Zimmer's data rich earnings announcement this mornining contained an interesting nugget about their China plans.
Zimmer announced that they have completed a definitive agreement to acquire Beijing Montagne Medical Device Co., Ltd. a 360-employee company that develops large joint implants and instruments. Located in an industrial park near Beijing, the company has been investing heavily in manufacturing equipment and biomechanical labs over the last deacde to build a presence in the large joint area.
We spent quality boothtime with Beijing Montagne at a Chinese Orthopedic Association meeting not too long ago and noticed that, while they are mainly involved in developing hip prostheses locally, the company is just starting to make a foray into knee replacement. That being said, local Chinese manufacturers who develop any kind of motion preservation implants are more scarce. Witness the recent Trauson IPO. For all the hoopla, Trauson is essentially and trauma and spinal fusion company.
Although terms were not disclosed, Zimmer's management wasn't shy about sharing the breadth of China's growth opportunity with equity analysts on this morning's call. Zimmer is already there, but the acquisition enhances their presence from a development, manufacturing and marketing perspective. Management asserted that the Chinese orthopedic market is approximately $1 billion and at least a third of it is in large joint.
Zimmer also made the case that the Chinese government's increased interest in supporting healthcare initiatives could well cause the Chinese orthopedic market to double in the next 3 to 4 years. Our own models are consistent with this thesis although we qualify the $1 billion market size as end-user price x volume. Between that and actual company revenues quite a few middlemen take a cut. Aside from that, the growth is real and Zimmer is not the first to take the plunge. Medtronic really got the wheels turning in China with their Weigao joint venture/investment in 2008 and Smith & Nephew acquired Chinese manufacturing facilities with their Plus acquisition in 2007.
While an agreement has been reached, Zimmer's acquisition of Beijing Montagne is subject to regulatory approval and is expected to close late this year or early next year.
