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Zimmer faces new threat to dominance

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Warsaw-based Zimmer Holdings Inc. has enjoyed eight years as the giant in the industry of selling knee- and hip-replacement implants to hospitals. But now it faces a new threat from Johnson & Johnson.

Hospitals, looking to trim overhead and boost buying power, are increasingly interested in getting their orthopedic surgeons to buy orthopedic implants in bundles—from as few manufacturers as possible.

That means they’d not only like to buy knee and hip implants—but spine and trauma implants as well. And in those latter two categories, Zimmer is a pipsqueak facing competition that just got a lot bigger.

On April 26, New Jersey-based Johnson agreed to pay $21.3 billion to acquire Synthes Inc., based in West Chester, Pa., the leading maker of implants for trauma surgeries.

The acquisition will give Johnson about half the $5.5 billion trauma market and about 20 percent of the $9 billion spine market, according to Wells Fargo estimates published by Dow Jones Newswires.

By comparison, Zimmer claims about 4.5 percent of the trauma market and 2.6 percent of the spine market.

If Johnson is able to leverage its trauma and spine products to take knee and hip sales from Zimmer, it could be trouble. Zimmer had knee and hip sales last year totaling $1.7 billion.

Sales of trauma and spine products totaled less than $300 million. Zimmer also sells implants for extremities and dental, as well as surgical products.

But in two recent appearances at investors' conferences, Zimmer executives have tried to tamp down such fears.

“We don’t think we have to be No. 1 or No. 2 in those emerging businesses [trauma and spine] to create value for the stockholders, but we’re going to want to have a full portfolio of products and compete effectively in each of those spaces,” Zimmer CEO David Dvorak said May 10 at the Bank of America Merrill Lynch health care conference in Las Vegas.

Dvorak added that he sees no short-term impact from the Johnson-Synthes merger. Rather, he views it as a “long, long-term” issue.

To meet the challenge, Dvorak told investors during an April conference call, Zimmer will need to both make acquisitions and develop products internally.

Recently, Zimmer has been having success selling trauma products—the implants used to repair fractures sustained in car accidents, for example. First-quarter sales of those products rose 16 percent.

But sales of its spine products fell 5 percent in the first quarter. Zimmer tried to develop a system of spine-stabilization parts that were rejected by U.S. regulators. That set it behind competitors.

In April, it introduced two spine products, which it hopes will drive future sales.

"We have still, I would say, some work ahead of us to show that we can compete and win in the spine category,” acknowledged Zimmer Chief Financial Officer James Crines during a May 3 investor presentation at the Deutsche Bank Annual Health Care Conference in Boston.

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  1. Cramer agrees...says don't buy it and sell it if you own it! Their "pay to play" cost is this issue. As long as they charge customers, they never will attain the critical mass needed to be a successful on company...Jim Cramer quote.

  2. My responses to some of the comments would include the following: 1. Our offer which included the forgiveness of debt (this is an immediate forgiveness and is not "spread over many years")represents debt that due to a reduction of interest rates in the economy arguably represents consideration together with the cash component of our offer that exceeds the $2.1 million apparently offered by another party. 2. The previous $2.1 million cash offer that was turned down by the CRC would have netted the CRC substantially less than $2.1 million. As a result even in hindsight the CRC was wise in turning down that offer. 3. With regard to "concerned Carmelite's" discussion of the previous financing Pedcor gave up $16.5 million in City debt in addition to the conveyance of the garage (appraised at $13 million)in exchange for the $22.5 million cash and debt obligations. The local media never discussed the $16.5 million in debt that we gave up which would show that we gave $29.5 million in value for the $23.5 million. 4.Pedcor would have been much happier if Brian was still operating his Deli and only made this offer as we believe that we can redevelop the building into something that will be better for the City and City Center where both Pedcor the citizens of Carmel have a large investment. Bruce Cordingley, President, Pedcor

  3. I've been looking for news on Corner Bakery, too, but there doesn't seem to be any info out there. I prefer them over Panera and Paradise so can't wait to see where they'll be!

  4. WGN actually is two channels: 1. WGN Chicago, seen only in Chicago (and parts of Canada) - this station is one of the flagship CW affiliates. 2. WGN America - a nationwide cable channel that doesn't carry any CW programming, and doesn't have local affiliates. (In addition, as WGN is owned by Tribune, just like WTTV, WTTK, and WXIN, I can't imagine they would do anything to help WISH.) In Indianapolis, CW programming is already seen on WTTV 4 and WTTK 29, and when CBS takes over those stations' main channels, the CW will move to a sub channel, such as 4.2 or 4.3 and 29.2 or 29.3. TBS is only a cable channel these days and does not affiliate with local stations. WISH could move the MyNetwork affiliation from WNDY 23 to WISH 8, but I am beginning to think they may prefer to put together their own lineup of syndicated programming instead. While much of it would be "reruns" from broadcast or cable, that's pretty much what the MyNetwork does these days anyway. So since WISH has the choice, they may want to customize their lineup by choosing programs that they feel will garner better ratings in this market.

  5. The Pedcor debt is from the CRC paying ~$23M for the Pedcor's parking garage at City Center that is apprased at $13M. Why did we pay over the top money for a private businesses parking? What did we get out of it? Pedcor got free parking for their apartment and business tenants. Pedcor now gets another building for free that taxpayers have ~$3M tied up in. This is NOT a win win for taxpayers. It is just a win for Pedcor who contributes heavily to the Friends of Jim Brainard. The campaign reports are on the Hamilton County website. http://www2.hamiltoncounty.in.gov/publicdocs/Campaign%20Finance%20Images/defaultfiles.asp?ARG1=Campaign Finance Images&ARG2=/Brainard, Jim

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