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WIKI ANALYSIS
Stryker (NYSE: SYK) is a medical technology company that manufactures orthopedic implants that are used in joint replacement surgeries, trauma, spinal and craniomaxillofacial surgeries. The company also manufactures surgical power tools and medical furniture such as stretchers and medical beds.
Aging baby boomers will double the number of Americans that are over 65 by 2030. The expanding population of elderly represents a revenue opportunity for Stryker because older Americans are much more likely to require joint replacement surgeries. Improved technology has resulted in longer lasting orthopedic implants that are more viable for individuals in their 50s and 60s, expanding the overall market. In the past doctors have preferred limiting implants to older patients, for fear that younger patients would require multiple replacements due the short life spans of the implants. [1]. Growing obesity in the United States provides an additional tailwind for the company. Like the elderly, the obese are more likely to require joint replacement, because the excess weight puts additional pressure on their joints.
Company Overview
Business and Financial Metrics
First Quarter 2010 Results[2]
Stryker's net sales increased 12.4% to $1,799 million for the first quarter of 2010. Net earnings for the first quarter of 2010 were $322 million, representing a 14.4% increase over net earnings of $281 million for the first quarter of 2009. Diluted net earnings per share for the first quarter of 2010 increased 12.7% to $0.80 compared to $0.71 for the first quarter of 2009.
Domestic sales were $1,173 million for the first quarter of 2010, representing an increase of 12.6%, as a result of higher shipments of Orthopaedic Implants and MedSurg Equipment. International sales were $626 million for the first quarter of 2010, representing an increase of 11.9%.
Worldwide sales of Orthopaedic Implants were $1,077 million for the first quarter of 2010, representing an increase of 10.7% based on higher shipments of hips, knees, trauma and spinal implant systems.
Worldwide sales of MedSurg Equipment were $722 million for the first quarter of 2010, representing an increase of 15.0% as higher shipments of endoscopic and communications systems and patient handling and emergency medical equipment as well as sales growth through acquisitions were partially offset by lower sales of surgical equipment and surgical navigation systems.
Business Segments
SYK has two main operating segments: Orthopedic Implants and MedSurg Equipment.
Orthopedic Implants (59% of 2010 sales)
This segment includes implants (knee, hip, spine, shoulder, and others), hip screws, and other products which are used in joint replacement, trauma, and other surgeries.
Orthopaedic Implants are designed and manufactured by Stryker Orthopaedics, Stryker Osteosynthesis, Stryker Spine and Stryker Biotech and consist of such products as implants used in joint replacement, trauma, craniomaxillofacial and spinal surgeries; bone cement; and the bone growth factor OP-1. Artificial joints are made of cobalt chromium, titanium alloys, ceramics or ultrahigh molecular weight polyethylene and are implanted in patients whose natural joints have been damaged by arthritis, osteoporosis, other diseases or injury.
MedSurg Equipment (41% of 2010 sales)
This segment includes products such as surgical equipment used for drilling or making small cuts in bone, surgical navigation systems which help surgeons use electronic imaging to align instruments better and accurately track where the instruments are relative to a patient's anatomy, and patient handling like stretchers and other products.
Through Stryker Instruments, the Company offers a line of surgical, neurologic, ENT and interventional spine equipment that is used in surgical specialties for drilling, burring, rasping or cutting bone in small-bone orthopaedics, neurosurgical, spine and ENT procedures; wiring or pinning bone fractures; and preparing hip or knee surfaces for the placement of artificial implants. Stryker Instruments also manufactures an array of different attachments and cutting accessories for use by orthopaedic, neurologic and small-bone specialists.
Acquisitions and Divestitures
In November 2009, the Company acquired OtisMed Corporation, a software technology firm. On December 31, 2009, the Company acquired Ascent Healthcare Solutions, Inc.[3]
In 2009 Stryker acquired Ascent Healthcare Solutions, Inc. for $525 million in an all cash transaction. In 2007 the Company completed the sale of its outpatient physical therapy business, Physiotherapy Associates, for $150 million in cash.
Trends and Forces
Medicare's failure to coverage of premium products can hurt SYK's sales
Health coverage is an important determining factor when patients and doctors choose among various treatment options. Medicare coverage is particularly significant in that it directly affects over forty million Americans, how much patients have to pay for Stryker products, and how much Stryker will receive in payments from Medicare. Currently, Medicare and other third party payors are emphasizing more cost-effective products and therapies, by limiting the reimbursement they will cover. Furthermore, even if a new SYK implant or product is cleared by the FDA, Stryker faces limited demand until Medicare and other payors approve it for reimbursement. For example, SYK's artificial spine discs haven't received broad adoption because Medicare does not reimburse for this expensive procedure on a national basis.
Older generations require more joint replacements
The number of the US citizens over age 65 is expected to nearly double by the year 2030. Stryker and other orthopedic companies are benefiting from this aging demographic since knee and hip joints tend to wear out and need replacement with age. In 2004 the average age of knee replacement patients was 67 in 2004. Similarly, the average recipient of a new hip was 66.
New technology widens Stryker's target market
New technology has increased the life of popular orthopedic implants like hip and knee replacement, by nearly 100%. [5] In the past doctors hesitated to perform replacement surgery on younger patients, because they feared that patients would outlive the useful lives of the replacements, necessitating multiple surgeries to repair or replace worn out implants. Longer lasting implants have led to an increase in the numbers of patients in their 50s and early 60s that are getting implants.
Obesity places extra stress on joints
In 2006, more than a third of American adults or about 72 million were obese. The hip and knee implant markets are in particular affected by the prevalence of obesity -- increased weight puts significantly more pressure on joints than they are designed for, making them wear out faster.
Competition
Stryker is one of five leading competitors in the United States for orthopaedic reconstructive products. The four other leading competitors are DePuy Orthopaedics, Inc. (a subsidiary of Johnson & Johnson), Zimmer Holdings, Inc., Biomet, Inc., and Smith & Nephew plc.
In the trauma implant segment, Stryker is one of five leaders competing principally with Synthes, Inc., Smith & Nephew Orthopaedics (a division of Smith & Nephew plc), Zimmer Holdings, Inc., and DePuy Orthopaedics, Inc.
In the spinal implant segment, the Company is one of five leaders, competing principally with Medtronic Sofamor Danek, Inc. (a subsidiary of Medtronic, Inc.), DePuy Spine, Inc. (a subsidiary of Johnson & Johnson), Synthes, Inc., and Zimmer Holdings, Inc.
In the craniomaxillofacial implant segment, Stryker is one of four leaders, competing principally with Synthes, Inc., Biomet Microfixation, LLC (a subsidiary of Biomet, Inc.), and KLS Martin L.P.
In the surgical equipment segment, Stryker is one of three leaders, competing principally with Medtronic, Inc., and Conmed Linvatec, Inc. (a subsidiary of CONMED Corporation). These companies are also competitors in the international segments, along with Aesculap-Werke AG (a division of B. Braun Melsungen AG), a large European manufacturer.
In the surgical navigation segment, Stryker is one of six principal competitors, including Medtronic Surgical Navigation Technologies (a division of Medtronic, Inc.), BrainLAB Inc. (a subsidiary of BrainLAB AG), AESCULAP AG & Co. KG (a division of B. Braun Melsungen AG), Radionics, Inc. (a subsidiary of Integra LifeSciences Corporation), and GE Medical Systems Navigation and Visualization, Inc. (a subsidiary of General Electric Company).
In the arthroscopy segment, the Company is one of four leaders, together with the principal competitors Smith & Nephew Endoscopy (a division of Smith & Nephew plc), Conmed Linvatec, Inc., and Arthrex, Inc.
In the laparoscopic imaging products segment, the Company is one of three leaders, together with the principal competitors, Karl Storz GmbH & Co. (a German company) and Olympus Optical Co. Ltd. (a Japanese company).
The Company’s primary competitor in the patient handling segment is Hill-Rom Holdings, Inc. In the specialty stretcher segment, the primary competitors are Hausted, Inc. (a subsidiary of STERIS Corporation), Hill-Rom Holdings, Inc., and Midmark Hospital Products Group (a subsidiary of Ohio Medical Instrument Company, Inc.). In the emergency medical services segment, Ferno-Washington, Inc. is the Company’s principal competitor.
On the implants side of the business, Styker faces competition from firms such as:
- JOHNSON & JOHNSON (JNJ) - the world's 2nd largest and most broadly based manufacturer of health care products, with a significant share of the consumer, pharmaceutical, medical treatment and diagnostic device markets.[6]
- Zimmer Holdings (ZMH) - leading manufacturer of reconstructive orthopedic implants.[7]
- Medtronic (MDT) - is one of the world's largest medical device companies, with a specialty in cardiac rhythm management.[8]
- Smith & Nephew SNATS (SNN) - British-based medical devices company with Orthopedics division headquarters in Memphis, TN., with specialty in hip and knee implants and orthopedic trauma products.
- Biomet (BMET) - medical device manufacturer based in Warsaw, IN, specializes in reconstructive products for hips, knees and shoulders, fixation devices, orthopedic support devices, dental implants and operating room supplies.[9]
In the MedSurg segment, SYK mainly competes with:
- Hillenbrand Industries (HB) (Hill-Rom division) - leading manufacturer of medical technologies and death care products such as burial and cremation caskets.[10]
- STERIS (STE) (Hausted subsidiary) - leading manufacturer of healthcare, life sciences, and sterilization products.[11]
| Company | Total Sales | Net Income |
|---|---|---|
| Stryker | $5,406 M [12] | $778 M [13] |
| Medtronic (MDT) | $12,299 M [14] | $2,802 M [15] |
| JOHNSON & JOHNSON (JNJ) | $53,194 M [16] | $11,053 M [17] |
| Zimmer Holdings (ZMH) | $3,496 M [18] | $835 M [19] |
| Hillenbrand Industries (HB) | $2,024 M [20] | $191 M [21] |
References
- ↑ BNET.com "New Technology Allows Joint Replacement on Young Patients," November 27, 2007
- ↑ Stryker Reports 12% Sales Growth, 14% Net Earnings Growth for Quarter Ended March 31, 2010
- ↑ Reuters: Stryker Corporation Profile
- ↑ 4.0 4.1 4.2 4.3 Stryker Fact Book 2009
- ↑ BNET.com, "New technology allows joint replacement in younger patients," November 19, 2007
- ↑ JNJ 2006 10k
- ↑ ZMH 2006 10k
- ↑ MDT 2007 10k
- ↑ BMET 2006
- ↑ HB 2007 10k
- ↑ STE 2007 10k
- ↑ SYK 2006 10k, Pg. 42
- ↑ SYK 2006 10k, Pg. 42
- ↑ MDT 2007 10k, Exhibit 13
- ↑ MDT 2007 10k, Exhibit 13
- ↑ JNJ 2006 10k
- ↑ JNJ 2006 10k
- ↑ ZMH 2006 10k
- ↑ ZMH 2006 10k
- ↑ HB 2007 10k
- ↑ HB 2007 10k
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