Zimmer Acquires Abbott Spine

September 1, 2008

5 Min Read
Zimmer Acquires Abbott Spine

This month, the spine market saw one of the world's leading medtech companies abandon its position in the hotly contested sector, where it was, at best, a bit player. Deciding that it did not want to invest any additional resources in attempting to grow its small share of the market, Abbott Spine, a division of Abbott (Abbott Park, IL) agreed to be acquired by Zimmer Holdings Inc. (Warsaw, IN). The $360 million all-cash deal was announced by Zimmer earlier this month, with no official comment from Abbott.

Commenting on the transaction, Zimmer president and CEO David Dvorak said, “This acquisition is another significant step in executing our strategies to position Zimmer for sustained growth in the future. We are excited to be adding a number of innovative products that round out the Zimmer Spine portfolio and help us build toward critical mass in this important business segment. In addition to bringing great products and a promising pipeline, the Abbott Spine acquisition will add to our research and development capabilities in the spinal category and will strengthen our sales coverage.”

A division of Abbott's medical products group, Abbott Spine is based in Austin, TX, and also has operations in Bordeaux, France. Zimmer said it expects to maintain both facilities, and does not see any significant impact on Abbott Spine's 300 employees worldwide. “We have great respect for the talent and passion of the Abbott Spine organization,” said Dvorak. “Combining our businesses will enable us to provide better product choice and improved customer service to spine and neurosurgeons as they seek the best solutions for their patients.” Zimmer's spine business is headquartered in Minneapolis.

Most industry analysts were not surprised by Abbott's move, noting that the company felt it was swimming against the tide in attempting to grow the business, and had been shopping for a buyer for some time.

Matson: Broader range.

Michael Matson, senior medical technology analyst with Wachovia Capital Markets LLC (New York City), says the deal will expand Zimmer's spine product and distribution capabilities, while doubling its share of the $8.7 billion global spine market from 2 to 4%--and making it the fifth-largest company in the sector. According to Wachovia, the spine market is dominated by Medtronic Inc. (Minneapolis), with a 47% share; followed by Synthes GmbH (Solothurn, Switzerland) and DePuy Spine (Raynham, MA), a division of Johnson & Johnson, both at 10%; and Stryker Corp. (Kalamazoo, MI) at 6%. Other competitors include Nuvasive Inc. (San Diego) at 3%, Globus Medical Inc. (Audubon, PA) with 2%, and Biomet Inc. (Warsaw, IN) with 1%.

“With the acquisition, Zimmer picks up a broader range of spinal products, including additional minimally invasive surgery instruments and cervical and thoracic implants,” says Matson. “Abbott Spine's most differentiated product is likely its Wallis interspinous process spacer, which has been sold in Europe for around 20 years and is now undergoing an IDE trial in the United States. The Wallis, combined with Zimmer's existing Dynesys dynamic stabilization system, gives the company a differentiated motion preservation line-up in a sea of artificial discs.”

Founded in 1996, Abbott Spine made a major commitment to the sector with its $170 million purchase of Spinal Concepts in 2003, followed by the acquisition of Spine Next for $60 million a year later. Yet, most analysts cautioned that Abbott's exit from the spine market should not be interpreted as any indication of its intentions regarding the company's medical device business. In fact, many noted that Abbott's Xience device, a late entry in the drug-eluting coronary stent market that received FDA approval in July, has quickly caught the attention of interventional cardiologists and is expected to capture more than a third of the market by year's end. Abbott is also developing a completely absorbable drug-eluting coronary stent, which is currently in clinical trials and could be on the market by 2012.

With 2007 sales of just $109 million, the Abbott Spine business represented less than 1% of Abbott's overall revenues of $25.9 billion, which come from its pharmaceutical, diagnostics, nutritionals, and device sectors. Analysts generally saw the company's move as pulling the plug on spine in order to put more resources to work in the company's core segments that are producing greater growth—including its expanding vascular device business.

For Zimmer, industry analysts generally saw the Abbott acquisition as a logical extension of the company's business at a reasonable price. Apart from some potential sales-force integration issues, Zimmer is not expected to have any significant difficulty in absorbing and integrating the company into its operations. The acquisition will increase Zimmer's spine revenues to around $300 million, which represents about 8% of the company's 2007 revenues of $3.9 billion.

Zimmer entered the spine sector in 2003 with its $3.2 billion acquisition of Zurich-based Centerpulse, which was at the time Europe's largest orthopedics manufacturer. The deal followed a long and contentious struggle with rival suitor Smith & Nephew plc (London). Founded in 1927, Zimmer manufactures reconstructive orthopedic, spinal, and trauma devices; dental implants; and related surgical products. The company has 8500 employees and operations in more than 25 countries around the world.

The acquisition of Abbott Spine has been approved by the boards of both companies and is expected to close before the end of the year, subject to the usual regulatory procedures. Stockholder approval is not required.

© 2008 Canon Communications LLC

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