Recently, Zimmer Holdings (ZMH) launched its next generation product of Wallis posterior dynamic stabilization system, UniWallis, in Europe and Asia Pacific. The Wallis system is a spinal implant that is meant to stabilize the lumbar spine while preserving the anatomy and minimizing the need for bony resection.
While UniWallis and Wallis are developed on the same principle, the former enables surgeons to perform surgery adopting a unilateral approach, preserving the supraspinous ligament. However, the product has not received approval from the US Food and Drug Administration (FDA).
During the first quarter of fiscal 2011, Zimmer’s biggest segment, Reconstructive Implant, recorded a 3% increase in revenues to $842 million driven by growth in Asia Pacific (16%), Europe (3%) and Americas (1%). While revenues from Knees (within Reconstructive) remained unchanged at $462 million, Hips and Extremities recorded growth of 7% to $337 million and 12% to $43 million, respectively.
Among the other segments at Zimmer, barring Spine which declined 5% to $57 million, growth was witnessed across all other businesses including Surgical and Other (10% annually to $84 million), Trauma (16% to $70 million) and Dental (21% to $63 million).
The Spine segment has been witnessing several challenges over the last few quarters as it continues to face pricing pressure and reimbursement issues in the US. The company is confident that though the US market is currently facing certain challenges, it has an attractive long-term potential in store. Viewing the persistent pricing pressure and reimbursement challenges, Zimmer charged $204 million for goodwill impairment during the fourth quarter of 2010.
Zimmer offers a broad line of reconstructive implant and trauma products, as well as orthopedic surgical instruments and supplies. We believe that the company is on its growth trajectory through new product launches, employment of new technologies and expansion into emerging markets. However, Zimmer continues to witness challenges in the form of pricing pressure and lower procedure volumes resulting from economic uncertainty. Moreover, the company faces tough competition from players such as Smith & Nephew (SNN), Johnson & Johnson (JNJ) among others. The competitive landscape will become tougher with Johnson & Johnson’s recent decision to acquire Synthes for $21.3 billion.
We are currently Neutral on Zimmer, which also corresponds to the Zacks #3 Rank (Hold) in the short-term.
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