Zimmer Biomet Pays $1 Billion for LDR

Zimmer Biomet Holdings, Inc. is acquiring Austin-based LDR Holding Corporation for $1 billion.

The announcement on June 7, 2016 sent Wall Street analysts to their keyboards to write that this acquisition may signal the beginning of consolidation in spine.

Zimmer Biomet’s offer, approved by both boards, calls for Zimmer Biomet to acquire all the outstanding shares of LDR for $37.00 per share in cash. The transaction is subject to customary closing conditions and is expected to close in the third quarter of 2016.

LDR, co-founded by Christophe Lavigne in France in 2000, immediately gives Zimmer Biomet a leading position in the fast growing cervical disc replacement (CDR) and minimally invasive surgery (MIS) segments. LDR’s Mobi-C CDR device is the first and only device FDA approved to treat both one- and two-level adjacent damaged cervical discs. Long-term clinical studies for Mobi-C have demonstrated the efficacy of the technology, with Mobi-C showing superiority to fusion for two-level procedures.

BMO Capital Market analyst Joanne Wuensch notes other products in LDR’s portfolio include its MIVO (Minimally Invasive Volume) Technology and Traditional Fusion products. Long term, the company’s strategy includes the introduction of eight new MIVO products over the next three years, including Avenue T, InterBRIDGE, FacetBRIDGE, and Avenue P.

Wells Fargo analyst Larry Biegelsen said LDR’s Mobi-C cervical disc accounts for about 44% of total LDR sales and is growing at around 30%. However, he cautions that the cervical disc market has not grown as quickly as many had expected largely due to reimbursement issues. In addition, he says Medtronic’s Prestige LP is expected to receive a two-level indication this year which could impact Mobi-C’s share.

Wuensch said LDR has made great efforts to compile a comprehensive source data to support the safety, efficacy, and cost utility analysis of Mobi-C, with three major publications of five-year data over the past four months. She says the next steps include: 1) collecting seven-year data, which LDRH’s management expects to be the “gold standard” for two-level procedures; and 2) increase the reimbursement coverage for two-level procedures, as only 50 million lives are covered for the procedure, compared to 179 million for one-level.

Scale

This is where Zimmer Biomet brings scale to the table.

In the press announcement, Zimmer Biomet stated it expects to capture cross-portfolio selling opportunities to both Zimmer Biomet and LDR customer bases by “enhancing LDR’s product growth and reach by capitalizing on an expanded combined distribution channel in the U.S. and key international Spine markets. The combination also will create a comprehensive Spine portfolio with innovative surgical solutions that place Zimmer Biomet in an advantaged position to compete for large hospital vendor contracts.”

LDR Talent to Stay

LDR will be combined with Zimmer Biomet’s Spine & CMF category and will be led by Adam Johnson, Zimmer Biomet Group President, Spine, CMF and Thoracic, and Dental. Lavigne, LDR’s chairman, president and CEO and Patrick Richard, Co-Founder of LDR and executive vice president and general manager of LDR Médical, will remain with the company in key leadership positions within the global Spine business. Zimmer Biomet plans to complement the Spine business headquarters in Broomfield, Colorado, by maintaining a significant presence in LDR’s strong technology hubs of Austin, Texas and Troyes, France.

Combined, Wuensch said the company will have 8.8% market share, making it the fourth-largest spine market participant globally. Biegelsen said the deal would increase Zimmer Biomet’s share of the spine market from about 5% to 7% and move from the number six player to the number five player.

Whether number four or five, there is still a lot of fragmentation in the spine market and if this signals a beginning of consolidation, start the music and grab your chair.