Stryker Offers to Buy China Spine-Products Maker

Stryker Corp. offered to pay $764 million in cash for the spine-products maker Trauson Holdings Co. and a foothold in the fast-growing Chinese orthopedics market.
The deal follows Medtronic Inc.’s September acquisition of Chinese orthopedics company Kanghui Holdings Co. for $816 million. U.S. medical-device makers, facing sluggish markets for high-end devices such as spine and hip implants and heart devices, are eyeing a surge of middle-class Chinese patients who are spending more on health care.Other medical-technology companies, including Zimmer Holdings Inc., have also bought their way into China in recent years. More, including diabetes firm Fresenius SE, device and nutritional maker Abbott Laboratories and medical-equipment company Covidien Inc., have beefed up their presence in China with new research labs and other investments.
“With its research-and-development expertise, manufacturing capabilities and strength of its distribution network, Trauson is a compelling opportunity for Stryker to drive growth in China,” said Stryker Chief Executive Kevin Lobo. Stryker said the deal, if closed, would contribute to earnings by 2014.A Stryker spokeswoman declined to comment or make executives available for interviews.
Mr. Lobo won the CEO job late last year in part on the strength of international credentials, including stints abroad with Johnson & Johnson and a French chemicals company. Investors saw the pick as a sign Stryker planned to focus on foreign markets.The growth of the U.S. market for orthopedics, including hip and knee replacements and spine implants, has nearly ground to a halt in recent years. The economic crisis prompted even insured patients to delay care, putting off procedures and the copays they command that can reach into the thousands of dollars. Controversies, such as a widely publicized hip-implant recall and medical journal articles that raised doubts about key spine products, also depressed that market.The $12 billion U.S. orthopedic market is now growing by only 2% to 3% a year, according to Frost & Sullivan, a market-research firm. But the Chinese orthopedics market is expected to soar from $1.6 billion last year to $2.7 billion by 2015, according to Frost, along with a broader surge in Chinese health spending that has attracted investors.
“That’s an enormous growth opportunity for these med-tech companies,” said Eddie Yoon, a health-care portfolio manager for Fidelity Management and Research. In China, he said, investors expect the government to build 5,000 new hospitals—as many as currently operate in the U.S. Not all will be sophisticated enough to use implantable devices, he said.