David C. Dvorak, President & CEO
James T. Crines, Exec. VP of Finance & Chief Financial Officer
Joseph A. Cucolo, President, Americas Sales
Jeffery A. McCaulley, President, Zimmer Reconstructive
Jeffrey B. Paulsen, Group President, Global Businesses
Bruno A. Melzi, Chairman, Europe, Middle East and Africa
Stephen H.L. Ooi, President of Asia Pacific
NO. OF EMPLOYEES: 9,300
GLOBAL HEADQUARTERS: Warsaw, Ind.
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/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.