ZimVie, Zimmer Biomet's spine and dental spin out, is struggling to find its footing as a stand-alone company.
On top of reporting fourth-quarter results that missed analyst expectations, and releasing full-year 2023 guidance below analyst expectations, ZimVie announced this week that it is pulling its spine business out of China, citing recent value-based procurement (VBP) regulations there.
In November 2018, China rolled out a volume-based procurement policy to force pharmaceutical companies into lowering drug prices. But then, in 2019, China decided to implement a volume-based procurement policy for medical device companies.
"As part of rationalizing our brands and focusing on improving growth and profitability, we are now in the process of fully exiting the China market in spine and evaluating our position in dental following recent VBP decisions," ZimVie CEO Vafa Jamali said during the company's fourth-quarter earnings call, according to Seeking Alpha transcripts. "We are confident that this is the best decision to optimize our focus in markets that can be both growth and margin accretive to ZimVie over time."
In his prepared statements during the call, Jamali outlined several achievements the company made in its first year after spinning out of Zimmer Biomet, while also acknowledging that the company's turnaround efforts would not happen overnight.
"We knew that turning this business around would take immense operational effort, fiscal discipline and a commitment to product innovation and execution, over the course of several years, not quarters, and that remains true today," Jamali said. "I'm pleased that we've addressed and crossed hurdles in each of these areas already, while implementing the right structure initiatives to create value over the three to five-year post-spin timeline that we outlined a year ago. 2023 is the year we focus energy on the commercial side of the portfolio, to be able to grow into 2024 and beyond."
Spinoff companies generally face significant disruption in the first year, Jamali said, especially when the business is heavily entangled with the parent company.
"We made the choice against a choppy macro environment to focus on what we could control within the business and accelerate our separation in the first year, to ultimately accelerate our independence," he said.
When asked about the company's spine business being below expectations in the fourth-quarter results, the CEO responded by highlighting ways that ZimVie is filling in gaps in the spine portfolio.
"With spine we were a little bit behind in terms of the portfolio. We had some gaps. And frankly we had some commercial activities that we uncovered through the year that were frankly suboptimal and we need to really perform and manage some of our commercial operations," Jamali said. "So, with all that volatility inside spine, we focused on the portfolio. So we added an opportunity to do a development an R&D program with Brainlab. That's going to fill a gap for us with respect to enabling technology. It's a gap that we had coming out of Zimmer Biomet that I think we've effectively filled. And we'll start to work towards that. That will be healthy."
The CEO also noted the company's investment in Mobi-C cervical disc replacement solution, and he said the company encountered (and resolved) some reimbursement hurdles with its Tether device for scoliosis, which FDA approved in 2019. Tether, a first-of-its-kind device, is intended to treat growing children and adolescents whose spinal curves are approaching or have reached the range where surgical treatment is an option. It is intended to correct the most common form of scoliosis (idiopathic scoliosis) that has not responded to conservative treatment options, such as external bracing.
"There still is disruption in spine that we're living through. I think the first half of the year is going to be the toughest part," Jamali said. "And I think you're going to see a much, much healthier spine business in the back-end of the year for ZimVie. So that's kind of how I see it. But I really do think that there's enough disruption, enough volatility out there, that we just felt like we should give ourselves some room to make the changes we need to do to really get to a point where we have the portfolio and the commercial team that we need that can actually win that in this market for us."