Stryker Moves On From A Long Mistake

One of the traits that often separates the great companies from the average is a willingness on the part of management to quickly identify, isolate and ameliorate mistakes. Instead of allowing doomed products to fester, sucking up cash and eroding morale, dynamic companies pull the plug, take their lumps and move on to better uses of capital.

That makes last night's decision by Stryker (NYSE:SYK) to sell its OP-1 orthopedic product line to Olympus a bit curious in retrospect. While OP-1 was arguably never big enough to be an albatross around the company's neck, it was at the very least a smelly pigeon that was just never going to amount to anything positive. So it is fair to wonder just why the company kept trying to coax growth and success out of a dead-end product.  

Good Riddance To a Bad Product
Stryker announced that it's selling its OP-1 orthobiologics product line (and a manufacturing plant) to Olympus for $60 million in cash. Even with that amount in hand, Stryker will have to recognize between $75 million and $80 million in a non-cash accounting loss to mark down the value on the balance sheet.

Although Stryker has been working on OP-1 for years, it has never really amounted to much. Although the products carry an FDA humane device exemption (HDE) for lumbar spinal fusion and long bone nonunions, the company could never get the FDA to sign off on broad usage. An FDA panel resolutely rejected broad approval of OP-1 putty about 18-months ago with a 6-1 vote. That vote was not very surprising at the time, as the results were pretty ugly and Styker really had to go to some length to find an interpretation of the data that was favorable.  

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