more than 80% of U.S. spine business unit sales.
ArthroCare acquires DiscoCare
ArthroCare had a history of not breaking down its revenue in its
financial reports beyond the business unit. The company also didn't
break out what percentage of specific business unit sales came from
the Americas and what percentage came from the rest of the world. I
don't know if this was typical of publicly traded medical device com-
panies at the time or not.
What was clear to me, though, was that the extremely strong growth
of the spine business unit was driving ArthroCare's strong overall
growth. And the extremely strong growth of the spine business unit
was being driven in large part by DiscoCare (and more than half of
that success was due to personal injury). And yet the company hadn't
disclosed any of this to investors.
In mid-2007, talk began of acquiring DiscoCare. Apparently, in an
acquisition the large accounts receivable balance would be wiped out.
By the fourth quarter, the balance exceeded $20 million and we began
serious discussions with DiscoCare to buy them, with specific instruc-
tions to close the deal before the end of the year.
As this was happening, a December New York Post article examined
the relationship between DiscoCare and ArthroCare and stated that
DiscoCare was the engine driving ArthroCare's growth. Not long after,
Citron Research, a website that sniffs out corporate fraud, began pub-
lishing reports on ArthroCare, focusing on the relationship with
DiscoCare. Although the reports were littered with errors, the articles
got a couple key things right — that DiscoCare accounted for the vast
majority of ArthroCare's U.S. spine sales and that personal injury was
the main driver of the DiscoCare relationship.
ArthroCare acquired DiscoCare on the last day of 2007. The
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