Stryker Poised to Win More Money Losing Business in China

Medical device firm to bid on more potentially uneconomic business months after taking $100+ million impairment charge.

July 27, 2022

For winning a competitive bidding process last year in China, Stryker’s (SYK) margins are squeezed every time one of its joint replacement or trauma products is used there. Expect the company to fight hard for more margin crushing business in China this year.

In China’s volume based procurement (VBP) of high-value medical devices, contracts are awarded to the lowest bidders who are able to satisfy China’s quality and quantity requirements. The VBPs happen at both the national and regional levels.

Last year, Stryker acknowledged successful VBP bids would negatively impact business. Shortly after winning several regional VBP tenders for its trauma and hip and knee products, the company recorded a $105 million impairment charge.

Though the charge is the equivalent of 13.6% of the latest quarter’s operating income, Stryker said in its latest quarterly filing that none of its businesses had been “significantly impacted” by the China VBPs. The company also revealed China’s national spine VBP was initiated in July 2022, suggesting another race to the bottom for Stryker in China.

In the year ago quarterly filing, Stryker included this reassurance:

“We do not expect any significant impairments related to further VBP programs.”

Notably, that language has been removed from the latest filing.

Importantly, China is becoming a larger part of Stryker’s business. Following the impairment last year, Stryker said China accounted for approximately 2% of sales. In the latest quarter, China accounted for 2.6% of revenue.

Related: MDT, ZBH, EW, BSX, BAX, NUVA, JNJ

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