ZimVie, Inc., the spine and dental spin-off from Zimmer Biomet, is the 7th largest (by revenue) orthopedics company in the world. It is a global supplier with a bit over 2,700 employees. Its stock trades on NASDAQ. Just 30 days after starting corporate life as an independent company, Wall Street’s collective wisdom is that ZimVie is worth about $626 million. Too cheap, I think. In my 25 years’ experience as a Wall Street analyst, spin offs like this have tended to outperform expectations.
Here are the basic statistics for ZimVie.
What is your business? Who is your customer?
Zimmer’s spine and dental business spin off can be seen as part of a larger trend by ortho suppliers to shed “underperforming” assets. Medtronic Spine also unloaded several of its non-performing spine assets recently. The buyer was the Viscogliosi Brothers who, in turn, raised roughly $55 million to begin the process of bringing these products to market.
With increasing digitalization of orthopedics and spine, the handful of suppliers who represent north of 80% of all orthopedic and spine product sales are re-visiting the most fundamental of all business questions—what is your business and who is your customer?
Is your business manufacturing and selling implants or is it selling treatment solutions? Are you a hardware company or are you an information company?
Is your customer the surgeon or is it the caregiving system, broadly defined (including payers)?
To a large extent, the Strykers, Zimmers and DePuys of the world are joining the major hospital systems to conclude that, yes, the definitions are changing and to thrive in the coming digital world of healthcare, companies need to redefine their businesses to include data, intelligent tools and implants, artificial intelligence, an expanded definition of patient care, and new forms of manufacturing.
By spinning off its spine and dental business, Zimmer Biomet has sharpened its patient-care focus and elevated its digital commitment, which, over time, should raise Zimmer’s importance and value significantly.
ZimVie’s CEO
Ironically, separating from Zimmer, allows ZimVie to also consider its strategic position. Freed from the constraints of ZBH, ZimVie’s team is mapping out its own unique pathway which, again, based on my experience as an analyst on Wall Street, tends to deliver increased and, often, unexpected value to shareholders.
OTW had the distinct honor to speak with ZimVie’s new CEO, Vafa Jamali. He comes to ZimVie from Medtronic (and earlier, Covidien—which was acquired by Medtronic) where, for about 12 years he was SVP and president of Early Technologies and Respiratory, Gastrointestinal and, notably, Informatics. And before Medtronic/Covidien, Jamali was a senior executive at Cardinal Health, Allegiance Healthcare, Baxter, and Searle. He is a graduate of the University of Alberta.
We caught up with Vafa Jamali literally 4 hours after taking the helm of ZimVie. Our first question to Jamali (who was a former SVP of Informatics at Medtronic) was about ZimVie’s digital strategy. And he immediately turned our question into a discussion of the customer experience.
Vafa Jamali: “Really what digital should do is enhance the workflow—make it more standardized, more predictable. When we say, if you use this, this way, this will happen. Also, it should make patient selection more predictable. We don’t have to create a gigantic machine. Digitization allows us to be smarter about the choices we make and smarter about what we should expect of that outcome. That’s what we’re doing really well in dental right now.”
“With spine, it’s the same thing. I don’t think you can just layer on tech. I think you have to be smart about what procedure you are innovating. If I’m doing all my procedures open, I don’t really need a robot because I’m seeing everything. I have access to everything. Now, if I can reduce complications, then that’s what I want to do. But I would really look at what procedures would benefit the most from technology and then start innovating that way.”
“When I look at a new digital product, I make that calculation in the back of my head and ask the question, ‘Will we drive a better outcome for the patient or not?’ So far I think as an industry, we haven’t made the case for that yet. We have to keep working at it and seek technology that can actually benefit both outcomes and workflow.”
OTW: “You’re lucky in a sense, you’re not married to the legacy stuff. You can leapfrog everybody.”
Vafa Jamali: “What we believe is you can typically do that by partnering with someone who specializes in that area versus trying to create that inside my shop.”
OTW: “How will ZimVie, as an independent company, be different from its earlier existence as the spine and dental division of Zimmer?”
Vafa Jamali: “ZimVie has so much value locked inside which, to a certain extent, was lost inside of the bigger Zimmer Biomet. I was part of Baxter when we spun off Allegiance; Cardinal when we spun off CareFusion, and Medtronic when we spun off the patient safety group. Every one of those were really successful carve-outs.”
“The reason these companies were carve-outs is because the parent company couldn’t focus on them. What I’ve found at Zimvie in the short time I’ve been here, is extraordinary talent and the ability to draw talent into our company that you wouldn’t be able to do if you were a small division of a big company.”
“We’ve been able to hire phenomenally, which is really going to help us in terms of our thinking, our intellectual capacity, and motivation for the team. Secondarily, we now have the ability to focus 100% on our business. For example, in these big companies, if your parent gives you $10, typically you spread $10 over 10 different projects. It’s a terrible thing to do. You should probably spend $10 on the bet that you really have, or $9 on the bet that you have and $1 somewhere else. Now we can focus.”
“And, of course, the best prepared person wins. Those types of behaviors don’t exist in big companies, especially in the non-focused area where the most senior management time is just not available. If you think about talent management focus, our ability to really decide how we’re going to win on our terms, not on someone else’s terms is really critical.”
“I think that’s the reason why carve-outs and spin-offs do well. You allocate capital much better. Your talent pipelines are much better. You’re not a farm team for anybody. There’s just a whole lot of built in natural growth opportunities here.”
OTW: Wow. So true. How would you describe your own style of management and what do you try to accomplish with the companies you run?
Vafa Jamali: “I probably over-index on people with a high level of intellectual curiosity because I like questions. I like listening. I like learning. I like people that take risk. By that I mean, we know that humans can learn from other people’s successes, but they can’t learn from other people’s failures. By definition, you would have to make a couple mistakes so that you learn more. An environment that allows you to do that’s a really, really good one.”
“The other thing I really like on my teams is making decisions lower down in the company. Typically you think, ‘Well, I’ll be the best decider of what’s right and what’s wrong.’ But that’s going to limit us. If we really are successful, we will make decisions happen lower, then we’ll be faster. We’ll be more nimble. We’ll be closer to the customer.”
“There’s a number of things that come out of that. These are all skills that I think you need. Your reflex might be to take the reins when you see something happen but probably the best approach is to let the company learn and grow with it.”
“Some of our business segments are mature, and it’s not a place to go and throw the long ball. There are other parts where you sit there and you go, ‘Well, if my goal is outcomes and workflow and that’s what I say I’m going to do, then that’s how I spend my dollar.’”
ZimVie’s Future
ZimVie starts off with a broad portfolio of products and services in both spine and dental. In spine, as Jamali noted in our interview, “We have the fortune having two novel technologies that we believe have great market growth opportunity and those would be the Mobi-C cervical disc and the Tether solution for pediatric scoliosis patients. Those two markets are really underserved in a sense that more procedures get an alternative than the new technology. Through proper selection of patients and the proper demonstration of clinical papers and efficacy and durability, and some work with reimbursement and providers to show that long term, this is going to be really good areas for us to be focused on as a company.”
Wall Street is still working on a sales, earnings, and stock valuation forecast for ZimVie. If experience is any guide, the newly independent ZimVie will likely outperform Wall Street’s expectations over the next 12-36 months—for many of the reasons that Vafa Jamali articulated in our interview.
