Stryker's strategy for Mako, K2M, sports medicine going forward

Written by Laura Dyrda | May 16, 2019 | Print  |

Stryker Vice President and CFO Glenn Boehnlein and Vice President of Strategy & Investor Relations Katherine Owen spoke at the Bank of America Merrill Lynch 2019 Health Care Conference, describing the current state of the company and projections for the future.

The sales integration of K2M into Stryker is ongoing, and the second quarter will be the first quarter where both sales forces will have a combined sales bag. "I do expect that we'll see mild improvement in Q2 and then marked improvement in Q3 and Q4 to get that mid-single digit [growth in spine] for the full year," said Mr. Boehnlein, according to a transcript from Seeking Alpha

He expects that as the integration continues, the company will see an operating margin expansion of 30 to 40 basis points in the second half of the year. Going forward, Mr. Boehnlein expects most acquisitions to be smaller deals.

"The majority of deals we do, at least numerically, tend to be the smaller deals," he said. "We did the occasional bigger bet. Mako was a bigger bet. Sage, Physio were bigger bets, but I think you'll see a very similar complexation of deals [in the future]."

Stryker acquired Mako Surgical in 2013 for $1.65 billion, and recently rolled out the total joint replacement robotic platform. However, other companies including Zimmer Biomet and Smith & Nephew have entered into the knee and hip robotic space as well. Ms. Owen reported three years after its limited launch of the Mako system, the company has 10 percent market penetration with single in-hospital systems and 90 percent of those facilities are single-robot hospitals.

"We are up to about 10 percent of our customers now having purchased one or more than one robot, but that means there is still just enormous opportunity here," said Ms. Owen. "So I think in the short term, and this is all speculation, but I think in the relatively short term Zimmer is going to be focused on those Zimmer accounts who wanted to be able to say they have a robot because clearly the whole market has shifted from [the idea that] nobody needs a robot."

She believes robotics is where the orthopedics reconstruction market is going, and she welcomes the competition from other companies. "We are the only robot with haptics, and we are seeing in the clinical data really favorable outcomes both clinical and economic," she said. "That bar is going to continue to move. Hopefully later this year we will have the first wave of two-year clinical data coming out."

Ms. Owen also touted Stryker's deep experience selling implants, services and capital equipment as an advantage. The company has a separate sales force for a capital equipment, including Mako. Sales representatives are present in the operating room for every surgery where the Mako device is used, separate from the reconstructive line sales reps. The company may also expand financing options in the future as the customer base expands.

"The initial sales with hospitals or physician champions were big on technology [and] a lot of those were just outright cash sales," said Mr. Boehnlein. "I think now we are getting into situations where hospitals may want to know what are the alternatives, and that's where Flex Finance can offer a range of financing alternatives. We will see rentals. We will see leases. We will see fee per deals. All those types of deals come into play."

The company has also seen an increase of Mako systems in teaching hospitals and the training orthopedic surgeons now have an understanding of the robotic technology.

To end the conversation, Mr. Boehnlein discussed the challenges and opportunities in the sports medicine market. He reported around 75 percent of sports medicine procedures take place in the ASC. Stryker has less than 10 percent market share in the sports medicine market, but its portfolio is getting stronger and the company plans to launch new sports medicine products in the near future.

"Then you couple that with the transition of orthopedic total joints to the ASC, you [can] tie those together and the product categories that we serve around total joints, it really strengthens our position in ASCs and generally makes Stryker stronger in sports and total joints," said Mr. Boehnlein.

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