Zimmer recalls part of Persona--a total knee replacement that helped drive 2014 growth

The Persona total knee replacement system--Courtesy of Zimmer

Zimmer ($ZMH) is in the midst of a recall of a component of its latest total knee replacement system, Persona. The orthopedic company notified customers in mid-February and the FDA has now classified the action as a Class 2 recall. Persona was a primary sales growth driver for Zimmer in 2014 and is expected to continue to be, so the global recall of 11,658 of this part of the system could have a significant impact on the company.

On March 12, the FDA disclosed that Zimmer had issued a recall notice on Feb. 16 for the Persona Trabecular Metal Tibial Plate due to "an increase in complaints of radiolucent lines and loosening." This indicates a poor seat for the plate, which bodes poorly for patient outcomes since it's associated with subsequent knee pain.

Zimmer launched the Persona system in 2013 and it's the latest of the roughly half-dozen knee systems the company markets. In fact, Persona has helped it secure its position within the entire market.

Zimmer CEO David Dvorak

"We are about a quarter of the market in knees currently, and so it takes a lot to move that needle," said Zimmer CEO David Dvorak on a January earnings call. "But Persona has moved that needle so we are quite satisfied with the product itself and the execution on the commercial side."

The relative advantage of Persona is intended to lie precisely in its superior anatomical fit, that's said to be the most accurate. This recall involves sizes C-J and both left and right.

Knee-related products are Zimmer's largest product group, which brought in about $2 billion of its roughly $4.7 billion in 2014 net sales. It's also one of its better growing--that figure increasing by 3% in 2014, down from 4% in 2013. Total net sales grew by only 2% last year for the company.

"Our Knee product category has benefited from recent product introductions, such as Persona The Personalized Knee System and joint preservation solutions. However, the volume/mix growth from new product introductions has been tempered by pricing pressure in all our reporting segments," Zimmer said in its latest annual report to characterize its overall sales growth.

Investors have shown tremendous confidence in Zimmer, driving its shares up 25% in the last year to hit a market cap of almost $20 billion. This recall notice could be poorly timed for the company, which is in the midst of selling $7.65 billion in debt to back its $13.4 billion acquisition of Biomet that is slated to close this quarter.

- here is the FDA recall notice

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