07.24.12
10. Stryker Corp.
$8.3 Billion
KEY EXECUTIVES:
Curt R. Hartman, Interim CEO, VP & Chief Financial Officer
Lonny J. Carpenter, Group President, Global Quality and Operations
Ramesh Subrahmanian, Group President, International
Kevin A. Lobo, Group President, Orthopaedics
Timothy J. Scannell, Group President, MedSurg & Spine
William R. Enquist, President, Endoscopy
James N. Heath, President, Instruments
William J. Huffnagle, President, Reconstructive
Vivian Masson, President, Osteosynthesis
Mark H. Paul, President, Neurovascular
Bradford L. Saar, President, Medical
Spencer S. Stiles, President, Spine
NO. OF EMPLOYEES: 21,241
GLOBAL HEADQUARTERS: Kalamazoo, Mich.
If that famous 19th-century idiom is true—the one proclaiming imitation to be the most sincere form of flattery—then former Stryker Corp. Board Chairman John W. Brown should be tickled pink. Brown, now retired from the Kalamazoo, Mich.-based orthopedic manufacturer, was quoted by executive management in the company’s most recent annual report.
“Since Dr. Stryker’s first invention, we have been a company of inventors, experimenters and achievers—all united behind the single goal of improving the delivery of healthcare in ways that positively affect the work of caregivers and the lives of patients,” Interim CEO/Vice President/Chief Financial Officer Curt R. Hartman wrote in a four-page letter to shareholders at the start of Stryker’s 2011 annual report. (Hartman assumed the post after former Chairman, President and CEO Stephen P. MacMillan resigned abruptly in February 2012). “I am excited about our future and our prospects for continued growth. To borrow a quote from John W. Brown, Chairman Emeritus, which graced these pages several years ago, ‘I am still long on Stryker.’ “
Hartman has good reason to be “long” on his company: Revenue grew by $1 billion, or 13.5 percent last year (to $8.3 billion) and adjusted net earnings ballooned 12 percent to $3.72, finishing near the high end of executives’ original guidance.
Further cementing Hartman’s rosy outlook on Stryker most likely was the 9.1 percent jump in gross profit and the 5.6 percent rise in net earnings to $1.34 billion in the year ended Dec. 31, 2011. Solid growth in both domestic and international sales indubitably contributed as well—U.S. revenue swelled 9.9 percent to $5.2 billion while international proceeds totaled $3 billion, a 13.4 percent increase in constant currency compared with 2010.
Indeed, Stryker’s financial health was nearly picture-perfect last year, save for a 3.7 percent decrease in operating income (a mere hiccup for all intents and purposes) and a $38 million severance outlay to cover the pensions and health benefits of employees affected by a restructuring that will reduce the company’s global workforce 5 percent by the end of 2012. Stryker initiated the restructuring to realign resources and potentially minimize the impact of the 2.3 percent medical device excise tax that is set to take effect next year.
Stryker also incurred an additional $38 million in asset impairments and other contractual obligations in 2011, but the company recouped that expense (and the severance charge) by negotiating a $99 million settlement with the U.S. Internal Revenue Service (IRS) over the firm’s cost-sharing arrangement with two wholly owned Irish entities.
While notable, the IRS settlement was mere pocket change compared with the additional revenue generated by each of Stryker’s three business segments last year. The most impressive gains came from the Reconstructive unit, which surmounted dramatic changes in the global healthcare environment and lower surgical procedural volume to achieve a 4.5 percent rise in sales.
“Our reconstructive implant business was affected as high unemployment and fears about job security drove down the number of elective surgical procedures,” Hartman told shareholders in the annual report. “For the first time ever, visits to doctors’ offices in the U.S. declined. At the same time, pricing pressures from hospitals and Europe’s debt crisis further curtailed our revenues. Conversely, providers in emerging economies such as India and China are struggling with how to meet soaring healthcare demands. Despite these headwinds, we managed to post a year of solid growth…”
The Neurotechnology and Spine segment was the biggest contributor to that growth, generating an additional 48.4 percent in revenue last year. Executives attributed much of that increase to torrid sales of neurotechnology products throughout the year and the rollout of the company’s next-generation Target detachable coils (manufactured by Boston Scientific Corp., the devices are designed to occlude blood flow in vascular abnormalities).
Neurotechnology product sales more than doubled last year, reaching $750 million, or nearly half of the $1.4 billion in total segment revenue, according to Stryker’s annual report. Spinal product sales climbed 6 percent to $687 million.
The MedSurg segment turned in a solid performance as well, surpassing $3 billion in global revenue (ending the year with $3.1 billion in net sales) for the first time in company history. Patient handling and medical equipment devices recorded the highest sales volume increase (23.8 percent) but the lowest sales total ($722 million). Instruments, conversely, generated the most revenue for the segment—$1.1 billion—but experienced the smallest change in sales volume (9.4 percent compared with 2010 data). Endoscopy devices filled in the financial middle gap, falling behind Medical in sales volume change (9.6 percent) and trailing Instruments in net proceeds ($1 billion).
Stryker’s Reconstructive segment posted some imposing gains in 2011, considering the challenges it has faced since the start of the Great Recession. Hip and knee sales comprised the lion’s share of revenue for the unit, earning $1.2 billion and $1.3 billion respectively. Hip implant sales grew 6.4 percent compared with 2010 while knee replacement sales remained basically flat, rising a negligible 0.7 percent. Trauma and extremities product sales jumped 10.1 percent to $931 million in 2011, helping the unit to accrue $3.7 billion in total proceeds.
While much of Stryker’s growth last year can directly be linked to product portfolio changes and higher demand for its implants, the company also benefited from a spate of savvy acquisitions as well as healthy investments in research and development.
R&D spending, in fact, grew 17.3 percent to $462 million in 2011—the largest increase since the carefree days of extravagance in the early 2000s. “Our research and development spending…is driving our internal innovation pipeline as well as fueling additional innovations in our acquired businesses,” Hartman noted in his shareholder letter. “By optimizing our cash flow capabilities to pursue both focused M&A and investing in internally driven innovation, we believe we are well-positioned to outpace our competitors.”
Stryker certainly outpaced its competitors in acquisitions last year. It kicked off 2011 by closing its $1.5 billion acquisition of Boston Scientific’s neurovascular business, a move that immediately made the company a leader in the increasingly competitive $900 million global neurovascular market.
Other conquests included the $316 million purchase of Malvern, Pa.-based Orthovita Inc., and the $150 million acquisition of French metal alloy manufacturer Memometal Technologies. The Orthovita purchase enables Stryker to complement its existing orthobiologics offering through Orthovita’s signature products, including Vitoss (a bone graft substitute), Cortoss (a bone augmentation material) and the Vitagel surgical hemostat. The purchase also is likely to help Stryker better compete with rivals Medtronic Inc. and Johnson & Johnson in the $5 billion orthobiologics market.
Taking Memometal under its wing, on the other hand, is expected to strengthen Stryker’s presence in the fast-growing market for foot and hand products. It also is likely to help the company capture a greater share of the podiatric surgery sector, analysts said.
Executives targeted privately held Concentric Medical Inc. of Mountain View, Calif., specifically for its array of products that treat acute ischemic stroke, a “brain attack” that cuts off blood flow and oxygen to the human body’s most complex organ. Ischemic strokes are the most common (comprising approximately 87 percent of all “brain attacks”) and generally are caused by blocked arteries in the brain.
Stroke is the fourth-leading cause of death in the United States, killing more than 133,000 Americans annually, according to data from the Centennial, Colo.-based National Stroke Association. About 795,000 U.S. residents suffer a stroke each year.
“The Neurovascular and Concentric acquisitions created what we think of as one of the most exciting stories in medical technology today,” Hartman said in the annual report. “This is a story about Stryker and how we can bring together technologies and treatment capabilities not just to improve lives, but also to help save them. By coupling the hemorrhagic stroke treatment capabilities with Concentric’s devices to treat AIS, Stryker is now a world leader in complete stroke care and is able to bring life-saving technologies to patients.”
Those technologies include the Merci Retrieval System, a minimally invasive catheter-based system designed to retrieve and remove clots in patients who experience AIS; and the DAC family of catheters, which help improve distal neurovascular access and provide additional microcatheter stability closer to the treatment site.
Stryker also rolled out some innovative new non-life-saving technologies last year. Among the standouts was the MDM X3 Modular Dual Mobility Mobile Bearing Hip System, a third-generation device designed to enhance stability and jump distance, which could lead to increased range of motion in certain patients. The MDM X3 system also is applicable to a broader patient population.
Other products that made their market debuts in 2011 included the ShapeMatch Cutting Guides (for use with Stryker’s Triathlon Total Knee System) and the VersiTomic G-Lok implant. The cutting guides, according to executives, use 3-D imaging software to develop a customized pre-operative surgical plan for patients undergoing knee procedures; studies have shown these guides to improve procedural efficiency and reduce recovery times.
The G-Lok provides suspension fixation of soft tissue to bone during reconstruction procedures. Its design creates a spring-like action that allows the device to automatically deploy on the cortical surface. G-Lok’s loop material is made from high performance medical-grade fiber and was created specifically to increase creep resistance as well as enhance strength. The product also comes in a larger size (the G-Lok XL), tacking on an additional 5 millimeters in length and 1 millimeter in width. G-Lok joined Stryker’s VersiTomic Flexible Reaming System, whose piece technology allows for anatomically placed tunnels without the need to hyperflex the knee.
$8.3 Billion
KEY EXECUTIVES:
Curt R. Hartman, Interim CEO, VP & Chief Financial Officer
Lonny J. Carpenter, Group President, Global Quality and Operations
Ramesh Subrahmanian, Group President, International
Kevin A. Lobo, Group President, Orthopaedics
Timothy J. Scannell, Group President, MedSurg & Spine
William R. Enquist, President, Endoscopy
James N. Heath, President, Instruments
William J. Huffnagle, President, Reconstructive
Vivian Masson, President, Osteosynthesis
Mark H. Paul, President, Neurovascular
Bradford L. Saar, President, Medical
Spencer S. Stiles, President, Spine
NO. OF EMPLOYEES: 21,241
GLOBAL HEADQUARTERS: Kalamazoo, Mich.
If that famous 19th-century idiom is true—the one proclaiming imitation to be the most sincere form of flattery—then former Stryker Corp. Board Chairman John W. Brown should be tickled pink. Brown, now retired from the Kalamazoo, Mich.-based orthopedic manufacturer, was quoted by executive management in the company’s most recent annual report.
“Since Dr. Stryker’s first invention, we have been a company of inventors, experimenters and achievers—all united behind the single goal of improving the delivery of healthcare in ways that positively affect the work of caregivers and the lives of patients,” Interim CEO/Vice President/Chief Financial Officer Curt R. Hartman wrote in a four-page letter to shareholders at the start of Stryker’s 2011 annual report. (Hartman assumed the post after former Chairman, President and CEO Stephen P. MacMillan resigned abruptly in February 2012). “I am excited about our future and our prospects for continued growth. To borrow a quote from John W. Brown, Chairman Emeritus, which graced these pages several years ago, ‘I am still long on Stryker.’ “
Hartman has good reason to be “long” on his company: Revenue grew by $1 billion, or 13.5 percent last year (to $8.3 billion) and adjusted net earnings ballooned 12 percent to $3.72, finishing near the high end of executives’ original guidance.
Further cementing Hartman’s rosy outlook on Stryker most likely was the 9.1 percent jump in gross profit and the 5.6 percent rise in net earnings to $1.34 billion in the year ended Dec. 31, 2011. Solid growth in both domestic and international sales indubitably contributed as well—U.S. revenue swelled 9.9 percent to $5.2 billion while international proceeds totaled $3 billion, a 13.4 percent increase in constant currency compared with 2010.
Indeed, Stryker’s financial health was nearly picture-perfect last year, save for a 3.7 percent decrease in operating income (a mere hiccup for all intents and purposes) and a $38 million severance outlay to cover the pensions and health benefits of employees affected by a restructuring that will reduce the company’s global workforce 5 percent by the end of 2012. Stryker initiated the restructuring to realign resources and potentially minimize the impact of the 2.3 percent medical device excise tax that is set to take effect next year.
Stryker also incurred an additional $38 million in asset impairments and other contractual obligations in 2011, but the company recouped that expense (and the severance charge) by negotiating a $99 million settlement with the U.S. Internal Revenue Service (IRS) over the firm’s cost-sharing arrangement with two wholly owned Irish entities.
While notable, the IRS settlement was mere pocket change compared with the additional revenue generated by each of Stryker’s three business segments last year. The most impressive gains came from the Reconstructive unit, which surmounted dramatic changes in the global healthcare environment and lower surgical procedural volume to achieve a 4.5 percent rise in sales.
“Our reconstructive implant business was affected as high unemployment and fears about job security drove down the number of elective surgical procedures,” Hartman told shareholders in the annual report. “For the first time ever, visits to doctors’ offices in the U.S. declined. At the same time, pricing pressures from hospitals and Europe’s debt crisis further curtailed our revenues. Conversely, providers in emerging economies such as India and China are struggling with how to meet soaring healthcare demands. Despite these headwinds, we managed to post a year of solid growth…”
The Neurotechnology and Spine segment was the biggest contributor to that growth, generating an additional 48.4 percent in revenue last year. Executives attributed much of that increase to torrid sales of neurotechnology products throughout the year and the rollout of the company’s next-generation Target detachable coils (manufactured by Boston Scientific Corp., the devices are designed to occlude blood flow in vascular abnormalities).
Neurotechnology product sales more than doubled last year, reaching $750 million, or nearly half of the $1.4 billion in total segment revenue, according to Stryker’s annual report. Spinal product sales climbed 6 percent to $687 million.
The MedSurg segment turned in a solid performance as well, surpassing $3 billion in global revenue (ending the year with $3.1 billion in net sales) for the first time in company history. Patient handling and medical equipment devices recorded the highest sales volume increase (23.8 percent) but the lowest sales total ($722 million). Instruments, conversely, generated the most revenue for the segment—$1.1 billion—but experienced the smallest change in sales volume (9.4 percent compared with 2010 data). Endoscopy devices filled in the financial middle gap, falling behind Medical in sales volume change (9.6 percent) and trailing Instruments in net proceeds ($1 billion).
Stryker’s Reconstructive segment posted some imposing gains in 2011, considering the challenges it has faced since the start of the Great Recession. Hip and knee sales comprised the lion’s share of revenue for the unit, earning $1.2 billion and $1.3 billion respectively. Hip implant sales grew 6.4 percent compared with 2010 while knee replacement sales remained basically flat, rising a negligible 0.7 percent. Trauma and extremities product sales jumped 10.1 percent to $931 million in 2011, helping the unit to accrue $3.7 billion in total proceeds.
While much of Stryker’s growth last year can directly be linked to product portfolio changes and higher demand for its implants, the company also benefited from a spate of savvy acquisitions as well as healthy investments in research and development.
R&D spending, in fact, grew 17.3 percent to $462 million in 2011—the largest increase since the carefree days of extravagance in the early 2000s. “Our research and development spending…is driving our internal innovation pipeline as well as fueling additional innovations in our acquired businesses,” Hartman noted in his shareholder letter. “By optimizing our cash flow capabilities to pursue both focused M&A and investing in internally driven innovation, we believe we are well-positioned to outpace our competitors.”
Stryker certainly outpaced its competitors in acquisitions last year. It kicked off 2011 by closing its $1.5 billion acquisition of Boston Scientific’s neurovascular business, a move that immediately made the company a leader in the increasingly competitive $900 million global neurovascular market.
Other conquests included the $316 million purchase of Malvern, Pa.-based Orthovita Inc., and the $150 million acquisition of French metal alloy manufacturer Memometal Technologies. The Orthovita purchase enables Stryker to complement its existing orthobiologics offering through Orthovita’s signature products, including Vitoss (a bone graft substitute), Cortoss (a bone augmentation material) and the Vitagel surgical hemostat. The purchase also is likely to help Stryker better compete with rivals Medtronic Inc. and Johnson & Johnson in the $5 billion orthobiologics market.
Taking Memometal under its wing, on the other hand, is expected to strengthen Stryker’s presence in the fast-growing market for foot and hand products. It also is likely to help the company capture a greater share of the podiatric surgery sector, analysts said.
Executives targeted privately held Concentric Medical Inc. of Mountain View, Calif., specifically for its array of products that treat acute ischemic stroke, a “brain attack” that cuts off blood flow and oxygen to the human body’s most complex organ. Ischemic strokes are the most common (comprising approximately 87 percent of all “brain attacks”) and generally are caused by blocked arteries in the brain.
Stroke is the fourth-leading cause of death in the United States, killing more than 133,000 Americans annually, according to data from the Centennial, Colo.-based National Stroke Association. About 795,000 U.S. residents suffer a stroke each year.
“The Neurovascular and Concentric acquisitions created what we think of as one of the most exciting stories in medical technology today,” Hartman said in the annual report. “This is a story about Stryker and how we can bring together technologies and treatment capabilities not just to improve lives, but also to help save them. By coupling the hemorrhagic stroke treatment capabilities with Concentric’s devices to treat AIS, Stryker is now a world leader in complete stroke care and is able to bring life-saving technologies to patients.”
Those technologies include the Merci Retrieval System, a minimally invasive catheter-based system designed to retrieve and remove clots in patients who experience AIS; and the DAC family of catheters, which help improve distal neurovascular access and provide additional microcatheter stability closer to the treatment site.
Stryker also rolled out some innovative new non-life-saving technologies last year. Among the standouts was the MDM X3 Modular Dual Mobility Mobile Bearing Hip System, a third-generation device designed to enhance stability and jump distance, which could lead to increased range of motion in certain patients. The MDM X3 system also is applicable to a broader patient population.
Other products that made their market debuts in 2011 included the ShapeMatch Cutting Guides (for use with Stryker’s Triathlon Total Knee System) and the VersiTomic G-Lok implant. The cutting guides, according to executives, use 3-D imaging software to develop a customized pre-operative surgical plan for patients undergoing knee procedures; studies have shown these guides to improve procedural efficiency and reduce recovery times.
The G-Lok provides suspension fixation of soft tissue to bone during reconstruction procedures. Its design creates a spring-like action that allows the device to automatically deploy on the cortical surface. G-Lok’s loop material is made from high performance medical-grade fiber and was created specifically to increase creep resistance as well as enhance strength. The product also comes in a larger size (the G-Lok XL), tacking on an additional 5 millimeters in length and 1 millimeter in width. G-Lok joined Stryker’s VersiTomic Flexible Reaming System, whose piece technology allows for anatomically placed tunnels without the need to hyperflex the knee.
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