UPDATE 3-Medical device maker Stryker names unit head as CEO

Mon Oct 1, 2012 3:44pm EDT

* Kevin Lobo succeeds interim CEO Curt Hartman

* Hartman to leave company

* CEO search had been under way since February

* Stock falls 1.5 percent in afternoon trading

By Toni Clarke

Oct 1 (Reuters) - Medical device maker Stryker Corp on Monday named Kevin Lobo, head of its orthopedics unit, as president and chief executive following an eight-month search.

Lobo, who joined Stryker in April 2011, succeeds Curt Hartman, who has served as interim CEO since the abrupt resignation of Stephen MacMillan in February. Hartman, Stryker's chief financial officer, was considered a contender for the top post.

Stryker said Hartman was leaving the company to pursue other opportunities, but will remain as an adviser to ensure a smooth transition as the company searches for a new CFO. Dean Bergy, a well regarded former Stryker CFO who became corporate secretary last September, will serve as interim CFO.

"Hartman had been serving as interim CEO and presumably lost out in an internal competition for the top spot," Derrick Sung, an analyst at Sanford Bernstein, said in a research note.

Lobo, who will also sit on the company's board, has held executive positions in general management and finance at a variety of healthcare companies, most recently at Johnson & Johnson, which he joined in 2003 as CFO of the McNeil Consumer Healthcare unit.

In 2006, Lobo became president of Ethicon Endo Surgery, a J&J unit that sells gastric bands, staples and other surgical equipment. In 2011, the unit generated revenue of $5.1 billion, according to J&J.

Investment analysts cautiously welcomed the news of Lobo's appointment, which comes as medical device makers are struggling to boost growth at a time when cash-strapped consumers are cutting back on many elective procedures. But the analysts also lamented Hartman's departure.

Jeremy Feffer, an analyst at Cantor Fitzgerald, said in a research note that Lobo is "a solid choice," given his experience in the orthopedic business and internationally.

"We are less positive on the Hartman news, as he had risen steadily through the ranks since joining Stryker in 1990 and is generally well liked by the Street," Feffer wrote.

Stryker's shares fell 1.5 percent to $54.80 in afternoon trading on the New York Stock Exchange.

Sanford Bernstein's Sung said that while Lobo has a strong record of operational management experience, "his experience around capital allocation and M&A, the key issues surrounding Stryker's stock today, remain relatively unknown."

Mergers and acquisitions in the medical device sector fell during the global financial crisis, but industry experts say the situation is likely to change as companies seek out innovative new products.

Under MacMillan, who became Stryker's CEO in 2005, the company diversified into new areas through a series of acquisitions, reducing its exposure to the slowdown in orthopedics sales.

In 2011 it acquired a Boston Scientific business that makes coils, guidewires and stents to treat neurovascular disease. It also acquired Orthovita Inc, an orthopedics biologics maker; and Concentric Medical, a maker of stroke treatment devices.

An analyst with Jefferies & Co, Raj Denhoy, said the fundamental question for Stryker, as for most large medical device companies, is whether to invest its cash in mergers and acquisitions or return it to investors through buybacks and dividends.

"With the historic ethos at Stryker solidly grounded in acquisition and growth, it had seemed unlikely that the company would change its strategy," Denhoy said in a research note. "While a new CEO could change the focus, it likely won't happen anytime soon."

David Lewis, an analyst at Morgan Stanley, said the choice of Lobo suggests the company will continue to focus on orthopedics sales outside the United States, "where performance over the last two years has been less than optimal."

Some analysts expressed concern that the company did not reiterate its financial forecasts, and suggested the change at the top might give the company an opportunity to revise its forecasts downward. But Lewis said the company likely made "a prudent decision to give Mr. Lobo time to evaluate the strategic plan."

Kalamazoo, Michigan-based Stryker said in July that it expects sales growth of 2 percent to 5 percent in 2012, and forecast double-digit earnings growth.

Stryker last month said it had to expand a recall of its latest Neptune surgical waste management product line because regulators said it did not have proper regulatory clearance.

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