Welcome to today's conference call. My name is Corey and I'll be your operator for today's call. At this time, all participants are on 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. If you'd like to ask a question, please press star then one on your touch-tone phone. 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 in Exhibit to Stryker's current report on Form 8-K 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 $1.28 billion. 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 cots. A majority of Physio-Control's products share the same customer call point as our EMS business, and their products are the second highest EMS spend category after cots. Physio-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 Physio-Control and ensure their innovation expertise and customer relationships are further optimized. Importantly, Physio-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 to their teams and technology can make to our current Med-Surg 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 four-year period and 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 Katherine 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 offer some financial highlights before opening the call to your questions. Tim?
Thanks, Kevin. 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 a consent decree issued in 2008.
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 will 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 Physio-Control with our Medical Division. Our Medical Division goes to market globally with three 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's sales call points are in the pre-hospital 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 cots 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, first-in-class Power-LOAD system, which lifts and lowers the ambulance cots 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 U.S. 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 two 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 cot 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 two planned acquisitions for our medical division.
This division will be bigger, stronger, better diversified geographically, and have more base business. Medical will also have new manufacturing and innovation competencies in both capital and disposable products. The division will add two 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. Last, and importantly, these deals are adjacent opportunities where we'll 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 eight 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&D as a percentage to sales, approximately double the rate of R&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 second quarter 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 $0.18, 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. If you have a question, please press star, then one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. As a reminder, callers will be limited to one question and one follow-up question. Your first question comes from Bob Hopkins from Bank of America. Bob?
Hi. Thanks, and good morning. Can you hear me okay?
Yes, we can.
Great. Good morning. 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 as a kind of mature, competitive business. 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 to 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 the drivers of growth in this business, first 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 life cycle will drive growth. When you think about the installed base of a company like this, with some several hundred thousand advanced life support systems and probably half a million 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 that treat sudden cardiac arrest are growing.
As you look at that slide in the chart on page five, 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. We're optimistic about our ability to, as we said, grow this business north of the Stryker growth rate.
Okay. 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 any 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 three 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 [CORE Line] or Pivot, SBI, acquisition after acquisition strengthens our divisions, and all of our divisions are out looking for deals. These two for medical just happen to happen around the same time. As you all know, the acquisition timing is always uncertain. 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. These are great companies that'll really strengthen our medical division.
It just happened to come along at the same time. That's really more happenstance than anything. 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.
Your next question comes from Rick Wise from Stifel. Rick, your line is open.
Good morning, everybody. Let me start, if you could talk through your sales synergies, if any, included in your 2017 $0.15 to $0.18 accretion guidance. 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 2017?
Bill, I'll let you answer this one.
Sure. I'll take the synergy side of the equation. 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. By doing so, we will make nice improvements yet in the overall EBITDA margins. 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. 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.
Just to follow up, if I could, on Bob's question earlier, a number of us have seen Physio-Control 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, 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, then I'll add comments. Go ahead, Tim.
Yeah, I think as you look at the history of this company, number one, 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.
We think this will be an excellent growth story in the years ahead, as Kevin mentioned, like our acquisition of the Neurovascular division, where once uncoupled from the challenges of remediation in a growth-focused organization, that the company can flourish.
Yeah, the other thing I'd add is that this is a Stryker business. 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. I would say it's different than other medical device companies that are much more in the disposable business. Capital requires different muscle, we have numerous capital businesses across Stryker, we've shown a history of being able to grow capital business. The EMS COTS is a great example, which is growing well north of Stryker's average growth for the past five, six years. When you look at those products, you look at the call point, you look at how Stryker is wired around capital equipment, this business makes perfect sense in our hands. May not be so relevant to other companies.
Our next question comes from Mike Weinstein from J.P. Morgan. Mike, your line is open.
Thank you. A couple of questions. One, the double-digit R&D spend, how much of that was to quality and basically spending to resolve the long-standing consent decree? Two, if you could just talk about the growth over the last five 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 the alternative markets, the schools and so forth?
Go ahead, Tim, you want to take this?
Yeah. As far as the spend, Brad Saar is with me. I don't know if we have a number on the R&D spend.
Strictly to fund new product development
The vast majority has been on new products, certainly, there has been spending on quality remediation. I think that as far as growth goes, Brad?
Yeah. The growth has been very substantial in the pre-hospital 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 for them.
What is that? I'm sorry, I'm not familiar with it.
That's the circulatory assist device. Basically, an automated CPR device, very fast-growing market that Physio-Control is the market leader in.
Okay. 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.
Okay.
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 laypeople, and the third would be the circulatory assist market.
Yeah. Understood. How geographically different does this business look versus when we last saw it? I understand the overall mix, 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. Just looking at the accretion guidance, I appreciate you giving that this time around. $0.15-$0.18, by our math, you can get there on Sage alone. 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. That's the first question. The follow-up question would be just on return profile. I think you said Sage would return your cost of capital at year four. How does Physio look against that? Thank you.
On the return side, they're pretty consistent, both within the year three to year four on the cost of capital returns. Keep in mind on the accretion that we talked about on the $0.15-$0.18, it'd really be an additional $0.04-$0.05 on top of that's offsetting the negative impact of not doing the share repurchases for this year. Make sure you're picking up both of those pieces. I'd say that we obviously feel very comfortable and confident in the accretion that we're identifying.
Bill, is it safe to say that if I go from a growth perspective and add back in the FX, that Sage is sort of a $0.12-$0.16 deal and Physio is more like $0.04-$0.06, obviously then you back out the $0.05 of currency from that?
Yeah, I think that's reasonable to at least think in those general terms, at least in the second 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 my 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. 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, which is, as we've followed this business under Medtronic, it just has not been a really good growth engine for them. I understand that under the hands of you guys, as you've proved with the neurovascular business, you guys certainly have accelerated that, 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&D spend is solely attributable to innovation across their major platforms, including the market-leading LIFEPAK, which is both for pre-hospital 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. 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. We're very excited about the new product development. 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.
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. 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. Is this Stryker overall as a company or your organic growth, I assume?
Yeah. If you assume 5%-6% organic growth, which we've done over the past three years, this will be north of that number, and we feel very confident about that.
Okay. Is most of the growth that you're assuming coming from the U.S. or outside the U.S.? It sounds like a lot of the products you talked about are kind of more emerging markets and new medical, and outside the U.S. and medical is not necessarily a business that has a large footprint in that area. I'm just trying to balance where the growth is coming from. 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. 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. With the upgraded generations of these products, there should be plenty of growth opportunities in the U.S. where we've had great success with our existing products. It will be balanced geographically, and I would say that the install 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. Good morning, everybody. I was hoping you could actually talk a little bit about any tethering of Physio-Control to the macro environment. One of the comments that you made at the end of the press release was Stryker's demonstrated ability to sell capital through different economic cycles. If you look at your 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?
Yeah, 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 Power-LOAD and some of the other powered 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 pre-hospital 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. 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. Just a follow-up to 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 Physio's growth been either increasingly weighted to outside of the hospital? 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. As you look toward 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 pre-hospital and hospital segments. The need exists in both and with innovation, both will grow.
Okay, maybe just one last one, Kevin, as I think about the accretion that you're realizing from Sage 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?
The way I'd look at both of these deals is these are growth synergy deals much more than they are cost synergy deals. They're really adjacent products, 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. That's the way I'd look at it. We want to keep the top line growing. They have new products that they're launching. We have a common customer call point. 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&D and everything else. 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. 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.
Our next question comes from Matt Miksic from UBS. Matt, your line is open.
Hi, just to follow on that last question, and in 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. A 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? Then I just have one follow-up.
Yeah, that's a fair way to look at it. 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.
If I could just one on, there's been a few questions here on growth. I guess, 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?
Yeah, well, the market is competitive. Zoll is a formidable competitor, as is Philips. In the overall external defibrillator market, Physio-Control is number one. They're number one in the areas we compete. We see combining these two market-leading brands as a big opportunity to basically gain mind share and then market share over time. One of the opportunities, for example, would be bringing our Flex Financial financing arm to bear on these deals, and you could 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 multi-year 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.
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.
Our next question comes from Kaylan Crum from William Blair. Kaylan, your line is open.
Hi, guys. Thanks for taking the questions. With three 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 this development. 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. 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. The strategy is really making sure that we have market leadership across every division where we play in, and that strategy has not changed, and we do it through a combination of organic, internal R&D and driving that as well as acquisitions. We just look at acquisitions as external R&D.
That's the way we look at it. 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 got them at a very good time, and they're going to deliver great value for us. It is more happenstance. 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. I guess just given the sizes of those two deals, 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, as we've stated very consistently over the past few years, that acquisitions will be a 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 STAR Ankle acquisition, combined with our internal 3D printing, which is driving great growth. We're committed to all of our divisions, I would say that this combination of organic and external R&D by acquisitions is unpredictable. We're not favoring one versus another, 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 MedSurg division, different segments, when you have new product cycles, the length of an upgrade cycle or new product cycle, they can vary across divisions. Could you just give us a sense as to, you're entering with Physio-Control 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? Thanks.
Yeah, it's 8 to 10 years. 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 base business. There can be software upgrades, and then over time, there's wear and tear, which ultimately would lead to another device sale. We would peg it right now as 8 to 10 years. We have frankly learned in our other businesses that sometimes the company determines that life cycle 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 on your outlook for capital? Do you want higher exposure to disposables? Thanks.
Yeah, I think that's a very good question, and we would tell you honestly that we know how to sell capital, and 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. Having a base of business, and frankly, just as a sales-driven organization, starting the month knowing you have X dollars in sales, it gives you peace of mind. It gives you greater certainty of investment. It gives you greater sales force longevity and retention and all of that. 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.
You can do different deals on what we would call a fee per disposable type of situation or other kind of leasing or financing options. 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.
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 off on the growth side a little bit. Tim or Kevin, you mentioned Boston Scientific as a corollary to use as far as coming out of some issues with manufacturing, et cetera, with that business. The patient population there was significantly underserved. With this asset, it feels like that market opportunity is fairly well saturated. 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. It's 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'd like Tim to finish the second part of the question, but on the first part, for neurovascular, keep in mind that this ischemic stroke opportunity has just opened up very recently, and frankly, most of the growth in the first three years, virtually all of the growth came from coils, and that's not a market that's been explosively growing. 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. I wouldn't ascribe the neurovascular growth to the ischemic stroke segment in a brand new market. That obviously is going to be an engine of growth, which started this year and going forward.
In the early days of neurovascular, all of our growth came from a market that wasn't growing much faster than this market, and that was really through capitalizing on the product cycle and the Stryker execution. I'll turn it over to Tim to answer the second part of your question.
Yeah, 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 laypeople that is expanding nicely. When we think about this, and 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 life cycle opportunity.
We know what their pipeline looks like, and I really would say that given their share, given their product life cycle, given the growth opportunity in AEDs as well as international expansion, that we feel 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 to this category as far as hospital spend goes or something like that.
As my follow-up for Bill, mid-point of the new guidance range, $567-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 kind of $640 in earnings next year. Is that a number that we should be comfortable with?
We aren't giving any guidance obviously for the next year out associated with that. 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. We're comfortable on how we're setting up for 2017, obviously as well too, we aren't giving any direction associated with that yet.
Thank you.
Our next question comes from Garland Buchanan from Legal & 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? 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? Are you looking to de-lever at all post-deals? Thank you.
We've obviously had upfront discussions with the rating agencies on this as well too. We did repatriate about a $1.8 billion 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 $3.5 billion-$4 billion 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 a 1-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.
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 Hema Inguva from Bank of America. Hema, your line is open.
Thank you. My question on issuance just got answered, and maybe I'll just ask about any transformational deal that you potentially may be looking at, how the M&A landscape is. Would you be open to such a deal? If you give us some color there, that would be great. Thank you.
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 two 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 question has been answered. Sorry, I tried to get myself out of the queue. Thanks.
Thank you.
There are no further questions at this time. I will now turn the conference over to Mr. Kevin Lobo for any closing remarks.
Thank you all for joining us to today's call to discuss another great addition to Stryker portfolio. We are excited about our existing momentum and the opportunities to further build on our strong top line and leverage earnings gains. Thank you.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating.