Shares in Sulzer Medica fall as company gains independence

Sulzer Medica will face an uncertain future when it splits from Sulzer on Tuesday swissinfo.ch

Shares in the medical technology company, Sulzer Medica, ended the company's first day of independence from Sulzer Industries down nine per cent at SFr85.10 ($47.83).

The company’s stock price has fallen around 80 per cent this year amid a crisis over the recall of faulty hip implants in the United States and doubts over the spin-off strategy.

On Monday, the company said the number of lawsuits it is facing in the United States had risen to 1,000 from 800 reported earlier. It also said that 2,200 people have undergone revision surgery since last December when Sulzer Medica recalled some 17,500 hip implants.

On Monday, the company’s interim CEO, Max Link, told an extraordinary shareholders meeting called to discuss the spin-off that he expected a total of 2,500 people to have to undergo revision surgery for the hip implants. But a final number wouldn’t be known until the autumn, he added.

On top of that, around 140 patients have had to undergo revision surgery for faulty knee implants. And that figure is expected to rise substantially as around 1,600 of the tibias have been inserted.

Once the jewel in Sulzer’s crown, Sulzer Medica now finds itself in the middle of a damage limitation exercise. The recall was launched after it was discovered that lubricant residue on the artificial joints had prevented many from bonding properly with the bone, causing them to loosen.

The company is still investigating what went wrong with its production process at its Sulzer Orthopaedics Unit in Austin, Texas, but says it hasn’t ruled out sabotage as a possible cause.

The controversy has led some small shareholders to question whether it’s wise for Sulzer Medica’s spin-off to go ahead at all in the current climate.

“Needless to say we wish we didn’t have this problem with the recall of the hips and the tibias,” interim CEO, Max Linx, told swissinfo, “but the cultures of Sulzer and Sulzer Medica are very different and divergent.”

Link added that with a new CEO, Stephan Rietiker, coming in at the beginning of August it was an ideal time for a fresh start.

Rietiker will face a tough initiation as the first case involving the company’s Inter-Op shell is also scheduled for August.

Sulzer Medica has warned that its insurance coverage is limited to SFr400 million and analysts have estimated that the costs caused by the faulty products could be between SFr350 million and SFr1 billion.

The company has repeatedly said that it doubts its insurance will be sufficient and warned shareholders that earnings may be affected.

The company says the cost will be primarily borne by Sulzer Medica’s American unit.

“They caused the damage and they will have to pay,” says Link. “We have always dealt with our different units at arm’s length and it’s up to them to deal with this issue.”

Although he concedes that the negative financial impact on Sulzer Medica may be significant, Link says the company remains strong.

Despite the plummeting share price, Link is confident that the company will see better days return.

“The sales development in the past six months shows we are doing the right things to keep the business intact,” says Link. “And sales are particularly strong in the affected areas of joints and fractures.”

After its spin off, Sulzer Medica will eventually be renamed and given a new corporate identity.

Management will be hoping that that will help them draw a line under the company’s current problems.

by Michael Hollingdale