Download - Kyphon Annual Report 03
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Kyphon’s vision: Improvepatient quality of lifethrough revolutionizingthe practice of medicine.
Kyphon is driven by our mission:To be the recognized global leader in restoring spinal function through minimally invasive therapies.
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[ T O O U R S H A R E H O L D E R S , C U S T O M E R S A N D E M P L O Y E E S ]
I am pleased to report the progress of Kyphon during 2003. This was asignificant and important year in thedevelopment, growth and financialperformance of our Company. Duringthe year, we successfully broadenedfocus from our initial market opportunity in enabling the treatmentof osteoporosis-related vertebral fractures and have now built a broaderfoundation to become a leading innovator in minimally invasive spinal fracture therapies.
Our strategic expansion was supportedby strong financial and operationalachievements throughout 2003. Forthe year, net sales increased 74% to$131 million and we leveraged thisgrowth into pro forma net income of$8.7 million, or $0.21 per share. Afteryears of significant investment in ourbusiness, fiscal 2003 was our firstprofitable year. Our organization isvery proud of this achievement. >>
Richard W. MottPresident and Chief Executive Officer
INNOVATION
> > Ron Luperine , retired banker Age: 62
Diagnosis:
Location: Castro Valley, Calif. USA
Steroid-induced fracture
A lung ailment slowed Mr. Luperine down for four years, causing doctors toprescribe a corticosteroid. Unfortunately, the drugs caused him to lose bonemass—a common side-effect of steroid regimens—and he developed osteoporosis. His resulting spinal fracture was so debilitating that a painpump was implanted to manage the pain. Following a Balloon Kyphoplastyprocedure to treat his fracture, the pump was removed, and Mr. Luperine isnow happy to “be living and getting around again.”
I NNOVAT ION CREATES OPPOR TUN ITY Kyphon was founded upon a truly
innovative technology. Our kyphoplasty and fracture reduction products enable spine
specialists to provide therapies to a significant patient community that they did not
treat previously. This community represents our core market of patients with spinal
fractures caused by osteoporosis.
This technological advance—balloon-based, minimally invasive spinal fracture
treatment—creates a significant market opportunity for Kyphon. We believe that
550,000 patients are diagnosed with 700,000 vertebral compression fractures due to
osteoporosis each year in the United States and Europe. During 2003, we believe that
our products were used in over 33,000 procedures, which represents only six percent
of our $2.2 billion core market opportunity.
With innovation as our guiding principle, we are developing additional therapies to
provide spine specialists with alternatives for patients with a variety of spinal fractures.
In the near term, we are concentrating on developing minimally invasive procedural
solutions for spinal fractures caused by cancer and trauma.
With the addition of these incremental market opportunities, we will address the
three most common causes of spinal fractures and a potential market of over 900,000
fractures, valued at $3 billion, annually.
2001 2002 2003
36
76
131
Revenue (in millions)
Recent advances in surgical imaging technology are enabling minimallyinvasive, image-guided surgery in the spine.
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EVOLUTION
20022001 2003
New Products
Far left: KyphX® Latitude™ Curette enablesuniform scraping and scoring of bone in the spine.Left: KyphX® Bone Biopsy Device cutscleanly through cancellous bone for easyspecimen collection.
2003 WAS A YEAR OF GROWTH AND EVOLUT ION FOR KYPHON
This past year included a series of important milestones in Kyphon’s evolution
as a leading medical device company.
During the year, we established a strong foundation for continued growth by
focusing on enhancing our organizational infrastructure. Specifically, we
expanded our senior leadership team, grew our employee base to over 440
individuals, and implemented the Six Sigma methodology for identifying areas
of operational improvement and employing successful solutions.
To support this growth, we recently moved into new corporate headquarters in
Sunnyvale, California, more than doubling our facility space. This new facility
will allow for significant growth in our technology research, development
and manufacturing capacity, while supporting the implementation of our
marketing and sales strategies.
BU I LD ING A POWERFUL CHANNEL TO THE MARKET Our direct
sales organization plays a vital role in working with the 3,900 spine specialists
we had trained worldwide by the end of this past year. We expanded our
surgical sales organization during 2003 as we continued to support significant
interest from the spine specialist community. As a complement to this effort, we
deployed a second, independently managed Spine Education Specialist (SES)
sales organization in 2003. This group is focused on educating the broader
medical community about treatment options for patients with spinal fractures.
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> > Christine Siegel, teacher Age: 57
Diagnosis:
Location: Greenbrae, Calif. USA
Myeloma-induced fractures
Fighting a blood cancer like multiple myeloma is frightening enough;add the consequences of related spinal fractures and life can be moredifficult. Ms. Siegel lost 6 inches of height from five fractures in herback due to myeloma and was “bed ridden for over a year while taking (strong opoids) for pain.” After a Balloon Kyphoplasty procedure to repair four spinal fractures, she threw away all of thepain killers. “The cancer caused me to fall apart, this procedure putme back together again.”
KyphX® Exact™ Inflatable Bone Tamp with rigid stainless steel shaft allows for fine-tuning of unidirectional balloon inflation for focused fracture reduction.
KyphX® Elevate™ Inflatable Bone Tamp with advanced balloon design results in preferential inferior/superior inflation profile.
REVOLUTION
> > Jan Van Mol
creative agency owner Age: 36
Diagnosis:
Location: Louvain, Belgium
While vacationing in France, Mr.Van Mol was flying his hang gliderwhen something went terribly wrong.The sail collapsed, causing him toslam his back into a high tree and suffer a spinal fracture and a brokenarm. After a painful nine-hourcar ride back to Belgium, he wastreated with a Balloon Kyphoplastyprocedure using a biomaterial. “Iimmediately started walking. In twoweeks, I was able to ride on mymotorcycle again.”
Traumatic fracture
2001 2002 2003
Spine Specialists Trained Worldwide
3900
2700
1500
I believe that we are unique in the medical device industry in employing two
separate but complementary sales organizations that work with the surgical and
primary care physician communities.
FOCUS ON NEW PRODUCT DEVELOPMENT Our powerful channel to
the market enables Kyphon to monitor the evolving dynamics and needs of the
spine community so we can provide our customers with new products that will
enhance their practices. Specifically, we launched 12 new products during
2003, which is a significant achievement for our organization.
Looking ahead to 2004 and beyond, I am very excited about our April 1, 2004
510(k) clearance by the U.S. Food & Drug Administration (FDA) of our
proprietary KyphX® HV-R™ PMMA Bone Cement for use in kyphoplasty. We
now will be able to provide and promote a complete procedural solution for
spine specialists who treat patients with these spinal fractures. Perhaps more
importantly, we believe clearance to promote the cleared clinical outcomes of
kyphoplasty to the referring physician community and among patients and
caregivers will continue to enhance our ability to penetrate our core market
over the long term.
This clearance is a seminal milestone in the history of our Company and has
clearly established Kyphon as a world class innovator in minimally invasive
spinal fracture therapies.
A REVOLUT ION IN M IN IMALLY INVAS IVE SP INE SURGERY
We believe that kyphoplasty is the first example of what will become a signifi-
cant trend in spine surgery: minimally invasive, restorative therapies that
enable spine specialists to provide patients with significant clinical outcomes
and short hospital stays. The strategic goal of Kyphon is to be the recognized
leader in this ongoing movement and we are actively investigating next
generation technologies.
2001 2002 2003 20022001 2003
Global Sales Force Countries Served
85
130
215
10
1719
ESTABL I SH ING A GLOBAL FRANCH ISE With the success we have had generating operating leverage
in our core business in the U.S. and primary countries in Europe, this is the right time for Kyphon to invest
in geographic expansion. International sales contributed 10 percent of our corporate revenue in 2003, which
reflects the significant but nascent opportunity for kyphoplasty outside of the U.S. During the year, we set
the stage for expanding our operations further into Europe as well as into Canada, and parts of Central and
South America. In addition, we completed an important planning process preparing for our entrance into
Japan, the world’s third largest medical device market. Progress in all of these geographies is important to our
business, and we will continue to invest in establishing kyphoplasty with our products as a treatment
alternative throughout the world.
PREPARED FOR CONT INUED SUCCESS As I contemplate all of the advances we made in 2003, and
the momentum we carry into 2004, I couldn’t be more excited. I believe that the foundation we have estab-
lished is a testament to the talent and dedication of the Kyphon employees throughout the world. The entire
Kyphon team appreciates and thanks all of our shareholders for their continued support and the recognition
of our growing family of customers.
Sincerely,
Richard W. MottPresident and Chief Executive Officer
Sales Today
Near Term Expansion
Key Longer Term Goals
MANAGEMENT TEAM
Richard W. MottPresident, Chief Executive Officer and Director
Karen D. Talmadge, Ph.D.Executive Vice President, Chief ScienceOfficer, Co-Founder and Director
Jeffrey L. KaiserVice President, Finance andAdministration and Chief FinancialOfficer
Cindy M. DomecusVice President, Clinical Research and Regulatory Affairs
Avram A. Edidin, Ph.D.Vice President, Research andDevelopment
Mary K. HaileyVice President, Reimbursement
Stephen C. HamsVice President, Human Resources
Anthony J. RecuperoVice President, Sales
Elizabeth A. RothwellVice President, Quality and Operations
David M. ShawVice President, Legal Affairs andGeneral Counsel
Julie D. TracyVice President, Marketing
Bert VanderveldeVice President and General Manager,Kyphon Europe
BOARD OF D IRECTORS
James T. TreaceChairman of the Board of DirectorsJ & A Group, LLC
Stephen M. CampeInvestor Growth Capital, Inc.
Douglas W. KohrsAmerican Medical Systems, Inc.
Jack W. LasersohnThe Vertical Group
Elizabeth H. WeathermanWarburg Pincus, LLC
Richard W. MottPresident and Chief Executive Officer,Kyphon Inc.
Karen D. Talmadge, Ph.D.Executive Vice President, Chief ScienceOfficer, and Co-Founder, Kyphon Inc.
ANNUAL MEET ING
Kyphon’s annual meeting will be held at 2:00 p.m., June 16, 2004 at Kyphon’s corporate offices,1221 Crossman AvenueSunnyvale, California 94089
ADDIT IONAL INFORMATION
Corporate CounselWilson Sonsini Goodrich & RosatiPalo Alto, California
Public Accounting FirmPricewaterhouseCoopersSan Jose, California
Stock Transfer AgentU.S. Stock Transfer Corporation1745 Gardena AvenueGlendale, California 91204Phone: 800.835.8778
> > Ellen Simpson, M.D., retired pediatric cardiologist Age: 86 (left)
Chris Kern , former x-ray technician Age: 84 (right)
Andy, canine companion (far right)
Diagnosis:
Locations: San Francisco and Fairfax, Calif. USA
Dr. Simpson (four fractures from osteoporosis repaired in August 2003) and Ms. Kern(two fractures repaired in January 2003) met at a holiday party and found out that theyhad much in common—retired healthcare professionals who love gardening and livingactive lives in Northern California. They are also two of the hundreds of thousands ofpeople who suffer spinal fractures due to osteoporosis each year in the United States. Whatbrought these two women together for this photograph is a procedure called BalloonKyphoplasty. They underwent the procedure to treat the pain, deformity and diminishedquality of life they were suffering due to their fractures. Both are excited now about living pain free lives and getting back to their respective gardens.
Osteoporotic fractures
Corporate Offices: Kyphon Inc. 1221 Crossman Avenue Sunnyvale, California 94089 USA Phone: 408.548.6500
www.kyphon . com
© 2004 Kyphon Inc. All rights reserved.