Dive Brief:
- ZimVie, the spine and dental business spun off from Zimmer Biomet, faces “more mature, highly competitive end markets dominated by larger competitors,” J.P. Morgan analysts wrote in a research note on June 17, initiating coverage of the company with a neutral rating. In the spine space, Zimmer competes with Medtronic, Johnson & Johnson, Stryker and NuVasive. ZimVie,
- Still, the unit will benefit from “greater focus” as a standalone business that will “better position the company to drive innovation,” the analysts wrote. Zimmer unveiled ZimVie in February, a year after the orthopaedic device maker announced plans to turn the two units into an independent business.
- While Zimmer sees faster-growing, less-penetrated sub-segments of the spine space such as minimally invasive solutions and motion preservation as a way to boost growth, investments to drive growth may hurt margins, the analysts added.
Dive Insight:
ZimVie CEO Vafa Jamali has said he sees medtech spinoffs as a way to increase the attention paid to businesses that were “largely ignored” at parent companies focused on faster-growing products. According to Jamali, spinoffs can apply the development and leadership needed to equip “really interesting, really elegant, really exciting” assets to fulfill their potential.
With ZimVie targeting markets valued at about $20 billion, the analysts question whether the company has the products and capabilities to grow the spine and dental businesses further.
ZimVie may be able to improve its performance by focusing on higher-growth sub-segments and highlighting Tether and Mobi-C as differentiated products that can help capture share of the spine market, the analysts wrote. The Tether is a non-fusion spinal device for scoliosis. Mobi-C is an artificial cervical disc.
Both products have first-mover advantage in growth markets. While the J.P. Morgan analysts expect the market for motion-preservation devices to grow in the high-single digits through 2026, with revenue of $400 million last year, the opportunity is the smallest part of the spine market targeted by ZimVie.
The Zimmer spinoff is more exposed to the $9 billion market for core and complex solutions. In that space, which is growing in the low-single digits, ZimVie competes with Medtronic, J&J, Stryker, Globus, NuVasive as well as smaller companies. At Zimmer, the core and complex solution devices struggled to hold share and spine sales fell 14% in the first quarter of 2022. The assets may remain a burden, the analysts noted.
“A significant piece of the company’s portfolio will always be tied to lower-growth areas of the market,” they wrote. “The company has experienced pronounced headwinds from the pandemic and has lost a few points of share in the spine market in recent years, challenging the company's ability to deliver meaningful upside in the near term, in our view.”
Should ZimVie invest to drive revenue, it may struggle to simultaneously expand its margins, the analysts added. They estimate the company will achieve flat to low-single-digit revenue growth, and margin expansion of about 4.3% from 2021 to 2026.
That estimate differs from ZimVie’s own forecast. The company expects flat near-term growth followed by mid-single-digit growth in three to five years.
