Sick Economics

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Stryker & Boston Scientific stock

By Tammy Tran, Biomedical Analyst 


Stryker Corporation ($SYK) is a medical device company that was founded in 1941. Since then, they have become a worldwide leader in medical technology. They create innovative products and services in orthopedics, medical and surgical, and neurotechnology and spine that help improve patient and hospital outcomes. 

There are many factors that explain Stryker’s excellent performance and ability to differentiate themselves from other companies that have not been as successful. One of these factors is that Stryker is a diversified company, with multiple and complementary sources of revenue. Stryker offers about 60,000 different products, with one of the most diversified portfolios within the MedTech industry. As mentioned above, they are able to bring in sales from orthopaedics, medical and surgical, and neurotechnology and spice. The orthopaedics segment alone brings in 37% of the company’s net sales, which primarily focuses on the Mako Robotic-Arm Assisted Surgical System along with hip and knee joint implants. The medical and surgical segment is their largest source of revenue at 44%, which sells products such as surgical equipment, endoscopic systems and other medical devices. Lastly, the neurology and spine segment brings in the remaining 19% of sales with instruments for neurosurgical, neurovascular, ENT and spinal interventions. Their diversity of products allows them to maintain a large presence and continuous source of customers. They are able to sell not just in the country but across the globe and even to third-party dealers and distributors.Therefore, a company that only possesses one product that serves as their only major source of revenue will not be able to expand and become a leader in the market. 

Another factor that makes Stryker so successful is that they are present in markets that have extremely large growth potential. In order to be successful, there has to be favorable market dynamics and relative positioning. Stryker aims their market at the aging global population, international expansion, and robotic surgery. Geriatric populations in developed countries are expected to increase, meaning that the industry is expected to grow at a CAGR of about 5.6% up to 2024, meaning that worldwide sales would reach $595 billion. Robotic systems is also a powerful emerging industry that results in greater precision and faster recovery for surgeries. As a result, the worldwide surgical robotics market is expected to enlarge at a CAGR of 8.5-10.5% through 2024. It is hard for non-dominant companies to compete in these markets since there are such high barriers to entry such as patents, high R&D costs, industry relationships, etc. Although the competition against large MedTech companies may be tough for smaller companies, the buyers are always looking for lower prices and higher quality. Any newcomers in the industry have to be able to show enough evidence that their product is better than their competitors before they achieve any widespread acceptance. This is definitely a tough process for small startup companies and where a lot of them end up struggling.

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In addition to looking at future growth potentials, it is also important to look at a company’s history to gauge their success, showing that they have a strong foundation of risk management and capital allocation. In Stryker’s case, they have been able to consistently increase sales over the past 10 years. Even beyond that, they have had 40 consecutive years of revenue growth since going public in 1979. Unlike other companies, Stryker has been able to avoid stagnation and continually grow not just as a whole, but by each segment of their company. 

Although there are other factors that contribute to a company’s success, the ones mentioned above are crucial to a successful startup and expansion. A smaller medical device company that has the potential to reach Stryker’s success is Boston Scientific Corporation ($BSX). Boston Scientific Corporation was founded in 1979 and develops, manufactures, and markets medical devices for use in medical specialties worldwide. Similar to Stryker, Boston Scientific operates through 3 different segments: MedSurg, Rhythm and Neuro, and Cardiovascular. They offer various devices to: diagnose and treat GI and pulmonary conditions, treat urologic and pelvic conditions, and cardiac implants and pacemakers.This is really important to note because the three different segments allow them to bring in revenue from different areas, which ensures business growth. Those three segments bring in about 98% of the company’s consolidated net sales with MedSurg bringing in 31%, Rhythm and Neuro bringing in 27.8% and cardiovascular bringing in 39.1%. The other 2% are from specialty pharmaceuticals which is not significant to the company’s growth

In addition, looking at Boston Scientific Corporation’s past, they have reported continuous sales growth within the last ten years. Although there is a recent decline, a majority of it is due to the pandemic. Their performance in the stock market in the past ten years has also exceeded expectations. The 10 year return rate of the NYSE composite index was 6.83%. For Boston Scientific Corporation, it was 20.3%. This means that the Boston Scientific Corporation has returned 197% higher compared to the NYSE composite. They have also made several valuable acquisitions, and plan on launching over 20 new products within the next year, which is going to accelerate their global market share.

For the future, their plan is to target markets in order to consistently grow sales faster than the average market revenue growth, by expanding their leadership in each of their segments. Arterial disease has a $3.2B market with about a 5% growth, venous disease has a $1.4B market with about 8% growth and interventional oncology has a $1.6B market with also about 8% growth. This means Boston Scientific has over a $6B market with large opportunities for expanding into high-growth adjacencies. Boston Scientific’s Revenues could grow by 30% from the estimated $10.0 billion in 2020 to around $13 billion by 2023, representing a growth rate of about 9% a year. There are many reasons why this prediction is strongly favored right now. First of all, there have been deferred surgeries due to the pandemic between Q1 and Q2 that have affected Boston Scientific’s sales. Since these surgeries are only delayed, they will eventually have to be attended to. Boston Scientific is in charge of making several products and devices for these procedures and as the surgeries are attended to the company will see increased sales. After the decline from Covid-19, and the company begins to see strong earnings from past investments in R&D and product development, their sales will begin rising again and are expected to improve their Net Margins by over 20% levels by 2023 or sooner. In addition, they are also globalizing R&D centers in countries all over the world such as China, India, Costa Rica and Ireland. Therefore, with so many opportunities for expansion and growth for Boston Scientific in the near future, they have the potential to reach if not surpass Stryker’s level of success. 

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