Why are Biomet sales up? Is the Ortho industry turning around?

Do Biomet’s Rising Sales Beckon a New Ortho Dawn? (Walter Eisner @ OTW)

Biomet, Inc. reported a preliminary 4% rise in second quarter 2012 sales after the markets closed on December 19. Total revenues totaled $725.1 million. The next day, orthopedic stocks shot through the roof. Zimmer climbed almost 7%, while Stryker and Medtronic were up close to 3% to 4%. “We would view the Biomet large joint reconstruction results with cautious optimism for the broader hip and knee markets,” wrote Derrick Sung, an analyst with Sanford C. Bernstein & Co., in a note to investors. “Investors are generally pricing in no expectation for an orthopedic market recovery in 2012, so we would view any signs of such as incrementally positive for Stryker and Zimmer, the pure-play orthopedic companies.” Like the rooster crowing at dawn, Biomet is the first of the large orthopedic device companies to report quarterly sales. The company’s results are thus closely watched for what their sales volumes mean for the rest of the industry. Reported hip sales rose 7%, knees were up 2%, and extremities and trauma rose 13%. Only spine sales continued their downward trend, dropping 5%.

The company reported that worldwide large joint reconstructive sales increased 5% to $442.3 million and increased 3% in the U.S. Knee sales decreased 1% and hip sales increased 7% in the U.S. Jeff Binder, the company’s president and CEO, said the company was “pleased” with the overall sales performance and was “particularly happy” to see acceleration in year-over-year quarterly growth rates compared to the last couple of quarters in the company’s major product categories, including knees and hips.

“Positive Sign” – Wall Street

Wells Fargo’s analyst Larry Biegelsen cautioned against reading too much into these results in an investor note because Biomet’s growth this quarter was on easier comps and the company’s results may not be representative of the rest of the sector because its knee and hip market share is modest (low double digits). Biegelsen, however, said the large joint growth could signal improvement in the orthopedic market. He said Biomet’s reported large joint recon growth was the company’s first quarter with positive growth since fiscal FQ2 2011. “Biomet’s U.S. knee growth is a move in the right direction after three quarters of negative mid-single-digit growth. Worldwide knee growth is encouraging after three straight quarters of declines. The acceleration of U.S. hip growth is a strong signal for the U.S. hip market. Worldwide hip growth also jumped significantly compared to last quarter and flat growth for the previous three quarters. Despite easier comps, we believe Biomet’s growth is a positive sign for the large joint markets. Assuming Biomet has not taken market share; Biomet’s results should be a positive for the ortho companies such as Zimmer, Stryker, Wright Medical and, to a lesser extent, Johnson & Johnson,” concluded Biegelsen. While Biomet is the rooster crowing at this dawn of rising orthopedic sales, it’s yet to be seen whether or not this rooster gets credit for the sunrise.