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In 2016, Zimmer Biomet acquired LDR and Medtech, two companies with niche technologies (artificial disc and a robot, respectively) to position its spine business for prominence in the market. If only it were that easy. Zimmer Biomet’s $400 million spine business has been hampered by acquisition integrations, leadership changes, sales channel restructuring and portfolio gaps that led to year-over-year revenue declines that, ultimately, forced the company to push the unit to the bottom of its priority list.
Jump ahead to 2021, and Zimmer Biomet has announced that it will spin off its spine and dental businesses into a new public company. The efforts will allow Zimmer Biomet to further enhance its focus on knees, hips and its sports medicine, extremities and trauma businesses.
“The transaction is an important next step in our transition into a more streamlined company with sharper focus in greater and more optimized resource allocation towards innovation in those core businesses that we are committed to, that are profitable for us…,” Bryan Hanson, Zimmer Biomet President and CEO said during the company’s Q4 earnings call. “The second thing is it’s going to drive increased growth and efficiency for both companies.
“Simply put, we expect that these two companies, with their simplified operating models and just reduced complexity and increased focus, we’ll be able to grow revenue, margin and earnings per share faster than they would if we remain combined as one company.”
Spinning off Spine and Dental
Mr. Hanson, who took the helm at Zimmer Biomet in December 2017, has laid out a path for 4% to 5% growth with a 30% operating margin by the end of 2023. The spine and dental businesses hindered his plan, and Mr. Hanson hinted at a possible divestiture or spinoff for nearly a year.
“It’s time for active portfolio management. And in a time when we don’t have as much capital to work with, this is clearly one of the most significant ways that we can impact and influence the portfolio in a positive way for both companies, I do believe that,” Mr. Hanson said. “Given the number of options on the table, we felt that this was the most significant way that we could drive value for our shareholders and our businesses and our team members. So that’s the reason for the spin.”
Zimmer Biomet reported its combined spine (including biologics) and dental revenues were $897 million in 2020 and $1 billion in 2019 and accounted for about 12.8% of Zimmer Biomet’s $7 billion in 2020 revenue.
While spine and dental are not a usual pair of businesses from a strategic and commercial perspective, Mr. Hanson said that there is crossover in the capability and material know-how of creating the implants. An additional driving factor for grouping the businesses was a $1 billion threshold that he said was reasonable to scale the company successfully.
Vafa Jamali was appointed CEO of the new company. Mr. Jamali recently served as the Chief Commercial Officer of Rockley Photonics. Before that, he was President of Medtronic’s Respiratory, Gastrointestinal & Informatics business that generated over $3 billion in annual revenue.
Zimmer Biomet expects the spinoff to be complete in mid-2022 and noted small acquisitions to bolster the spine and dental portfolios could be made in the next year.
Vying for Growth in Spine
Zimmer Biomet’s spine business (not including orthobiologics) is the sixth largest in the segment, with $400 million in revenue in 2020, according to our estimates. The new company will sit in a vast space between No. 5 Globus Medical at $700+ million in revenue and No. 7 Aesculap at $150+ million in revenue. This is illustrated in Exhibit 1, which is sourced from THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT®.
Exhibit 1: Spine Sales – Players Over $50 Million and All Others ($Millions)
| Company | 2019 | 2018 | $ Chg | % Chg |
|---|---|---|---|---|
| Medtronic | $2,641.0 | $2,578.2 | $62.8 | 2.4% |
| DePuy Synthes | $1,407.0 | $1,458.1 | ($51.2) | (3.5%) |
| Stryker | $1,035.1 | $995.4 | $39.7 | 4% |
| NuVasive | $1,013.1 | $948.0 | $65.1 | 6.9% |
| Top-Tier Players Subtotal | $6,096.2 | $5,979.8 | $116.4 | 1.9% |
| Globus Medical | $744.5 | $678.9 | $65.6 | 9.7% |
| Zimmer Biomet | $432.0 | $453.1 | ($21.1) | (4.7%) |
| Aesculap | $182.5 | $178.4 | $4.1 | 2.3% |
| ulrich medical | $152.0 | $146.8 | $5.2 | 3.6% |
| Spinal Elements | $145.3 | $133.5 | $11.8 | 8.8% |
| RTI Surgical | $119.6 | $100.4 | $19.2 | 19.1% |
| ATEC Spine | $103.6 | $83.3 | $20.3 | 24.4% |
| Orthofix | $94.5 | $91.7 | $2.9 | 3.1% |
| SeaSpine | $77.8 | $68.1 | $9.6 | 14.1% |
| Spineart | $72.4 | $69.0 | $3.4 | 4.9% |
| SI-BONE | $67.3 | $55.4 | $11.9 | 21.6% |
| Weigao | $59.9 | $58.5 | $1.4 | 2.5% |
| Next-Tier Players Subtotal | $2,251.4 | $2,117.0 | $134.4 | 6.3% |
| All Others | $1,306.5 | $1,227.9 | $78.6 | 6.4% |
| Total | $9,654.1 | $9,324.7 | $329.4 | 3.5% |
For years, we’ve noted that the spine market rewards specialization, with spine-focused companies routinely taking market share from diversified medtech players like Zimmer Biomet, DePuy Synthes, Medtronic and Stryker. Zimmer Biomet’s spine business has lost revenue each of the last three years. Leadership expects the new company will benefit from a focused strategy that will lead to investments, efficiencies and growth.
We believe that the new company will be well positioned with several standout products. On the implant side, the Mobi-C artificial disc that Zimmer Biomet acquired from LDR remains a top revenue driver due to its one- and two-level approval and robust data. The company has touted its new TrellOss 3D-printed interbody, which launched in 2019. On the enabling technology side, the new company will have one of the few robots in the spine space with ROSA, as well as the WalterLorenz Surgical Assist Arm.
Looking to the Future
The spinoff of spine and dental allows Zimmer Biomet to fully focus on its core businesses of joint replacement, trauma and sports medicine—markets they’ve already prioritized because they’re more profitable, they have synergies from selling and servicing standpoints and the company is more strongly positioned.
Separating the two businesses will also allow Zimmer Biomet to strengthen its balance sheet and invest in larger acquisitions, which it currently doesn’t have the capital to do.
Industry analysts applauded the announcement and echoed Zimmer Biomet’s leadership in saying that the move will strengthen the company’s core businesses.
While the spinoff announcement did not come as a surprise, it can be seen as bold. The top players in orthopedics continue to execute acquisitions to fill portfolio gaps or embark on restructuring to help their struggling market segments return to growth. Mr. Hanson, who was hired to transform Zimmer Biomet’s culture and long-term strategy, believes there is little synergy between orthopedics and spine and took a different approach to divide the businesses.
Not to be lost in the spinoff news is Zimmer Biomet’s January hire of Ellison (Ellie) Humphrey as its Chief Transformation Officer. Ms. Humphrey, who served in a similar role at Medtronic, is responsible for connecting key initiatives and implementing a higher level, more integrated transformation strategy across Zimmer Biomet’s divisions. The newly created position reports directly to the CEO. It is an important placement for Mr. Hanson’s successful turnaround of the company and the transition of Zimmer Biomet from a diversified implant company to a focused technology company.
Carolyn LaWell is ORTHOWORLD’s Chief Content Officer.
Article updated 2/22/2021 to indicate hiring of Mr. Jamali.
Timeline: Zimmer Biomet Spine Comments
Zimmer Biomet’s spinoff of its spine and dental businesses was not a surprise. A look at comments from the last two and a half years highlights its move toward the decision.
3Q18 – The spine segment remains challenged due to the ongoing restructuring of that sales channel while pursuing growth, a process leadership likened to driving a car down the street while changing the fan belt.
4Q18 – To create sustainable growth and recovery, the company restructured its leadership teams. Within the last year, 70% of those on the leadership team are new to the position.
2Q19 – The underperforming spine segment was impacted by difficult quarterly comps. Leadership is evaluating salesforce cohesion and selection of distribution partners.
3Q19 – Spine sales improved over 2Q19 but remained below market, with real momentum not expected until sometime in 2020, as the sales channel continues to consolidate and new products like the TrellOss 3D printed interbody and ROSA spine become commercially available.
4Q19 – Zimmer Biomet intends to give more focus to and investment in the areas of sports medicine and lower extremities.
1Q20 – “We’re going to continue to build out our dedicated specialty sales teams and other high-value commercial programs,” Mr. Hanson said.
2Q20 – Zimmer Biomet’s long-term strategy for growth calls for increased investment and focus on high-growth segments. The company seeks to drive above-market growth in knee replacement, robotics and informatics while achieving market-growth parity in hip replacement, sports medicine and trauma. Underperforming businesses like spine will receive less investment and different management, though the company stopped short of talking about divestitures.
3Q20 – “Active portfolio management includes three components. First, disproportionately investing in our priority businesses and markets. Number two, being selective in M&A, prioritizing opportunities that are accretive to our weighted average market growth and aligned to our strategy. Finally, when appropriate and inline with our overall strategy, divesting non-core assets that are financially less attractive in our core businesses,” Mr. Hanson said.
In 2016, Zimmer Biomet acquired LDR and Medtech, two companies with niche technologies (artificial disc and a robot, respectively) to position its spine business for prominence in the market. If only it were that easy. Zimmer Biomet’s $400 million spine business has been hampered by acquisition integrations, leadership changes, sales channel...
In 2016, Zimmer Biomet acquired LDR and Medtech, two companies with niche technologies (artificial disc and a robot, respectively) to position its spine business for prominence in the market. If only it were that easy. Zimmer Biomet’s $400 million spine business has been hampered by acquisition integrations, leadership changes, sales channel restructuring and portfolio gaps that led to year-over-year revenue declines that, ultimately, forced the company to push the unit to the bottom of its priority list.
Jump ahead to 2021, and Zimmer Biomet has announced that it will spin off its spine and dental businesses into a new public company. The efforts will allow Zimmer Biomet to further enhance its focus on knees, hips and its sports medicine, extremities and trauma businesses.
“The transaction is an important next step in our transition into a more streamlined company with sharper focus in greater and more optimized resource allocation towards innovation in those core businesses that we are committed to, that are profitable for us…,” Bryan Hanson, Zimmer Biomet President and CEO said during the company’s Q4 earnings call. “The second thing is it’s going to drive increased growth and efficiency for both companies.
“Simply put, we expect that these two companies, with their simplified operating models and just reduced complexity and increased focus, we’ll be able to grow revenue, margin and earnings per share faster than they would if we remain combined as one company.”
Spinning off Spine and Dental
Mr. Hanson, who took the helm at Zimmer Biomet in December 2017, has laid out a path for 4% to 5% growth with a 30% operating margin by the end of 2023. The spine and dental businesses hindered his plan, and Mr. Hanson hinted at a possible divestiture or spinoff for nearly a year.
“It’s time for active portfolio management. And in a time when we don’t have as much capital to work with, this is clearly one of the most significant ways that we can impact and influence the portfolio in a positive way for both companies, I do believe that,” Mr. Hanson said. “Given the number of options on the table, we felt that this was the most significant way that we could drive value for our shareholders and our businesses and our team members. So that’s the reason for the spin.”
Zimmer Biomet reported its combined spine (including biologics) and dental revenues were $897 million in 2020 and $1 billion in 2019 and accounted for about 12.8% of Zimmer Biomet’s $7 billion in 2020 revenue.
While spine and dental are not a usual pair of businesses from a strategic and commercial perspective, Mr. Hanson said that there is crossover in the capability and material know-how of creating the implants. An additional driving factor for grouping the businesses was a $1 billion threshold that he said was reasonable to scale the company successfully.
Vafa Jamali was appointed CEO of the new company. Mr. Jamali recently served as the Chief Commercial Officer of Rockley Photonics. Before that, he was President of Medtronic’s Respiratory, Gastrointestinal & Informatics business that generated over $3 billion in annual revenue.
Zimmer Biomet expects the spinoff to be complete in mid-2022 and noted small acquisitions to bolster the spine and dental portfolios could be made in the next year.
Vying for Growth in Spine
Zimmer Biomet’s spine business (not including orthobiologics) is the sixth largest in the segment, with $400 million in revenue in 2020, according to our estimates. The new company will sit in a vast space between No. 5 Globus Medical at $700+ million in revenue and No. 7 Aesculap at $150+ million in revenue. This is illustrated in Exhibit 1, which is sourced from THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT®.
Exhibit 1: Spine Sales – Players Over $50 Million and All Others ($Millions)
| Company | 2019 | 2018 | $ Chg | % Chg |
|---|---|---|---|---|
| Medtronic | $2,641.0 | $2,578.2 | $62.8 | 2.4% |
| DePuy Synthes | $1,407.0 | $1,458.1 | ($51.2) | (3.5%) |
| Stryker | $1,035.1 | $995.4 | $39.7 | 4% |
| NuVasive | $1,013.1 | $948.0 | $65.1 | 6.9% |
| Top-Tier Players Subtotal | $6,096.2 | $5,979.8 | $116.4 | 1.9% |
| Globus Medical | $744.5 | $678.9 | $65.6 | 9.7% |
| Zimmer Biomet | $432.0 | $453.1 | ($21.1) | (4.7%) |
| Aesculap | $182.5 | $178.4 | $4.1 | 2.3% |
| ulrich medical | $152.0 | $146.8 | $5.2 | 3.6% |
| Spinal Elements | $145.3 | $133.5 | $11.8 | 8.8% |
| RTI Surgical | $119.6 | $100.4 | $19.2 | 19.1% |
| ATEC Spine | $103.6 | $83.3 | $20.3 | 24.4% |
| Orthofix | $94.5 | $91.7 | $2.9 | 3.1% |
| SeaSpine | $77.8 | $68.1 | $9.6 | 14.1% |
| Spineart | $72.4 | $69.0 | $3.4 | 4.9% |
| SI-BONE | $67.3 | $55.4 | $11.9 | 21.6% |
| Weigao | $59.9 | $58.5 | $1.4 | 2.5% |
| Next-Tier Players Subtotal | $2,251.4 | $2,117.0 | $134.4 | 6.3% |
| All Others | $1,306.5 | $1,227.9 | $78.6 | 6.4% |
| Total | $9,654.1 | $9,324.7 | $329.4 | 3.5% |
For years, we’ve noted that the spine market rewards specialization, with spine-focused companies routinely taking market share from diversified medtech players like Zimmer Biomet, DePuy Synthes, Medtronic and Stryker. Zimmer Biomet’s spine business has lost revenue each of the last three years. Leadership expects the new company will benefit from a focused strategy that will lead to investments, efficiencies and growth.
We believe that the new company will be well positioned with several standout products. On the implant side, the Mobi-C artificial disc that Zimmer Biomet acquired from LDR remains a top revenue driver due to its one- and two-level approval and robust data. The company has touted its new TrellOss 3D-printed interbody, which launched in 2019. On the enabling technology side, the new company will have one of the few robots in the spine space with ROSA, as well as the WalterLorenz Surgical Assist Arm.
Looking to the Future
The spinoff of spine and dental allows Zimmer Biomet to fully focus on its core businesses of joint replacement, trauma and sports medicine—markets they’ve already prioritized because they’re more profitable, they have synergies from selling and servicing standpoints and the company is more strongly positioned.
Separating the two businesses will also allow Zimmer Biomet to strengthen its balance sheet and invest in larger acquisitions, which it currently doesn’t have the capital to do.
Industry analysts applauded the announcement and echoed Zimmer Biomet’s leadership in saying that the move will strengthen the company’s core businesses.
While the spinoff announcement did not come as a surprise, it can be seen as bold. The top players in orthopedics continue to execute acquisitions to fill portfolio gaps or embark on restructuring to help their struggling market segments return to growth. Mr. Hanson, who was hired to transform Zimmer Biomet’s culture and long-term strategy, believes there is little synergy between orthopedics and spine and took a different approach to divide the businesses.
Not to be lost in the spinoff news is Zimmer Biomet’s January hire of Ellison (Ellie) Humphrey as its Chief Transformation Officer. Ms. Humphrey, who served in a similar role at Medtronic, is responsible for connecting key initiatives and implementing a higher level, more integrated transformation strategy across Zimmer Biomet’s divisions. The newly created position reports directly to the CEO. It is an important placement for Mr. Hanson’s successful turnaround of the company and the transition of Zimmer Biomet from a diversified implant company to a focused technology company.
Carolyn LaWell is ORTHOWORLD’s Chief Content Officer.
Article updated 2/22/2021 to indicate hiring of Mr. Jamali.
Timeline: Zimmer Biomet Spine Comments
Zimmer Biomet’s spinoff of its spine and dental businesses was not a surprise. A look at comments from the last two and a half years highlights its move toward the decision.
3Q18 – The spine segment remains challenged due to the ongoing restructuring of that sales channel while pursuing growth, a process leadership likened to driving a car down the street while changing the fan belt.
4Q18 – To create sustainable growth and recovery, the company restructured its leadership teams. Within the last year, 70% of those on the leadership team are new to the position.
2Q19 – The underperforming spine segment was impacted by difficult quarterly comps. Leadership is evaluating salesforce cohesion and selection of distribution partners.
3Q19 – Spine sales improved over 2Q19 but remained below market, with real momentum not expected until sometime in 2020, as the sales channel continues to consolidate and new products like the TrellOss 3D printed interbody and ROSA spine become commercially available.
4Q19 – Zimmer Biomet intends to give more focus to and investment in the areas of sports medicine and lower extremities.
1Q20 – “We’re going to continue to build out our dedicated specialty sales teams and other high-value commercial programs,” Mr. Hanson said.
2Q20 – Zimmer Biomet’s long-term strategy for growth calls for increased investment and focus on high-growth segments. The company seeks to drive above-market growth in knee replacement, robotics and informatics while achieving market-growth parity in hip replacement, sports medicine and trauma. Underperforming businesses like spine will receive less investment and different management, though the company stopped short of talking about divestitures.
3Q20 – “Active portfolio management includes three components. First, disproportionately investing in our priority businesses and markets. Number two, being selective in M&A, prioritizing opportunities that are accretive to our weighted average market growth and aligned to our strategy. Finally, when appropriate and inline with our overall strategy, divesting non-core assets that are financially less attractive in our core businesses,” Mr. Hanson said.
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Carolyn LaWell is ORTHOWORLD's Chief Content Officer. She joined ORTHOWORLD in 2012 to oversee its editorial and industry education. She previously served in editor roles at B2B magazines and newspapers.
