Knee-Deep in Profit
By JAY Zimmer is the global leader in knee and hip replacements, with profit margins that are among the industry's best. And it's about to get a flood of new customers, as the oldest baby boomers approach 67 -- the average age for implant. Our reporter's notes from the operating table.
LIKE LEGIONS OF MY FELLOW boomers, I know a thing or two about creaky knees. Mine developed after six decades of punishment, including sport-parachuting at high school in England. Much later, arthritis settled in, followed a few years ago by an ankle injury that left me with an awkward gait. The fact that I am, as my doctor politely puts it, "large," hasn't helped matters. By last year, the creaking of my knees was accompanied by true groaning. It was time to go bionic.
Masterfile, Inset: Courtesy of Zimmer
Next Best thing: An artificial knee functions, in many ways, just like a normal real one.
I paid a call on Tom Gutowski of Princeton, N.J., an orthopedic surgeon near my home who performs some 300 joint replacements every year, two-thirds of them knees. He concluded with X-rays that both my knees would benefit from the procedure, especially the right one. He proposed that we start there, replacing the bum joint with a metal-and-plastic device made by
Zimmer Holdings. Specifically, he chose that company's NexGen LPS-Flex Fixed Bearing Knee, which offers a higher-than-normal 155 degrees of motion.
Today, four months after the operation, I am firmly on the mend. The pain has mostly subsided and I am getting around with greater and greater ease. I have come to like my new body part. I also have come to like Zimmer and its stock (ticker: ZMH). The company, with a market value around $16 billion, is the global leader in knee and hip replacements -- the fastest-growing segments of the worldwide, $30 billion orthopedic market. And Zimmer's stock, down nearly 20% in the past 12 months, looks attractively priced.
Make no mistake, aging baby boomers will be buying knees and hips for years to come. The average age for an implant is about 67, says Jim Crines, Zimmer's chief financial officer -- and the oldest of the 75 million boomers is only 62. So a big bulge in demand lies ahead.
It's not just that boomers are getting older. Like me, many are well-fed, putting heavy strains on their joints. At the same time, boomers are determined to remain physically active for longer than their parents and grandparents did. That will require plenty of spare parts.
In all, the U.S. market for hip and knee replacements, which hit about $5.5 billion last year, should grow at a compound annual rate of 7%-8% a year through 2013, according to research firm Frost & Sullivan.
