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Product / Company Performance

Stryker Reports 3Q18 Revenue of $1.6BB, +4.2% vs. 3Q17 -

By Mike Evers, ORTHOWORLD

Stryker’s 3Q18 orthopaedic growth was driven, in part, by knee reconstruction where their Mako robot has allowed them to take share in competitive accounts. The company posted revenue of US $1,689.7MM, +4.2% vs. 3Q17. Leadership expects this momentum to carry forward and lead to a strong 4Q18.

 

Mako Continues to Gain Traction, Gets Favorable Clinical Data

Stryker expanded their installed Mako base to over 600 total systems worldwide. Of the 37 Mako robots installed in 3Q18, 50% were installed in competitive accounts where the company has little or no market share. Utilization rates also continue to increase, with 3Q18 up 40% year-over-year. Nearly all Mako units in the field are now upgraded to the Total Knee Application.

Stryker also received favorable clinical data for Mako total knee in two recent studies. The Bone & Joint Journal compared early postoperative functional outcomes and time to discharge between conventional jig-based total knee arthroplasty and Mako-assisted total knee application. The study found a statistically significant improvement in decreased pain and reduced hospital stay times compared to conventional knee surgery. In the second study, the Hip and Knee Society found that Mako Total Knee patients had episode of care cost $2,391 less than conventional knee surgery as well as having 33% less 90-day readmissions. These results also reached statistical significance.

Stryker’s new hip cup, TRIDENT II, continued to ramp up in the third quarter. With 1,000 instrument sets in the field, the company is now fully-stocked and leadership expects “a continued moderate sequential uptick” in their hip business.

Trauma and extremity performance were both hampered by supply disruption. The company expects these disruptions to be mostly resolved in 4Q18. Additionally, Stryker observed market softness in trauma. Kevin A. Lobo, Chairman and CEO, said, “The market did slow down a little bit. We saw that, frankly, since June. That has happened in the past. It’s been transitory, but we still feel very good about that business.” New product launches for trauma and extremity are set for 2019 and may offset the headwinds seen in these segments.

ORTHOWORLD estimates 3Q18 and YTD segment sales and growth on an as-reported basis, as follows:

  3Q18 3Q17 $ Change % Change
Joint Reconstruction $897.9 $857.1 $40.8 4.8%
Knees $510.7 $474.8 $35.9 7.6%
Hips $356.8 $354.1 $2.8 0.8%
Extremities $30.4 $28.3 $2.1 7.6%
Spine $182.0 $174.4 $7.6 4.4%
Trauma $349.6 $342.0 $7.7 2.2%
Arthroscopy/Soft Tissue Repair $128.4 $122.5 $5.9 4.8%
Orthobiologics $55.1 $53.1 $2.0 3.7%
Other $76.7 $73.3 $3.5 4.7%
Total  $1,689.7 $1,622.4 $67.3 4.2%

 

  YTD18 YTD17 $ Change % Change
Joint Reconstruction $2,754.3 $2,595.5 $158.8 6.1%
Knees $1,561.7 $1,445.8 $115.9 8.0%
Hips $1,099.9 $1,065.0 $35.0 3.3%
Extremities $92.6 $84.7 $7.9 9.3%
Spine $549.2 $520.1 $29.1 5.6%
Trauma $1,074.6 $997.8 $76.8 7.7%
Arthroscopy/Soft Tissue Repair $385.2 $363.2 $22.0 6.1%
Orthobiologics $169.0 $159.5 $9.5 6.0%
Other $227.4 $217.2 $10.2 4.7%
Total  $5,159.7 $4,853.3 $306.4 6.3%

 

Double-Digit Growth in Emerging Markets

Styker’s international sales, just over 26% of all 3Q18 revenue, were driven by double-digit growth in emerging markets. Leadership called out China, Latin America, Turkey and Russia as regions that were particularly strengthened. Additionally, the company hired Ms. Meenakshi Nevatia as Managing Director for India to get performance back on track there. Of the 37 Mako units placed in the quarter, 11 were international installs. Foreign currency exchange had a -1% impact on sales. ORTHOWORLD estimates Stryker’s orthopaedic revenue by geographic region as follows.

Geographic Region 3Q18 3Q17 $ Change % Change
US $1,241.0 $1,177.6 $63.3 5.4%
Ex-US $448.7 $444.72 $4.0 0.9%
   EMEA $210.9 $209.0 $1.9 0.9%
   Asia Pacific $193.0 $191.2 $1.7 0.9%
   Other $44.9 $44.5 $0.4 0.9%
Total  $1,689.7 $1,622.4 $67.3 4.2%

 

Mako, Spine have Room to Grow

The third quarter traditionally exhibits seasonal softness for Stryker, with the fourth quarter being their strongest, per leadership. The company expects hospitals to budget for more reconstruction procedures and capital purchases at year-end. ORTHOWORLD projects Stryker 2018 orthopaedic revenue of $7,119.2MM, +6.8% vs. 2017.

Mako, in particular, is primed for further growth. With the Total Knee Application upgrades complete, reps can now resume selling and installing units. This effort is driven by the synergies among Stryker’s capital salesforce, implant salesforce and Flex Financial group that helps facilities find workable means to afford a robot. Additionally, the company expects approvals for Mako TKA in China and Japan next year.

The acquisition of K2M represents Stryker’s focus on growing their spine business. The company pointed to the sales-focused leadership of K2M CEO Eric Major as a major component of the cultural fit. Leadership expects the culture and infrastructure similarities between the companies to minimize integration problems. The acquisition is also attractive to Stryker because of the minimal customer overlap and K2M’s R&D engine that produces a steady flow of new products. As Kevin Lobo stated, “Within spine, innovation always wins.”

 

Net Earnings

3Q18 R&D spend reflects a drive for a steady cadence of new products. The company is examining possible spine and shoulder applications for Mako but didn’t have specific information to share about the status of those projects. Stryker’s Cost Transformation for Growth (CTG) initiative focused on key projects like indirect purchasing and shared services. However, benefits from CTG were offset by additional investments in the initiative as well as write-offs of legacy software assets.

3Q18 Amount ($MM) % Sales
Sales $3,242.0  
   Administrative -$1,242.0 38.3%
   Cost of Goods -$1,087.0 33.5%
   Other -$102.0 3.1%
   R&D -$221.0 6.8%
Net Earnings  $590.0 18.2%

 

Sources: Stryker; ORTHOWORLD estimates. All revenue figures presented in USD $MM.

Mike Evers is ORTHOWORLD’s Market Analyst. He can be reached by email.

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