July 23, 2008
Original Link –
Zimmer Holdings Inc.’s (ZMH) U.S. sales suspension
for "Durom" replacement hip parts will further delay progress in
bringing a bone-sparing hip system to the U.S. market, which could
benefit smaller competitors.
Zimmer announced Tuesday that it has
temporarily stopped selling Durom parts – which are cups used to make
replacement hips – because U.S. surgeons need retraining to avoid
problems. Since Durom is part of a so-called hip resurfacing system
Zimmer is studying now, and hoped to bring to the U.S. in a few years,
Zimmer also halted the U.S. resurfacing study. "We are suspending
enrollment until further notice," said Cheryl R. Blanchard, senior vice
president of research and development and chief scientific officer at
Zimmer, during a conference call with analysts Wednesday.
Due to the Durom suspension, "there will be some delay
beyond that 2011 period that we earlier referenced" for a
hip-resurfacing rollout, added James T. Crines, Zimmer’s chief financial
By preserving bone for potential future surgeries, hip
resurfacing is seen as a market-expanding technology that could bring
younger patients into the nearly $5 billion global replacement hip
market. Thomas Weisel analyst Raj Denhoy believes resurfacing sales
could represent 10% of total replacement hip sales in the U.S. by 2012.
Smith & Nephew PLC (SNN) won Food and Drug Administration approval in
May 2006 to bring the first modern resurfacing system to the U.S. Corin
Group PLC ( CRG.LN), another U.K. firm, won FDA approval for its system
last summer, but uptake has been slowed by issues at Stryker Corp. (SYK),
which is marketing Corin’s device in the U.S.
The Corin product
slowdown has benefited Smith & Nephew, and signs that industry
heavyweight Zimmer won’t be marketing a competitive product as soon as
hoped is another positive development.
Shares of Smith & Nephew, which
Piper Jaffray upgraded to buy from neutral on Tuesday, recently traded
up 1.4% to $57.74.
Zimmer officials did not estimate a new timeline for when a resurfacing
system might roll out in the U.S. On the company’s first-quarter
earnings call in April, Crines said 2011 was the earliest date,
following some other delays in the program. He also said that Zimmer’s
sales, marketing and product development efforts would remain focused on
the other 90% of the replacement hip market in the near-term.
reiterated that plan on Wednesday’s call.
Wright Medical Group Inc. (WMGI)
is another potential beneficiary from Zimmer’s delay if it can finally
secure approval for its resurfacing product. Wright has been in
regulatory limbo at the FDA for years and hasn’t explained the reason,
although management has said the company still expects approval.
Wright has a better chance to capitalize in the near term by seeking to
capture some lost Durom business from Zimmer, because Wright has similar
technology. Shares of the company recently traded 3% higher to $31.10.
Zimmer shares, hurt by the Durom issue and a cut to 2008 guidance,
recently traded down 5.5% to $66.94.