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10Q. Good afternoon. Welcome to Stryker's Analyst Meeting. For those of you that are attending on the webcast, I look forward to sharing with you a very exciting day filled with physicians as well as business updates. You can see here on our agenda that we have a number of physicians that will be joining us, some panels and a spotlight on 3 of our divisions: neurovascular, trauma and extremities and endoscopy.
And you'll also hear from our CFO and our Head of Global Quality and Operations. And at the end, as we have done in the past, we're going to have a product fair. And in that product fair, we will not only get to see a lot of products, including our Mako robot, but you'll be able to interact with our management teams as we have a number of our division presidents that are in attendance today. I always like to start with our mission and values. We launched this 5 years ago, and it is a rallying force among all the divisions and regions of Stryker.
We've had some additions to our leadership team over the past year. As you know, Lonnie Carpenter and David Floyd retired from Stryker. We have Tim Stammell promoted to President and Chief Operating Officer as well as 2 new group presidents, Andy Pierce and Spencer Stiles. We also have Bjoy Sagar, who's been with the company for about 4 years. His role has expanded to include digital and a much bigger emphasis on digital in partnership with our divisions.
And then about 6 months ago, Biju Menon joined the company, and he is the Head of Global Quality and Operations, and he'll be presenting to you a little bit later on. Some of those changes created opportunities for promotions. We have 2 new division presidents, Dylan Crotty and Brent Ladd. They are both here in attendance and will be at the product fair, and you can look forward to interacting with them. We also have Brad Saar, our President of Medical and Stuart Simpson, our President of Joint Replacement, who are in attendance and will be at the product fair as well later today.
This is our company strategy, which we unveiled at the beginning of the year. It's frankly the same strategy we've had for a number of years, but we've really laid it out on paper that we share internally and externally with 4 key pillars: customer focus, innovation, globalization and cost transformation. This is also a common slide that you've seen in the past just emphasizing the diversity of our business, but yet very, very strong businesses within our 3 segments. And across our businesses, we aim to be a leader, not only fast growing businesses, but also strong leadership presence, number 1 or number 2 in just about every piece of that pie. This slide shows the history of growth of our company.
So since we went public in 1979, we have grown sales consecutively every single year without fail, 38 consecutive years of positive sales growth. And of course, this year will be another one of those years based on the guidance we provided. You've seen the strong top line momentum for our company with organic sales growth at the high end of the med tech every year for the past 6 or 7 years. How do we do this? Really, our decentralized operating model is a key element of that success with dedicated sales marketing, R and D and business development in every one of our divisions, very strong product pipelines across our divisions.
We've made significant bets in R and D and now have leadership positions because of those bets in robotics, 3 d printing, advanced imaging and a number of other areas. Very disciplined and active business development, which I'm sure you've seen. 2018 actually is our 6th consecutive year of accelerated organic sales growth, 6 straight years of every year accelerating organic sales growth. And we feel very well positioned to deliver a strong top line again in 2019. If you look at the last 2 years, our organic sales growth has been north of 7%.
And based on the visibility that we have today, we would expect a similarly strong year in 2019. As well as the strong organic sales growth, we also are focused on driving operating margin expansion. And here, I've listed just a number of the items that helped contribute to the strong off margin expansion that you've seen this year. You can see product lifecycle management, procurement, progress on shared services and modernizing and standardizing our IT systems across the company. And in a little box in the bottom, you can see it talks about our commitments, which Glenn, our CFO, will mention later, of driving operating margin expansion of at least 30 to 50 basis points.
And we're doing that in spite of significant dilution from acquisitions. This slide shows you the deals that we've announced, the larger deals. You can see how active we've been in BD. And you can see there in green the deals that were pending. K2M, you've heard already this morning, the release that was issued by them that, that deal is very, very close to closing.
We're very excited about that acquisition. But you can see we've been very active. Most of the deals are in blue, which means they're core acquisitions. Occasionally, we do one that's in a bit of that teal color, which really are adjacencies, and then you have the ones that are pending. So in summary, 2018 is going to be another strong year of organic sales and earnings growth.
You've seen a number of times we've raised our guidance over the course of the year, including at the end of Q3. We're confident that we're going to continue to grow organic sales at the high end of medtech in 2019. Obviously, we will give our formal guidance at the end of January as we customarily do. We've made great organizational changes, really strengthened our commercial organization, and I believe that these changes are going to help us to continue to drive very robust top line sales. We have a very healthy new product cadence across the company and a continued strong BD pipeline.
Our cost transformation for growth is now year 3. You can see based on our performance and our results that it is translating into meaningful and sustainable operating margin expansion. And through this entire period over the last 6 years, our capital allocation priorities have been consistent. 1st priority for use of cash is M and A 2nd, dividends growing roughly in line with our EPS growth and lastly, share buybacks. And really, the share buybacks mostly just to offset dilution.
But if the acquisitions don't occur in a timely manner, and then and only then we actually increase the level of activity on share buybacks. So with that, I'm going to now turn it over to Neurovascular. Our President, Mark Paul, joined Stryker in 2011. He came over with the acquisition of neurovascular, and he has done an outstanding job driving the business. As you've seen with the performance of our neurovascular division, it's been probably the fastest growing division of our company since 2011, and he is going to introduce a surgeon panel as well.
Please come on up, Mark. Thank you. Good afternoon, everyone. It's my pleasure to be here with you today and to share the story of neurovascular. Again, my name is Mark Palm, President of the Stryker Neurovascular Division.
This is really a story about innovation. It's a story about clinical leadership. And it's a story about a global business where we work very, very close with our clinicians and they work very, very close with us as we work on products and technologies and training to make stroke history. And together, you've seen some of those results where we've been able to recently do that. Let me invite our physician panel up to join us here on stage.
A few gentlemen will come up. Thank you. So we have 3 exceptional physicians here with today, and I'd like to thank them for taking time away from their very busy practices, away from their patients, away from their families. But I guess we're sitting in reverse order, but I'll start with the way the pitchers roll. We have Alex Kuhn as an adjunct professor at Johns Hopkins University.
Doctor. Kuhn has a unique experience in that he's been a part of every loaded birdie stent study in the United States and has very rich experience there. So he is able to speak to that procedure in detail. Next is Doctor. Brian Jankowicz, Assistant Professor at the University of Pittsburgh Medical Center, UPMC.
And Doctor. Jenkelet was our co PI of our ATLAS PMA study and has been published in over 80 peer reviewed journal articles. And then we have Doctor. Ryan McTaggart, who is associate professor of radiology, neurology and Neurosurgery at the Warren Alpert Medical School of Brown University. Doctor.
McTaggart has a very unique experience in that. He built a complete stroke system of care all through Rhode Island that leads patients quickly to treatment in a comprehensive stroke center in Rhode Island. He also has a unique experience in that he's been innovating on how to use combination techniques to treat patients with ischemic stroke so you can quickly remove the cloth with first pass efficacy. And we'll come back to these physicians here in just a moment. But I'll make a few comments about the neurovascular business.
I'll ask some starting questions with each of the physicians, then we'll open it up to the floor and you can ask questions to the physicians and to myself, Catherine will do the selection of the question, people to raise their hand and we'll go from there. Okay. Let me talk a little bit about stroke. Stroke is very complex disease. A stroke occurs every 40 seconds.
Every 4 minutes, somebody dies. There's approximately 800,000 strokes in the United States. The World Stroke Organization will use the number of 14,000,000 strokes worldwide. We think the addressable stroke market where people live within proximity of hospitals around the world to be treated is 5,600,000 patients. We're excited about all the work we've done with ischemic stroke and hemorrhagic stroke.
You may recall just a few years ago that the leading cause of death was actually number 4 for stroke. It's actually moved down to number 5. It still remains the leading cause of adult disability in the United States. Today, in regards to ischemic stroke, we've had dynamic growth. We're actually only treating 13% of the available large vessel occlusions.
Worldwide, there's approximately in the addressable stroke market about 1,600,000 large vessel occlusions. We'll finish up this year somewhere in the range of only 100,000 to 115,000 treatments worldwide, all companies. We have a long way to go. We're making great progress in systems of care that are maturing. We have comprehensive stroke centers that are coming up to speed, and we continue to innovate new innovations and do clinical trials that are opening up new pockets for patient care.
Kevin spoke to our mission statement. This is a powerful statement for the neurovascular division. Together with our customers, we're driven to make health care better. How we achieve that in our division is complete stroke care. When you work in our division, guess what we talk about every day?
Products for stroke, clinical trials for stroke, training physicians for stroke, that's what we do every day. It's our only focus. It's on our ongoing promise. And I would like to recognize our over 800 employees around the world. We have our headquarters in Fremont, California, where we have most of our functions.
We manufacture our products in Salt Lake City, Utah and in Cork, Ireland. And we have commercial teams in over 60 countries around the world. These are very, very dedicated employees that are really purpose driven because they're very dedicated to treating patients and supporting our physicians to treat patients for stroke. So let me tell you a little bit about the story. The very first procedure was in 1990, and our organization developed the very first micro wire, the first micro catheter and the first detachable coil called the GDC coil.
And from that first procedure, we'll finish this year. The market size should finish up around $2,500,000,000 Our most recent history of our story has been has resulted in exceptional growth from when we came over to Stryker. Stryker gave us the means to operate. They gave us dollars to invest in clinical trials and R and D development. And over the last 7 years, we've launched over 22 new devices and as well as we've launched or completed clinical trials whose outcome changed health care guidelines for ischemic stroke.
The DAWN trial, which we completed for ischemic stroke, proved that you could treat patients beyond 6 hours. Remember, for the last umpteen years, everybody was treated for stroke, 3 hours for tPA and up to 6 hours with a stent retriever. The DAWN trial studied patients between 6 24 hours. It resulted in a 2 71% improvement over the medical arm. Supported by the NIH DEFUSE trial led to the American Heart guidelines being changed just earlier this year to allow treatment after patients out to 24 hours.
So our story is really a strategy that has 3 legs to it. It's continued R and D innovation. It's an investment in clinical trials that open up new treatment cohorts of patients and market development varying by size and scale depending on the size of the country. Now as we look forward into 2019, our strategy is not going to change. We have a very heavy and robust spend in R and D.
We have R and D projects that are working on next gen concepts in every major category. We continue to work on clinical trials. We just started 3 new studies that will open up the market even further if the clinical outcome data is there for these new little pockets of stroke treatment and we'll continue working on market development around the world. So let me talk a little bit about the hemorrhagic side of the business. The hemorrhagic side of the business is aneurysms.
We call it hemorrhagic. It's really an aneurysm segment. We treat both ruptured and unruptured aneurysms. About 60% of the market is ruptured aneurysms. And we do this through a variety of micro wires, micro catheters, coils and adjunct stents and other accessories.
Our strategy in this segment is to offer the full range of products to do the complete procedure and to hold a number 1 or number 2 position in every major category. What's exciting about the target detachable coil is the leading market share coil in almost every single country in the world. Recently, we've received approval to start selling our Neuroform Atlas stent. You can see the picture of it there. What's exciting about that stent is it's the 1st stent that can go through an 06 inner lumen, so our smallest lumen.
We're talking a lumen about the size of a pencil lead coming up through the right femoral artery in the groin and we can do the complete procedure. We can place the stent and the full range of coils all through one access catheter. And we'll continue working on next gen products in each one of these categories. We're very excited to enter in a new segment of growth for us. And this is the flow diverting stent segment.
And we recently received FDA approval in the United States. It's only the 2nd slow diverting spent ever to make it through the rigorous trial process and the FDA process. We were excited to gain FDA approval without having to have an FDA panel. It's unique in several ways. One of which is the longest stent on the market.
So when you're trying to treat these large and giant and large fusiform aneurysms, instead of trying to telescope flow the burning stents to those aneurysms, you can now place one stent. It's delivered over a wire. If you have to go back through the stent or use a balloon within the stent, it gives you some options for treatment there. We're very excited about this. Now launching Florida Birding stents is not an easy thing.
So this will be a controlled rollout of our launch. For every physician that uses a Florida Birding stent, they to be proctored for their first five cases. So what we're doing now is we're now training our proctors. Once those proctors are trained and we have inventory that's coming in, starting next week, we'll do our first case. But we'll start training all of our accounts around the country.
This will take some time, but we're very excited to enter this market. This market segment is about $250,000,000 worldwide. The United States is about half of that. So we're excited to be entering into this new growth segment, and now we'll be able to offer leading technologies across the entire spectrum in the treatment of Andreson's. Shifting gears quickly to ischemic stroke.
We have the same strategy. We want to have the number 1 or number 2 product in every single category. Many of our competitors have parts and pieces. We've aimed at building out the full armamentarium of devices. Why is that important?
When you look at ischemic stroke, you have a lot of variation in tortuosity of the anatomy, the location of the clot, the size of the clot, We want to make sure we have devices there that allow the physician to use whatever technique they find best in their hands and that patient's anatomy. So about 50% of the market uses starts with aspiration. And when aspiration fails, they'll convert to a stent retriever. That happens anywhere between 30% 50% of the time, they'll have to convert to get the clot out. Other physicians start on the other spectrum, where they'll start with a balloon and a catheter and the stent retriever all loaded up and they go in and they control the flow and they use these combination of devices to try to improve first pass efficacy.
We are respectful of all these modes and techniques with our physicians. We want to make sure that we have every product available to allow them to treat patients. We're excited about the Trevo XP. It's the 1st device to receive an indication for stroke and reduction of disability, and it's the 1st and only device to have a full 24 hour indication because of the DAWN trial. And we're very excited to announce our recent launch into the large bore aspiration segment.
This is really our last segment in our full product offering strategy. The Active Spector features an 0175 interlumen. It's designed to go through a long sheet that has an 19 interlumen. And these are designed for physicians who want to go straight into the clot as quickly as possible. And again, 50% of the market will try to aspirate that clot out.
If they can't get the clot out, it's designed for the Trevo to come out that tip, grab the clot and bring it back in. We think this segment is about a $77,000,000 segment in the United States, dollars 143,000,000 worldwide. And we're very excited. We're just literally getting the first units out the door. So we haven't had a lot of usage yet, about 100 cases.
So you won't really see material sales until you get into the Q1 of the New Year. All right. One quick comment on our neurovascular clinical leadership part of our strategy. It's actually the second arm of our strategy. We've been very successful in running PMA studies with stent trial for flotabertine stents and our ATLAS study for adjunct stents.
Wherever we the data it will come out when VERIVU have launched, for example, the ATLAS stent with its performance and its data, it's quickly become the market leader in every country that we've launched in. We still have many countries yet to launch in. The DAWN trial I've made comments to and the Trevo registry that we conducted worldwide, And we're still working on ICAD with the REVE study. But we continue to do more clinical trials. We've started studies where we're looking at extremely large strokes and is using removing the clot health in those patients.
We're looking at mild and small strokes. Does that open up the market? And we're funding another study with the Dutch government and the Dutch physicians called Mr. Clean No IV, where we skip the IV step and we go straight to treatment, again trying to accelerate treatment of ischemic stroke patients. Stroke therapy awareness is critical.
Every second counts. Every minute that you're having a stroke, you lose 1,900,000 neurons. What does that mean? Every hour is about 3.6 years of accelerated aging of the brain. The average stroke case, the average patient loses 36 years of accelerated agent in the brain.
So every minute and every second counts. We have training and development programs that move from the emergency responders to primary stroke centers to comprehensive stroke centers, and we do different training programs in every country around the world. But all these systems of care are very, very important. And as these systems of care come up to speed, patients can come to the system quicker and have better outcomes. Even though you have up to 24 hours now to be treated, you want to get to a stroke center as quickly as possible, get on the table and have one of these physicians remove that clot.
All right. Well, let's kind of take a break here for a moment and shift over to our physician panel. I'll go ahead and ask a few questions to get us started, then I'll turn time over to the audience. Since we just finished on market development, first turn to Doctor. Mettager, you have a very unique experience in building a complete system of care through an entire community that moves the patient very, very quickly from primary centers into a comprehensive stroke center.
Is that model that you've built in Rhode Island, is that replicable around the rest of the country?
Absolutely. And let me first start by saying it's a privilege for me to be a physician at this time in medicine because this is an unbelievably effective therapy we have now. We have a cure for stroke. We just really need to execute it. And that execution is changing our systems of care so we get patients early access to this therapy.
And I would just add one thing you said about time. Every time the system moves quicker for patients, we save the health care system over $1,000 So changing and transforming our systems of care is very important. Two methods we used in Rhode Island is we changed the point of entry. So we have stroke patients now mimicking the same point of entry for Level 1 trauma. They come to the state's only comprehensive stroke center.
And number 2, we improve the efficiency of the operations or the care of stroke patients that are partnering hospitals. So not only are these patients identified, but they're shipped to us more quickly. And in doing those two things, in 2014, we did about 14 cases. And this year, we're on pace to do about 300. So when you do these things, when you improve access, there's a huge jump in volume.
But even more importantly than that, there's tremendous savings
to the health care system. That's outstanding. Just so everybody understands, that's an immense sign of progress to get the entire community to align to new patients quickly for care. Kind of shifting gears to your technique. You've been very novel and innovative in how you've used different combinations of devices to improve treatment of actually when the patient is on
the table. Do you want
to share your thoughts and comments about that technique and any products that
they have that help So I guess my little confessional here is that when there were 14 cases, there were 3 of us doing them. And now there's still 3 of us doing them and there's 300. So you can imagine there's great motivation to do the case quickly and do it well. And so I think when you're faced with that, there's been a sort of an evolution in that we want to go with a primary combined approach to get the vessel open. So it matters how fast you are, but it matters how well you open the vessel.
And we now use stent retriever technology in combination with distal aspiration technology and a balloon guide catheter to get complete restoration of blood flow the first time we attempt to open the vessel. And we've turned that technique captive. Others that are in the same predicament as I am, a lot of cases need to get them done quickly. There's been a convergence. There are other names for this technique, save, trap.
So those of us that are doing a lot of cases and are invested in getting the blood vessels open completely and quickly have converged on using a primary combined approach, aspiration stent retriever technology and a balloon guide catheter, so we get that first mechanical pull done right.
Excellent. Well, let's shift gears now here to Doctor. Genkiewicz. Doctor. Jankiewicz, again, was our co PI for the Atlas stent, and he's used the product.
He's also seen everybody's data from all the enrolling centers. What is it about adjunctive stenting and cloning? How is that important in your practice? And how is the Atlas Dent help contribute to treating new patients? Well, also in the interest of disclosure, I'm a dual trained neurosurgeon.
So I love to treat open aneurysms, the classic way we've been treating aneurysms for over 50 years, opening the skull and clipping aneurysms with titanium clips, but also treat aneurysms from the inside out from an endovascular treatment perspective. And we've seen stents allowing us to treat a greater variety of aneurysms that we never thought possible. Even 5 years ago, I didn't think it was possible to treat certain aneurysms with endovascular techniques. But stents have really opened up a variety of aneurysms that were not able to be straightforward coiled. I'm a late adopter, so I very cautiously started using the Atlas stent to treat distal angersomes because this stent can be deployed through a small microcatheter into the smallest vessels that harbor aneurysms.
And then I started applying it to bifurcation aneurysms, aneurysms that I typically thought were only amenable to an open craniotomy. And then finally, because I like to leave as little metal left behind in the human body, That started to apply to cases where many people might flow divert because it has the least metal coverage of any stents on the U. S. Market, which has profound long term implications for long term dual antiplatelet therapy. So I'm a simple neurosurgeon.
I like simple, straightforward devices that are designed to do one thing extremely well, and I really believe the ATLAS stent is really designed near to perfection to treat complex intracranial aneurysms. Now I've watched my open volume gradually decrease as I started to treat more of the patients that I thought could only be treated with open surgery, and they've shifted to my endovascular practice. And my patients and I really couldn't be happier. You mentioned flow toverteous stent. So it's a different stent concept.
You could have an aneurysm where you could apply different forms of technology and different techniques. In your practice and with your experience, when do you use a flow diverting stem versus using an ATLAS and target coils? Do you differentiate between those two technologies for treatment? I think zlotervatin stents revolutionized the market. I think they did give us the potential to literally recreate a blood vessel from the inside out.
But once again, I'm a minimalist. I really like to leave the least amount of metal left behind inside an artery. So if I can, I like to use a stent coiling construct even for ICA aneurysms that really are the bread and butter of most flow diverting cases? I think that nowadays in my practice, vessels that are completely blown out and destroyed, if you look down the barrel of a diseased or blown out in a fusiform way, that's when I tend to use a flow diverter. But I've been able to get away using an ATLAS and coil and a standard coils the majority of the tons when I've applied them.
Thank you. Doctor. Coon, you have this great experience with flow to burning stents and you've had the opportunity to use all the different technologies that are available and been a part of all three studies. What is it about the SURPASS photobridin stent that would give any unique characteristics to help you to treat your patients? Well, thanks, Mark.
And again, I want to thank you for giving me the opportunity to share some of these experiences here. The SURPASS FLOW diverter, benefits of this device are inherent to its engineering properties. This was not a me too device. It was a device that specifically was designed to improve on some of the limitations of the original floating burning device available on there, the pipeline device. And the first thing is the way it's made.
Flow diverting stents are braided stents, braided made out of cobalt chromium metal. And those of us who deal with these know that unlike nitinol stents, which have intrinsic opening ability, one of the veins of flow diverting stent procedures is getting these devices to open. The SURPASS device, instead of having a fixed number of wires in the braid across all diameters, increases its numbers. So for example, the pipeline device has 48 strands across all diameters. Surpass starts with 72 and makes its way up to 96 wires at its biggest diameters.
This gives it intrinsic extra opening strength, which is a necessity in these procedures. And an expression, surpass always opens, it's true. It always does open and that's a portent safety for the patient. The second feature of it, going along those same things, more metal strands. If Doctor.
Jankiewicz is a minimalist, I might consider myself a maximalist. More metal strands across the neck of these aneurysms promote healing. And by adding additional metal strands, it was designed to give, for lack of a better word, a bigger flow diversion effect. And this is something we saw in the American SURF PAS study, where we were able to achieve similar occlusion rates as were pipeline, but using only one device versus the 3 devices used on average in their study. And then finally, the other feature design, the preloaded over the wire nature that allows for these devices to be made in long length.
So the longest Surpass device is a 50 millimeter long device versus a pipeline. It maxes out at 35 millimeters. And this allows for spanning these tremendous lengths of FUSOFORM aneurysms and other pathologies that we treat with these technologies with a single device. And that, at the end of the day, adds safety. It adds cost effectiveness for the center.
And I honestly believe it also adds increased efficacy. So in regards to ruptured or unruptured aneurysms, how do you make a decision on what to use with, say, a flotidverting stent or a coil and ATLAS case? How do you make your decision? In the setting of a ruptured aneurysm, we try to avoid using antiplatelet medications that are needed when you put metal stents inside the lumen of the artery itself. We try to only place things within the sac.
So typically, we try to coil these aneurysms, okay, using adjunctive devices such as a balloon if we need to hold them in. Sometimes we need to use stents in that setting of a ruptured aneurysm to do that. But one of the key things about flow diverting technology and even Atlas stent technology is that sometimes when we're treating ruptured aneurysms, you can't get the perfect outcome at that first go. But this allows for a second stage procedure where you can come back and finish the aneurysm off with curative therapy using Atlas or Surpass or whatever device you use in kind of a staged fashion. The bottom line is that all the cerebral vascular is very heterogeneous and we see a lot of different types of pathologies in a lot of different situations.
We need the tools to be able to handle a lot of different situations and the toolbox that you're developing and offer to us really assists with that. Thank you. So coming back to Doctor. Jankiewicz. Shifting gears to ischemic stroke.
You're a physician that starts with aspiration, and that's always been your belief. And we have doctors that have different beliefs and the various techniques. So very different than Doctor. Patecker's. They're both effective.
So you recently used the Nuvecta catheter. And what was your experience with that new technology? I think that you've long made the best device in just about every category that you explore, and your aspiration catheter finally caught up. I like simple devices, as I said. I train fellows, 4 fellows at any given time, and I will let them use a vector catheter and a microcatheter and wire because it is safe and simple.
And even in a fellow's hands who's done only a few cases, I find they can consistently from vectorize the patient quickly and cheaply when we compare it to the use of other adjunctive devices. And I'll go toe to toe with your technique any day, Doctor. McFadden. So Doctor. McFadden, you're a big balloon user.
Why is using a balloon in a skin stroke cases important to you?
I think it's just a bailout to captive or trap, but this primary combined approach isn't 100%. And that flow reversal that the balloon guide allows, I think, is important.
But these conversations reflect how we work with our physicians. Their techniques can be unique. They have different perspectives. They have different experience bases. And so it's important for us as a company to make sure we offer the full range of devices so that we have a number 1 or number 2 performing device in every category so the doctors can take whatever devices they feel is important for that customer to treat them.
So why don't we open up the floor now to answer questions.
Whether it's the physicians or Mark, if you just give us a second because we've got a lot of people on the webcast to get a microphone to you, Linda, Larry. And just name and affiliation again for the webcast.
Thanks a lot. Larry Biegelsen, Wells Fargo. Just one question for Stryker and for the clinicians. Just on the mechanical thrombectomy market in the U. S, there's not a lot of good data available.
I think you talked about 100,000 to 150,000 procedures worldwide. But If we just focus on the U. S, we estimate about 35,000 in 2018, about 30% year over year growth and about 17% penetration. So I'm just curious from Stryker's perspective, how closely and from a clinician perspective, where do you see this going, let's just say, over the next 3 to 5 years, given the number of 800,000 strokes in the U. S.
At 750,000 ischemic strokes. So how big can this market? Where are we in the evolution of the mechanical thrombectomy market? How big can it be? And I threw out a lot of numbers, just whichever is easiest for you guys for the clinicians to kind of speak to.
Yes.
Excellent question. Thank you.
The U. S. Market, we think it will finish somewhere between 3,300,035,000 cases. We don't get the data immediately. It lags.
We find out about March or April. But it looks like the trends are moving in that direction. And in regards to and we've been experiencing exceptional growth. This year was no different. We had high double digit growth and probably at the higher end of the range versus our competition.
I think moving into the next few years, I think that the growth will be nonlinear. Been nonlinear the whole time that the quarters can vary greatly as we move along. But I do think that we'll be in good solid double digit growth for the next few years looking forward. And it really is the amount of physicians that can treat the systems of care as they mature. The patients will keep coming.
It's our ability to capture them and move them quickly. 3 years ago, when we bought U. S. Data, there was over 160,000 ischemic stroke patients eventually rise in the U. S.
Hospital. Too late for the wrong hospital. So we've been trying to address that through training, through systems of care to move the patients quickly through. But the DAWN trial changes everything because what they used to say, well, it takes 3 hours to transfer a patient from hospital A to hospital B. Now with the DAWN trial, you have up to 24 hours.
So that opens up the greatest cohort of patients, not only in the United States, but in countries around the world, we have great traffic, different things and getting patients to live quickly. Who would like to take a shot at answering you want to take it back from the present?
It's a very difficult question to answer as no because the Achilles heel for this cure we have for stroke right now is really systems of care. And a real feather in Mark's cap, quite frankly, is that I think they have probably the best stroke therapy team, the best educational team out there, which I think is just as important as equipment right now because that's what's getting the patients access. In addition, the needle or the for who should have the procedure is also moving. These trials were designed to really find some sweet spot signal, and a lot of trials are now finding that, well, we sort of overshot the goal. And there are patients that would have been excluded from those trials that are benefiting from mechanical thrombectomy.
So the Achilles heel is changing our systems of care, but there's also going to be tremendous a lot of growth because the target is actually going
to the bar is going to
get lowered because everyone seems to be benefiting even patients with large amounts of dead significant amounts of dead brain when they arrive.
Thank you.
Thanks very much. It's Bob Hopkins from Bank of America. Quick question. I'll start with Mark and then question for the physicians. First, Mark, I was curious on the Zvectai catheter.
Can you just kind of highlight where you are in the commercial launch of that product? And it sounds like it's coming being priced at a discount. Maybe if you could just talk about that a little bit. And then for Doctor. Jankiewicz or whoever else has experienced with the catheter, with the aspiration catheter, can you maybe compare and contrast it to the current market leader with CONEMBA?
Yes.
Thank you. We're just virtually starting the launch process. I've seen some earlier write ups that perhaps we had launched a while ago. We're actually just starting the launch process now. We're just going through our what we call the PPE process where we have the first devices used to make sure that the performance is what we saw before seeking approval just to make sure everything works.
From a pricing perspective, we're not discounting the product. We are working through all the BAC committees. It takes a while to work with the back committees. That will take a little bit of time as we're scaling up inventory. But I expect to be in full launch really by January as we work through the next few weeks and getting to all the back committees.
Does that answer the questions you had on my side? Okay. And to the physicians? Yes. I've had the luxury of using that device in 10 separate stroke intervention cases.
For the first time, I've seen an aspiration catheter now surpass the newest generation Penumbra aspiration catheter. Their new product line, I think, aspiration catheter. Their new product line, I think, has achieved a size and dimension that actually has hurt its ability to get on to distal vessels. I think the VECTA-seventy one now is the pound for pound the best aspiration catheter. And that's I'm attuned to aspiration catheters because that's the way I like to treat acute stroke.
So I know the aspiration catheter the aspiration catheter market very well. So Bob, another element of this is to get these catchers to become large bore, you have to hold the same outer diameter. So all of us are manufacturing wise are trying to thin that wall out. What we're very excited about this is when aspiration doesn't work the first time, and it depends on what study you use, it can be 40% success to 73% success. But when they don't, when you take the stent retriever out and you come back in, sometimes these stent retrievers can crunch up on the distal tip.
They're designed to affect this so it can both work as an access cap or aspiration, but also allow retrieval device to go in and out without damaging the distal system. That's one of the unique features about it. Alright. Maybe over to Rick.
Rick Wise, Stifel.
A little bit off the wall question. I'm just wondering, Mark, I'll ask you and I'd be curious if that doctors would chime in as well. Is there any place for robotics in treating stroke? Is that something important to you? And just reflecting on the need for precision predictability when you talk about your volumes and the requirement to process a lot of procedures.
Is there a role is this something you're contemplating that the doctors would be intrigued by? It seems like robotics are important elsewhere at Stryker. Yes. Personally, we would love to have a robot at the office of our procedures, guaranteed. I don't see anything on the horizon that I've seen.
And strike robotics is important to us. We're looking to expand robotics through a lot of our systems of care. Currently in the neurovascular space, I haven't seen anything yet on the horizon for us. So I would say it's a big kind of broad statement. I don't see anything in the 1st 5 years.
But perhaps from that 5 to 10 year segment, when robotics continues to refine and the motor skills required to move these catheters up into the microvasculature in the brain, which is very torturous. Could there be a role down the road? Yes, I think so. What do you think as physicians? As it stands now, I don't see the application for endovascular treatment with stroke.
But one segment of the stroke population that we didn't talk about was intracranial hemorrhage. And I have a brand that is utilizing a different robot because that's the only robot we have at the University of Pittsburgh to aid in the treatment of evacuating hemorrhages intracranial hemorrhages from spontaneous intracranial hemorrhages, non aneurysmal and nonischemic. And so I do think that the utility of robots has is already in the field of stroke care. I think it's only a matter of time before we figure out ways to utilize in more creative ways.
Yes. I mean, the way this world is headed, who knows. But just for some perspective, it takes me about, on average, 14 minutes to do this case from start to finish. So I think that's going to be difficult to top.
Go to David.
Thank you. David Lewis, Morgan Stanley. Just two questions maybe for the doctors. Doctor. Taggart talked about stroke care pathway being adopted in his particular medical region.
I wonder if the other two physicians could comment on. We all know the technologies work, access is the real dynamic. So in your particular markets, are you doing everything you can do from access? What can the industry do to help you improve access? And what are the key barriers to getting these patients, frankly, in your hands faster?
I'll take that. Coming from Baltimore, and I can honestly tell you that Maryland is incredibly underrepresented, the state of Maryland, from the stroke numbers that actually received mechanical thrombectomy. And it's a function. It's attributed to by the fact that, to be honest, stroke care doesn't pay in the state of Maryland. People who get have stroke are treated locally.
You don't go out of state and it brings a challenge. And it's something in a lot of places where the systems of care are not there. And we say systems of care, it's not just does the ambulance bring it, but are the payer systems set up for it? Are hospitals competing, whatever that may be? So I think that is a multipronged element of this access, not just can you get the patient to the comprehensive stroke center, but can the system at the state and government levels be the same?
In Maryland, they have probably the world's most advanced trauma system in the world in the state of Maryland with a shock trauma center. But stroke care lags behind that. I think that it's going to be partners such as Stryker and Mark's group that can convince these municipalities that this is
the way it has to be.
It affects all of us. Stroke is everywhere.
Maybe a follow-up to that. Just last decade was a decade of coils. This decade is a decade of stem retrievers, aspiration. We haven't heard much about the coil market yet today. Maybe for all of you, whoever wants to comment,
what needs to be done in
the coiling market? Is there a level of differentiation amongst coils in your hands do you believe? And what new technology enhancements are needed in
the coil market? Thank you. I was intrigued by the idea of bioactive coils or augmented coils for many years. But time and again, I think we've seen that the target coils, it simply doesn't get any better than that. And I have my weekend warrior package.
So I love to train fellows. I love to use innovative coils in other lines. But on a weekend, when I want to get in and out as fast as possible, I grab a Stryker Microcatheter wire and target coils because they are simple and effective and consistent. And I personally don't see modified or new generation coils significantly displacing the current coil market. Yes.
Well, I'll follow-up on that question. The coil market is largest market certainly. It's probably going 2% to 3%. The role of coils will change over time. Well, first, it was the primary treatment.
Now it's primary. Now it's an adjunct. Now you have some doctors that will use it with flow diverting stents before they put put in the flow diverting stents. So coils will never go away. The role of coils will change over time as all these different devices come up to speed and we have clinical data that justifies their application.
Thank you very much. Joanne Wuensch from BMO Capital Markets. A question for management. At the beginning, you had a slide up there of 3 different clinical trials that you're working on. Briefly, when can we expect readouts of those?
And do you perceive any of them doing what the DAWN trial has done for the ischemic stroke market?
Yes, that's a good question. Some of them are done, some are almost finished, some are still in process. So the DAWN trial is done, that data has been released and shared around the world. Same with the Trevo clinical registry data, that's been also released as well. The PMA data from the SENT trial is released because we just received approval.
The DAWN study data, hopefully mid year next year, we should have all that data released. So right now for in the United States with the ATLAS study, we have an HDE indication. So we can sell under that humanitarian device exemption approval. We'll soon have full FDA approval. I think it's Q3 of next year is our rough estimate when the PMA process will be completed.
Sorry, but there's new studies. Did you want me to comment to the new studies? Yes. Okay. So the new studies, we're sponsoring 2 studies, which are unique in that DAWN opened up the late stage and wake up strokes.
Many strokes happen while people are sleeping. And then the physicians didn't know when to start the clock to treat them. So that was the greatest barrier. But there's still cohorts of stroke patients that we need a lot more data up with before we start treating. Some of those are large strokes.
Do we treat large strokes? How large does it need to be? Or is it too late? So we have a study that's focusing on that pocket of patients. That study should start.
The other study that just started is mild strokes. Do you let the patient to see if they can resolve? Do you just get tPA? Or do we go get that clot and pull it out? So small strokes.
That's another study that just started. And then the other study with Mr. Clean that did the first successful study with stent retrievers, they want it we sponsored that study because it's exploring do we need IV tPA. It's an expense. It has a risk of bleeding in the brain.
Should it be like cardiology where you skip that step and you just go right to treatment? But all those studies will take really the next year and
a half
to 2 years to enroll. So those studies are probably 2 years out before we get data, but they're important.
Thank you. And then for the physicians, can you briefly describe how DAWN has changed your practice in terms of volumes and how your centers have adapted to it? And then with the launch of Vecta, how are you going to change your aspiration practice? Do you just completely move from your previous catheter? Or do you start dividing amongst different manufacturers?
Thank you.
My mentor, Tudor Joplin, was one of the PIs of Dawn. So we've been treating patients with that paradigm for the last decade ever since I was a fellow in 2,008. And I didn't think that our volumes would significantly increase because we were early adopters of treating people well beyond 24 hours without the randomized trials to prove it. But what we've seen is our volume continuously increased from 2 60 strokes in 2016 to 340 strokes to 2017 to a stroke a day this year. And that has nothing to do with what we're doing in the hospital because you can't get better than a 15 minute stroke intervention.
So that's flat. But what we are doing is changing the perspective of the outside ERs because it's all about now getting the right patient to the right hospital in the right amount of time. So I appreciate what Doctor. McPaggart is doing in getting the word out at a statewide level or a countywide level to get those patients to bypass their primary stroke centers and getting them right to interventional stroke or comprehensive stroke centers. So I've just been astounded as our stroke volumes continue to increase even though institutionally, we've done nothing different for the last 5 to 10 years.
Yes. CT angiography is sort of the test that you need to do to make this diagnosis. And I have this sort of line I use that CT angiography is to elbow, this large vessel occlusion stroke, what ECG is to STEMI. So one of the great benefits of DAWN, quite frankly, is that it's and I now was an author on the DEFUSE 3 study. DAWN and DEFUSE 3 really empowered us to go to these primary stroke centers and say, look, if you have a cold stroke, you have to get the CTE angiogram, you have to get imaging because time no longer matters, it's the tissue.
So the tissue is the issue. So that was what's really helped us sort of proselytize all this is that data to say, look, time doesn't matter, throw away the clock, these patients need imaging, let the imaging determine their candidacy for this procedure, not practice variability on whether something is available or not. So that's been a real key and I thank you guys for funding that trial to help save so many patients.
A question was also asked about how hard is it for you to switch from one technology to another? Switching can be challenging. What's your thought when you switch from one catheter to another or system to a system?
So I am sort of an old dog, doesn't like new tricks. And once I find something that works, I stick with it. For me, there's a reciprocal relationship between the size of that aspiration catheter and how often you're going to be able to get it up to that stent retriever where the clot is. So the CAT VI aspiration catheter, which I use in this primary combined approach, goes up every time. And my ability to remove that clot on that first pull is 80% of the time.
And it's a great feeling for me. It's a great thing for the patient. So I've got something that works. I'm unlikely to change, quite frankly, being honest. But I do know that what if the system I'm using works.
And my fundamental belief is that I use the largest internal diameter catheter I can get to the clot. And I agree that the technology has pushed catheters perhaps beyond their efficacy. And I'm not here to bash, but I think I've logged the number for really pushing the boundaries of what an aspiration catheter can do and how big it can get. But I think we've seen this magical transition where you can make a catheter that's so big, you just can't get it there. And I think that we've seen that the 70, 70 1 inner diameter catheters are finally that largest diameter catheter you can get into a clot consistently.
So I just use the biggest aspiration catheter that I can get to the clot and currently that's the vector 71. I want to be clear too that I use aspiration because it's the cheapest method and I'm under tremendous pressure to save money in my hospital when it comes to treating acute stroke. And if our volumes are going from 13 a year up into the 100, well, you multiply that by a device that can cost 1,000 of dollars. And so limiting it to an attempt at aspirating first, that is not only can be quite efficacious, fairly simple, but also it can equate to tremendous cost for a hospital. And I would add 2 things.
In this space, simplicity drives a lot. Things that are simpler and easier to use, ease of use in the neurovascular space oftentimes drives it. And you got to understand that Pittsburgh and Brown, these are comprehensive stroke centers doing 300 strokes per year. Most centers aren't doing 300 strokes or a stroke every single day. They might be only doing 50 in a year or maybe 30 in a year.
So those surgeons or interventionists, they're not as experienced. So some of the subtleties are there between these devices. But in general, something which is simpler and easier to use will drive people to it. And the vector, getting a big catheter up there, this is kind of, as Mark said, you're reaching that point where you've got this big inner diameter and you've reached the limit of what the wall thickness can be. This is the biggest idea and it goes up very easily.
Thank you.
Vijay Kumar from Evercore. So maybe on that last question on volumes and penetration, I think you mentioned 13% penetration. If you had to guess in 5 years, what do you think is the penetration? What do you expect your volumes to grow over the next 5 years? And what is the key pain point for you to why shouldn't this be 50% penetration?
Anybody but Mark.
I guess I'd first ask, what do you mean when you define penetration? What do you of all the patients you treat, the 160,000 eventually made it into a hospital system in the U. S. He's asking, where does that level out? Where do you get into the model?
As someone who doesn't do a stroke every single day like these, my esteemed colleagues here, one of the things that's always caught my eye is that we're talking a lot about the cases, these large vessel occlusions, these elbows. These are the things where the trials are focused on a lot. But as Mark showed in the slide, stroke goes well beyond that. It goes into small vessels as well. So no one can say magically where the growth is.
But when I sit around the dinner table with my wife and we talk about how much call we take having to go in and do these cases, she goes, this is going to get better, right? I'm like, I don't know if this is getting better. I think there's a lot of dinners we might be missing here
in the coming years. I mean, we're not sitting
there going, no, I think this has peaked out and that's it. At the dinner table on Sunday, we're talking, this we're in so long, all stroke is something that looks like it can be treated and treated very well. And the question is not going to become should we. It's going to become how much further do we go out in time and distance in the brain? And will those tools be developed to be able to do that?
Because I haven't seen and Doctor. Mettagat is probably the expert and the one to say, I haven't seen a study recently that shows opening a vessel that closes particularly bad for anybody.
And that's something we're facing with people. And what's since you brought it up, there's actually a study that says pound for pound, if you take someone with the exact same size amount of injury to the brain, the person that got the thrombectomy versus didn't does better. And I don't have an explanation for that, but that seems to be the data. But to answer your question, I think somewhere between 200 and 250 elbow patients per year per million people is the benchmark. And I crosslytize every day all day.
And I talk to colleagues that don't even approach that as far as an incidence rate. And I'm not going to rest and I'm hoping when I retire, I'm on a beach somewhere and everyone's able to say, Oh, yes, we're doing 200 to 250 per 1000000 people. And then I will have felt that I did my job during my lifetime. I think the physicians of our prior generation had organ transplantation to sort of celebrate. But for this generation of physicians, this procedure is what medicine for this generation is all about.
Yes, we've got to cure for stroke. We just need to execute it.
And to that point, I would add just to take it back to the Maryland story of as compared to Rhode Island, which is doing the case. So if you're doing Maryland as a state, there's 4,000,000 people in Maryland. And if it's 250 per that means you need 1,000 of these in the state. There's 3 comprehensive stroke centers probably combined. They might have been 200, 250 cases last year.
So if that tells you where some places are, and this is Maryland, I consider a pretty sophisticated state as well. And if you go other places outside of the East Coast where this focus is the tertiary academic centers, I don't think those numbers go up. I think they probably only go one direction. When we look back at our data for the last couple of years, for patients that arrive within 6 hours without intracranial hemorrhage and they have a large vessel occlusion by the symmetrical study of CPA, we treat over 90% of those patients. So we are nearing a point that we're treating almost 100% of these patients as we're getting more comfortable treating patients with the faintest trace of blood or already presenting with a large infarct.
We don't necessarily have the data to prove that, but we're accumulating the data to push the limits of what we can do to the point now where the only limitation is getting the patient to the hospital, period. And we treat about 30% of patients between 6 24 hours with an LDO and about 10% of patients beyond 24 hours with an LDO. So I think that I don't think we really can put a cap on the total number of patients that we're going to be treating in the next 5 years.
Systems of care, systems of care, systems of care, that's what needs to change and help us make that change.
That's helpful. And then maybe one on the flow diversion, Stan. I'll make this quick. When you think about flow diversion, is that cannibalizing coils or you're using coils in addition to that you're using flow diversion stands? Or can you just explain where flow diversion stents fit in?
Thank you.
Yes. I think I'll take that one. You can't say no because obviously, historically, a lot of these aneurysms which are now treated with flow diversion were treated with coils. But at the same time, the story of flow diversion and cerebral aneurysm treatment is kind of the expansion in the treatment of cerebral aneurysms, being able to offer treatments to aneurysms that couldn't be treated with coiling. So a very large number of cases of floaterversion is being used for are ones which maybe before we would
have thrown our hands up and
said we can't even treat that one or we have to do some exotic open microsurgery to do that. And then on the other side of it, and I've published a paper out of our experience, how it can, that adding adjunctive coils can even further benefit flow diversion technology. So flow diversion was once this thing where instead of coiling for these certain type of aneurysms, now we use it for aneurysms that are beyond what could be offered for coiling. And even sometimes we're using it with coils to even get greater efficacy and speed the occlusion of the aneurysm. So is it going to cannibalize it?
That's probably the wrong word to use. It's definitely there definitely is a role for them in the world of photovirus. Or you see a synergistic approach for ruptured aneurysms. You coil an aneurysm and granted you may leave some remnant of that aneurysm behind, you come back in a week or 2 later and you flow divert that aneurysm. So you get the best of both possible worlds.
Hi, Isaac Ro of Goldman Sachs. For the surgeons on the panel, I was interested, you're all from various parts of the country, different regions and states, and
I think Doctor. Kuntesh upon how things are
in Maryland. I'm curious, if you talk to colleagues elsewhere in the country, my understanding is that the guidelines for treatment here can vary quite significantly. So I'm curious if you've seen anything that would suggest other states, other parts of the country are going to start becoming a little more supportive of these technologies and when we might see evidence to support that?
So there are a lot of campaigns right now. There's a get ahead of stroke campaign being run through SNIS and others that are trying to tackle at a legislative level point of entry for stroke. Tennessee, Arizona, Colorado have sort of adopted what we've done in Rhode Island. Other dominoes are ready to fall, but it's complex. It's a very political issue because even though this mechanical thrombectomy procedure is very economically dominant for the health care system, the money we spend comes back and reduce downstream health care costs.
Hospitals that don't offer the procedure are very threatened by losing business. For example, I sat at a committee of hospital CEOs in Rhode Island, and they were complaining that they were losing business. And I said, well, what percent of your business do you think you're losing? And they said, 25%. And I said, that's the exact amount you should be losing because about 25% of the patients in the field that EMS professionals encounter are going to have either a hemorrhagic stroke or will have a large vessel occlusion stroke.
And it's that those are 2 types of patients that need comprehensive stroke or level 1 stroke care. So it's happening. But like I said, systems of care change is the biggest battle we face and we all need to work together so that we do what's right for patients and more patients get this procedure.
Great. And just a follow-up maybe for Mark. The topic of cost was brought up earlier. I'm interested as you guys think about leveraging all the assets in the portfolio. To what degree is cost part of the game here?
It seems like it's still very early in the market adoption curve to really be aggressive, but why not think about creative ways to bundle or other things economically that you can do to help get your share to the market and help the physicians get the technologies they want?
Yes. We do all those things today. I mean, cost is always an issue. We're fortunate in the reimbursement levels for both ischemic and hemorrhagic stroke are healthy and hospitals do well with those reimbursement codes. The costs are always a burden on hospitals overall.
So we do all the things that you mentioned. We do bundling deals. We do various forms of discounts as we work within each hospital system and try to tailor our product offering to try to meet the financial metrics they're trying to achieve.
I will probably have time for one more question and go to Raj. And then Mark will be around later at the product there, if anyone has some follow-up questions.
Thank you. Raj Denhoy with Jefferies. Just so the clinicians, you mentioned the necessity for imaging to identify the patients that will benefit from these interventional technologies. And there's been some companies and folks looking at artificial intelligence or automated ultrasound and even putting some of these technologies in EMS and ambulances to sort of identify patients faster to get them
to you guys to actually
do stuff. Are you guys seeing these technologies? Do you think these could have a big impact in getting patients into your respective facilities faster?
That's a moving question. So this yes, this primary stroke center elbow protocol we created, we wanted to employ machine learning. And there is a company that's trying to leverage machine learning to improve or speed downstream care, and they spent some time with me in February 2017. And I certainly hope that, that does happen. I do think that augmented intelligence has the capacity to really prevent medical errors.
And in any capacity that it can do so, I'm totally in favor.
I think it will help more of the primary centers or the first hospital to receive that can have something that helps aid them in choosing which patients are suffering ischemic stroke and how quickly to move them. For the customers and physicians that we have, they can see it immediately. But it's for the untrained eye, which is a lot of hospitals around the world. So I think it will eventually get there. We want it to get there.
And we think with all those little things, I'll add up to quickly diagnosing the patient and moving them through the treatment as quickly as possible. So let me do this. Let's shift gears. I wanted to introduce you to a patient. Her name is Sandy.
And she was actually a patient from UPNC, which is a part of the DAWN trial, and she was a wake up stroke. And like I mentioned before, a majority of strokes happen while patients are sleeping and quite often they're not found till much, much later in the stroke cycle. And this is a patient that was found in that environment and treated at UPMC. Let's roll the video.
I went to bed. I was tossing and turning and not going back to sleep. And I looked down at my hand. It was very heavy. It was like a block.
I couldn't move it. And I picked it up and I turned it this way and this way twice. And I said, I'm having a stroke. And that's the last thing I remember for days. So I pull in her driveway.
I come into the house. I go upstairs and there she is on the floor. It was that. It was a stroke. She was totally paralyzed on one side.
Her mouth was drooped. She couldn't talk. Her eyes were not focusing and the ambulance came. And speaking with the ER doctor, he was very accommodating to Sandy. And I realized then that this was great.
He said there's a DAWN study going on in Pittsburgh, and he said, would you like to speak to the people on the phone that are running that study?
Sandy arrived at UPMC. She is what we call a wake up stroke. So a patient who goes to bed normal and wakes up with a neurological deficit, you don't know when the stroke occurred, but these patients have been so far excluded from any type of acute stroke treatment. The conventional wisdom, the dogma had been that patients only benefit from treatment if they are within 6 hours of their stroke onset. And in fact, by the time she got to us, time of lasting well was about 18 hours.
What we have shown with Don is that if you still have substantial areas of brain that is still salvageable, then it really doesn't matter how far out you are in time.
So then he says, well, come on, let's go see her. So we go into the room and there you are laying there. And he says, Sandy, raise your right hand. And bang, she raised her right hand. Are you kidding me?
Unbelievable. My motivation for my speedy recovery was life, was my football games, my baseball games. I was a part of that data that would carry this to the American Heart Association and make it a standard. I appreciate every moment, every step that I climb. I wanted to walk 13 steps to my upstairs and downstairs.
I appreciate
every one of those people more than I have the words to say because they gave me my life back and restored my ability
to live. I appreciate all of their efforts, everything that they did for me.
So here's my ask. I actually am going to ask for 2 favors from each of you. I need each of you to know the symptoms of stroke. Stroke is a deadly disease. You'll lose your ability to walk, talk, swallow, feed, take care of yourself, clean yourself.
You need to understand the word fast. Remember fast. So remember, F, the face is always involved. Half the face will not function or move. A is for your arms.
The arms and the hands are almost always involved. Speech is always involved. Slurred speech, repeated speech, consensus speech
and time. So I need you
to know for each of you and your family members wherever you live, the symptoms of stroke and where to go to be treated in your community. You can't assume that the ambulance will take you to the comprehensive stroke center. We're working on that, but it will take time for that occur. My second ask is you need to educate your readers. 1,000 upon 1,000 of readers follow your advice and counsel.
You need to talk to them about stroke. They need to know the symptoms of stroke and where to go to be treated in their communities. That's my ask of you, and I will promise you this, you will save lives. And at Stryker Neurovascular, we've dedicated our lives to this disease with these physicians. Thank you for your time.
I appreciate it very much. I'd like to excuse our panel. And I'd like to introduce our next speaker, Xavier Berlin, who's the President of Trauma and Extremities. Thank you very much.
Good afternoon. I'm thrilled to be in front of you this afternoon to give you a snapshot about our strategic journey on what makes Trauma and Extremity unique. After my presentation, Gordon will give you much more detail about our extremities opportunities before we move into the Q and A session. Trauma and Extremity is capturing and will continue to capture meaningful market share. We are an undisputed number 2, closing the gap to number 1.
And since more than a decade now, Stryker Trauma and Extremity is the fastest growing corporation in this space. Trauma and Extremity is or maybe I should say are values on complex businesses which are different. We are covering, obviously, trauma as well as shoulder, foot and ankle and many other small joints. In fact, if I look at the implant area, trauma and extremity at Strathair is everything but total hip, total knee and spine. This means that on top of those market spaces, we have to have a lot of different products.
It means that a single rep cannot cover or be trained or sell everything, which is the reason why we strongly do believe in focus on dedication in the field. But beyond this market complexity or product diversity, we also are calling on a lot of different customers, a lot of different MDs, which are sometimes not a lot in common on different needs. We are calling, for example, on trauma level 1 surgeons, but also trauma specialists, community surgeons who are doing sometimes trauma or to sometimes shoulder or foot and ankle OFF Tyne or total hip or knee replacement. We are also calling on foot and ankle surgeon specialists, shoulder specialists and last but not least, DPM or podiatrists. Again, beyond the product and market spec complexity, these customer sophistications with different expectations means that rates have to be focused on specialized.
Our uniqueness is coming from our ability to combine things in order for our customer to make health care better. It starts with our dedicated services. And by services, I do not mean what our reps are bringing as service on a day to day basis to customers. I mean specific programs, customized and designed for every specific customer to answer their different expectations. And we combine those services with a unique comprehensive and advanced product portfolio, which means that if you combine those unique services plus this unique product portfolio, this is why Stryker, Froma and Extremity, is able to make full conversion of some centers away from the competition.
Beyond this winning proposition and in order to continue to be fast growing, continue to grab market share in this changing environment, we are focusing on a few things. And we have identified 3 will be focusing on the foreseeable future more than anything else. And then it's not one or the other. It's about everything because you have interdependencies. It starts by building capabilities to demonstrate financial benefit to the C suite.
In our markets, in our business, we have a 2 step selling process. It starts with convincing the technical staff about the technical acceptance of our products, and this is what
the rest does. But
then as a second step, you have to be able to go to the C suite and demonstrate our demand, explain how much financial benefits, how much savings working with TRICARE we generate to the GPOs, the IDNs, the hospital or the health care community. Coming back to the trauma space specifically, we also have decided to change gear and move forward much faster into aggressively targeting level 1 hospitals in order to consolidate our position in this market space. It means that we are developing and executing specific programs fitting each of those individual hospitals that we have targeted. The extremity space should even if we are extremely successful on growing much faster than the market, Schudber is a space where we have to be a much bigger player if we would like to claim, and we will, global category leadership in the Xfinity space. And speaking about Xfinity, I would like now to introduce our Vice President and General Manager of Xfinity, who will give you much more detail about this market space.
I would like to welcome on stage, Gordon Van Ameren.
Thank you, Xavier, and good afternoon, everybody. It is truly a pleasure to be able to share with this audience the journey that we have been on and continue to be on relative to the extremities marketplace. I'll stand over here. I like to keep the competition behind me, but not my boss. So I'll stand over here.
So extremities to Stryker has been continues to be a growth engine. We have a tremendous track record, which I'll share with you on the foot and ankle space. And we have a great opportunity in the shoulder space, as Xavier points out. And I'll share with you some of the strategy that we look to put in place to continue to win and to take market share and to bring solutions to our surgeon customers and their patients, because one of the things that we get very excited about in the extremity space, when you look at foot and ankle and you look at shoulder arthroplasty, these are disciplines where there is still plenty of room for innovation. These are procedures where there is still opportunity to really drive clinical value.
On the foot and ankle side, I think in Roger Mann's kind of seminal textbook on foot and ankle surgery, there's over 100 commonly done foot and ankle procedures. And amongst that landscape of procedures, there's so much innovation that can be brought to each and every one of them, and we are committed to do that. And on the shoulder arthroplasty side, unlike the hip and knee side where long term outcomes have really elevated into the high 90s, there still is opportunity in shoulder to improve patient outcomes and is our commitment to do that going forward. So I'll now show you the slide that you probably know very well, obviously, that follow this space. These are great markets.
These are fast paced markets. These are some of the highest growth markets in orthopedics. And thus, we are committed to continue to win in these spaces. So you see the way that we look at these markets over the last several years, really high single digit growth, kind of leveling out in the 8% range for both foot and ankle and for shoulder. And really when you dissect these markets, you see a great deal of energy around them.
You see companies that have invested in specialized sales forces, knowing that dedication to the customers in these spaces really is very meaningful. You've seen a proliferation of educational programs and not just from industry, but also from the societies that support the surgeons in these categories. But I think most importantly, in terms of the growth rates that you see here, what's really driving that is an advent of next generation implants, new technologies that have really allowed surgeons to treat patients very differently, improve outcomes and in some cases, actually increase the number of the procedures that they're doing. So certainly on the foot and ankle side, over the last 5 to 10 years, companies have delivered implants that are made specifically for the needs of foot and ankle surgeons as opposed to retrofitting existing implants to those surgeons to use the way they are. You've also seen in the shoulder arthroplasty side a real revolution in terms of convertible systems that can go both from a reversed or an anatomic perspective.
You've seen a great deal of innovation around the glenoid side. So a number of things that have led to these great growth rates that we see and our perspective going forward is that the growth in these segments will continue. We certainly also see the shift notably in the foot and ankle side, but also on the shoulder side in terms of the site of care, which is also allowing surgeons to really think about and increase the number of procedures that they do. So let me kind of dissect these 2 categories in the extremity space and give you a little flavor for how we look at the market, but more importantly, how we have performed in the recent past and how we look to continue to drive the kind of growth that we've seen going forward. So on the foot and ankle side, I think you all know this is a highly segmented space.
You have the large strategics that are very invested in this space, but you also have a number, a very large number of smaller, and I'll hesitate to use the term ankle biter companies that are also very focused in this space, some of them single technology, but very aggressive in really chasing some of those 100 some odd procedures that I talked about earlier. Stryker, over the last 6 to 7 years has put an ankle of focus. We have developed as we as is our DNA, dedicated and focused sales reps that wake up every day and service the needs of the flamenco customers. So that focus that we've created on the commercial side has been the biggest driver of our success. When added to the portfolio that we've developed both organically and externally through 3 strategic acquisitions, we have now hit the point in time in 2017 where we can say quite clearly that we are the U.
S. Market leader in the foot and ankle space. So it's really been a great story and a story that we work very hard every day to continue going forward so that that arrow that you see that represents the last 5 years continues in that direction. The shoulder side is certainly a different story for Stryker from a past performance perspective, but a very similar story to us in terms of how we see amazing opportunity in this space. So this pie chart obviously looks a little bit different.
Our slice of that pie is a little bit smaller, but our dedication and commitment to win in this space is no smaller. So we have now established a foundational portfolio that allows us to compete with anybody in this space. And we've also launched a significant effort in the U. S. Market around our commercial activity, the confidence and raising the confidence level of our sales organization to sell shoulder, how we brand, how we position ourselves and how we work with the shoulder society to stamp our arrival in the shoulder space.
So I'm going to spend the rest of my presentation really focused on the shoulder market and give you a little flavor for, again, how we see what's happening demographically, but most importantly, where we're taking our portfolio going forward to be a winner and a leader in this space. So you probably have a hard time seeing the colors here, but this slide is really meant to reflect recent past and how we see the market moving forward in terms of the procedural segmentation in this space. And I think the takeaway here for everybody is the revolution that's taking place in terms of the increased penetration of reverse shoulders in the U. S. Market.
Has been that way in Europe for quite some time, but in the U. S. Market, we've seen a revolution. And it's really based on, again, the advent of convertible systems, better instrumentation, just better implants and also data that really is starting to show that for elderly patients who fracture their proximal humerus that the best course of action is in fact to give them a reverse shoulder. So I show you this slide because it gets right to the heart of what is the core of our portfolio and the strength that we have developed in our reverse shoulder.
We have launched our shoulder in 2014, our reverse shoulder, and we're getting great response to it and seeing tremendous uptick in the penetration of reverse that happens to coincide with this trend in the marketplace, which obviously is a benefit to us. So a word about where we're going from a portfolio perspective. So the strategy for Stryker and shoulder is the things that I talked about before, which really raises the game for us. We're adding talents. We're adding competency.
We're creating an organization that understands shoulder and can convey that to the marketplace. So we're building our internal capabilities. We're focused short term on commercial execution, which we've always brought to the table in every segment that we compete in. So we're really upping the ante in terms of our presence with societies, the education we do, the confidence level of our reps. But most importantly, we're filling out the portfolio to take that foundational portfolio that we've created.
The excellence that we have with our reverse shoulder, the excellence that we have with our fracture stem, which was just launched last year and looking forward to a point in time when we can apply the great proprietary technologies that Stryker brings to bear in the areas of additive manufacturing and most importantly robotics to shoulder arthroplasty. So what I would leave you with here, short term continue fill out the portfolio to meet the needs of the shoulder surgeon. Long term, change the game by bringing Mako technology to shoulder arthroplasty. When you talk to shoulder surgeons and you look at and dissect the results that they see with their patients, the biggest challenges that they have are on the glenoid side. Simply gaining appropriate exposure to the joints can be very challenging.
And also fixation of the implant in the glenoid presents additional challenges, particularly with patients that have bone defects and other challenges in the glenoid. What the robot will do for us is allow our surgeons to operate within a small window, not be as concerned about the exposure that they have to get, while providing absolute precision in terms of the preparation of the bone and ultimate precision in terms of the placement of the implant. So we have a big belief in Mako technology. We have a big belief in what that brings to shoulder arthroplasty. And we have initiated a project to get after that and really change the face of shoulder arthroplasty going forward.
So that's it for my prepared remarks. I think we have a few moments for questions.
Yes. Kristen, you could just wait for the mic. Yes.
Hi. It's Kristen Stewart from Barclays. Can you just comment a little bit about I know you said that you initiated a project with, I assume that's with Mako. Just how should we think about timelines for bringing Mako into the shoulder?
Yes. Great question. So with Mako, so the project has recently been initiated. This is a comprehensive project. So it will be multi years in length in terms of the actual developments.
And working with our regulatory partners, we believe that this will be a project that will require data. So this is a lengthy project, a multiyear project, but we have really kicked it off in earnest.
Thanks. Steve Lichtman from Oppenheimer. Gordon, so first question, you talked about improving commercial execution. Can you talk
a little bit more about what that means? Are you also adding reps on the extremity side? Maybe you can flesh it out a little bit. Yes. So from a shoulder perspective, it is exactly that.
So working with our sales teams to increase first of all, increase that baseline competency in shoulder, It is a very different procedure, it's a very different conversation to have with a shoulder surgeon. So we've initiated our own sales training program. We're kind of beefing that up. But we will selectively add specialists into the marketplace to address specific needs of each market. So it is a gradual evolution from our existing sales force, getting them more conversant and competent in the space, but ultimately adding specialists into our sales organization.
And then just secondly on the pipeline, can you talk a little bit about Reunion S, which you had on slide for 2019? A little bit more about that implant? And then some of
the Kristen's question on 3
d printing, when should we think about that potential going on in extremities? Thanks.
Yes. So the first question, the Reunion S. So in the marketplace, one of the changes that has really kind of become very prevalent is the shorter stem or stemless phenomenon. So we estimate that probably up to 50% of cases right now in the United States are either a shorter stem or a stemless device. So we will be launching not a short stem in 2019, but an optimized length stem based on a great deal of science and research that we put into the optimal geometry and the optimal length of the stem.
So we're very excited to be launching that next year. In terms of additive manufacturing, it's an ongoing process. We are looking at the capabilities that we have, that we developed at Stryker across the full platform of extremities products from the glenoid side all the way to the total ankle side. So there are numerous opportunities in different stages of development at this point, But we certainly see in the extremities piece of our portfolio really fantastic opportunities there.
It's Matt Miksic from Credit Suisse. So question on the robot and the shoulder. You mentioned that data will be likely required. I just wanted to maybe you can put it in perspective how you compare the data that you expect to be required to the data that was required, say, for the total knee and how similar or different?
Yes. I think it's probably a little early to have that conversation at this point. We have a little bit of work to do to fully understand that. But I think we'll defer an answer to that one until we have a more precise understanding. But we certainly believe that it based on everything we know, predicate devices, what's in the market right now that the FDA will require data.
And I'll leave it at that.
And then just a follow-up, if I could, on total ankle arthroplasty. Clearly, foot and ankle, you put the numbers up as you described in your position in the market. Total ankle, maybe a bit of work to do. And I'm wondering to what degree we should expect a kind of similar jump start strategy of using robotics or some of your other technologies to try to push that business forward in the next year or the year after?
So you're certainly astute enough to understand that robotics could potentially play a great role in total ankle arthroplasty. I think I would answer that question and say that we've done some initial homework in that space and probably leave it
at that. And also regarding the total uncle space, we are working on some custom specific cutting guys as well.
Go to Nick, over to Glenn.
Hi, Glenn Novarro with RBC.
Do you guys have this
is for both shoulder and foot and ankle.
Do you have any plans to bring to the market pre planning software? And as a follow-up on the foot and ankle side, do you have any plans to develop any biologics? Thanks.
So relative to proactive planning software, so we have a system. We refer to it as TruSight. It is currently available in the U. S. Market for reverse shoulders only, and we look to get approval for anatomic shoulders in the next year.
So we are in that space currently. From a total ankle perspective, again, I'll answer this to say that there's a number of things that are under consideration at this point in time. Chris Pasquale, Guggenheim. Wondering, can you comment on the timing of Reunion stemless? When do you think that will be available?
Yes. We're not prepared to talk about specifics at this point other than to say we have an active project. We're very excited about it. We look to bring concepts that we've developed organically to that space. I think as you probably know, the regulatory climate in that segment has shifted a little bit.
And I think we're still gauging what the necessary elements will be to bring to market. So I will just leave that to say that it is an important part of our pipeline, and we're aggressively working on it. And we'll probably answer that more specifically at another time. Okay. And then on the ankle side, you mentioned patients doing specific cutting guides, some other stuff you're working on.
From an implant perspective, are you happy with your product line there? Are there any product line extensions within the STAR family we should expect in the next year or 2? Yes. We have active work underway in the STAAR family. So our custom cutting guides, as Avi mentioned.
We're also actively looking at, in addition to our Taylor component, so some work that we're doing in that space. So there is Star is a very important product line for us. It is certainly one that we believe in and a number of activities underway to continue to evolve the technology, make the procedure simpler for our surgeon customers and really build on the clinical history of STAR, which is really the most studied and positively studied total ankle in the marketplace.
Robbie Marcus, JPMorgan. Extremity stands out to me as one of the most interesting markets and that is high growth, highly fragmented and pricing remains pretty good. So if you think a few years out and look into your crystal ball, how do you think the market looks in terms of number of competitors? And you think pricing can hold up like it has to date?
Yes. Certainly something we think about and talk about quite a bit. So I think to my earlier point, we do not see anything to slow these markets down going forward. And if I kind of take a look at them 1 at a time. So foot and ankle, again, there is over 100 commonly done procedures.
There are many of those procedures that are still where there's still great opportunity for innovation. So we believe that there will continue to be a lot of aggressive R and D in the space, a lot of aggressive activity, very few barriers to entry. So we continue we look forward to seeing a lot of activity. From a pricing standpoint, again, it's has been a little bit off the radar screen relative to some other segments in orthopedics. But certainly, the pressures that I think everybody sees are starting to creep in a little bit to the extremity space.
The shoulder side, again, these are procedures that are there's opportunity to improve patient outcomes. There are a number of companies, certainly us, that are focused on really getting after that. So again, we see continued growth. We see continued opportunity to innovate. And again, pricing pressure, but probably not as significant as we see in some other spaces.
And Melinda, maybe grab Rich one last one.
Rich Newitter, Leerink Partners. I was just wondering if you
could talk a little bit, I think one of the
points you had on the slide there was the increasing shift to outpatient and ambulatory surgery center surgery. How is your portfolio positioned there? And then also if you could talk to the last question around pricing, how do you think this is going to impact or change the way you go to market in the business as you try to tailor your selling process to that setting? Thanks.
Yes. Thank you. So in the foot and ankle space, that movement into the outpatient setting has been really underway for quite some time. And we have really adapted a portfolio that can really play very nicely in that space. We've developed a number of surgery ready kits that are kind of get to ease of use and efficiency for the surgeon and the procedure.
We have really geared a lot of effort in our development cycle around the issues of efficiency and again ease of use in making the procedure just easier for the surgeon. So we believe very strongly that the portfolio that we've developed on the foot and ankle side fits perfectly into the desire of the surgeon to kind of move that into the outpatient space. So we're quite comfortable. Obviously, the pricing can be very different perspective in the ASCs in particular. And we've developed strategies and again have a portfolio that we think aligns very, very nicely to the needs of the surgeon in that site of care.
Do you have to introduce something now? Yes, Ben. We have to introduce something. I think we're done. Sorry.
I was just settling in and getting comfortable there. So it's my pleasure now to introduce Mr. Andy Pierce, our Group President for MedSurg.
Thank you. Well done, guys.
Thank you. Gordon, if you'd like to give my talk, you can. All right. So good afternoon. Over the next 30 minutes, we're going to talk about our endoscopy business.
I'll do a brief introduction to the business. We'll be followed up by a true luminary in the industry, a physician that is a pioneer in the use of fluorescence imaging, Doctor. Martin Newman. And from there, Doctor. Newman and I will take some Q and A.
Good? Okay. So the endoscopy story really resonates over time with 3 key themes. The first theme is innovation. Based in the heart of Silicon Valley, the endoscopy division has led division such as the first sociable 3 chip video camera for MIS surgery, the 1st integrated operating room and more recently, the 1st post pre distraction table for hip arthroscopy.
And that's just to name a few. The division is rich in history with its firsts. 2nd, the division is known for its commercial excellence. If you talk to physicians such as Doctor. Newman or the gentlemen that were on the stage earlier, you'll find that they revere their Stryker sales representatives.
And in the endoscopy division, that is alive and well. We have 4 of our former Stryker sales representatives represented here today in our executive ranks: Mr. Matt Moreau, who you'll be able to meet later, who's the Vice President and General Manager for our Sports Medicine Business Mr. Brent Ladd, he's the President of our Endoscopy division, who you'll also be able to speak with later Spencer Stiles, who sits up here, proud alumnus of the endoscopy sales force, who is the Group President for our NIS group and Mr. Tim Scannell, who, as you know, is our President and COO.
And third, our market leading growth. The endoscopy division sets the bar high and the endoscopy division goes out and gets it. This is a beautiful graph that stretches back into 1999. The division was started actually in 1989. If you look at the compounded annual growth rate from those days, it would be astronomical.
There would be tiny little bars at the end. The division over the last 5 years has produced a compounded annual growth rate of just over 8% and in the U. S. Alone, about 10% growth. So a rich history of fast growth out of the endoscopy division.
All right. So the division is comprised of 3 separate selling businesses. These businesses are full commercial businesses with general management, sales forces, R and D, marketing, etcetera. You know that we believe in focus and specialization and that's alive and well in the endoscopy division. So starting on the left, our largest business unit, the endoscopy business unit.
This business unit is the pioneer in white light imaging. This is where we had the first silkable video camera that I talked about earlier and now is the leader in fluorescence imaging, which you're going to learn about in a little bit from Doctor. Newman. In the center, you see our communications business. This business is actually based in Dallas, Texas.
The communication business created the integrated operating room space where we took the equipment in the operating room off the floor, hung it on equipment, boom, made for a safer environment for the staff and a more efficient environment for surgery. That's our communications business and this business is a leader in its spaces. Finally, our sports medicine business. The sports medicine business competes in the largest market for the endoscopy division, and the sports medicine business based in Denver, Colorado is what we might call an emerging leader in its spaces. This business is focused on soft tissue fixation and soft tissue resection, primarily in the shoulder, the hip and the knee.
And we believe in being the best first and eventually leading our markets to be determined down the road. This business has been a fast grower for Stryker and moved from a distant, not even on the page in terms of its market share a handful of years ago to now a strong number 3 position in the U. S. And growing fast. To continue that growth trend that I showed earlier, we have 3 4 key growth drivers that we'll talk about briefly as you think about the endoscopy division.
1st, we are focused on maintaining our leadership in MIS visualization in general. And then, of course, as you know, fluorescence imaging through the acquisition of the NOVADAQ business. We are now the hands down leader in fluorescence imaging. And we believe that, that will be the future of imaging for MIS surgery and also for open surgery as you'll hear about from Doctor. Newman.
Additionally for us, the acquisition of NOVADAQ allowed us to expand into some new categories. And you'll hear about one of those as we talk about breast reconstruction surgery with Doctor. Newman. Next, facility new build, remodeling, expansion, driving operating room upgrades. So by facilities, we primarily mean hospitals, but also the trend towards building more outpatient surgery centers.
So these are wonderful opportunities as our hospital customers and ASC customers modernize their operating rooms for us to put the most current equipment in integrated operating rooms in those facilities. So that's the capital equipment, the hospital infrastructure equipment as well as our visualization equipment to fill those operating rooms. Next, as noted, we have an emerging leader in our sports medicine business, competing in our largest global market, about $4,500,000,000 as noted, about a number 3 share here in the U. S. And this business has been getting a disproportionate amount of our investments in R and D, our investment in expanding our commercial sales force as well as we invested in business development in this business with the acquisition of Pivot, which really made us the technology leader in hip arthroscopy.
And then most recently, the acquisition of Ivy Sports Medicine, which gave us a strong leadership position in meniscal repair. And then finally, focus on geographic expansion. As you well know, Stryker has been undergoing what we call our transatlantic operating model over the last several years As we have taken a stronger position in Europe and Canada and other markets around the world, we know that those markets for us are lower share than we traditionally had in the U. S. So they have provided tremendous growth opportunities as we ramp that share quickly over time.
So that's just a brief introduction to the Endoscopy division. And with that, I'm going to introduce our very special guest speaker, As noted, Doctor. Martin Newman is on staff at the Cleveland Clinic in Florida. That is the warm Cleveland Clinic, not the cold one. And he's in the Department of Plastic and Reconstructive Surgery.
He is the Program Director and the Head of the Clinical Research for the Residency Program. As you look down below on the publications, he is a prolific publisher as well as an in demand podium speaker. And also as noted prior, Doctor. Newman is really the pioneer in using fluorescence in surgery. So please join me in welcoming up Doctor.
Martin Newman.
Thank you very much. I'm a luminary.
I like that. You are luminary.
Well, to my neurosurgical colleagues, that was really great. And to my industry colleagues, I've really been impressed with what I've seen today. So I'm going to try and come up to that standard. So for those people who are not in healthcare, this is kind of going to be a quick crash course in surgery with Key Medical School. And I'll start by saying that successful surgery depends on being able to remove diseased tumor, tissue or an organ while preserving healthy structures.
That kind of makes common sense. And that following removal, the remaining structures will only survive if they have a viable blood supply. The blood supply has to be adequate. And therefore, one of the jobs of a surgeon is to look at the tissue that they leave behind and to make a judgment and say, this has an adequate blood supply, this should live or this isn't going to make it and we have to do something about it. So now that you're all in healthcare, now that you're all medical students, I can be honest with you and I can tell you that with all our training, surgeons are less than 100% accurate in identifying poor blood supply, the skin, as we say, with our naked eyes.
We're good, but there's still room for improvement. Now to give you an example of how this might affect the surgical outcome, we'll take, for example, breast reconstruction. And as you know, breast cancer is a very common thing. 1 in 8 women in the United States will have breast cancer. I would argue that everybody in this room knows someone who has had a breast cancer.
It's very, very common, 1 in 8 women. And when it comes to surgery, it begins, like I said, by removing the diseased tumor or tissue. Then the surgeon must assess what's left behind to determine whether or not it has adequate perfusion. Is it going to live? If so, leave it.
If not, you got to take it. And if it doesn't come out right, you get a result like this or this or this. And as bad as this is, it gets worse because it's a domino effect. Once the skin dies, the patient is going to lose the breast for the 2nd time. It's going to be a significant pain and suffering.
And that's from the humanistic point of view. That's from my point of view. I have to listen to the I have to watch the tears and deal with this. But from an economic point of view, and I know it's predominantly a financial meeting, from an economic point of view,
the costs are ridiculous. You're going to
have an extra operation. You're going to have unplanned hospitalizations. You're going to lose your derma cell. You're going to lose your implant and your costs are going to double, triple and even higher than that. How much so?
Well, we look at this and if you look at professional fees and hospital charges, for a woman who has mastectomy flat necrosis following breast reconstruction, the numbers can be as high as $100,000 That's in the 1st year. This thing drags on and goes up to $130,000,000 $150,000 So it's not a good situation. How often does mastectomy flap necrosis occur? Mild, moderate, severe, about 25% of the time. And if you multiply that by the number of people who are having breast reconstruction, you can just imagine the drain on hospital and health care resources.
So what do we do? We give them a guide,
a medicine on the table, ICG. We watch it course through the vasculature, takes about 30 seconds. And then we image it with a camera like a spy. And what we can immediately determine using this technology is what's well perfused and what isn't, what's going to live and what's going to die. And if it's going to die, we take it now, we debrid the tissue rather than wait for the problem to occur in the postoperative phase.
You put out the fire before it happens. So here's an example, and I'm not sure how it's going to project, but let's take a look over here. What you're visualizing here is a mastectomy
flap. That's the wound.
You're beginning to see the blood flow come in. And then at some point, you see it kind of stall out around here. I can tell you now, this is the first time you're seeing this, so you don't know. But I can tell you now that this tissue inside the line is going to die. This is kind of marginal.
Now we ran a couple of these before we knew what it meant. So we let them out of the operating room. And something like this translates to something like this about 100% of the time. This has a 100% correlation.
So again, if you can see this
on the table and correct the problem before letting the people out of the OR, you can virtually eliminate that 25% rate of flat necrosis. The technology is what you've been hearing about to SPY, and it is the current market leader. They came to me about 10 years ago and said, we want to this used to be like a cardiac machine, whatever. They said, we want to do something for plastics, for you guys to assess tissue. We want you to help us come up with an idea.
And I said, well, all this is good, but when you guys can dumb it down to be something about the size of my iPhone, that's when I'm sold. And indeed, that's what they have now. This is the portable Spy Fi. This is the next generation. This is going to put this technology in the hands of every surgeon so it could be used on every patient.
When you guys do scouts, you can take this thing out just to see if the scalp flap is going to move. Rather than get that necrosis that sometimes you get around the walls. And this is, I think, really what's going to really, I hate to use the term, but be a game changer. Because if we can get this in everybody's hands, you're going to probably be able to virtually eliminate flaccid prophylaxis, which is the biggest complication in plastic surgery.
Okay. With that, Doctor. Newman is going to join me, and we'll take any questions.
Yes, Bruce.
Christian, can you go to Bruce, please?
That seems very powerful. Just beyond mastectomy or rather breast reconstruction, what other types of procedures in the U. S. Could benefit from perfusion assessment? And could you just kind of put a case number on it?
And roughly what's the I guess, is it capital piece of equipment? Is there a disposable attached to it? So if you could just kind of from the medical point of view, the applicability generally and the economic potential generally?
Sure. I'll talk about it from a business perspective. From a
medical point of view, if you use a Bovie and a knife, a scalpel and some sutures, I think that this has a role. It's already been adopted into almost every surgical specialty. Colorectal is a big user of it. QYN is a big user of it. There are applications that are not quote approved yet.
It's just exploding. It's being rapidly adopted by most of the surgical specialties because perfusion is everything in surgery.
Yes. And just to build off what Doctor. Newman said, the use cases are almost endless, and I don't want to overdramatize that. But what's happening now is we're learning, particularly with SPIFY as it's more portable, that in the hands of our surgeons, oftentimes using it off label, not with our encouragement, they're finding new applications routinely. But standard applications that we see in the industry today, of course, are like Doctor.
Newman referenced with breast surgery, breast reconstruction. We see gallbladder surgery is very common in MIS, where you need to see the biliary tree and not cut critical anatomy. So it lights up green with a fluorescence dye, the ICG dye. And in colorectal surgery, very common use case where we're seeing in colorectal where you have an anastomosis of the colon, which is resection, where you're taking cancer out and you need to re attach those 2 endpoints and you need good blood flow without leakage. Prior to fluorescence imaging, the surgeon would essentially guess or use his or her best judgment on blood flow, put those two ends back together and oftentimes they would have what's called an anastomotic leak, which is really an awful circumstance for the patient.
Now that we are able to see that clean blood flow, they can put those two ends together with confidence that, that patient is going
to heal. But a number
of different use cases, we're seeing it used in patients that may be potential amputees where surgeons are saving ER surgeons are saving limbs. There's a number of different use cases that are possible. Disposables, that was another question. Yes. So with the SPIFI and the SPIFI Elite that you see on the screen here, we also have an MIS camera that's not shown here that also has fluorescence imaging.
We do sell the ICG agent, the actual drug itself. We distribute that product. And with these products, there are sterile sheets that go over the cameras. Thank you. Rick Wise, Stifel.
Just from my past with Novadek, Spotify, just the pricing back a couple of years ago had depth limitations. Is it now able to do the same kind of imaging job that the larger unit can do? Or is it in fact more appropriate for more blood flow closer to the surface only?
No, I think it should be the same. It's the same technology.
There's one element, and this is perfusion quantification, which is only used in specific types of procedures that we're building the software for the Spotify device to have. But functionally, it's essentially the same. And are there other indications for this technology? I mean, central node identification, rather, I know was an exciting thing in the past. And maybe just I'll finish and say, I know that there was the potential for other imaging agents.
Are these all futures that you're focused on? Thank you. Yes, please, afternoon. So I wrote
a paper published about 6 months ago that showed a correlation between the ICG's ability to identify a stent in the lymph node in melanoma patients. And it showed about 100% concordance with Technesium-ninety nine, Technesium-ninety nine being the nuclear medicine scan that people get in lithosyntrogram. And I argue that if we could obviate the need to have to send patients to the nuclear medicine suite, again, from a humanistic point of view, it's painful, it drags out their day, it's just not a pleasant experience. From an economic point of view, lymph node mapping lymphosynthesy is very expensive. If we could obviate the need for doing that and just buy them on the table for a known lymph node basin, I mean, it's just, it's again a game changer.
And from a visualization point of view, when you're doing a sentinel lymph node and you've injected some methylene blue or something and you're looking at it and going, that could be it. I don't know. Let me see. There's none of that. I mean, it just lights up like a Christmas tree.
It's an amazing technology. So
we're not I'll take the second part of the question. And of course, building on the fentanyl lymph node work, there are a number of physicians that are studying SENTINEL lymph node. And I would anticipate in the near future, we'll have clearance for that use. But specifically to other molecules, this is a really, really exciting time in the imaging space, particularly for us being the leader in fluorescence imaging as a number of different molecules are being invented, designed, created today that simply will change the game in a number of different care settings. For example, of course, the Holy Grail is molecules that will attach to certain types of cancer cells.
You attach a fluorophore to that molecule and you can see clean margins when you excite it with the laser. So you get the fluorescence image and you see clean margins of that tumor. We do see this use case outside of the U. S. Where the on label, off label issue isn't such a challenging matter, where you have lung cancer, you do have a number of use cases around lymphatics and in liver cancer already.
So some really exciting things happening in the space. Would also say visualizing the ureters and potentially down the road visualizing nerves.
Additional questions? Yes, David?
David Lewis, good morning Stanley. Andy, just 2 for you. The first is, NOVADAX issue was not the technology, it was distribution. So can you talk to us about how the integration process has worked this year when you think about the placement opportunity for this particular technology and the integration to future endoscopy cameras for Stryker? What is that place and opportunity?
And where are you in the integration curve this year? And I had
a quick follow-up.
So, David, the placement opportunity of the number of units, for example?
What is the opportunity number of supplies you can place? Some of that's going to get integrated into 6,008, so I think it's complicated. I'm just trying to get some sense of where we are
and where we could go. We're not going to give specific details on our sales numbers, but I will say that, and you can speak with Brent later about this as well if you'd like. The model that we built prior to the acquisition for NOVADAQ, we are doing extremely well relative to that model. And of course, a big component of that is our placement of the devices, primarily now focused on placing Spotify. Would say that it's very early days still in terms of penetration and that we have a large opportunity relative to the market.
We have today in the endoscopy division about 20,000 endoscopy towers in the U. S. Alone that are Stryker endoscopy towers. Of course, all of those towers don't yet have a Spotify attached to them. We hope that one day they each do.
And then relative to the technology integration, we're moving in waves. We will be probably 2 generations away from full integration of all of the Novadek technology into a single platform for Stryker, but we fully anticipate that. Okay.
And just the second question is, you're not a surgical tools provider, you're really a surgical imaging provider. Some of the surgical robotic companies in general surgery are moving to sort of fully integrated solutions where they're offering their own imaging. How concerned should people be that you take this out 5, 6, 7 years where Medtronic and J and J have integrated surgical imaging robots and you're still just trying to be the surgical company? How do you deal with that risk?
Well, the first thing I would say is I'm not so sure that down the road, we will still just be trying to be the surgical imaging company. Of course, we have a large robotics program in our corporation today with hard tissue robotics. And robotics in general, as you heard from others, is a very interesting space for us overall. So it's not to say that we won't one day be there as well. I'm not saying we will, but it's not to say that we won't.
That being said, we love the position that we're in with the technology leadership that we have in fluorescent imaging. The IP portfolio is robust. One of the real benefits of the acquisition of NOVADAQ was their strong patent portfolio. So that will certainly make it a real challenge for those robotics players that are entering the space. Of course, as you know, we have we provide the imaging for the intuitive da Vinci robot today.
But that being said, whether it's future partnerships down the road that we may have with other robotics providers or one day being our own provider in soft tissue robotics, we believe that we have a place. The other part I would say to that is it's still very early days and feeling out the right procedures for robotics. As you know, there's a lot of controversy around what procedures today relative to da Vinci are appropriate, relative to cost, benefits, what's not. And we believe that over time, that will shape out, but we have many, many years of strong growth as that shakes out. The other part of that, of course, is the players in the industry developing those robots are likely some time away from being very effective.
Thanks, David.
We have time for one more. Yes, Bob.
Sorry, Bob Hopkins from BofA. Just one quick one, Andy, if Catherine is okay with this. I'm just wondering if we could look backwards, you've had a fantastic year in your division. Can you just give us a sense within the 3 core businesses that you're in, what the growth spread is among those various businesses this year?
I can, Bob. Yes. Well, I did note earlier that our fastest growing business is our sports medicine implant business. And that business, Bob, is high teen, low 20s, really a fast grower, a strong double digit grower. It has been for years.
Again, lower market share position, so a smaller business overall, but growing very fast, very innovative business. Our communications business is also a strong double digit grower. That business has benefited, as you saw earlier, as noted, on the trend towards new builds, remodels, new constructions and ASCs as well as we build out the OR infrastructure. So really nice several year run-in our communications business. And we've had a great run with our 1588 camera in our core endoscopy business.
And as per usual, in our camera cycles, we're on the back end of that cycle. It's been discussed about by Kevin and Catherine and Glenn at other points. So our core endoscopy business is a slower grower this year. But of course, we like to innovate, and we like to innovate in cycles. And that business will be backed very strong and continue to be a strong contributor to Stryker
Corporation for a long time.
Ryan Zimmerman, BTIG. Just in the cycle for the integrated OR, where are we in the development of that with respect to new physical plants in the U. S. Versus retrofitting existing physical plants in the U. S?
Sure. Well, I would say, first off, thanks for the question. The business is about fifty-fifty for us. So about 50% newbuild, 50% remodel. And I would also say that about 80% of operating rooms in the United States still today are what we would call standard operating rooms, so not integrated ORs.
So that being said, of course, you can do the math and understand that we have a long trajectory ahead of us if we shoot for that 100%, which we won't get there, But we have a long way to go for growth in that business. Good. Great. Thank you very much. Thank you, Doctor.
Newman. Good to hear, sir. Thank you very much.
You are a luminary. Yes, we do.
All right. So next up, our newest member to Stryker on the Stryker leadership team, Biju Menon, who runs our is our Global Group President for Global Quality and Operations. Vijay Menon?
You too. Thank you, sir. Good afternoon.
All through the afternoon, you heard fantastic story about how we maintain the growth of the high end of MedTech. Along with that, we have a very robust program to deliver absolutely consistent bottom line operating margin accretion. And we have an initiative, it's called the CTZ or cost transformation for growth. This will work eventually. I have right clicker, then it will work.
So cost transformation for growth is something that's not new to this community. We are in our 3rd year and we are in our 3rd year of absolutely delivering the 30 to 50 basis points of accretion this year as well. So my role is 2 fold. 1 is to provide you with an update of where we are. We also convey with absolute high confidence that we are going to continue to deliver the 30, 50 basis points of up on an expansion in the years to come.
So if you look at the 8 dimensions of this, what you see is draw a vertical line to the middle. The right side is really SG and A. The left side is product cost benefits.
If you look at the white side,
those have been very consistent through shared services from the integration of finance, the Blend's driving or the Workday implementation that Katie Pick and the HR team is driving this year to the global operating model that you heard from Kevin on down, the very division centric aspect, which keeps us very close to the customer, but at the same time leveraging the scale across all the operating divisions to deliver off margin accretion. So that operating model is absolutely a robust and key to success. Glenn and the team have proven fantastic improvement through the indirect procurement sourcing leverage and you'll hear in a couple of minutes from me what we're going to do and what we're in the process doing from direct sourcing as well. When you think about global ERP, we absolutely have gone live in CMS, which is one of the smallest divisions and on track to proliferate the SAP ERP standardization in 2019 across our larger divisions as well. So that's on track so far.
From an outsider perspective coming in about 6, 7 months ago, as I look at direct sourcing, there's an absolute opportunity that we are pursuing to deliver transformative savings from a direct material procurement standpoint. There is a very well established playbook that many industries follow from a direct material sourcing perspective and that's what we're putting in place here at Stryker as well. To think about the overall supply chain optimization, all of the independent work streams, if you think about demand planning, supply planning, sourcing, manufacturing and fulfillment, we run a pretty good supply chain. However, the difference that we're making is really looking at it from a patient centricity and working backwards from the hospital bed, the surgeon, the patients back through the value chain up to the very top of it and really integrating it such that we can deliver much better of a customer experience, but also unlock significant cash from an inventory standpoint along with our even better service levels. So more to come, but very, very optimistic about the opportunity here.
Last but not least is absolutely planned network optimization, both from a strategic standpoint, from a make versus buy standpoint, but also within the four walls of each of the plans. If you think about the opportunity to unlock, whether it's equipment effectiveness, whether it's footprint optimization, whether it's frankly the yields and the production quality and health set, there's a lot of specific initiatives that we're driving that will unlock significant value from the plant network as well. As you heard throughout the afternoon, making really good strides from our product lifecycle transition across the different divisions. So all in all, the key takeaway is very, very confident in continuing to deliver the 30 to 50 basis point of op margin accretion SPS committed to. With that, my privilege to introduce Glenn, our CFO to take us home.
Glenn?
All right. So what I'd like to walk you through is just sort of wrap up all the things we talked about, put a nice bow on it and reiterate sort of the long term growth model that we laid out 2 years ago. And if you think about it, what we're really trying to drive here is really sustainable EPS growth, and there's 3 factors here. Starting at the top is sales growth. And as you heard today, this focused market approach and dedicated sales forces, power brands and a diversified portfolio really ensures that as we look at making sure that we're growing above what the average med tech is growing, that even in markets where that might be lagging, we have other markets that are growing double digits that allow us to make up for that.
Moving to the middle of
the income statement. What are we doing to drive operating leverage? You just heard Viju describe where we are with our cost transformation for growth program and the 2 facets that we're really focusing on, really improving our product costs and our COGS and becoming very efficient from an operational structure And then secondly, driving meaningful SG and A leverage through programs like indirect spend, through what Katie and I are doing shared services. And all that leads to balanced R and D investment. I think you'll see over the past years, we've actually increased our investment in R and D.
Finally, moving down to the bottom. If you and it doesn't get much airplay, but we've set up very efficient tax and debt structures that really help us manage our effective tax rate as well as our interest expense. So what do these three things add up to? They all add up to EPS growth that's leveraged versus our sales, and I'll show you that in a second. Speaking of growth, and I know you've seen this slide before, although you haven't seen 'eighteen on here.
If you go back as far as 5.5 years, we've been outpacing the market. We've been outpacing the market more than 150 basis points. And what I'm here to tell you is that 2018 isn't any different. What I have on the slide here is year to date Q3, and we're already 200 basis points ahead of the market. And I fully expect that we'll finish the end at the high end of our guidance range of 7% to 7.5%.
All that growth would be pretty meaningless though if we didn't deliver earnings. And so I think if you look at the in the last three years in the last 3 years since 2016, we have continued to deliver leveraged earnings versus our sales growth. And that will continue in 2018, too.
I guess the other thing I'd
really like to point out here and something that hopefully doesn't go unnoticed, But in years where we've had particularly strong top line growth, we have let that flow through to our earnings growth. So I know we put a minimum 9% out there, but where we're seeing stronger growth, we'll deliver greater than 9%. So looking at our capital deployment strategy, this is no secret. Kevin's talked about it. Catherine's talked about it.
We reiterate this in 1 on ones and in earning calls. We are focused in 3 areas for capital deployment, but one of these is far bigger than any other, and that's our M and A strategy. And this M and A strategy is one of the facets that really ensures that we'll continue to be a high grower at MedTech. If you look at sort of capital deployment even this year, we're on track to deploy over $2,500,000,000 towards M and A. Not to be sort of slighted, though, I really do think if we look at dividend growth, we've been very consistent to drive dividend growth that is in line with our earnings.
And if I went back and looked at sort of what's that growth been since 2010, we've driven a dividend growth CAGR of 15%. And then lastly, we will continue to do share repurchases, but our strategy there is really only to do share repurchases to the extent we offset dilution in any given year. And this amounts to roughly about $300,000,000 in any one year. So what does this look like sort of wrapping it all together? This is what we showed you back in
2016. This is
the model that we're sticking to, sales at the high end of medtech, delivering 30 to 50 basis points of annual operating margin improvement over 5 years. And one of the things I think we should point out there is we've delivered 30 to 50 basis points, and we'll do it this year even though we have very dilutive acquisitions that are hitting us. We're still hitting that target. And then lastly, all of this coming down to a minimum EPS growth of 9% annually. And with
that, I'm going to invite
the panel back up to stage for Q and A. That will be Kevin, Catherine, Viju, Kim, Andy, Spencer.
Okay. Thank you, everybody. The way we're going to run this is, I'll feed the question and I'll just sort of point the question. I'll either answer the question myself or I'll feed it to one of my colleagues for those answers. So who wants to start?
Hi, thanks. It's Agro from Goldman. Kevin, you guys have been very successful with M and A over the years. If I look around the rest of the industry, your other competitors seem to be getting a little bit more focused on M and A as well. And in some cases, in similar areas where you guys have already expressed an interest.
How do you build a sustainable competitive advantage on the M and A front? How do you make sure that you get the best assets at the right price on a systematic basis?
I think we actually have built a sustainable competitive advantage. So just the fact that people want to get active, it's not something you just do overnight. So we've built a confidence, a really strong confidence over a number of years. We know how to pick the right targets, we know how to pay the right prices and we know how to integrate. So each year, we show our Board of Directors a dashboard of our M and A performance, and it's delivered with green colors in terms of being on track, being on model.
Having more people involved in M and A always that could potentially lead to price wars for assets. We have discipline. We're not afraid to walk away from a deal. And the beauty of our decentralized model is we know all the companies that are out there. We actually acquire things very, very quickly.
Pivot is a great example. We took that company out when it was very, very, very small, and it's clearly the best solution for hip bar foroscopy. So sometimes we'll still snag things very early given how decentralized our model is. And so I like our chances in M and A and the fact that other people are looking into it. But the problem is, as you've seen with other companies, is they'll do a deal, potentially a larger deal for them relative to their size, and they'll fail pretty miserably.
You only get good at deals if you do them often. Catherine and her team also animates a very active best practice sharing process on how to integrate deals. And so the more you do, the better you get at things. And the fact that we've been this active is great. Also, our division presidents, if we pass on a deal because of price because you have to be disciplined.
Once the price goes above the value that will be value creating for the company, we'll pause and we'll let it go. Our divisions know if they come back with another deal, they can still do a deal, that they don't miss their churn, so to speak, which does happen in other companies. If a division misses their chance, they have to then wait maybe 5 or 6 years. That isn't going to be the case at Stryker. I don't know, Catherine, do you want to add anything to that?
No. Okay. Thank you. David? David?
David Lewis, Morgan Stanley. 2 for you, Kevin. So I have to pass it off to anybody.
So the first question is, wonder if you could
just talk about the transformation of the Stryker growth profile over the last 5 years since you've been here. It used to be sort of 5% to 6% and undefined at the bottom, then it moved undefined in the top to 9% floor, the infamous 9% floor. Early this year in AUS, you talked about not just 9% floor, but you've definitely expressed confidence in a double digit earnings profile and the high end of MedTech, frankly, has shifted in these last 5 years. So what is the new Stryker profile? Are we talking about 712, 7 10, 613?
What is the profile as you see it?
So I always like to anchor our being at the high end of medtech versus the market. You saw the chart Glenn showed. We've been very consistently delivering on average over 200 basis points faster than the market growth. So it always depends on the market. We're not going to defy gravity.
So I don't want to just give a number in free space. If the market is growing 5, then you should expect us to grow at least 7. If the market starts to slow and goes down to 3 or 4, then we'll probably drop in a commensurate manner. But I regularly and absolutely expect that we're going to be outpacing the market. Just based on our market position, based on our R and D pipeline, based on our BD performance, we've been incredibly reliable in being able to outpace the market year after year after year.
I don't see that changing, but it is based on how the market grows. So if the market suddenly grows 6%, 7%, 8%, then you should expect add your 200 plus basis points, that's where we're going to grow and we're going to leverage our earnings. So our earnings are going to grow faster than sales. So although we put a minimum of the 9%, as you've seen in the last 3 years, we've clearly been in the double digit land. But it always anchors back to the how is the market growing.
So if the market is growing, if it goes back to where it was in 2013 and the market is growing 2.5%, we're growing 5%, well then maybe 9% is a more realistic EPS off of a 5% top line than the 12%, 13% we've been delivering the last few years. So that's my simple answer, Kew, is you should expect if the top line is growing the way it has been growing, you should expect double digit earnings. But it really does depend on how the market is growing. You add our premium growth rate to that and then expect good leverage on the bottom line. The market stays where it
is today. We should expect a kind of a 7% to 12% to 13% profile from Stryker in the future.
Again, we'll give our specific guidance for 2019 at the end of January. This is the kind of visibility I have now, but you should expect a similar kind of if the market stays the way it is now, you should expect 2019 to look awfully similar to 2018.
And just my follow-up question is on 2 companies in large cap medical devices grow faster than weighted average market growth rate. It was Stryker and Baxter. As of the 3rd quarter, it's just Stryker. So how are you able to grow Thank you for pointing
that out. I appreciate it.
You're welcome. Joe will kill me. So you and now how are you able to grow faster
than the weighted average market growth rate?
I think one
of the concerns investors asked this year was sustainability and this sort of thing Stryker needs to go out and do a deal in a faster growing market expanding market, at least one sizable new market to sustain that growth. So 2 part question. How do you continue to grow faster than your markets? And do you need to do that transformative growth deal?
So I'll answer the last question first. We don't need to do transformative deal to sustain the 200 plus basis points above market growth. We don't because we have an engine of growth that's really humming If you look at the cycle of innovation, Andy talked about his camera. The distance between 1188 and 1288 was many years. 1288 to 1488 was pretty fast.
1488, 58 was even faster. 1688 is coming in the first half of next year. That's a pretty fast cycle from 15.88 to 16.88. That's the same thing that's happening in instruments with system from system 6 to system 7 to system 8 power tools. So our cycle of innovation has definitely accelerated across the company.
That's one thing. Our commercial model, it's a built in advantage. The fact that we have these decentralized businesses with business units that are close to customers with focused and specialized sales forces, these deals that we're doing, right, NOVADAQ is now rolling into organic growth, right? We just announced K2M, at least they announced this morning. That's going to close very soon.
That's going to take our spine business to a higher growth profile. Mako, it's only just a little over a year since the full launch of Mako. You've seen the way that's contributing to our growth. We're still in the very early stages of the total need with Mako, let alone future applications. So I'm very bullish on our prospects to continue to grow really at the high end.
And as you said, in Q3, we really stood out versus our competition. But I expect this growth to continue unabated. Will we do other deals that are more transformative? We may. We absolutely have no need to do so at the current time.
So Kevin, 2 for you. Larry Biegelsen, Wells Fargo. Thanks for taking the question. I may pass one of them on just to keep on engage. So two questions.
One is areas of it sounds like you expect organic growth next year to be pretty similar to this year based on your prepared remarks. I didn't give a specific number, but we expect very good growth next year. So areas of Stryker that could be stronger in 2019 than 2018 in areas where maybe because of product cycles maybe a little softer? And just secondly, how would you rate the spinal cord stimulation market in terms of attractiveness, in terms of strategic fit for Stryker? Thanks for taking the questions.
So I'm not going to get very specific about every division. I would just say that as I sit here today, I think I have a very similar balance of headwinds and tailwinds as I had coming into 2018, similar balance. So in some cases, you have some divisions that are at the end of the cycle and some divisions that are earlier part of the cycles, but I would call it very balanced. I don't know, maybe, Catherine, if you want to add a little bit on the headwinds, tailwinds?
Yes. I would echo the comments. We're going into some strong product cycles next year, but then there's some other businesses that will have more challenging comparisons, which is why we come back to that statement that when we think about our ability to grow at the high end of medtech and medtech growth being pretty similar based on everything we know next year as it is this year, we feel really comfortable with that. And then on as it relates to spinal cord
simulation, I've been saying for the last 4 years that neuromodulation is an area of interest for our company. Clearly, we have a big neuro business. You can see our commitment to spine. We've reasserted that commitment, both with the Vexim acquisition and more recently, the pending K2 acquisition, that this is an area that's of interest and that's a space that is of interest to our company. Unless, Spencer, you want to add anything since you're the NIS head?
If you think about our neurotechnology businesses, it's one segment that we don't offer a product in right now. So it's an attractive adjacency we continue to monitor. And that's a call point. You know our acquisitions, we tend to look for great technologies that fit in our existing call points. That's kind of the sweet spot of Stryker deals, and this is within our call point.
Rich? Kevin, we're talking about a lot of products and outlook here. Maybe talk a little bit about some of your geographic thoughts, both outlook and initiatives. So am I remembering correctly, the emerging markets still are only maybe 10% of Stryker? No, I wish they were 10%, Rick.
Okay. All right. Thank you. Maybe is this going to as we look over the next 3 to 5 years, are emerging markets a bigger priority? Or is international?
Just reflecting on another aspect of the growth outlook. Sure. I'll start and then maybe I'll pass it to Tim to make a comment. I would say if I look backwards, we're really excited about what's happened in Europe. The transatlantic model, even growing Canada into that model, has been a wild success where we've got Europe growing north of Stryker's average growth rate each of the years since we launched that model.
So that's been a huge success. More recently, Japan has really turned on and become a really strong performer. But emerging markets has not been a great area for us. It's about 6% of our sales, not so quite a bit below 10%. The promise is still very, very significant.
We're committed to getting better in emerging markets where we are in the process of retooling our offense. We're feeling more optimistic about China, but still have work to do in a lot of the other markets. But maybe I'll pass it to Tim. Tim, as you know, as President and CEO, he has responsible for all of our businesses and also all of our regions.
Yes. When Kevin was talking about our gross success over time, I was going to add international and talent being 2 other areas where we excel. And on the talent side, you'll meet tonight all these fine leaders we have and really just this history of developing strong leaders with great market knowledge that's been there a long time and learn how to partner with great clinicians like we've seen here tonight. On the international front, I would not underestimate or understate the success we've had in Europe. I think it's been fantastic and that continues.
We get stronger and stronger there. And in emerging markets, I would say, admittedly, we have work to do, primarily starting in China. Our neurovascular business is doing a terrific job there. The rest of the company has a lot of work to do. Last thing I'd stress is we do have priority markets, which include China, but also Japan and Australia.
We've had an excellent year in Japan, which I think has been very, very impressive for us. And in Australia, we continue to be a dominant force. So in general, I think it's a mixed bag where we have great performance in these developed markets. We have really great opportunity in emerging markets and some early wins for Stryker, but a whole lot more work to do.
And I was going to follow-up actually with a question for Tim anyway. Just as you step into this role, what are your priorities? What's Kevin asked you to do? What kind of tough jobs does he ask you to tackle and to make the company even better? He likes that question, so he must have done something.
Well, he said we may not defy gravity, but we start with the premise that we need to continue to defy gravity, which means we get bigger and we still grow faster. So we're very committed to our commercial success. As I went into this role, I laid out some areas primarily surrounding collaboration across the company, but maintaining speed, simplicity and driving synergy across the business. So ultimately, a commercial model change like this, a whole bunch does not change, remains who we are and what we're all about. Where we add value is we do look at opportunities for synergy from a cost standpoint and from a top line standpoint.
And we've had just some early efforts to collaborate. We think it's going to be great. When you talk about areas like surgery centers, just as a very small example, but a huge opportunity, Stryker to succeed there is going to have to bring our essentially our best deals forward, our best foot forward. And that's going to mean various people in this room all stepping up and having joint deals across the company. So be very honest and say we got to a lot of to where we are through fierce decentralization.
I think the next phase of our growth is going to require some fierce cooperation and collaboration. And again, we're very optimistic about the opportunities. It's early days, but our leadership team is very committed to doing that.
Okay. Thanks.
Vijay Kumar from Evercore. So maybe a couple for Glenn. Glenn, when you look at your margins, right, 30 to 50 basis points annual, you guys have come in well above plan for the current year. When you think about 2019, I know you reiterate the 30 to 50 basis points. But again, you have FX, some of these larger deals coming in.
Should we be thinking how should we be thinking about some of those factors playing out at the margin level?
Yes. I think, as Kevin illuminated that 'nineteen feels a lot like 'eighteen maybe. I think some of the factors heading into 'nineteen, we will close some pretty significant deal before year end here, and that deal will be dilutive to our overall op margin profile. Right now, we've looked at that along with other deals and feel very confident based on what we know we're going to obtain an op margin expansion that we should be able to offset that and again land within the 30 to 50 basis points of expansion.
And then maybe a follow-up to that. Given M and A is the number one priority for capital deployment, I mean, if you look at free cash, right, free cash conversion, it's kind of flagged the last few years. When do you think you can free up more free cash so that Kevin can go back to his M and A strategies and drive 200 basis premium growth?
Yes. We believe it or not, we actually do talk about free cash flow.
As a team, we actually talked about it today.
We really think that somewhere between 70%, 80% as a conversion rate for adjusted earnings is the right free cash flow target. We'll likely get fairly close to that this year. Through the budgeting process and through working with Viju and his team and looking at where we can make improvements on working capital, we'll work very hard to sort of get within that range in the years to come. And we will also look to combine sort of incentive programs that might help drive that.
Thanks very much. So just two questions, very quick one for Glenn and then one for Kevin. Glenn, on spending on ERP, I know that's been a big priority for the company. Could you just give us a sense where you are in that cycle? Like will there be more spending in 2019 than there was in 2018 on ERP?
Or is that starting to wind down?
Yes. I think a couple of things. When we kicked off ERP almost 2 years ago, the company was of a certain size, a certain number of divisions and certain the scope was defined within that parameter. We roll the camera forward almost 3 years. We've added many significant businesses to our profile.
So what I would have said that we've kind of reached the hump and hopefully would start to decelerate our spending next year. I think because of scope expansion through acquisitions, we'll probably see a very similar year relative to spending on ERP next year
as we did this year. Okay. And then, Kevin, one question
for you. Just this is a topic that comes up from time to time. So maybe it's appropriate in this setting to give it a little visibility. Just the question on shift to lower acuity centers, the shift to outpatient care for orthopedics. What's your latest Sure.
So I Sure. So I think we have Stuart Simpson here in the front of the audience that you can talk to him certainly at the product fair for a lot more detail. But the cliff notes is until Medicare provides coverage for these for joint large joint replacement in the outpatient setting, you're not going to see a big movement. So there it is definitely a trend for the future. But as you know, they're only covering hospital outpatient.
We have not seen a massive migration. It's still maybe in the 5% range of large joints that are in the outpatient setting. I think certainly in 'nineteen, we don't expect much movement. If Medicare decides that they're going to start to cover this, then you're going to start to see it move. As Tim mentioned earlier, Stryker is in the outpatient surgery center.
We have a very good understanding of it through our Sports Med business. He's creating a bit of an offense around surgery centers. We think we'll be able to compete very well in the surgery center. And as you know, within the bundle, when we're managing a bundle of procedures, the hospital or the non implant cost is the biggest cost component. The challenge of the surgery center isn't so much the price of the implant.
As you know, many of them are owned by hospitals so that the buying is done consistent, whether it's done in the hospital or out, you pay the same price for the implant. It's really the rest of the cost of the procedure that really drive the high cost of orthopedic procedures, which is why the commercial payers are pushing these procedures to move them out of the hospital. I would like to mention that we've actually we are acting as a convener as part of BCPI-two, and we actually have 90 contracts that we're going to be involved in taking risk with the hospital providers, which is just recently approved. So this is going to be a fantastic chance for us to put our money where our mouth is with our customers. And if we can reduce the overall cost, we're actually going to gain a financial benefit.
And that's all under Stuart's responsibility, and he can share more with you during the product fair. But we feel we don't think there's much risk really of this exploding, certainly not in 2019. And until you see Medicare cover it, it's going to be a very, I would say, slow gradual build.
Josh Jennings from Cowen. Just wanted to circle back on an earlier margin question. The CTG program has obviously borne fruit, if you will. And arguably, you're performing at this year kind of at least at the upper end of the range, if not through that because you're absorbing the acquisitions. I was just hoping to get a sense of the path forward ex acquisition for the core business.
You've had gotten through some of the investment period for CTG. Should we be thinking about that core business continuing to perform with delivering operating margin expansion behind the range or even north of that and just observing acquisitions that brings you down to that 30 to 50 basis points?
Glenn, you want to take that? Sure. I think, yes, if we look at sort of
the CTG program that Biju outlined and where we are sort of in the cycle of getting through some of that, we're probably 50% of the way on the SG and A side and maybe only 25% of the way if you look at sort of on the COGS side.
I would
tell you that in terms of what touches the core pieces of the business, the COGS side probably touches it more. So we have some investing to do there. We'll continue to drive above 50 basis points expansion on the SG and A side. And to your point, holding all things constant, yes, I think next year, the core business will drive in excess of 50 basis points, but that will come down because of acquisitions.
Yes. And I'm really excited to have Viju here joining Stryker. So Viju's prior experience was with Intel and Verizon. So he came from outside the health care system, and he's looked through the opportunities through a very, very different lens than really our industry people. And for a living, they had to reduce costs in a much more aggressive way than we've had to within the health care system given our margin profile.
And his ideas and his thoughts about the future are very exciting. We're obviously tempering what he's allowed to communicate today in terms of his ambition. But over time, certainly, we'll be able to share a lot more of that. But I think bringing in an outside set of eyes about how to do things, how to use more automated tools and techniques, I think attacking that side of the wheel that he identified, that left side of the wheel, I think, is going to be very exciting.
Thanks. Robbie Marcus, JPMorgan. Maybe one for you, one for Glenn. I'll start with Glenn. Maybe just to follow-up on Josh's question.
Is another way to maybe think about it, we've seen now in 2018 and based on the numbers, 2019 that
the underlying
margin capability of the to the extent Stryker is delivering 6%, 7% organic top line growth that you have the opportunity to fund some M and A transactions that are dilutive that maybe in a normal year you wouldn't be able to do? Does that give you more room to go after transactions you normally wouldn't?
Yes. I think if you look at
the history and you look at sort of where we delivered on op margin expansion in 'seventeen, where we are with 'eighteen and how we view 'nineteen just given the known sort of landscape of M and A that will happen. I think certainly one of the things that it's allowing us to absorb that is the performance of some of these early on CTG projects. It remains to be seen as we push forward with some of the other more complex, say, COGS and operationally oriented projects, if those will allow as much early expansion as we've seen on the SG and A side. But in general, for next year, I feel pretty confident that the core business will produce op margin expansion in excess of the 50 basis points, which will allow us to absorb several of the big acquisitions that we have planned for this year.
All right. And then, Kevin, it's not by accident that you grow above the market each year, somewhat of a softer question, but maybe speak to how important the culture is here at Stryker and how much that contributes to the success each year?
Yes. Well, I think I'd love to turn that to Tim because he is driving the engine of our growth.
Well, I was going to give it to Spencer. He didn't get a chance to speak yet. And I know he has thoughts on the topic. Sure. A big culture fan.
I'd say it's actually one of the
most powerful forces in our organization is culture. And it's the set of behaviors and norms that show up every single day. It's how people perceive taking care of the customer, how they perceive taking care of the patient, how they think about innovating, and that's embedded in the DNA of all employees Stryker. So we start with that patient and that customer and work backwards. And we're very passionate about making sure the solutions we're bringing to market are creating value.
And that's something people that walk through these doors every single day think about. So it's really part of our secret sauce. It's what differentiates us from other companies in our space, other companies, I think, just generally in industry. And it's one of the reasons we have great retention at Stryker. We want to be here.
We're very proud of our brand. We're very proud of the work we do and it's extremely important to us. And as I mentioned, Spencer, Andy, Brent and Dylan, all these recent promotions, all at least 10 years with Stryker, probably closer to 15 to 20 years with Stryker, long time Stryker people have this in our DNA. And I think the best part I love the question, and I do talk about it a lot when I'm meeting with investors separately. In fact, I'm getting asked a lot more about culture than I used to be in the early years of my job.
What I'd tell you the best part about it is it's very hard to copy. So someone can try to copy your the size of your catheter, the length of the catheter, but copying your culture is not easy and takes many, many, many years. And so that's a sustainable competitive advantage that we have. And having Tim as our President and COO, being able to take that across all of Stryker, all divisions, all globally in a very even more consistent manner is wildly exciting for me. And then that's one of the big reasons why Tim is in that role.
So thanks for the question. I think we have time for 2 more. I'm sorry, go ahead, Curt.
I was just going to add, we're all proffing at the bit to talk about. To me, the takeaway on top of what Spencer said, it's a culture of performance and accountability. And to me, that's what you see and why we see the consistent delivery is we have some 38,000 some odd associates who are committed to delivering. Okay.
Actually, we now have time for one more question. But I we will all be all of us will be over in the product fair, and we'd encourage you to ask any of us questions to finish. Let's go to Glenn. Sorry about the person in
the back. I apologize. Kevin, Glenn Novarro with RBC. The topic of a soft tissue robot came up during Andy's session. But if I look at what you're selling into the surgical suite with the cameras, the bedding and the lighting, why wouldn't you develop a robot, a soft tissue robot?
And as a follow-up, does the company have the capabilities internally to develop a soft tissue robot? Thanks.
Those are the kind of questions I love to defer to Catherine. So I will defer that one to Catherine.
I would say right now thank you, Kevin. Right now, we're really focused on hard tissue. That's where our core competency lies. That's where our experience, our software capabilities, our IT estate. And as you saw today, we have a lot of applications focused on hard tissue, whether it's continuing to optimize the total knee.
We have an initiative underway in spine. We have an initiative underway in shoulder. So there's a lot of opportunity in hard tissue. And I think as you think about the next 3, 5 years, that's going to be the primary focus.
Yes. And the only other thing I'd add is general surgery is one of those logical adjacencies. We don't have people standing in the OR in general surgery cases, even though we have an endoscopy division that's in that area. But that's one of many other logical adjacencies for our company. How we choose to get into general surgery in a bigger way, whether it's with robotics or without robotics, it's one of the many things that are on our landscape, and we'll see how that plays out over time.
So with that, that concludes the formal portion of the meeting and the broadcast. Thank you all for your attention. We'll head over to the product fair and as I say, all of our presidents. And there will be showcase of products. You can talk to some of our marketing managers as well as all of us.
So thank you very much.