Warsaw-based Zimmer Holdings Inc. has enjoyed eight years as the giant in the industry of selling knee- and hip-replacement implants to hospitals. But now it faces a new threat from Johnson & Johnson.
Hospitals, looking to trim overhead and boost buying power, are increasingly interested in getting their orthopedic surgeons to buy orthopedic implants in bundles—from as few manufacturers as possible.
That means they’d not only like to buy knee and hip implants—but spine and trauma implants as well. And in those latter two categories, Zimmer is a pipsqueak facing competition that just got a lot bigger.
On April 26, New Jersey-based Johnson agreed to pay $21.3 billion to acquire Synthes Inc., based in West Chester, Pa., the leading maker of implants for trauma surgeries.
The acquisition will give Johnson about half the $5.5 billion trauma market and about 20 percent of the $9 billion spine market, according to Wells Fargo estimates published by Dow Jones Newswires.
By comparison, Zimmer claims about 4.5 percent of the trauma market and 2.6 percent of the spine market.
If Johnson is able to leverage its trauma and spine products to take knee and hip sales from Zimmer, it could be trouble. Zimmer had knee and hip sales last year totaling $1.7 billion.
Sales of trauma and spine products totaled less than $300 million. Zimmer also sells implants for extremities and dental, as well as surgical products.
But in two recent appearances at investors’ conferences, Zimmer executives have tried to tamp down such fears.
“We don’t think we have to be No. 1 or No. 2 in those emerging businesses [trauma and spine] to create value for the stockholders, but we’re going to want to have a full portfolio of products and compete effectively in each of those spaces,” Zimmer CEO David Dvorak said May 10 at the Bank of America Merrill Lynch health care conference in Las Vegas.
Dvorak added that he sees no short-term impact from the Johnson-Synthes merger. Rather, he views it as a “long, long-term” issue.
To meet the challenge, Dvorak told investors during an April conference call, Zimmer will need to both make acquisitions and develop products internally.
Recently, Zimmer has been having success selling trauma products—the implants used to repair fractures sustained in car accidents, for example. First-quarter sales of those products rose 16 percent.
But sales of its spine products fell 5 percent in the first quarter. Zimmer tried to develop a system of spine-stabilization parts that were rejected by U.S. regulators. That set it behind competitors.
In April, it introduced two spine products, which it hopes will drive future sales.
“We have still, I would say, some work ahead of us to show that we can compete and win in the spine category,” acknowledged Zimmer Chief Financial Officer James Crines during a May 3 investor presentation at the Deutsche Bank Annual Health Care Conference in Boston.