Zimmer's Pathfinder Shows New Path

Leading orthopedic devices company Zimmer Holdings (ZMH - Analyst Report) expanded its PathFinder portfolio with the launch of its next generation minimally invasive (MIS)pedicle screw system PathFinder NXT. The launch followed the success of the company’s original PathFinder that supports a wide range of MIS spinal procedures. Zimmer has designed the new PathFinder NXT to support both mini-open and percutaneous approaches which will help the physicians to handle multi-level constructs more efficiently.  

Zimmer’s US spine market saw a massive down turn in the recent past forcing the company to take goodwill impairment charge of $204 million during the fourth quarter leading to a 76% decline in EPS to 18 cents. The company was forced to take such a measure due to the changes in the outlook of the US spine market, lower projected revenues associated with Dynesys dynamic stabilization system as well as addition of products with the acquisition of Abbott Spine. However this new addition to Pathfinder product line further reinforces Zimmer’s spine market, which presently contributes 5% of its total revenue.

Growth was witnessed across Zimmer’s all other product categories including Reconstructive (up 1%), Dental (up 10%), Trauma (up 9%), and Surgical (up 8%).  Also based on the huge customer base and emerging international market, the company has been increasing its research and development (R&D) expenses to enhance its product portfolio. In the last reported quarter, R&D expenses increased 10% year over year to reach $56.9 million.

Meanwhile Zimmer published the results of two clinical studies in association with Osaka University, Japan on its Trabecular Metal Technology. During the last quarter growth in the Extremities business was driven by strong sales of Trabecular Metal technology portfolio.

We feel, future revenue growth of Zimmer will be supported by new product (including internally developed and those from acquisitions) launches. However our views are moderated by intense competition from larger players like Stryker (SYK - Analyst Report), Smith & Nephew (SNN - Snapshot Report), and Medtronic (MDT - Analyst Report). Also there was pricing pressure, reduction in procedural volume and a still soft U.S. spine market. However the situation is gradually improving with stabilization in the global economy. Currently we remain neutral on the stock.

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