Stryker Corporation’s 2015 second quarter orthopedic sales rose 6.2% organically, (excluding currency swings) to $1.035 billion. Sales in the U.S. grew 8.3% during the quarter.
U.S. spine sales growth of 9% was a noted “bright spot” by company CEO Kevin Lobo. Overall organic spine sales climbed 4.1%. Trauma and extremities rose 10.8%, while knee and hip sales grew by 3.6% and 3.7%, respectively.
VP of Strategy and Investor Relations Katherine Owen told analysts on July 23, 2014 that U.S. hip sales grew 5.7% in the quarter, while U.S. knee sales increased 2.8% against a 7% comp last year. Internationally sales were a positive 1.1% in hips in constant currency and increased 5.3% in knees in constant currency.
But the big winner was in trauma and extremities.
Source: Stryker Corporation
Trauma and Extremities
Trauma and extremities had a great quarter with sales in the U.S. increasing 18%, reflecting approximately 30% growth in the company’s U.S. foot and ankle business, including strong double-digit organic growth.
“Trauma and extremities has been a multi-year story. If you look at 2012, 2013, 2014, each of those years in the U.S. we grew at least 15%. And based on the first half of this year, it’s safe to say it looks like we’re going to deliver another 15% or more growth. That’s four years in a row, ” said Lobo.
Lobo added that foot and ankle sales been a huge contributor to that. “It’s been a market development story, so hard to predict. It’s, frankly, exceeded our expectations when we created the foot and ankle business unit.” He noted that Stryker is still a smaller player in upper extremities and sees that as a potentially exciting area for the future.
Spine
Spine, said Lobo, is the one business that’s “turned the most and the most recently.” The growth of spine sales is attributed to numerous product launches and new R&D leadership. “If you look over the past two years, we’ve launched more than we did in the last four years. If you looked in the first half of this year, we’ve launched more in any six-month period than we’ve launched, probably, in the last three, four, five years.”
“Innovation is rewarded, ” said Lobo. “You grow through innovation and new products. And that’s a truism across large and small players in spine. So, the innovation is alive and well in spine. Our management team has been strengthened over the past year or two. So, I feel very good about our prospects with spine going forward.”
The growth in spine sales was attributed to recent product launches such as AccuLIF from the CoAlign acquisition. Lobo added the company has a “robust” pipeline of new products that will be launched over the next few years.
MAKO Turns Corner
Lobo and Owen had a lot to say about the sales of MAKO robots.
“We turned the corner about the midpoint of last year and you’ve seen sustained improvement, ” said Lobo. He expects that to continue and added that sales force integration is “now really humming.” “We’ve got the integration challenges that we had early on last year behind us, ” added Owen.
The company placed 13 robots globally, representing a second quarter record. This follows the first quarter record of 9 and a fourth quarter of 2014 record of 20 robot placements. Of the 13 in the second quarter, two were placed in Australia, which represents the company’s first sales in a country where Stryker commands a market leading position in hips and knees.
The company initiated robot upgrades during the quarter, which Owen said, “will enable Stryker hip implants to start being used on the robot in Q3. The updates to the installed base will continue throughout 2015 and into next year. As you are aware, our total knee 510(k) application was submitted to the FDA late last year, and we’ve responded to the Agency’s questions with no current change for our target for clearance in 2015.”
Owen cautioned analysts not to get too excited about expected FDA approval for MAKO’s knee indication sometime in 2015. “Keep in mind it is going to be three or four quarters before we’ve gone through the necessary training and upgrades and work that’s going to be needed to be done to make sure that that launch is truly optimized. So, it will not be a light switch when we get that indication.”
Bundling
In response to a question about product pricing pressure resulting from Medicare’s proposal to bundle hip and knee payments, Lobo said the company didn’t see “any different dynamic in pricing” from initial bundle pilot programs. He expects pricing pressure to continue, but points out that, payers, as we’ve reported, will begin to focus on the large post-acute costs, which outpace the cost of implants.
“We see this as a trend that really doesn’t disrupt the implant pricing. We’ll have the same pressures we had before. If anything, it might start to drive them to rationalize towards less suppliers of implants. In that world we like that. Vendor consolidation to us is an environment where we feel we’re well positioned to win.”
Guidance Raised
Yes, Stryker had a good quarter. So good in fact that Lobo and team increased 2015 organic growth guidance by half a percent to 5.5-6.5% from 5-6%.
