Stryker

Stryker ($SYK)
CEO: Kevin Lobo
Based: Kalamazoo, MI
2015 sales: $9.9 billion
2014 sales: $9.7 billion
Change: +2.8%

In the leadup to 2015, Stryker ($SYK) executed an aggressive acquisition strategy, most notably picking up Mako Surgical for $1.7 billion in December 2013. Yet, despite multiple assertions that M&A would be the company's top priority for cash, it backed off, spending just $92 million on M&A during H1 2015 and authorizing $2 billion for share buybacks in March.

Almost one-third of Stryker's 2014 sales came from M&A. With the repurchase allotment now totaling $2.6 billion, CEO Kevin Lobo was quick to head off investor concerns about the potential slowing of acquisition-driven growth. While M&A "will remain the primary focus of our long-term growth strategy, this new authorization recognizes that the strength of our balance sheet is sufficient to enable more significant share repurchases," he said in a statement about the repurchase authorization.

The orthopedics giant acquired just two companies in 2015: Turkey's Muka Metal and Canada's CHG Hospital Beds. Both are hospital bed makers that will boost its Medical and Surgical business. Medsurg made up 39% of Stryker's 2015 sales, while Orthopedics contributed 43% and the smaller Spine unit made up 18%. As for Q4 numbers, 70% of sales came from the U.S., which led growth at 8%. International growth in the quarter was dragged down by "soft" performances in China and Brazil. Meanwhile, Stryker merged its European and U.S. businesses early in the year, which returned a 6% sales growth rate in Europe. It is also funneling cash into Europe with a new innovation center in Cork, Ireland.

While its Mako robot-assisted surgery system has gained some traction for total hip and partial knee replacements, Stryker has yet to launch it as a platform for its main attraction: total knee replacement. Stryker announced a slow rollout of the robot for total knees to allow for the development of a training protocol. Initially slated to launch in 2016, it has now been pushed to 2017.

"2015 was a year of building momentum for Mako's robotic assisted surgery as we continue to leverage our considerable sale and marketing infrastructure to help drive sales," said Katherine Owen, vice president of strategy and investor relations, on the Q4 2015 earnings call. "For 2016, we're focused on continuing to drive adoption with our current indications, which we believe offers considerable opportunity to drive ongoing robot license. This year our efforts will be centered around gaining user experience with key opinion leaders to help ensure an optimal rollout as we look to full commercial release in 2017."

The fourth quarter of 2015 represented the 11th straight quarter of at least 5% organic growth. And as Stryker continues on an acquisition tear in 2016, Lobo emphasizes organic growth as his preferred means to expand the company's smaller Spine unit. Spine has struggled to keep pace with the rest of the company, but is on the upswing, clocking its third straight quarter of growth in Q4 2015.

When asked on the Q4 earnings call if he planned to expand beyond Stryker's three core businesses, Lobo said he would continue to acquire assets that strengthen each of the three core areas. While things were "a bit quieter" on the acquisition front in 2015, he said many deals were being discussed. To date, Stryker announced 5 acquisitions in 2016, a couple of which seem poised to bolster Spine. These were Becton Dickinson's vertebral compression fracture products and SafeWire, which makes minimally invasive spinal surgery products. The other deals include Sage Products, which makes disposable devices to reduce hospital-acquired infections; Stanmore Implants, a limb salvage company; and Valeant's ($VRX) Synergetics, which made neuro devices for distribution by Johnson & Johnson ($JNJ).

Finally, the devicemaker is buying big into 3-D printed implants, ponying up between $400 million and $450 million to build a 3-D printing manufacturing facility in 2016. Lobo called the 3-D printed offerings a "shot in the arm" for sales reps on the call. Then-CFO Bill Jellison emphasized that for the "foreseeable future," the focus will be on innovative new products and that Stryker is not planning to replace its core offerings with 3-D printed versions.

"We've got a lot of products, a lot of momentum, dedicated sales force with … a specialty focus that's really helping to drive that 5% to 6% growth we're targeting," Owen said. Add to this the company's new joint replacement patient support program, which can help hospitals get CMS reimbursement for surgeries. "We've rounded our portfolio completely and so that enables us to do complete hospital conversions, something that was impossible with Stryker 5, 6 years ago," Lobo said.

-- Amirah Al Idrus (email | Twitter)

For more:
Stryker buys oncology limb salvage implant upstart for $52M
Stryker rolls out joint replacement patient program to help hospitals appease CMS
Stryker augments Spine business with BD vertebral compression fracture acquisition
Cautious Stryker pushes launch of total knee replacement on its Mako robot to 2017
Stryker receives FDA clearance for 3-D printed spinal fusion implant
In tuck-in deal, Stryker to nab neurology devices made by Valeant on behalf of J&J
Stryker to buy disposable device maker for $2.8B to reduce hospital-acquired infections
Stryker buys into 3-D printing, to build new printing facility in 2016
Stryker: M&A still top priority for cash, but spent only $92M in first half on acquisitions
Stryker to buy Turkish partner in its second hospital bed acquisition in 2015

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