KEY EXECUTIVES:
Stephen P. MacMillan, Chairman, President and CEO
Jeanne M. Blondia, Vice President and Treasurer
Lonny J. Carpenter, Group President, Global Qualityand Operations
Andrew G. Fox-Smith, Group President, International
Curt R. Hartman, VP and Chief Financial Officer
Kevin Lobo, Group President, Orthopaedics
Timothy J. Scannell, Group President, MedSurg and Spine
Elizabeth A. Staub, VP, Regulatory Affairs and Quality Assurance
Anne Mullally, VP and Chief Compliance Officer
NO. OF EMPLOYEES: 20,036
GLOBAL HEADQUARTERS: Kalamazoo, Mich.
According to American journalist David Brinkley, “A successful man is one who can lay a firm foundation with the bricks others have thrown at him.”
The economy has thrown plenty of bricks at industry over the past few years. Add some regulatory and reimbursement challenges to the stones being hurled and it became (is) quite a pelting. It seems, however, that Stryker Corp.’s foundation is pretty firm. Talk to the company’s leadership, and they’ll tell a story that’s close to the perfect medtech win-win scenario: clinical success and a healthy (and growing) profit picture.
Net sales for the fiscal year (ended Dec. 31) were $7.3 billion, an 8.9 percent increase compared with 2009. Domestic sales totaled $4.8 billion for the year, up 11 percent, and international sales hit $2.5 billion, an increase of 5.1 percent. Increased sales of hips, knees and trauma implants helped to push worldwide revenue from orthopedic implants to $4.3 billion, up 4.6 percent. According to Stryker, it claimed approximately 19 percent of the worldwide reconstruction market in 2010 (hips, knees, extremities and bone cement), behind Zimmer Holdings Inc. and Johnson & Johnson. Global sales from the company’s MedSurg division (surgical equipment and navigation systems, endoscopic and communications systems, and patient handling and emergency medical equipment) were $3 billion, up 15.7 percent. Net earnings were approximately $1.3 billion, representing a 15 percent increase compared with 2009.
Net earnings per share increased 13 percent to $3.33 in 2010, exceeding the company’s early projections. But, according to Stephen P. MacMillan, chairman, president and CEO of the Kalamazoo, Mich.-based company, it was his firm’s ongoing focus on operational cash flow—which exceeded $1.5 billion for the first time—that fueled Stryker’s progress in 2010.
MacMillan also noted that acquisitions boosted top-line growth.
“In 2010 we augmented our unique sales footprint by leveraging our balance sheet through several key acquisitions that both strengthen our core product offering while also allowing us to expand into fast growing adjacent medical technology markets,” he said. “Combined with the continued double-digit increase in our annual dividend and ongoing share repurchases, we believe these moves optimized shareholder return and position our company for long-term growth.”
The company’s purchases in 2010 varied in size and product line.
By far, the blockbuster buy—though not purely orthopedic—was for Boston Scientific Corp.’s neurovascular business for $1.5 billion (including $100 million in milestone payments). Boston Scientific was competing with—and was starting to lag a little behind, according to some analysts—other medtech titans such as St. Jude Medical Inc., Medtronic Inc. and Johnson & Johnson (with its recent purchase of Synthes Inc.) in the in the billion-dollar neurovascular market. The neurovascular business of BSX had 2009 sales of $348 million. The unit manufactures devices for the treatment of neurovascular disease, including detachable coils, stents, microcatheters and guidewires.
"The acquisition of Boston Scientific Neurovascular is an important strategic move as it positions us as a leader in the highly attractive neurovascular space, which we believe is well positioned to remain one of the fastest growing and most innovative sectors in medical technology,” MacMillan said at the time of the announcement. “Today, through our Instruments, Orthopaedics and Spine divisions, Stryker offers complementary neurosurgery products to many of the same customers called on by Boston Scientific Neurovascular. Going forward, the proposed acquisition allows us to substantially broaden our product offerings and relevance to these customers and over time, we believe will afford us with a unique competitive advantage. We are highly enthusiastic regarding the prospects for Boston Scientific Neurovascular’s next generation portfolio of coils and other diagnostic and therapeutic devices, which are expected to provide the opportunity to regain momentum and return to market leading growth.”
The company also acquired privately held Gaymar Industries Inc. for $150 million cash and Porex Surgical, a division of Fairburn, Ga.-based Porex Corp., for an undisclosed sum. Orchard Park, N.Y.-based Gaymar specializes in support surface and pressure ulcer management solutions as well temperature management technology, while Porex Surgical makes bioimplantable porous polyethylene products for use primarily in reconstructive surgery of the head and face. The purchase of Porex complements Stryker’s product offerings in the craniomaxillofacial (CMF) market. In 2010, Stryker estimated that it held 16 percent of the $6.2 billion trauma and CMF market behind Synthes (now J&J), which claimed a solid 38 percent.
On the divestiture side, Stryker inked a $60 million deal to sell its bone growth products unit to Japan-based Olympus Corp. at the end of the 2010 fiscal year. The OP-1 product family, made by Hopkinton, Mass.-based Stryker Biotech, includes the OP-1 Implant, OP-1 Putty, Opgenra and Osigraft, for use in orthopedic bone applications. The companies’ agreement includes the transfer of Stryker’s Lebanon, N.H., manufacturing facility.
While new purchases mean new products and profits, the fiscal year also offered a little closure. In March, the company settled several ongoing issues with the U.S. Food and Drug Administration (FDA). Quality system compliance issues finally were resolved at its Mahwah, N.J., manufacturing facility after a re-inspection by the FDA in 2009 and following the implementation of corrective actions. The company initially received a warning letter from the agency in 2007.
“The resolution of the warning letter is another important step in demonstrating our firm commitment to significantly transforming our quality systems throughout our organization,” MacMillan noted. “The investments we have made, and will continue to make, are resulting in solid progress toward our goals.”
The company also had received a warning letter from the FDA regarding compliance with certain quality system requirements at its reconstructive implant manufacturing facility in Cork, Ireland, in 2007, and yet another in 2009 related to compliance issues for one of its CMF implant products that previously was sold through its CMF distribution facility in Portage, Mich. Following FDA re-inspection of the Ireland facility and additional corrective actions at both the Ireland and CMF facilities, the company got the green light from the FDA in 2010.
Since receiving its first letter in 2007, Stryker has been working to transform and streamline its quality systems. Where it once had 23 different quality systems across 23 different manufacturing locations, the company took steps to implement a single organization-wide process for quality and compliance.
The effort was a $200 million project that, according to MacMillan “added deep technical expertise, regulatory insight and individual ownership of specific quality processes.” He said that rather than focusing solely on correcting deficiencies in quality processes, Stryker focused on driving systemic improvements. The company’s chief executive noted that the firm’s quality work is “far from done” but that “intensity and focus” will continue. He pointed to the lifting of the company’s three remaining warning letters that the program was working.
So far, for fiscal 2011, Stryker continues to build upon is solid foundation brick by brick.
In April, the company named former Johnson & Johnson executive Kevin Lobo as group president of the company’s newly formed Neurotechnology and Spine sector (combining the recently purchased neurovascular division of Boston Scientific and Stryker’s existing spine unit). Lobo joined Stryker after nearly a decade at J&J, most recently as worldwide president of Ethicon Endo-Surgery, a $4 billion division with more than 5,000 employees. His time with the Neurotechnology and Spine division didn’t last long, however. At the end of May, Lobo was named group president of Orthopaedics. He replaced Mike Mogul, who joined DJO Global Inc. as CEO.
In May, Stryker continued in acquisition mode (taking advantage of its strong cash position,) adding to its newly formed Neurotechnology and Spine unit with the acquisition of Orthovita Inc. for about $316 million. Orthovita makes biologics used in spine surgery. Stryker paid $3.85 a share for Orthovita, a 41 percent premium above the company’s closing price when the deal was announced. Orthovita competes in the $5 billion market for orthobiologics, which are proteins and other agents designed to boost the body’s healing process. It is a leader in synthetic bone grafts. The deal should help Stryker better compete against larger rivals Medtronic and Johnson & Johnson, while Stryker’s marketing machine should bolster sales of Orthovita’s product lines, analysts said. Orthovita, which generated sales of $95 million in 2010, also makes biosurgery products such as Vitagel, which are designed to control intra-operative and post-operative bleeding. In 2010, Stryker claimed only 9 percent of the $7.2 billion worldwide spinal market dominated by Medtronic. It clearly is pushing for a bigger slice of that pie.
Net sales for the second quarter (most recent at press time; ended June 30) reflect the company’s forward momentum. Net sales were almost $2.1 billion, representing a 16.3 percent increase compared with the second quarter of last year. Net sales grew by 7.2 percent (6.2 percent thanks to acquisitions). Worldwide sales of orthopedic reconstructive products were $916 million, representing an increase of 7.4 percent. Higher shipments of hip, trauma and extremities implant systems were offset by lower shipments of knee and other implant systems, the company reported. Sales of medical/surgical products were $773 million, a bump of 15 percent. Neurotechnology and spine product sales were $356 million, an increase of 52.6 percent. Excluding the impact of acquisitions, sales increased 7.4 percent.