ZBH
#Sure, <UNK>.
Both of those dynamics are very accurate.
We've seen, particularly in the US, a step-up in large joints.
I think that the EMEA market is healthier than what we're currently experiencing, as we were just responding to the prior question on that front.
So the market is healthy in large joints, and we know that we have big opportunities in the other product categories as well, to focus on the large joint categories.
We have been improving our performance sequentially, even above the rate of the improvement in the market growth rates.
So over 100 basis points of gap closure in large joints as a whole, and that's been driven both by US and O-US knee improvement.
We see the US knees improving about 70 basis points relative to market performance, O-US knees improving about 160 basis points relative to market, and US hips as well going from Q4 to Q1 improved about 120 basis points.
So those gap closures are really important measures, as you reference, but it's always nice to be participating in a robust market itself, and both those factors contribute to the visibility that we have to improve the performance and close the gap, and as a consequence, raise our guidance for the full year to the 2% to 3%.
I think that the fundamental demographic drivers, <UNK>, I think we are seeing healthy markets, stable.
There's a bit of an offset, obviously as everyone else has been discussing, relative to certain of the emerging markets, the Latin America headwinds are still real, consistent with expectations coming into the year.
But Q4 and Q1 have been healthy markets in the developed countries, and we certainly have benefited from that.
We look to benefit to a greater extent as the quarters progress in 2016, with our execution.
Sure.
Well, we have a good pipeline, and we've made progress even in the first quarter in that regard, <UNK>.
Right now, outside of large joints on a global basis, we have round numbers, 2,000 sales reps exclusively focused in the other categories.
And between now and the balance of the decade, we look to expand that sales force in a material fashion, and 2016 represents our first installment.
So you can measure our plans in the hundreds in that regard.
In 2016, we're tracking consistent with that plan.
Step one was obviously the second half of 2015, to make the integration steps, and stabilize those sales forces.
We rebuilt the pipeline of talent, and that talent is coming to fruition.
So we're in a net add position as of Q1 even, and we would look to accelerate that for the balance of the year.
So I feel like we're executing those plans very well, and we're already seeing some of the early signs of traction.
It's part of what gives us confidence in accelerated top line growth between now and the balance of the year.
We absolutely are confident that we do.
We have the existing portfolio to compete effectively, and you're right, scale does matter and in this category, the level ones and the level twos demand comprehensive portfolios, and it's tough to be a niche player in that space.
And the combination greatly enhances our competitiveness within trauma.
The other thing that it does is ---+ and it's consistent across some of the other non-large joint categories for us, it puts us in a position to continue to innovate in a more diversified way, and get after some of the higher risk, higher return projects, to address unmet needs in that category.
And so, rest assured that not only do we expect to execute with the current portfolio in an effective manner, but our pipeline is going to be more diverse than it's ever been, and the scale gives us that opportunity.
So we would look to address unmet needs and push out and really establish ourselves as true innovators within the trauma space in due time.
Sure, <UNK>.
It's <UNK>.
I responded earlier in terms of the types of investments, so there will clearly be a focus on the R&D line.
So you can expect to see our spend at the R&D line to improve, or to expand sequentially, as we progress through the year, and that's a fairly broad-based set of investments, focused on large joints, SET, programs aimed at our personalized solutions portfolio, as we discussed.
You'll also see in the SG&A category some reinvestments, medical education and training, so that takes the form of training new surgeons around the world, capitalizing on the opportunity to cross-sell, investments in med ed in emerging markets, and specialized sales forces.
<UNK> just mentioned adding hundreds of incremental focused sales reps, particularly in the SET categories, and things of that nature.
So I think you'll see it mainly in the R&D line, but also in SG&A, as we progress through the year.
Sure, <UNK>.
I think that we had an opportunity, because of the pendency period that was prolonged for 14 months between signing and closing, to do extensive planning.
And the teams took advantage of that time and developed extraordinarily detailed integration plans to go after the top line opportunities, as well as the operating expense opportunities.
And it's pretty clear, based upon our execution, that we've been able to, if anything, retrieve and realize the operating expense synergies in an accelerated fashion, as evidenced by last year's performance in that regard.
I think to your question, you end up with the best visibility one can have in planning those top line opportunities, and now we're in a stage where we're executing.
And so we're making refinements, and part of what <UNK> is outlining, by the way of reinvestment, would include something like the products that are going, and beyond, in theory having a cross-sell opportunity, we're realizing success.
We're upping production, we're ordering more instruments.
And so that's a good example of the reality.
With any new product launch, and this as we referred to it as sort of the mother of all product launches, you end up having some surprises, both negative and positive, and where we see the positive surprises, we're going to fuel that growth.
So we've got a stable channel.
We're on a net basis adding sales reps in an intelligent way relative to our opportunity to make sure that our coverage is going to exploit fully the broad bag that we have, and then we're dialing et it up in medical training, and education, instruments and inventory, where we see the growth opportunities, because of early traction in the sales force.
And that visibility is extraordinarily helpful, gives us line of sight as to sequentially between now and the end of the year what we think we can do.
<UNK>, we're still comfortable with the previous cash flow guidance that we provided, both on an operating and free cash flow basis.
Sure, <UNK>.
We're comfortable with the consistency of the calculation and the visibility that's provided.
We had a successful quarter in managing the business in this regard in Q4, and as you know, another successful quarter in Q1 of 2016.
Some of it had to do with just our forward visibility to contracts and renewals, and what's in the pipeline.
And so we came into the year expecting minus 2.
We continue to expect something closer to that in subsequent quarters.
Q2, Q3 and Q4 of 2016 and contributing to that potential uptick relative to where we were in Q1 is going to be the biannual price adjustment in Japan, which comes online here at the beginning of the second quarter.
So that's already been quantified.
It's consistent with most of the past adjustments, say in mid single digits, based upon our product mix.
So you can look at that as being the potential for round numbers, a 20 basis point uptick on a consolidated basis, but I think that we're managing the business intelligently.
One of the benefits of the combination is the capability with this broad portfolio to product position, and with the breadth of the portfolio and the capability to tier these products, and better match the demands and needs of customers, it puts us in a better position to maintain pricing on premium technologies, for example, across the globe, that is.
And with the increased transparency on pricing across the globe, that's a big asset.
So it's a good news story.
The teams are taking advantage of that opportunity.
But again, it's two good quarters in that regard, and we don't want to call it a stronger trend at this point in time.
That probably does cause us to moderate a bit the negative 2% price expectation coming into the year, but we think that we're going to edge up above the 0.9 that we experienced in Q1, as we move into Q2 and beyond.
it's a big dynamic and a big opportunity, <UNK>, and it's so consistent with our focus on musculoskeletal care, up and down the continuum and across the episode of care with systems, solutions, and services, and this has been our strategy going back for the better part of a decade.
So we really do believe we're uniquely positioned, and these conversations and the partnerships that we're entering into reflect the fact that the breadth of our portfolio and our commitment to developing these partnerships in a manner that adds value is going to be long-term and deep.
I will tell you, every one of those conversations is validating to the work that we've done, as I said over the last decade.
I think that you can envision a day where it's very much the case that the end-to-end patient engagement is something that we're more deeply involved with, and as a consequence of the data and insights that we glean in partnership with customers that are progressive thinkers in this regard, that we're mining that data, creating the right treatment algorithms, and the right clinical and economic support, that announces where the unmet needs are and the opportunities for continuous improvement on both clinical and economic bases.
And that's our vision, and there are a lot of customers across the globe that share that vision.
And I think that, again, there are limited numbers of companies that can sit at the table with the offerings that we have to bring value to that conversation, and be able to follow through and deliver.
So we're excited about the opportunity, and you're going to hear a lot more from us going forward on that front.
You are.
I think it's deeper partnerships, <UNK>.
And I think that one doesn't want to take too superficial of a view, and jump to the monetization of that relationship.
Rather, I think it needs to be about value creation.
And if there's true value creation opportunity, and we believe that there is true value creation opportunity through those deeper partnerships, there's going to be plenty of opportunity to share in that upside, and broader relationship up and down, again, again, that continuum of care and that episode of care, and you can envision from the point of diagnosis and joint preservation through sports medicine, partial, total, revision, salvage, and the large joint, biological solutions, but interventions that make sense, both clinically and economically, we are convinced that there's value to be gathered for both parties, and all the other stakeholders, and most importantly, patients.
If we get that right, we're going to be able to figure the rest of it out.
So that's the mindset that we have in entering into those relationships.
A lot of flexibility and agility to get after making a difference for patients, and that's going to redound to all the other stakeholders' benefits.
I'm sure we'll participate in that in an appropriate way.
Leona, we have time for one additional question.
I think it's just timing to get after the opportunity more than anything, <UNK>, as it relates to the SET businesses.
The opportunity that we have with this combination to materially enhance the focus from a commercial standpoint is one that we're taking advantage of.
And we're going to start to see, in the short term as in Q2, some of the benefits in the SET categories.
And then you jump outside of the SET categories, dental, we had a you unique event with a field action back in Q4.
As we've referenced, we were working through that challenge in Q1.
We'll be out of that challenge by the end of Q2, and that's going to help enhance the performance of the dental business.
And then as we noted all along, the commercial integration on the spine side was known to be more challenging, and so we're going to like the result, but that one's going to take a quarter or two longer than the large joint.
So we're tracking very consistently with what our integration plans contemplated, <UNK>, and the teams are doing an excellent job from our perspective on the execution front.
<UNK>, I would say that our thinking on that remains as it has been, which is, we continue to be interested in smart business development opportunities with a strategic focus remaining on musculoskeletal.
We'll remain disciplined in that regard.
We'll look for targets that leverage our sales channel to drive sustainable growth and maximize shareholder value.
And we'll also stay focused, to ensure sustainable and solid returns within a reasonable time horizon.
So I wouldn't think of any shifts in that regard.
We're still very focused on driving improvements in our free cash flow yields out over time.
That will continue to be a focus and it gives us a lot of flexibility as we progress looking at debt paydown, M&A activity, dividend payment, and so on and so forth.
So we will stay very disciplined, as we always have been.
Thanks, <UNK>.
And with that, I'd like to thank everyone for joining the call today, and for your continued interest and support for Zimmer Biomet.
We look forward to speaking with you on our second-quarter conference call which is scheduled for 8:00 AM on July 28th.
I'll turn the call back to you, Leona.
