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Stryker Acquiring K2M

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Stryker (SYK) announced its intent to acquire K2M for ~US $1.4BB in cash by late 4Q18. For 2017, K2M posted revenue of $249.3MM, +8.8% vs. 2016. Mr. Eric Major, K2M’s Chairman, CEO and President, is expected to lead Stryker Spine as President following the transaction’s close, taking over from Mr. Bradley Paddock.

K2M will become a wholly-owned SYK subsidiary.

Based on 2017 spine revenue, by ORTHOWORLD estimates, this transaction would rank SYK among the top three players in the segment, stepping over NuVasive—thus, changing the lineup to #1) Medtronic, #2 DePuy Synthes, #3) Stryker.

For 2Q18, ORTHOWORLD estimated SYK’s spine revenue at $190.5MM, +10.6% vs. 2Q17 (minus orthobiologics). In the earnings call, leadership attributed that double-digit growth to Tritanium interbody implants and interventional products (e.g. vertebral augmentation, vertebroplasty and radiofrequency ablation, etc.), affirming that core spine product sales were challenged by market conditions and mid-single-digit price declines.

Leadership also noted that investment was underway to refresh that core spine line.

Now, SYK gains access to K2M’s robust portfolio of complex and minimally invasive products that includes EVEREST, the CASCADIA 3D-printed lateral 3D interbody, the MOJAVE PL 3D-printed expandable spacer, YUKON OCT posterior fixation and NILE proximal fixation—all cited as growth driver’s in K2M’s 2Q18 call.

Also, K2M’s Lamellar Titanium Technology, used in products like CASCADIA interbodies and MOJAVE spacers, complements Stryker’s Tritanium. Starting with a titanium powder, Lamellar-based spinal devices are grown through selective application of a high-energy laser beam, creating structures with a surface roughness of 3 to 5 microns that supports bony integration throughout an implant.

K2M was founded in 2004 to design, develop and commercialize its proprietary complex spine technologies and MIS techniques. The company has leveraged these competencies into the Balance ACS (BACS) platform, launched in 1Q17, which addresses each anatomical vertebral segment with a 360-degree approach in the axial, coronal and sagittal planes. Of note, K2M received FDA 510(k) clearance for BACS Patient-Specific devices, a fifth module in the BACS platform that supports creation of pre-contoured rods, rails and templates. This is the company’s first patient-specific indication.

Of recent significance is a partnership with Brainlab to co-market future navigated K2M spinal systems for open and MIS procedures, which are also compatible with Brainlab spinal navigation. In the 2Q18 call, K2M leadership reported that the Brainlab partnership had surpassed some critical milestones, like completion of product engineering work, development of a targeted strategy to launch upon regulatory clearance and training of field management and clinical experts. Expect commercialization by end of 2018.

In 1Q18, K2M announced full-year revenue guidance in a range of to $283MM to $287MM.

Financial advisors on the transaction were Citigroup Global Markets on behalf of Stryker, with Piper Jaffray & Co. serving for K2M.

Sources: Stryker Corp.; K2M Group Holdings, Inc.; SEC.gov, ORTHOWORLD Inc.