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Zimmer Holdings (ZMH - Analyst Report) has strengthened its spinal portfolio in the US with the introduction of TM Ardis interbody system. This product, which extends the application of the proprietary trabecular metal technology, has been developed as a first application of a porous metal implant with an interbody indication for the lumbar spine. The company had released this product across Europe last month.

Sales from spinal products, contributing a mere 5% to the top line, have been languishing over the past few quarters. This segment witnessed high single-digit sales declines over the past two years, primarily in the Americas, while Europe and Asia Pacific recorded sales growth. Operational challenges related to the sales force, a difficult reimbursement landscape and lower sales of DynesysDynamic stabilization system affected sales numbers in the Americas.

Zimmer, however, managed to partially mitigate these challenges by robust sales of the PathFinder and Sequoia Pedicle Screw Systems, Universal Clamp System and Trabecular Metal Technology products. We are encouraged by the company’s attempt in expanding its spinal portfolio that should provide some cushion to its struggling sales.

We also expect Zimmer to benefit from favorable long-term trends that point toward sustained growth driven by an aging global population, obesity, wear and tear of joints from more active lifestyles, growth in emerging markets, new material technologies, advances in surgical techniques and proven clinical benefits of joint replacement procedures.

Moreover, the shift in demand to premium products, such as those using trabecular metal technologies, hip stems with Kinectiv Technology, high-flex knees, porous hip stems and the introduction of patient specific devices, is expected to propel sales growth.

Although the musculoskeletal market is suffering from reduced procedure volume and pricing pressure, Zimmer believes that clinically relevant and innovative products can still fetch premium pricing and reimbursement. The company’s recent product launches are based on two principles – the development of customizable implant and instrumentation systems enabling surgeons to deliver personalized care to every patient (including options for lifestyle demands, and providing relevant products that deliver long-term value to patients, hospitals and healthcare systems).

Consequently, Zimmer is exploring opportunities to expand its reach into early intervention products. However, the competitive landscape is tough with the presence of players such as Stryker Corporation (SYK - Analyst Report) and Medtronic (MDT - Analyst Report), among others.

We have a Neutral recommendation on Zimmer. The stock retains a Zacks #3 Rank (Hold) in the short term.

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