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In Orthopedics, One Steps Up While One Steps Out

Executive Summary

The two otherwise independent announcements this month by Sulzer Ltd. and Bristol-Myers Squibb Co. seemed almost to speak to each other. Sulzer announced that it would exit several businesses, including its textile, pumps, and some other industrial lines, to focus on health care and materials sciences. In the process, Sulzer will take back a medical device business it spun off three years ago and almost certainly will be expanding its base in orthopedics through both internal growth and acquisition. And BMS' announcement that it, too, would be divesting some businesses to concentrate on its core pharmaceutical business seemed appropriately timed, since one of the biggest pieces to be sold off is its Zimmer Inc. orthopedics line.

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Two Independents Emerge in Orthopedics

The once consolidating orthopedic implant business is, if anything, going in the opposite direction, given the decisions this week by parents of two of the leading companies to create stand-alone companies of their orthopedic businesses. Bristol-Myers confirmed what had been rumored for months: that it will spin off its Zimmer orthopedics business into a public company rather than sell the company to some other player. Earlier, Sulzer announced that it plans to spin off its medical device business, Sulzer Medica, in response to pressure from a large investor who was concerned about the industrial giant's declining stock performance. But these individual deals also represent a surprising industry turnaround--the consolidation of two years ago has largely stabilized pricing, allowing independent companies to thrive once again.

Sulzer's New Brew

Orthopedic suppliers have tentatively explored the opportunity in biologics for years. Now, one leading suppliers, SulzerMedica, is launching a dedicated business designed to focus on the opportunity. For Sulzer, biologics represent a promising new technology that could revitalize an orthopedic business beset by pricing and commmoditization pressures. But biologics also will require Sulzer to manage its business differently than medical device companies historically have.

Biomet's Contrarian Conservatism

Beset by cost and consolidation pressures, many orthopedic companies are re-thinking traditional industry success strategies. Not Biomet. The Warsaw-based company is quietly thriving by focusing on core industry values such as the importance of independent distributors, the ability of companies to differentiate their technology, and the fundamentally local nature of the industry.

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