Zimmer Biomet Shelling Out $170M for Supply Chain, Quality Fixes

The company hopes the investment will help it put last year's shipping delays and a 57-page From 483 in the rearview mirror.

Jamie Hartford

After shipping delays sent its stock tumbling and FDA hit the company with a 57-page Form 483 last year, Zimmer Biomet is throwing money at its problems.

During the company's fourth-quarter earnings call January 31, CEO David Dvorak announced a $170 million investment to "harmonize and optimize" the company's supply chain and manufacturing and quality systems.

A "substantial element" of that sum, chief financial officer Dan Florin explained, will be used for remediation efforts at the company's Warsaw, IN, North Campus facility to address the 14 observations listed by FDA in a Form 483 sent in December.

"We have submitted our written response to the Form 483 observations and developed immediately and are already executing remediation plans to fully address those issues. That work will continue into next year," Dvorak said, according to a Seeking Alpha transcript of the call."

Florin added that "operational process improvements" for regulatory compliance at one of the company's "major production facilities" could result in distribution delays but did not elaborate on which facility that was or which product lines might be affected.

Some of the $170 million investment will also be used for supply chain improvements following third-quarter shipping delays that beset products including hip and knee implants. Dvorak blamed a "lack of an integrated demand planning and production planning system combined with a significant mix shift of key cross-sell brands" for the trouble and said Zimmer Biomet is already working on a fix. The company is focusing on producing more of the affected products, fulfilling backorders, and replenishing safety stocks, Florin explained.

"So that's going to position us to replenish the safety stocks in some of these key cross-sell brands in the first half of the year and position ourselves for accelerated growth in the second half of the year," Dvorak said.

That plan seemed to placate analysts.

"While [Zimmer] is not of the woods yet with regards to quality concerns, we believe management is effectively addressing its recent supply issues," RBC Capital Markets analyst Glenn Novarro wrote.

Jamie Hartford is director of content for medtech brands in UBM's Advanced Manufacturing Group. Reach her at [email protected].

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