Stryker Corp raises spending in quality, compliance

By Debra Sherman

CHICAGO, May 8 (Reuters) - Stryker Corp (SYK.N) said on Thursday it plans to spend $50 million in 2008 to improve its quality and compliance as it works to resolve issues with federal health regulators.

The Kalamazoo, Michigan, orthopedic device maker, which posted $6 billion in revenue in 2007, has been cited by the U.S. Food and Drug Administration over manufacturing problems linked to malfunctioning hip components.

More recently, the company's biotechnology unit received a warning letter from the FDA regarding quality and compliance issues at its Hopkinton, Massachusetts location.

"I feel better today than I did 90 days ago," Stryker President and Chief Executive Stephen MacMillan said at the company's annual analyst meeting, which was Webcast. "I will tell you (inspections) have gone very well ... We're very encouraged."

He noted that regulatory standards have become more rigorous in recent years and the bar has been raised industrywide.

"That's just the world we are in. We can whine about it or we can step up," MacMillan said.

Investments in quality and compliance will likely continue over the next three years, though not necessarily at the same level.

"You have not seen us lower our guidance, which should be a very strong signal about the underlying fundamentals and health of this company," MacMillan said.

The $50 million will primarily come from improved operating efficiencies and the benefit it gets from translating foreign sales into U.S. dollars, MacMillan said. The remainder will come from "little buckets all over the place," he added.

MacMillan said the company, which also makes surgical instruments and hospital beds, maintains its commitment to delivering 20 percent annual growth in earnings, and acquisitions will likely be part of the story.

"We have gotten a lot more active .... obviously we have the cash to act," he said. "We don't have to rush into anything and we are passing on far more things than what we are rushing into. we've walked away from a lot of deals ... We've got the luxury to be patient."

MacMillan said management "feels great" about the underlying fundamentals of the business.

"We want to deliver 20 percent (earnings growth) as long as humanly possible without jeopardizing the future. We view the 20 percent as a badge of courage ... We tend to think we can do better than others. It keeps us from getting fat, dumb and happy." (Editing by Maureen Bavdek)