Zimmer Rounds Out Spinal Offerings With Abbott Spine Acquisition

Full article reprinted from "The Gray Sheet" - September 8, 2008

Find out why Zimmer says its $360 million acquisition of Abbott's spinal surgery business will help round out Zimmer's own spinal offerings and create "critical mass" in the spinal business.

Full article reprinted from "The Gray Sheet" - September 8, 2008

Zimmer Rounds Out Spinal Offerings With Abbott Spine Acquisition

Zimmer's $360 million acquisition of Abbott's spinal surgery business will add pedicle screws and an interspinous stabilizer system to help round out Zimmer's own spinal offerings and create "critical mass" in the spinal business, the company says.

Announced Sept. 4, the deal creates a spinal business with over $300 million in combined annual revenues.

Abbott Spine generated 2007 revenues of $109 million, while Zimmer Spine had sales of $197 million last year.

Zimmer, which also makes reconstructive joint and dental implants, trauma products, and related orthopedic surgical products, had total 2007 sales of $3.9 billion.

Key products in the deal identified by Zimmer include Abbott's InCompass pedicle screw system, Pathfinder minimally invasive pedicle screw system, Wallis interspinus stabilizer system (available overseas) and Ant-Cer dynamic cervical plate.

The deal also includes the Universal Clamp for spinal reconstruction surgery.

Core Zimmer spinal offerings include the firm's Dynesys dynamic stabilization system, TiTLE 2 polyaxial spinal system, Atavi atraumatic spine surgery system and Trinica select anterior cervical plate system.

Zimmer has been intent on growing its spinal business through acquisitions since it entered the market through its purchase of Centerpulse in 2003 (¹"The Gray Sheet" May 26, 2003, p. 5).

The strategy also included the April 2007 acquisition of privately held, minimally invasive spinal surgery system maker Endius for about $80 million (²"The Gray Sheet" Feb. 19, 2007, p. 9).

The Abbott Spine acquisition represents "another significant step in executing our strategies to position Zimmer for sustained growth in the future," CEO David Dvorak said.

Aside from the product portfolio, the purchase also adds to Zimmer's R&D capabilities and strengthens sales coverage, the exec noted.

The deal boosts Zimmer's share of the estimated $8.7 billion worldwide spinal implant market from 2% to 4%, behind Medtronic Sofamor Danek (47%), Johnson & Johnson/DePuy Spine (10%), Synthes (10%) and Stryker (6%), according to Wachovia analyst Michael Matson. Other competitors include Nuvasive (3%), Globus Medical (2%) and Biomet (1%).

Zimmer expects the Abbott Spine deal to close by year end and be dilutive to its earnings per share by $0.03 in the fourth quarter, by $0.08-$0.10 in 2009 and "neutral to slightly dilutive in 2010," excluding certain one-time charges.

Zimmer says it plans to maintain Abbott Spine facilities in Austin, Texas, and Bordeaux, France, while it works to integrate the firm into its existing spine unit, headquartered in Minneapolis.

The firm aims to unveil additional details of the cash purchase on Oct. 23, in conjunction with its third-quarter financial results.

Abbott Exits Spinal Biz, Ending Five-Year Presence

Abbott's divestiture of the spinal business effectively reverses its 2003 entry into the market through the $170 million purchase of Spinal Concepts (³"The Gray Sheet" June 9, 2003, p. 25).

Other Abbott spinal acquisitions included the firm's 2004 purchase of Spine Next for $60 million (⁴"The Gray Sheet" Nov. 1, 2004, p. 5).

The diversified maker of drugs, diagnostics and vascular devices had de-emphasized is spinal presence in recent years, and "had been shopping the business," JP Morgan analyst Michael Weinstein notes in a Sept. 4 report. The sale to Zimmer, therefore, "comes not as a surprise ... The cost of getting a lot bigger [in spine] was more than Abbott wanted to spend, and the leverage across other businesses was nonexistent," Weinstein observes. "That said, we do expect Abbott to continue to get bigger in devices."

For Zimmer, effective sales force integration will be paramount to the deal's success, particularly since competitive pressures in the spinal market have caused organic growth for both businesses to dip "into the single digits," the analyst concludes.

- Jon Dobson

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