Bryan C. Hanson, President and CEO
Daniel P. Florin, Exec. VP and CFO
Aure Bruneau, Group President, Spine, CMF, Thoracic and Surgery Assisting Technology
David A. Nolan Jr., Group President, Biologics, Extremities, Sports Medicine, Surgical, Trauma, Foot and Ankle, Office Based Technologies and Zimmer Biomet Signature Solutions
Daniel E. Williamson, Group President, Joint Reconstruction
NO. OF EMPLOYEES: 18,200
GLOBAL HEADQUARTERS: Warsaw, Ind.
Though former Health and Human Services (HHS) secretary Tom Price resigned last September—following reports that he had used over a million dollars 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 congressman. Less than a week after buying the shares, the Republican politician debuted 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 implementation. Deepening the ethical mire, Price’s campaign finance filings showed Zimmer Biomet’s political action committee 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, further asserted 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.”
ANALYST INSIGHTS: Zimmer Biomet has struggled to perform since the acquisition/combination of the Zimmer and Biomet organizations. It cost David Dvorak his job amid investor frustration. New CEO Bryan Hanson has his hands full as he seeks to execute. For the most part, he has been given 2018 as a “honeymoon period.” After that, stakeholders (investors, customers, and employees) expect to see positive results.
—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors
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. A 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 U.S. 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 noted 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,” Kara Brockmeyer, chief of the SEC Enforcement Division’s FCPA unit, said in a press release.
According to The Indiana Lawyer, a settlement was finally reached in mid-January of last year, 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 official statement about the matter encouraged stakeholders 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 2017 (ended Dec. 31) crawled slightly uphill 2 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 if 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 United States. 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 years, announced he was stepping down last July. In the meantime, the Board appointed Senior Vice President and Chief Financial Officer (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 in a formal statement. 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, two weeks before the fiscal year’s close.
“I am honored and excited to join the team at Zimmer Biomet,” Hanson proclaimed in a company statement. “I have long admired Zimmer Biomet, including its strong brand, commercial excellence and market-leading 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.”