UPDATE 1-Zimmer shares hit low after hip product suspension
(Adds analyst comment, updates stock)
CHICAGO, July 23 (Reuters) - Shares of Zimmer Holdings Inc (ZMH.N) tumbled to their lowest price in almost six months before paring losses on Wednesday, as the orthopedics device maker tried to assure investors it was acting to stem fallout over suspending sales of a hip product.
Late on Tuesday, Zimmer said high rates of repeat surgery involving its Durom Cup hip replacement component led the company to suspend the product's U.S. sales.
The company also cut its financial forecast on Tuesday, largely because it projected a loss of $20 million to $30 million in hip-products sales related to the Durom suspension.
Zimmer executives told analysts Wednesday that they would redouble efforts to train surgeons about proper use of the product.
Shares of the Warsaw, Indiana-based company were off $4.69, or 6.6 percent, to $66.19 in afternoon New York Stock Exchange trading, after falling as low as $64.50 earlier in the session. They hit a 52-week low at $63.04 on Nov. 23, 2007.
"If these new (forecasted) numbers aren't any good, they're in trouble. The only reason people I talk to don't want to sell now is because it's too cheap," said Morgan Stanley analyst David Roman, who has an "overweight" rating on the shares and figures they won't fall further. "I'm assuming nothing more changes."
Rick Wise, an analyst with Leerink Swann, estimates the Durom Cup represents 5 percent to 10 percent of 2008 U.S. hip sales, or $30 million to $60 million, making the product a key growth driver.
Wise, who has a "market perform" rating on the stock, reckons Stryker Corp (SYK.N) and Johnson & Johnson (JNJ.N) stand to benefit slightly from Zimmer's problems.
Michael Matson, an analyst with Wachovia, said he thinks Wright Medical Group Inc (WMGI.O) is poised to benefit most in the near term. Indeed, Wright shares were up more than 3 percent on Wednesday.
Matson said it's safe to assume Durom will be off the market through at least early 2009.
'DAMAGE TO THE REPUTATION'
"We don't expect much of that (Durom) revenue to come back. There's damage to the reputation of the product and there are other good products out there," he said.
Zimmer President and Chief Executive David Dvorak told a conference call that the company would reissue surgical instructions for the Durom Cup and require surgeons to complete a training course before the device would be available to them.
He said training programs would be running by the fourth quarter. "We'll have more visibility then, when we can see the benefits from those activities," Dvorak said. Continued...
