Zimmer Biomet (ZBH) – Putting Your Best Knee Forward
Earlier this month, Zimmer Biomet (ZBH) put up a very strong Q1 report where EPS came in at $1.89 vs $1.64 estimate and Revenue came in at $1.83B vs $1.70B estimate. In addition, Zimmer would raise FY23 EPS and Revenue Guidance. In their post-earnings note, BofA said that the EPS upside likely continues as its backlog is just starting to come through as staffing headwinds ease, suggesting a longer tail on the revenue upside. Turning to the conference call, management would allude to their pipeline depth, which now includes over 40 new products poised to launch through 2025. To be very product-specific, CEO Bryan Hanson would comment:
“If we just think about this quarter alone, we officially launched our new cementless knee form factor: Persona OsseoTi…We are seeing very encouraging results across that new cement form factor.”
As a quick background, back on November 21st, 2022, the company announced FDA 510(k) clearance for the Persona OsseoTi Keel Tibia for cementless knee replacement. Persona OsseoTi is the latest addition to the clinically proven Persona Knee System, and features a new porous version of the Persona anatomic tibia with Zimmer Biomet’s OsseoTi Porous Metal Technology, which uses anatomical data in combination with 3D printing technology to build a structure that directly mimics the architecture of human cancellous – or spongey – bone. This material is combined with a keeled design to deliver stable initial and biological fixation. –PR Newswire
This leads me to a recent survey and set of channel checks conducted by Stifel analyst Rick Wise. More specifically, he had the opportunity to survey 12 early-adopting and 10 soon-to-be-adopting, ZBH-centric orthopedic surgeons, while having in-depth conversations with 4 individual orthopedists. Bottom line, the findings highlight the “clear interest and adoption potential for the OsseoTi implant.”
To start with, in their 4 in-depth physician discussions, each of the 4 doctors highlighted their intention to meaningfully increase their near-term cementless knee utilization as they gain experience and familiarity with the Persona OsseoTi implant. While current cementless knee utilization levels varied by individual physician, as a group, the 4 surgeons indicated that their cementless knee mix of total knee replacement cases would increase over the next twelve months by 10%-15%.
These surgeons also underscored that beyond the longer-term fixation benefits, cementless knee implants also enable physicians to perform their conventional, non-robotic knee replacement cases more quickly. One doctor indicated that almost fully-converting his conventional knee replacement procedures to cementless has enabled him to perform 1-2 more incremental cases per day. “In the context of Zimmer Biomet, we believe these cementless procedure efficiency benefits will help support broader physician adoption following the full Persona OsseoTi launch, and possibly even expand ROSA utilization.”
Turning to the early-adopting surgeons, Stifel asked them to list Persona OsseoTi’s design improvements relative to Zimmer Biomet’s previous cementless knee product iterations. In nearly every instance, these physicians pointed to the Persona OsseoTi implant as having better fixation and improved versatility compared to previous ZBH devices. Despite the still-early launch and increased cost, all 12 current users plan to more-broadly incorporate the Persona OsseoTi into their knee replacement cases, with the exception of two doctors primarily using a competitive products. “In 2023 alone, these doctors intend to increase their Persona OsseoTi utilization by 2950% Y/Y on average. Across this group of surgeons, this would increase their percentage of Persona OsseoTi cases to roughly 39% of their total knee cases, an approximate 37% shift in overall total knee mix.”