Stryker Corporation

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Stryker Corporation

2725 Fairfield Road
Kalamazoo, Michigan 49002
U.S.A.
(616) 385-2600
Fax: (616) 385-1062

Public Company
Incorporated: 1946
Employees: 3,951
Sales: $557 million
Stock Exchanges: NASDAQ
SICs: 3841 Surgical and Medical Instruments; 3842 Surgical
Appliances and Supplies

The Stryker Corporation is a leading niche producer of medical supplies, including endoscopic systems, orthopedic implants, powered surgical instruments, hospital beds and stretchers, and physical therapy centers. Founded by a surgeon in the early 1940s, Stryker remained a small family-owned business for nearly 40 years. In the late 1970s, the company went public under new management, and Stryker subsequently achieved a remarkable record of steady growth, facilitated by a strategy of cautious innovation, the perfection of existing technologies, and expansion of its markets to include customers on five continents.

Stryker was founded in 1940 by Dr. Homer Stryker, an orthopedic surgeon who practiced medicine in Kalamazoo, Michigan. In 1941, Stryker hired his first employee, and began to market his first two products, a walking heel, and a frame that allowed a patient to be turned in bed. The young company’s most important product came four years later, when Dr. Stryker introduced a device to cut plaster casts, easing their removal, which would soon become standard throughout the orthopedics field. In the year following this breakthrough, 1946, Stryker incorporated his fledgling business.

Over the years, the company brought several other medical advances to market. In 1955, Stryker introduced its 1300 Series of electric motor powered instruments for use in orthopedic surgery. Also that year, L. Lee Stryker, Homer’s son, took over the management of the company. In 1959, Stryker introduced the Circ-O-lectric Bed, which made long-term immobilization less uncomfortable for patients. Invented by Homer Stryker, this bed featured a mattress suspended between two large metal rings, which allowed the angle of the bed to be adjusted to a wide variety of different settings. Gradually, Stryker earned a reputation as a leader in its field.

Five years later, Stryker continued its innovation in the hospital bed field when it introduced a hydraulic stretcher, its Model 390. In 1966, Stryker updated its electric motor powered surgical instruments with its 1400 Series of pneumatic powered instruments. The following year, the company came out with a line of very small, micro-powered instruments, for use in more delicate surgery.

In the 1970s, Stryker continued to offer customized stretcher beds for use in hospitals and nursing homes. The company’s InstaCare/SurgiBed Series was introduced in 1974. Stryker also introduced its first pulsating lavage, a pump used to clean wounds during surgery. In 1975, Stryker embarked on its first drive to expand its markets beyond U.S. borders.

Stryker remained a family-owned and operated company until 1977. At that time, L. Lee Stryker, who had been president and chief executive of the company, died. He was replaced by John W. Brown, an executive with the Squibb Corporation, another medical equipment company. When Brown joined Stryker, the company was a middle-of-the-pack medical equipment maker, which sold products primarily to the American market. Brown agreed to become president of the company with the understanding that Stryker’s board of directors would authorize a stock offering to the public, so that the company could upgrade its product line to become more competitive and also step up its expansion beyond the United States.

One of the first initiatives Stryker undertook at Brown’s direction was the company’s entry into the arthroscope market. Brown was attending a medical conference when he saw a display of orthopedics instruments that allowed surgeons to make a small cut in the skin, and insert a narrow, optical tube into the knee to inspect soft tissue and determine whether surgery was necessary to repair an injury. Previously, surgeons had needed to make a six-inch diagnostic incision in order to inspect ligaments and muscles, which did not show up on X-rays. In addition to permitting diagnosis of knee injuries, arthroscopic tools could also be used during operations to repair problems.

At the time that Brown discovered arthroscopic devices, several other companies had already entered the field. Nevertheless, Stryker proceeded with its own product development. Stryker made it a policy to perfect or modify existing technology, rather than make risky pathfinding breakthroughs. Assured that there was a future in arthroscopy, the company created its own three-inch long, three ounce microcamera, which transmitted images from inside the body to a video screen in the operating room. This made surgery easier and also allowed operations to be videotaped, as a safeguard against malpractice suits. Sports medicine proved a fruitful ground for sales of arthroscopic equipment, and the technique gained free publicity with each big-name athlete who underwent the procedure. Soon, sales of arthroscopic equipment were growing at a rate of 25 percent per year, providing one-fifth of Stryker’s earnings.

In accordance with its agreement with Brown, Stryker announced its initial public offering of stock at the end of March 1979, when shares in Stryker were offered on the market for $6 each. In May 1980, Homer Stryker died at the age of 85, leaving the title of company chairperson to Brown. Stryker’s principal product became its motor-powered surgical instruments, and the company made the bulk of its profits by replacing instruments used in the United States and also looked for strong growth in demand for its devices overseas.

Later that year, the company used the proceeds of its stock sale to purchase the Osteonics Corporation, a start-up company which had created a unique design for artificial hip joint replacements. With replacement hips produced by Stryker’s competitor, surgeons had to speculate on which size would fit the patient before the surgery took place. Stryker’s product, however, allowed surgeons to switch different sizes of the hip socket once part of the implant had been put in place. This allowed for greater flexibility and a better fit with the existing bones. Stryker began to market its universal head replacement for artificial hips in 1980, and the company was able to seize a significant part of the market for artificial joints from its larger competitors.

During this time, Stryker sought to market products to fulfill narrow needs within the medical community. “We’re a ‘niching’ company,” Brown explained to the New York Times, noting that “We have special niches in our marketplace. As long as you’re offering a superior product, there’s going to be a place for you.” By 1983, Stryker’s continued growth had driven the value of its stock from $6 to $39.50. The following year, however, concerns about changes in health care regulations had caused that price to drop by half. Although Stryker’s arthroscopic and bone implant businesses were growing steadily, 40 percent of its income was derived from more conventional medical equipment, such as stretchers. In the uncertain climate, demand for these standard items had flattened.

Nevertheless, in the mid-1980s, Stryker began to expand its product line through a series of acquisitions. On the first day of 1985, the company purchased Favro B.V., which it renamed Temfa Stryker. Also in that year, Stryker began to fund a long-term effort to create human osteogenic protein, a substance that helped the body to create bone. In 1986, Stryker acquired the video camera properties of SynOptics, Inc., augmenting its operations in the arthroscopic optics field. By the end of the year, Stryker’s sales had reached $121 million, yielding earnings of $10 million.

In March 1987, Stryker purchased Adel Medical Limited, a privately-held company that manufactured hospital maternity beds. Paying $8.5 million for Adel, Stryker hoped to strengthen its standing in the specialty bed market. One month later, Stryker also acquired the Hexcel Medical Corporation. Hexcel, based in California, was developing carbon composites and polymers that could be absorbed by the body for use in orthopedics devices. This purchase was intended to complement Stryker’s Osteonics Corporation and provide a boost to its efforts in the reconstructive bone products market. Stryker believed that demand in this market was shifting from products made of metal alloys to devices made of polymers, which provided superior elasticity, and better compatibility with the body’s own tissues. Stryker’s osteonics group introduced its first total knee implants in 1987.

While Stryker augmented its osteonics operations, the company’s medical supplies branch experienced difficulties and started to slip in growth. This unit, which accounted for 20 percent of Stryker’s revenues, produced specialty beds and stretchers purchased by hospitals. One of its beds, an electric bed designed for use in intensive care units, was found to have some flaws in its design, and, from 1987 to 1988, Stryker redesigned the entire bed and replaced all existing units of the product.

In 1988, Stryker moved into a new field, when it began to distribute the dental implant line of Quintron, Inc., in conjunction with its own line of powered oral surgery instruments. Two years later, Stryker bought Driskell Bioengineering, the subsidiary of Quintron which made these products. With this move, the company strengthened its standings in the rapidly growing dental implant market. By the end of 1988, Stryker’s earnings had risen to $15.9 million on revenues of $178.6 million.

The following year, those figures rose again, as Stryker recorded sales of $225.9 million and earnings of $19.2 million. By this time, Stryker had seen 13 straight years of earnings growth that topped 20 percent, as the company stuck to its strategy of entering niche markets and developing superior products for those needs. “What we’re good at is ascertaining the needs of the markets and responding to them,” Brown told Investor’s Daily. In doing so, Stryker relied on a combination of internal development and small, carefully-chosen acquisitions. Among Stryker’s strongest lines of business were its osteonics products, where it held eight percent of the $900 million market.

Stryker continued its strong growth in 1990. The company’s endoscopy division, which had previously concentrated on devices for use in joint surgery, began to market its products for use in abdominal surgery as well, primarily for gall bladder removals, representing a dramatic increase in the potential market for these tools.

At the end of 1990, Stryker received notification from the U.S. Food and Drug Administration (FDA) that it would be permitted to sell a new hip stem implant, which was coated with a special substance that aided bone fusion. This product had been in use in Europe for four years and had been undergoing tests in the United States for two years. During this time, Stryker’s financial results were strengthened by the settlement of a patent infringement suit, in which Zimmer Inc. paid Stryker $10 million. Among Stryker’s more innovative offerings during this time were physical therapy facilities, called “work hardening centers,” which the company began to open in the southeastern United States.

Stryker funded further product innovations with $20.7 in research spending in 1990 alone. “We grow by cranking out product innovations,” Brown told The Detroit News, observing that the company experienced “not revolutionary changes, but evolutionary ones, like you see in the auto industry. The idea is to improve performance. We’re not always the first on the market with a product, but we’re seldom last. What we try to do is get a good feel for whether something is a good idea or not. A lot of new designs fail. We like to stay one fad behind.”

That policy, combined with a long-term research effort, paid off for Stryker in November 1991, when the company received FDA approval to begin clinical trials in humans of its new bone-growth implant. This device, a joint project of Stryker Biotech and Creative BioMolecules, Inc., a Massachusetts biopharmaceutical research company, combined OP-1, a human recombinant osteogenic protein, with a carrier that could be absorbed by the body. If successful, this device, a natural extension of the company’s hip and knee replacement business, promised to product high sales for a long time to come.

By the end of 1991, Stryker was enjoying a strong boom in growth, as the market for endoscopic tools took off. Sales of Stryker’s endoscopy division grew by more than 60 percent to $70 million. Stryker had become the second largest American maker of arthroscopic tools, as well as the second largest maker of powered surgical instruments, the second largest manufacturer of hospital emergency room beds, and the fourth largest producer of orthopedic implants. In addition, the company had made substantial progress in its effort to become an international supplier, as 31 percent of its sales came from areas outside the United States. Stryker ended 1991 with sales of $364.8 million, which yielded earnings of $33.1 million.

Stryker continued to expand its product line in 1992, when the company’s French subsidiary purchased the spinal implant business of Dimso, S.A., and its subsidiaries in France and Spain, known collectively as the Dimso Group. Stryker paid $13 million for these properties. This company became a part of Stryker’s European subsidiary.

Another Stryker alliance with a European company went awry a year later, when Haemocell, a British maker of a blood-cleansing machine, terminated Stryker’s exclusive American license to distribute the product, after sales targets failed to be met. Despite this setback, Stryker ended 1993 with sales of $557 million, and earnings of $60 million. For the seventeenth year in a row, Stryker’s management had met its target of 20 percent annual growth in earnings.

Among the initiatives Stryker took in order to meet this target was the culmination of a two-year program to produce a general hospital bed, which the company named the MPS Primary Acute Care Bed. Along with the company’s initiative in spinal implants, this marked the second new area of business Stryker entered in 1993, in an effort to assure future growth, despite general anxiety about high health care costs. In addition, Stryker restructured its manufacturing process for artificial hips and knees, in order to increase output and lower costs by eliminating several layers of management. To produce future savings, Stryker also invested in high-tech manufacturing equipment for its other divisions.

In June 1994, Stryker announced that it had purchased 31 percent of its Japanese distribution partner, Matsumoto Medical Instruments. This followed the company’s August 1993 purchase of 20 percent of Matsumoto, bringing Stryker’s share to 51 percent. The company paid $90 million for controlling ownership in the company, which was based in Osaka. By the middle of the year, Stryker was predicting 1994 sales of $640 million. With its remarkable record of growth and a strong portfolio of products, Stryker appeared well-situated to continue its strong success in the coming years.

Principal Subsidiaries

Osteonics Corporation; Physiotherapy Associates, Inc.; Stryker Deutschland GmbH (Germany); Stryker France; Stryker Japan K.K.; Stryker Far East, Inc.; Stryker Canada, Inc.; Stryker Sales Corporation.