Zimmer Biomet Orthopaedic Revenue for 4Q17, 2017

ORTHOWORLD estimates Zimmer Biomet (ZBH) 4Q17 orthopaedic revenue of US $1,927.3MM, +2.9% from 4Q16, and 2017 of $7,273.9MM, +2.7% vs. 2016.

In 4Q17, Zimmer Biomet benefited from strong trauma and arthroscopy/soft tissue repair sales and its typical high-performing products: Gel-One, the Taperloc Hip and G7 cup, Mobi-C, etc. Performance continues to be hindered by the supply chain saga and cultural gaps that linger following the merge of Biomet and Zimmer. Estimated segment sales and growth follow.

*Includes CMF, Bone Healing, Forgings, Accelero

Results in 4Q17 benefitted from tailwinds like stronger-than-expected growth in U.S. hip and knee procedures and high growth for ZBH in already-solid Asia Pacific regions. Specific contributors and demand-generators included the Persona partial knee, Taperloc hip, G7 Acetabular and Arcos Modular Femoral Revision systems, Gel-One, Subchondroplasty, the Comprehensive Total Shoulder, Mobi-C cervical disc, NCB trauma plate and the Natural Nail portfolio.

Underperformance in 4Q spine was attributed to revenue dissynergies in U.S. spine salesforce integration. The company has promoted Aure Bruneau to lead as Group President Spine, CMF & Thoracic and Surgery Assisting Technologies, and expects to see cross-selling opportunities in future days.

Within 4Q, the company received FDA 510(k) clearance to market the Comprehensive Augmented Baseplate and the Sidus Stem-free shoulder, the latter slated for 1Q18 U.S. launch.

Supply constraints continue, however, affecting hips, knees, extremity recon, sportsmed (Arthroscopy/Soft Tissue Repair) and trauma. In his first earnings call as President and CEO, Mr. Bryan Hanson laid out priorities and opportunities for ZBH:

• Supply recovery, and translation of that recovery into revenue acceleration
• Launch of pipeline products
• A culture shift

Teams continue to pursue increased production levels on supply-constrained products in knee, hip and S.E.T., and quality remediation efforts continue at the Warsaw North Campus. ZBH remains focused on development of its quality management system and awaits FDA’s reinspection. Production output in 1Q18 should be at least equal to that of 4Q17. Hanson was frank in saying that this is a complex process; things never go as planned and unplanned events always occur. Overall, revenue recovery will last into 2019.

Fifty products are slated for 2018 launch, including Sidus, the Persona cementless knee and limited launches of the Persona revision knee, ROSA robotic knee application and X-PSI x-ray based knee surgical planning guides.

Even with recovered supply and a full bag of product, “There’s a lack of trust right now from the sales organization for corporate. We have given them timelines that we have failed on,” said Hanson. The time to rebuild trust with the salesforce will mean a delayed impact of supply recovery, because “even when we have supply available, they’re going to wait; they’ve been defending their surgeons through logistics hoops they’ve been jumping through.” Thus, this results in a bit more of a delay in recovery. (For example, the Oxford knee is back to full supply, but revenue acceleration is taking longer than expected.) However, Hanson expects that a “ ‘fully loaded for bear’ attitude from the sales reps will come in that mid-2019 timeframe.”

Culture issues stretch beyond the salesforce, as Hanson noted, “There’s still camps of ‘Zimmer’ and ‘Biomet,’ and we need to create the ‘Zimmer Biomet’—forget the legacy companies.” The culture gap was wider than he expected and the organization seems fatigued, seeking a different form of leadership. Nevertheless, he pointed to a high-caliber sales organization, excellent surgeon “stickiness” and a deep, broad portfolio. “Together, we will build a cohesive company where our team members are engaged and valued, feel accountable for delivering on our commitments and act with a sense of urgency.”

Sources: Zimmer Biomet Inc., ORTHOWORLD estimates