Becker's Spine Review

18 DEVICES & IMPLANTS Stryker's M&A strategy for the next 5 years: Where is spine headed? By Laura Dyrda S tryker made significant inroads into the spine market by acquiring K2M for $1.4 billion in late August, 2018. Since then, the company has focused on the integration and its growth strategy for the coming years, even as the spine market seems to flatten out. Medtronic CEO Omar Ishrak said in the company's second quarter fiscal year 2019 fi- nancial report conference call that the spine market has stabilized. Stryker has also report- ed stagnant spine sales growth, and in some cases decline, over recent quarters. "Spine is challenged in the core spine area. We're seeing some stabilization there, al- though, pricing pressure remains pretty high," said Stryker Vice President of Strate- gy and Investor Relations Katherine Owen during an interview at the ISI HealthCONx Conference in Boston, held Nov. 28., 2018 Her quotes were transcribed by Seeking Al- pha. "Our spine business, that's been seeing very good growth, but it's more on the core spine business that has been challenged. Ob- viously, we've made the pending acquisition of K2M. So, I think we'll be in a much better position from a competitive standpoint." While K2M's core spine business has been down, Medtronic reported core spine growth. e interviewer asked Ms. Owen how much of that difference in core spine performance was a market dynamic for Stryker as opposed to other companies. ere are more than 600 spine companies in the market, which drives pricing pressure, especially on the commod- itized products. "I think the market overall feels stable, but it'd be way too premature to say we're going in. I think too there's some kind of acceleration in spine, but it is the largest segment of orthope- dics. ere is a tremendous unmet need for patients and real opportunity for innovation," she said. e K2M acquisition will refresh Stryker's core spine offerings with a longer product cy- cle, and Stryker reported double-digit growth with its 3D-printed technologies. "But [with the acquisition] we'll get that immediate re- fresh and we also get a much stronger pres- ence in deformity, which really drives a lot of the surgeon key opinion leaders and deci- sion making," said Ms. Owen. "It's a very nice complement to our portfolio, and it gives us great leadership. We're bringing in Eric Ma- jor as CEO, and he's going to run our spine business for us. So, I think we'll be well-po- sitioned there, but we're not making any as- sumptions that we're in the beginning of an accelerating spine market." Ms. Owen said while the company has re- ceived some pushback against the K2M ac- quisition, it was less than the company ex- perienced when acquiring Mako Surgical. She expects in 2019 Stryker will focus on integration, and then the company expects to see acceleration in the spine space to drive the business above its overall organic growth. "e next five years is going to look very sim- ilar to the [mergers and acquisitions] of the past five years," said Ms. Owen. "Each of our divisions has dedicated people, looking at tar- gets. If you look at the deals we've done over the last 10 to 12 years, the vast majority are relatively small [to] midsized tuck-in deals." More recently, the company has had big deals exceeding $1 billion to $2 billion of Sage, Physio and K2M. Will there be more in the future? "I would assume over the next five years, there will be some of those, whether or not we ever do anything transformative, it would have to be incredibly financially compelling and incredibly strategically compelling," said Ms. Owen. e company has been committed to acquir- ing knowledge on 3D printing, with a dedi- cated printing facility in Iowa that it adds printers to on a near monthly basis. But, it won't necessarily drive growth in Stryker's knee and spine implants business. "I don't know when we'll get to a lot of [research and development] being used and focused on 3D-printed products," she said. "It will nev- er be the entire portfolio; it's always going to be those products that you can't manufacture any other way." n Smith & Nephew to acquire Centrix Orthopaedics in $105M deal: 4 things to know By Mackenzie Garrity S mith & Nephew agreed to purchase Centrix Orthopaedics for up to $105 million. Four things to know: 1. Per the agreement, Smith & Nephew will pay $50 million in cash upfront and up to $55 million over the next five years, contingent on financial performance. 2. Centrix Orthopaedics develops the NovoStitch Pro Meniscal Repair System, which is compatible with Smith & Nephew's Fast-Fix 360 Meniscal Repair System. 3. The NovoStitch Pro will be sold through Smith & Nephew's sports medicine sales as well as Centrix Orthopaedics' sales force. 4. The deal is expected to close in early 2019. "We are excited by the opportunities to take this new option to our customers," Smith & Nephew's President of Sports Medicine and ENT Brad Cannon said. "No other company is better positioned to support changing clinical practice as the standard for meniscal treatment pivots from resection to repair." n

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