07.24.08
3. Zimmer Holdings
$3.9 Billion
KEY EXECUTIVES:
David C. Dvorak. President and CEO
Cheryl R. Blanchard, Sr. VP, R&D and Chief Scientific Officer
James T. Crines, Exec. VP, Finance and CFO
Jon E. Kramer, President, US Sales
NO. OF EMPLOYEES:
7,600HEADQUARTERS:
Warsaw, INIn the United States and Europe, the older-than-65 age group is projected to grow to between 15% and 20% of the population by the year 2015, compared with 10% to 15% in 2000. And in 2008, baby boomers began turning 62, which means they’re on the threshold of age-related degenerative conditions such as arthritis. If you’re an orthopedic company with dominant products in knees and hips, you’re in the right place at the right time.
That’s certainly the case for Zimmer Holdings, Inc.
By the company’s estimates, it holds the No. 1 market positions in hips (26% of a $5 billion global market) and knees (28% of $5.8 billion global market). And Zimmer is performing solidly, reporting double-digit revenue growth for the 2007 fiscal year (ended Dec. 31) and rolling out a series of new products. Sales for 2007 were $3.9 billion, a 12% increase compared with 2006. Knee reconstruction products were the biggest revenue driver at 42% of sales, posting a 12% increase to $1.64 billion. Hips followed with $1.3 billion, a 9% increase.
“Our smaller businesses also are well positioned to deliver growth with new products and technology applications,” CEO David Dvorak said in Zimmer’s annual report.
It seems he’s correct. While not the biggest bottom-line earner, sales from Zimmer’s extremities product line showed the most impressive growth, increasing 34% to $104 million. Rounding out the company’s Reconstruction division, revenues for dental products grew 23% to $221 million.
Sales for the Trauma division rose 6% to $206 million. Spine business revenue gained 11% to reach $197 million, while the company’s Orthopedic Surgical Products (OSP) unit increased its sales 8% to $234 million.
The United States was responsible for 58% of net sales, Europe was 28% and the Asia-Pacific region was 14%.
Despite solid sales performance, net earnings of $773.2 million slid $61 million from 2006 profit of $834.5 million. The difference primarily was due to settlement charges of $169.5 million related to the government’s anti-kickback probe of five of the largest orthopedic companies. Adjusted earnings, excluding the settlement costs as well as acquisition-related expenses and other nonrecurring items, improved 14% to $961.6 million.
Zimmer notably made some strategic acquisitions in 2007 and rolled out more than 20 new products across all product categories.
In early 2007, Zimmer agreed to buy Endius, Inc., a Massachusetts-based spine company that developed a minimally invasive instrument kit and associated implants for spinal fusion. In November, Zimmer acquired ORTHOsoft Inc., which develops computer navigation for orthopedic surgery. According to Zimmer officials, the acquisition bolstered the company’s SmartTools computer-assisted surgery product portfolio. Dvorak has said the company would continue to develop minimally invasive and computer navigation concepts across Zimmer’s range of businesses.
Among new products introduced to the market in 2007 was the Gender Solutions Natural-Knee Flex System, the company’s second gender knee that builds on its original Gender Solutions NexGen knee launched in 2006.
Another noteworthy product launch is the NexGen LPS-Flex Mobile knee, which was approved by the FDA in December. According to Zimmer, a key strength of its mobile bearing system is the ability to be used in a minimally invasive procedure. The main difference between a traditional knee replacement design and a mobile bearing knee is that the polyethylene articulating surface is free to rotate slightly along with the patient's natural movement. When used with the LPS-Flex femoral component, the knee replacement is designed to safely accommodate active deep flexion of up to 155 degrees for patients who are otherwise capable of that level of flexion. In the past, knee implants have been designed to accommodate flexion of only 120 degrees, according to Zimmer.
Meeting market growth demands and an aggressively expanding product line means the company will need more capacity. In February 2008, Zimmer announced plans to add a 100,000-square-foot manufacturing facility in Shannon, Ireland. Zimmer officials considered a number of sites before selecting Shannon, including existing sites and other global locations. The company expects to invest between $70 million and $75 million in the next two years and plans to begin manufacturing operations later this year. Initial employment will be approximately 25 to 50 employees, with total employment expected to be approximately 250 in five years. Initially, the facility will produce knee replacement implants, although other products could be added in the future, the company said.
For 2008, Dvorak said Zimmer would make additional investments in the higher-growth areas of spine and dental products. The company also plans to continue moving forward aggressively with knees and hips. For the first quarter (ended March 31), net sales increased 11%.
Zimmer hopes to expand its knee portfolio with new products such as the NexGen LPS-Flex Mobile Knee, Gender Solutions’ Natural-Knee Flex and Patello-Femoral Joint System. Additionally, the company added to its portfolio the Kinective Technology for hip replacement and Fitmore Hip stem, which received FDA approval in March.
In April, Zimmer initiated voluntary recalls to improve quality systems at its OSP facility in Dover, OH, allowing the company to improve production systems and provide enhanced quality training for employees. The company expects the move to cause revenue to decrease by $70 million-$80 million. Zimmer said the recalls do not affect its core hip and knee implants business. In late 2007, the OSP division initiated a recall of more than 60,000 Pulsavac kits, used to clean wounds, because their sterility was compromised.