salesman was ready to start his own business. He had developed plans for a new producta molded wood-fiber splint for setting broken bones. The fiber splint was designed to replace the wooden splints that were then commonly used to set fractures. DePuy started small, manufacturing the splints in a local hotel where he was living. By 1898, however, the business had outgrown its temporary quarters and moved into its own space in downtown Warsaw.

At the turn of the century, DePuy decided that his business might better flourish elsewhere. In 1901 he moved the operation to Niles, Michigantaking with him his wife of five years, Winifred Stoner. It was in Michigan, in 1903, that he incorporated the company as DePuy Manufacturing Company of Elk-hart, Indiana. Unfortunately, however, the move to Michigan did not accomplish what DePuy had hoped, so in 1904 he and Winifred moved the splint business back to Warsaw. That same year, DePuy modified his original product by fabricating the splints from wire cloth instead of wood fiber.

For the next several years, DePuy grew his business, adding factory workers and hiring a sales staff to carry sample splints to doctors around the country. By 1919 the company had 16 employees, six of whom were traveling salesmen. In 1921 DePuy died, leaving his 25-year-old splint business to his wife, Winifred. In 1924 Winifred remarried, wedding H. Herschel Leiter, a local insurance salesman who had previously worked as a salesman for DePuy. Leiter became DePuys executive president.

A Series of Owners: 1950s60s

When Winifred DePuy Leiter died in 1949, her second husband was left as sole owner of DePuy Manufacturing. Not one to stay single long, the 57-year-old Leiter was remarried within six months of Winifreds death to Amrette Webb Ailes. The newly married couple spent less than a year together, however; in May 1950, Leiter passed away. Amrette became the owner of DePuya company founded by her former husbands former wifes former husband.

In 1951 Amrette married Harry Hoopes, a Bell Telephone executive. Together, the couple managed to run DePuy successfully, showing a profit each year. By that time, the company had more than 50 employees in the factory and almost 20 salesmen, covering the whole United States. The product line had expanded to include bone plates, screws, and various soft goods, such as rib belts, collars, and braces.

The Hoopes never became extremely involved with the company, preferring to leave the day-to-day operations to DePuys executive vice-president, Keaton Landis. By the mid-1960s, the couple was ready to get out of the medical device business altogether. They sold DePuy to a group of investors in 1965, and Landis became the companys president. Robert Williams, who had previously been DePuys national sales manager, was chosen as vice-president.

DePuys new owners did not hold on to it long. In 1968, they sold the company to Indianapolis-based Bio-Dynamics, a blood diagnostic business. Landis remained president of DePuy, while Williams became vice-president of Bio-Dynamics. A year later, however, Landis became president of Bio-Dynamics, and Williams moved back to Warsaw to take the helm of DePuy.

The ownership shufflings of the late 1960s were not the only changes taking place at DePuy. In 1968 the company expanded into a whole new product line: hip replacements. The impetus for this shift was DePuys acquisition of exclusive marketing rights for the Muller Total Hip. The Muller Hip was a hip replacement prosthesis developed by Dr. Maurice E. Muller, professor of orthopedic surgery at the University of Berne and a pioneer in total hip arthroplasty. Expanding into hip replacement production, however, required manufacturing space that DePuy did not have. The companys solution was to purchase Kellogg Industries, a corset manufacturing company in Jackson, Michigan. DePuy moved its soft goods operation out of its Warsaw plant and into the newly acquired Kellogg facilitythereby freeing up space for the manufacture of hip replacements.

New Ownership, New Leadership: 1970s80s

Just four years after being acquired by Bio-Dynamics, DePuy once again found itself under new ownership. In 1974 Bio-Dynamics itself was purchased by Boehringer Mannheim, one of the largest pharmaceutical companies in Europe. The following year, Boehringer Mannheim formed Corange Limited as a holding company for its group of businesses. Under the restructuring DePuy also became a wholly owned subsidiary of Corange. Being part of a large, well-capitalized company gave DePuy new opportunities for expansion. In 1974 and 1975, the company built a new 61,170-square-foot facilitythen added to it over the next several years for a total of 242,110 square feet.

In the years following its acquisition by Boehringer Mannheim, DePuy added substantially to its product line. Between 1977 and 1980, the company began manufacturing a new hip prosthesis called the AML Total Hip System and a new line of implants coated with a porous substance. The substance, called Porocoat Porous Coating, allowed the bodys tissue to grow into an implant, eliminating the need for bone cement. DePuy also introduced a total knee replacement system that utilized mobile bearings designed to more closely replicate the biomechanics of a normal knee. This system was the first mobile-bearing knee cleared for marketing in the United States.

In 1984 Robert Williams retired as DePuys president, and was replaced by James Lent. Lent had spent 18 years at Johnson & Johnson, most recently as president of the companys orthopedic division. When he moved to DePuy, he brought with him two key members of the Johnson & Johnson team. Mike McCaffrey, who had spent 14 years in sales and marketing for Johnson & Johnson, became DePuys new vice-president of marketing and sales. William Tidmore, a 15-year veteran of Johnson & Johnsons Ethicon division, took over as director of the medical products group.

Lent was an aggressive leader. During the first eight years of his tenure, DePuy showed 20 percent compounded annual growth and introduced a number of new products. Some of this growth was the result of a strategic partnership established in 1989 with the DuPont Company. The joint venture, DePuy DuPont Orthopaedics, combined DuPonts expertise in materials science with DePuys expertise in orthopedics to develop orthopedic products that used advanced materials.

It was also during the early years of Lents administration that DePuy began to expand internationally. With a presence already established in Canada and Latin America, the company in 1984 targeted the Italian market through a network of 12 regional importers. The following year saw DePuys entrance into Japan and New Zealand via wholly owned branch distributorships. In 1986 the company began distributing products in Germany through MEDINORM, an already established maker and marketer of medical products, and DePuys products began to reach Austria in 1988. That same year, the company purchased a small orthopedic company in Switzerland. The company, Chevalier AG, was a key acquisition because it was to become the base for all of DePuys European operations.

Company Perspectives:

We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit.

Acquisitions and Alliances: 199096

The beginning of the 1990s was characterized by a series of acquisitions and alliances that served to greatly diversify DePuys product line. The first of these came in 1990, when Boehringer Mannheim purchased Charles F. Thackray Limited, of Leeds, England. Like DePuy, Thackray had a long history of manufacturing medical devices and instruments. The company had started in the early 1900s as a retail pharmacy, later moving into surgical and orthopedic instruments. In 1963 Thackray began working with the worlds foremost pioneer in hip replacement surgery, Sir John Charnley, to produce cemented hip fixation systems. When Boehringer Mannheim acquired the company, it was the United Kingdoms market leader in replacement joints, with sales staff and distributorships in 100 countries. A year and a half after Thackray was acquired by Boehringer Mannheim, it was renamed DePuy International Ltd., becoming the companys international headquarters.

Other acquisitions and partnerships followed in rapid succession. In 1991 DePuy purchased the Rotek Corporation, a medical products manufacturer in Albuquerque, New Mexico. DePuys relationship with Rotek dated back to the early 1980s, when it had first hired the small company to produce a line of environmental protection products, such as face shields and gowns. After it was acquired by DePuy, Rotek expanded rapidly, moving into a new 20,000-square-foot facility in 1992.

At the beginning of 1992, DePuy announced a new strategic alliance with Genentech, Inc., a San Francisco-based biotechnology company. DePuy and Genentech teamed up to develop orthopedic devices that used Transforming Bone Growth Factor Beta (TGF-B), a protein that stimulated bone tissue growth and regeneration. An orthopedic device, such as a hip implant, that incorporated this protein would likely cause better growth of organic tissue and, consequently, a firmer attachment to the implant.

Also in 1992, DePuy entered the field of arthroscopy instrumentation when it acquired a 20 percent interest in Expanded Optics, a maker of arthroscopes. DePuy received its share in Expanded Optics when Expanded purchased one of DePuy Internationals subsidiariesthe Thackray-owned Scope Optics. DePuy expanded its presence in the arthroscopy market in 1993, establishing a separate manufacturing operation in Ontario, California, to produce arthroscopy instruments.

The diversification into new markets continued in 1993 and 1994. In 1993 the company broke into the spinal products market in a joint venture with the German company Biedermann Motech. The new partnership, DePuy Motech, broke new ground in the spinal implant market by developing an implant system that provided both anterior and posterior support. Traditional systems had provided only posterior support, which often failed to restore and balance the natural forces in the spine. Within three years, the company was the number three spinal implant producer in the United States, and number four in the world market.

The following year, DePuy gained entry into the trauma market when its parent company purchased the Ace Medical Company. Ace was a Los Angeles, California-based maker of orthopedic trauma products, including internal and external fixation devices. Another 1994 acquisition was DePuy CMW, a bone cement manufacturer based in Blackpool, England. With a more than 30-year history, CMW was the oldest orthopedic bone cement maker in the world.

The year 1996 marked DePuys entry into still another marketsports medicine. In April of that year, the company purchased Orthopedic Technology, Inc., of Tracy, California. Renamed DePuy Orthotech, the company was a developer and manufacturer of patent-protected products used to treat sports-related orthopedic injuries. Among its products were knee braces, foot and ankle supporters, tissue fixation devices, and a full line of soft goods.

The first five years of the 1990s had been excellent ones for DePuy. The company had shown steady and impressive growth, posting an average annual increase of 17 percent in sales and 20 percent in profit. In October 1996, DePuy went public, offering 14 million shares of common stock priced at $17.50 per share. After the IPO, Corange and its subsidiaries continued to own a controlling interest in the company.

Acquiring and Being Acquired: 199798

DePuys intention was to use the capital generated in its IPO to grow its businessand it wasted no time pursing that goal. In early 1997, the company purchased almost two million shares of Landanger-Camus, a leading French manufacturer of hip implants and one of the top distributors of orthopedic supplies and devices. The agreement gave DePuy control of 89 percent of the outstanding shares. It also gave them the number one position in the French implant market.

Perhaps the most significant event of 1997, however, occurred in May, when DePuys parent company, Corange, announced it was to be purchased by Switzerland-based Roche Holding AG for $11 billion. Roche was a holding company for a large, international group of businesses in the areas of pharma-ceuticals, diagnostics, vitamins, and chemicals. Its primary interest in Corange was not DePuy; rather, it was the diagnostics and Pharmaceuticals businesses operating under the Boehringer Mannheim name.

The Corange acquisition closed in early 1998. Not surprisingly, Roche wasted little time in shedding DePuy, agreeing in July to sell the business to healthcare giant Johnson & Johnson. The $3.5 billion acquisition was finalized in November 1998, making DePuy a wholly owned subsidiary of Johnson & Johnson. To denote its new ownership, the companys name was modified slightlyto DePuy, a Johnson & Johnson Company.

In June 1998, the newly acquired DePuy made its largest purchase to datethe AcroMed Corporation, of Cleveland, Ohio. AcroMed was the second leading maker of spinal implant medical devices in the United States and the third largest globally. The company joined DePuys existing spinal implant business, DePuy Motech, and was renamed DePuy Motech/AcroMed.

Looking Ahead

DePuy became part of Johnson & Johnsons professional business segmenta group of companies that provided more than 36 percent of J & Js total sales. As part of the largest manufacturer of healthcare products serving the consumer, pharmaceutical, and professional markets in the world, DePuy was positioned to grow in a number of different directions. The combined strength of the Johnson & Johnson and DePuy names, as well as their extensive global presence, was expected to serve as a solid base for further expansion in the orthopedics market.

As DePuy prepared to enter the new century, one of the fastest growing segments of the orthopedic industry was spinal implants. As such, it was likely that the companys spinal products subsidiary, DePuy Motech/AcroMed, would see especially rapid expansion. As of the beginning of 1999, DePuy Motech/AcroMed had received marketing clearance from the FDA for a new spinal device that was designed to facilitate spinal fusionand further developments in the area of spinal implants were likely to follow.

Principal Subsidiaries

DePuy ACE Medical Co.; DePuy Dupont Orthopaedics, Inc.; DePuy Motech/AcroMed, Inc.; DePuy OrthoTech; DePuy International Ltd.; DePuy Orthopaedics, Inc.

Further Reading

Drawbaugh, Kevin, Indiana Town Is Hip to Orthopedics Business, Reuters News Service, March 13, 1998.

Eckert, Toby, DePuy Plots Strategy to Survive the Challenges of Managed Care, Indianapolis Business Journal, May 19, 1997, p. 14B.

The History of DePuy, http://www.fwi.com/DePuy/timeline.htm.

Jefferson, Greg, Johnson & Johnson Spins Wheel of Acquisition, Indianapolis Business Journal, July 27, 1998, p. 10.

One Hundred Years of Orthopedic Excellence, Warsaw, Ind.: DePuy, Inc., 1995.

Shawna Brynildssen

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