MDDI_Medical Device & Diagnostic Industry

MDDI, July 2016

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NewsAnalysis 12 | JULY 2016 Image courtesy of KRItcHaNUt/istocKPHoto.coM Zimmer Biomet is buying spine company LDR Holdings for approximately $1 billion and has high hopes for its future in the rapid growth area of cervical disc replacement (CDR). That's because LDR, which makes spinal surgery devices, sells the Mobi-C CDR device, the only device that's FDA-approved for both one- and two-level treatment. In addition to CDR, the transaction will also give Zimmer Biomet products for zero profile fusion, a wider spine portfolio, and a chance to increase penetration of LDR prod- ucts. The combination should make Zimmer Biomet the fifth largest spine player in the world, according to a company presentation. Zimmer Biomet would have 7% market share in the roughly $10 billion spine industry, be- hind Medtronic (31% share), DePuy Synthes (16%), NuVasive (9%), and Stryker (8%). "This highly strategic and complementary transaction will enhance Zimmer Biomet's innovation leadership in musculoskeletal healthcare by adding a premier spine plat- form to our portfolio of solutions," David Dvorak, Zimmer president and CEO, said in a release. The company does expect this to acceler- ate its overall growth rate, and the Mobi-C artificial cervical disc CDR device seems to play a large part in that expectation. Manage- ment pointed out on an investor call that be- tween 2013 and 2015, Mobi-C revenue grew at a 129% compound annual growth rate to just over $60 million in annual sales. Mobi-C has shown superiority to fusion for two-level procedures. But Wells Fargo senior analyst Larry Bie- gelsen is more cautious on the CDR product's future growth. In a June 7 research note, he wrote that Mobi-C sales are growing at about 30% and that "we have been cautious on the near-term outlook of Mobi-C because the cervical disc market has not grown as quickly as many had expected largely due to reim- bursement issues." LDR has been working to expand payer coverage for two-level CDR. Zimmer Biomet pointed to its size as a boon for CDR market growth, stating, "The combination positions Zimmer Biomet to leverage its scale and resources to accelerate the development of the CDR market globally." Biegelsen added that competitor Medtron- ic's CDR product is anticipated to also gain an indication for two-level procedures. Medtronic's management has indicated they expect this approval to come in the current fiscal year, which started at the end of April. The acquisition is expected to close in the third quarter. The deal is funded by cash on hand and the existing revolving credit facility. —MT Will Zimmer Biomet's Spine Investment Meet Its Potential?

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