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Zimmer looks to China to reignite growth

December 22, 2010

Zimmer Holdings Inc. completed an acquisition in China on Tuesday, but recession hangovers in the United States and Europe are trumping all other factors and keeping the company’s growth bottled up for now.

Warsaw-based Zimmer’s sales have been flat as jobless Americans have come in for fewer knee and hip replacements, and prices have been falling by 1 percent-2 percent annually in recent years.

“The next couple quarters are likely to be a tough slog for the orthopedic-implant manufacturers, and it is becoming clearer that only a strengthening economy will turn this ship around,” wrote David Turkaly, an analyst at Susquehanna International Group in New York. He—and Zimmer—had hoped that a raft of new products would juice sales, but now Turkaly isn’t buying that.

“While we maintain our bullish outlook on the longer-term outlook for orthopedics (a growing population of older, active patients), near-term performance is likely to remain choppy,” Turkaly added.

Zimmer is the world’s largest seller of orthopedic implants, but Turkaly prefers smaller rival Stryker Corp., based in Kalamazoo, Mich., because 40 percent of its sales come from medical-surgical products, which have been less affected by the recession.

Stryker is keen to keep Zimmer from growing in those markets. Stryker sued Zimmer this month in federal court in New York, alleging that Zimmer had infringed some of its patents on wound-care products.

But Zimmer is trying to diversify into emerging markets. That’s why it acquired Beijing Montagne Medical Device Co. Ltd. That company makes hip and knee implants, as well as powered surgical instruments, tailored to the Chinese market.

In the third quarter, Zimmer’s revenue fell 1 percent to $965 million. The company earned a quarterly profit of $191 million.

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