Stryker adds $107 million in new orthopedic implant sales for the quarter.
BY EDITOR, JULY 21, 2003
That's a 26% year-over-year rate of revenue growth. On a constant currency basis, the growth rate was 19%. To put this in context, for all of 2003, Stryker's orthopedic revenue growth was 18%, on a constant currency basis 17%. For 2001, the orthopedic revenue growth was 10% and on a constant currency basis, 13%. Bottom line: revenue growth rates are still accelerating. Stryker's operating cash flows in the quarter rose 25% to $108 million. And that's after raising R&D spending 30% to $45 million for the quarter.
Increasing R&D spending 30% is, obviously, an investment in the future. Not once since the Howmedica acquisition in 1999 has Stryker increased R&D by more than 16%. What kind of future is Stryker preparing itself for?
In the current market, unit orthopedic implant volumes are growing at a 5-6% average annual rate. In comparison, the underlying patient population is growing at 2.7%. This in effect leads to revenue growth due to market penetration. The average baby boomer is now 48 years old. The average hip replacement patient is over 65 years old. However, in ten years, the average hip replacement patient is likely to be 60 years old and the average boomer will be 58 years old. Then, we think, this market will become an “expansion” market, where patient volume growth will be the fuel driving overall revenue growth. Believe it or not, sales growth rates will still be double digit.
That, we think, is what Stryker is preparing for with its 30% pop in R&D.
In an aside, we could not help but note comments regarding Stryker in Reuters News Service last week. A Boston based Wall Street analyst said that Stryker's 22% sales increase was due to steady demand from aging baby boomers in need of replacement joints.
In this instance, we disagree. We do not see the evidence of baby boomers contributing significantly to large joint reconstruction sales growth – the largest portion of Stryker's orthopedic revenues. We do find 'boomers' in the spinal implant or sports medicine markets. However, for Grade 3-4 large joint arthritis, we see the greatest changes occurring in patients over 65 years of age and according to our data - rising penetration rates. We also see clinical data that routinely reports 95% success rates 15 years post-op for large joint reconstruction. Patients tell us that they are delighted with both their surgeon and their new hip/knee. Basically, we think that it is a product and system that works really well. A rising number of active, lifestyle driven 60-90 year old patients who have checked the internet, asked their friends, talked to an experienced, confident surgeon, opted for a 1-2 day hospital stay and a new joint. Not baby boomers, not just yet.
