Biomet Inc. (BMET) Tuesday became the second orthopedics company
to indicate that the market for replacement joints held up well in
recent months despite ongoing fears that the recession will cause
sales growth to slow.
The company's chief executive also said he doesn't anticipate a
major impact going forward.
The privately held company, which is closely watched because it
reports before bigger public orthopedics companies such as Zimmer
Holdings Inc. (ZMH) and Stryker Corp. (SYK), said sales for
reconstructive products rose 10% in the fiscal quarter ended Nov.
30, excluding the negative impact of currency rates.
Jeffrey R. Binder, Biomet's president and CEO, expanded on that
by saying "we don't see any significant trends to this point in
procedure volume."
Biomet's report follows a pre-announcement from Stryker last
week in which the company reported 8.9% sales growth for orthopedic
implants in the fourth quarter, excluding currency fluctuations.
Growth in the quarter was slightly ahead of the 2008 growth rate
for these Stryker products.
These results don't say anything about what the future may hold
for the more than $11 billion replacement hip and knee market, and
concerns remain that a lingering recession and rising unemployment
could still spell trouble. While replacement-joint surgery fixes
sometimes debilitating arthritic problems, it can carry hefty
out-of-pocket charges and can also be deferred.
Biomet's smaller size, unusual fiscal calendar and lack of
product-specific problems also make it hard to directly extrapolate
its results to larger rivals. But the Biomet and Stryker reports do
indicate some recent resilience in the orthopedics market.
"Following Stryker's firm headline results last Friday, these
numbers give us confidence that the industry's fourth quarter
results will not show the feared slowdown in volume growth," Nomura
Code analyst Charles Weston said in a note regarding U.K.
orthopedics company Smith & Nephew PLC (SNN).
He suggested the results could drive a small rally in Smith
& Nephew shares in the next month, although they declined 0.9%
to close at $34.78 on Tuesday.
Shares of Stryker moved higher, rising 1.2% to close at $40.46,
while Zimmer shares also traded higher for much of the day before
slipping later and closing down 9 cents at $40.98. Shares of
Johnson & Johnson (JNJ), which owns DePuy, the other major
orthopedics company, rose 0.9% to close at $58.84.
Meantime, shares of Symmetry Medical Inc. (SMA), which is a
major supplier of parts for the orthopedic-device sector, jumped
15.3% to $7.23. Wachovia upgraded the stock to market perform from
underperform, saying it had fallen enough - 66% between the end of
September and Monday - to show the market was discounting risks to
Symmetry's 2009 estimates.
A key risk is the expected slowdown in elective surgery for
joint replacement. Speaking during a J.P. Morgan health-care
conference Tuesday, James T. Crines, Zimmer's chief financial
officer, said a "disruption" in growth rates is likely due to
rising unemployment, although the company doesn't expect a change
in long-term industry growth dynamics.
Likewise, Credit Suisse analyst Kristen Stewart, who noted the
Biomet caveats in a note to investors, also cited challenges ahead.
"We continue to believe that the hip and knee markets could see
some deceleration in unit demand due to the broader macro issues,"
she said in an investor note.
But Binder, Biomet's CEO, told analysts that - based on what
they are hearing - it doesn't seem there will be much of an
economic hit going forward. It is hard to predict trends, but
hospitals and surgeons can give anecdotal views of the market based
on upcoming cases they have booked, he said.
"I'm not hearing significant concern among our customers about
their case volumes as they can see them, which is over a couple
months," Binder said. He fielded a handful of questions from
analysts seeking clarity on the sector's outlook.
At Biomet, overall reconstructive orthopedic sales were watered
down by a sluggish market for dental devices, where the recession
has applied some pressure. The key market for replacement hips saw
14% sales growth excluding currency, however, while the knee market
saw 10% growth excluding currency.
Stewart said Biomet's above-market growth rates in hips and
knees - although sales growth has decelerated in the latter
category - indicate the company is taking share from competitors in
both markets.
When the effects of currency rates are factored in, Biomet's
sales gains were lower. Overall, the company reported 6% sales
growth - or 9% excluding currency - in its fiscal second
quarter.
It also reported a net loss of $39.7 million, narrowing from a
net loss of $302 million for the year-earlier period. It noted that
it reported $131.4 million of special items, pretax, in the recent
quarter. Those items include purchase accounting charges of $94.3
million.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;
jon.kamp@dowjones.com
(Ingrid Pedrick Lehrfeld contributed to this report.)
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