Stryker & Vision-Sciences Ink Pact – Analyst Blog

Orthopedic devices giant Stryker Corp. (SYK) has reportedly struck a deal with New York-based Endoscopy product maker Vision-Sciences Inc. (VSCI). Under the exclusive three-year pact, Vision-Sciences will manufacturer and supply endoscopic urology devices to Stryker. 

 

The Stryker-branded devices, flexible video and fiber cystoscopes, will employ Vision-Sciences’ proprietary EndoSheath technology that ensures contamination-free products for patients. Vision-Sciences will also provide Stryker with flexible ureteroscopes following the product’s launch, expected in 2011.

 

Per the deal terms, Stryker will make a prepayment of $5 million to Vision-Sciences, of which $2.5 million is payable on signing of the contract with the balance due on or before March 31, 2011. Vision-Sciences will utilize the payment to purchase devices and technology. Stryker will make further payments for products supplied.

 

The agreement provides Stryker exclusive rights to distribute urology-focused endoscopy products (including cystoscopes and ureteroscopes) in North America, South America, China and Japan.

 

Vision-Sciences develops and markets unique flexible endoscopic products leveraging its patented slide-on EndoSheath technology. The company’s products are primarily targeted at the ENT, urology, gastrointestinal and pulmonary markets.

 

Stryker markets its Endoscopy products through its MedSurg Equipment division. The company’s Endoscopy business (36% of MedSurg sales in second-quarter fiscal 2010) deals with medical video-imaging and communications equipment and instruments for arthroscopy, general surgery and urology. Higher shipments of endoscopic systems contributed to the healthy double-digit sales growth at MedSurg in the second quarter.  

 

Stryker remains well positioned for growth across its Orthopedic and MedSurg divisions driven by new product launches and acquisitions. The company’s MedSurg division benefits from the synergies from the acquisition of Ascent Healthcare Solutions (purchased in late 2009 for $525 million), a market leader in the reprocessing and remanufacturing of medical devices. 

 

However, Stryker is challenged by competition-driven pricing pressure on implant products and a still sluggish hospital spending environment, which could potentially weigh on future earnings. This is reflected in our Neutral recommendation for the stock, which is supported by a short-term Zacks #3 Rank (Hold).