WSJ Interview with Stryker’s CEO

The Wall Street Journal has an interview today with Kevin Lobo, the CEO of Stryker (SYK). This is an interesting time for Stryker. The company just made a big bet on robotics by buying MAKO Surgical. The beginning of Obamacare also presents a significant challenge for Stryker with the new 2.3% excise tax on device sales. On the other hand, more insured people could bring greater demand for Stryker’s products.

Here are some highlights from the interview:

WSJ: Is the Affordable Care Act a net positive or a net negative for Stryker?

Mr. Lobo: For Stryker, the device tax is clearly a negative. It’s 2.3% of sales, roughly $100 million a year, which represents roughly 20% of our [research-and-development] budget. It’s a very significant burden. Clearly, it does have an impact in jobs, not just within Stryker, but within the broader industry.

The move away from pay-for-service to paying for outcomes, that’s a positive trend. There are many sensible elements of this legislation that I think will have long-term benefits, but clearly the med-device tax is the one area that is very punitive for us.

WSJ: Are you personally advocating for a repeal?

Mr. Lobo: Yes. Stryker and in conjunction with AdvaMed as part of the AdvaMed trade association, we are advocating for repeal. It’s a tax and it’s a punitive tax, especially in tax on revenue.

It also disproportionately hurts Stryker vis-à-vis my competitors, because 65% of our sales are in the United States. It’s a U.S. tax, and we have a tremendously high-performing business in the U.S., so it’s disproportionate to us.

WSJ: Next year, it’s expected that millions more people in the U.S. will have health insurance under the new health-care law. Is that a good thing or a bad thing for device makers?

Mr. Lobo: For our [hospital] bed business, there could be a benefit. Within the Affordable Care Act, there’s a provision for patient satisfaction. If hospitals don’t achieve a certain level of patient satisfaction, they’ll get a reduction in their Medicare reimbursement. A bed has a lot to do with a patient’s satisfaction, when they talk about their experience.

We also believe the knee [replacement] business could benefit as well, because that’s a more elective procedure. We’re hopeful that those patients will start to come into the health-care system and the knee volumes would grow.

WSJ: Are there a lot of uncomfortable beds out there in U.S. hospitals?

Mr. Lobo: Well, it’s not necessarily that they’re uncomfortable, but a bed is not just a bed anymore. Beds have an amazing amount of software in them. Today, many hospitals will actually have a [person] in the room with [an older or unconscious] patient to make sure the patient doesn’t fall off the bed. We have technology that, if the patient moves, can send a signal to the nurse station, and the nurse can quickly arrive on the scene.

WSJ: The device industry is criticized for a lack of transparency in pricing. A hip in one city costs one price, and a hip across the river costs 20 times as much. Are those criticisms fair?

Mr. Lobo: When I look at our price bands, we don’t see that kind of variation. That may have existed many years ago, but…. our price band is actually quite compressed right now. If you look at the device itself, it typically is less than 25% of the cost of the total procedure. We sometimes get tarnished [for] that variation, and it gets ascribed to the device when it really shouldn’t.

WSJ: Some analysts have questioned the high premium you paid for MAKO Surgical and Stryker’s stock price fell 2.8% the day the deal was announced. What makes you think that the deal is worth the price?

Mr. Lobo: It’ll provide for better implant positioning, more consistent, more reproducible outcomes [and] improve the surgeon experience. Yes, the price point was fully valued in this deal, but we believe the potential is enormous and it can really provide significant differentiation for us. This is a long-term strategic bet and I have the full support of our board.

WSJ: Your predecessor recruited you from Johnson & Johnson to Stryker in 2011. When you joined the company, did you ever think that you would be CEO?

Mr. Lobo: Yes, I did. I didn’t expect that it would happen this quickly. The goal really was to come in, to be the group president of orthopedics, to run that business, to grow that business, and to have an impact on Stryker. I did have aspirations. [Former CEO Stephen MacMillan] and I talked about that when I was hired, that this would be something that could be in the future. It just occurred a little earlier than planned.

WSJ: What’s been the most difficult part of having the top job?

Mr. Lobo: The biggest challenge of being the CEO of a med-tech company is just the demands on your time—the sheer demands that come at you, whether it’s from investors, from analysts, from employees, from the media. It’s unlike anything I’ve experienced previously.

Posted by on October 2nd, 2013 at 1:03 pm


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