Dive Brief:

• Stryker ended 2019 with its best quarterly sales of Mako robotic systems since launching the joint surgery platform in 2017. Mako's momentum supported Stryker's 8.1% organic growth to $14.9 billion on the year, the company reported Tuesday, beating consensus fourth quarter revenue expectations by about $20 million. 
• The Kalamazoo, Michigan-based medtech sold 89 of the robots during the fourth quarter, compared to 51 in the prior quarter and 54 a year before. Growing adoption of Mako was a catalyst for cementless knee sales, which Stryker said were used in more than 36% of its U.S. knee procedures in 2019.
• Double-digit gains in neurotechnology and spine products, and nearly 10% growth in the knee and endoscopy businesses, also drove the results, while the trauma and extremities and medical business saw less impressive year-over-year increases.

Dive Insight:

For 2020, Stryker currently anticipates organic sales growth will be between 6.5% and 7.5%, in spite of achieving 8.1% growth in 2019 after laying out that same target range at the outset of last year, and then beating it.  

Analysts seemed split on whether the company was under-promising with the likelihood of over-delivering. 

"Worth noting, Stryker’s initial yearahead outlook has historically proved conservative, suggesting potential room for upside," analysts at Stifel wrote to investors following the call.

Jefferies and Needham were more trusting of the lower growth forecast.

"While [Stryker's] organic revenue growth has accelerated for seven consecutive years, we're skeptical it can do so again in 2020," analysts at Needham concluded. Jefferies analysts wrote to investors following the earnings call Tuesday, "2020 looks like more of the same ... It's all still working but we believe it's priced-in, staying at Hold."

Much of Stryker's enthusiasm stems from Mako's expansion. To date, Stryker said there are about 860 Mako robots installed around the world, with 700 of those in the U.S. The company said it received regulatory approval this month in Japan, where there are currently nine Mako robots, for the partial knee indication, the final addition to its total knee and total hip indications there.

The Japanese market "doesn't tend to spike as fast as the U.S.," CEO Kevin Lobo said, but historically, looking at Intuitive Surgical and other businesses, "it will grow and we are pretty bullish about it and excited for the future." Stryker has further to go in taking share in China, where execs hope the total knee indication for Mako will be approved this year.

Analysts at Jefferies said the Mako stats signal "no perceivable impact from [competition]." Zimmer Biomet, whose Rosa robotic system competes directly with Mako for knee procedures, is scheduled to report earnings Feb. 4. "[T]he numbers and feedback suggest that Zimmer's ROSA launch has had little impact on MAKO momentum, but also that the shift in robotics will likely prove to be more a rising tide rather than a zero sum game."

As for Mako's total hip application, Stryker said procedures grew 40% in 2019. Lobo said surgeons' adoption of Mako for knees has helped spur interest in purchasing robots for hips, and the company has a software update planned for the system during the second quarter.

Quarter-to-quarter Mako progress may become harder to track, as Vice President of Investor Relations Katherine Owen said Stryker will no longer break out Mako figures on each earnings call given that six years have passed since the Mako acquisition.

Regarding a potential future robotic system for spine procedures, Lobo said Stryker is not yet ready to comment on any details or timeline, but noted the company has two technology sources to pull from: Mako and Cardan Robotocs, which it acquired last fall. "We are believers that that is an important part of the future," Lobo said.

Stryker offered few additional details on the pending acquisition of Wright Medical, but said it continues to think the $5.4 billion-total buyout will be completed around the end of the third quarter.

While Lobo characterized Wright's upper extremities additions as addressing Stryker's "last meaningful category leadership gap," he said MedSurg, Neurotechnology and Spine, and Orthopaedics are all "still very, very active hunting grounds for acquisitions."

"The target sizes will be smaller, at least for the next year or two while we digest this one" as the company pays down debt, Lobo said. "We will still keep the lights on in our business development engine. We still have significant opportunities to add to our portfolio."