Zimmer Holdings (ZMH), a leading player in the field of musculoskeletal care, has decided to set up a new research and development center in Beijing, China. This center would help the company to work on its research and development programs across the region.
Zimmer offers a broad line of reconstructive implant and trauma products as well as orthopedic surgical instruments and supplies. The company recorded a 6.9% increase in revenues during the most recent quarter and witnessed growth across its segments, barring Spine. We believe that the company is on its growth trajectory through new product launches, employment of new technologies and expansion into the emerging markets.
Over the recent past, emerging markets have been playing a significant role in shifting the business mix of medical device manufacturers. The current economic uncertainties in both US and Europe have had an adverse impact on procedure volume. Pricing pressure continues to be another significant issue. A similar situation is being witnessed by other players in this segment such as Stryker Corporation (SYK) and Smith & Nephew (SNN).
According to David C. Dvorak, President and CEO of Zimmer, the Asia-Pacific region offers significant growth opportunities in both established and emerging markets. During the most recent quarter, the company recorded strong performance in international segments, including emerging markets. The company’s strategic investments in these regions over the past several quarters to improve operational and sales performance are yielding results.
With its acquisition of Beijing Montagne Medical Device Co., a manufacturer and distributor of orthopedic implants, Zimmer has established its presence as a leading player in China. While the current business from this acquisition is around $10 million, the market potential is likely to double in the next three years. Moreover, emerging markets opportunity is expected to grow to $10 billion by 2018 for the Reconstructive and Trauma markets.
We also note that with stabilization in the global economy, procedure growth in the developing or emerging markets is on the higher side because of lower penetration rates compared to the developed markets (from low single digits to mid single digits). As a result, significant opportunity lies in the emerging markets encouraging Zimmer to make worthwhile investments.
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