Zimmer ditches slow-growing business to refocus

And the move will shake up the orthopaedic robotics scene.

Corporate strategy

Zimmer Biomet has had a pretty tragic year. Deferrals and cancellations of the elective orthopaedic procedures in which its products tend to be used meant that its 2020 sales came in at just $7bn – nearly $1bn below 2019's number. 

With Covid-19 vaccines beginning to roll out, 2021 and the years beyond ought to be rosier for the company. But Zimmer is helping the recovery process along by spinning out its slow-growing spinal and dental businesses, allowing it to sharpen its focus on hip and knee implants, which are seeing greater demand. Zimmer’s Rosa range of surgical robots is also expected to provide a boost in the months to come – though it appears that one of these will also be spun out.

In common with all the ortho specialists, Zimmer had a poor first quarter and a dreadful second (Orthopaedics companies’ nightmare quarter, August 25, 2020). A brief return to the sun in the form of 2% third-quarter sales growth was followed by another dip in 2020’s last period as another wave of Covid-19 infections swept the globe. Zimmer recorded a 12% sales slide and a net loss of $137m across all of last year.

Zimmer Biomet's dismal year
Period Sales ($bn)  Change YoY Profit/(loss) ($m)
Q1 2020 1.8  (10%)  (509)
Q2 2020 1.2  (38%)  (208)
Q3 2020 1.9 2% 246
Q4 2020 2.1  (2%) 334
Full year 2020 7.0  (12%)  (137)
Source: EvaluateMedTech & company releases.

Thanks to the advent of vaccines the fight back against the pandemic is under way, and Zimmer expects to see a recovery in the summer; if elective procedures are given the go-ahead by hospitals, the backlog of untreated patients could give sales a bump. 

Bone structure

But any potential recovery will not be enough long term, the company seems to have decided. By 2022 it is to divest its dental and spine businesses into an independent, publicly traded company, the idea being that the sharper focus of both companies will allow faster growth and more targeted business development activities, including tuck-in acquisitions. 

Zimmer’s dental, spine, craniomaxillofacial and thoracic business unit had sales of just over $1bn in 2020, though this represented a 10% fall. Craniomaxillofacial and thoracic will be staying with Zimmer. 

The decision has “clear positive implications for both growth and margins”, Stifel analysts wrote, and could accelerate Zimmer’s plan to achieve 4-5% topline growth and 30% operating margins by 2030. 

There are also implications for Zimmer’s involvement in the robotics arena. Its Rosa Knee machine was one of the stars of the fourth quarter, with 115 placements; over the entire year sales of the system topped $100m. The system is used for total knee replacement, and competes with similar offerings from Smith & Nephew and Stryker, as well as Johnson & Johnson, whose Velys system was launched last month. 

Future Rosa applications for hip and partial knee replacements are expected to come in 2021. According to Zimmer’s chief executive, Bryan Hanson, the launch of Rosa Hip will allow the group to grow faster than the rest of the hip market.

Selected surgical robots for orthopaedic and other procedures
Company Robot Purpose FDA clearance Source
Hip and knee
Stryker Mako Hip and knee replacement Feb 2010 $1.7m Mako acq in 2013
Smith & Nephew  Navio  Knee replacement Jul 2014 $275m Blue Belt acq in 2015
Zimmer Biomet Rosa Knee Total knee replacement Jan 2019 $78m Medtech acq in 2018
Johnson & Johnson Velys Knee replacement Jan 2021 Orthotaxy acq in 2018
Zimmer Biomet Rosa Knee Partial knee replacement Poss 2021 $78m Medtech acq in 2019
Zimmer Biomet Rosa Hip Hip replacement Poss 2021 $78m Medtech acq in 2020
Spine
Globus Medical Excelsius GPS Spine surgery Aug 2017 Excelsius Surgical acq in 2014
Medtronic Mazor X Stealth Spine surgery Nov 2018 $1.6bn Mazor acq in 2018
Zimmer Biomet Rosa One Spine* Spine surgery Mar 2019 $78m Medtech acq in 2016
Johnson & Johnson Velys Spine surgery Poss 2023 Orthotaxy acq in 2018
Other
Siemens Healthineers CorPath GRX Vascular interventions Oct 2016 $1.1bn Corindus acq in 2019
Johnson & Johnson Monarch Bronchoscopy Mar 2018 $3.4m Auris acq in 2019
Zimmer Biomet Rosa One Brain Neurosurgery Feb 2019 $78m Medtech acq in 2017
*Will be spun out from Zimmer as part of new company. Source: EvaluateMedtech & company websites.

Two other versions of Rosa are on the market. The one used for spinal surgeries will become part of the spin-off company, whereas the neurology one will stay with Zimmer. 

J&J is also planning additional indications for its Velys robot. Currently this may be used by surgeons to plan and perform knee replacements, but J&J hopes to expand into hip, shoulder, trauma, spine and cranial maxillofacial procedures in future, putting it on a similar footing to Zimmer’s Rosa franchise. 

Leerink analysts believe that Velys’s approval for spinal use could be two years away. By that time the Zimmer spinout will be concluded, that new group, along with Medtronic and Globus Medical, will be J&J’s competition. 

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