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Biomet Inc. (BMET) Tuesday became the second orthopedics company to indicate that the market for replacement joints held up well in recent months despite ongoing fears that the recession will cause sales growth to slow.
The privately held company, which is closely watched because it reports before bigger public orthopedics companies such as Zimmer Holdings Inc. (ZMH) and Stryker Corp. (SYK), said sales for reconstructive products rose 10% in the fiscal quarter ended Nov. 30, excluding the negative impact of currency rates.
Biomet's report follows a pre-announcement from Stryker last week in which the company reported 8.9% sales growth for orthopedic implants in the fourth quarter, excluding currency fluctuations. Growth in the quarter was slightly ahead of the 2008 growth rate for these Stryker products.
These results don't say anything about what the future may hold for the more than $11 billion replacement hip and knee market, and concerns remain that a lingering recession and rising unemployment could still spell trouble. While replacement-joint surgery fixes sometimes debilitating arthritic problems, it can carry hefty out-of-pocket charges and can also be deferred.
Biomet's smaller size, unusual fiscal calendar and lack of product-specific problems also make it hard to directly extrapolate its results to larger rivals. But the Biomet and Stryker reports do indicate some recent resilience in the orthopedics market.
"Following Stryker's firm headline results last Friday, these numbers give us confidence that the industry's fourth quarter results will not show the feared slowdown in volume growth," Nomura Code analyst Charles Weston said in a note regarding U.K. orthopedics company Smith & Nephew PLC (SNN).
He suggested the results could drive a small rally in Smith & Nephew shares in the next month, although they recently traded down 0.8% to $34.82 on Tuesday.
Beaten-up shares of Stryker and Zimmer, however, moved higher, with Stryker recently up 1% to $40.39, and Zimmer up 0.3% to $41.19. Shares of Johnson & Johnson (JNJ), which owns the other major orthopedics company - DePuy - were recently 0.9% higher at $58.86.
Meantime, shares of Symmetry Medical Inc. (SMA), which is a major supplier of parts for the orthopedic-device sector, rose 18.2% to $7.41. Wachovia upgraded the stock to market perform from underperform, saying it had fallen enough - 66% between the end of September and Monday - to show the market was discounting risks to Symmetry's 2009 estimates.
A key risk is the expected slowdown in elective surgery for joint replacement. Speaking during a J.P. Morgan health-care conference Tuesday, James T. Crines, Zimmer's chief financial officer, said a "disruption" in growth rates is likely due to rising unemployment, although the company doesn't expect a change in long-term industry growth dynamics.
Likewise, Credit Suisse analyst Kristen Stewart, who noted the Biomet caveats in a note to investors, also cited challenges ahead. "We continue to believe that the hip and knee markets could see some deceleration in unit demand due to the broader macro issues," she said in an investor note.
At Biomet, overall reconstructive orthopedic sales were watered down by a sluggish market for dental devices, where the recession has applied some pressure. The key market for replacement hips saw 14% sales growth excluding currency, however, while the knee market saw 10% growth excluding currency.
Stewart said Biomet's above-market growth rates in hips and knees - although sales growth has decelerated in the latter category - indicate the company is taking share from competitors in both markets.
When the effects of currency rates are factored in, Biomet's sales gains were lower. Overall, the company reported 6% sales growth - or 9% excluding currency - in its fiscal second quarter.
It also reported a net loss of $39.7 million, narrowing from a net loss of $302 million for the year-earlier period. It noted that it reported $131.4 million of special items, pretax, in the recent quarter. Those items include purchase accounting charges of $94.3 million.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; email@example.com
(Ingrid Pedrick Lehrfeld contributed to this report.)
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