08.05.15
$9.67 Billion
KEY EXECUTIVES:
Kevin A. Lobo, President & CEO
Lonny J. Carpenter, Group President, Global Quality and Operations
Ramesh Subrahmanian, Group President, International
David K. Floyd, Group President, Orthopaedics
Timothy J. Scannell, Group President, MedSurg & Neurotechnology
J. Andrew Pierce, President, Endoscopy
James N. Heath, President, Instruments
William J. Huffnagle, President, Reconstructive
Vivian Masson, President, Trauma & Extremities
Mark H. Paul, President, Neurovascular
Bradford L. Saar, President, Medical
Spencer S. Stiles, President, Spine
Wayne D. Dahlberg, President, Performance Solutions
NO. of EMPLOYEES: 26,000
HEADQUARTERS: Kalamazoo, Mich.
Never let it be said that medical technology is uninspiring.
Meet Tadashi Kikuchi, M.D., and Galina Gheihman, two rather ordinary individuals driven to magnificence by Stryker Corp. innovations. Kikuchi, a surgeon at Bange Kosei General Hospital in Fukushima, Japan, is the company’s 6,000-knee-man, having reached that procedural milestone in January with the help of sales representative Toshikazu Shimazu (and Stryker’s lineup of artificial joints, of course).
Gheihman is a Harvard Medical School student inspired to pursue her dream career after suffering from a debilitating childhood spinal condition. The Toronto, Canada, native was an active youngster, participating in basketball, springboard diving and ballroom dancing, but developed lower back pain at 14—an age of tremendous physical change. The pain eventually affected her ability to play youth sports.
“What had been a dull, aching pain stretching across my lower back was soon joined by shooting, sharp nerve pain running down the backs of my legs and a tingling numbness in my calves,” Gheihman recalled in Stryker’s 2014 annual report.
In 2008, Gheihman was diagnosed with spondylolisthesis, a condition in which a vertebra in the spine moves forward out of its proper position onto the bone below. In children, spondylolisthesis usually occurs between the fifth bone in the lower back (lumbar vertebra) and the first bone in the pelvis area; the condition often can be traced to a birth defect in that area of the spine or a sudden injury.
Two years after her diagnosis, Gheihman underwent surgery at Toronto Hospital for Sick Children, receiving Stryker’s Xia 3 implant to correct the vertebral misplacement and stabilize her lower back. The spinal system, used in more than 500,000 cases globally, features a buttress thread blocker that helps eliminate cross-threading, prevents screw head splaying and ensures secure closure.
Gheihman resumed her active lifestyle several months after the surgery with hikes and camping trips, and she put Stryker’s hardware to the test in 2011 by completing a 50-mile sea kayaking trip in Vancouver, British Columbia. Her back problems are now a distant memory.
“It’s been a dream come true,” Gheihman said, “and I have my surgeon, Dr. [Stephen] Lewis; the Toronto Hospital for Sick Children; and Stryker’s products, technology and physician technical support team to thank for it—not only for inspiring me to pursue medicine, but also for making it physically possible for me to do so.”
Perhaps even more inspiring than Stryker’s Xia 3 system is the Customized Mandible Reconstruction Plate, used last year to rebuild the lower jaw of a Kazakhstanian woman grievously disfigured by a misdiagnosis of terminal cancer. Based on anatomical data and a clinical analysis, the customized plate is designed specifically for the patient (indeed, the number and position of its screw holes vary by case). It’s also manufactured according to planned patient outcome, which eliminates the need for intraopertive adaptation.
The plate was implanted in Lessya Kotelevskaya, a 31-year-old former business owner with a hole in her cheek and no jawbone. Kotelevskaya lost her ability to eat and talk a decade ago after undergoing grueling radiation treatments for a bone malignancy she never had. The experience left her jobless, abandoned, homeless and dangerously thin—a fate she passively accepted until an older cousin brought her to the United States for medical treatment. Last year, she underwent reconstructive surgery at the University of Louisville Hospital in Kentucky, and was so moved by the generosity of her doctors and the success of the surgery that she currently is considering becoming a nurse.
Spiritual rebirths like Kotelevskaya’s abounded last year as Stryker diversified its product portfolio and enhanced its global regulatory training and patient education efforts. The company expanded its offerings mostly through acquisition, spending $916 million to augment its lineup of foot/ankle solutions, hips, spinal implants, surgical sponges, endoscopy instruments, operating room equipment (including lights), and surgical tables.
Stryker got the most bang for its buck with the $285 million acquisition of Small Bone Innovations Inc., the Morrisville, Pa.-based developer of the Scandinavian Total Ankle Replacement (S.T.A.R.) system. First designed as an anatomic non-constrained resurfacing prosthesis in 1978, the S.T.A.R. system—now available in more than 40 countries—is touted as “the only U.S. Food and Drug Administration-approved total ankle replacement for uncemented use.”
Besides the S.T.A.R. ankle system, Stryker inherited a bounty of other extremity products from Small Bone Innovations, including its silicone PIP finger joint implants, carpal fusion plate, distal radial volar plate (wrist), distal ulnar head replacement, proximal radial head (elbow) and extended stem. The additional merchandise will likely help Stryker better compete in the fast-growing U.S. extremities market, a segment estimated to be worth $4.2 billion next year.
Stryker found another good bargain with the $120 million purchase of Patient Safety Technologies Inc., a seller of bar-coded sponges and electronic counters through its wholly owned subsidiary, SurgiCount Medical.
Based in Irvine, Calif., SurgiCount began operating in 2006 and currently serves more hospitals (376) than its competitors, mainly, RF Surgical Systems Inc. and ClearCount Medical Solutions. SurgiCount’s bar-coded surgical sponges and towels, barcode scanner and compliance tracking software—all of which fall under the Safety Sponge System brand umbrella—are used in operating rooms to improve patient safety and quality, and reduce medical costs by preventing retained foreign objects after surgery. Roughly 2,300 such incidents (mostly abandoned sponges) are reported annually, burdening the U.S. healthcare system with $920 million in additional expenses.
Stryker also took steps to improve overall operating room safety and efficiency by snagging Bechtold Holding AG for $172 million last winter. The German company’s product suite includes surgical tables, equipment booms and surgical lighting systems—complimentary solutions that likely will strengthen Stryker’s presence in the global operating-room equipment market, which is expected to top $4 billion by 2019.
Expanding its gamut of sports medicine technology proved considerably more difficult for Stryker after longtime rival Smith & Nephew plc purchased ArthroCare in early February for $1.7 billion. Stryker quickly responded with an all-cash offer for privately held Pivot Medical Inc., maker of instruments and implants that treat femoroacetabular impingement syndrome. Pivot’s product platform provides efficient access to and restores hip mobility with minimal incisions.
Stryker executives said they expect Pivot’s offerings to enhance the company’s existing sports medicine lineup in knees and shoulders, and improve overall portfolio performance.
“We’ve done five acquisitions in the last year,” Chairman/CEO Kevin A. Lobo told CNBC “Mad Money” host Jim Cramer last fall. “Every one of those acquisitions strengthened our presence in orthopedics, strengthened our presence in specialty surgery and strengthened our presence in neuro[technology].”
All that fortification pumped up revenue considerably last year: Net sales swelled 7.2 percent to $9.6 billion and gross profit climbed 5.6 percent to $6.4 billion due to higher shipments of orthopedic instruments, trauma and extremity devices, endoscopy products, neurotechnology equipment, and other medical paraphernalia. Nearly 8 percent of sales growth was attributable to increased unit volume and product mix changes, while 2.5 percent was derived from acquisitions.
Operating income remained relatively flat at $1.2 billion but the company’s 2014 net earnings took a nosedive, plummeting 48.8 percent to $515 million, according to annual report data. Basic and diluted earnings per share suffered the same fate, succumbing to volatile foreign currency rates with respective 48.9 percent and 49 percent year-over-year losses.
Global macroeconomic volatility affected profits as well—particularly in Russia, Turkey, Brazil and Mexico—though Stryker’s weak performance in those countries partially was offset by double-digit gains in emerging markets. Japanese orthopedic sales also tumbled, as the company implemented an enterprise resource planning system there in the first quarter.
Overall growth was best in the United States, where net sales jumped 9.6 percent to $6.5 billion (representing 68 percent of 2014 total revenue). Europe, Middle East and Africa proceeds rose 4.2 percent to $1.37 billion, and Asia-Pacific sales climbed 3.7 percent to $1.36 billion. Canada and South America, however, spoiled Stryker’s otherwise spotless global growth spurt with its 5.9 percent revenue dropoff.
The company reconciled that sole earnings blemish with a flawless internal record, achieving solid gains in its three business segments and almost all product divisions. The MedSurg unit led in growth, expanding sales 10.7 percent to $3.7 billion due to the comeback of its Neptune Waste Management system, a device recalled in 2012 over improper use and lack of U.S. Food and Drug Administration (FDA) approval. The system, designed to eliminate exposure to fluids and/or smoke in the operating room, reappeared on the market with several improvements, including suction power codes, updated software to make the unit’s operation more interactive and responsive, and safety warning labels on the top, front and back of the device. A warning flag also was added to the IV (intravenous) pole for visibility.
The Neptune system homecoming mostly benefitted the MedSurg unit’s Instruments division, which posted a 12.2 percent spike in net sales in the year ended Dec. 31, 2014, to $1.4 billion. Endoscopy was close behind, surging 13 percent to $1.3 billion, while Medical grew 7.8 percent to $766 million. Sustainability products (reprocessed and remanufactured devices) fell out of favor as sales slid 1.8 percent to $209 million.
Stryker’s Orthopaedics segment (formerly its Reconstructive unit) ended the year with a perfect growth record, boosting total revenue 5.1 percent to $4.1 billion. All four product divisions contributed to the upswing, with orthobiologics, biosurgery and performance solution products leading the charge by way of a 24.2 percent revenue hike (to $236 million). Trauma and Extremities pitched in with a 10.2 percent sales increase ($1.23 billion), followed by Knees with a 1.8 percent gain ($1.4 billion) and Hips with a 1.5 percent spike ($1.29 billion).
Hip sales likely were stunted to some extent by Stryker’s decision last fall to settle thousands of patient lawsuits over its recalled metal-on-metal Rejuvenate Modular-Neck and ABG II Modular Neck hip implants for $1.42 billion. Cleared by the FDA in 2008 and 2009 respectively, the devices were pulled from the market in July 2012 after dozens of patients reported problems with the artificial implants (among them: pain, inflammation, infection, loosening, compromised mobility, and in extreme cases, failure). Stryker executives expected the settlement to have a minimal impact on 2014 earnings since most of the payments would be dispersed in 2015.
Likewise, fiscal fallout from the company’s OtisKnee settlement had a minimal impact on Knee revenue. In early December, Stryker agreed to pay the U.S. government $79.5 million to settle criminal and civil charges that its OtisMed Corp. subsidiary sold devices used in knee replacement surgery without approval from the FDA.
Such legal drama was lacking in Stryker’s Neurotechnology and Spine segment, which posted an overall 5 percent sales increase to $1.7 billion. Neurotechnology product proceeds climbed 9.4 percent to $1 billion, bolstered undoubtedly by the February launch of the Trevo XP ProVue Retriever, an expansion of the firm’s ProVue Retriever line for acute ischemic stroke treatment. The addition provides additional size and shape options for doctors. Spine sales slipped 0.4 percent to $740 million despite (or perhaps on account of) the March acquisition of CoAlign Innovations Inc., a manufacturer of implants for lower lumbar procedures, and the November debuts of the LITe TLIF Procedural Solution and Aero-AL anchor-based ALIF technology.
The LITe (less-invasive technology) TLIF system combines several innovations, including the LITe Pedical Based Refractor, the ES2 Percutaneous Spinal System, and the AccuLIF Expandable Lumbar Interbody Fusion technology. The LITe Pedical Based Refractor allows for direct visualization and a less invasive working corridor, the ES2 system features an integrated blade screw with built-in reduction, and the AccuLIF technology is designed to help restore segmental lordosis and sagittal balance.
The Aero-AL system compresses across the interbody space. It features patented compression technology designed to draw the vertebral bodies toward the implant to create compressive forces at the implant-to-endplate interface, offering clinicians a more streamlined, less disruptive approach compared with traditional screw-based ALIF technologies.
KEY EXECUTIVES:
Kevin A. Lobo, President & CEO
Lonny J. Carpenter, Group President, Global Quality and Operations
Ramesh Subrahmanian, Group President, International
David K. Floyd, Group President, Orthopaedics
Timothy J. Scannell, Group President, MedSurg & Neurotechnology
J. Andrew Pierce, President, Endoscopy
James N. Heath, President, Instruments
William J. Huffnagle, President, Reconstructive
Vivian Masson, President, Trauma & Extremities
Mark H. Paul, President, Neurovascular
Bradford L. Saar, President, Medical
Spencer S. Stiles, President, Spine
Wayne D. Dahlberg, President, Performance Solutions
NO. of EMPLOYEES: 26,000
HEADQUARTERS: Kalamazoo, Mich.
Never let it be said that medical technology is uninspiring.
Meet Tadashi Kikuchi, M.D., and Galina Gheihman, two rather ordinary individuals driven to magnificence by Stryker Corp. innovations. Kikuchi, a surgeon at Bange Kosei General Hospital in Fukushima, Japan, is the company’s 6,000-knee-man, having reached that procedural milestone in January with the help of sales representative Toshikazu Shimazu (and Stryker’s lineup of artificial joints, of course).
Gheihman is a Harvard Medical School student inspired to pursue her dream career after suffering from a debilitating childhood spinal condition. The Toronto, Canada, native was an active youngster, participating in basketball, springboard diving and ballroom dancing, but developed lower back pain at 14—an age of tremendous physical change. The pain eventually affected her ability to play youth sports.
“What had been a dull, aching pain stretching across my lower back was soon joined by shooting, sharp nerve pain running down the backs of my legs and a tingling numbness in my calves,” Gheihman recalled in Stryker’s 2014 annual report.
In 2008, Gheihman was diagnosed with spondylolisthesis, a condition in which a vertebra in the spine moves forward out of its proper position onto the bone below. In children, spondylolisthesis usually occurs between the fifth bone in the lower back (lumbar vertebra) and the first bone in the pelvis area; the condition often can be traced to a birth defect in that area of the spine or a sudden injury.
Two years after her diagnosis, Gheihman underwent surgery at Toronto Hospital for Sick Children, receiving Stryker’s Xia 3 implant to correct the vertebral misplacement and stabilize her lower back. The spinal system, used in more than 500,000 cases globally, features a buttress thread blocker that helps eliminate cross-threading, prevents screw head splaying and ensures secure closure.
Gheihman resumed her active lifestyle several months after the surgery with hikes and camping trips, and she put Stryker’s hardware to the test in 2011 by completing a 50-mile sea kayaking trip in Vancouver, British Columbia. Her back problems are now a distant memory.
“It’s been a dream come true,” Gheihman said, “and I have my surgeon, Dr. [Stephen] Lewis; the Toronto Hospital for Sick Children; and Stryker’s products, technology and physician technical support team to thank for it—not only for inspiring me to pursue medicine, but also for making it physically possible for me to do so.”
Perhaps even more inspiring than Stryker’s Xia 3 system is the Customized Mandible Reconstruction Plate, used last year to rebuild the lower jaw of a Kazakhstanian woman grievously disfigured by a misdiagnosis of terminal cancer. Based on anatomical data and a clinical analysis, the customized plate is designed specifically for the patient (indeed, the number and position of its screw holes vary by case). It’s also manufactured according to planned patient outcome, which eliminates the need for intraopertive adaptation.
The plate was implanted in Lessya Kotelevskaya, a 31-year-old former business owner with a hole in her cheek and no jawbone. Kotelevskaya lost her ability to eat and talk a decade ago after undergoing grueling radiation treatments for a bone malignancy she never had. The experience left her jobless, abandoned, homeless and dangerously thin—a fate she passively accepted until an older cousin brought her to the United States for medical treatment. Last year, she underwent reconstructive surgery at the University of Louisville Hospital in Kentucky, and was so moved by the generosity of her doctors and the success of the surgery that she currently is considering becoming a nurse.
Spiritual rebirths like Kotelevskaya’s abounded last year as Stryker diversified its product portfolio and enhanced its global regulatory training and patient education efforts. The company expanded its offerings mostly through acquisition, spending $916 million to augment its lineup of foot/ankle solutions, hips, spinal implants, surgical sponges, endoscopy instruments, operating room equipment (including lights), and surgical tables.
Stryker got the most bang for its buck with the $285 million acquisition of Small Bone Innovations Inc., the Morrisville, Pa.-based developer of the Scandinavian Total Ankle Replacement (S.T.A.R.) system. First designed as an anatomic non-constrained resurfacing prosthesis in 1978, the S.T.A.R. system—now available in more than 40 countries—is touted as “the only U.S. Food and Drug Administration-approved total ankle replacement for uncemented use.”
Besides the S.T.A.R. ankle system, Stryker inherited a bounty of other extremity products from Small Bone Innovations, including its silicone PIP finger joint implants, carpal fusion plate, distal radial volar plate (wrist), distal ulnar head replacement, proximal radial head (elbow) and extended stem. The additional merchandise will likely help Stryker better compete in the fast-growing U.S. extremities market, a segment estimated to be worth $4.2 billion next year.
Stryker found another good bargain with the $120 million purchase of Patient Safety Technologies Inc., a seller of bar-coded sponges and electronic counters through its wholly owned subsidiary, SurgiCount Medical.
Based in Irvine, Calif., SurgiCount began operating in 2006 and currently serves more hospitals (376) than its competitors, mainly, RF Surgical Systems Inc. and ClearCount Medical Solutions. SurgiCount’s bar-coded surgical sponges and towels, barcode scanner and compliance tracking software—all of which fall under the Safety Sponge System brand umbrella—are used in operating rooms to improve patient safety and quality, and reduce medical costs by preventing retained foreign objects after surgery. Roughly 2,300 such incidents (mostly abandoned sponges) are reported annually, burdening the U.S. healthcare system with $920 million in additional expenses.
Stryker also took steps to improve overall operating room safety and efficiency by snagging Bechtold Holding AG for $172 million last winter. The German company’s product suite includes surgical tables, equipment booms and surgical lighting systems—complimentary solutions that likely will strengthen Stryker’s presence in the global operating-room equipment market, which is expected to top $4 billion by 2019.
Expanding its gamut of sports medicine technology proved considerably more difficult for Stryker after longtime rival Smith & Nephew plc purchased ArthroCare in early February for $1.7 billion. Stryker quickly responded with an all-cash offer for privately held Pivot Medical Inc., maker of instruments and implants that treat femoroacetabular impingement syndrome. Pivot’s product platform provides efficient access to and restores hip mobility with minimal incisions.
Stryker executives said they expect Pivot’s offerings to enhance the company’s existing sports medicine lineup in knees and shoulders, and improve overall portfolio performance.
“We’ve done five acquisitions in the last year,” Chairman/CEO Kevin A. Lobo told CNBC “Mad Money” host Jim Cramer last fall. “Every one of those acquisitions strengthened our presence in orthopedics, strengthened our presence in specialty surgery and strengthened our presence in neuro[technology].”
All that fortification pumped up revenue considerably last year: Net sales swelled 7.2 percent to $9.6 billion and gross profit climbed 5.6 percent to $6.4 billion due to higher shipments of orthopedic instruments, trauma and extremity devices, endoscopy products, neurotechnology equipment, and other medical paraphernalia. Nearly 8 percent of sales growth was attributable to increased unit volume and product mix changes, while 2.5 percent was derived from acquisitions.
Operating income remained relatively flat at $1.2 billion but the company’s 2014 net earnings took a nosedive, plummeting 48.8 percent to $515 million, according to annual report data. Basic and diluted earnings per share suffered the same fate, succumbing to volatile foreign currency rates with respective 48.9 percent and 49 percent year-over-year losses.
Global macroeconomic volatility affected profits as well—particularly in Russia, Turkey, Brazil and Mexico—though Stryker’s weak performance in those countries partially was offset by double-digit gains in emerging markets. Japanese orthopedic sales also tumbled, as the company implemented an enterprise resource planning system there in the first quarter.
Overall growth was best in the United States, where net sales jumped 9.6 percent to $6.5 billion (representing 68 percent of 2014 total revenue). Europe, Middle East and Africa proceeds rose 4.2 percent to $1.37 billion, and Asia-Pacific sales climbed 3.7 percent to $1.36 billion. Canada and South America, however, spoiled Stryker’s otherwise spotless global growth spurt with its 5.9 percent revenue dropoff.
The company reconciled that sole earnings blemish with a flawless internal record, achieving solid gains in its three business segments and almost all product divisions. The MedSurg unit led in growth, expanding sales 10.7 percent to $3.7 billion due to the comeback of its Neptune Waste Management system, a device recalled in 2012 over improper use and lack of U.S. Food and Drug Administration (FDA) approval. The system, designed to eliminate exposure to fluids and/or smoke in the operating room, reappeared on the market with several improvements, including suction power codes, updated software to make the unit’s operation more interactive and responsive, and safety warning labels on the top, front and back of the device. A warning flag also was added to the IV (intravenous) pole for visibility.
The Neptune system homecoming mostly benefitted the MedSurg unit’s Instruments division, which posted a 12.2 percent spike in net sales in the year ended Dec. 31, 2014, to $1.4 billion. Endoscopy was close behind, surging 13 percent to $1.3 billion, while Medical grew 7.8 percent to $766 million. Sustainability products (reprocessed and remanufactured devices) fell out of favor as sales slid 1.8 percent to $209 million.
Stryker’s Orthopaedics segment (formerly its Reconstructive unit) ended the year with a perfect growth record, boosting total revenue 5.1 percent to $4.1 billion. All four product divisions contributed to the upswing, with orthobiologics, biosurgery and performance solution products leading the charge by way of a 24.2 percent revenue hike (to $236 million). Trauma and Extremities pitched in with a 10.2 percent sales increase ($1.23 billion), followed by Knees with a 1.8 percent gain ($1.4 billion) and Hips with a 1.5 percent spike ($1.29 billion).
Hip sales likely were stunted to some extent by Stryker’s decision last fall to settle thousands of patient lawsuits over its recalled metal-on-metal Rejuvenate Modular-Neck and ABG II Modular Neck hip implants for $1.42 billion. Cleared by the FDA in 2008 and 2009 respectively, the devices were pulled from the market in July 2012 after dozens of patients reported problems with the artificial implants (among them: pain, inflammation, infection, loosening, compromised mobility, and in extreme cases, failure). Stryker executives expected the settlement to have a minimal impact on 2014 earnings since most of the payments would be dispersed in 2015.
Likewise, fiscal fallout from the company’s OtisKnee settlement had a minimal impact on Knee revenue. In early December, Stryker agreed to pay the U.S. government $79.5 million to settle criminal and civil charges that its OtisMed Corp. subsidiary sold devices used in knee replacement surgery without approval from the FDA.
Such legal drama was lacking in Stryker’s Neurotechnology and Spine segment, which posted an overall 5 percent sales increase to $1.7 billion. Neurotechnology product proceeds climbed 9.4 percent to $1 billion, bolstered undoubtedly by the February launch of the Trevo XP ProVue Retriever, an expansion of the firm’s ProVue Retriever line for acute ischemic stroke treatment. The addition provides additional size and shape options for doctors. Spine sales slipped 0.4 percent to $740 million despite (or perhaps on account of) the March acquisition of CoAlign Innovations Inc., a manufacturer of implants for lower lumbar procedures, and the November debuts of the LITe TLIF Procedural Solution and Aero-AL anchor-based ALIF technology.
The LITe (less-invasive technology) TLIF system combines several innovations, including the LITe Pedical Based Refractor, the ES2 Percutaneous Spinal System, and the AccuLIF Expandable Lumbar Interbody Fusion technology. The LITe Pedical Based Refractor allows for direct visualization and a less invasive working corridor, the ES2 system features an integrated blade screw with built-in reduction, and the AccuLIF technology is designed to help restore segmental lordosis and sagittal balance.
The Aero-AL system compresses across the interbody space. It features patented compression technology designed to draw the vertebral bodies toward the implant to create compressive forces at the implant-to-endplate interface, offering clinicians a more streamlined, less disruptive approach compared with traditional screw-based ALIF technologies.