Biomet, Zimmer Clash on Pricing Picture

Biomet (BMET Quote - Cramer on BMET - Stock Picks) has often looked downright nimble compared with its older and heftier peers.

While rival orthopedic device makers have been pinched by belt-tightening at big customers like hospitals, Warsaw, Ind.-based Biomet has continued to secure premium prices. Many credit the company's innovative edge and the drive of founding CEO Dane Miller for that success.

But now a test is emerging that may challenge even fleet-footed Biomet's mettle. Observers say the economics of the implant business are getting even tougher for these manufacturers, owing to deepening cutbacks at hospitals. More surprising, perhpas, is the identity of one emerging skeptic of the industry's growth prospects: Ray Elliott, chief of Biomet rival Zimmer (ZMH Quote - Cramer on ZMH - Stock Picks).

Over the past month or so, Elliott has alarmed investors on at least three separate occasions with his comments about pricing for orthopedic implants. Higher prices for both existing and newer products have always helped fuel the industry's explosive growth in the past, and Zimmer has often trumpeted its own share of that expansion. But lately Elliott has been sounding a much less upbeat note about the industry's prospects.

"There's a lot of bell-and-whistle stuff in this industry over the last five or six years where you got pretty good money for stuff that was pretty fluffy, I think, at times," Elliott said Sept. 20 at a breakout session at a Bank of America conference. "Mix, I believe, continues to be strong and will be -- as long as you're bringing out technology that has proven clinical benefit. ... [But] if you're going to take this and spray it red and add $1,000 to it and say, 'This is still the good old days,' it's not going to happen anymore."

For his part, Miller has stood by Biomet's earnings forecasts. "Bottom line is we expect to be able to improve pricing going forward," Miller said a day after Elliott's comments. "I don't know what our competitors are doing price-wise. They've made some negative comments ... some of them have, as it relates to reconstructive pricing. But I guess only time will tell."

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