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Zimmer Has to Reduce the Size of Its Portfolio, CEO Says

Zimmer Has to Reduce the Size of Its Portfolio, CEO Says
Zimmer Biomet CEO Bryan Hanson says the company must start reducing the size of its portfolio in order to simplify the supply chain and improve service levels to customers.

Zimmer Biomet is making progress toward the company's supply recovery goals, but CEO Bryan Hanson says he is still not happy with where the company is at. 

"The fact is, we need to continue to focus on bringing up our service levels to our customers. We need to be best-in-class in this area," Hanson said during the company's third-quarter earnings call, as transcribed by SeekingAlpha

While Zimmer Biomet's portfolio is "absolutely unmatched" in terms of scale, Hanson said the size of the portfolio creates a very complex supply chain for the company. Reductions won't happen right away because the company still has to focus on its short-term priorities, but he said the number of stock keeping units (SKUs) attached to Zimmer Biomet's product families is "extremely cumbersome."

Trimming the portfolio will not only help service levels, Hanson said, it also will have a peripheral impact on other financial benefits and efficiencies for the organization. But the company also has to be cautious about how fast it pursues that portfolio reduction. 

"The worst thing we can do right now when we have been stressing our surgeon partners because of the supply issue is the start taking away products they know and love," he said. "And so we do have [to] sequence this thing appropriately, get to that place where we feel confident that supply is in good shape, that our field sales organization feels the same way, as well as our surgeon partners. And at that point, we begin the process of removing families that don't make sense anymore with the strategy that we have."

Zimmer Biomet has struggled with quality control and supply chain problems since December 2016, which has created investor frustration that ultimately led to former CEO David Dvorak's resignation last July. Earlier this year, MD+DI identified five reasons Zimmer Biomet could make a comeback under Hanson's leadership.

FDA re-inspected Zimmer Biomet's Warsaw North Campus facility in April, which resulted in a warning letter from the agency. The company said some of the agency's recent findings might have been a byproduct of misunderstandings or disagreements between company personnel and FDA investigators. 

"Anytime we think about quality remediation, I want to be clear that the number one priority we have as a business is patient safety," Hanson said. "... Our ongoing efforts remain on track and we continue to keep the FDA updated on our progress."

Hanson also reassured analysts on the call that the company's quality remediation does not restrict its ability to produce or ship products out of Zimmer Biomet facilities, and the company does not expect those remediation efforts to impact the supply recovery sustainability.

"And importantly, we also continue to believe that with the work that we have in front of us this will not put us in a position that will materially impact our financial forecast or projections," he added.

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