$7.68 Billion
Prior Fiscal: $7.4 Billion
Percentage Change: +3.78%
R&D Expenditure: $437.4M
Best FY24 Qzuarter: Q4 $2.02B
Latest Quarter: Q2 $2.08B
No. of Employees: 17,000
Global Headquarters: Warsaw, Ind.

The Terminator’s back.

In a good way this time.

He’s abandoned his depravity and murderous rampage for humanity’s sake, trading his weapons cache for gym equipment and his athanasia for mortality. Thus, the man-machine hybrid is now all man, prone to all of man’s organic and inorganic frailties.

As a mere mortal, the Terminator no longer can identify with his former near-indestructible persona. He’s more focused these days on movement, having long realized the importance of mobility to overall health.

Hence the reason for the Terminator’s collusion with orthopedic device manufacturer Zimmer Biomet Holdings Inc.

That’s not a misprint: Bodybuilder-turned-actor Arnold Schwarzenegger (a.k.a., the Terminator) is using his iconic catchphrase from his 1984 film to raise awareness about the importance of mobility.

“As you get older, you get the wear and tear and you get the damage to your joints. People talk about joint replacements and they’re afraid of it,” the famous fitness fanatic noted in a CNBC interview late last year. “I’ve had a hip replacement, a valve replacement and everything…I mean, I’m like the real Terminator. I have so many artificial parts in my body…The key thing here with [Zimmer] is to create more movement. The more you move, the more you exercise, the healthier you’re going to get, the better your quality of life is going to be…this is why this is an important goal that Zimmer has—to have more people feel more comfortable with the idea of getting [joint] replacements. Now it will be a whole new extent where I can reach out to the world and use my platform, my popularity, my name, and my involvement in fitness and really pump everybody up and say, ‘Hey, don’t ever give up. Move, move, move, because if you rest, you rust.’”

Schwarzenegger and Zimmer Biomet are tag-team partners on the shrewdly titled “You’ll Be Back” movement campaign, which aims to encourage joint pain sufferers to share their stories and seek treatment. The duo announced their alliance late last fall through a news release, introducing the former California governor as Zimmer Biomet’s new chief movement officer. The company is tasking Schwarzenegger with motivating, engaging, and supporting people to “increase mobility, maintain joint health, and proactively incorporate movement into their daily routines to foster overall health and wellness.”

“Through this partnership with Zimmer Biomet, I can continue to encourage others to make positive changes each and every day that support them living their best and most active lives possible,” Schwarzenegger said in the news release. “…my goal with Zimmer Biomet is to continue to push people to see that movement creates joy and extends the quality of our lives.”

Zimmer Biomet’s partnership with Schwarzenegger is perhaps the crowning achievement of Ivan Tornos’ 16 month-tenure as leader of the 98-year-old company. His initial 500 days in the corner office have been filled with a number of notable accomplishments, from market-penetrating regulatory authorizations and key partnerships to refocused R&D programs and strategic acquisitions. Under Tornos’ first full calendar year as president and CEO, Zimmer Biomet significantly improved its earnings potential, growing total sales 4% to $7.68 billion in fiscal 2024.

In its latest annual report, the company attributed the increase to a combination of market growth, new product introductions, positive price realization, and commercial execution across the organization. However, the expansion was tempered by operational challenges from an enterprise resource planning software implementation that impacted Zimmer Biomet’s ability to fulfill certain customer orders.

Reported operating profit ($1.28 billion) was relatively consistent with FY23. Higher net sales and lower R&D expenses were offset by higher restructuring charges and intangible asset amortization. Fiscal 2024 adjusted operating profit improved from the previous year primarily due to higher net sales and cost reduction initiatives.

FROM THE TOP: “Healthcare continues to face critical challenges—including improving patient awareness, advancing patient safety, increasing efficiency in healthcare delivery and driving better patient outcomes. At Zimmer Biomet, we are committed to addressing these challenges head-on through innovation, technology, and partnerships. We are proud of the progress we have made and we are poised to build on this success and drive even greater impact.”

—Ivan Tornos, President and CEO

Zimmer Biomet’s robust revenue metrics carried through to all four of its product categories. Market growth and new product introductions fueled a 4.4% rise in Knees revenue (to $3.17 billion) and a 1.6% increase in Hips proceeds (to $1.99 billion). The company positioned itself for future growth in Knees through three regulatory approvals and a limited distribution agreement with THINK Surgical.

The accord specifies that Zimmer Biomet’s technology be integrated into a customized TMINI robotic solution for total knee arthroplasty (TKA). The agreement enables Zimmer Biomet to exclusively offer the TMINI Miniature Robotic System within its knee solutions lineup. Cleared by the U.S. Food and Drug Administration (FDA) in May 2023, the TMINI features a wireless handheld robotic instrument for accurate implant placement based on a predetermined CT-based, three-dimensional surgical plan.

“We are proud to be the first medtech company to offer two complementary robotic systems for surgeons looking to incorporate robotic assistance while performing a knee replacement,” Zimmer Biomet Chief Science, Technology and Innovation Officer Dr. Nitin Goyal, said upon announcing the THINK Surgical agreement last June. “TMINI addresses surgeon demand for an ergonomic, wireless, handheld robotic system and now, in addition to ROSA, underscores our dedication to empowering surgeons with more choices to make the right decision for each patient.”

Surgeons have even more choices now for knee replacement and revision patients, thanks to several regulatory ratifications late last year. Within a two-week span in November and December, Zimmer Biomet earned CE Mark certification and FDA authorizations for the Persona Revision Knee System, Oxford Cementless Partial Knee, and Personal SoluTion PPS Femur.

MDR certification for Zimmer Biomet’s Personal Revision Knee extends the company’s European market reach. The Persona Revision Knee offers a personalized fit and optimized function for revision knee candidates, and it features the company’s proprietary Trabecular Metal technology, which promotes long-term bone in-growth and improves implant fixation. The modular system also allows for intraoperative flexibility, enabling surgeons to address a wide range of complex cases.

Just a week after landing the MDR certification in mid-November 2024, Zimmer Biomet won FDA premarket approval for the Oxford Cementless Knee, which launched in England two decades prior. While the device has a 60% market share in Europe, the Oxford Partial Knee is the first product of its type available in the United States, where it will likely be a good fit for ambulatory surgery centers.

Another cementless knee option arrived with the FDA’s 510(k) clearance of the Persona SoluTion Porous Plasma Spray (PPS) Femur last December. Designed as an alternative for patients with sensitivities to bone cement and/or metal, the Persona SoluTion PPS Femur features a porous coating for cementless fixation and leverages a proprietary surface treatment for better wear performance.

“…our U.S. portfolio was strengthened in 2024 with the approvals of the Oxford Partial Cementless Knee, the clearance of the 30 millimeter, the short version of the Personal IQ, and some other places in our knee portfolio,” Tornos told analysts during a Q4/full-year 2024 earnings call earlier this year. “These products, combined with the steady adoption of our Persona OsseoTi cementless knee, will position us strongly in the U.S. market. We’re very excited in terms of our new portfolio and we really look forward to acceleration of the growth in knees.”

The company also can look forward to accelerated growth in Hips, courtesy of last summer’s purchase of OrthoGrid Systems Inc., and the October launch of the Z1 Femoral Hip System at the American Association of Hip and Knee Surgeons 2024 annual meeting.

The OrthoGrid deal adds a fluoroscopy-based surgical assistance platform to Zimmer Biomet’s hip replacement toolbox, while the Z1 System pairs with the G7 Acetabular System to give the company a streamlined, efficient total hip arthroplasty solution.

“While we could not be more excited with our knee and hip products, Zimmer Biomet is today much more than just large joints,” Tornos noted on the earnings call. “Within S.E.T., ROSA Shoulder has the potential to meaningfully expand the shoulder arthroplasty market by improving the accuracy and reproducibility of the procedure.”

In addition to that market expansion, Zimmer Biomet gained first-mover advantage in robotic-assisted shoulder replacements following the FDA clearance of the ROSA Shoulder System last winter. The company’s fourth robotics application, ROSA shoulder enables surgeons to perform anatomic or reverse shoulder replacements, and helps with precise glenoid and humeral placement. The system also integrates with Zimmer Biomet’s surgical planning system, which allows surgeons to visualize a procedure in advance and create patient-specific guides.

ROSA Shoulder made its OR debut in late April, and had assisted in hundreds of procedures by the time Zimmer Biomet won FDA clearance in December (2024) for the OsseoFit Stemless Shoulder System for total shoulder replacement.

Designed to match the humerus’ natural asymmetry, OsseoFit features left- or right-sided anchor implants and uses porous metal that mimics spongy bone tissue. The system is available in a singular instrument tray to maximize workflow and sterile processes.

While the OsseoFit clearance arrived too late in the year to impact 2024 earnings, the ROSA Shoulder System helped boost Zimmer Biomet’s Technology & Data, Bone Cement and Surgical segment sales by $4 million (to $640.3 million).

S.E.T. (Sports Medicine, Extremities, Trauma, Craniomaxillofacial and Thoracic) revenue jumped 6.5% to $1.86 billion due to net sales growth in CMFT, sports medicine, and upper extremities products.

Besides the product introductions and authorizations, Zimmer Biomet positioned itself for long-term growth last year by establishing an exclusive partnership with CBRE Group Inc., the world’s largest commercial real estate services and investment firm, to grow the U.S. ambulatory surgery center footprint.

The company also became the official medical device partner of three leading U.S. pickleball organizations: the Association of Pickleball Players, the Professional Pickleball Association, and USA Pickleball, the National Governing Body for Pickleball.

$7.39 Billion
Prior Fiscal: $6.94 Billion
Percentage Change: +6.5%
R&D Expenditure: $459M
Best FY23 Quarter: Q4 $1.94B
Latest Quarter: Q1 $1.89B
No. of Employees: 18,000

On Aug. 22, 2023, 3M announced Bryan C. Hanson would be taking the chief executive spot at the independent healthcare company spun off from 3M, now known as Solventum. He officially took the reins of the newly spun-out company on Sept. 1, 2023.

This left the corner office at orthopedic giant Zimmer Biomet open. It was a role Hanson had been in since 2017 after migrating from Medtronic’s Minimally Invasive Therapies Group.

Rather than begin an outside search for a new chief exec, Zimmer Biomet opted to promote Ivan Tornos, who began his tenure at Zimmer Biomet in November 2018 as group president of orthopedics. A year later, he was named the company’s group president of global businesses and the Americas. In March 2021, he further climbed to chief operating officer. Now he has officially reached the orthopedic giant’s apex.

“It is an honor to be appointed CEO of Zimmer Biomet at a time when our execution is extremely strong and our innovation momentum is at an all-time high,” Tornos said in a press release announcing the leadership transition. “I am grateful for Bryan’s leadership in transforming the company and am now looking forward to leading the team and accelerating our ZB strategy to drive continued growth and boldly advance the standard of musculoskeletal care.”

Tornos’ resume spans several top 30 global medical device companies. From June 2017 to October 2018, Tornos headed BD’s (Becton, Dickinson and Company) global urology, medical, and critical care division. From September 2013 until BD’s acquisition of C.R. Bard in December 2017, he was president of Bard’s EMEA region. Tornos joined Bard in August 2011.

From April 2009 to August 2011, Tornos was VP and GM of Covidien’s Americas Pharmaceutical and Medical/Imaging segments. He was Baxter’s international VP of business development and strategy from July 2008 to April 2009. Before that, he spent 11 years in leadership assignments across the world with Johnson & Johnson.

As a result of Tornos’ appointment, CFO Suky Uphadyay expanded his role to overseeing the company’s global operations and supply chain functions.

Further updates to the company’s leadership team were announced a few weeks after Tornos’ promotion. Wilfred van Zuilen was promoted to group president of the EMEA region and will lead select global R&D projects. Mark Bezjak was promoted to president of the Americas, adding Latin American oversight to his responsibilities. Nitin Goyal, M.D., was appointed to the executive leadership team under the newly created position of chief science, technology, and innovation officer. He now oversees all global innovation, medical education, clinical affairs, and reimbursement strategy.

Former Hospital for Special Surgery (HSS) president and CEO Louis A. Shapiro was also appointed to Zimmer Biomet’s board of directors shortly after the end of 2023.

The Warsaw, Ind.-based company had $7.39 billion of revenue in fiscal year 2023 (ended Dec. 31). This 6.5% ascent from the year prior, according to the company’s form 10-K, was due to fewer COVID-19-related disruptions to elective surgical procedures compared to 2022, when the Omicron variant and staffing shortages curtailed the procedures.

Supply chain improvements and procedure volume recovery from previously deferred surgeries also contributed to revenue growth. Net earnings from 2023 reached $1.02 billion, compared to $290.2 million in 2022, thanks to higher revenues, positive tax settlements, and lower operating expenses.

The company’s Knees franchise posted $3.04 billion in fiscal year 2023, rising 9.6% over the previous year. The growth was attributed to the recovery in elective surgical procedures, improvements in the company’s supply chain, and new product introductions. U.S. sales captured $1.77 billion of revenue for the business for a growth of 9.6%. International sales grew 9% to $1.27 billion. Changes in foreign currency exchange rates had a negative effect of 0.8%.

The Hips segment reported $1.97 billion of revenue in FY 2023, rising 3.8% over the prior year. Growth in this business was also stimulated by elective surgical procedure recovery, improvement in the supply chain, and new product introductions. U.S. Hips sales amounted to $1.01 billion and grew 5.4%, while international revenues rose 2.2% to $955 million. Foreign currency exchange rates negatively affected this business by 1.3%.

The franchise was augmented by the acquisition of privately-held, Singapore-based OSSIS in May. The transaction continued a partnership with OSSIS that began in 2021 as Zimmer Biomet’s Asia Pacific partner for patient-specific, 3D-printed titanium hip joint replacements and other pelvic bone replacement surgery. The partnership was broadened to Europe, Middle East, and Africa in 2022.

The company features rapid design and production of personalized implants. Nabbing OSSIS bolstered the Hips business with personalized, 3D-printed implants, second-time hip replacement products, and replacements involving bone tumors and trauma.

The HAMMR automated hip impaction system was introduced in Q4 2023. HAMMR assists with bone preparation and implant placement during hip replacement. It strengthened the company’s portfolio of automated surgical instruments to achieve customized control, precision, and energy levels.

S.E.T. (Sports Medicine, Extremities, Trauma, Craniomaxillofacial and Thoracic) 2023 revenues grew 3.3% to $1.75 billion. Growth here was mainly driven by products for CMFT (up 12.9%), sports medicine (up 10.6%), and upper extremities (up 9.4%). Trauma product revenues posted the only decline, dropping 5.5%. The segment’s performance was also tempered by unfavorable reimbursement changes in some of the company’s restorative therapy products.

The S.E.T. business was fortified in January 2023 with the beginning of a $155 million acquisition deal for Embody Inc. Embody was founded in 2014 and had over $23 million in funding from the Defense Advanced Research Projects Agency (DARPA) and U.S. Department of Defense.

After closing about a month later, the transaction for Embody added a portfolio of collagen-based biointegrative solutions to Zimmer Biomet’s arsenal. The Tapestry biointegrative implant for tendon healing joined the company’s ranks, as did the Tapestry RC arthroscopic implant system for rotator cuff repair.

Q2 2023 saw U.S. Food and Drug Administration (FDA) 510(k) clearance for ActivBraid, a biointegrative, high-strength co-braid for tissue repair. Composed of collagen and ultra-high molecular weight polyethylene (UHMWPE), ActivBraid facilitates new tissue formation and is less abrasive than conventional high-strength suture.

Zimmer Biomet’s “Other” category houses its robotic technology, surgical, and bone cement products. It also contains the ZB Edge platform to connect robotic and digital technologies to collect data throughout the surgical journey.

The segment garnered $636 million in fiscal year 2023, representing an 11.6% rise over the prior year. The company pointed to higher net sales for the ROSA robot as the main reason for the increase.

The company unveiled several enhancements to ZBEdge Dynamic Intelligence at March’s American Academy of Orthopaedic Surgeons (AAOS) annual meeting.

WalkAI Recovery Curves was integrated into mymobility—which has enrolled 100,000 patients as of the company’s Q3 2023 earnings report—so surgeons can track recovery by benchmarking patient gait metrics to a matched cohort and predict 90-day gait speed. WalkAI Patient Progress was also added to track and focus on recovery though a smartphone app and compare 90-day gait speed recovery with peers. A Clinician Mobile Experience lets providers manage and track their patients and enable faster enrollment as well.

Canary Quantiles Recovery Curves was added to the Persona IQ smart knee implant. This way, surgeons can collect cohort-comparative, post-op gait parameters during the course of monitoring and treatment after surgery.

Improvements to ROSA Knee’s hardware and software were showcased, including enhancements for optimized landmarks, knee state evaluation, cut validation, and data. Cementless knee replacement became an option for the robot thanks to compatibility with Persona OsseoTi keel tibia. To optimize intra-op interaction with ROSA Knee, Zimmer Biomet also debuted an enhanced mixed reality function.

“AAOS has always been a premier event to showcase to the orthopedic community the latest developments in our ZBEdge portfolio that harness the power of robotics, artificial intelligence, mixed reality, and predictive data analytics to help surgeons transform patient outcomes,” commented Tornos.

September saw initiation of a partnership with HippoFi in order to introduce a synthetic bone growth biomaterial. Zimmer Biomet was granted an exclusive global license to the underlying technology of HippoFi’s ActiveOrb for spine market. Both parties engaged in a joint commercialization research agreement as well, with Zimmer Biomet overseeing production of the spine-specific product under the PUR Biologics—HippoFi’s subsidiary—brand.

The acquisition of Avitus Orthopaedics came at the end of the fiscal year 2023. The deal added the Avitus Bone Harvester, advanced suction curettage to minimally invasively harvest autologous bone and marrow. The deal also added capabilities for percutaneous, autogenous bone delivery with the ArchiMIS for precision autografting and DragonWing for large-volume autografting.

$6.94 Billion
Prior Fiscal: $6.83 Billion
Percentage Change: +1.6%
R&D Expenditure: $406M
Best FY22 Quarter: Q4 $1.83B
Latest Quarter: Q1 $1.83B
No. of Employees: 18,000

In February 2021, Zimmer Biomet declared it would shift its focus to high-growth, high priority areas, which was identified by the firm as knees, hips, sports medicine, extremities, trauma, and craniomaxillofacial and thoracic solutions. At the time, the company attributed a total market value of $43.5 billion to those segments, viewing it as ripe for growth opportunities.

As a result of this decision, the spine and dental segments of the organization were to be spun off to form its own, independent company. ZimVie (which it would come to be named) would be well-positioned for increased success within the $21 billion combined market of those two segments. This new venture would have a solid foundation upon which to grow, with 2019 and 2020 pro forma revenue totals of approximately $1.022 billion and $897 million, respectively.

Fast-forward almost 13 months to the day, Zimmer Biomet announced the completion of the spin-off of ZimVie. “The spinoff of ZimVie marks a major milestone in the active portfolio management of Zimmer Biomet as we continue to strengthen our position as a global leader in the medtech space,” said Bryan Hanson, chairman, president, and CEO of Zimmer Biomet. “We are confident this transaction will create shareholder value for both companies and will allow us to increase our focus and enhance revenue growth for our core businesses.”

While ZimVie saw sales shrink slightly year-over-year in its first (albeit partial in its first annual period) fiscal, that contrasted against former parent, Zimmer Biomet, which saw a modest gain of 1.6%. The overall rise was attributed to the continued recovery of surgeries following the significant drop in procedures during the pandemic.

Unfortunately, the gains were not reflected across all of the four remaining segments. As a whole, the rise translated to a tally of $6.94 billion in 2022 (vs. $6.83 billion in 2021; both figures reflect the absence of the ZimVie segments). Knees and Hips were on the positive side of the revenue equation as both saw jumps in their financials in 2022. They finished the year with gains of 4.9% and 2.1%, respectively. In real world figures, those net sales were $2.78 billion for the Knees business, and $1.89 billion for Hips. The company pointed to the same reason for the rise as the company’s increase—ongoing return of procedures.

On the other hand, S.E.T. (which encompasses the products and services supporting Sports Medicine, Extremities, Trauma, Craniomaxillofacial, and Thoracic) and Other (which includes the ROSA robotic surgery systems and related technologies) declined in 2022. S.E.T. dropped by 1.8% to end at $1.7 billion. The diminished sales were blamed on a number of factors. They included the negative effects of changes in foreign currency exchange rates, lower trauma product net sales partially due to value-based purchasing plan implementation, and unfavorable changes in reimbursement for certain restorative therapy products.

The loss for Other was slightly more substantial in percentage (4.3%), which resulted in a $570 million contribution for FY22. Zimmer Biomet attributed this loss to the negative effects of changes in foreign currency exchange rates and lower unit sales of the ROSA robots as some customers shifted to operating lease arrangements for the systems instead of purchasing them.

Curiously, both of these businesses were the highest gainers from 2020 to 2021, with 13.3% for S.E.T. and an astounding 25.9% for Other. Of course, that was somewhat reflected throughout the orthopedic industry, which took the biggest hit from elective procedures being postponed during the pandemic.

Seeking to restore positive gains to all four of its business units, a number of innovations were rolled out in 2022 to assist in doing just that.

In its ongoing effort to bring intelligence and analytics to the orthopedic technology space, the organization introduced its WalkAI Artificial Intelligence Model. This solution helps to identify patients who are predicted to have a lower gait speed outcome at 90 days after hip or knee surgery. The daily prediction is compared to anonymized, real-world data from the extensive ZBEdge database to identify when a patient’s recovery may not be on track, based on predicted low gait speed. ZBEdge is a suite of integrated smart, digital, and robotic technologies purposefully engineered to deliver transformative data-powered clinical insights with the goal of improving patient outcomes.

“Our strategic prioritization and investment in R&D has solidified our position as an innovator in our space with breakthrough technologies,” said Ivan Tornos, COO of Zimmer Biomet. “ZBEdge is realizing our bold vision of an interconnected ecosystem of digital and robotic technologies by sharing data and unlocking clinical insights, which is now enhanced by artificial intelligence modeling.”

Along the same vein, a couple of months later, Zimmer Biomet rolled out new artificial intelligence (AI) capabilities within its Omni Suite, an intelligent operating room (OR) designed to optimize surgical workflow and procedural efficiency by automating manual tasks and streamlining unnecessary technology and redundant hardware. The AI feature uses cameras to automatically recognize and timestamp key OR workflow milestones, including patient entry and exit, door count, the start and stop of anesthesia, surgery, and cleaning. Surgical teams are guided through a process to help optimize OR workflow based on real-time access to workflow metrics.

During the second half of 2022, the company made two announcements regarding implant offerings. The first was an FDA clearance for its Identity Shoulder System for shoulder replacement. The offering is a convertible system that uses proprietary technologies to align each surgeon’s approach to an individual patient’s anatomy, with the goal of alleviating pain and optimizing range of motion. It is designed to allow surgeons to devise and execute a patient-specific surgical plan with precision. Further, the system expands on the traditional inlay and onlay reconstruction used in reverse shoulder arthroplasty by providing eight humeral tray combinations that give surgeons increased options for aligning the humerus with the glenoid, without lengthening the arm.

The other product notice from the firm was with regard to the Persona Knee System Portfolio. The company gained FDA clearance for the Persona OsseoTi Keel Tibia for cementless knee replacement. This solution features a porous version of the Persona anatomic tibia with Zimmer Biomet’s OsseoTi Porous Metal Technology, which uses anatomical data in combination with 3D-printing technology to build a structure that directly mimics the architecture of human cancellous—or spongey—bone. This material is combined with a keeled design to deliver stable initial and biological fixation.

In addition to the product news the organization generated in 2022, it also teamed with a couple of partners to help with future endeavors. Predictably, both arrangements centered around its ZBEdge digital platform of solutions and enhancing the offerings and capabilities of it.

Establishing a three-year deal with the Hospital for Special Surgery (HSS)—the second collaboration with the medical center in as many years—the organizations announced they were creating the HSS/Zimmer Biomet Innovation Center for Artificial Intelligence in Robotic Joint Replacement. Through the center, the entities aim to develop new decision support tools, powered by data collection and machine learning, to provide data-driven recommendations to surgeons for robotic-assisted joint surgery. The tools, which will be integrated into the ROSA Knee and ROSA Hip systems, will further expand the capabilities of the ZBEdge suite with the goal of improving patient outcomes.

“Together we hope to create clinically validated decision support tools that rely on real-world patient and procedural data to inform actionable recommendations that help surgeons achieve predictable and reproducible clinical outcomes,” said Nitin Goyal, M.D., Chief Science, Technology and Innovation Officer at Zimmer Biomet.

The second pairing saw a connection made with Surgical Planning Associates (SPA) for an exclusive, multi-year co-marketing agreement to commercialize HipInsight, the first FDA-cleared mixed reality navigation system for total hip replacement. HipInsight is customized for Zimmer Biomet’s hip implant portfolio and allows surgeons to use Microsoft HoloLens 2 glasses to visualize a hologram of the patient’s pelvic anatomy projected on the pelvis during surgery to support implant placement and alignment. HipInsight, produced by SPA, was added to Zimmer Biomet’s OptiVu Mixed Reality portfolio of applications.

$7.83 Billion
Prior Fiscal: $7.02 Billion
Percentage Change: +11.5%
R&D Expenditure: $497M
Best FY21 Quarter: Q4 $2.03B
Latest Quarter: Q2 $1.78B
No. of Employees: 19,500

Commendations are in order for the prognosticators—authors like Philip K. Dick, Clifford Simak, Robert Heinlein, Michael Crichton, and others who envisioned 21st-century medicine long before its actual birth.

Simak, for example, concocted the idea for a regenerative tissue repair product (“Time is the Simplest Thing” 1961) half a century before the real stuff came along, courtesy of U.K. scientists.

Similarly, Heinlein wrote about sprayable skin for minor burn treatment (“The Puppet Masters” 1951), a full 67 years prior to U.S. Food and Drug Administration approval of Avita Medical’s spray-on skin system, RECELL.

Crichton beat AccuVein LLC to the punch for the automatic vein finder (40 years in advance), and Dick laid claim to artificial organs (“Cantata” 1964), electrical brain signal reading technology (“A Scanner Darkly” 1977), transdermal substance delivery (“Vulcan’s Hammer” 1960), and the artificial heart (“Dr. Futurity” 1960).

Curiously, though, none of these literary visionaries (or others) dreamed up a “smart” knee. The closest anyone came to such a whimsical notion was Martin Caidin, whose man-machine pairing in the 1972 best-seller “Cyborg” was later dramatized in the ABC series, “The Six Million Dollar Man.”

Alas, Caidin and his cohorts lost bragging rights to a self-assessing artificial joint that “talks” to doctors. Despite their impressive prophetic prowess, those authors never imagined—or perhaps never thought it possible—to combine sensor technology with an artificial joint.

William Hunter, however, knew better. He was convinced the combination was not only possible, but likely revolutionary as well.

The company Hunter founded a decade ago on his conviction is proving him right—the implantable sensor technology it developed could forever change the patient-doctor relationship, as it aims to improve healthcare outcomes through continuous data collection and analysis.

“The vision for this company is straightforward…let’s collect data from inside the body and connect that device to the internet,” Hunter, MD, said in a Deloitte blog post last fall. “Why is it that your refrigerator is connected to the internet, but your heart valve or your knee replacement isn’t?”

Good question but an irrelevant one now, since Hunter’s Vancouver-based company, Canary Medical Inc., won U.S. regulatory approval last summer for its proprietary implantable Canturio TE (tibial extension) sensor technology. Using 3D gyroscopes and 3D accelerometers, Canturio TE (CTE) measures, records, and securely sends to the Cloud a wide range of gait data. Surgeons can also compare post-operative gait metrics with mobility metrics collected before total knee replacement surgery.

The CTE’s high-fidelity sensors are modeled after drone guidance system mechanics, and collect 25 observations per second (similar to the human eye) to measure patient activity; three times a day, the CTE collects higher fidelity data at 800 observations per second. A pacemaker battery with a 20-year lifespan powers the device, enabling it to collect daily patient data for the first year after total knee arthroscopy (TKA).

Besides helping patients regain and maintain their mobility after procedures, Canary Medical’s sensor technology also could help surgeons better understand the causes of TKA complications such as pain, infection, or loosening.

“Every time the heel hits the ground, it sends a vibration wave up through the leg and into the knee replacement that can be measured by Canturio in a manner analogous to pinging a tuning fork,” explained Hunter, Canary Medical’s CEO. “Once we have enough information on normal versus abnormal vibration patterns, we believe we can identify potential problems with the joint—like loosening or even infection—using artificial intelligence to read and interpret the vibration pattern. It’s going to take data from about 1,000 patients before we can start doing that.”

Canary Medical is well on its way to that grand milestone, having licensed its CTE technology to Zimmer Biomet Holdings Inc. for use in the orthopedic giant’s Persona tibial baseplate. The sequential smart implant—Persona IQ—works in tandem with Zimmer Biomet’s remote care management platform (mymobility with Apple Watch) and other components of the ZBEdge Connected Intelligence Suite.

Touting it as the world’s “first and only smart knee,” Zimmer conducted a limited rollout of the Persona IQ last fall, shortly after its late summer de novo clearance by the U.S. Food and Drug Administration (FDA).

“Think of what [smart implants] bring to the table: A doctor will be able to see, on a daily basis, is the patient walking enough? Does the patient have a range of motion that dictates they’re doing well and on track? With all the other input they’re going to have with current standards of care, that [information] is very much an added bonus,” Zimmer Biomet VP of Smart Implants Jiny Kim told Inside INdiana Business. “That’s the super exciting part of [Persona] IQ—not only as the first smart knee—but that this component gets into the much larger ecosystem we’re creating that could, hopefully, in the future truly improve patient care. We think innovation is going to continue to happen in the orthopedic space and this is one of many [technologies] that’s going to get us there.”

Some of the other technologies Zimmer Biomet is counting on to keep it in the forefront of orthopedic innovation are the digital and robotic solutions comprising the ZBEdge Connected Intelligence Suite. Unveiled in March 2021, ZBEdge encompasses:

• • The ROSA Robotics platform

• • Anatomical visualization and guidance tools Signature ONE Surgical Planning, the iAssist Knee Alignment System, and Optical Navigation mymobility patient engagement with Apple Watch

• • Data services and analytics including the OrthoIntel Orthopedic Intelligence Platform and Omni Surgical Suite integrated operating room

The ZBEdge Connected Intelligence Suite offers hospitals and ambulatory surgery centers access to pre-, intra-, and post-operative solutions designed to create an integrated product experience that draws upon data from devices, robotics, and digital innovations, according to Zimmer Biomet. This data is aggregated, analyzed, and translated into actionable clinical insights that can inform surgical care decisions through the OrthoIntel Orthopedic Intelligence Platform.

“The ZBEdge Connected Intelligence Suite enables healthcare professionals to connect the dots between procedural and patient care at every stage of the surgical journey,” Zimmer Biomet’s newly-appointed COO Ivan Tornos said upon the product’s introduction. “ZBEdge technologies are designed with the dual goals of reducing variability of care and enhancing outcomes.”

ZBEdge bolstered its outcome-enhancing abilities last year through an augmented robotics platform. In April and August, the FDA cleared Zimmer Biomet’s ROSA Robotics solution for partial knee and direct anterior total hip arthroplasty, respectively.

The ROSA Partial Knee System features proprietary 2D to 3D X-Atlas imaging technology and real-time, intraoperative data collection on soft tissue and bone anatomy to improve bone cut accuracy and range of motion gap analysis, which may improve flexion and restoration of natural joint movement.

ROSA Hip is a fluoroscopy-based tool designed for direct anterior approach loyalists. It helps guide acetabular component orientation as well as intra-operative assessment of leg length and offset; the application allows clinicians to create a personalized surgical plan through the ONE Planner Hip. This pre-operative planner features a spinopelvic mobility assessment tool if both a sitting and standing lateral X-ray are provided with the anteroposterior X-ray, together with an auto-plan function that allows surgeons to potentially create a pre-operative plan within five minutes.

ROSA Hip also aims to improve procedural efficiency via a simplified setup that eliminates the need for pins or reference arrays and provides for an X-ray imaging alternative to computed tomography scans.

ROSA Hip was the fourth addition to Zimmer Biomet’s robotic surgical platform, which includes separate systems for total knee arthroplasty, as well as the ROSA ONE system for neurosurgical and spine operations.

“…the pipeline is really strong. That’s one of the things that has been a positive surprise during this COVID pressure. There has not been a reduction in demand on robotics, which is, to be honest, when we first started, I thought it would be the case, but we just haven’t seen it,” Zimmer Biomet leader Bryan Hanson told analysts earlier this year. “…in the U.S., we reached that 10% of total knees [is] being done robotically. It doesn’t sound like much…but that feels like a pretty good start. And the fact is it’s just the beginning of the journey. ZBEdge is getting a lot of traction. It’s creating brand awareness for this company to be a leading-edge organization and that does drive revenue growth for us.”

Significant revenue growth, actually: Zimmer Biomet’s FY21 proceeds climbed 12% to $7.83 billion due to improved elective procedure volume that boosted both operating profit ($780.1 million) and diluted earnings per share ($1.91).

Solid performances in all five reporting franchises benefitted Zimmer Biomet’s bottom line as well. Leading the charge was Other (robotic systems, surgical, bone cement), which increased sales 26% to $595 million, followed by S.E.T. (sports medicine, biologics, foot/ankle, extremities, trauma, craniomaxillofacial) which grew proceeds 13% to $1.72 billion.

Spine & Dental matched S.E.T.’s gains, surging 13% to $1 billion, while Knee sales swelled 11 percent to $2.64 billion, and Hip revenue rose 6 percent to $1.85 billion.

Spine & Dental’s double-digit growth was its first profit in four years—revenue previously fell from $1.06 billion in 2017 to $897 million in 2020, according to company data. The decline was likely the driving force behind Zimmer Biomet’s decision last winter to spin off the Spine & Dental unit into a standalone company, ZimVie.

The spinoff, announced in February 2021 and finalized roughly 12 months later, allows Zimmer Biomet to focus on its core capabilities (hips, knees, extremities, biologics, etc.) and better positions the new firm for greater spine and dental market share. “We expect these two companies, with their simplified operating models and reduced complexity and increased focus, will be able to grow revenue, margin, and earnings per share faster than they would if we remain combined as one company,” Hanson told analysts.

ZimVie is led by Vafa Jamali, who was chief commercial officer of Rockley Photonics and previously held leadership roles at Medtronic plc, Covidien, Cardinal Health, and Baxter International. The firm rounded out its C-Suite team last fall, adding Richard Heppenstall as executive vice president and CFO; Vincent Binetti as general manager, Bone Healing; Indraneel Kanaglekar as senior VP and president, Global Dental; Heather Kidwell as senior VP and Chief Legal and Compliance Officer; Mike Minette as senior VP, Strategy and Corporate Development; Ann Vu as senior VP, Regulatory Affairs and Quality Assurance; and Rebecca Whitney as senior VP and president, Global Spine.

$7.03 Billion
Prior Fiscal: $7.98 Billion
Percentage Change: -12%
No. of Employees: 20,000

Every company faced challenges in 2020 due to the COVID-19 pandemic. Some had to determine how to remain open but do so safely, while others had to close their doors, unsure of when they would be allowed to reopen.

Within the medical device community, it was a tale of two cities. While there were no “best of times” for anyone, some companies saw increased demands for products while others saw a substantial decrease. Unfortunately, Zimmer Biomet found itself among the latter (as was true for many orthopedic-focused firms).

By the end of the organization’s fiscal year, the final tally saw the firm’s revenue at a 12 percent deficit compared to the prior period. Company leadership did attempt to help alleviate losses to a degree. Bryan Hanson, president and CEO of Zimmer Biomet, announced he would forgo his salary, which was reported as almost $1.1 million in 2019. Other members of the company’s top management and board of directors also faced pay cuts.

Unfortunately, while a grand gesture, the move by the company’s leadership was not enough to curb the substantial losses experienced by the organization during its 2020 fiscal. The 12 percent loss translated into an almost $1 billion shortfall compared to the prior year. The losses were reflected across all five business segments of the organization, with the primary reason for all attributed to the elimination of elective surgical procedures during a substantial timeframe in 2020 as a result of the pandemic.

The company’s largest unit, Knees, saw a 15 percent decrease compared to 2019, dropping from $2.81 billion to just shy of $2.39 billion. Hips experienced a 9.4 percent decline, which put it at $1.75 billion following its 2019 tally of $1.93 billion. Sports Medicine, Extremities and Trauma (S.E.T.) followed suit with an 8.4 decrease of its own. That figure translated to its reported $1.44 billion in 2019 falling to $1.32 billion in 2020. Dental, Spine & CMFT (Craniomaxillofacial and Thoracic) plummeted 10.1 percent, landing at $1.04 billion in 2020 after 2019’s $1.16 billion total. Its final segment, identified as Other, shrank 18.4 percent, falling from $635 million to $519 million.

This news, however, was quickly overshadowed by a major announcement that came in early February 2021. Zimmer Biomet would be shedding its Spine and Dental businesses, which would combine to form a new, independent company (ie., “NewCo”). The move would allow each remaining entity to optimize resource allocation and drive toward market leadership. For Zimmer Biomet, that translates to a focus on areas it views as high growth and high priority—Knees, Hips, S.E.T., and CMFT.

ANALYST INSIGHTS: With the spin-off of their Spine and Dental business as “ZB Newco,” it will create additional cash for ZB to utilize in their core Ortho battle with Stryker, J&J, and S&N. It will be exciting what moves ZB decides to take to grab market share in both Sports Medicine and in their Joints business. Expect robotics and digital technologies to play a key role.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

“As part of the third phase of ZB’s ongoing transformation, we are changing the complexion of our business through active portfolio management in order to accelerate growth and drive value creation,” explained Hanson. “For Zimmer Biomet, the transaction is an important step toward shifting our portfolio mix to higher-growth markets where we have a clear path to leadership and right to win. We believe NewCo [the temporary name assigned to the Spine/Dental entity] will thrive as an independent company with prioritized capital allocation to pursue strategic growth opportunities and investment strategies in the large and growing Spine and Dental markets.”

With NewCo’s separation will also go several significant product names in the Zimmer Biomet portfolio. From the Spine business, this includes ROSA ONE Spine, Mobi-C Cervical Disc, and The Tether. The Dental segment will bring with it the T3 Implant, Tapered Screw-Vent Implant System, Trabecular Metal Dental Implant, BellaTek Encode Impression System, and Puros Allograft Particulate.

Based upon 2019 and 2020 pro forma revenue for NewCo, the new organization will likely see annual sales of just under $1 billion. Zimmer Biomet, on the other hand, can likely anticipate revenues in the mid- to high-$6 billion range, following the divestiture.

Former Medtronic executive Vafa Jamali has been named  CEO for the spin-off.

Despite its lackluster revenue performance in 2020, Zimmer Biomet didn’t become short-sighted with regard to its post-pandemic future. Recognizing opportunities and product portfolio synergies, the organization made three acquisitions during the year.

The most substantial investment—with a price tag of $250 million—was for A&E Medical Corporation, previously a Vance Street Capital Portfolio Company. A&E Medical is a designer and manufacturer of a comprehensive portfolio of sternal closure devices including A&E DoubleWire, the A&E Medical Sternal Cable System, and the Thorecon and Tritium rigid fixation systems. The buy also brought to Zimmer Biomet a wide variety of temporary cardiac pacing wires, including the MYO/Wire Ultra-Thin and MYO/Wire Ultra-Flex brands, disposable patient cables, and A&E Medical Surgical Punch.

According to the company, the global sternal closure business is growing at a high single digit percentage rate annually. Revenue from the new integrated business was to be recognized in the Dental, Spine and CMFT product category, but it is unclear what products would stay with Zimmer Biomet and what would go to NewCo.

During Q3 2020, the firm announced two other acquisitions it made totaling $80 million in initial spend (with the potential for $98 million in deferred and milestone payments). The revenues generated by the products from both organizations will be recorded in the S.E.T. segment.

The first was for Incisive LLC, a privately-held operating room (OR) solutions company in the expanding $1.2 billion global integrated OR market. That company’s technology drives efficiency in the surgical setting through a comprehensive offering of “smart OR” infrastructure, including surgical booms and lights with a smaller footprint as well as proprietary data analytics and artificial intelligence capabilities. This approach reduces acquisition and construction costs and is especially attractive to ambulatory surgery center customers. The revenues from Relign Corp., a privately-held company in the growing $1.6 billion arthroscopy market and overall $5 billion sports medicine market, was the second purchase. Relign’s offerings included the consolidation of three differentiated arthroscopy tower components into a single system and address a key portfolio gap for Zimmer Biomet in the sports medicine and broader ASC markets.

Recognizing the importance of not relying solely on growth through acquisition, Zimmer Biomet also launched 21 products in 2020, with several notable announcements among them.

Within the digital health space, the organization added new functionality to its mymobility solution that works in conjunction with the Apple Watch. The new capabilities enabled a remote care management system for patients who utilized the offering for pre- and post-operative joint replacement guidance. With the addition of new mobility metrics to measure gait quality, mymobility provides healthcare professionals with even more virtual touchpoints and real-time patient information to enhance the decision-making process, while patients continue to receive a connected and customizable experience throughout their episode of care. In addition, with the patient’s permission, the new gait quality metrics leverage the power of Apple’s ecosystem by using sensors in the Apple Watch and iPhone to passively collect walking speed and double-support time (period of time when both feet are in contact with the ground) when walking on flat surfaces—without GPS.

Another product launch, Zimmer Biomet’s Signature ONE Surgical Planning System provides a 3D image-based approach to preoperative visualization, surgical planning, and patient-specific guide creation. Based on each patient’s unique anatomy, integrated with proprietary algorithms and known anatomical landmarks, Signature ONE offers a tailored approach to shoulder arthroplasty.

Gaining FDA 510(k) clearance in 2019, the firm continued its commercial launch of its Persona Revision Knee System. This solution offers anatomic components designed to match a patient’s anatomy for a personalized fit. Available with a modern, intuitive instrumentation platform, the Persona Revision Knee System enables surgeons to take a personalized approach to addressing simple to complex revision procedures by offering the flexibility to utilize their preferred surgical approach. It leverages the company’s Trabecular Metal Technology—a unique, highly porous biomaterial made from elemental tantalum with structural, functional, and physiological properties similar to that of bone. It also employs Vivacit-E Highly Crosslinked Polyethylene (HXPE)—a bearing surface with actively stabilized Vitamin E designed to protect against oxidation and maintain wear resistance and strength throughout the life of the implant.

Perhaps recognizing the value of working with another firm as it’s done with Apple on mymobility, Zimmer Biomet also engaged in initiatives with other corporate entities to further its growth efforts. One such project resulted in the firm teaming with the Hospital for Special Surgery (HSS), a leading academic medical center focused on musculoskeletal health, on an exclusive agreement to deploy and commercialize HSS Orthopedic Care Pathways on mymobility. Through Zimmer Biomet, healthcare systems and clinicians worldwide were able to implement HSS Orthopedic Care Pathways through the mymobility platform. In addition, the mymobility with Apple Watch platform was made accessible to clinicians and patients in the HSS network.

Via another mutually beneficial arrangement, NeuroOne Medical Technologies Corporation agreed to have Zimmer Biomet market its Evo Cortical Electrode, the company’s first FDA 510(k)-cleared product. The Evo is an innovative product indicated for recording, monitoring, and stimulating brain tissue for up to 30 days. Utilizing proprietary automated manufacturing processes, the thin-film lightweight design offers high-resolution capabilities, reduced immunological response, and the potential to be placed in a minimally invasive manner. Per the terms of the deal, Zimmer Biomet gains the exclusive global right and license to distribute NeuroOne’s strip and grid electrodes and electrode cable assembly products and the exclusive right and license to distribute certain depth electrodes developed by NeuroOne. Zimmer Biomet provided a $2 million upfront payment to NeuroOne, with an additional payment due to maintain exclusive rights.

In May, Zimmer Biomet agreed to settle a pending lawsuit brought on by Conformis, an orthopedic implant manufacturer that customizes each product specifically to the patient through its iFit Image-to-Implant technology platform. According to a filing with the U.S. Securities and Exchange Commission, the two entities engaged in a license agreement, which resulted in the dismissal of all outstanding litigation between the two firms. It also established a cross-license arrangement of the two firms’ respective technologies. Ultimately, Zimmer Biomet paid $9.6 million to Conformis in addition to the license agreement. Conformis was not required to pay Zimmer Biomet any money.

$7.98 Billion
Prior Fiscal: $7.93 Billion
Percentage Change: +1%
No. of Employees: 19,900

Steve Jobs was a notoriously difficult boss.

He yelled a lot. He cursed a lot. He was obsessively controlling and brutally honest. He was abrasive, manipulative, impatient. He was borderline tyrannical.

Jobs was as talented a bully as a sweet-talker, capable of charming enemies just as easily as he belittled friends and co-workers. He would sulk or cry to get his way. He often fired staff without warning for mistakes or subpar work.

Yet beneath that gruff, blistering exterior lurked a hard-working, creative visionary responsible for revolutionizing computers, music and digital publishing. His success in growing Apple from its humble start in his parents’ home to a $1 trillion valuation is as much the result of Jobs’s brilliance as his perfectionism.

Jobs reportedly learned the value of perfection from his father. In a 2011 biography, Jobs recounts a fence-building project from his childhood in which his father insisted on working as hard on the back of the fence as the front. “Nobody will ever know,” Jobs said, according to the book. “But you will know,” his father, Paul, replied, noting the best craftsmen use good wood on the front and back of wall cabinets; the same philosophy should apply to the fence, he reasoned. It was the mark of true artistry to have such a passion for perfection, Paul Jobs emphasized to his son.

Years later, while overseeing development of the Apple II and Macintosh computers, Jobs applied his father’s perfection principle to the machines’ circuit board. He instructed the computers’ engineers to line the chips up neatly so the board would look nice—an odd request, considering Jobs wanted the machines tightly sealed.

“Nobody is going to see the PC board,” one engineer said, prompting a familiar reply from Jobs: “I want it to be as beautiful as possible, even if it’s inside the box. A great carpenter isn’t going to use lousy wood for the back of a cabinet, even though nobody’s going to see it.”

Jobs told the engineers they were true artists, and should act that way (one can only imagine his tone). Once the board was redesigned, the biography states, Jobs had the engineers and other Macintosh team members sign their names for engraving inside the case. “Real artists sign their work,” he told the group.

Jobs’ penchant for perfection was one of the key drivers of his success. While he was not the greatest boss—at times demanding, verbally abusive, temperamental, and uncompromising—he managed to bring out the best in his employees. He helped them achieve feats they never dreamed possible.

ANALYST INSIGHTS: Zimmer Biomet (ZB) is another company impacted with a slowdown due to COVID. CEO Bryan Hansen used this event as an opportunity to continue his corporate restructuring to focus ZB on its strengths to position the firm to gain market share in the short term. By doing so, ZB now has the ability to use M&A to supplement its market positions on an opportunistic basis. As we know, both J&J and Stryker will not be giving ground easily; this will be an interesting battleground.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

Steve Jobs had high standards—for himself, his employees, and his company’s innovations. In his perpetual pursuit of perfection, Jobs would typically rework a product’s first prototype to make it more to his liking. The initial iPhone design, for example, featured a glass screen set into an aluminum case; Jobs lost sleep over the arrangement, as he wanted the iPhone display to be the device’s central focus. Jobs harbored similar misgivings about the original iPad schematic (too formal-looking and uninviting), and Apple Stores layout (too focused on product categories).

Such refinements were part of Jobs’ genius. He created impeccable products, certainly, but sacrificed human decency and rectitude in order to do so. Perfectionism was the catalyst that drove him, and it drove his management style, for better or for worse.

“Leaders are complex figures sending multiple signals at the same time,” Robert Bies, a management professor at Georgetown University who researches work practices, told The Wall Street Journal in 2016. “With Jobs, there is plenty of evidence of abuse. But you can see that he’s a motivator. He was pushing the envelope for excellence in products.”

Jobs’ legacy as a difficult, if not impossible, boss is now well-known. And though he’s frequently cited as the antithesis of inspirational leadership, Jobs’ non-conformist behavior nevertheless has served as a model for thousands of CEOs, managers, wanna be geniuses, tech startup founders, and business owners looking to improve their entities’ chances of success.

Most Jobs aspirants, however, are not mimicking his behavior as much as they are emulating his uncompromising, never-settle-for-second-best work ethic.

Zimmer Biomet Holdings Inc. President and CEO Bryan C. Hanson is one such “never settle” disciple. He displayed his Jobs-like business success strategy during a Q4 2019 earnings review earlier this year, cautioning management against resting upon the company’s solid year-end performance.

“We’re encouraged by our performance in the fourth quarter. We posted solid revenue growth, slightly above our weighted average market growth rate expectations and grew earnings per share faster than revenue,” Hanson told investors on a Feb. 4 conference call. “We also made further progress in executing on our short-term priorities: supply, quality remediation, new product introductions, and ZB’s mission and culture. We also continued to invest for growth…These are all important steps forward. And while we are happy with our progress, we’re certainly not satisfied. Rest assured that we are still striving to continuously improve our business, our performance, and the value we deliver to patients, as well as customers and investors.”

Zimmer Biomet delivered on Hanson’s pledge last year, increasing total revenue 0.63 percent (2.2 percent on a constant currency basis) to $7.98 billion. Operating profit surged more than 30-fold, reaching $1.13 billion (compared with 33.8 million in 2018), and net earnings redeemed itself from a previous year loss, going from a $379.3 million deficit to $1.13 billion. Diluted earnings per share in 2019 was $5.47; adjusted diluted earnings per share was $7.87, a 3 percent rise from the prior year.

Overall, the company’s 2019 performance was a solid one. But there are definitely areas in need of improvement. Never settle.

Europe, Middle East, and Africa sales is one such area. That region posted the only loss (by geography) in 2019—revenue fell 3.3 percent to $1.74 billion. The decrease, though, was offset by a 0.82 percent rise in Americas sales (4.87 billion) and a 5 percent jump in Asia-Pacific proceeds ($1.36 billion).

Other areas needing improvement include spine/CMF and bone cement/office-based technology—the two product categories that lost money for Zimmer Biomet last year.

Never settle.

The latter genre (bone cement/office-based technology)—bundled under the company’s “Other” product reporting group—posted the largest fiscal 2019 deficit, with sales sinking 9.9 percent to $280 million. Conversely, the 2.2 percent loss posted by Zimmer Biomet’s Spine/CMF (craniomaxillofacial) business wasn’t as steep—slipping to $747.3 million vs. 2018—but it nevertheless stung, as the decline offset strong thoracic device demand and derailed any momentum gained from three U.S. Food and Drug Administration (FDA) product approvals. (For the record, Zimmer Biomet attributed Spine/CMF’s poor performance to “ongoing sales channel consolidation, price declines, and changes in foreign currency exchange rates.”).

The FDA approval trifecta began with the February 2019 sanctioning of the ROSA ONE Brain Application, a robotic platform for planning and performing minimally invasive neurological procedures. Used in cranial biopsies, tumor treatment and removal, laser brain ablation, stereo electroencephalography, ventricular and transnasal endoscopy, and epilepsy surgery, the ROSA ONE features haptic technology to create a seamless surgical interface. Its robotic arm is engineered with six degrees of freedom, which allows exceptional dexterity and flexibility to access surgical sites.

Acquired through the $132 million purchase of French robot-assisted surgical firm Medtech in 2016, the ROSA ONE technology is Zimmer Biomet’s competitive retort to rival robots jockeying for market share in the fast-growing (and increasingly crowded) orthopedic robotics sector.

Zimmer Biomet intensified the battle for that sector last year with FDA clearances for ROSA One Knee and Spine applications, but its war plan suffered an unexpected setback with the September recall of ROSA Brain. Categorized as a Class I recall, the regulatory action stemmed from a software defect that potentially compromised ROSA’s robotic arm positioning accuracy. In its recall notice, the FDA cited five complaints related to the issue and one patient injury; no related deaths were reported.

The recall involved 86 ROSA Brain 3.0 devices distributed in the United States between April 2016 and March 2019, manufactured between February 2016 and December 2019.

Though it was considerable step backward in Zimmer Biomet’s quest for orthopedic robot market share, the recall had little, if any, impact on 2019 company earnings or Spine/CMF sales. Contrarily, the main culprit impacting Spine/CMF revenue currently is the segment’s “unpredictability,” according Hanson.

“ROSA is definitely part of the equation, it’s just not the whole equation,” Hanson said on the Q4 2019 earnings conference call. “…if I just take a step back and I think about the spine business overall, I think about it in a few different ways. We clearly have not been performing the way I would like, and we’re not performing right now with predictability in that business. There are key areas that we need to concentrate on. The No. 1 thing is we have to get the channel that we have decided on to be able to take advantage of the portfolio that we have.”

Zimmer Biomet added to that portfolio with the August 2019 clearance of a fusion-less alternative to pediatric scoliosis treatment. The Tether, a rope-like implant that pulls the vertebrae into shape, is designed for children and adolescents with severe sideways spinal curvature; the device aims to correct the curvature during a child’s growth while allowing a fuller range of motion when compared to spinal fusion. The Tether uses anchors and vertebral screws to connect a flexible cord that pulls the spine’s curved side straight (via compression) and maintains alignment as the child grows taller.

Zimmer Biomet is partnering with the Harms Study Group, an international cohort of surgeons dedicated to advancing pediatric spinal deformity treatments, to track the Tether’s long-term performance through patient registry data.

“This collaboration demonstrates how a focused, shared purpose can fundamentally change the way we approach treatment of diseases like scoliosis,” Jim Cloar, Zimmer Biomet Spine president, said upon the Tether’s FDA clearance. “Working together, clinicians, the FDA, and Zimmer Biomet have given surgeons an important fusion-less scoliosis treatment option for their pediatric patients. This procedure gives kids the best option for maintaining spine mobility and reaching their full potential.”

Clinicians, the FDA and Zimmer Biomet also helped adults reach their full potential last year with new knee products. Besides the ROSA ONE Knee System in January, the FDA cleared the Persona Revision Knee System, which is designed to match a patient’s anatomy for a more personalized fit. The system uses Zimmer Biomet’s Trabecular Metal technology and the Vivacit-E Highly Crosslinked Polyethylene bearing surface that protects against oxidation and maintains wear resistance and strength.

Just a week after Persona clearance (early September 2019), the FDA gave its blessing to Zimmer Biomet’s JuggerStitch Meniscal Repair Device in the United States. The implant uses two soft anchors connected by a knotless, self-locking suture loop to lock the repair, and is designed to improve both tissue preservation and tissue compression control at the surgical repair site.

The ROSA ONE and Persona Knee systems, along with the Oxford Partial Knee, were largely responsible for the 1.3 percent rise in 2019 Knee sales ($2.81 billion total). The expansion, however, was curbed by price declines and fluctuating foreign currency rates.

Those same two impediments limited fiscal 2019 growth in Hips and S.E.T. (Surgical, Sports Medicine, Biologics, Foot and Ankle, Extremities, Trauma). Robust demand for the Taperloc Complete Hip and G7 Acetabular systems drove up Hip sales 0.7 percent to $1.93 billion, while supply stability, salesforce specialization, and new product launches increased S.E.T. revenue 2.5 percent to $1.79 billion.

Dental sales climbed 0.7 percent to $414 million due to investment of resources in priority areas, and other operational improvements.

COVID-19 Consequences

Q2 2019 Revenue: $1.22 Billion
Q2 2020 Revenue: $1.98 Billion
Percentage Change: -38.3%

The loss wasn’t totally unexpected.

Zimmer Biomet Holdings Inc. executives figured there’d be a dropoff in company earnings during Q2, but they hoped the loss might be minimized by a gradual recovery in elective surgeries.

No such luck.

Net sales plummeted 38.3 percent to $1.22 billion as COVID-19 crushed revenue around the world. Americas proceeds shrank 39.6 percent to $733.7 million, and Asia-Pacific sales slid 18.6 percent to $273.7 million. EMEA (Europe, Middle East, Africa) revenue, meanwhile, dropped an astonishing 50 percent to $218.7 million.

The losses in each product category were equally as staggering: Knees fell 46.8 percent to $374.2 million, Hips revenue declined 31 percent to $329.7 million, and SET sales (sports medicine, surgical, extremities and trauma) were down 29.2 percent to $252.6 million. Dental, Spine, and CMFT proceeds decreased 37.6 percent to $182.5 million. Zimmer Biomet’s “Other” product category posted a 44.5 percent loss against Q2 2019 figures, garnering only $87.1 million.

Despite its grim financial outlook, however, Zimmer Biomet has provided moral and monetary support to healthcare professionals, hospitals, and communities during the pandemic. It donated PPE to local hospitals (Warsaw, Ind., area) and money to non-profit organizations; it also partnered with an industry coalition, and used 3D printing technology to produce critical components for ventilators and face shields for healthcare professionals.

AT A GLANCE
$7.93 Billion
Prior Fiscal: $7.80 Billion
Percentage Change: +1.7%
No. of Employees: 19,000

A line of 500 forms outside a Guatemalan clinic every time the surgeons arrive for a mission trip. Many have journeyed 100 miles to have an orthopedic ailment treated, knowing full well only a fortunate 50 people or so will be admitted to see the U.S. doctors.

Employees from global orthopedic manufacturer Zimmer Biomet watched in awe as the Guatemalans stood in line for treatments they may never receive, and immediately resolved to change how the company could help. For decades, the firm supported hundreds of mission trips by supplying orthopedic implants and instruments, but each was usually a one-off agreement. Supporting a single mission trip had proven to be a headache—the equipment needed to arrive at a specific time and clear customs unharmed, a difficult task for delicate, high-tech orthopedic technology.

Last May, Zimmer Biomet’s Global Knees team inked the company’s first long-term partnership with Faith in Practice, a Texas-based organization seeking to improve the physical, spiritual, and economic conditions of the poor in Guatemala through short-term surgical, medical, and dental mission trips and health-related educational programs. Zimmer Biomet will supply Indiana-made implants and instruments for Faith in Practice to perform total knee replacements (TKR) at two Guatemalan hospitals, replenishing the supply with each trip.

“Rather than a shipment that’s supposed to get there during the window of a [mission] team arriving, [Faith in Practice] will have [Zimmer Biomet devices] in-country, stocked and stored in their warehouse in Guatemala,” Zimmer Biomet VP and general manager of Global Knees Todd Davis told Inside INdiana Business. “This enables them with much more assurance to schedule a mission trip and know everything is going to be there waiting for them. We think their numbers will increase, because they’re not going to be living hand-to-mouth, wondering if they’re going to get donations to cover upcoming trips.”

Usually, only the most affluent Guatemalans have access to TKR procedures. A single total knee implant can cost $5,000, and Faith in Practice implants 30 knees on each week-long trip. Zimmer Biomet will also supply two employees to travel to Guatemala to support each mission trip.

“They’re there to act as the knee experts on those instruments and implants, because those surgeons may have never used a Zimmer Biomet knee before,” Davis explained. “This gives us people in-country to help those surgeries run smoothly. And it’s just a great experience for our team members; they come away supercharged by what we’re doing there.”

Davis hopes other departments will follow suit—implants for trauma and hip replacements are also underserved areas.

“You hope you never get to this point, but sometimes it’s easy to lose sight of the fact that the parts we design, make and sell are going in people,” he said. “We’re a manufacturing facility first and foremost, and we’re making widgets. This makes those widgets come to life.”

ANALYST INSIGHTS: CEO Bryan Hanson has now firmly taken the reigns at Zimmer Biomet. It’s his company now. With his Covidien experience, expect him to continue to be aggressive in M&A to supplement Zimmer Biomet’s current portfolio. Additionally, Bryan will continue to commit to operational excellence to improve business performance—especially margins.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

Philanthropy, unfortunately, doesn’t automatically curry the U.S. Food and Drug Administration’s (FDA) favor as the agency continued the quarrel initiated in 2016 over quality control issues at Zimmer Biomet’s Warsaw, Ind., plant (formerly owned by Biomet). The federal watchdog released a 12-page document last February covering issues it found in an October 2017 inspection of the facility, many of which were repeat issues noted during prior inspections. The list of observations in the Form 483 letter included failure to establish CAPA procedures for nonconforming products, failure to create packaging or shipping containers designed to prevent device alteration during transport, failure to validate quality system software, and failure to implement MDR procedures, among other quality control oversights.

The company responded soon after that it would execute a remediation plan to address the Warsaw plant’s Form 483. However, Zimmer Biomet received another Form 483 with 11 observations following re-inspection last April. This time, the company pushed back. FDA had flagged inadequate process controls for a specific packaging sealer because Zimmer Biomet hadn’t included pressure as a process control, pointing to the sealer’s manual as evidence there were unused pressure control features.

“We respectfully disagree with this observation,” Zimmer Biomet VP of quality assurance and quality control Jeff Gensler said in the company’s response to FDA. “The necessary process controls were established to ensure that the sealer conformed to Zimmer Biomet’s established specifications. Zimmer Biomet is not required to use all available features on a piece of equipment, but it must identify, qualify, control, and monitor the critical features and the resulting process.”

Another FDA observation alleged Zimmer Biomet didn’t properly validate certain cleaning processes used at the Warsaw facility. “Zimmer Biomet believes that these aspects of Observation 1(B) are a byproduct of a misunderstanding between the investigators and Zimmer Biomet personnel,” Gensler said in the response letter.

The conflict escalated as the FDA sent Zimmer Biomet a warning letter last August related to the Warsaw facility’s re-inspection in April. The warning letter cited “observed non-conformities with current good manufacturing practice requirements of the Quality System regulation.” Regulatory Focus reported at the time that the orthopedic manufacturer was cited for six violations, which included failure to establish and maintain procedures to verify and validate a CAPA. The FDA also flagged five separate operations where employees on the production line weren’t adequately following production procedures. Zimmer Biomet then wrote a response to the warning letter and met with FDA to discuss proposed corrections. (To date, no information has come to light regarding Zimmer Biomet’s response letter or the FDA meeting.)

However, the warning letter didn’t mandate pulling products, restrict production and shipment, or block 510(k) device clearance. Premarket applications are put on hold until the problems are corrected, but at the time Zimmer didn’t have any PMA applications before the FDA. There were also worries about a consent decree—which can mean halted manufacturing on non-essential or multi-source products, assignment of quality assurance to a third party, or fines—because of the continued quality control issues’ elevation.

Luckily, this was not in the cards for Bryan Hanson’s first year as CEO. Despite the firm’s quarrels with the FDA, its sales last year rose 1.7 percent to $7.93 billion. According to Hanson, the second half of last year was most responsible for this due to strengthened global large joint sales and consistent outperformance of the Asia Pacific region (with a 6.6 percent revenue bump over the prior year). The Americas market was the only region where sales fell—albeit, a paltry 0.2 percent.

The Knees franchise accrued $2.8 billion last year, rising 1.5 percent over 2017. Knee sales improved thanks to recent product introductions and improved supply. Knee sales volume/mix growth was led by the Persona Personalized Knee System and Oxford Partial Knee.

The Persona line got its first boost last January with the Persona Trabecular Metal (TM) Tibia’s FDA clearance. The first surgical case using Persona TM Tibia took place two months later, and it received CE mark approval a month after that. Combined with TM Femur and Patella, the Persona line then offered a fully cementless total knee solution. Zimmer Biomet’s TM material is a porous biomaterial made from elemental tantalum with structural, functional, and physiological properties that mimic cancellous bone.

The Persona Revision Knee obtained FDA clearance last November, also featuring TM technology. It allows surgeons to take a personalized approach to revision procedures, offering the flexibility to utilize a preferred surgical approach thanks to a modern, intuitive instrumentation platform.

Hips business proceeds last year rose 2.6 percent to reach $1.9 billion, driven primarily by volume mix/growth resulting from strong performance in the Asia Pacific and Americas regions. Improved supply also impacted the product category positively. The sales expansion was led by the company’s Taperloc Hip System, Arcos Modular Hip System, and G7 Acetabular System. Most impressively, Zimmer Biomet was able to grow Hips sales without any reported hip product launches last year.

Last October Zimmer Biomet began a partnership with Apple to combine a new app with smartwatch health-tracking data to help understand why some patients recover faster from knee and hip replacement surgeries than others. The two also initiated a clinical study at that time. The mymobility app will guide patients through surgery to improve recovery, with education resources, exercise videos, and a way to contact their surgeon and care team about questions and concerns.

Meanwhile, using the Apple Watch will allow patients to share step count and heart rate data with doctors for a clearer picture of recovery and to analyze setbacks. Apple and Zimmer Biomet hoped to enroll 10,000 U.S. patients in the study. mymobility was initially only available to the study participants, but a Zimmer Biomet spokesperson told CNBC it would eventually be rolled out for everyone. Hanson said in a company statement the partnership with Apple is “one of the largest evidence-gathering clinical studies in orthopedic history.” Apple COO Jeff Williams said in a separate statement that the new app lets patients and doctors connect in a way that was “not previously possible through traditional in-person visits.” Facilities participating in the study include academic centers, hospitals, group practices, and ambulatory surgery centers throughout the U.S.

The S.E.T. (sports medicine, extremities, trauma) division continued its increase last year by elevating sales 2.9 percent to post $1.7 billion in revenue. According to the company, this was driven by strong performances in key surgical and upper extremity brands.

Last January saw FDA clearance for the Sidus Stem-Free Shoulder System. The new total shoulder arthroplasty option was designed for patients with good bone stock that have either osteoarthritis, post-traumatic arthrosis, focal avascular necrosis of the humeral head, or those who have had previous shoulder surgeries that didn’t compromise the fixation. Sidus’ shoulder arthroplasty approach requires minimal bone resection while also reducing pain and restoring range of motion.

The Comprehensive Augmented Baseplate for the firm’s Comprehensive Reverse Shoulder System also gained an FDA nod last January. The first surgical case using it took place last April. The Comprehensive Augmented Baseplate complements the shoulder system by offering an alternative to bone grafting and eccentric reaming for patients with glenoid defects undergoing shoulder reconstruction. The baseplate’s circular design promotes bone ingrowth into its rim. The system aims to minimize the challenges of removing well-fixed humeral stems by permitting conversion to a reverse shoulder system.

The Spine and CMF (cranio-maxillo-facial) business remained flat last year with $764 million in sales. The slight increase—0.8 percent—was a result of strong Thoracic product sales. Spine sales took a hit thanks to continuing U.S. distributor integration problems.

The FDA green-lighted Zimmer Biomet’s first titanium spinal implant manufactured via 3D printing, the Zyston Strut Open Titanium Interbody Spacer System, last May. The family of lumbar cages is intended to augment interbody spacer strength, graft capacity, and visualization during spinal fusion. The cages come in a series of sizes and the system includes instruments for implant insertion, manipulation, and removal. Their unique cage architecture, formed by 3D printing, maximizes graft volume before implantation.

The Mobi-C Cervical Disc for cervical disc replacement launched in Japan last September. A week later, Mobi-C was granted FDA approval for a label change that included seven-year clinical results. The labeling update indicates that Mobi-C’s updated data remained consistent with the previous findings at two years and five years—namely, that it is non-inferior for one-level use and superior for two-level use as compared to anterior cervical discectomy and fusion. The label update was granted based on a successful trial that followed almost 600 patients through seven years.

The firm’s implantable bone growth and spinal fusion stimulators—specifically the EBI Osteogen Implantable Bone Growth Stimulator, SpF PLUS-Mini (60 μA/W) Implantable Spinal Fusion Stimulator, and the SpF-XL IIb 2/DM Implantable Spinal Fusion Stimulator—were recalled last February due to a lack of adequate cleaning process validation and controls. As such there was no way to ensure the devices were clean from bacteria and chemical residue, which carries the risk of infection, tissue death, additional surgery, impaired healing, long-term antibiotic therapy, spinal cord swelling and infection, secondary gastroenteritis, paralysis, organ damage, or death.

Dental sales continued their steady decline last year, slipping 2.2 percent to reach $411 million. Over the past few years, the Dental business has been subject to competition in the U.S. and EMEA, as well as dental organization restructuring in some European markets.

Remaining sales are encompassed in the “Other” category, which includes bone cement and office-based technology products. The division’s sales last year amounted to $311 million, dropping 2.6 percent from the prior year.

$7.8 Billion
NUMBER OF EMPLOYEES: 18,200

Though former Health and Human Services (HHS) secretary Tom Price resigned last September—following reports he had used over $1 million of taxpayers’ money on private jets for domestic travel and military planes for international travel—he was already the subject of controversy as early as January, when insider trading accusations against the Cabinet hopeful came to light.

According to House records reviewed by CNN, Price had purchased anywhere from $1,001 to $15,000 of Zimmer Biomet shares in March 2016 when he was still a Georgia representative. Less than a week after buying the shares, the Georgia Republican congressman revealed the HIP Act, legislation that would have delayed a Centers for Medicare and Medicaid Services (CMS) regulation poised to impact payments for knee and hip replacements—the Comprehensive Joint Replacement (CJR) program.

The CJR Model, as orthopedic surgeons and device manufacturers are undoubtedly aware of, was developed by CMS to support better and more efficient care for patients undergoing hip and knee replacements, the most common inpatient surgeries for Medicare beneficiaries. The model tests bundled payment and quality measurement for the episode of care associated with hip and knee replacements. It seeks to encourage hospitals, physicians, and post-acute care providers to collaborate to improve care quality and coordination from initial hospitalization to recovery. It holds participant hospitals financially accountable for the quality and cost of a CJR episode of care, and incentivizes increased care coordination.

As a major manufacturer of knee and hip implants, analysts agreed that Zimmer Biomet would have felt a significant financial sting as a result of the CJR Model’s passing. Deepening the ethical mire, Price’s campaign finance filings showed Zimmer Biomet’s political action committee (PAC) had written his reelection committee a $1,000 check three months after the bill’s introduction.

“It clearly has the appearance of using your influence as a congressman to your financial benefit,” Larry Noble, general counsel at the Campaign Legal Center, a watchdog group, told CNN regarding Price’s transaction. “If he believed in the bill, he should not have purchased the stock.”

Zimmer Biomet, of course, claimed it was unaware of Price’s purchase of company stock at the time. Monica Kendrick, Zimmer Biomet’s vice president of corporate communications, said in a statement that the company was not involved in the introduction of his bill to delay CMS regulations.

“Zimmer Biomet had no knowledge of Congressman Price’s purchase of Zimmer Biomet stock. As is common practice, the Zimmer Biomet PAC regularly makes donations to various political campaigns, all of which are disclosed as required by law,” she told CBS News. “These actions are not connected. Zimmer Biomet has supported the Comprehensive Joint Replacement program developed and implemented by the Centers for Medicare and Medicaid Services. Zimmer Biomet was not involved in the Healthy Inpatient Procedures (HIP) Act, which was introduced by Congressman Price to delay CJR implementation.”

Despite all protests, the CJR Model began implementation on April 1, 2016 and will run through Dec. 31, 2020—outlasting Price’s tenure as HHS secretary by over three years.

Zimmer Biomet was closing the book on its own set of legal proceedings last January. The lawsuit concerned repeat Foreign Corrupt Practices Act (FCPA) violations by Zimmer Biomet or a subsidiary, in which the company engaged in and improperly recorded transactions with a prohibited Brazilian distributor. The SEC and Justice Department further stated that the company bribed Mexican customs officials to facilitate importation and smuggling of unregistered and mislabeled dental products. Biomet received similar charges for FCPA violations in 2012 prior to its acquisition by Zimmer. It then entered a deferred prosecution agreement, paying $22 million and retaining an independent compliance consultant to review its FCPA compliance program for three years.

Although Zimmer Biomet complied with the investigation, the Justice Department pointed out the company failed to implement an effective compliance program and committed further violations under the 2012 agreement. “Biomet didn’t entirely learn its lesson the first time around as it continued to use a prohibited agent in Brazil and engaged in a new bribery scheme in Mexico,” said Kara Brockmeyer, chief of SEC Enforcement Division’s FCPA unit.

According to The Indiana Lawyer, a settlement was finally reached in mid-January 2017, in which the Warsaw, Ind.-based musculoskeletal and dental company paid $30.5 million in criminal and civil penalties. This amounted to $17.4 million in criminal penalties, a $6.5 million SEC disgorgement, and a $6.5 million civil penalty. Zimmer Biomet will retain an independent corporate compliance monitor for three years. Zimmer Biomet’s offending indirect subsidiary, JERDS Lunexbourg Holding S.ár.l., agreed to plead guilty to a one-count criminal information.

Zimmer Biomet’s statement regarding the matter encouraged the public that “the amounts to be paid were previously recorded in the company’s financial statements, and will not impact its 2017 outlook.”

Disregarding how nice it must be for a multi-million-dollar settlement to make a negligible impact on annual performance—Zimmer Biomet’s revenue in fiscal year 2017 (ended Dec. 31) crawled slightly uphill two percent to reach $7.8 billion. The company’s late-2016 acquisition of LDR Holding Corporation, which added cervical disc replacement products to its spine business, combined with strong performance in the Asia Pacific region (5.4 percent growth to $1.2 billion), motivated a majority of the increase. All regions posted an expansion of sales, though far more modest—domestic revenue rose 1.3 percent to $4.9 billion, and EMEA sales took a small 1 percent step up to $1.7 billion.

As has been the case for many years, the firm’s Knees business generated the most revenue of any segment with $2.7 billion in sales. However, that number is actually a slight fall—0.6 percent—from the previous year. This is primarily due to production delays in 2017 affecting Zimmer Biomet’s Warsaw North Campus Facility—the production shortfall directly impacted the firm’s ability to fully meet case demand. Resultant insufficient inventory levels across Knee brands slightly dragged sales down within that business.

The Knee business was halted from slipping further thanks to sales volume and mix growth led by the company’s Persona personalized knee system and Oxford partial knee. Though it didn’t make much impact on 2017 revenue, the Persona partial knee system was launched last September.

The Persona partial knee was the first significant jointly developed new product for the company since Zimmer and Biomet’s combination. The latest in the firm’s portfolio of personalized and anatomically designed knee implant systems, the fixed-bearing Persona partial knee incorporates implants and instruments designed for uncompromising fit and efficiency in the OR. Global partial knee replacement experts and the ZiBRA Anatomical Modeling System were leveraged to analyze thousands of male and female bones to represent a diverse population for Persona partial’s development.

Last June, Zimmer Biomet also revealed the X-PSI knee system, the first FDA-cleared and CE marked surgical planning system that allows patient-specific implant positioning using standard of care X-ray technology, as opposed to MRI or CT scanning. For use with the firm’s flagship total knee brands, X-PSI helps surgeons generate 3D anatomic models from X-ray images. Patient-specific instrument planning software is then used to view patient anatomy to develop a 3D customized surgical plan, which is then utilized to manufacture patient-specific guides and bone models. The X-PSI knee system is the company’s fourth patient- specific guide for its Personalized Solutions franchise.

Zimmer Biomet’s Hips franchise rose a slight 0.6 percent with $1.9 billion in global sales. Although growth was somewhat offset by the aforementioned production delays at the company’s Warsaw North Campus Facility and continued pricing pressure, strong performance in the Asia Pacific region and sales volume/mix growth led by the Taperloc Hip System, Arcos Modular Hip System, and G7 Acetabular System fostered the slight increase in total sales.

The S.E.T. business, which includes surgical, sports medicine, biologics, foot and ankle, extremities, and trauma products, experienced a 3.6 percent boost over the prior year to $1.7 billion despite the production shortfalls affecting the segment. Part of the increase was attributed to the acquisitions of sports medicine company Cayenne Medical and maker of deep vein thrombosis prevention products Compression Therapy Concepts, which closed in late 2016.

Last February, the FDA approved an expanded 26-week efficacy claim for Zimmer Biomet’s single-injection viscosupplement (Gel-One Cross-linked Hyaluronate) for the treatment of osteoarthritis (OA)-related knee pain. The first low-volume viscosupplement available in a single-injection formulation for knee OA, it can be administered in a physician office setting for OA associated knee pain patients who failed to respond to non-pharmacologic therapy, non-steroidal anti-inflammatory drugs (NSAIDs) or simple analgesics.

A week later, further broadening the S.E.T. division’s offerings, the company released the Subchondroplasty (SCP) procedure in the EU and other countries recognizing the CE mark. A minimally invasive, outpatient procedure, SCP addresses defects relating to subchondral bone marrow lesions (BMLs), which left untreated can lead to cartilage degeneration, limited function, pain, and a greater risk for joint deterioration. To repair chronic BMLs, the SCP procedure involves filling them with AccuFill Bone Substitute Material, a porous injectable calcium phosphate. The bone substitute is then slowly resorbed and replaced with healthy bone, repairing the defect.

The Spine and CMF (craniomaxillofacial) segment boasted the most growth in 2017, ascending a respectable 15 percent from the previous year to $760 million in revenue. Much of this increase was provoked by the 2016 closing of the LDR Holding Corporation purchase, which established Zimmer Biomet as a strong competitor in the cervical disc replacement (CDR) market. LDR’s Mobi-C CDR device is the only FDA-cleared device to treat both one- and two-level adjacent damaged cervical discs.

The Spine business was further invigorated by last October’s U.S. launch of the Avenue T TLIF Cage. The posterior lumbar cage incorporates proprietary VerteBRIDGE plating, simplifying cage insertion and zero-profile intradiscal fixation through a direct, minimally invasive surgical approach. Avenue T completes Zimmer Biomet’s suite of lumbar cages with integrated fixation, which can now be used in every fusion approach. Sterile packaging and pre-assembly on a PEEK cartridge enables the cage and plates to be simultaneously loaded on the Inserter. Once implanted, the Impactor advances both plates at the same time, reducing implantation steps.

Three weeks later, Zimmer Biomet launched the Vitality+ and Vital spinal fixation systems in the U.S. Vitality+ consists of Vitality+ POWER for simple, controlled pedicle preparation and pedicle screw insertion, Vitality+ PSO for optimal pedicle subtraction osteotomy and vertebral column resection procedures, and Vitality+ HOOKS with an extensive array of additional fixation options. Vital is a minimized two-kit configuration that includes all pertinent instruments required for degenerative spine surgeries with a color-coded tray layout, which is particularly beneficial to surgeons and technicians with a small OR footprint.

2017 sales for the firm’s Dental business fell 2.2 percent to $419 million, driven by restructuring of the dental organization in certain European markets. Revenue for remaining products and services, encompassed in the “Other” category, fell 2.5 percent from the previous year to $321 million.

Under New Management

Zimmer Biomet’s C-Suite was subject to two major transitions in 2017. Last January, former vice president of U.S. sales Robert D. Delp replaced Stuart Kleopfer as president of the Americas business. Delp was previously responsible for leading sales for the Knee, Hip, Bone Cement, Biologics, Extremities, Sports Medicine, Foot and Ankle, Surgical, and Trauma categories.

David C. Dvorak, who had led Zimmer Biomet for 10 years as president and CEO and served the company for 16, announced he was stepping down last July. In the meantime, the board appointed senior vice president and CFO Daniel Florin as interim CEO until finding a permanent successor.

“Serving alongside Zimmer Biomet’s employees over the past 16 years and leading the company as CEO for 10 of those years has been a privilege and a highlight of my professional career,” Dvorak said. Our collective efforts grew employment from approximately 3,000 in 2001 to 18,000 today and built a Fortune 500 company. I am particularly proud of what we have accomplished working together with surgeons and clinicians to help millions of patients globally improve their quality of life.”

The company appointed former Medtronic executive vice president and Minimally Invasive Therapies Group president Bryan C. Hanson as president and CEO last December. Florin resumed his tenure as senior vice president and CFO, with Hanson officially taking the Zimmer Biomet reins Dec. 19.

“I am honored and excited to join Zimmer Biomet,” Hanson said in a company statement. “I have long admired Zimmer Biomet, including its brand, commercial excellence and salesforce, healthy portfolio of marquee products and strong innovation pipeline. I share the company’s purpose of improving the quality of life for patients and I look forward to deeply familiarizing myself with Zimmer Biomet’s global operations to ensure we have the right foundation in place to support our customers and the patients they serve around the world, while driving sustained shareholder value.”

$7.7 Billion
NUMBER OF EMPLOYEES: 18,500

Scientists generally agree that the continued use of non-renewable fossil fuels will have a detrimental effect on the planet’s climate. For this reason, most developed nations have a “green energy” initiative in place in order to minimize their carbon footprint and use as many renewable resources as possible.

Zimmer Biomet announced in September 2016 that its Warsaw, Ind.-based headquarters will be completely powered by renewable, green energy, in compliance with the U.S. Environmental Protection Agency’s (EPA) Green Power Partnership program. The headquarters will receive its green power from Northern Indiana Public Service Company (NIPSCO), an authorized provider of green power for the EPA’s Green power program—which permits homes and businesses to designate a portion (or all) of their monthly electric usage to energy generated from renewable sources.

“We are proud to partner with the EPA and NIPSCO to lead the green power revolution in Indiana by converting 100 percent of our headquarters’ power consumption to renewable energy sources,” Robin T. Barney, Zimmer Biomet’s senior vice president of global operations and logistics, said in a company press release detailing the EPA recognition. “Sustainably and responsibly sourcing our electric power is a critical milestone in advancing Zimmer Biomet’s longstanding commitment to sustainability, and we hope our efforts inspire local area businesses and residents to join the EPA’s Green Power Program to collectively reduce our region’s environmental footprint.”

Fiscal 2016 (ended Dec. 31) marked the first full year of Zimmer Biomet’s operating results as a combined company. Their landmark merger closed on June 24, 2015, and now that all integration efforts have come to a close, the company is finally seeing the windfall it was hoping for. Zimmer Biomet’s 2016 revenue rose a staggering 28 percent to $7.7 billion, primarily as a result of Biomet product lines’ full assimilation and the accompanying sales gains. Double-digit percentage growth (and then some) spread across all regions—Zimmer Biomet’s Americas revenue ballooned 32 percent from the year prior, Europe’s sales skyrocketed 25 percent, and the Asia Pacific region was boosted by 22 percent.

The company’s Knees business continued to be the largest moneymaker in 2016, ascending 21 percent from the year prior to $2.8 billion. The double-digit growth was chiefly driven by recent product introductions like the Persona Personalized Knee System, cross-sell opportunities, and continued strong performance in the Asia Pacific region. Two implant technologies to support the Persona Knee System and Vanguard 360 Revision System released in March also invigorated the Knees business, and the latest addition to the Vanguard portfolio, the first-of-its-kind Vanguard Individualized Design (ID) knee replacement, was released in September. The Hips business followed suit in terms of double-digit growth, surging 22 percent to $1.9 billion. The introduction of the G7 Acetabular system spurred strong performance in this area, as well as three Hip portfolio products launched in March. (Editor’s note: See sidebar on page 42 for details on last year’s product launches.)

The Sports Medicine, Extremities, and Trauma (S.E.T.) business grew 35 percent to $1.6 billion in 2016. This was mainly stimulated by a growing emphasis on sales force specialization and strong performance by key brands in the portfolio. The May acquisition of Cayenne Medical—which produces soft tissue repair and reconstruction solutions for knee, shoulder, and extremities—also brought gains to this segment in 2016. And while the Dental business’ 2015 sales were threatened by a second half supply disruption related to a voluntary field action in response to a packaging issue that the company was not able to remediate until 2016, Dental revenue held fast with a 27 percent rise to $428 million.

ANALYST INSIGHTS: Zimmer Biomet continues to reinforce its market position created by the famous Zimmer and Biomet combination through both organic and M&A investments. Surprisingly, it has been able to afford $1.5 billion of acquisitions since the merger. Critical to its upcoming success will be the ability to respond to increasing pricing pressure in the joint markets—a key stated reason for the Zimmer Biomet merger.

—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors

The Spine and CMF (craniomaxillofacial) business segment once again proved to be strongest in terms of percentage growth, surging 64 percent to $662 million in 2016 sales.

(This segment’s profits have more than tripled since fiscal 2014.) The $1 billion June purchase of LDR Holding Corporation was the main driver for this impressive growth, adding several offerings to support lumbar and cervical fusion procedures; it also helped establish the company as a force to be reckoned with in the cervical disc replacement (CDR) market and greatly expanded the company’s Spine business. Continued strong performance of CMF products also contributed to the increase.

The remainder of Zimmer Biomet’s revenue takes shape in its “Other” category, which rose 41 percent to $329 million in sales in 2016. The July release of Signature Solutions, a suite of clinical services and technologies to help hospitals and medical practices transition into Comprehensive Care for Joint Replacement (CJR)-mandated value-based outcomes, drove growth in this area.

Actively Acquiring

Of all the medical device sectors, orthopedics is perhaps the most difficult for a large company to expand and diversify beyond its core competency because each section of anatomy requires its own set of considerations. For example, companies with large portfolios of knee or hip products have some difficulty moving into extremities, because the clinical research, device materials, and manufacturing methods required for smaller bone and joint products differ so strongly from large joints. To explore an unfamiliar product segment, large companies must either drum up the funds, personnel, and equipment necessary to expand, or else acquire a company with all of that already in place. Zimmer Biomet is certainly no stranger to M&A activity, and the trend continued in 2016. Even after the landmark merger was completed, the combined company continued to grab companies that would augment existing businesses or create entirely new ones.

In March, Zimmer Biomet purchased Colorado-based Ortho Transmission—which includes the company’s transcutaneous osseous integrated skeletal technology developed by a military surgeon—for an undisclosed amount. This complemented Zimmer Biomet’s ongoing partnership with the U.S. Department of Defense to develop a transcutaneous system to anchor prosthetic limbs to restore mobility to amputee patients. Transcutaneous systems (as opposed to those with a traditional skin-to-socket interface) avoid the common prosthetic complications of soft tissue irritation, sores, infections, and joint pain, and reduce the extra energy expenditure required for patients to walk.

The acquisition of Arizona-based Cayenne Medical was completed in May for an amount not revealed. Cayenne brought a portfolio of technically advanced soft tissue repair and reconstruction solutions for knee, shoulder, and extremities. The acquisition strengthens Zimmer Biomet’s sports medicine capabilities to address the $18 million S.E.T. (Sports Medicine, Extremities, and Trauma) market.

For a natural expansion of Zimmer Biomet’s Spine business, the company bought LDR Holding Corporation, which develops novel surgical technologies for those suffering from spine disorders, for $1 billion in June. LDR’s purchase brought with it the Mobi-C Cervical Disc Prosthesis and MIVo portfolio to support lumbar and cervical fusion procedures. The move attempted to position Zimmer Biomet as a global force in the cervical disc replacement (CDR) market, which represents the fastest-growing segment within the $10 billion spine industry. LDR’s Mobi-C CDR device was well received in the market, as the first and only device approved by the U.S. Food and Drug Administration (FDA) to treat both one- and two-level adjacent damaged cervical discs.

Zimmer Biomet grabbed French surgical robotics company Medtech SA in July. Medtech SA brings two FDA-approved, CE marked robots for minimally invasive brain and spine procedures to the company’s portfolio, giving Zimmer Biomet the potential to identify additional applications for the robots across other anatomical sites.

CD Diagnostics, which initially partnered with Zimmer Biomet in 2012 to co-develop and market diagnostics, was acquired in August for an undisclosed amount. The Delaware-based company develops immunoassays and biomarker testing for various clinical conditions in synovial fluid.

“Our acquisition of CD Diagnostics cements our leadership and competitive advantage in musculoskeletal diagnostics, strengthens our Signature Solutions offering, and advances our mission to provide comprehensive musculoskeletal healthcare,” Dan Williamson, group president of joint reconstruction for Zimmer Biomet, said in a press release. “As value-based healthcare replaces fee-for-service models, there will be a growing need for diagnostics that can either prevent or minimize costly complications, or personalize the course of treatment to speed up recovery time and optimize the patient experience and, ultimately, the patient’s outcome.”

Clinical Graphics, which specializes in 3D range-of-motion simulation technology to inform treatment decisions for common hip conditions requiring early intervention, was nabbed in September. Clinical Graphics’ imaging platform was integrated in order to reinforce its hip preservation portfolio. The technology provides 3D interactive range-of-motion simulation reports for femoroacetabular impingement and dysplasia, and physicians rely on its technology to characterize the physiology of a patient’s pain and direct treatment approaches.

Zimmer Biomet’s Signature Solutions platform was enhanced by the December acquisition of the RespondWell Telerehabilitation Platform, a comprehensive, at-home telerehabilitation platform to enhance patient compliance with physical therapy and improve the quality of recovery.

“The new value-based reimbursement environment compels hospitals and providers to assume responsibility for patient outcomes well after discharge and through the critical rehabilitation period,” David Nolan, group president of biologics, extremities, sports medicine, surgical, trauma, foot and ankle, and office-based technologies, said in a press release. “Integrating an innovative and comprehensive telerehabilitation program into our Zimmer Biomet Signature Solutions offering addresses the emerging need for healthcare providers to oversee and optimize post-surgical recovery outcomes in order to maximize value across the entire episode of care.”

According to the company, Zimmer Biomet deployed about $1.5 billion in strategic acquisitions in 2016.

$6.0 Billion
NUMBER OF EMPLOYEES: 17,500

“By all accounts, 2015 was a transformational year for our company, marked by a landmark combination that started a new chapter in our rich 89-year history,” Zimmer Biomet President and CEO David Dvorak told stockholders in a letter within the company’s 2015 annual report. Anyone reading those comments—unless they had been living in the most remote part of the Amazon jungle for the past two years—knew precisely what he was talking about.

Though it first made headlines in 2014, Zimmer’s merger with Biomet officially closed on June 24, 2015. The deal was among a string of medtech company purchases that consolidated the industry and created a musculoskeletal healthcare force to be reckoned with. Also unveiled that day was the combined company’s new logo, an attempt by marketing to represent the rich heritage of both firms.

“Each of our companies has a proud heritage,” Dvorak said in the company’s press release announcing the merger’s close. “Just as the Zimmer Biomet name leverages the strong brand equity of both companies, the company logo combines Zimmer’s iconic symbol with elements of Biomet’s corporate identity.”

For the first time, the combined companies—which were both present in 2015’s Top 10 tally—made their joint appearance on the list, replacing the third spot held previously by Zimmer alone. The merger’s final price tag was $12.03 billion, according to the aggregate merger consideration paid, per the 2015 annual report. Biomet’s legacy product lines were included in the product portfolio, adding artificial knees and hips; sports medicine, extremities, and trauma products; spine, bone healing, craniomaxillofacial, and thoracic devices; dental reconstructive products; and cement, biologics, and other products. Biomet helped lift Zimmer out of its flatlining revenue doldrums of the past few years—in 2015 (year ended Dec. 31), Biomet added net sales of $1.6 billion to the company’s revenue total.

Biomet’s “contribution” (which still seems odd now that the companies are combined), helped the newborn firm achieve a landmark sales year. Though it fell far short of the $8.4 billion in estimated net sales at the time of the  merger, the company’s fiscal year revenue reached $5.99 billion, a whopping 28 percent surge from the prior year. In fact, as a result of the Biomet merger, there was not a single loss in revenue reported in 2015 across any region or product category.

The most significant effects of the Biomet acquisition manifested itself in Americas sales, which totaled $3.66 billion—over half of Zimmer Biomet’s total revenue and a 41 percent increase from the previous year. The Knee and Hip product categories, which represented the most significant portion of the company’s portfolio, performed proportionally as strong due to the Biomet merger. In total, Knees achieved 2015 revenue of $2.28 billion, a 20.1 percent expansion from the previous year; and Hips garnered $1.54 billion in sales, representing 15.9 percent growth. In the Americas region, Knees and Hips rose 28 percent and 29.9 percent respectively, over 2014.

Though not quite as dramatic as the gains in the Americas region, the Biomet acquisition affected overseas markets fairly strongly too. The EMEA (Europe, Middle East, and Africa) region boasted 2015 sales of $1.42 billion, an 11.7 percent rise from the prior year. Hip and Knee sales in this region increased 7.3 percent and 2.3 percent, respectively. The Asia Pacific region’s revenue reached $917.6 million, a 26 percent increase over the previous year; Knee and Hip sales rose 13 percent and 6.9 percent, respectively.

The Biomet merger had the most noticeable effect on the remaining product categories: S.E.T. (which includes surgical, sports medicine, biologics, foot and ankle, extremities, and trauma products), Dental, and Spine and CMF (craniomaxillofacial). S.E.T. product revenue totaled $1.2 billion, a 46.8 percent rise from the previous year. The $335 million in Dental product sales represented a 45 percent increase from the previous year, although sales there declined on a pro forma basis due to supply disruption related to a voluntary field action in response to a packaging issue. The Spine and CMF product category boasted the most impressive number in terms of a percentage bump—the segment’s $404 million in sales nearly doubled the amount of revenue from 2014, with a quite significant 95.2 percent increase.

Products of Note

Though Zimmer and Biomet had their plates full with the integration of the two companies last year, both entities (and later the combined force) released a number of noteworthy products into the market:

• • In February 2015, Biomet (still operating as Biomet Orthopedics LLC at the time) announced regulatory clearance and first clinical use of OsseoTi Porous Technology (a combination of the G7 OsseoTi shell and Biomet’s G7 Acetabular System) for total hip arthroplasty. Using human computed tomography data combined with 3D printing technology, OsseoTi builds a structure that mimics the architecture of human cancellous bone. The porous architecture facilitates creation of complex shapes, and maintains consistent porosity and strength required to stimulate bone and tissue ingrowth, as well as implant stability.

• • During 2015’s annual meeting of the American Academy of Orthopaedic Surgeons in March, Zimmer Biomet launched a new external fixation system for trauma patients. XtraFix is a modular system that lets surgeons eliminate steps, bars, and clamps from the external fixation process, allowing accommodation of small extremity fractures in larger constructs. Small and large systems can be connected with a single clamp.

• • In September 2015, the company released the Subchondroplasty Procedure for the foot and ankle. Subchondroplasty is a minimally invasive outpatient intervention, which addresses defects relating to subchondral bone marrow lesions—associated with stress fractures or micro-fractures of the bone adjacent to the joint. Specifically, with a fluoroscopy-assisted procedure, subchondral bone defects are targeted and filled with AccuFill Bone Substitute Materuak. It’s usually performed alongside arthroscopy for visualization and treatment of the inner joint.

That’s a fairly impressive launch history for a company wrapped up in a merger. And there’s more to come— Dvorak hinted during the company’s third-quarter earnings conference call that Zimmer Biomet is gearing up for a “powerful pipeline” of products. Dvorak didn’t dig too deeply into what may come (for competitive reasons) but offered a glimpse into the company’s long-term strategy.

“I think you’re going to see an incredible cadence of new offerings, by virtue of the combination,” he said during the earnings call. “What it allows us to do in the intermediate to longer term is to repurpose dollars into more differentiated innovation, and get after it in a more aggressive way, addressing unmet clinical needs because of the scale that we have as a business, not just in large joints, but in the other product categories that are oftentimes faster-growing markets.”

$4.67 Billion
NO. of EMPLOYEES: 10,000

Ken Watson’s pain typically followed the same daily pattern.

It would start in his shoulder blade and then intensify, the dull ache suddenly turning into a white-hot lightning bolt that radiated to his neck. Once there, it sat like a pool of molten lava, aggravating the muscles and nerves already strained by hours of sedentary computer use. Every so often, the pain would cut a fresh swath down his left arm. Relief was next to impossible.

“I would just come home and feel like going straight to bed because that’s the only way I could get comfortable,” he recalled.

Thinking his rotator cuff was torn or—worse—detached, Watson sought help (and relief) from an orthopedic shoulder specialist. But after reviewing Watson’s X-rays and magnetic resonance imaging films, the specialist determined his shoulder was beyond repair and recommended replacement surgery.

Watson was stunned at the prognosis but jumped at the chance to lead a pain-free existence. “He [the orthopedist] said, ‘I know we can take care of your pain,’” Watson fondly reminisced. “The decision to have [the surgery] was an easy one to make once I got home and talked with my wife … even there in the office, I said, ‘Let’s go ahead with this.’”

Watson’s orthopedist fitted him with a Trabecular Metal Reverse Shoulder System from Zimmer Holdings Inc., an artificial joint designed to address a wide range of patient needs, including both primary and revision procedures as well as reverse, conventional and hemi-arthroplasty applications.

Launched in 2006 and implanted in more than 32,000 patients globally since then, the Reverse Shoulder System features a low-profile humeral stem that helps conserve the proximal humerus, preserve natural bone and allows surgeons to reconstruct the gleno-humeral joint. Its six proximal suture holes and proximal perimeter rim are positioned for enhanced tuberosity and soft tissue reattachment. The glenoid component has a bone-sparing design set off by a small-diameter base plate that spares the glenoid of holes. Two polyaxial bone screws with a 30-degree arc allow for maximum bone purchase, and the system’s monobloc stem ensures it will not separate in the humeral canal. Earlier this year, Zimmer began manufacturing its standard ultra-high molecular weight polyethylene liners with Vitamin E highly crosslinked polyethylene (Vivacit-E), a high-tech bearing surface designed to give the implant more oxidative stability and low wear.

“It’s amazing that they were able to look at the anatomy, see where it could no longer work and devise a way to change it to let other parts of the anatomy basically give you the same motion, mobility and opportunity for strength without it feeling any different,” Watson said. “How I’m doing today is like night and day from where I was. To not even be able to lift a plate and put it up in the cabinet like I was before surgery and now to be able to take three or four in one hand and lift up is fantastic. The journey that I’ve had is proof there is a good quality of life [to be had] and relief from a lot of struggles. The best part about my life now is I see the opportunity to get back to the things I like. If a friend came to me with shoulder pain and was at the point where I was, I would say go for it.”

Such advice apparently resounded with joint replacement patients last year: Robust sales of Zimmer’s Reverse Shoulder System helped boost the firm’s extremities product revenue 5 percent to $204.3 million. Other contributors to the company-best growth rate included the Sidus Stem-Free Shoulder, Trabecular Metal Total Ankle and various items from the June 2013 purchase of German device maker Normed Medizin-Technik GmbH (the DocPrice, Vario Subtalar System, Malleolar Plate System, MiniCAN System 2.7, Charcot chisels, Maxican System 4.5 and Weil bone lever). The bulk of extremities devices were sold in North and South America ($149.6 million total), but Zimmer made the most profit in Europe and Asia-Pacific, where sales swelled 19 percent and 20 percent to $40.6 million and $14.1 million, respectively.

Extremities’ stellar performance also helped bolster net reconstructive revenue 2 percent to $3.49 billion, though Knees pitched in as well with a fiscal year growth rate of 3 percent. Sales drivers included the top-selling NexGen Complete Knee Solution, the Unicompartmental High Flex Knee and the Persona Personalized Knee, the latter of which has been targeted for premium pricing.

“This is a big system that includes cemented, non-cemented and we’re working towards other elements in this multi-phase launch of the Persona system but we’re continuing to be optimistic and quite confident about our ability to execute and get premium prices for the element of the technology we think warrant it,” President and CEO David C. Dvorak told investors earlier this year.

Unveiled in March 2013, the Persona knee combines personalized implants with intelligent instruments to provide orthopedic surgeons with better intraoperative precision to customize the best fit for patients. Zimmer incorporated various technologies into the system, including a Bone Resection Atlas, which help designers and engineers precisely define anatomically accurate implant shapes and sizes; the company’s proprietary trabecular metal; and vitamin E for increased strength, low wear and improved long-term performance.

The Persona and other knee systems generated $1.96 billion for Zimmer last year, though sales were somewhat tempered by global pricing pressures and fluctuating foreign exchange rates in both Europe and Asia. Nevertheless, all geographic regions sustained growth, with Europe leading the pack at 6 percent ($498.6 million in sales), followed by the Americas at 2 percent ($1.15 billion) and Asia at 1 percent ($309.8 million).

Knee sales are likely to get a boost in 2015 from the five new patents awarded to Zimmer last year for its subchondroplasty joint preservation procedure technology, a percutaneous outpatient intervention that addresses the defects from subchondral bone marrow lesions (BMLs). The additional patents broaden coverage of the company’s subchondroplasty offerings to include new procedure methods, instrument kits, navigation systems, implants and other anatomical sites.

Hip sales remained flat, slipping $4.1 million to $1.32 billion due to pricing pressures and foreign exchange rate volatility that undermined profits 1 percent in Europe and 6 percent in Asia-Pacific. Past best-sellers prevailed again in 2014 (year ended Dec. 31), with the M/L Taper hip prosthesis, M/L Taper hip prosthesis Kinective technology, CLS Spotorno stem (from the CLS Hip System), Alloclassic Zweymüller hip stem, and Fitmore hip stem winning over customers. Other clinician favorites included the Avenir Müller stem, Wagner SL Revision hip stem, Continuum acetabular system, Trilogy IT acetabular system, Allofit IT Alloclassic acetabular system, Vivacit-E highly crosslinked polyethylene liners and Biolox delta heads.

Zimmer’s dental portfolio continued its slow crawl back to the black, growing sales 1 percent, or $3.5 million to $242.8 million on higher demand for the Tapered Screw-Vent implant system, a device with an internal hex platform design to reduce the stress on the crestal bone and resist abutment screw loosening. Net proceeds partially were offset by a drop-off in restorative product revenue.

Neither new product launches in Europe and Asia-Pacific nor strong sales of Zimmer’s Natural nail system and Periarticular Locking plates could lift trauma proceeds from its year-long funk. Revenue was flat at $316.7 million despite 8 percent growth in Europe and 4 percent growth in Asia-Pacific. In an attempt to avoid another dismal performance in 2015, the company purchased Cambridge, Mass.-based ETEX Holdings Inc., provider of calcium phosphate-based biomaterials; the deal added ETEX’s Beta-bsm (injectable), CarriGen, EquivaBone and Gamma-bsm (putty) bone void filler products to its biologics portfolio, enhancing Zimmer’s ability to treat early-stage joint disease.

Surgical product proceeds fell back to earth in 2014 after skyrocketing 18 percent the previous year. Revenue slid 5 percent to $410 million as Zimmer’s temporary edge in the fluid waste management market ended with the commercial return of a competitor’s capital equipment part (used with a single-use disposable manifold component in its own fluid waste management system).

Spine sales bounced back from a five-year downward spiral with a 2 percent growth rate owing to solid demand for the PathFinder NXT minimally invasive pedicle screw system and trabecular metal technology products. Revenue totaled $207.2 million; gains were highest in Asia and Europe. The company helped ensure future growth in this notoriously difficult segment with 12 new product launches, including:

• • Puros Demineralized Bone Matrix (DBM) block and strip, bone graft substitutes used to stimulate natural bone formation processes in spinal surgeries. Used alone or as a bone graft extender, Puros DBM allografts provide osteoconductive and osteoinductive properties, improved handling and excellent graft containment.

• • Puros DBM Reverse Phase medium putty, putty with chips, gel and paste—products  designed to stimulate natural bone formation processes in which mesenchymal cells differentiate into bone-forming cells. Puros DBM with reverse phase medium items allow the allograft to be malleable at operating room temperatures while causing the product to stiffen when placed into the body.

• • The Optio-C Anterior Cervical System, a modular, stand-alone cervical device that offers allograft/autograft and PEEK (polyether ether ketone) options and delivers the strength, stability and fusion potential of a traditional anterior cervical discectomy and fusion. Offering secure fixation with no profile, the system comprises an anterior cervical plate, three bone screws and either a PEEK intervertebral body fusion device or structural allograft/autograft. The system is designed to maximize fusion with a load-sharing interface and multiple implant footprints.

• • The Virage OCT Spinal Fixation System, an occipital-cervico-thoracic spinal fixation solution that uses Zimmer’s 360 decrees Omnidirectional Extreme-Angle screw to bring a new experience to posterior fixation surgery. All Virage System polyaxial dual-lead screws incorporate the 360 degrees Omnidirectional Extreme-Angle screw technology allowing for 112 degrees of conical range of motion and simple rod alignment. The Virage system also includes a proprietary friction-fit screw head that holds the desired rod in position.

“These new products reflect our vision to introduce solutions that make a meaningful difference for our surgeon customers and their patients,” Dvorak wrote in his letter to shareholders at the start of the firm’s 2014 annual report. “Technologies such as these also advance our objective to become the single-solution provider at every stage of the continuum of care, offering the most personalized and appropriate therapies for every condition and patient. Our results in 2014 are evidence of Zimmer’s sustained focus on our strategic growth platform.”

That platform delivered constant currency net sales growth of 2.4 percent (1 percent reported, to $4.67 billion) and a 5.4 percent increase in adjusted earnings per share (to $6.06). Operating profit climbed 5 percent (adjusted) to $1.43 billion, and gross profit rose 2.5 percent to $3.42 billion. Net earnings, however, declined 5.3 percent due to increased spending on the company’s operational excellence initiatives, a $70 million legal fee and integration planning/debt issuance costs associated with its blockbuster $13.35 billion bid for Biomet Inc.

The cash-and-stock deal was the largest in orthopedics since the 2012 marriage of DePuy and Synthes Inc., and the most game-changing move for Zimmer since its 2001 spinoff from Bristol-Myers Squibb Co. Conceived during last year’s period of medtech merger mania (when Medtronic Inc. solicited Covidien plc for $49.9 billion), the union reflects the increased benefits of scale and dangers of being small within the orthopedic industry. It also represents a clever strategy for stabilizing product prices: By eliminating the fourth-largest orthopedic products provider (Biomet), Zimmer—a runner-up to Johnson & Johnson—is limiting implant choices at hospitals, thus potentially slowing price cuts.

“Importantly, it should help alleviate pricing pressure in hips and knees, given that the market is going from five major players to four,” Larry Biegelsen, a Wells Fargo analyst, wrote in a note last year. “This should benefit all ortho[pedic] players.”

It mainly will benefit Zimmer, though. The merger is expected to save the company $135 million in the first year and $270 million by the third year, a cache that is likely to result in $1.15 to $1.25 per share in earnings during the first year. Net sales for the combined firm are estimated at $8.4 billion.

Zimmer spent more than a year seeking approval of the deal, first satisfying European regulators with the April 2015 sale of three product lines to Italian orthopedic device maker Lima Corporate (For details on the deal’s timing, see the sidebar on page 52). The agreement included rights to Zimmer’s Unicompartmental High Flex Knee and Biomet’s Discovery Elbow System in the European Economic Area and Switzerland, as well as Biomet’s Vanguard Complete Knee System in Denmark and Sweden.

A foreign bribery investigation into Biomet’s business relations in Brazil and Mexico threatened to quash the deal, but the two companies made it official in late June after Zimmer agreed to divest its Unicompartmental High Flex Knee to Smith and Nephew plc in the American market to secure U.S. Federal Trade Commission approval.

$4.6 Billion
NO. OF EMPLOYEES: 9,500

Linda Solomon tried almost everything to dull the pounding pain in her knees: ice packs, compression bandages, multiple medications, even cortisone injections. Nothing worked.

When the agony became unbearable, the 72-year-old Palm Coast, Fla., artist turned to Dennis Alter, M.D., as a last resort. An orthopedic surgeon at the 99-bed Florida Hospital Flagler, Alter fitted Solomon with a Persona knee from Zimmer Holdings Inc., an implant touted as the “most comprehensive, anatomically accurate and highest fidelity” replacement product ever designed.

Unveiled in March 2013, the Persona system combines personalized implants with intelligent instruments to provide surgeons with better intraoperative precision to customize the best fit for patients. Zimmer incorporated various technologies into the new system, including a Bone Resection Atlas, which helped designers and engineers precisely define anatomically accurate implant shapes and sizes; the company’s proprietary trabecular metal; and vitamin E for increased strength, ultra-low wear and oxidative stability for long-term performance.

“The Persona knee allows more options to anatomically match the patient’s knee,” said Jeffrey Keen, M.D., a colleague of Alter’s at Florida Hospital Flagler. “I am so pleased with this new knee technology.”

So is Solomon, now pain-free and leading a significantly more active life style.

Yet neither endorsement can match the satisfaction—glee, really—expressed by Zimmer executives over the Persona’s global success. Bigwigs credit the product with helping to boost net sales 3 percent last year to $4.6 billion, a considerable increase in light of 2012’s flat revenues. Operating profit benefited as well, climbing 4 percent on an adjusted basis to $1.3 billion, and diluted earnings per share rose 8 percent on an adjusted basis to $5.75.

The Americas comprised the bulk of Zimmer’s 2013 sales, accounting for $2.6 billion, or 57 percent of net revenue. The region was tops in growth as well, doubling the 3 percent gain generated in Europe ($1.2 billion) and offsetting a surprising 3 percent decline in Asia-Pacific proceeds ($791 million).

“Our 2013 results were driven by strong performances in a number of geographies and product categories,” President/CEO David C. Dvorak told shareholders in the company’s 2013 annual report.

“While new offerings, such as the Persona personalized knee system, continued to build on the strength of our joint reconstruction business, we extended our reach across the continuum of musculoskeletal care with innovative treatments and solutions to address new markets and anatomical sites. We believe that this comprehensive portfolio both defines and distinguishes Zimmer, and positions us to continue capturing global sales growth.”

The company secured some of that growth through the debuts of new extremities products like the Trabecular Metal total ankle and Trabecular Metal reverse shoulder system patient-specific instruments, as well as the acquisition of Normed Medizin-Technik GmbH, a German provider of technologies for the foot and ankle, hand and wrist reconstruction and trauma markets. The Sidus stem-free shoulder system, launched in 2012, also fueled the surge in extremities sales, which ballooned 11 percent to $194 million compared with the previous year. The gain more than compensated for the 1 percent slide in hip sales and virtually single-handedly helped reconstructive product proceeds rebound from a dismal 2012 showing.

Net reconstructive device revenue increased 3 percent to $3.4 billion, due largely to the Persona knee unveiling and rollout, along with solid growth in its existing product lines. Knee revenue jumped 4 percent to $1.9 billion, profiting from respective 5 percent increases in domestic and European sales, and solid performances from such reliable old favorites as the NexGen Complete knee solution, Unicompartmental high-flex knee, patient-specific instruments, and early intervention products.

Budgetary constraints kept hip sales from growing in Europe, while a weak Japanese yen dragged down profits by 9 percent. Hip implants slid 1 percent to $1.3 billion, though Zimmer’s M/L Taper hip prosthesis, M/L Taper hip prosthesis with Kinectiv technology, the CLS Spotorno stem and Alloclassic Zweymuller hip stem were popular with customers. Other best-sellers included the Wagner SL revision hip Stem, the Continuum acetabular system, the Trilogy IT acetabular system, the Allofit IT Alloclassic acetabular system, the Vivacit-E highly crosslinked polyethylene liners and Biolox delta heads.

Dental sales bounced back from a disappointing 2012, growing 1 percent to $239 million last year on higher demand for the company’s Tapered Screw-Vent implant system, a device with an internal hex platform design to reduce the stress on the crestal bone and resist abutment screw loosening.

Spinal product proceeds remained mired in a 5-year-old downward spiral in 2013, declining 3 percent to $202 million. It was the worst-performing product category for the second consecutive year, having failed to profit from gains in Europe and Asia-Pacific, the distribution of the APEX spine system (a set of implants and instruments to correct spinal deformities) or the launches of minimally invasive spinal surgery products (specifically, the Viewline retractor system, tube retraction system and posterior instrument set). Solid sales of the PathFinder NXT minimally invasive pedicle screw system and Trabecular Metal products partially offset weak sales of the Dynesys dynamic stabilization system, the Trinica Select anterior cervical plate system and other implants.

Though trauma systems were more susceptible to volatile foreign exchange rates than most other products, the devices still managed to post a profit in 2013 (year ended Dec. 31), growing revenue 2 percent to $316 million. Sales drivers included the Natural nail and Periarticular locking plates systems.

Surgical products bested all other product categories in gains, skyrocketing 18 percent to $432 million, or 9.3 percent of total sales. The Transposal fluid waste management System (obtained through the 2012 acquisition of Dornoch Medical Systems Inc.) contributed to the increase, as did Palacos bone cement, tourniquets and wound debridement devices.

$4.5 Billion
NO. OF EMPLOYEES: 9,300

Gary Trainer never once surrendered to the chronic pain in his hips. There were days, of course, when he seriously considered it—days when conceding to his musculoskeletal misery would have been infinitely easier than maintaining the passion to defeat it.

But capitulation is not in Trainer’s nature. He’s a Philadelphia native, a tough-as-nails Eagles fan and Vietnam veteran who once helped maintain order in one of New Jersey’s roughest prisons. The 58-year-old has rarely backed down from a challenge.

The ball-and-socket joints that Trainer was born with first betrayed him in 1994 during his tenure as a Northern State Prison corrections officer. The job was a physically demanding one, requiring the Quaker City transplant to be on his feet for most of his shift. Trainer was in decent shape at the time—exercising religiously via pickup basketball games on his days off—but the long days on his feet aggravated an already temperamental case of arthritis that was ravaging his right femur and acetabulum.

“I had a lot of pain in my hip after playing basketball. I would soak in the tub for hours,” Trainer recalled.

“Finally I went to see a doctor. He took an MRI of my hip and said, ‘Where are your crutches? You have no cartilage and the femoral head is starting to erode.’ I was a prime candidate for hip replacement surgery but I was fearful of it because it involved cutting through bone. So the doctor said, ‘When the pain gets to be too much, come schedule one.’ ”

Two years later, when the pain finally prevailed, Trainer underwent his first total hip replacement. The surgeon substituted Trainer’s worn-out femoral head with a titanium ball, reinforced his cartilage-free acetabulum with a titanium shell and plastic liner, and affixed the new hardware to a titanium stem designed to fit snugly in his femur.

Trainer’s new hip lasted five years.

In the interim, Trainer had undergone the same procedure on his arthritic left hip. That one lasted just as long.

By the time he hobbled into the downtown Philadelphia, Pa., office of Javad Parvizi, M.D., in the final stretch of 2011, Trainer had been under the knife five times—twice for each hip (a total arthroplasty and revision) and once for complications from a joint aspiration. The 17-year ordeal had left Trainer embittered, depressed and at times, angry about his lot in life, but amazingly, it had not yet robbed him of hope for a brighter future.

Trainer was fully prepared to fight for that future (the surgeries had not affected his moxie, after all) as long as he had a fair shot at victory. He recruited Parvizi to improve his odds and the 20-year orthopedic surgeon/researcher responded with a radical plan to replace Trainer’s insubordinate right hip with a Trabecular Metal joint from Zimmer Holdings Inc. Trainer had never heard of the material, but Parvizi was confident it would work: The tantalum-based substance is porous, biocompatible and structured similarly to the kind of tissue-growing bone found near joints and within vertebrae.

“The porous structure of tantalum outperforms titanium every time,” Parvizi noted. “Tantalum looks a lot like bone. Its mechanical properties are what you would expect from cortical bone. It represents a good reconstructive option for ‘disaster cases’ where the implant has repeatedly come loose or is not in good shape.”

Though he didn’t quite comprehend the science behind Trabecular Metal, Trainer knew his case could qualify as a “disaster.” He underwent surgery on May 8, 2012, for his third—and hopefully, final—hip replacement. Five months later, he walked up to Parvizi (without limping this time) and personally thanked him.

“Today I’m feeling good. This hip has given me a quality of life I wouldn’t have had otherwise,” Trainer told Parvizi during an event Zimmer held last fall to mark the 15-year anniversary of its proprietary Trabecular Metal technology. “It’s not like the real part, but it comes very close. You know, pain can really change you. It changes your disposition, it changes everything. It makes you look at things differently. I’d like to thank you for what you’ve done. When I was in pain, I didn’t need a Mazaratti or a pile of cash. I just needed a hip…I needed to heal. That’s all I wanted. Your success is in me. You are now a part of me.”

Trainer’s public testimonial to his new hip was an exceptional moment—a rarity, really, in an altogether dismal earnings year for Zimmer. The orthopedic manufacturing behemoth posted flat sales, diminished net earnings and surprising losses in hip and knee revenue as well as lower overall growth margins in other product areas.

Volatile foreign exchange rates and pricing pressures also stymied profits. The strengthening U.S. dollar in Europe last year weakened net sales by 2 percent; executives estimate a similar scenario in 2013 would impact revenue 0.5 percent.

And while the company has grown accustomed to pricing pressures from governments, hospitals and healthcare systems in recent years, bigwigs were caught off-guard in 2012 by a biennial price adjustment in Japan that significantly drove down the value of its implants. Overall, the firm’s global average selling price fell 2 percent.

Such unforeseen setbacks confined Zimmer’s net sales to $4.47 billion last year, a mere $20 million over its 2011 total. Net earnings slipped 0.76 percent to $755 million and operating cash flow tumbled 2 percent to $1.1 billion.

Gains in operating profit and diluted earnings per share rescued the year from ruin. Zimmer’s top brass attributed the 4 percent growth in operating profit ($1.31 billion) to progress in the company’s “business transformation programs,” while headway in the firm’s “value creation agenda” increased diluted earnings per share by 10 percent to $5.30.

“Zimmer continued to advance our global transformation and operational excellence program in 2012,” President and CEO David C. Dvorak told shareholders in the firm’s latest annual report. “This company-wide transformation agenda includes efficiency and quality initiatives across all corporate and commercial operations. Completed and ongoing programs include a management de-layering, the establishment of shared service centers for many of our support functions and strategic sourcing and manufacturing excellence initiatives.”

“In 2012, Zimmer once again achieved our financial commitments. But perhaps our most significant accomplishments related to product and technology innovation,” Dvorak continued. “The range of new offerings Zimmer began introducing in 2012 represents the culmination of significant research and development investments…A number of these products address new anatomical sites or are in adjacent market segments in which we had not previously competed…”

Among the new market destinations were extremities and orthobiologics, the latter of which involves the use of biology and biochemistry to develop bone and soft-tissue replacement materials. It is the fastest-growing sector of the global orthopedic industry, with a value expected to reach $15.3 billion by 2022 (more than triple its 2010 assessment), according to United Kingdom business information provider Visiongain.

Zimmer reinforced its burgeoning orthobiologics portfolio last year by teaming up with St. Louis, Mo.-based ISTO Technologies Inc. to develop chondral grafts for cartilage repair. The companies also are working together on a Phase III clinical study to evaluate the De Novo ET Engineered Tissue Graft, an implant that uses particulated juvenile cartilage tissue to repair articular cartilage defects in the knee, ankle, shoulder, hip, elbow and toe joints.

The company parlayed U.S. Food and Drug Administration approval of its Trabecular Metal Total Ankle to infiltrate the extremities market. Officially introduced at the American Academy of Orthopaedic Surgeons (AAOS) 2013 annual meeting, the Total Ankle consists of a talar component, a tibial base component and a modular tibial articular surface, available in six different sizes to accommodate various patient anatomies. The articulating surfaces of the implant mimic the truncated conical shape of the ankle joint and are designed to reproduce natural joint kinematics while providing joint stability.

Despite its innovative design and material composition, the Total Ankle had little impact on extremities sales in 2012 (year ended Dec. 31), perhaps due to the timing of its official unveiling. The company’s Trabecular Metal Reverse Shoulder System drove sales instead, fueling a 6 percent revenue jump to $173.8 million. The growth offset 1 percent declines in hip and knee implant revenue, thus keeping Zimmer’s reconstructive product sales flat at $3.3 billion.

Executives attributed the large joint sales losses to European exchange rate instability and continued weak demand for elective procedures. Knee revenue slipped to $1.81 billion as Europe came up $15.3 million short of its 2011 total and North/South America ended the year with an $8.6 million deficit. Sales drivers remained unchanged from 2011—they included the NexGen Complete Knee Solution product line, including Gender Solutions Knee Femoral implants, the NexGen LPS-Flex Knee and the NexGen CR-Flex Knee, a synthetic device that caps the femur to the tibia. Zimmer’s Unicompartmental High Flex Knee and the company’s patient-specific instruments also proved popular with customers.

Hip sales increased 1 percent in North/South America and 2 percent in Asia Pacific, but fell 5 percent in Europe last year. Hip implants generated $1.34 billion for the company in 2012, thanks mainly to the M/L Taper Hip Prosthesis, M/L Taper Hip Prosthesis with Kinectiv technology (used in more than 50,000 procedures worldwide), Fitmore Hip Stems, Continuum Acetabular System, Trilogy IT Acetabular System, CLS Spotorno Stem, and Alloclassic Zweymüller Hip Stem. Zimmer unveiled Vitamin E-infused plastic hip liners, but the technology didn’t add much to the company’s coffers in 2012.

Dental sales suffered a relapse last year after 24 months of steady improvement. Revenue fell 4 percent to $237.7 million despite the acquisition of Brazilian dental manufacturer Exoporo and the debut of Trabecular Metal dental implants featuring osteoconductive mid-sections and microtextured surfaces. The company’s Tapered Screw-Vent implant system sold well, but not sufficiently enough to overcome the challenges of softening international markets and lower inventory levels.

Spinal product proceeds sustained the largest loss of 2012, tumbling 7 percent to $208.9 million due to global pricing pressures and payer approval scrutiny. Decreases occurred in all geographic regions, with Europe leading the hemorrhaging (8 percent), followed by North/South America (7 percent) and Asia Pacific (5 percent). Solid sales of the PathFinder NXT and Sequoia Pedicle Screw systems, the Universal Clamp Spinal Fixation system and Trabecular Metal products partially offset weak demand for the company’s Dynesys System and other implants. And while executives had high hopes for the TM Ardis Interbody System, a porous trabecular metal implant that is more easily inserted into the lumbar spinal disc space, the product’s U.S. introduction did not generate considerable revenue for the company.

Trauma device sales more than compensated for the loss in spinal product revenue—proceeds surged 8 percent to $307.9 million. Sales stalwarts in this category included the Natural Nail System, Periarticular Locking Plates System, and Universal Locking System.

Though they represented only 8.6 percent of total sales, surgical products experienced the most robust growth in 2012, swelling 11 percent to $386.6 million. The acquisitions of Reno, Nev.-based Synvasive Technology Inc. and Dornoch Medical Systems Inc. contributed to the increase, as did Palacos Bone Cement, the DeNovo NT Natural Tissue Graft, Chondrofix Osteochondral Allograft, Gel-One Cross-linked Hyaluronate, wound debridement products, and powered surgical instruments.

$4.5 Billion
NO. OF EMPLOYEES: 8,700

When Zimmer Holdings Inc. issued its first annual report 10 years ago, executives used the theme “New Products New Markets New Geographies” to convey their future vision for the newly independent company.

“New products are the lifeblood of any medical device company and our goal is to be a new products ‘machine,’ “ former President and CEO J. Raymond Elliott told shareholders in a letter within the firm’s debut report. (Elliott eventually left Zimmer in 2007 and was hired two years later by Boston Scientific Corp. to revive the fortunes of that device firm after its ill-fated takeover of Guidant Corp. He retired from Boston Scientific on Dec. 31, 2011).

“A key to our future will be our ability to leverage our brand strength, our sales forces, and our heritage of trust for success in new markets,” Elliott’s letter continued. “We intend to enter rapidly growing, adjacent markets such as spine, pain management and blood management. We believe orthobiologics may transform orthopaedic treatments…Finally, we are a global company. With approximately one-third of our revenues from outside the Americas, we have only just begun to focus on new geographies. From the historic strength of our base in Asia and particularly in Japan, Korea and Taiwan, we believe we can continue to take advantage of the increasing sophistication of economies and healthcare systems in this most populous region of the world.”

Elliott’s successor could have used the same theme last year to provide investors with a progress report on those early goals. Since breaking free of global biopharmaceutical giant Bristol-Myers Squibb in August 2001, Zimmer has indeed become a new product “machine”—the Warsaw, Ind.-based firm regularly debuts dozens of new products every year, many of them timed to coincide with industry trade shows like the American Academy of Orthopaedic Surgeons and the North American Spine Society annual meetings.

Zimmer M/L Taper Hip Prothesis and the Continuum Acetabular System. Photo courtesy of Zimmer Holdings Inc.

The company also has entered some of those rapidly growing markets Elliott mentioned in his letter, namely spine and orthobiologics. Zimmer’s spinal portfolio includes thoracolumbar and cervicothoracic products, while its orthobiologics lineup includes the Fortitude Osso Interbody Spacer, the CopiOs bone void filler, the AlloFuse Demineralized bone matrix and the Chondrofix Osteochondral Allograft, a product designed to address osteochondral lesions in a single-stage procedure. The Chondrofix implant is an osteochondral plug comprised of articular cartilage and subchondral bone, according to Zimmer.

The company is collaborating with St. Louis, Mo.-based ISTO Technologies Inc. to develop other chondral grafts for cartilage repair. One of the pair’s creations—the DeNovo NT Natural Tissue Graft—has been used in more than 1,600 cartilage repair procedures in 2011 (the product uses particulated juvenile cartilage tissue to repair articular cartilage defects in the knee, ankle, shoulder, hip, elbow and toe joints). The companies also are working together on a Phase III clinical study to evaluate the DeNovo ET Engineered Tissue Graft, an implant designed to repair knee cartilage damage.

In its relatively brief existence as a publicly-listed firm, Zimmer has become a significant player in the global orthopedics market. The firm has operations in more than 25 countries and sells products in more than 100. The emerging markets of Brazil, Russia, India and China (the “BRIC” brethren) have become so essential to long-term growth that executives announced plans last year to build a new research and development center in China to focus on the unique needs of Asian patients and clinicians.

Sales in the Asia Pacific region (which include Australia, China, Hong Kong, India, Korea, Malaysia, New Zealand Singapore, Taiwan and Thailand) posted the best growth in 2011, according to Zimmer’s latest annual report. Revenue spiked 16 percent to $796.5 million, or 18 percent of total net sales. Japan was the largest market in this region, accounting for roughly 52 percent of sales.

North and South American sales remained flat last year at $2.4 billion, though the region captured more than half (55 percent) of the company’s total revenue. The United States accounted for 93 percent of all sales in this area.

Europe contributed $1.2 billion in revenue to Zimmer’s bottom line in 2011 (year ended Dec. 31), a 10 percent hike compared with the $1.09 billion this region reported in 2010. France, Germany, Italy, Spain, Switzerland and the United Kingdom accounted for 72 percent of the area’s net sales.

Such robust gains in the Asia Pacific and European markets helped push sales 5.5 percent to $4.5 billion last year and diluted earnings per share to $4.03. Net earnings skyrocketed 27.4 percent to $760 million, a welcome change from the 17 percent plunge the company’s earnings encountered in 2010. Gross profit totaled $3.3 billion and operating profit came in at $1 billion, an 11.7 percent increase compared with the $916.7 million in operating profit the company reported in 2010.

Reconstructive product sales garnered the most revenue for Zimmer last year, comprising roughly three-quarters of the company’s total net sales. Hip, knee and extremities devices generated $3.3 billion in sales, a 4 percent increase compared with the $3.2 billion these products earned for Zimmer in 2010.

Knee implant sales were driven by the popularity of the NexGen Complete Knee Solution product line, including Gender Solutions Knee Femoral implants, the NexGen LPS-Flex Knee and the NexGen CR-Flex Knee, a synthetic device introduced in 2003 that surgeons use to cap the femur to the tibia at the knee. Sales of the Gender Solutions Natural-Knee Flex System, the Gender Solutions Patello Femoral Joint and Zimmer’s patient specific instruments also contributed to the 2 percent growth in this product category (revenue totaled $1.82 billion).

Hip sales performed well for the second consecutive year, growing 7 percent to $1.35 billion. Sales drivers remained unchanged from 2010—they included the M/L Taper Stem, the M/L Taper Stem with Kinective technology, the CLS Spotorno Stem from the CLS Hip System and the Alloclassic Zweymüller Stem, a cementless hip used in more than 325,000 replacement surgeries worldwide. Sales of the Continuum Acetabular System, the Trilogy IT Acetabular System, the Allofit IT Alloclassic Acetabular System, the Trabecular Metal Revision Shell and Augment Cups were strong compared with 2010, as were sales of BIOLOX delta heads and Fitmore Hip Stems.

The Fitmore Hip Stem is a bone-preserving system of implants specifically designed for use with less invasive surgical procedures. The system aims to provide stable reconstruction of patients’ anatomies by matching stem and different medial curvatures. The triple taper design and proximal Ti-Plasma coating enables a secure press-fit, while the trapezoidal cross-section provides for rotational stability.

Sales of extremities products surged 9 percent in 2011 to $163.4 million. The top sellers in this category were the Bigliani/Flatow Complete Shoulder Solution and the Trabecular Metal Reverse Shoulder System, according to the annual report.

Dental product sales experienced an impressive turnaround from a 10 percent loss in 2009, growing 13 percent last year to generate $248 million for Zimmer. Sales were led by the 10-year-old Tapered Screw-Vent implant system, a device that features an internal hex platform which reduces stress on crestal bone and resists abutment screw loosening, helping to create ideal conditions for bone level maintenance.

Trauma product sales jumped 16 percent to $286 million, driven by demand for Zimmer Periarticular Locking Plates, the NCB Plating System and the Natural Nail System, a next generation system of intramedullary nails designed to restore the pre-injury shape of fractured long bones and provide stable fixation during fracture healing. The nails feature a unique screw nail connection that allows a surgeon to create a true fixed angle construct that unites the injured bone to the nail.

Spinal product sales fell 4 percent to $225 million due to “operational challenges” with the company’s American sales force, a difficult reimbursement landscape and a continued decline in Dynesys Stabilization System sales. Those challenges proved too difficult to offset by solid sales of the PathFinder NXT Minimally Invasive and Sequoia Pedicle Screw Systems, the company’s Universal Clamp System and its Trabecular Metal products. Zimmer’s PathFinder screw system allows surgeons to approach the implant site through a miniature opening or percutaneously.

Orthopedic Surgical product sales experienced solid growth last year, ballooning 9 percent to $348.8 million. Sales stalwarts in this category included the company’s Palacos bone cement, wound debridement products and tourniquet devices.

Sales in the Orthopedic Surgical product category also received a boost from the company’s December 2010 acquisition of Sodem Diffusion S.A., the Swiss manufacturer of SoPlus Orthopaedic Surgical Power Tools. Sodem Diffusion’s portfolio includes the SoPlus Universal large bone system and the SoPlus Ultra small bone system with associated consumables.

$4.2 Billion
NO. OF EMPLOYEES: 8,800

“The ambitions we have will become the stories we live.”

— Donald Miller, “A Million Miles in A Thousand Years”

 Zimmer Holdings Inc. has been living the same basic story for more than 80 years, virtually since the night its founder, Justin O. Zimmer, returned home from selling splints and decided to start his own manufacturing company. Like other large medical firms, Zimmer’s story is based on a single, yet powerful motivator: giving healthcare professionals the tools they need to help patients reclaim active and productive lives.

Over the last three years, however, Zimmer’s colorful story arc appears to have stalled. While it still is driven by the same ambition, the company’s financial performance seems to have hit a plateau since the start of the Great Recession in 2008. Though they might never admit it, Zimmer executives may very well be experiencing a sentiment perhaps best expressed by Donald Miller in his 2009 novel, “A Million Miles in A Thousand Years.” In the book, Miller recounts his personal journey in resolving both his creative and spiritual funk:

“The reward you get from a story is always less than you thought it would be, and the work is harder than you imagined…The shore behind you stops getting smaller, and you paddle and wonder why the same strokes used to move you but they don’t anymore.”

The strokes Zimmer traditionally has used to propel itself past competitors appear to have lost their efficacy as of late. Increased research and development spending and new product introductions—two of the most common growth strategies implemented by the Warsaw, Ind.-based company in recent years—no longer are producing double-digit sales hikes or considerable upturns in operating profit. Last year, for example, the company upped R&D spending by 7 percent and launched a bevy of new products, but sales grew only by 3 percent, or $125 million, and operating profit rose by $49 million, or 4 percent. Earlier in the decade, when Zimmer employed the same growth strategy, sales and operating profit ballooned by as much as 57 percent and 55 percent, respectively (such explosive growth occurred between 2003 and 2004).

One of the most obvious reasons for the sharp decline in sales growth and operating profit is the economic instability of the last few years. That volatility has forced patients to re-evaluate and often delay cosmetic procedures such as breast implants, elective dental surgeries, and in some cases, hip and knee replacements.

“Globally, economic conditions remained challenging throughout the year, characterized by high rates of unemployment in a number of key markets,” Zimmer President and CEO David Dvorak told stockholders in a letter included in the company’s 2010 annual report. “These factors contributed to a significant number of patients delaying implant and dental surgeries in 2010. However, as the year drew to a close, surgery schedules began to stabilize and we expect procedure demand to continue to perform in line with the global economic recovery and growth.”

Surgical procedure volume, however, is not the only culprit behind the company’s anemic growth rates. Ongoing challenges in reimbursement and pricing also have impacted sales. Global selling prices, for instance, fell 1 percent last year, but were flat in Europe. Consequently, European sales were off by 2 percent in 2010, year ended Dec. 31. Similarly, selling prices slipped 2 percent in the Asia Pacific region, which encompasses Australia, New Zealand, Korea, China, Taiwan, India, Thailand, Singapore, Hong Kong, Malaysia and Japan. Pricing in this region particularly was affected by a bi-annual pricing adjustment in Japan that became effective on April 1, 2010. As a result, operating profit in the region essentially was flat at $259.9 million. Executives do not expect prices to improve anytime soon; therefore, they anticipate selling prices to negatively impact Zimmer’s 2011 sales by 1-2 percent.

Dvorak, though, is confident that the company’s product pipeline can offset global pricing pressures and boost the company’s bottom line. “Throughout [2010], we introduced a range of new offerings across our musculoskeletal portfolios,” he noted in the annual report. “These offerings continue our strong tradition of innovation. Moving into 2011, our positive momentum in the sales of these new products provides a strong platform for growth.”

That platform helped push sales to a record $4.2 billion last year and diluted earnings per share to $4.33. Net earnings plummeted 17 percent to $596.9 million, but operating profit totaled $1.2 billion and operating cash flow came in at $1.2 billion, a 7 percent increase compared with the $1.1 billion in operating cash flow the company reported in 2009.

Reconstructive product sales garnered the most revenue for Zimmer last year, comprising three-quarters of the company’s total net sales. Hip, knee and extremities devices generated $3.2 billion in sales, a 3 percent increase compared with the $3.1 billion these products earned for Zimmer in 2009.

Knee implant sales were driven by the popularity o f gender-specific devices and the NexGen Complete Knee Solution product line, including Gender Solutions Knee Femoral implants, the NexGen LPS-Flex Knee and the NexGen CR-Flex Knee, a synthetic device introduced in 2003 that surgeons use to cap the femur to the tibia at the knee. Sales of partial knee devices also contributed to the 2 percent growth in this product category (revenue totaled $1.79 billion).

Hip sales rebounded last year, growing 3 percent to $1.26 billion. Sales drivers included the M/L Taper Stem, the M/L Taper Stem with Kinective technology, the CLS Spotorno Stem from the CLS Hip System and the Alloclassic Zweymüller Stem, a cementless hip used in more than 325,000 replacement surgeries worldwide. Sales of revision hip products such as the ZMR Hip System, the Trabecular Metal Revision Shell and augment cups as well as Fitmore Hip Stems also experienced solid gains, though the company’s Continuum Acetabular System and its M/L Taper Stem with Kinective technology were the top revenue-generators. The Continuum Cup combines several of Zimmer’s hip technologies—Trabecular Metal technology, Metasul Metal-on-Metal technology, BIOLOX delta and Longevity highly crosslinked polyethylene. The Continuum Cup gives surgeons the option of choosing between metal or highly crosslinked polyethylene bearing surfaces, and metal or ceramic heads to match various patient lifestyles.

Sales of extremities products surged 11 percent in 2010 to $150 million. The top sellers in this category were the Bigliani/Flatow Complete Shoulder Solution and the Trabecular Metal Reverse Shoulder System, according to the annual report.

Dental product sales experienced a significant turnaround from a 10 percent loss in 2009, growing 7 percent last year to generate $219 million for Zimmer. Sales were led by the 10-year-old Tapered Screw-Vent implant system, a device that features an internal hex platform which reduces stress on crestal bone and resists abutment screw loosening, helping to create ideal conditions for bone level maintenance.

Trauma product sales rose 5 percent to $246 million, driven by demand for Zimmer Periarticular Locking Plates, the ITST Intertrochanteri/Subtrochanteric Fixation System and the Natural Nail System, a next generation system of intramedullary nailsdesigned to restore the pre-injury shape of fractured long bones and provide stable fixation during fracture healing.The nails feature a unique screw nail connection that allows a surgeon to create a true fixed angle construct that unites the injured bone to the nail.

Spinal product sales fell 8 percent to $234 million, as the initial benefits of Zimmer’s 2008 acquisition of Abbott Spine wore off. A decline in Dynesys System sales also affected revenue, though that decrease was somewhat offset by solid sales of the PathFinder NXT Minimally Invasive and Sequoia Pedicle Screw Systems, the company’s Universal Clamp System and its Trinica Anterior Cervical Plate System. Zimmer’s PathFinder screw system allows surgeons to approach the implant site through a miniature opening or percutaneously.

Orthopedic Surgical product sales experienced the highest growth last year, surging 13 percent to $319 million. Sales stalwarts in this category included the company’s Palacos bone cement, wound debridement products, tourniquet devices and powered instruments.

Sales in the Orthopedic Surgical product category most likely will receive a boost this year from a pair of acquisitions that occurred in late December. Shortly before Christmas, Zimmer announced the purchases of Beijing Montagne Medical Device Co. Ltd. and Sodem Diffusion S.A., a Swiss manufacturer of SoPlus Orthopaedic Surgical Power Tools. Executives said the deals will broaden the company’s portfolio of surgical power tools and strengthen its position in the estimated $1 billion surgical power tool market.

$4.1 Billion
NO. OF EMPLOYEES: 8,200

A chance encounter has the potential to change history. Consider the fateful meetings between Anne Boleyn and King Henry VIII, a slave named Sojourner and Quaker Abolitionists, and English author Lewis Carroll and a little girl named Alice.

Each encounter altered the course of history in some way.

Most meetings, however, are not historical turning points. Some, such as the one experienced by Zimmer Holdings Inc. President and CEO David C. Dvorak, act as subtle reminders of the interconnectivity of the modern world.

Dvorak’s chance encounter occurred earlier this year on a flight from Zurich, Switzerland, during a visit to his company’s facility in Winterthur. A woman named Susy Balsiger-Peter sat next to him. During the course of their conversation, Dvorak and Balsiger-Peter discovered they shared an interest in orthopedics: Not only was Balsiger-Peter a nurse, she also had replaced both of her knees and both hips with products from Dvorak’s company. Her first joint replacement surgery took place in 1988.

“It’s an old one, but it still works,” Balsiger-Peter said of her 22-year-old Zimmer hip. She also apparently told Dvorak that her replacement surgeries have made her very happy because she no longer has any pain.

“It is especially rewarding when our day-to-day activities bring reminders of the difference our products make in people’s lives,” Dvorak said in Zimmer’s 2009 annual report. “Hearing [Balsiger-Peter’s] and others’ testimonies reminds us not only why we do what we do but also why we work to expand our musculoskeletal capabilities.”

Expanding its musculoskeletal capabilities—particularly through its Trabecular Metal technology—helped Zimmer maintain solid earnings last year despite a decline in demand for its implants due to the gloomy global economy.

The company’s 2009 net sales were flat at $4.1 billion, and gross profit fell 0.6 percent to $3.1 billion. Various factors contributed to the flat sales, according to Zimmer executives, including a 1 percent decline in global selling prices and a foreign currency exchange impact of 2 percent. The firm also apparently is still paying the price for some recalls and the temporary halt in distribution of its hip socket replacement component, the Durom Cup. Being under the watchful eye of federal prosecutors also hasn’t helped Zimmer’s image, even though an 18-month deferred prosecution agreement with the U.S. Attorney’s Office in New Jersey expired last spring.

Designed to minimize bone removal and bond to the hip bone, the Durom Cup was marketed with a promise of “an increased range of motion with greater stability.” Complaints and lawsuits alleging the opposite effect prompted Zimmer to halt sales of the Cup in the United States in July 2008 so it could update labeling to provide more detailed surgical technique instructions and establish a surgical training program.

Zimmer initiated two recalls in 2008—one related to the packaging of certain surgical products at the company’s facility in Dover, Ohio, and the other for a surgical instrument used in minimally invasive knee surgeries.

Zimmer executives contend the recalls and temporary suspension of U.S. marketing and distribution for the Durom Cup—events they deemed “disruptive factors”—led to a loss of customers that the company could not recoup in 2009. “We estimate that these customer losses reduced our global knee market share by approximately 1.5 percent and hip market share by approximately 2 percent on a cumulative basis through the end of 2008,” the annual report noted. “These share losses affected sales growth in 2009, especially in the first six to nine months of the year…”

While executives have been unable to ignore the slowdown in elective procedures (weak demand has impacted sales, after all), they claimed the market began to recover in the second half of 2009. This “recovery” occurred too late in the year to have a significant impact on the company’s individual sector sales, but it is expected to contribute to growth in 2010.

That growth most likely will be given a boost by the launch late last year of the Zimmer MMC Cup, the Continuum Acetabular System and Zimmer Patient Specific instruments. The MMC Cup is an acetabular implant featuring Metasul metal-on-metal technology and a hemispherical design. It is used with Metasul large diameter heads, which are designed to provide an increased range of motion and cut the risk of dislocation.

Zimmer’s Patient Specific Instruments utilize magnetic resonance imaging technology and pre-operative planning tools to create customized cutting guides that are tailored to each patient’s unique anatomy.

The company’s Continuum Acetabular System, Trilogy IT Acetabular System and Allofit IT Alloclassic Acetabular System give surgeons a choice of advanced bearing options to meet the clinical and lifestyle needs of each patient. Bearing options include Longevity highly crosslinked polyethylene, Metasul metal-on-metal technology and a Biolox delta ceramic-on-ceramic. The acetabular systems also provide surgeons with a choice of fixation methods.

Acetabular products proved to be sales stalwarts for Zimmer last year, contributing significantly to total revenue in the Reconstructive products category. Though sales were flat at $3.1 billion (technically, sales fell by $38.8 million), executives credit the Trabecular Metal Acetabular Cup with offsetting weaker sales of other products.

Hip and knee implant sales shrank in fiscal 2009 (ended Dec. 31), with knee devices generating practically the same amount of money they did in 2008. The $1.7 billion Zimmer reported in knee implant sales is just $2.5 million lower than its 2008 total. Leading sellers in the knee product category included the NextGen line of devices and Gender Solutions Natural Knee Flex System. Executives said foreign currency exchange rates negatively impacted knee sales by 6 percent.

Hip sales slipped 4 percent to $1.2 billion, but followed a path similar to revenue in the knee product category. The difference between hip implant revenue totals in 2008 and 2009 was only $51 million.

Significant sales contributions came from the increasing use of porous stems, including the Zimmer M/L Taper Stem, the M/L Taper Stem with Kinectiv technology, the CLS Spotorno Stem from the CLS Hip System and the Alloclassic Zweymüller Hip Stem. The sales of these stems, however, partially were offset by weaker sales of cemented stems, executives said. Longevity Highly Crosslinked Polyethylene liners also experienced robust sales. Foreign currency exchange rates in Europe negatively affected sales by 6 percent last year, but the impact was somewhat offset by rates in Asia Pacific that boosted revenue by 4 percent.

Sales of extremities products totaled $135.6 million, a 12 percent jump compared with the $121 million these devices earned for Zimmer in 2008. Top sellers included the Bigliani/Flatow Complete Shoulder Solution and the Zimmer Trabecular Metal Reverse Shoulder System.

Zimmer compensated a 10 percent decline in dental product sales last year with a 10.4 percent increase in spinal device revenue. Dental products netted $204.7 million for Zimmer, while spinal device revenue rose $23.9 million to $253.6 million. Executives attributed the increase in spinal device sales to the $360 million acquisition of Abbott Spine in the fall of 2008. The increase, however, was partially offset by sales losses associated with the acquisition. And while the spinal segment experienced solid sales of fusion devices, legacy interbody devices and bone graft substitutes, it suffered a decline in sales of the Dynesys Dynamic Stabilization System. Executives attributed the decline to reimbursement issues.

Trauma product sales rose 5.6 percent to $234.8 million, driven by demand for Zimmer Periarticular Locking Plates and the ITST Intertrochanteric/Subtrochanteric Fixation System. Femoral and tibial nails within the Zimmer Natural Nail system also contributed to the growth, though sales were tempered by declining demand for compression hip screws.

Orthopedic Surgical Product sales basically were flat, separated by a mere $500,000. The company’s Palacos bone cement proved popular with customers.

Geographically, Zimmer’s products were most popular in Asia Pacific, where sales rose 2.6 percent last year to $603.8 million. Sales in North and South America inched up 0.79 percent to $2.3 billion, while revenue in Europe fell 5 percent to $1.1 billion.

$4.1 Billion
NO. OF EMPLOYEES: 8,500

For fiscal 2008, Zimmer hit a milestone few medical device companies reach: It crossed the $4 billion mark in revenue for the first time in its history. Full-year net sales were $4.12 billion, an increase of 6 percent reported and 3 percent constant currency. Diluted earnings per share for the year were $3.72 reported, an increase of 14 percent and $4.05 adjusted, unchanged from the prior year. Net earnings for 2008 were $848.6 million on a reported basis and $924.3 million on an adjusted basis, a decrease of 3.9 percent adjusted from the prior year.

Sales in the Americas grew 3 percent to approximately $2.4 billion, the company reported. Revenue from Europe was $1.2 billion, or 9 percent growth. Asia Pacific also grew by 9 percent to $588 million.

By division, the company’s Reconstructive unit expanded sales 7 percent to roughly a total of $3.4 billion across all product categories (knees, $1.8 billion; hips, $1.3 billion; extremities $121 million; and dental, $227 million), clearly the lion’s share of overall sales.

Zimmer’s Trauma unit reported 8 percent growth of $221 million. Spine added $231 million in sales to the company’s coffers, an impressive increase of 17 percent. The only division to report slower sales was the Orthopedic Surgical Products unit, which fell 11 percent to $278 million. The division had been plagued by costs due to recalls during the fiscal year.

“Our 2008 performance was adversely affected by issues related to the global implementation of our enhanced compliance program and the temporary suspensions of production and sales of certain products, among other matters. Despite these challenges, we made substantial progress defining Zimmer for the future,” David Dvorak, president and CEO, said in a letter to shareholders.

During 2008, the company invested heavily in infrastructure projects to accommodate anticipated growth in demand for musculoskeletal procedures. The company expanded manufacturing in Shannon, Ireland; Winterthur, Switzerland, and Warsaw, Ind. Zimmer also is consolidating some of its European distribution facilities into a new, highly automated center in Eschbach, Germany.

Two key management slots were filled during 2008.

In May, Mark C. Throdahl was hired as group president, Global Businesses. He is responsible for Zimmer Spine, Zimmer Dental, Zimmer Trauma, Zimmer Orthopaedic Surgical Products, Zimmer Computer Assisted Solutions and the Human Motion Institute. Prior to joining Zimmer, Throdahl served as CEO for Consort Medical plc, a manufacturer of medical devices for inhaled drug delivery and anesthesia, based in the United Kingdom. Prior to joining Consort in 2001, he held various management roles at Becton Dickinson & Co. in Franklin Lakes, N.J., from 1988 to 2001.

Jeffery A. McCaulley joined the company as president of Zimmer Reconstructive in December. McCaulley most recently served as president and CEO of the Health Division of Amsterdam, Netherlands-based Wolters Kluwer, a provider of scientific information and workflow solutions for healthcare professionals, providers, payers and the pharmaceutical industry. Prior to joining Wolters Kluwer in 2004, he served three years as vice president and general manager of the Diabetes Division of Medtronic, based in Minneapolis, Minn.

As Dvorak mentioned in his annual report note, the company did struggle with a few notable recall issues. One event, announced in April last year, involved problems with the company’s quality systems at its Orthopedic Surgical Products (OSP) facility in Dover, Ohio. According to Zimmer, certain products did not meet its “internal quality standards,” and the manufacture of certain products at the facility was suspended, allowing the company to improve production systems and provide enhanced quality training for employees. The recalls did not affect its core hip and knee implants business. There were no patient safety issues, and the recall primarily was related to issues with the packaging of certain products related to surgical wound cleansing. In 2007, the OSP division initiated a recall of more than 60,000 Pulsavac kits, used to clean wounds, because their sterility was compromised. Specifically, a silicone stain produced during assembly operations was not validated for its effect on the Tyvek sterility barrier, which is supplied by DuPont.

In July last year, the company recalled a surgical instrument used in minimally invasive knee implant surgeries. The instrument most often is used with the company’s NexGen knee implant system, which was not affected by the recall. The company had received reports that some NexGen tibial broach impactors, which are used to prepare the tibial bone for an implant, had broken during surgery. According to Zimmer, other instruments were available for the procedure. At the time, a Zimmer spokesperson said that when the broach impactor was struck off the intended axis, there is the potential that the instrument could break over time and metal fragments could be left unnoticed in the patient at the time of surgery. Zimmer officials notified the U.S. Food and Drug Administration and affected customers, requesting that all instruments be returned. There were approximately 1,500 instruments in the field when the recall was issued.

Possibly the biggest news of the year for the Warsaw, Ind.-based company, however, was the acquisition of Abbott’s spine business for approximately $360 million in cash. The deal was announced in September. Abbott Spine had 2007 revenues of $109 million.

Zimmer Spine’s revenues for the same period were $197 million. Founded in 1996, Abbott Spine has its U.S. headquarters in Austin, Texas, and an international facility in Bordeaux, France. Zimmer Spine is based in Minneapolis. At the time, Zimmer officials said they planned to maintain a presence at Abbott’s facilities in Texas and France.

Abbott Spine primarily manufacturers screw systems and stabilizer systems. Industry analysts claimed that the deal better positions Zimmer to tap the faster-growing spinal market, where annual growth is in an estimated range of 13 percent to 14 percent.

$3.9 Billion
NO. OF EMPLOYEES: 7,600

In the United States and Europe, the older-than-65 age group is projected to grow to between 15% and 20% of the population by the year 2015, compared with 10% to 15% in 2000. And in 2008, baby boomers began turning 62, which means they’re on the threshold of age-related degenerative conditions such as arthritis. If you’re an orthopedic company with dominant products in knees and hips, you’re in the right place at the right time.

That’s certainly the case for Zimmer Holdings, Inc.

By the company’s estimates, it holds the No. 1 market positions in hips (26% of a $5 billion global market) and knees (28% of $5.8 billion global market). And Zimmer is performing solidly, reporting double-digit revenue growth for the 2007 fiscal year (ended Dec. 31) and rolling out a series of new products. Sales for 2007 were $3.9 billion, a 12% increase compared with 2006. Knee reconstruction products were the biggest revenue driver at 42% of sales, posting a 12% increase to $1.64 billion. Hips followed with $1.3 billion, a 9% increase.

“Our smaller businesses also are well positioned to deliver growth with new products and technology applications,” CEO David Dvorak said in Zimmer’s annual report.

It seems he’s correct. While not the biggest bottom-line earner, sales from Zimmer’s extremities product line showed the most impressive growth, increasing 34% to $104 million. Rounding out the company’s Reconstruction division, revenues for dental products grew 23% to $221 million.

Sales for the Trauma division rose 6% to $206 million. Spine business revenue gained 11% to reach $197 million, while the company’s Orthopedic Surgical Products (OSP) unit increased its sales 8% to $234 million.

The United States was responsible for 58% of net sales, Europe was 28% and the Asia-Pacific region was 14%.

Despite solid sales performance, net earnings of $773.2 million slid $61 million from 2006 profit of $834.5 million. The difference primarily was due to settlement charges of $169.5 million related to the government’s anti-kickback probe of five of the largest orthopedic companies. Adjusted earnings, excluding the settlement costs as well as acquisition-related expenses and other nonrecurring items, improved 14% to $961.6 million.

Zimmer notably made some strategic acquisitions in 2007 and rolled out more than 20 new products across all product categories.

In early 2007, Zimmer agreed to buy Endius, Inc., a Massachusetts-based spine company that developed a minimally invasive instrument kit and associated implants for spinal fusion. In November, Zimmer acquired ORTHOsoft Inc., which develops computer navigation for orthopedic surgery. According to Zimmer officials, the acquisition bolstered the company’s SmartTools computer-assisted surgery product portfolio. Dvorak has said the company would continue to develop minimally invasive and computer navigation concepts across Zimmer’s range of businesses.

Among new products introduced to the market in 2007 was the Gender Solutions Natural-Knee Flex System, the company’s second gender knee that builds on its original Gender Solutions NexGen knee launched in 2006.

Another noteworthy product launch is the NexGen LPS-Flex Mobile knee, which was approved by the FDA in December. According to Zimmer, a key strength of its mobile bearing system is the ability to be used in a minimally invasive procedure. The main difference between a traditional knee replacement design and a mobile bearing knee is that the polyethylene articulating surface is free to rotate slightly along with the patient’s natural movement. When used with the LPS-Flex femoral component, the knee replacement is designed to safely accommodate active deep flexion of up to 155 degrees for patients who are otherwise capable of that level of flexion. In the past, knee implants have been designed to accommodate flexion of only 120 degrees, according to Zimmer.

Meeting market growth demands and an aggressively expanding product line means the company will need more capacity. In February 2008, Zimmer announced plans to add a 100,000-square-foot manufacturing facility in Shannon, Ireland. Zimmer officials considered a number of sites before selecting Shannon, including existing sites and other global locations. The company expects to invest between $70 million and $75 million in the next two years and plans to begin manufacturing operations later this year. Initial employment will be approximately 25 to 50 employees, with total employment expected to be approximately 250 in five years. Initially, the facility will produce knee replacement implants, although other products could be added in the future, the company said.

For 2008, Dvorak said Zimmer would make additional investments in the higher-growth areas of spine and dental products. The company also plans to continue moving forward aggressively with knees and hips. For the first quarter (ended March 31), net sales increased 11%.

Zimmer hopes to expand its knee portfolio with new products such as the NexGen LPS-Flex Mobile Knee, Gender Solutions’ Natural-Knee Flex and Patello-Femoral Joint System. Additionally, the company added to its portfolio the Kinective Technology for hip replacement and Fitmore Hip stem, which received FDA approval in March.

In April, Zimmer initiated voluntary recalls to improve quality systems at its OSP facility in Dover, OH, allowing the company to improve production systems and provide enhanced quality training for employees.  The company expects the move to cause revenue to decrease by $70 million-$80 million. Zimmer said the recalls do not affect its core hip and knee implants business. In late 2007, the OSP division initiated a recall of more than 60,000 Pulsavac kits, used to clean wounds, because their sterility was compromised.

$3.5 Billion
No. of Employees: 6,900

In line with its strategic initiative to “Enable, Innovate and Grow,” Zimmer Holdings cast itself into various endeavors in 2006 that will allow the company to continue on its mission to excel in each of its four core divisions. However, the challenges plaguing the orthopedic industry affected Zimmer, as they did its competitors. This time around, Zimmer failed to grow sales by double digits, as it had in past years.

Zimmer reported sales of $3.5 billion in 2006, a 6% increase from the previous year.  With an established presence in more than 100 countries, sales around the world experienced single-digit increases. The Americas contributed $2.1 billion, Europe offered $931 million and the Asia Pacific added $488 million to sales.

Zimmer’s four core divisions also experienced single-digit increases, with the exception of the spinal unit, which rose 11% from 2005. Although the reconstructive and trauma units experienced slight sales increases, the bright spot for the company was its dental segment (part of the Reconstructive unit), which grew by 21%. Orthopedic Surgical Products was the only division in 2006 to experience a slight decrease in sales, which were down 4% from the prior year.

The year brought about a series of new innovations; however, the biggest advancement in Zimmer innovations was the introduction of gender-specific knees for women, which debuted in early 2006 after a five-year effort to develop the product. The Gender Solutions Technology line fueled a 13.5% rise in total earnings in first quarter of 2006. Zimmer has plans for gender-based hips to launch in this year and in 2008. Eventually, the complete line will be designed to address anatomical differences based on gender and, in the future, ethnicity. To help promote its new line, Zimmer launched its first major direct-to-consumer advertising campaign.

For Zimmer, the introduction of new products did not stop with gender-specific implants. In fact, Zimmer introduced a total of 20 new products in 2006. New versions of existing products, such as a coated screw version of the Dynesys spinal system, were part of the lines rolled out. Among other spinal innovations was the Vista-P PEEK VBR Implant.

Zimmer’s trauma division introduced new offerings as well, including the MIS Femoral Nailing Solutions. Meanwhile, the dental unit came out with the One-Piece Implant and Hex-Lock Contour Abutments, as well as Puros Dermis and Pericardium regenerative membrane products.In the restorative unit, Zimmer was granted regulatory approval from the FDA to begin selling ceramic hip replacements, known as the Trilogy AB Cermic-on-Ceramic Acetabular System.

“During the year, we experienced a tremendous flow of new products and reached a Zimmer record 24% of sales coming from new products, including $229 million in the fourth quarter,” said Raymond Elliott, Zimmer’s former president and CEO.

In an effort to boost its line of surgical instruments, Zimmer entered a five-year agreement in July with Brasseler USA, which allows the company to sell and distribute Brasseler’s powered surgical instruments and  consumables in the United States.

Zimmer, along with ISTO Technologies, also announced the start of its clinical trial for Neocartilage, a living tissue-engineered graft under investigation as a therapy for knee problems. Zimmer plans to market the product as DeNovo ET Engineered Tissue Graft.

The company increased its product catalog through numerous acquisitions in 2006. The company acquired Musculoskeletal Management Systems LLC, known as Human Motion Institute brand. Additionally, Zimmer acquired the intellectual property rights, inventory and associated assets of the Cyclone Anterior Cervical Plate System, a versatile, low profile ACP system that complements the company’s spine division.

Zimmer got its feet wet in dental implants by opening Zimmer Dental in June 2006. The Zimmer Institute, located in Carlsbad, CA, is a professional training center that specializes in helping clinicians practice contemporary implant dentistry.

In addition, a new 130,000-square-foot R&D manufacturing facility for the Zimmer Trauma division was opened alongside the company’s headquarters in Warsaw, IN.

Zimmer forecasts a positive outlook for 2007 with anticipation that its direct-to-consumer advertising campaign will aid the launch of its new implants.

Zimmer’s recent acquisition of Endius Inc., a private business that develops minimally invasive spine products and techniques, also will contribute to Zimmer’s willingness to stay on top of its game. With net sales up 10% to $950 million in the first quarter (ended March 31) of 2007, the company expects sales growth of 10% to 11% in each of the remaining quarters this year.

But will all the changes occurring at Zimmer allow for that kind of growth? For now, the company is in major transition, as former CEO Ray Elliott retired in May. Elliott served as chairman, president and CEO of Zimmer for its entire run as a public company since its spinoff from Bristol-Myers Squibb in 2001. He was president of Zimmer since 1997.

David C. Dvorak group president, global businesses, and chief legal officer, recently took over the helm.