Newest Indiana IPO sees $1B market in fixing bones of children

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It’s been almost four years since the last Indiana company went public, a huge dry spell compared to a few decades ago, when three or four companies a year would launch an initial public offering.

Now the drought has been broken. And, fittingly for Indiana, home to thousands of health care businesses, the newest public company is a medical device firm, OrthoPediatrics Corp. of Warsaw.

The company makes a wide assortment of surgical systems for treating children with orthopedic conditions, from bone deformities to curvature of the spine.

OrthoPediatrics said Monday it raised $59.8 million in its IPO.  The company went public on Thursday at $13 a share and saw its stock jump about 50 percent on the day. Shares were trading at about $18.50 on Monday afternoon.

It’s a big milestone for a company that has spent 11 years developing products, selling them to hundreds of children’s hospitals and training countless surgeons.

“We’ve emerged from gangly adolescence to young adulthood,” Mark Throdahl, president and CEO, said in an interview with IBJ.

Throdahl is a former group president of Zimmer Biomet Inc., a huge maker of orthopedic implants, also based in Warsaw. He leads a company that saw an opening for different kind of orthopedic company—one that strictly makes and sells products into the pediatric market.

OrthoPediatrics estimates the potential market to be worth about $1.4 billion, including nearly $800 million in the United States.

That patient population “has been largely neglected by the orthopedic industry,” the company said in its prospectus.

The large orthopedic market has “bigger fish to fry,” Throdahl said, pointing out that the market for adult orthopedic products is roughly 10 times the size of the pediatric market.

“But all of us were struck by the fact that we could build a company on a cause—improving the lives of children,” he said.

The company makes 21 surgical systems—or arrays of products—that serve three of the largest categories in the pediatric orthopedic market: trauma and deformity; complex spine problems; and anterior cruciate ligament reconstruction, more commonly known as repairing injured ligaments in the knee.

OrthoPediatrics has 62 employees—about 55 of them in Indiana. The company said it expects to expand the number of products and build its workforce, but declined to give growth projections.

Revenue was $31 million in 2015, up about 31 percent from 2014. But the young company was still burning through a huge amount of money in sales, marketing and administrative costs, and has yet to turn a profit. It lost nearly $8 million last year. Executives declined to say when they expect the company to turn a profit.

OrthoPediatrics, which trades under the ticker KIDS, plans to use proceeds to invest in new products, fund more research and development, expand sales and marketing and for working capital. The company will also use about $3.4 million to pay accumulated and unpaid dividends on Series B Preferred Stock and $2 million to repay loans under its revolving credit facility.

It will also spend a lot of time trying to spread its story to Wall Street. Right now, only four investment banks will potentially follow the stock, and all of them were involved in the underwriting, Throdahl said.

In the meantime, it is celebrating a milestone that fewer and fewer Indiana companies share these days—going public and raising millions of dollars to grow.

“It’s an enormous symbol of the maturity of the business,” Throdahl said. “It’s really a validation of 11 years of work.”

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