Welcome to today's conference call. My name is Corie, and I'll be your operator for today's call. At this time, all participants are in a listen only mode. Following the conference, we will conduct a question and answer session. During that time, participants will have the opportunity to ask one question and one follow-up question.
This conference call is being recorded for replay purposes. Before we begin, I would like to remind you that the discussions during this conference call will include forward looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8 ks filed today with the SEC.
I will now turn the call over to Mr. Kevin Lobo, Chairman and Chief Executive Officer. You may proceed, sir.
Thank you all for joining us today to discuss our definitive agreement to acquire Physio Control International for $1,280,000,000 I would like to start by welcoming the Physio Control team to Stryker. The addition of Physio Control is a great strategic fit for our medical division. Just as our planned acquisition of Sage will strengthen our position in acute care, Physio Control enables Stryker to become a clear leader in the emergency medical services segment by expanding our offerings beyond our highly successful emergency costs. A majority of Physio Control's products share the same customer call point as our EMS business and their products are the 2nd highest EMS spend category after COTS. Physo Control is poised for accelerated growth as their talented and experienced management team has worked through quality system improvements and have a robust pipeline of new products expected to launch over the next several years.
From a financial standpoint, this deal will be accretive to both our overall organic sales and earnings growth rates, and it will help ensure that Stryker continues to deliver sales growth at the high end of medtech. We believe with our considerable sales and marketing reach, we can build upon the strong success achieved by both Sage and Physo Control and ensure their innovation expertise and customer relationships are further optimized. Importantly, Physo Control will bring extensive synergistic sales opportunities in combination with our EMS franchise. Additionally, we are very excited about the engineering expertise at Physio Control and future contributions that their teams and technology can make to our current MedSurg Capital product portfolio. Over the years, we have demonstrated that leading edge companies can flourish when operating within Stryker's sales driven culture.
This is best exemplified by the success of our neurovascular division. Prior to joining us, Stryker neurovascular experienced declining sales over a 4 year period was hampered by funding challenges and quality remediation requirements. Since joining Stryker, Neurovascular has sustained strong double digit growth, reflecting the impact that comes with focus, investment and strategic alignment. Please note that we are webcasting this call and have included a slide presentation to help facilitate the discussion around the transaction. Joining me today are Tim Scannell, Group President of MedSurg and Neurotechnology Bill Jellison, our CFO Lonnie Carpenter, Group President, Global Quality and Operations Brad Saar, President, Medical and Catherine Owen, VP of Strategy and Investor Relations.
I'll be turning the call over to Tim, who will provide further details regarding this exciting addition to the Stryker portfolio. Bill will then offer some financial highlights before opening the call to your questions. Tim?
Thanks, Kevin. And on behalf of my colleagues at Stryker Medical and across the company, I would also like to extend a warm welcome to the Physio Control team. By way of background, for those not as familiar with Physio Control, the company is the leader in the development, manufacture and sale of defibrillators and monitors of AEDs, which are automated external defibrillators and of CPR assist devices along with data management and support services. Their products are sold to EMS services, hospitals, workplace and community settings and into the home. Physio Control was founded in 1955 and has a long history of innovation with products that target urgent patient situations.
As many of you know, Physio Control was divested by Medtronic in 2011. Since that time, Bain Capital has owned them and Physio Control has worked through significant quality remediation required as a result of the consent decree issued in 2,008. In our due diligence, we learned that Physio Control has emerged from the remediation efforts with strong and impressive quality in internal systems. They are poised for solid commercial execution and success. Further, they have an impressive engineering competency and a pipeline of products that we'll begin launching in the next year, which we believe will deliver and sustain strong top line momentum.
As Kevin mentioned, we are excited about the synergistic benefits and market strength that will result from the combination of Biju Control with our Medical division. Our medical division goes to market globally with 3 selling organizations. They are patient care, which is primarily hospital beds patient handling, which is primarily hospital stretchers and EMS, which is primarily the yellow rugged cots that you see in the back of most ambulances. Importantly, the vast majority of Physio Control sales call points are in the prehospital EMS segment and in the hospital and overlap with our medical division. The remaining portion of the business is focused on workplace, community and home customers.
The Physio Control business will be combined primarily with our EMS business unit and will also collaborate with our sales teams in the hospital setting. The combined organization, as Kevin suggested, will be the segment leader in EMS equipment. With our market leading powered pots and our power load lift system, coupled with the Physio Control suite of monitors, defibrillators and related products, Stryker's solution set will be extensive. Notably, our EMS franchise has enjoyed tremendous success in recent years with growth well north of the medical division overall and Stryker as a whole. Stryker's EMS unit's recent success has been driven by our innovative 1st in class power load system, which lifts and lowers the ambulance costs and prevents caregiver injuries.
Our success in the EMS market is indicative of our ability to drive strong organic growth despite the inherent challenges of selling capital equipment during tight economic times. We expect our EMS division to continue to flourish in combination with the Physio Control franchise as synergistic selling opportunities result amongst customers not using Stryker or Physio Control products. Further, Physio Control's business has an attractive mix of capital and base or repeat business. Specifically, Physio Control sales are 40% disposables and services and 60% is capital compared to our current EMS business, which is 100% capital. From a geographic standpoint, Physio Control's business is well balanced with roughly 40% of their sales coming from outside the United States versus our existing EMS business, which is heavily weighted in the U.
S. At 75%. As a standalone company, Physio Control built a global infrastructure to support the business in over 100 countries around the world. As we overlay the 2 organizations' global footprint, there are clearly opportunities to rationalize on both sides. With that said, many of the established channels will remain and will be leveraged to drive Stryker EMS pot and loading system sales and Physio Control product sales.
Overall, our expectation is that when combined with Physio Control, our Medical division will be able to grow its top line faster, meaningfully improve its profitability and strengthen its competitive position. As noted, we have now announced 2 planned acquisitions for our Medical division. This division will be bigger, stronger, better diversified geographically and have new manufacturing and innovation competencies in both capital and disposable products. The division will add 2 tremendous power brands to the Stryker armamentarium. The division will have a wide range of sales and cost synergy opportunities to deliver as we move into the integration phase.
Lastly and importantly, these deals are adjacent opportunities where we will be offering new and different product solutions to customers we know well. Consequently, our familiarity with these customers gives us strong confidence in our ability to succeed when competing in these markets. In this cost containment era of global healthcare, I'm delighted to see that these companies address significant healthcare problems with proven cost effective solutions. We're truly excited about the opportunity to help save lives and make healthcare better with products that treat sudden cardiac arrest and hospital acquired conditions with the planned acquisitions of Physio Control and Sage. I'll now turn the call over to Bill.
Thanks, Tim. Slide 8 in the presentation shows financial highlights as it relates to Physio Control. Before going through the details, I want to take a moment to provide a bit more color regarding the profitability profile for not only Physio Control, but also for Sage. Both companies are expected to drive accretion to Stryker immediately upon closing in 2016. As it relates to Sage, the company's 2015 EBITDA margin was north of 30%, exceeding Stryker's adjusted EBITDA margin rate.
Physio Control's EBITDA margin rate in 2015 was in the teens, reflecting both a product mix that includes disposables and capital equipment and also a double digit level of spending in R and D as a percentage to sales, approximately double the rate of R and D spending in our Medical business. We expect to drive further EBITDA margin expansion in both companies through both natural leverage from stronger top line sales growth as well as from additional operating synergies. The acquisition of Physio Control is expected to close at the beginning of the Q2 and be slightly accretive to our adjusted per share earnings in 2016. Our revised adjusted 2016 earnings per share guidance is now $5.57 to $5.77 an increase of 8.8% to 12.7% over 2015, including a 2.5% negative foreign exchange rate impact. As we look forward to 2017, we expect the acquisition of Sage and Physio Control combined will be accretive by $0.15 to 0 point 1 $8 net of the negative $0.04 to $0.05 per share impact of postponing our share repurchases that were included in our original guidance for 2016.
With that, we will now open up the call to your questions.
Thank you. We will now begin the question and answer session. Your first question comes from Bob Hopkins from Bank of America. Bob?
Hi, thanks and good morning. Can you hear me okay?
Yes, I can.
Great. Good morning. So, I have a question Kevin for you on strategy. But before I get to that, I wanted to ask Tim a quick one. Because obviously, 2011 is a long time ago, but I remember this is a kind of mature competitive business.
So my question, Tim, for you is really about growth. What has growth been for this business the last couple of years? And what do you expect the growth rate going forward? And just help us understand kind of the drivers?
Thanks, Bob. The business has grown in the mid single digits over the last several years. I think that drivers of growth in this business, 1st and foremost, will be supported by an aging population, the increasing rate of death and disease from cardiovascular disease and rising wealth in emerging markets. The expectation we have is that innovation and product lifecycle will drive growth. And when you think about the installed base of a company like this with some several 100,000 advanced life support systems and probably 500,000 AEDs out there, The opportunities for upgrades and market expansion are extensive.
Additionally, areas like workplace and community, proliferation of devices continue to grow and in general awareness of opportunities to treat sudden cardiac arrest are growing. As you look at that slide in the chart on Page 5, you can see that it's an enormous problem in the U. S. And globally and that opportunities to address this disease state are quite substantial. So we're optimistic about our ability to, as we said, grow this business north of the Stryker growth rate.
Okay. And then as my follow-up, Kevin, just from a broader strategy perspective, when we think through the Sage and the Physio Control deal, can you help us understand a little bit more how these tie together? And more importantly, what they say about where you're trying to take this company in terms of kind of focus and where you're trying to take it from a strategy perspective? Thank you.
Sure, Bob. I would tell you that our strategy really hasn't changed if you look over the past 3 years. Every acquisition that we've done has strengthened an existing division of Stryker, bringing new technologies to existing customer call points. Whether you go back to Mako or Coaline or Pivot, SBI, acquisition after acquisition strengthens our divisions. And all of our divisions are out looking for deals.
These 2 for medical just happen to happen around the same time. And as you all know, the acquisition timing is always uncertain. But this is not a change in strategy. It's really finding great assets that are accretive to both our top line and our bottom line and that leverage our existing call points. We've seen over time that when we leverage our existing call points, we drive tremendous value.
So these are great companies that will really strengthen our medical division. It just happened to come along at the same time. That's really more happenstance than anything. But we've known these two assets for some time, and we feel very good about both of them being able to continue to drive Stryker's growth, which you've seen over the past few years has been at the high end of medtech and these are very accretive to the top line as well as the bottom line.
And your next question comes from Rick Wise from Stifel.
Let me start, if you could talk through your sales synergies that if any included in your $2,017.15 to $0.18 accretion guidance? And maybe just as part of that, talk about the cost synergies and how big that might be? And again, what percentage are you assuming you're getting after by that 17%?
So Bill, I'll let you answer this one.
Sure. So I'll take the synergy side of the equation. So on both the acquisitions that we had just announced, I'd say that these are acquisitions which we feel we can blend into our existing operations in both areas. And by doing so, we will make nice improvements yet in the overall EBITDA margins, but these aren't major synergistic plays for us in that we need to do substantial things in the organization to get to the synergies that we have baked in. So we're very comfortable with the capabilities of our teams to deliver on the results on both the top line and also on the bottom line synergies to achieve the results of our model.
And just a follow-up, if I could, on Bob's question earlier. I mean, a number of us have seen physio private and public at part of Medtronic for several decades now. I don't know if this is a question for you, Tim, or you, Kevin, but what works at Stryker in a way that has been uneven and maybe suboptimal elsewhere in the past? Why is this going to fit well with Stryker and be a sustainable reliable growth driver for you? Thank you.
Sure. I'll let Tim start and then I'll add comments. Go ahead, Tim.
Yes. I think as you look at the history of this company, number 1, they've had great brands and solid success over time. If you get specific about the history, they were under the consent decree from the FDA since 2008. Consequently, as you look at other companies that have gone through quality remediation challenges like Stryker did at one point, like Boston Scientific did, like our Neurovascular division did, you see that sales can sometimes be challenged as the organization focus goes to quality. We see this as an organization that's going to come roaring out of the quality remediation efforts and hit this opportunity with new products, with support and synergy from our medical division.
And so we think this will be an excellent growth story in the years ahead. As Kevin mentioned, like our acquisition of the NeuroVaxillary division, where once uncoupled from challenges of remediation in a growth focused organization that the company can flourish.
Yes. And the other thing I'd add is that this is a Stryker business. So when you look at these products, you look at the engineering in these products, the capital, the disposables, this is what we know how to do. And I would say it's different than other medical device companies that are much more in the disposable business. Capital requires different muscle.
And we have numerous capital businesses across Stryker, and we've shown a history of being able to grow capital business. The EMS costs is a great example, which is growing well north of Stryker's average growth for the past 5, 6 years. So when you look at those products, you look at the Callpoint and you look at what how Stryker is wired around capital equipment, this business makes perfect sense in our hands, may not be so irrelevant to other companies.
And our next question comes from Mike Weinstein from JPMorgan. Mike, your line is open.
Thank you. A couple of questions. So one, the double digit R and D spend, how much of that was to quality and basically spending to resolve the long standing consent decree? And then 2, if you could just talk about the growth over the last 5 years and how much of that has come from the hospital setting? How much has come from EMS?
And how much has it come from alternative markets, the schools and so forth?
Go ahead, Jim. You want to take this?
Yes. As far as the spend, Brad is with me. I don't know if we have a number on the R and D spend. We assume that the strictly to fund new product development. The vast majority has been on new products, but certainly there has been spending on quality remediation.
I think that as far as growth goes, Brad? Yes, the growth has been very substantial in the prehospital business. They've grown that nicely as well as the Lucas device, which was an acquisition that they made in Sweden, very fast growing product segment form.
What is that? I'm sorry, I'm not familiar
with it.
So that's the circulatory assist device, basically a automated CPR device, very fast growing market that Physio Control is the market leader in.
Okay. And do you have a sense for just the growth rates by the different end markets? Do you have any read on that?
Not that we're going to share today.
The bulk
the biggest part of their business is in the manual defibrillator market, which is what EMS responders and emergency room personnel use. The next would be the AEDs or automated devices used by lay people and the third would be the circulatory assist assist market.
Yes, understood. And the how geographically different is this business look versus when we last saw it? And I understand the overall mix, but how much has emerging markets become a business for this company?
We don't have that number for you today.
Okay. All right. Thank you, guys.
Our next question comes from David Lewis from Morgan Stanley. David, your line is open.
Good morning. Just a couple of financial questions, maybe for Bill. So just looking at the accretion guidance, and I appreciate you giving that this time around, if $0.15 to $0.18 and by our math, you can get there on Sage alone. So is there implicitly an investment cycle to support the physio products in 2017 that we're not understanding because it just doesn't look like there's a lot of incremental accretion from physio relative to Sage? Against that?
Thank you.
So on the return side, they're pretty consistent, both within the year 3 to year 4 on the cost of capital returns. And keep in mind on the accretion that we talked about on the $0.15 to $0.18 it really be an additional $0.04 to $0.05 on top of that that's offsetting the negative impact of not doing the share repurchases for this year. So make sure you're picking up both of those pieces. And I'd say that we obviously feel very comfortable and confident in the accretion that we're identifying.
Phil, is it safe to say that if I go from a gross perspective and add back in the FX that Sage is sort of a $0.12 to $0.16 deal and physio is more like $0.04 to $0.06 and obviously then you back out the $0.05 of currency from that?
Yes. I mean, I think that that's reasonable to at least think in those general terms, at least in the 2nd year.
Okay. Thank you very much.
Thank you.
Our next question comes from Kristen Stewart from Deutsche Bank. Kristen, your line is open. Hi, thanks for taking the question. I was wondering
if you could just give us a little bit of a view on some of the new products that you really see driving the outlook. And again, I just wanted to go back to Mike's question on what you see as the future growth rate, I guess, of this business as it contributes in, just kind of circling around, I guess, what everyone has been talking about it is as we've followed this business under Medtronic, it just has not been a really good growth engine for them. And I understand that under the hands of you guys, as you've proved with the neurovascular business, you guys certainly have accelerated that. But maybe just get us a little bit more comfortable in terms of what the new products are and kind of what you see this business doing under your hands?
Kristen, this is Brad. Really the R and D spend is solely attributable to innovation across their major platforms, including the market leading LifePak, which is both for prehospital segment as well as their acute care crash cart related devices. They did make an acquisition in Belfast for an AED company that's going to serve the emerging markets well. We're very excited about that product. And then they also have next generation platform development on the Lucas device, which as Tim spoke to is the automated assisted CPR device, which is one of the fastest growing products in their portfolio.
So we're very excited about the new product development. And as Kevin alluded to, a lot of the resources from Physio is spent divesting the company, strengthening their back office systems from Medtronic and we think that they're poised for growth, especially combined with our really fast growing EMS franchise. And Kristen on your growth rate question, I think the only guidance we're offering is that it will be north of Stryker's growth rate. So you know what we've been delivering and we're very confident that we can grow this business at a faster rate than Stryker in total.
Okay. So Stryker overall as a company for your organic growth, I assume?
Yes. If you assume 5% to 6% organic growth, which we've done over the past 3 years, this will be north of that number, and we feel very confident.
And is most of the growth that you're seeing coming from the U. S. Or outside the U. S?
Because it sounds like a lot
of the facts you talked about are kind of more emerging markets and medical, and outside the U. S. And medical is not necessarily a business that has a large footprint in that area. So I'm just trying to balance where the growth is coming from. Or do you see opportunities to kind of, I guess, pull through some of the traditional Stryker business in international regions too?
Kristen, I'd say that the growth will be balanced. But in reality with 60% of our business coming from the U. S, we would expect frankly the bulk of the growth or more of the growth to come from the U. S. There certainly is emerging market opportunities for a range of these products.
But with the upgraded generations of these products, there should be plenty, plenty of growth opportunities in the U. S. Where we've had great success with our existing products. So it will be balanced geographically. And I would say that the installed base upgrades is frankly the bigger opportunity in the near term than selling new products to new customers.
Okay. Thanks very much.
Our next question comes from David Roman from Goldman Sachs. David, your line is open.
Thank you and good morning, everybody. I was hoping you could actually talk a little bit about the any tethering of video control to the macro environment. One of the comments you made at the end of press release was Stryker's demonstrated ability to sell capital through different economic cycles. But if you look at your medical core medical business, you've obviously seen an acceleration over the past couple of years, some of which I think has been tied to a better hospital operating environment. Can you maybe help us understand to what extent physio has or doesn't have similar macroeconomic influencing drivers?
I'll take it. It's Brad. The macroeconomic challenges have been pretty well documented. They're common across all companies. And I would just simply say that with innovative products like Powerload and some of the other power platform products that we've shared in the EMS side, in addition to what we've done organically in the medical division that we've exceeded market rate growth.
We like the prehospital space. There's a lot happening there as healthcare continues to move to the back of the ambulance. We think we're well positioned, especially with the new product platforms to capitalize on that. So I wouldn't say that the conditions are any different than what we've been experiencing that all companies are experiencing right now in medtech.
Okay. And then just a follow-up that comment on the shift to the back of the ambulance. One of the things we've heard a number of companies talk about is shifting care outside of acute facilities. To what extent has physios growth been either increasingly weighted to outside of the hospital? And is this part of a broader strategy to address the non acute care setting that might unfold as we look forward?
I would say that's an opportunity, but that's not an express part of our interest here. And as you look towards the future, treatment of sudden cardiac arrest and stroke in the back of the ambulance is a great opportunity for Stryker with our different businesses. That said, they have frankly been growing in generally equally successful rates in the prehospital and hospital segments. So the need exists in both and with innovation both will grow.
Okay. And maybe just one last one, Kevin. As I sort of think about the accretion that you're realizing from stage and physio, it sounds like a lot of that you're letting drop to the bottom line. How should we think about any reinvestment in the business that you may use the additional EPS to support just given the healthy underlying growth rate of the business and what this might add?
So the way I'd look at both of these deals is these are really these are growth synergy deals much more than they are cost synergy deals. They're really adjacent products and we look to really drive the top line. And it doesn't require significant amounts of investment or cost cutting or those kinds of things. So that's the way I'd look at it. I mean, we want to keep the top line growing.
They have new products that they're launching. We have common customer call point. And so these are deals that we feel will be very accretive and don't require significant investments. Both companies were very standalone, had self sustaining complete functions, R and D and everything else. So these aren't sort of like the typical deals we do are smaller in size.
They tend to have very good technology, but we have to scale up manufacturing. We have to bring quality systems. We have to bring a lot of our own resources to bear. That's not the case with these two acquisitions that are growing very well on their own, that have solid infrastructure, solid quality systems. So for us, these are a little different in terms of their integration, much more focused on the top line and not disrupting some of the innovation that they have going on already.
And our next question comes from Matt from UBS. Matt, your line is open.
Hi. Just a follow on
on the last question and then your answer Kevin. Thanks for taking our questions. Just to frame this a little bit to make sure we're looking at this the right way. Growth opportunity, we may see a defibrillator company or a cardiac rhythm kind of technology company, you see something that's emergency care, emergency management, EMT, critical care adjacency. Is that a fair way to look at it?
And then I just have one follow-up.
Yes. That's a fair way to look at it. So we know our call points very well. We know what these customers are looking for. With this next generation of platforms that they're going to be launching around proven brands with our sales force that are close to those call points as well as their sales forces, we really feel well positioned.
These are spends that are going to be occurring, and we believe we're going to get more than our fair share of those sales.
And then if I could just one on there's been a few questions here on growth. I guess, what are the without showing your hand here, what are the opportunities here given your scale, given the new product cycle you mentioned to sort of push on share a little bit? What have the share dynamics been and where can those go here in helping you get to your growth goals?
Tim, what are you free to share at this point?
Yes. Well, the market is competitive. ZOLL is a formidable competitor as is Philips. In the overall external defibrillator market, physio control is number 1. So they're number 1 in the areas we compete.
We see combining these 2 market leading brands as a big opportunity to basically gain mind share and then market share over time. The one of the opportunities, for example, would be bringing our Flex Financial financing arm to bear on these deals. And you can just play this out in your mind as far as an EMS leader or a hospital basically budgeting and figuring out their capital outlay over multiyear periods of time and how we'll be able to partner with them to basically figure out the appropriate spend levels, the product portfolio they want to have, the next generation launches and what have you. So we I think will be uniquely positioned to partner with these customers and basically again smooth out their spend, make it predictable, keep them up to speed with the latest in technologies and it should be a fantastic situation for both us and our customers.
Thanks so much.
And our next question comes from Kayla Crum from William Blair. Kayla, your line is open.
Hi, guys. Thanks for taking the questions. So with 3 deals in the last few weeks to strengthen the medical and neuro businesses, I understand you mentioned that there isn't a change in broader strategy. But can you help us understand if there's something that you're seeing perhaps in the orthopedic space that just has prompted this diversification now?
No. It's really just more related to the unpredictable nature of business development. So early on, we did the first three deals out of the block were orthopedic deals. And now we have a couple in medical. It's more happenstance than anything.
We're still looking for orthopedic deals. We still look each one of our divisions has their dedicated business development teams that are out looking in the market. Price can sometimes vary across the different segments. We have to make sure that these are deals that we feel very confident about delivering on, which we do on these two deals. So the strategy is really making sure that we have market leadership across every division where we plan.
And that strategy has not changed, and we do it through a combination of organic internal R and D and driving that as well as acquisitions. We just look at acquisitions as external R and D. That's the way we look at it. So I would say it's more happenstance that they both happen to be medical and they both happen to be this year. The assets were both actionable and we feel we've got them at a very good time, and they're going to deliver great value for us.
But it is more happenstance. And last year, we had a quiet year with just a couple of deals, and this year obviously started off a little bit more active.
Okay. So I guess just given the sizes of those two deals, I mean, should we assume that at this point it is more likely that you all would emphasize internal research and development in the ortho segment? Or is there still a possibility that we could see something bigger in
the next
12 months? Look, I'm not going to rule out what could happen in the future as assets become actionable. And as we've stated very consistently over the past few years, that acquisitions will be a major first priority in using our cash. We obviously have sustained very good growth in our orthopedic division, as you've seen. We're really making good on the Mako acquisition as well as the StarAnchle acquisition combined with our internal 3 d printing, which is driving great growth.
So we're committed to all of our divisions. And I would say that this combination of organic and external R and D through by acquisitions is unpredictable. We're not sort of favoring 1 versus another. And by division, it can vary.
Great. Thank you. Our next question comes from Richard Newitter from Leerink Partners. Your line is open.
Hi, thank you for taking the question. Just one, I know that you have in your Med Surg division different segments when you have new product cycles, the length of an upgrade cycle and new product cycle, they can vary across divisions. Could you just give us a sense as to you're entering with PhysioMed a new product cycle or an upgrade cycle. Can you give us a sense of how long that can be expected to last in this sub segment?
Yes. It's 8 to 10 years. And when you think about the product life cycle, you first sell a device, you can after that sell added services such as maintenance and data services. There's disposables and accessories that go with the product and provide that sort of base business. There can be software upgrades and then over time there's wear and tear, which ultimately would lead to another device sale.
So we would take it right now as 8 to 10 years. We have frankly learned in our other businesses that sometimes the company determines that lifecycle by their innovation cycle. And ideally, we would be able to accelerate that slightly with some added innovation in this marketplace.
Okay, thanks. Actually one more. Just a previous question was asking about the capital environment. This is your second acquisition where you're increasing your exposure to disposables. I was just curious, is there anything to read through to with respect to what you are seeing on a go forward basis following a pretty strong capital cycle we've seen over the past few years and what this potentially suggests in your outlook for capital?
You want higher exposure to disposables? Thanks.
Yes. I think that's a very good question. And we would tell you honestly that we know how to sell capital. We do it well. That said, it can occasionally be a victim of economic changes or what have you.
Now, as we say, we can overcome that with innovation. But having a base of business and frankly this is a sales driven organization starting the month knowing you have X dollars in sales it gives you a peace of mind, it gives you greater certainty of investment, it gives you greater sales force, longevity and retention and all of that. So we're frankly delighted to be able to have this combination of base and capital in our medical division. Additionally, when you have this mix of products with base and capital, it opens up other opportunities to sell more capital, frankly. So you can do different deals on what we would call the fee per disposable type of situation or other kind of leasing or financing options.
So it's going to frankly open up a lot more opportunities for us and frankly allow us to give more consistent results to our shareholders.
And our next question comes from Matthew O'Brien from Piper Jaffray. Matthew, your line is open.
Good morning. Thanks for taking the questions.
Just to start up on
the growth side a little bit. Tim, you mentioned Tim and Kevin, you mentioned Boston Scientific as a corollary to use as far as coming off coming out of some issues with manufacturing, etcetera, with that business. But the patient population there was significantly underserved. With this asset, it feels like that market opportunity is fairly well saturated. So I think one of the biggest issues a lot of investors are going to have with this deal and everybody's been kind of circling this a little bit is just the comfort level or where all of the growth is going to come from to get you to mid to even higher than that single digit top line growth for this business sustainably over the next several years?
Is that a function of share, market growth, international or synergistic opportunities? Can you just really help us understand where that all comes from and the comfort level you have in delivering on that type of performance?
Sure. I'll like Tim to finish the second part of the question. But on the first part, for neurovascular, keep in mind that the ischemic stroke opportunity has just opened up very recently. And frankly, most of the growth in the 1st 3 years, virtually all of the growth came from coils. And that's not a market that's been explosively growing.
So that was a significant amount of market share that we took in a market that's not growing that fast through the new product cycle and sales execution. So I wouldn't describe the neurovascular growth to the ischemic stroke segment in a brand new market. Now obviously, it's going to be an engine of growth, which started this year and going forward. But in the early days of neurovascular, all of our growth came from a market that's not wasn't growing much faster than this market. And that was really through capitalizing on the product cycle and the Stryker execution.
So I'll turn it over to Tim to answer the other second part of your question.
Yes, Matthew, very good question. And I really think that the answer ultimately is there is a mass installed base. There is a great product life cycle opportunity coming from their pipeline and there is growth opportunity in the AED market, which is the automated market for lay people that is expanding nicely. So when we think about this, we know this from our existing capital markets, when you have these installed base, these customers rely upon you to innovate your products and they're generally ready to upgrade as we bring new technology. In this case, we're hitting this optimal lifecycle opportunity.
We know what their pipeline looks like. And I really would say that given their share, given their product lifecycle, given the growth opportunity in AEDs as well as international expansion that we feel very, very comfortable about the growth opportunities. And I would kind of point you towards those demographics more than to assume there has to be some trend or movement in total for this category as far as hospital spend goes or something like that.
Okay. And then as my follow-up for Bill, midpoint of the new guidance range, 5.67 ish, typical Stryker growth, high single digits plus the accretion, some level of accretion from both Sage and Physio. My math is getting me to $6.40 in earnings next year. Is that a number that we should be comfortable with?
Well, so we aren't giving any guidance obviously for the next year out associated with that. But I'd say that we're comfortable on how all of our businesses are running, growing faster than market. We absolutely believe that both of these business will be noticeably, a faster growing businesses than our base level along with the synergy that we think we can get out of these businesses as we combine them with our existing businesses. So we're comfortable on how we're setting up for 2017 as well too, but we aren't giving any direction associated with that yet.
Okay. Thank you.
Our next question comes from Garland Buchanan from Legal and General. Garland, your line is open.
Hi. Thank you for taking the questions.
Just how much debt
are you looking to issue for both of these deals? And you've clearly indicated you're comfortable with taking some downgrades to fund these deals, but are you okay going to a BBB level or lower? And
are you
looking to delever at all post deals? Thank you.
So we've obviously had upfront discussions with the rating agencies on this as well too. We did repatriate about a $1,800,000,000 last year of OUS cash. Of that amount of cash, we will be using some of the cash obviously for these transactions, but you should expect we're going to be placing $3,500,000,000 $4,000,000,000 of additional debt in the mix of funding all of these acquisitions as well too. We believe that we still may be able to contain that within like a one level downgrade from where we are today. We're solidly committed to the investment grade rating that we've got out there at this point from an overall staying in the investment grade category.
And I think that the transactions that we have now and the transactions that we may still have in the future, I think that we're very comfortable with our position and our ability to finance those in a productive way.
Our next question comes from Hima Iguva from Bank of America. Hima, your line is open.
Thank you. My question on insurance just got answered. And maybe I'll just ask about any transformational deal that you potentially may be looking at, how the M and A landscape is? Would you be open to such a deal? If you give us some color there, that would be great.
Thank you.
So whenever we talk about deals, we're sort of vague, right, intentionally vague, because something transformational we're never going to be closed to something transformational. These are obviously a little bit larger. The vast majority of our deals are going to be those smaller tuck in acquisitions. These 2 are a little bit larger than those traditional deals, but I would never say that we're closed for business, but we'll obviously take into account the overall level of financing. Bill mentioned that we are committed to being an investment grade company.
If something transformational occurred, we would obviously look at it and think about it. But I would say we're always open to look at business development, but we're obviously thoughtful about our overall financial position.
Great. Thank you.
Our next question comes from Larry Biegelsen from Wells Fargo. Larry, your line is open.
Hey, guys. My questions have been answered. Sorry, I tried to get myself out of the queue. So thanks.
Thank you.
There are no further questions at this time. I will now turn the conference over to Mr. Kevin Lovell for any closing remarks.
So thank you all for joining us today's call to discuss another great addition to Stryker Portfolio. We are excited about our existing momentum and the opportunity to further build on our strong top line and leverage earning gains. Thank you.