Zimmer Biomet (NYSE:ZBH) — one of the world’s largest orthopedic device companies — will be a bit smaller going forward.
The Warsaw, Ind.–based company announced today that it will spin off its spine and dental businesses into a new, independent, publicly-traded company called NewCo. Zimmer Biomet plans to complete the transaction by mid-2022.
The businesses that fall under the NewCo banner made up nearly 13% of Zimmer Biomet revenues over the past two years, bringing in $1.022 billion in 2019 and $897 million in 2020. Differentiated spine products to help power NewCo’s growth include the Rosa One Spine robotic surgery system, the Mobi-C cervical disc and The Tether. Dental boasts a whole suite of oral reconstruction products.
Zimmer Biomet has been in the midst of a major reorganization in recent years as CEO Bryan Hanson seeks to refocus the businesses, with the company even recently announcing Medtronic veteran Ellie Humphrey’s hiring as its first chief transformation officer.
Spinning off the spine and dental businesses will allow the two companies to better focus on efficiency and leading their respective spaces, company officials said.
“This transaction will position us to prioritize resources, simplify our operating models and deliver greater value through two independent publicly traded companies,” Hanson said in a news release.
Senior research analyst Richard Newitter at SVB Leerink was positive on the news. “With the right leadership and management team executing — which we think Zimmer Biomet has in place — this is going to yield increased shareholder returns and create value better than otherwise would have been possible,” Newitter said in an interview with MassDevice. (We’ll have more quotes from Newitter in our latest DeviceTalks Weekly podcast.)
For Zimmer Biomet, the spinoff will be accretive to revenue growth by approximately 0.5% over the course of the company’s five-year strategic planning period, accelerate adjusted earnings per share growth and boost operating margins, according to the company.
Hanson will continue as Zimmer Biomet CEO; a NewCo CEO search is in its final stages. Zimmer Biomet said it will announce a NewCo board of directors, management and headquarters as it wraps up arrangements.
Completing the spinoff depends on final Zimmer Biomet board approval, receipt of a favorable opinion and Internal Revenue Service ruling over the transaction’s tax-free nature, and the effectiveness of a Form 10 registration statement that Zimmer Biomet will file with the U.S. Securities and Exchange Commission.
ZBH shares were down –0.62%, to $159.76, by the close of trading today. MassDevice‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was up 0.6%.
Beating expectations in Q4
News of the planned spinoff came on the same day that Zimmer Biomet announced Street-beating Q4 results.
Zimmer Biomet posted profits of $333.7 million, or $1.59 per share, off $2.085 billion in sales for the quarter ended Dec. 31, 2020, for a bottom-line gain of 4.1% on a top-line cut of –1.9% compared with Q4 2019.
Adjusted to exclude one-time items, earnings per share were $2.11, a nickel ahead of The Street, where analysts were looking EPS of $2.06 on sales of $2.08 billion.
Zimmer Biomet is still holding off on releasing financial guidance for 2021, citing uncertainty related to the COVID-19 pandemic — a position more common for small-cap companies. (Stryker, for example, has released 2021 guidance.)
“The fourth quarter saw continued pressure from COVID and its impact on the recovery of elective procedures, yet our core business remained strong as did our operational execution to close out 2020,” Hanson said. “Against that backdrop, we continue the transformation of our business in order to drive growth and increase shareholder value.”
On top of the Spine and Dental spinoff, Newitter at SVB Leerink is also positive about the increased share Zimmer Biomet is grabbing in the knee replacement space through its Persona Revision knee system that offers a more personalized fit, a wide variety of cementless knee technologies, and the Rosa surgical robotic system that allows ZB to compete with Stryker’s popular Mako robots.
Newitter is excited to see Zimmer Biomet launch its Persona IQ smart knee implant later this year. Created in collaboration with Canary Medical, Persona IQ will be able to track how a knee implant is performing inside a person in real-time.
Hanson during today’s earnings call described the Persona IQ has an important piece of the puzzle when it comes to creating a digital ecosystem around ZB’s implants.
Hanson said: “We’ve had a significant shift in our research and development dollars towards robotic storage, data informatics to build that ecosystem that’s going to be meaningful for patients and for our customers alike. And I got to say, there’s a lot of excitement around that in our organization, a lot of excitement from our customer base as well.”
