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Zimmer Biomet Shifts to Offense in 2019

After spending 2018 dealing with quality control remediation and supply chain issues, Zimmer Biomet expects to return to market growth by 2020.

Bryan Hanson knew when he accepted the job of CEO of Zimmer Biomet in December 2017 that he had a tall order to fill. The company has struggled with quality control and supply chain problems since December 2016, which created investor frustration that ultimately led to former CEO David Dvorak's resignation. Hanson told investors when he came on board that righting the ship would take two years and so far the company appears to be on the right course.

"Our performance was better in 2018 than 2017 and we expect 2019 to be better than 2018," Hanson said during the company's earnings call last week. "While we're halfway through the turnaround timeline, importantly, we have retired more than half the risk associated with that plan. Although we still have a lot of work to do, we have a team that's ready to launch important new solutions for our customers and deliver on our near-term commitments to transition the organization to full offense and prepare for 2020 and beyond."

Hanson said the company made significant progress across all of its short-term priorities last year, including supply recovery, quality remediation, new product launches, driving a "One ZB" mission and culture, as well as talent and structure.

"These are the priorities that will allow us to reshape Zimmer Biomet and begin to position the business for offense," he said.

In terms of supply recovery, Hanson said the company reduced back orders in 2018 and increased safety stock levels. Zimmer Biomet also enhanced the talent and leadership of its manufacturing and operations teams.

"Importantly today, we no longer consider supply to be a barrier to delivering our financial commitments or stated turnaround timeline," he said.

Hanson said the next step will be regaining the full trust of the company's commercial organization. To make its progress sustainable, this year Zimmer Biomet will start shifting its focus from just supply stability to initiatives aimed at increasing the company's overall supply chain efficiency.

As for quality remediation, the company is executing a detailed remediation plan at its Warsaw North Campus and continues to have constructive communication with FDA, according to Hanson. He said he expects to complete the remediation plan and be ready for reinspection by the end of 2019.

"Patient safety, quality, and integrity are guiding principles of our organization and we will continue to put resources behind this effort," Hanson said. "As a part of that commitment, we have begun shifting our focus from just quality remediation to building best-in-class quality systems and driving a culture that will ensure the sustainability of those changes throughout the organization."

As for new product introductions, Hanson said the company is completing its flagship Persona personalized knee system with partial cementless and revision knee offerings. In robotics, the company just received FDA clearance for the Rosa Knee and Hanson said the company looks forward to the future clearance of Rosa Spine. Both of these robotic offerings will build on the Rosa platform already cleared for the brain with more than 100 units installed around the world, he noted.

Zimmer Biomet also recently introduced mymobility, a digital platform for physicians and their patients.

"While these are all promising individual product launches, going forward our commercial strategy will increasingly focus on our unique ecosystem of differentiated solutions," Hanson said. "For example, by combining Persona, Rosa and mymobility we will be able to operate more personalized robotic procedure with a digital health platform backed by Apple. These important new offerings will be in full swing by the second half of 2019, making this an exciting time for our pipeline and more importantly the value proposition we can bring to our customers."

Hanson has also placed a significant amount of emphasis over the past year on revamping the mission and culture at a company that, at the time he came on board, still saw itself as two organizations (Zimmer and Biomet) rather than one integrated company. Under his leadership, the company has drafted a new corporate mission, has held more than 40 mission ceremonies in 13 countries meeting with more than 11,000 team members.

"I want every team member to feel connected to our mission and culture, including the direct impact they have on patients' lives which is why this outreach will continue to be a top priority throughout 2019," Hanson said.

Today, 70% of Zimmer Biomet's leadership teams are new to the position within the past year.

"I'm pleased to report that we're benefiting from a broader diversity of expertise and viewpoints on the team," Hanson said. "Last year, we also restructured our businesses to streamline reporting and decision-making with team members at every level driving a more agile and results-driven organization. These were obviously our priorities in 2018 and will continue to be our focus areas throughout 2019."

Hanson said the company is on track to achieve market growth by 2020.

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