Rumors of the death of Product Mix price increases greatly exaggerated
BY EDITOR, APRIL 21, 2003
Exhibit A: Stryker
Exhibit B: Interpore Cross
Not to pick on Merrill Lynch... but, and we quote, "Product mix benefit may slow a tad... we suspect this mix benefit has been largely realized." Cementless hip stems, metal on metal components - old news.
And if we go to the numbers?
Stryker last week reported their 1st quarter 2003 results. Overall revenues rose 20%. A changing product mix to more cementless hips, MIS unicompartmentals and other innovative products accounted for 55% (11 of the 20 percentage points) of the reported growth rate. Price increases accounted for 2 percentage points, currency fluctuations 5 and acquisitions 2. Far from receding in importance, product mix was an increasingly important factor for Stryker as this new calendar began.
When asked whether product mix would diminish as a factor in Stryker's 2003 or 2004 growth, CEO John Brown said, in effect, that since it was being driven by innovation and demographics, any prospect of a decline in 2003 or 2004 bordered on the ludicrous.
Orthopedic innovation did not stop with the development of cross-linked polyethylene, metal on metal hip joints or cementless stems. It has, instead, accelerated. Recently approved or soon to come to market are ceramic on ceramic components, MIS hip surgeries, MIS "uni" knees, new mobile bearing knee components and a full range of spinal implant innovation - including new growth factors, powerful biological combination matrices and MIS treatments.
The orthopedic product mix at Stryker, Zimmer, DePuy, Wright, Biomet and Smith and Nephew will change, we think, at an accelerating rate over the course of the coming decade.
Far from declining as a factor in orthopedic revenue growth, the changing orthopedic product mix will grow as the engine driving more effective treatments for arthritis, osteoporosis, degenerative disc disease and such lifestyle injuries as sports traumas.
Remember, roughly 75 million patients in the U.S. suffer annually from an orthopedic malady - that's 3x greater than the number who suffer from a cardiovascular or vascular disease. It is more than the number of cancer or diabetes patients. And in those numbers are three of the most common chronic diseases - arthritis, osteoporosis and back pain. All of which generate an estimated annual cost of over $215 billion in terms of hospital days, lost work time and rehabilitation. The cost of implants in the United States comes to barely 4% of that total.
The industry has a long, long way to go before orthopedic innovation and therefore product mix evolution has run its course.
