08.05.15
$4.67 Billion
KEY EXECUTIVES:
David C. Dvorak, President & CEO
James T. Crines, Exec. VP of Finance & Chief Financial Officer
Joseph A. Cucolo, President, Americas
Kataryna Mazur-Hofsaess, M.D., Ph.D., President, Europe, Middle East and Africa
Stephen H.L. Ooi, President of Asia Pacific
Matt E. Monaghan, Sr. VP, Global Hips & Reconstructive Research
Stephen E. White, Sr. VP & General Manager, Knees
David J. Kunz, VP, Global Quality, Regulatory and Clinical Affairs
Richard C. Stair, Sr. VP, Global Operations and Logistics
NO. of EMPLOYEES: 10,000
HEADQUARTERS: Warsaw, Ind.
Ken Watson’s pain typically followed the same daily pattern.
It would start in his shoulder blade and then intensify, the dull ache suddenly turning into a white-hot lightning bolt that radiated to his neck. Once there, it sat like a pool of molten lava, aggravating the muscles and nerves already strained by hours of sedentary computer use. Every so often, the pain would cut a fresh swath down his left arm. Relief was next to impossible.
“I would just come home and feel like going straight to bed because that’s the only way I could get comfortable,” he recalled.
Thinking his rotator cuff was torn or—worse—detached, Watson sought help (and relief) from an orthopedic shoulder specialist. But after reviewing Watson’s X-rays and magnetic resonance imaging films, the specialist determined his shoulder was beyond repair and recommended replacement surgery.
Watson was stunned at the prognosis but jumped at the chance to lead a pain-free existence. “He [the orthopedist] said, ‘I know we can take care of your pain,’” Watson fondly reminisced. “The decision to have [the surgery] was an easy one to make once I got home and talked with my wife ... even there in the office, I said, ‘Let’s go ahead with this.’”
Watson’s orthopedist fitted him with a Trabecular Metal Reverse Shoulder System from Zimmer Holdings Inc., an artificial joint designed to address a wide range of patient needs, including both primary and revision procedures as well as reverse, conventional and hemi-arthroplasty applications.
Launched in 2006 and implanted in more than 32,000 patients globally since then, the Reverse Shoulder System features a low-profile humeral stem that helps conserve the proximal humerus, preserve natural bone and allows surgeons to reconstruct the gleno-humeral joint. Its six proximal suture holes and proximal perimeter rim are positioned for enhanced tuberosity and soft tissue reattachment. The glenoid component has a bone-sparing design set off by a small-diameter base plate that spares the glenoid of holes. Two polyaxial bone screws with a 30-degree arc allow for maximum bone purchase, and the system’s monobloc stem ensures it will not separate in the humeral canal. Earlier this year, Zimmer began manufacturing its standard ultra-high molecular weight polyethylene liners with Vitamin E highly crosslinked polyethylene (Vivacit-E), a high-tech bearing surface designed to give the implant more oxidative stability and low wear.
“It’s amazing that they were able to look at the anatomy, see where it could no longer work and devise a way to change it to let other parts of the anatomy basically give you the same motion, mobility and opportunity for strength without it feeling any different,” Watson said. “How I’m doing today is like night and day from where I was. To not even be able to lift a plate and put it up in the cabinet like I was before surgery and now to be able to take three or four in one hand and lift up is fantastic. The journey that I’ve had is proof there is a good quality of life [to be had] and relief from a lot of struggles. The best part about my life now is I see the opportunity to get back to the things I like. If a friend came to me with shoulder pain and was at the point where I was, I would say go for it.”
Such advice apparently resounded with joint replacement patients last year: Robust sales of Zimmer’s Reverse Shoulder System helped boost the firm’s extremities product revenue 5 percent to $204.3 million. Other contributors to the company-best growth rate included the Sidus Stem-Free Shoulder, Trabecular Metal Total Ankle and various items from the June 2013 purchase of German device maker Normed Medizin-Technik GmbH (the DocPrice, Vario Subtalar System, Malleolar Plate System, MiniCAN System 2.7, Charcot chisels, Maxican System 4.5 and Weil bone lever). The bulk of extremities devices were sold in North and South America ($149.6 million total), but Zimmer made the most profit in Europe and Asia-Pacific, where sales swelled 19 percent and 20 percent to $40.6 million and $14.1 million, respectively.
Extremities’ stellar performance also helped bolster net reconstructive revenue 2 percent to $3.49 billion, though Knees pitched in as well with a fiscal year growth rate of 3 percent. Sales drivers included the top-selling NexGen Complete Knee Solution, the Unicompartmental High Flex Knee and the Persona Personalized Knee, the latter of which has been targeted for premium pricing.
“This is a big system that includes cemented, non-cemented and we’re working towards other elements in this multi-phase launch of the Persona system but we’re continuing to be optimistic and quite confident about our ability to execute and get premium prices for the element of the technology we think warrant it,” President and CEO David C. Dvorak told investors earlier this year.
Unveiled in March 2013, the Persona knee combines personalized implants with intelligent instruments to provide orthopedic surgeons with better intraoperative precision to customize the best fit for patients. Zimmer incorporated various technologies into the system, including a Bone Resection Atlas, which help designers and engineers precisely define anatomically accurate implant shapes and sizes; the company’s proprietary trabecular metal; and vitamin E for increased strength, low wear and improved long-term performance.
The Persona and other knee systems generated $1.96 billion for Zimmer last year, though sales were somewhat tempered by global pricing pressures and fluctuating foreign exchange rates in both Europe and Asia. Nevertheless, all geographic regions sustained growth, with Europe leading the pack at 6 percent ($498.6 million in sales), followed by the Americas at 2 percent ($1.15 billion) and Asia at 1 percent ($309.8 million).
Knee sales are likely to get a boost in 2015 from the five new patents awarded to Zimmer last year for its subchondroplasty joint preservation procedure technology, a percutaneous outpatient intervention that addresses the defects from subchondral bone marrow lesions (BMLs). The additional patents broaden coverage of the company’s subchondroplasty offerings to include new procedure methods, instrument kits, navigation systems, implants and other anatomical sites.
Hip sales remained flat, slipping $4.1 million to $1.32 billion due to pricing pressures and foreign exchange rate volatility that undermined profits 1 percent in Europe and 6 percent in Asia-Pacific. Past best-sellers prevailed again in 2014 (year ended Dec. 31), with the M/L Taper hip prosthesis, M/L Taper hip prosthesis Kinective technology, CLS Spotorno stem (from the CLS Hip System), Alloclassic Zweymüller hip stem, and Fitmore hip stem winning over customers. Other clinician favorites included the Avenir Müller stem, Wagner SL Revision hip stem, Continuum acetabular system, Trilogy IT acetabular system, Allofit IT Alloclassic acetabular system, Vivacit-E highly crosslinked polyethylene liners and Biolox delta heads.
Zimmer’s dental portfolio continued its slow crawl back to the black, growing sales 1 percent, or $3.5 million to $242.8 million on higher demand for the Tapered Screw-Vent implant system, a device with an internal hex platform design to reduce the stress on the crestal bone and resist abutment screw loosening. Net proceeds partially were offset by a drop-off in restorative product revenue.
Neither new product launches in Europe and Asia-Pacific nor strong sales of Zimmer’s Natural nail system and Periarticular Locking plates could lift trauma proceeds from its year-long funk. Revenue was flat at $316.7 million despite 8 percent growth in Europe and 4 percent growth in Asia-Pacific. In an attempt to avoid another dismal performance in 2015, the company purchased Cambridge, Mass.-based ETEX Holdings Inc., provider of calcium phosphate-based biomaterials; the deal added ETEX’s Beta-bsm (injectable), CarriGen, EquivaBone and Gamma-bsm (putty) bone void filler products to its biologics portfolio, enhancing Zimmer’s ability to treat early-stage joint disease.
Surgical product proceeds fell back to earth in 2014 after skyrocketing 18 percent the previous year. Revenue slid 5 percent to $410 million as Zimmer’s temporary edge in the fluid waste management market ended with the commercial return of a competitor’s capital equipment part (used with a single-use disposable manifold component in its own fluid waste management system).
Spine sales bounced back from a five-year downward spiral with a 2 percent growth rate owing to solid demand for the PathFinder NXT minimally invasive pedicle screw system and trabecular metal technology products. Revenue totaled $207.2 million; gains were highest in Asia and Europe. The company helped ensure future growth in this notoriously difficult segment with 12 new product launches, including:
That platform delivered constant currency net sales growth of 2.4 percent (1 percent reported, to $4.67 billion) and a 5.4 percent increase in adjusted earnings per share (to $6.06). Operating profit climbed 5 percent (adjusted) to $1.43 billion, and gross profit rose 2.5 percent to $3.42 billion. Net earnings, however, declined 5.3 percent due to increased spending on the company’s operational excellence initiatives, a $70 million legal fee and integration planning/debt issuance costs associated with its blockbuster $13.35 billion bid for Biomet Inc.
The cash-and-stock deal was the largest in orthopedics since the 2012 marriage of DePuy and Synthes Inc., and the most game-changing move for Zimmer since its 2001 spinoff from Bristol-Myers Squibb Co. Conceived during last year’s period of medtech merger mania (when Medtronic Inc. solicited Covidien plc for $49.9 billion), the union reflects the increased benefits of scale and dangers of being small within the orthopedic industry. It also represents a clever strategy for stabilizing product prices: By eliminating the fourth-largest orthopedic products provider (Biomet), Zimmer—a runner-up to Johnson & Johnson—is limiting implant choices at hospitals, thus potentially slowing price cuts.
“Importantly, it should help alleviate pricing pressure in hips and knees, given that the market is going from five major players to four,” Larry Biegelsen, a Wells Fargo analyst, wrote in a note last year. “This should benefit all ortho[pedic] players.”
It mainly will benefit Zimmer, though. The merger is expected to save the company $135 million in the first year and $270 million by the third year, a cache that is likely to result in $1.15 to $1.25 per share in earnings during the first year. Net sales for the combined firm are estimated at $8.4 billion.
Zimmer spent more than a year seeking approval of the deal, first satisfying European regulators with the April 2015 sale of three product lines to Italian orthopedic device maker Lima Corporate (For details on the deal’s timing, see the sidebar on page 52). The agreement included rights to Zimmer’s Unicompartmental High Flex Knee and Biomet’s Discovery Elbow System in the European Economic Area and Switzerland, as well as Biomet’s Vanguard Complete Knee System in Denmark and Sweden.
A foreign bribery investigation into Biomet’s business relations in Brazil and Mexico threatened to quash the deal, but the two companies made it official in late June after Zimmer agreed to divest its Unicompartmental High Flex Knee to Smith and Nephew plc in the American market to secure U.S. Federal Trade Commission approval.
KEY EXECUTIVES:
David C. Dvorak, President & CEO
James T. Crines, Exec. VP of Finance & Chief Financial Officer
Joseph A. Cucolo, President, Americas
Kataryna Mazur-Hofsaess, M.D., Ph.D., President, Europe, Middle East and Africa
Stephen H.L. Ooi, President of Asia Pacific
Matt E. Monaghan, Sr. VP, Global Hips & Reconstructive Research
Stephen E. White, Sr. VP & General Manager, Knees
David J. Kunz, VP, Global Quality, Regulatory and Clinical Affairs
Richard C. Stair, Sr. VP, Global Operations and Logistics
NO. of EMPLOYEES: 10,000
HEADQUARTERS: Warsaw, Ind.
Ken Watson’s pain typically followed the same daily pattern.
It would start in his shoulder blade and then intensify, the dull ache suddenly turning into a white-hot lightning bolt that radiated to his neck. Once there, it sat like a pool of molten lava, aggravating the muscles and nerves already strained by hours of sedentary computer use. Every so often, the pain would cut a fresh swath down his left arm. Relief was next to impossible.
“I would just come home and feel like going straight to bed because that’s the only way I could get comfortable,” he recalled.
Thinking his rotator cuff was torn or—worse—detached, Watson sought help (and relief) from an orthopedic shoulder specialist. But after reviewing Watson’s X-rays and magnetic resonance imaging films, the specialist determined his shoulder was beyond repair and recommended replacement surgery.
Watson was stunned at the prognosis but jumped at the chance to lead a pain-free existence. “He [the orthopedist] said, ‘I know we can take care of your pain,’” Watson fondly reminisced. “The decision to have [the surgery] was an easy one to make once I got home and talked with my wife ... even there in the office, I said, ‘Let’s go ahead with this.’”
Watson’s orthopedist fitted him with a Trabecular Metal Reverse Shoulder System from Zimmer Holdings Inc., an artificial joint designed to address a wide range of patient needs, including both primary and revision procedures as well as reverse, conventional and hemi-arthroplasty applications.
Launched in 2006 and implanted in more than 32,000 patients globally since then, the Reverse Shoulder System features a low-profile humeral stem that helps conserve the proximal humerus, preserve natural bone and allows surgeons to reconstruct the gleno-humeral joint. Its six proximal suture holes and proximal perimeter rim are positioned for enhanced tuberosity and soft tissue reattachment. The glenoid component has a bone-sparing design set off by a small-diameter base plate that spares the glenoid of holes. Two polyaxial bone screws with a 30-degree arc allow for maximum bone purchase, and the system’s monobloc stem ensures it will not separate in the humeral canal. Earlier this year, Zimmer began manufacturing its standard ultra-high molecular weight polyethylene liners with Vitamin E highly crosslinked polyethylene (Vivacit-E), a high-tech bearing surface designed to give the implant more oxidative stability and low wear.
“It’s amazing that they were able to look at the anatomy, see where it could no longer work and devise a way to change it to let other parts of the anatomy basically give you the same motion, mobility and opportunity for strength without it feeling any different,” Watson said. “How I’m doing today is like night and day from where I was. To not even be able to lift a plate and put it up in the cabinet like I was before surgery and now to be able to take three or four in one hand and lift up is fantastic. The journey that I’ve had is proof there is a good quality of life [to be had] and relief from a lot of struggles. The best part about my life now is I see the opportunity to get back to the things I like. If a friend came to me with shoulder pain and was at the point where I was, I would say go for it.”
Such advice apparently resounded with joint replacement patients last year: Robust sales of Zimmer’s Reverse Shoulder System helped boost the firm’s extremities product revenue 5 percent to $204.3 million. Other contributors to the company-best growth rate included the Sidus Stem-Free Shoulder, Trabecular Metal Total Ankle and various items from the June 2013 purchase of German device maker Normed Medizin-Technik GmbH (the DocPrice, Vario Subtalar System, Malleolar Plate System, MiniCAN System 2.7, Charcot chisels, Maxican System 4.5 and Weil bone lever). The bulk of extremities devices were sold in North and South America ($149.6 million total), but Zimmer made the most profit in Europe and Asia-Pacific, where sales swelled 19 percent and 20 percent to $40.6 million and $14.1 million, respectively.
Extremities’ stellar performance also helped bolster net reconstructive revenue 2 percent to $3.49 billion, though Knees pitched in as well with a fiscal year growth rate of 3 percent. Sales drivers included the top-selling NexGen Complete Knee Solution, the Unicompartmental High Flex Knee and the Persona Personalized Knee, the latter of which has been targeted for premium pricing.
“This is a big system that includes cemented, non-cemented and we’re working towards other elements in this multi-phase launch of the Persona system but we’re continuing to be optimistic and quite confident about our ability to execute and get premium prices for the element of the technology we think warrant it,” President and CEO David C. Dvorak told investors earlier this year.
Unveiled in March 2013, the Persona knee combines personalized implants with intelligent instruments to provide orthopedic surgeons with better intraoperative precision to customize the best fit for patients. Zimmer incorporated various technologies into the system, including a Bone Resection Atlas, which help designers and engineers precisely define anatomically accurate implant shapes and sizes; the company’s proprietary trabecular metal; and vitamin E for increased strength, low wear and improved long-term performance.
The Persona and other knee systems generated $1.96 billion for Zimmer last year, though sales were somewhat tempered by global pricing pressures and fluctuating foreign exchange rates in both Europe and Asia. Nevertheless, all geographic regions sustained growth, with Europe leading the pack at 6 percent ($498.6 million in sales), followed by the Americas at 2 percent ($1.15 billion) and Asia at 1 percent ($309.8 million).
Knee sales are likely to get a boost in 2015 from the five new patents awarded to Zimmer last year for its subchondroplasty joint preservation procedure technology, a percutaneous outpatient intervention that addresses the defects from subchondral bone marrow lesions (BMLs). The additional patents broaden coverage of the company’s subchondroplasty offerings to include new procedure methods, instrument kits, navigation systems, implants and other anatomical sites.
Hip sales remained flat, slipping $4.1 million to $1.32 billion due to pricing pressures and foreign exchange rate volatility that undermined profits 1 percent in Europe and 6 percent in Asia-Pacific. Past best-sellers prevailed again in 2014 (year ended Dec. 31), with the M/L Taper hip prosthesis, M/L Taper hip prosthesis Kinective technology, CLS Spotorno stem (from the CLS Hip System), Alloclassic Zweymüller hip stem, and Fitmore hip stem winning over customers. Other clinician favorites included the Avenir Müller stem, Wagner SL Revision hip stem, Continuum acetabular system, Trilogy IT acetabular system, Allofit IT Alloclassic acetabular system, Vivacit-E highly crosslinked polyethylene liners and Biolox delta heads.
Zimmer’s dental portfolio continued its slow crawl back to the black, growing sales 1 percent, or $3.5 million to $242.8 million on higher demand for the Tapered Screw-Vent implant system, a device with an internal hex platform design to reduce the stress on the crestal bone and resist abutment screw loosening. Net proceeds partially were offset by a drop-off in restorative product revenue.
Neither new product launches in Europe and Asia-Pacific nor strong sales of Zimmer’s Natural nail system and Periarticular Locking plates could lift trauma proceeds from its year-long funk. Revenue was flat at $316.7 million despite 8 percent growth in Europe and 4 percent growth in Asia-Pacific. In an attempt to avoid another dismal performance in 2015, the company purchased Cambridge, Mass.-based ETEX Holdings Inc., provider of calcium phosphate-based biomaterials; the deal added ETEX’s Beta-bsm (injectable), CarriGen, EquivaBone and Gamma-bsm (putty) bone void filler products to its biologics portfolio, enhancing Zimmer’s ability to treat early-stage joint disease.
Surgical product proceeds fell back to earth in 2014 after skyrocketing 18 percent the previous year. Revenue slid 5 percent to $410 million as Zimmer’s temporary edge in the fluid waste management market ended with the commercial return of a competitor’s capital equipment part (used with a single-use disposable manifold component in its own fluid waste management system).
Spine sales bounced back from a five-year downward spiral with a 2 percent growth rate owing to solid demand for the PathFinder NXT minimally invasive pedicle screw system and trabecular metal technology products. Revenue totaled $207.2 million; gains were highest in Asia and Europe. The company helped ensure future growth in this notoriously difficult segment with 12 new product launches, including:
- Puros Demineralized Bone Matrix (DBM) block and strip, bone graft substitutes used to stimulate natural bone formation processes in spinal surgeries. Used alone or as a bone graft extender, Puros DBM allografts provide osteoconductive and osteoinductive properties, improved handling and excellent graft containment.
- Puros DBM Reverse Phase medium putty, putty with chips, gel and paste—products designed to stimulate natural bone formation processes in which mesenchymal cells differentiate into bone-forming cells. Puros DBM with reverse phase medium items allow the allograft to be malleable at operating room temperatures while causing the product to stiffen when placed into the body.
- The Optio-C Anterior Cervical System, a modular, stand-alone cervical device that offers allograft/autograft and PEEK (polyether ether ketone) options and delivers the strength, stability and fusion potential of a traditional anterior cervical discectomy and fusion. Offering secure fixation with no profile, the system comprises an anterior cervical plate, three bone screws and either a PEEK intervertebral body fusion device or structural allograft/autograft. The system is designed to maximize fusion with a load-sharing interface and multiple implant footprints.
- The Virage OCT Spinal Fixation System, an occipital-cervico-thoracic spinal fixation solution that uses Zimmer’s 360 decrees Omnidirectional Extreme-Angle screw to bring a new experience to posterior fixation surgery. All Virage System polyaxial dual-lead screws incorporate the 360 degrees Omnidirectional Extreme-Angle screw technology allowing for 112 degrees of conical range of motion and simple rod alignment. The Virage system also includes a proprietary friction-fit screw head that holds the desired rod in position.
That platform delivered constant currency net sales growth of 2.4 percent (1 percent reported, to $4.67 billion) and a 5.4 percent increase in adjusted earnings per share (to $6.06). Operating profit climbed 5 percent (adjusted) to $1.43 billion, and gross profit rose 2.5 percent to $3.42 billion. Net earnings, however, declined 5.3 percent due to increased spending on the company’s operational excellence initiatives, a $70 million legal fee and integration planning/debt issuance costs associated with its blockbuster $13.35 billion bid for Biomet Inc.
The cash-and-stock deal was the largest in orthopedics since the 2012 marriage of DePuy and Synthes Inc., and the most game-changing move for Zimmer since its 2001 spinoff from Bristol-Myers Squibb Co. Conceived during last year’s period of medtech merger mania (when Medtronic Inc. solicited Covidien plc for $49.9 billion), the union reflects the increased benefits of scale and dangers of being small within the orthopedic industry. It also represents a clever strategy for stabilizing product prices: By eliminating the fourth-largest orthopedic products provider (Biomet), Zimmer—a runner-up to Johnson & Johnson—is limiting implant choices at hospitals, thus potentially slowing price cuts.
“Importantly, it should help alleviate pricing pressure in hips and knees, given that the market is going from five major players to four,” Larry Biegelsen, a Wells Fargo analyst, wrote in a note last year. “This should benefit all ortho[pedic] players.”
It mainly will benefit Zimmer, though. The merger is expected to save the company $135 million in the first year and $270 million by the third year, a cache that is likely to result in $1.15 to $1.25 per share in earnings during the first year. Net sales for the combined firm are estimated at $8.4 billion.
Zimmer spent more than a year seeking approval of the deal, first satisfying European regulators with the April 2015 sale of three product lines to Italian orthopedic device maker Lima Corporate (For details on the deal’s timing, see the sidebar on page 52). The agreement included rights to Zimmer’s Unicompartmental High Flex Knee and Biomet’s Discovery Elbow System in the European Economic Area and Switzerland, as well as Biomet’s Vanguard Complete Knee System in Denmark and Sweden.
A foreign bribery investigation into Biomet’s business relations in Brazil and Mexico threatened to quash the deal, but the two companies made it official in late June after Zimmer agreed to divest its Unicompartmental High Flex Knee to Smith and Nephew plc in the American market to secure U.S. Federal Trade Commission approval.