Stryker (SYK), a medical device company, flagged China’s thirst for medical devices as a new risk that may devalue its Chinese business should it not be selected to participate. In its most recent 10-Q, Stryker disclosed the program and its objective:

“In China the government launched a national program for volume-based procurement of high value medical consumables to reduce healthcare costs.”

Government contracts, according to Stryker, will be awarded to the lowest bidders who are able to satisfy China’s quality and quantity requirements. Winners not only lock in guaranteed sales, they’re also positioned to lower distribution and commercial costs. Conversely, Stryker suggests not being selected for a national contract will result in serious consequences:

“The successful bidders will be guaranteed a sales volume for certain periods, while losing a volume-based procurement tender process will result in a loss of market share.”

Stryker is providing information requested by the Chinese government to win deals for the company’s joint replacement, spine, and trauma products. Stryker did not provide a timeframe on a procurement decision in China, but did include language that may signal a lack of confidence:

“...closely monitoring this process for any indicators of potential impairment of goodwill or intangible assets related to our business in China.”

In 2020, China accounted for approximately 2% of Stryker’s total revenue.