How Stryker's integration of K2M is going and what to expect in 2019

Written by Laura Dyrda | January 30, 2019 | Print  |

In 2018, Stryker's spine business increased 18 percent to $2.6 billion in sales, amid the company's $1.4 billion acquisition of K2M.

Spine reported double-digit organic growth last year, and during the 2018 earnings report conference call Stryker Chairman and CEO Kevin Lobo said the acquisition meaningfully enhanced the company's competitive position in spine. "While 2019 will largely be an integration year as it relates to K2M, the team is off to an impressive start with notable excitement across our combined selling organizations," he said, as transcribed by Seeking Alpha.

Under the direction of Eric Major, K2M CEO and incoming president of Stryker's spine division, Stryker already announced sales leadership of the combined companies and has individuals in place to lead territories worldwide. "The leadership team is working with the sales teams across the globe to align the sales force with our hybrid selling model and we expect this to be completed in Q1," said Vice President of Strategy and Investor Relations Katherine Owen. "Additionally, the cross-selling plan related to the comprised product portfolio is in its early stages and additional cross-selling progress will be made throughout the year."

The acquisition will be a big part of driving the Stryker's enabling technologies strategy in the next few years.

"The key here right now is with K2M we get an immediate product refresh, we get a strong foothold in the deformity market that has a big impact with the thought leaders in this market," said Ms. Owen. "We have a much more expanded offering across the board and a larger sales force and we also have an expanded 3D-printed offering. And then longer term, I think this positions us well in the out-years and we bring the spine robot to market, but that's years off."

Mr. Major and his team are currently evaluating the pre-planning in Stryker's navigation as well as K2M's preplanning system; they are also examining robotics. Mr. Lobo expects Stryker will have a better idea about enabling technologies in future quarters.

So far, the integration seems to be going smoothly both in the U.S. and internationally. "I'm widely impressed with how fast Eric and his team, which is a mixture of Stryker and K2M people, how fast they've moved on making decisions on the regional managers, on making decisions on territories," said CFO Glenn Boehnlein. "And so once people know who their surgeons are and have access to the full bag of products, the quicker you can do that, the quicker you'll make sure that you can grow the business and not have de-synergies."

Over the next year, the company will keep an eye on U.S. sales force integration, and it aims to maintain sales representative and surgeon relationships. Since there isn't much overlap between legacy Stryker spine and K2M, Mr. Boehnlein feels the future is bright.

"I think the risk is lower for us than what you've seen in previous spine deals, but that is the biggest single risk with this integration," he said. "And each quarter, we'll give you an update on how that's going."

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