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Stryker Reports 2Q:06 Earnings, States DOJ Probe Narrowed BY ARIELLA P. GOLOMB, MD, JULY 24, 2006

Thursday, Stryker Corporation reported its 2Q:06 operating results. Net sales increased 9.0% to $1.33 billion, slightly below analysts' expectations of $1.34 billion. Operating income rose 16% and net income more than 20%. Diluted EPS for 2Q:06 increased 20.9% to $0.52, slightly above analysts' $0.51 expectations.

Sales for the second quarter by region and division were lead by MedSurg, and break down as follows:

The orthopedics division, Stryker's largest division, reported a 6.6% increase for the quarter (7.3% constant currency). Globally, Knees reported 10% sales growth, Trauma 11%, CMF 8%, Hips flat, and Spine 13%. The company announced that they will be rolling out a hip resurfacing system in international markets in 2007 and alluded to the fact that there will be hip news 2H:06 other than hip resurfacing, which may somewhat revive the hip business.

During the Q&A session, the company reported that the DOJ investigation subpoena has recently been narrowed in scope to certain products or geographies. The company stated that the investigation reflects a certain business they are in, rather than the whole company.

Stryker also highlighted an expanded emphasis on R&D, increasing their R&D spending 13% for the quarter, focusing mainly on biotech and spine. They do not expect the current pipeline OP-1 product to come before a FDA panel before next year and the launch will most likely be a 2008 event.

Stryker commented that JNJ's explanation that last year's higher growth rates were driven by a bolus of patients who were no longer given access to Cox-2 inhibitors and were instead electing to have surgery was "plausible". However, Stryker stated the biggest second quarter issue they saw was the effect of April's Easter holiday on sales. The company feels good about the market gaining steam moving ahead and they feel that while pricing stabilizing, it continues to be a tough, but not "cratering" environment.