Durom Failures Discovered Earlier Than We Realized?

Zimmer shareholders filed a securities class action last year against Zimmer Holdings, Inc. and two of it’s top officers, claiming that the defendents withheld information about production issues at one of their manufacturing plants and the failures occuring with the Durom cup.  According to the complaint, Zimmer had made statements to the shareholders projecting a certain level of growth for 2008, and continued to talk down the manufacturing problems they were having, thus inflating the stock price.  The plaintiff’s case was supported by evidence from a dozen confidential witnesses.  On December 1, 2009, Judge Baker’s decision to dismiss the complaint became public.  The ruling concluded that plaintiff’s failed to provide compelling evidence of scienter, or intent to deceive shareholders.  The plaintiffs were given 45 days to amend their complaint.

Despite the case being dismissed, the complaint presents interesting information.  Jim Crines, Zimmer Holdings’ CFO, is quoted in the complaint, from a presentation at the Deutsche Bank Securities Inc. Health Care Conference on May 6, 2008, saying:

“I will also tell you that we did receive…indications in the European market in the early part of 2007 with a couple of surgeons in France.  We were able to trace their experiences to issues with the technique that they were using.  This is a cup that once it’s seated up into the acetabulum cannot be repositioned.  And we have had situations where – this particular situation in France a couple of surgeons had experienced early failures as a result of the technique that they were using where they were repositioning the cup after it had been seated up into the acetabulum.  Se we were able to address that particular issue with surgical technique training.

 That’s an issue I can tell you that we paid a lot of attention to here in the U.S. as this product has been launched into the U.S. There’s a lot of information that’s provided to our sales reps, training that’s provided to our sales reps, so they’re able to convey to any surgeons that are using this device the importance of following the technique.”

This statement is interesting in light of Zimmer’s current stance in regard to the Durom failures.  That being, the Durom cup in Europe has had remarkable success, and surgeons over there were not reporting any difficulty.  It appears by Mr. Crines’ statement that they were indeed reporting failures very similar to those occuring in the US, and they were not addressed in the US until the sales suspension, nearly 2 years later.

To read more, take a look at the pdf of the Complaint filed in Plumbers and Pipefitters Local v. Zimmer Holdings, Inc. attached here:  Complaint