OFIX CEO RESIGNS

It was announced on Friday, June 17th, 2011, a day that will live in on in Orthofix lore, that Alan Milanazzo, the current CEO, will resign effective August 1, 2011. The press release did not specify the primary reason for the resignation, but, the company lauded him as "a tireless worker and terrific leader." But it does make one wonder, with the black cloud that has followed Orthofix since the time of the Ramius’ brouhaha over Board members being replaced, the cluster f*&k over the Blackstone Medical acquisition, the DOJ penalty for bone stim improprieties and an employee exodus, could it be that with the appellate court's decision to overturn the lower court's decision in the Blackstone Medical/Orthofix whistleblower case, was this the straw that finally broke the camel’s back?

If one looks at chronological events, it seems that once things started to cascade at OFIX, it was one issue after another that led to Milanazzo’s demise.  As recent as December of 2008, Ramius, LLC, a hedge fund, threatened the stability at Orthofix by calling for a special meeting of the shareholders, with the intent to overthrow, or more aptly described, to replace four of the ten then current board members. Ramius wanted to remove Milanazzo, Gero, Hewett, and Von Wartburg, replacing them with a fresh set of eyes and ears.

In March of 2009, Milanazzo was able to rebuke Ramius' attempt, publicly stating that Orthofix was headed in the right direction. Milanazzo believed that the Ramius candidates were duplicative of expertise as the current board members.  What Milanazzo failed to understand or knew in hindsight was that  the potential existed that Ramius did understand what was going on, and that a new set of eyes and ears were desperately needed to right the ship.  In addition to this argument, Milanazzo espoused that OFIX had improved its core business of Sports Medicine, Bone Stimulators, and Orthopedics. Milanazzo was intent on defending his decision and the Boards to acquired Blackstone.  Considering that everyone in the industry knew of the nefarious schemes that had been going on at Blackstone, one must ask the question, wasn’t there a better deal to be had?  If one considers the unforeseen challenges of a major whistleblower case looming over Blackstone, where was the due diligence?  Milanazzo and the Board's rationale for acquiring this albatross was based on price ($330M), technology (what technology) and distribution.  The $50 million that was placed in escrow upon completion of the deal may not be enough to cover the potential settlement in the whistleblower litigation.  In addition to these decision, Milanazzo never secured the relationship that Blackstone had with Osteocel/Osiris.  As Milanazzo claimed Osteocel was less than $3 million of Blackstone's revenue prior to the acquisition.  The question must then be posed, "what was OFIX paying $330 million dollars for," a house of cards?  Those of us in the industry know that Blackstone had nothing more than a "ME2" portfolio.  How many of our readers have argued, why does our industry love to bring industry outsiders (Boston Scientific) to run an orthopaedic operation only to have them step on their own d*#ks. 

In May of 2009, upon Jeff Yielding of Little Rock, Arkansas plead guilty to two counts stemming from a healthcare kickback scheme in the Dr. Chan case. Another in the long list of famous Blackstone consultants. Though OFIX was implicated in the scheme, no allegations or wrongdoing were noted by U.S. Attorney Jane Duke.  But anyone that follows corporate litigation understands that where there’s smoke, there’s fire.  In addition, one must wonder what ever happened to the investigation surrounding the mysterious death of Kelly Yielding?  Mrs. Yielding was a distributor for OFIX Bone Stimulators and mysteriously died days before her testimony in front of a Grand Jury.  One must wonder was this coincidence, and if so, what's the statistical probability of something this rare happening to someone involved in a case involving so many scandalous characters.

In December of 2010, OFIX announced on behalf of itself and Musculoskeletal Tissue Foundation that they had reached a comprehensive settlement with NuVasive and Osiris Therapeutics regarding Trinity Evolution.  Though the specific terms of the settlement were confidential, one must wonder was this just another nail in the coffin for Milanazzo?  In addition to the settlement, during this process, OFIX announced a major reorganization related to employee termination benefits resulting in a charge of $ 4 million in the fourth quarter of 2010, but claiming that the reorganization was expected to save the company $6-$7 million dollars per year beginning in 2011 in operating profits.  One must love the pretzel logic of the accounting world, addition by subtraction all for the love of its shareholders.

In May of 2011, it was reported that OFIX had settled with the DOJ for an estimated $43 million pertaining to improprieties regarding the sale of Bone Growth Stimulators, and as reported on TSB the Appellate Court over turned a Lower Court's decision to allow the civil action in the whistleblower court to move forward.  In all likelihood, whether the powers to be admit ir or not, it will probably be in their best interest to resolve this matter in an amicable way, rather than potentially test the uncertainty of the Supreme Court, would they even want to adjudicate this matter, or risk going to trial?  In the end, Milanazzo was a terrific leaders and tireless worker, unfortunately, he may not have been leading and working on the things that mattered most.  TSB wants to know what our bloggers think?