Corrected November 9, 2012, at 3:45 p.m.
Orthopedic devices maker Zimmer Holdings (NYSE:ZMH) expects to pay another $229.7 million to handle legal complaints spurred by the temporary 2008 recall of its Durom metal-on-metal acetabular hip components, according to the company’s latest earnings release.
Zimmer in 2008 pulled the devices off of shelves for a period of about 1 month while it investigated "certain reports of an unusually high rate of revision," according to regulatory filings from the time.
The company ultimately attributed device failures to improper implantation techniques and restored the devices to the market, but not without garnering some unwanted legal attention.
"Since 2008, we have accrued estimated losses of $388.2 million for Durom Cup-related claims," according to the report. "Our estimate as of September 30, 2012 of the remaining liability for all Durom Cup-related claims is $229.7 million."*
Of the remaining $229.7 million, $50 million is classified as short-term liability and the rest as long-term on the company’s balance sheet.
The company hasn’t recorded any new Durom-related expenses in 2012, but did report a $50 million expense for "certain claims" during 2011, according to filings. Current liability estimates rely on heavy speculation about future lawsuits and settlements.
"Our understanding of clinical outcomes with the Durom Cup continues to evolve. We rely on significant estimates in determining the provisions for Durom Cup-related claims, including the number of claims that we will receive and the average amount we will pay per claim," Zimmer reported. "Among other factors, since our understanding of the clinical outcomes is still evolving, we cannot reasonably estimate the possible loss or range of loss that may result from Durom Cup-related claims in excess of the estimated losses we have accrued."
The issue may be exacerbated by the company’s decision to remove the Durom cups from the Australian market, citing higher revision rates compared with similar devices. The latest earnings report did not mention any pending litigation in Australia.
ZMH shares were relatively flat today, trading 0.3% lower at $64.67 as of about 2:30 p.m.
*Correction: Due to a reporting error, this article mistakenly added the $229.7 million remaining liability to the original $388.2 million.
