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| Stryker CEO Kevin Lobo |
Stryker's ($SYK) stock price has slipped more than 4% since the company signed up to pay $1.7 billion for robot-assisted-surgery outfit Mako Surgical ($MAKO) last week. But despite the tepid reaction, CEO Kevin Lobo believes the deal will help shepherd Stryker into the future of med tech.
The final per-share price tag on Mako represents an 86% premium to its predeal value, a markup that left analysts scratching their heads after Stryker announced its plans Sept. 25. Mako made its name with the Rio system of robotic surgery devices used in orthopedic procedures, and the technology helped it rake in $102.7 million in revenue last year, a 22% increase over 2011.
But while Mako's past growth is impressive, what alarms investors is its mediocre-looking future: The company sold 45 Rio systems in 2012 and is projecting to move between 45 and 48 in 2013. That's not a terribly impressive goal, and it may not even be realistic, as the company only sold 15 in the first half of this year.
However, Lobo maintains that uniting Mako's platform with Stryker's global reach and established relationships will pay off in the long run.
"It'll provide for better implant positioning, more consistent, more reproducible outcomes (and) improve the surgeon experience," Lobo told The Wall Street Journal. "Yes, the price point was fully valued in this deal, but we believe the potential is enormous and it can really provide significant differentiation for us. This is a long-term strategic bet, and I have the full support of our board."
"Fully valued" may be something of an understatement, but Stryker is in the favorable position of being able to make costly long-term wagers. The Michigan giant rode sales growth in all three of its units to $2.2 billion last quarter, a 5% gain over the same period in 2012. The only drag on Stryker's growth has been the spiraling cost of dealing with last year's recalls of two hip implants, and the devicemaker has so far spent about $400 million on related legal fees, revision surgeries and settlements.
- read the WSJ interview (sub. req.)