Shares of orthopedic-device maker Zimmer Holdings (Warsaw, Indiana) fell 6.9% last week after the company halted sales of its Durom Acetabular Component more commonly known as the Durom Cup and lowered its earnings forecast.
The company voluntarily suspended sales of the hip product after some U.S. surgeons reported problems. Shares dropped $4.87 to $66.01 at market close on Wednesday.
Zimmer plans to update the implant's labeling to provide more detailed instructions to surgeons and to implement a surgical training program in the U.S. The company said the temporary move would result in a projected loss of $20 million to $30 million.
Its plans were disclosed in the second-quarter earnings report, released after the market's close on Tuesday. The report showed earnings down 2% at $227.1 million, compared with $231.5 million for the same period a year ago. The company bumped its earnings conference call up by one day because of its decision to suspend Durom sales.
"Our first concern is patient safety and we could not delay our Durom announcement," David Dvorak, president/CEO of Zimmer, told investors during the call. "Of course, our voluntary action with respect to the Durom Cup will have financial consequences, therefore accelerating the timing of our earnings release was necessary."
Dvorak said some surgeons in the U.S. have reported cup loosening and revisions of the acetabular component used in total hip replacement procedures. Zimmer said these results contrast with product experience in Europe, where post-marketing data continue to show "excellent clinical outcomes since the product launched in 2003." The Durom Cup was launched in the U.S. in 2006 (Medical Device Daily, July 7, 2006).
Zimmer indicated that the negative outcomes are technique-related and noted that roughly 1.5% revision rates were found among skilled surgeons compared to 5.7% among surgeons new to the device.
After reviewing clinical experience and product conformance to specifications in the U.S. and Europe, Zimmer said it has found no evidence of a defect in the materials, manufacture, or design of the implant. The company has identified that surgeons who regularly achieve the desired outcome with the Durom Cup consistently execute crucial technique steps and place the cup in a specific manner.
Following its review, Zimmer has determined that revised surgical technique instructions and a surgical training program are required to more consistently achieve desired clinical results in the U.S.
The company said it believes the likelihood of currently implanted patients requiring revision is low, however, it has sent a letter to U.S. surgeons advising them to stop implanting the Durom Cup, until the updated labeling is issued providing more detailed instructions.
"Our primary objective in taking prompt action based on the results of our Durom investigation is to ensure better clinical outcomes for patients," Dvorak said.
The cup will continue to be marketed without interruption outside the U.S., Dvorak said. Zimmer shared its review and conclusions with FDA and said it would keep the agency updated.
Roy Jacobs & Associates (New York) said it is investigating Zimmer for securities law and other violations in connection with the product suspension. According to the firm, at least one surgeon who had previously stopped using the product asserted that the Durom Cup was a bad design.
Earlier this year Zimmer reported changes in its corporate model that it billed as "aimed at establishing an enhanced standard for ethical business practices," (MDD, April 21, 2008). The move appeared to be a response to last year's run-in with the Department of Justice (DoJ). In September Zimmer, along with Biomet (also Warsaw), DePuy Orthopaedics (Raynham, Massachusetts), a unit of Johnson & Johnson (New Brunswick, New Jersey) and Smith & Nephew (London), settled with the U.S. government to resolve fraud allegations, agreeing to pay about $311 million and consenting to federal monitoring and other reforms (MDD, Sept. 28, 2007).
The agreements were made to settle a government probe into improper consulting contracts with surgeons, federal prosecutors said. Zimmer agreed to pay $169.5 million, the lion's share of fines by any of the companies.
"It appears that this management team has inherited a host of things that need to be managed, from proper product training, to DoJ repercussions, to compliance systems, to new product launches," wrote Joanne Wuensch, a med-tech analyst with BMO Capital Markets (New York), in a research note regarding Zimmer's earnings release and Durom suspension. "To say the company is in transition is an understatement. That doesn't mean that there isn't a good business here; it just may take some time to right the ship."
Dvorak said he hopes investors will recognize a pattern in the way Zimmer deals with difficult issues.
"We've made decisions that we believe will best prepare Zimmer to compete effectively in the expanding markets of the future, where we need to make improvements we want the changes to be long-lasting and sustainable. We're absolutely committed to position Zimmer to thrive for years to come."
In other Zimmer news, the company said last week it plans to create nearly 100 new jobs in Warsaw by 2011 as part of a $19 million expansion. The company said it would add 50,000 square feet to its foundry operations, which will make implants used for hip, knee and shoulder replacements. The addition is expected to be complete by the middle of next year.