Following the recommendation of the U.S. Food and Drug
Administration (FDA), orthopedic devices major,
) have added more products to its Neptune Rover Waste Management
system product line recall. The FDA recommendation states that
these offerings do not have proper regulatory clearance and
therefore are not safe to be marketed.
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In June, 2012, Stryker started a Class 1 recall of its Neptune
Rover Waste Management system due to two reported severe injuries
caused by the Neptune 2 device. One of the injuries resulted in a
fatality. The Neptune system collects surgical waste fluids and
evacuates smoke with minimal human interference during clinical
In addition to the earlier recalled products, the company recently
recalled the Neptune 1 Silver, Neptune 2 Ultra (120V) and Neptune 2
Ultra (230V) as these devices do not have 510(k) clearance. FDA has
not been able to determine the safety and efficiency of these
products as yet. Stryker immediately stopped distributing these
products in the U.S., Asia-Pacific, Canada, Japan, Latin America
and the EMEA (Europe, Middle East and Africa) and is awaiting FDA
In the recent past, Stryker globally recalled the Rejuvenate and
the ABG II Modular hip stem due to some product defaults which
caused adverse local tissue reaction. This has resulted in a higher
inventory which negatively impacted gross margin in the second
quarter of 2012. Similar product recalls in future will negatively
impact the company's results.
Neutral on Stryker
We currently have a Neutral recommendation on Stryker, which
carries a short-term Zacks #4 Rank (Sell rating). Stryker operates
in a highly competitive industry and faces strong competition from
Johnson & Johnson
) DePuy and
Smith & Nephew
). Turmoil in international markets especially in Europe and Japan
coupled with declining U.S. sales results remain a challenge for
Moreover, the strong U.S. dollar is affecting the company's
international revenues and it expects negative impact of foreign
currency on net sales to be higher, given the euro volatility.
Apart from macroeconomic headwinds, internal shortcomings related
to executing organizational changes within the business have been
hampering the business for quite sometime now.
However, we believe that Stryker is poised for growth on the back
of new products, ongoing cost control measures and increasing
operating efficiency. The company is expanding its product
portfolio by acquiring complementary businesses and leveraging a
solid balance sheet.