Zimmer Hopes To Put Durom Hip Implant Suspension Behind It By Year-End

Full article reprinted from "The Gray Sheet" - July 28, 2008

Find out how Zimmer expects to update the labeling of its suspended Durom Cup metal-on-metal hip implant over the next several weeks, paving the way for a full reintroduction of the product into the U.S. market by 2009.

Zimmer expects to update the labeling of its suspended Durom Cup metal-on-metal hip implant over the next several weeks, paving the way for a full reintroduction of the product into the U.S. market by 2009, the firm announced July 22.

"U.S. surgeons ... should stop implanting the Durom Cup until we issue the updated labeling that provides more detailed guidance on surgical technique, and until they receive training," Zimmer President and CEO David Dvorak said during a July 23 second-quarter earnings call.

The company says it is suspending marketing and distribution of Durom hip replacements in the United States, as well as the enrollment of an investigational clinical trial evaluating Durom in hip resurfacing procedures. The company expects to begin new physician training courses on Durom over the next several weeks.

Sales of Durom outside the United States, where the product is approved for both hip replacements and resurfacing, will continue uninterrupted.

The company says its investigation shows that Durom is safe and effective when used as intended and the likelihood of currently implanted patients requiring revision surgery is low. About 13,000 of the devices have been implanted to date.

Zimmer's investigation found that at clinical sites in the U.S. that employed "appropriate and necessary surgical techniques," the surgical revision rate is 1.5%, but at all other sites, the rate is 5.7%. The company has found no evidence of a defect in the materials, manufacture or design of the implant.

The product will be available again to U.S. surgeons as they complete the training. Zimmer estimates over 900 surgeons will need training.

The firm attributes the slow uptake of some of its other new products to a lack of physician training and plans to ramp up its programs across the board.

The company first began investigating possible failures in Durom implants in April after prominent joint reconstruction surgeon Larry Dorr sent a letter to his colleagues in the American Association of Hip and Knee Surgeons reporting problems with the device.

At the time, Dorr, director of the Dorr Institute for Arthritis Research and Education, reported that 10 of the 165 Durom hip systems implanted at his clinical required surgical revision within two years of implant (¹"The Gray Sheet" May 19, 2008, p. 12).

Zimmer's comprehensive review included analysis of post-market registry data, direct evaluation of high-volume clinical sites in the U.S. and Europe, and "a thorough investigation" of Durom's manufacturing processes, design specifications and product documentation, the firm says.

During the earnings call, Chief Scientific Officer Cheryl Blanchard said Zimmer's response to the investigation's findings is "proactive" and that it is "trying to work with surgeons to help them get through this difficult situation with their patients. We absolutely recognize that for those patients that are involved, there will be some items that we will need to help them with."

Zimmer Lowers Sales, Earnings Guidance

As a result of the Durom setback, as well as lower orthopedic surgical product and dental product sales during the second quarter, Zimmer lowered its full-year 2008 revenue guidance, anticipating growth of 8.5%-9% instead of the original 10%-11% range.

CFO Jim Crines says the company will cut about $60 million to $80 million from top-line sales, including a loss of $20 million to $30 million in hip product sales, largely from Durom.

In the U.S., Durom sales were down 26% from the first quarter following the reports of cup loosenings and revisions, but overall hip sales increased 4.4% for the quarter.

"With Durom off the market, we think that some of these surgeons may revert back to Wright Medical [products]," Wachovia analyst Michael Matson wrote in a July 23 research note.

Zimmer lowered 2008 earnings guidance to $4.05-$4.10 per diluted share, from $4.20 to $4.25. Analysts, in turn, lowered their estimates to around $4.09 per share.

The firm cites the Durom suspension and growing competition in the reconstructive orthopedic implant market from Biomet, DePuy and Wright Medical as factors.

Zimmer's top-lines sales were $1.08 billion for the second quarter (ended June 30), up 11% from $970.6 million in the second quarter of 2007.

DoJ-Mandated Compliance Program Is On Track

In better news for Zimmer, CEO Dvorak says the company has made "good progress" on quality systems upgrades required in its September settlement with the Department of Justice and HHS.

Zimmer is one of five orthopedic device companies that agreed to pursue reforms under delayed prosecution agreements related to its financial relationships with surgeons and institutions (²"The Gray Sheet" April 28, 2008, p. 16).

Implementing the enhanced compliance program globally will cost $50 million to $60 million in fees this year, Dvorak said.

He added, "We expect to have most, if not all, of [our orthopedic surgical products] back in production by the end of this year, many in the next two or three months."

Company Is Expanding

Meanwhile, Zimmer announced a planned expansion of its Warsaw, Ind., headquarters that will create nearly 100 new jobs by 2011 and increase its annual output by 1.3 million hip, knee and shoulder replacement castings by mid-2009.

The company currently employs about 2,800 people at the Warsaw facilities.

The firm is also expanding its Winterthur, Switzerland, facility and is working on a new facility in Shannon, Ireland. The management team in Ireland is set to begin work in early 2009.

- Jessica Bylander

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